Edgar Filing: Cobalis Corp

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1 TO

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, 2005
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( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 000-49620

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

Nevada 91-1868007
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

2445 McCabe Way, Suite 150, Irvine, California 92614
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(Address of principal executive offices)

(949) 757-0001
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(Issuer's Telephone Number)

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of July 7, 2005 there were
25,279,756 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 ( )

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. ( )

State issuer's revenues for its most recent fiscal year: $434.
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 8, 2005, approximately $5,890,114.63.

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): ( ) Yes (X) No

The financial statements for the year ended March 31, 2004 and the period from
November 21, 2000 (inception) to March 31, 2004 included in the filing are
unaudited and this 10KSB is considered 'deficient' under the Commission's rules
and regulations. We have engaged our current auditor, Kabani & Company, Inc., to
reaudit the aforementioned financial statements and intend to file a second
amended Form 10KSB with financials that comply with the Commission's rules and
regulations.

PART I

ITEM 1. DESCRIPTION OF BUSINESS.
--------------------------------

We are a development stage company dedicated to the development and
commercialization of anti-allergy medications. We anticipate that our initial
patented product, PreHistin (TM), will create a unique niche within the allergy
relief category. We hope to further our operations by selling our initial
product, PreHistin (TM), which we believe can prevent allergy symptoms by
mitigating histamines from being over-produced. We hope to obtain the
appropriate regulatory approvals and market our product in the United States and
abroad, though there is no guarantee that we will be able to do so.

OUR SUBSIDIARY. BioGentec, which has become our wholly-owned subsidiary as
described above, was incorporated in Nevada on November 21, 2000. We anticipates
that our initial patented product, PreHistin (TM), (formerly Allertin), will
create a unique niche within the allergy relief category. In November 2000,
BioGentec acquired all the assets of Allergy Limited, LLC, including their
intellectual property, which does business as Gene Pharmaceuticals, LLC. Gene
Pharmaceuticals, LLC Limited sponsored the clinical research for PreHistin
(TM) formula from 1989 through 2000 and secured the first U.S. patent, in 1992
and BioGentec secured the second U.S. patent in 2001. References herein to our
subsidiary may be construed as our activities and operations, in that all of our
activities are conducted through this subsidiary.

OUR PRODUCT. We believe that our initial product, PreHistin (TM), is chemically
distinct from most allergy medications currently on the market, as it works to
prevent allergy symptoms by mitigating histamines from being over-produced, as
opposed to conventional of antihistamine products that are reacting to the
overproduction. Essentially a "pre-histamine", we believe that PreHistin (TM)
will also be differentiated from current allergy medications as it lacks the
sedating and other side effect that are common to current medications. PreHistin
(TM) is a preventative system for seasonal and year round allergies, both
outdoor (i.e., pollen) and indoor (i.e., dust, pet dander, mold), triggered by
the most common allergens. This 21-day regimen of flavored lozenges was
demonstrated in clinical studies to have a persistence of effect lasting months.

We believe that effectiveness of PreHistin (TM) is due to modulating the
production of immunoglobulin E (IgE) to prevent the immune system from
overproducing histamines in reaction to the presence of allergens. By mitigating
this process, we expect that the symptoms associated with indoor and outdoor
allergies can be prevented from occurring. Effectively, the terminology for this
product is "prehistamine". We believe that the products currently addressing
allergy relief are virtually all histamine reactive and have varying side
effects, which are a source of frustration for allergy sufferers. We believe
that PreHistin (TM), a patented and unique cobalamin complex formula, has
preventative effectiveness, with no known side effects, has no negative drug
interactions and no upper dosage limit. We believe that PreHistin (TM) will be
cost competitive relative to the long lasting relief and benefits desired by the
vast majority of allergy sufferers.

PreHistin (TM) is an immunomodulation ("anti-IgE") product. Immunoglobulin E
(IgE) is an antibody that mediates allergic diseases such as allergic rhinitis,
allergic asthma and atopic dermatitis. In the 1990's, research was completed
relative to IgE and allergies/asthma. Using this past research to develop
PreHistin (TM), we believe this product will offer the sufferers of allergic
rhinitis (airborne allergies) the effectiveness that comes from IgE reduction
and histamine production mitigation using a sublingual lozenge, i.e., one that
is placed under

the tongue to deliver the medication into the body. We believe that behind
PreHistin (TM), there is over 25 years of scientific research and testing
completed by leading allergists and immunologists. The first of two double
blind, placebo-controlled studies required by the FDA was completed and
validated the safety and efficacy of this new approach. The protocol for the
balance of the Phase III trials has been developed; after we have completed the
trials, we will submit our application for FDA over-the-counter medication
approval. Domestically, PreHistin (TM) is in Phase III clinical trials as of
March 2004. This phase is generally considered the last step in clinical drug
development before submission of a New Drug Application (NDA) requesting
marketing approval from the FDA and similar regulatory agencies outside the USA.
We anticipate that the planned cost of our product to the consumer will be well
within the over the counter allergy medication category's acceptable range.

Additionally, we plan to conduct pharmacokinetics and animal studies on the
final clinical formulation in Q305.

We have also submitted an Investigational New Drug application (IND) to the FDA
which has been assigned the IND number 68,994. The FDA has reviewed our Phase 3
study protocols and indicated that we are "safe to proceed" with the trials. Our
regulatory team and our clinical research organization (CRO), CEDRA Clinical
Research, of Austin Texas are working with the Division of Pulmonary and Allergy
Drug Products at the FDA to complete the Phase 3 study protocol.

As of November 29, 2004, we successfully completed enrollment of 715 patients at
8 clinical investigation sites and have conducted and completed a 6-week Phase
III Clinical Study for our product. To ensure statistical validation, the study
required the enrollment of a minimum of 624 patients. Under the guidance of Dr.
Lyndon Mansfield, our Senior Medical Advisor, the clinical investigators, who
are all Board Certified or Fellows in Allergy and Immunology, have conducted a
6-week study of the ability of PreHistin(TM) to mitigate the onset of the
symptoms of seasonal allergies. The study is a Phase III, randomized,
double-blind, placebo-controlled, parallel group study evaluating patients with
moderate to moderately severe allergic rhinitis (hay fever).

In the second quarter of 2005, we anticipate having study results which we will
submit to the FDA. Additional research will be conducted prior to our being able
to obtain market approval. Following completion of our Phase III Clinical Trials
we will seek FDA approval to market PreHistin (TM) as an Over-The-Counter (OTC)
medication for pre-seasonal use to mitigate the onset of symptoms of seasonal
and perennial allergies. Additionally, we plan to conduct pharmacokinetics and
animal studies on the final clinical formulation.

Although we cannot predict with any certainty if or when the studies will be
completed (a situation that could negatively impact our ability to earn
revenues), we expect that all of the above studies will be essentially completed
by the end of the first quarter of 2006. The FDA has the power and authority to
halt our clinical trials, in particular if they determine that the patients'
safety is at an unjustifiably high risk.

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. We estimate that balance of the
required clinical Phase III trials of our product candidates will be completed
in or around first quarter of 2006. 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.

Internationally, we are working through the various regulatory bodies in
targeted countries to determine if we will be seeking approval of PreHistin (TM)
as an over-the-counter ("OTC") or prescription medication, or approval of
Prevahist, a revised formula to be a nutritional supplement.

INVESTIGATIONAL PRODUCT. Cyanocobalamin is a synthetic form of vitamin B12 and
one of a class of molecules known as cobalamins. Cobalamins are believed to be
the only molecules in the human body that contain cobalt. Cobalt is necessary
for all cellular replication. Each active lozenge will contain 3300 ig (3.3 mg)
of pharmaceutical grade cyanocobalamin. This Cyanocobalamin, USP is described in
the USP, FCC and Pharmacopoeia of Europe. It is shipped from: DSM Nutritional
Products, Inc., 45 Waterview Blvd., Parsippany, NJ 07054-1298 USA. See:
http://www.nutraaccess.com/productDoc/pds/pds_0429155. pdf for product data
sheet. Cyanocobalamin, USP is an FDA approved drug. Cyanocobalamin has a long
shelf life, of about 60 months. According to the USDA (US Department of
Agriculture) over 49% of all US population is B-12 deficient.

With respect to cobalamin, we believe that "based on a review of data involving
high dose intakes, that there appear to be essentially no risks of adverse
effects to the general population even at the current ninety-fifth percentile of
intake (approximately 37 ig /day) (IOM/NAS 1998)". Christine J. Lewis, Ph.D.,
Director, Center for Food Safety and Applied Nutrition, FDA.
(www.cfsan.fda.gov/~dms/ds-ltr12.html).

OUR SUPPLIERS. We believe that the active ingredients needed to produce our
proposed product are readily available through several manufacturers,
domestically and internationally, including major pharmaceutical corporations.
Aventis Pharma is a primary source for us and we will expect to have a variety
of suppliers as we enter various international markets and, should we be able to
begin commercial production of our product, we anticipate we will be able to
determine the most efficient and cost effective manufacturing source. 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 CHANNELS OF DISTRIBUTION. We do not currently produce or distribute our
products for sale; however, once we are able to commence commercial production,
we plan to outsource the manufacturing and distribution operations to proven
manufacturers and distributors in these areas. Our primary intended distribution
strategy is to license the manufacturing and/or distribution to a major US
Pharmaceutical Manufacturer, who has a significant existing distribution
infrastructure and contracts, and a detail force to efficiently effect
widespread coverage to all major retail and independent pharmacies, as well as
health-food stores and specialty retailers. We further anticipate the option of
using a combination of pharmaceutical wholesalers-distributors as well as
selling directly to retailers, depending on the terms of any license agreement
secured with a major pharmaceutical marketing partner, particularly those with
internal distribution systems. From a sales perspective, we would plan to
utilize key sales leaders and to engage a broker network to minimize overhead
and gain nationwide coverage from proven sales professionals. We also anticipate
that our product will be sold by independent pharmacies through the
pharmaceutical wholesalers' networks. We anticipate that internationally, each
market and country will be a unique set of logistics, depending on whether that
country classifies the product as a supplement or a medicine, whether we are
entering the market directly or using a partner (and the extent of the
partnership arrangement) and the distinct dynamics of the marketplace.

MANUFACTURING. We have identified and engaged a certified good manufacturing
practices ("GMP") manufacturer to produce the Phase III trial medications as
well as the first runs of the retail version of the product. The domestic
manufacturer selected is FDA approved and able to accommodate the anticipated
demand. In addition, we are considering various manufacturers around the world
to accommodate demand and/or meet critical regulatory requirements to distribute
this product within a given country.

MATERIAL CONTRACTS. In 2000, BioGentec purchased the patent underlying our
principal product (formerly known as "Immun-Eeze"), along with pending
international patent applications, and certain other tangible assets and related
trademarks, copyrights and customer lists from Gene Pharmaceuticals, LLC,
(controlled by the managing member Ernest Armstrong, who is also a director and
Vice President of Business Development at Cobalis), for minimum royalty payments
plus royalties tied to future sales. In August 2002, the parties agreed to
postpone the payment of royalties in exchange for 250,000 options to purchase
BioGentec's common stock at $1.10 per share. In December 2002, the parties
agreed to supersede the terms of the August 2002 addendum by amending the
original agreement to include an additional payment of 2,000,000 shares of
BioGentec's common stock at $2.00 per share, plus a one point five percent
(1.5%) royalty on the gross sales of any B12-containing product. In March 2004,
we agreed to further amend the original underlying agreement and the terms of
the royalty provision in the underlying agreement. In the future some of the
language and the terms in the March 2004 agreement may be modified subject to
amendment by all parties upon mutual written agreement.

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 delivery and use of cobalamin for seasonal and year-round
allergies (allergic rhinitis) and asthma. The patents are:

Granted Patents:

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Country Patent No. Title Exp. Date
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United States 6,255,294 "Cyanocobalamin Treatment in Allergic Disease" 12/28/19
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United States 5,135,918 "Method for Reducing Reagenic Antibody Levels (IgE)" 08/04/09
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Australia 771,728 "Cyanocobalamin Treatment in Allergic Disease" 12/28/19
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Pending Patents:

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Country Application No. Title
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European Union 99968194.3 "Cyanocobalamin Treatment in Allergic Disease"
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Canada 2,358,054 "Cyanocobalamin Treatment in Allergic Disease"
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Japan P2002-533399A "Cyanocobalamin Treatment in Allergic Disease"
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Mexico 2001-006297 "Cyanocobalamin Treatment in Allergic Disease"
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International PCT/US99/31092 "Cyanocobalamin Treatment in Allergic Disease"
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Because we believe that our patents are the only patents to date related to the
subject, the claims are broad.

In 2004, we engaged Gemini Partners to perform an independent appraisal on our
patents. On April, 30, 2004, Gemini Partners completed an Intellectual Property
Valuation Analysis on our U.S. patents # 5,135,918 and # 6,255,294 and concluded
that the cost of purchasing or producing a substitute asset with the same
utility as our U.S. patents can be reasonably estimated at $6,500,000. We paid
Gemini Partners to appraise our patents. As appraisals are subject to many
varying factors and patent appraisals vary depending on the company and
individual conducting the appraisal, we cannot guarantee the aforementioned
appraisal is an accurate indication of the true value of our patents. In fact,
our auditors have valued the patents for purposes of our financial statements at
$680,464

Although we believe that the subject matter covered by our patents and pending
patent applications has been developed independently and does not infringe on
the patents of others, there can be no assurance that the technology does not
and will not infringe on the patents of others. In the event of infringement, we
could, under certain circumstances, be required to modify our infringing product
or process or obtain a license. There can be no assurance that we would be able
to do either of those things in a timely manner or at all, and failure to do so
could harm us and our business. In addition, there can be no assurance that we
will have the financial or other resources necessary to enforce a patent
infringement or proprietary rights violation action or to defend ourselves
against such actions brought by others. If any of the products or processes we
have developed infringe upon the patent or proprietary rights of others, we
could, under certain circumstances, be enjoined or become liable for damages,
which would harm our business.

TRADEMARKS. We currently use or propose to use the trademarks or trade names
Cobalis, PreHistin (TM), Pre-Histamine (TM) and Prevahist (TM) to distinguish
our brands from others. We hope to obtain registration for our trademarks for
our proposed products in the future. Current status of trademark applications:

Country Trademark Application No. Filed
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United States COBALIS 78378186 03/03/04
United States PREHISTIN 78378191 03/03/04
Australia PREHISTIN 10588099 05/31/05
South Korea PREHISTIN 40-2004-39638 08/30/04

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.

In November 2003, a trademark infringement and unfair competition suit filed by
Biogen Idec MA Inc. ("Biogen"), against us in the U.S. District Court for the
District of Massachusetts, file # C.A. 03-123-5 PBS. A default judgment was
entered against us on February 9, 2004 and subsequently on or about March 22,
2004, we and Biogen agreed to settle the dispute. On April 14, 2004, Biogen
undertook to file a motion for stay of consideration of its motion for entry of
default judgment and prepared a consent judgment to be filed with the court.
Pursuant to the consent judgment, we are enjoined from using "Biogentec" or
"Biogentech" or any phonetic equivalent, and consented to change our corporate
name to Cobalis Corp. and to discontinue all uses of the trade name and
trademarks and domain names containing "Biogentech," or "Biogentec" and transfer
the rights to any domain names we may own containing "Biogentech" or "Biogentec"
to Biogen as soon as practicable. On July 6, 2004, we filed a Certificate of
Amendment to our corporate articles in Nevada to effect our name change to
Cobalis Corp. We believe we have complied with our agreement with Biogen.

WEBSITES. We have developed a corporate site, www.cobalis.com, targeted to the
investor, corporate and health professional community which describes the
science behind our flagship allergy prevention product, PreHistin (TM). In
addition, the site contains information that we believe is of value to the
consumer, the allergy sufferer. We intend to update the site continuously to
include the latest news and information about PreHistin (TM), as well as our
upcoming Phase III clinical trials program.

We are also planning to create a comprehensive website primarily targeted to
consumers, which will include interactive features for allergy sufferers as well
as detailed updates as PreHistin (TM) comes closer to being made available to
the consumer market. We plan to have both sites translated into multiple
languages to engage the international health professional, reflect local
regulations and consumer communities.

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.

TARGET MARKET. Our PreHistin (TM) product will be targeted to those individuals
who suffer from allergic diseases, including seasonal allergies, perennial
allergies and other allergic diseases and conditions. We believe that allergy
sufferers are constantly seeking relief from their symptoms and a "new approach"
to address those symptoms if their current approach is not working or if they
would prefer an approach that is geared more towards prevention of allergy
symptoms than to treating these symptoms with powerful and often uncomfortable
antihistamines. If we are able to complete the development of our product and
raise sufficient funds, we are planning to execute a fully integrated marketing
campaign including broadcast and print advertising, direct mail and an
aggressive public relations campaign, educating consumers, health professionals,
corporate human resources personnel and caregivers on the product and driving
retail sales of PreHistin (TM) once our Phase III Clinical Trials are complete,
and we receive anticipated approval from the US FDA to market PreHistin (TM)
with a claim that PreHistin (TM) will prevent the onset of allergy symptoms.

In addition to the initial formula of PreHistin (TM), we plan to test, and gain
approval for, alternative delivery mechanisms for the same drug. The mechanisms
that will be tested include liposomal sprays, liquid drops, quick dissolve
tablets and quick dissolve strips, among others, which we hope will result in 3
to 7 products in the PreHistin (TM) line. We are also developing clinical trial
protocols to gain supplemental indications for this drug, such as sinusitis,
migraine, allergic asthma and pediatric cases of each, and, upon FDA approval,
as a treatment for allergic rhinitis. We are planning to launch one to two new
products per year, either from our development pipeline or through acquisition
or licensing of late stage development products.

We intend to launch marketing campaigns directly to retail pharmacy chains and
work collaboratively with retailers via co-marketing, co-branding and in-store
promotions that will build brand awareness and assist in educating the consumer.
Further, we intend to create and implement significant programs into the
corporate health and wellness community to bring the benefits of PreHistin (TM)
to the workplace, as we believe that productivity suffers from work days lost to
allergy suffering. We believe that our product works very differently (in
advance of allergy symptoms to prevent their onset) from what consumers have
learned to expect from any other products (which only treat allergy symptoms) in
the category, making it critical that consumer education be woven in to all
aspects of the marketing program.

OUR MARKETING STRATEGY. We believe that PreHistin (TM) can capture market share
with its unique focus on preventing the symptoms of allergic rhinitis. We
believe that this technology (mediation of IgE synthesis) and unique approach to
allergy symptoms reduction makes the upcoming PreHistin (TM) launch newsworthy,
and will help us to leverage a cost-effective publicity campaign. From a
consumer advertising perspective, we are planning, domestically, to execute a
targeted, market campaign once we receive approval from the US FDA to commence
marketing of PreHistin (TM), ensuring the product is in market prior to the
prime ragweed hay fever season. This program is scheduled to be afull national
release, depending on the terms of any distribution licensing agreement secured
with an intended major US pharmaceutical marketing partner.

Conclusion of a major licensing agreement with a leading pharmaceutical company
would greatly accelerate our ability to come to market on a national basis more
quickly and with greater efficiency than would be achieved by independently
marketing the product ourselves. We have now begun negotiations with several
major pharmaceutical companies and we expect to continue such discussions
through the balance of our Phase III Clinical Trials period leading to an
expected agreement with one such company in late 2005 or early 2006.

We anticipate completion of the Phase III Clinical Trials during late 2005, with
a market roll out in 2006, providing enough time to implement a widespread
consumer education campaign prior to the allergy season. Once the market
launches are completed, we expect that we will work closely with our marketing
partner to fine-tune a media and publicity plan, as well as the price point and
message, to hopefully allow us to accelerate nationwide and international
distribution.

THE INTERNATIONAL MARKETPLACE. Internationally, we are working to gain approval
for a supplement version of our allergy prevention formula, PreHistin (TM), in
Canada, capitalizing on the new regulations that we believe will allow
supplements to make strong marketing claims, provided they are supported with
scientific evidence. We believe that our formula, as explained above, has
sufficient science to validate its effectiveness, so we hope to gain approval in
the Canadian market. We are exploring similar opportunities in several countries
throughout the world. As the markets for this opportunity are uncovered, we plan
to aggressively market and distribute PreHistin (TM), and/or Prevahist (TM), by
developing in-house resources, creating a joint venture and/or authorizing a
product licensing, marketing and distribution agreement. Currently, we have no
such agreements in place, nor do we have in-house resources. We are considering
distribution of PreHistin (TM) in various countries throughout the world.
Internationally, we are in discussions with companies in Australia, Japan,
Korea, Canada, Mexico, New Zealand, Indonesia, South Africa and the EU, to
operate as partners in working PreHistin (TM) through their regulatory processes
and launching it to a broad network of retailers and physicians. However, we
have not yet entered into written agreements with such parties and negotiations
are in their infancy, with the exception of discussions with a potential
distributor for Australia, New Zealand and South Africa, with whom we are at an
advanced stage of negotiations. We are evaluating a variety of marketing,
manufacturing and distribution scenarios to determine the most effective and
efficient channels to facilitate the product's worldwide growth.

We have identified a boutique pharmaceutical distributor in Australia that
currently markets and distributes the leading nasal spray product for nasal
congestion in Australia. We are currently in discussions to finalize a long-term
distribution agreement which we believe will lead to distribution of PreHistin
(TM) in Australia through the leading 2,500 - 3,500 retail pharmacies over the
coming 24 months, with product being made available to consumers in late 2005 or
early 2006. We are currently preparing to secure Australian TGA (Therapeutic
Goods Administration) approval to have PreHistin (TM) approved as a `listed
medication' for OTC sales in Australia. The primary ingredient in PreHistin (TM)
(cyanocobalamin) is already on the approvable list of the TGA, and we believe we
will obtain TGA listing approval prior to December 2005.

OUR COMPETITION. The market for allergy relief preparations which we intend to
enter is characterized by intense competition from products that treat allergy
symptoms. Although the mechanism of action of our product is to prevent the
onset of allergy symptoms, the marketplace today is comfortable with the
available treatments. We will be competing against well-capitalized, established
pharmaceutical companies which currently market products which are intended to
treat and reduce the symptoms of allergic disease. As these are NOT equivalent
or functionally similar to those products we intend to market, we see the
primary task of achieving positive market uptake to be consumer education that
prevention is a preferred route to treatment.

We estimate that prices of drug products are significantly affected by
competitive factors and tend to decline as competition increases, including the
introduction of low priced generics. In addition, we believe that numerous
companies are developing or may, in the future, engage in the development of
products that could be theoretically competitive with our proposed products,
although we believe that our extensive safety profile, lack of side effects and
preventive mechanism of action will provide significant positive differentiation
from all treatment products on the market or expected to be introduced. We will
seek to enhance our competitive position by distinguishing our product as a
preventative allergy treatment from those that mitigate symptoms once they
occur, and strongly emphasize our safety, absence of side effects and low cost
compared to the daily cost of daily symptomatic treatments.

There are numerous companies that currently sell proprietary allergy
preparations. We estimate that those holding the majority of market share in
this industry are Schering-Plough HealthCare Products Inc., Pfizer Inc., Aventis
Pharmaceuticals Inc. and GlaxoSmithKline, as well as others. Many of these
competitors have established histories of operation and have greater financial
resources than we have, enabling them to finance acquisition and development
opportunities, to pay higher prices for the same opportunities or to develop and
support their own operations. In addition, many of these companies have greater
name recognition. These companies might be willing to sacrifice profitability to
capture a greater portion of the market for similar products, or pay higher
prices than we would for the same expansion and development opportunities.
Consequently, we may encounter significant competition in our efforts to achieve
our internal growth objectives.

In our estimation, the vast majority of the allergy products currently on the
market are antihistamines which attack allergy symptoms after the histamines
impact the body. We believe that the mechanism of effect for PreHistin (TM) is
completely different in that it prevents the over production of histamines and,
therefore, prevents the allergy symptoms caused by airborne allergens.
Therefore, we hope to create a niche product and distinguish ourselves from our
competitors in that manner.

We believe that PreHistin (TM) can enjoy success because it is a different type
of product than what is currently available. We also believe that our proposed
product addresses the concerns and desires of the consumer in that, in our
estimation it has no side effects while offering a long lasting, preventative
solution to allergy symptoms. Schering-Plough's product Claritin (R) is, by
far, the market leader as an OTC medicine (as it was as a prescription
medication). Although we are not yet selling our product, and therefore occupy
no competitive position with regard to the market for allergy relief
preparations, we believe that PreHistin (TM) has the ability to gain a
significant market share from consumers that have tried and/or currently use,
Claritin due to the efficacy and the benefits.

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 existing or probable governmental
regulations on our business, which include regulations relative to the approval
of our products for sale as a nutritional supplements, over-the-counter
medications or prescription medications.

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:

o Phase I trials are designed to measure the early safety profile and the
pattern of drug distribution and metabolism.
o Phase II trials are aimed at determining preliminary efficacy and optimal
dosage, and to expand the evidence regarding safety.
o Phase III trials are conducted to provide enough data for statistical
evaluation of efficacy and safety.

We believe that Cyanocobalamin, the primary active ingredient of PreHistin (TM),
has been extensively studied and has an excellent safety record. In addition, we
also believe that Cyanocobalamin has no upper dosage limit, has no known side
effects and has no known negative drug interactions. Our Phase III clinical
studies on PreHistin (TM) began during the final quarter of 2004 after receiving
approval by the FDA for a prophylaxis study.

OUR RESEARCH AND DEVELOPMENT. During each of the last two fiscal years, we have
had no expenditures for research and development activities, as all of our
research and development to date was completed prior to fiscal year 2001.
Because our product is not yet in production, there are no costs borne by
customers.

FUTURE PRODUCTS. In addition to PreHistin (TM), we plan on developing and
marketing additional related products, however, our current focus is on
PreHistin(TM). Other products are in various stages of development and hopefully
will provide a continuous stream of corporate growth for the next several years.
We believe that as revenues and profits increase, the research and development
expense percentage will remain constant, hopefully enabling us to capture
opportunities to acquire products, technology and/or companies that assimilate
in to the overall corporate strategy.

We have additional products in development using the PreHistin (TM) technology.
We anticipate niche extension products through supplemental uses, such as for
children, seniors, allergic asthma sufferers, sufferers of atopic asthma (over
40% of all asthmas is estimated to be atopic in origin), atopic dermatitis (100%
of dermatitis is atopic) and atopic migraine (over 60% of all migraine is
estimated to be atopic in genesis), animals and others, and additional patented
delivery mechanisms, such as a patch, liposome spray and other methods. We hope
that as we can increase our brand recognition in the consumer marketplace, as we
hope that expanding our product line will increase revenues.

DISCUSSIONS TO ACQUIRE INNOFOOD/MODOFOOD: On July 28, 2003, we entered into a
Stock Exchange Agreement ("Agreement") with InnoFood Inc. ("InnoFood") wherein
we agreed, among other things, to provide InnoFood with funding totaling
$5,000,000 in exchange for, among other things, 100% interest in InnoFood.
InnoFood is owner of certain rights to a proprietary food processing technology
developed by Modofood S.P.A. ("Modofood") of Brescia, Italy. The agreement
provided that we were to have the exclusive distribution rights (through the
acquisition of InnoFood) of Modofood's proprietary food sterilization and
preservation technology for North America, Central America, South America and
Japan, as well as the exclusive rights to negotiate on behalf of Modofood for
Southeast Asia, including Taiwan, China and Indonesia.

The completed purchase of InnoFood was not to occur until the $5,000,000 funding
was delivered. Under the Agreement, we were obligated to provide InnoFood with
the funding on or before December 31, 2003. Due to what we consider to be
significant breaches by InnoFood, we were unwilling to provide the required
funding by the December 31, 2003 deadline. We did provide InnoFood with
$2,220,000. We have confirmed that $1,850,000 of the funds provided to InnoFood
were sent to Modofood. InnoFood originally entered into a Licensing Agreement
with Modofood to market and distribute Modofood's food processing technology and
had certain financial obligations under that agreement. On October 17, 2003, we
entered into a Letter of Understanding ("LOU") with InnoFood to restructure the
relationship. However, we believe that InnoFood may have misled our management
regarding certain material matters. As a result, the definitive agreements
referenced in the LOU were never prepared and parties did not finalize the
matters referenced in the LOU.

On January 8, 2004, InnoFood sent us a letter attempting to terminate the
original InnoFood Agreement and the October 17, 2003, LOU. InnoFood claimed that
we breached both the Agreement and the LOU by failing to provide the funding
provided 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. As
of March 24, 2004, we have not accepted the terms of this Promissory Note and
are still in negotiation stage with InnoFood regarding the purchase or some
other mutually acceptable resolution. We believe that InnoFood breached not only

the InnoFood Agreement but also the LOU. We intend to vigorously pursue
InnoFood, but have not determined whether or not we will file a lawsuit against
InnoFood. We are also in discussions with directly with Modofood, the technology
licensor, regarding a potential resolution. If needed, we may also consider
pursuing legal action against Modofood if we are unable to resolve these matters
informally with either company. In the meantime, we have attempted to resolve
this dispute without court intervention. As of March 31, 2005, we fully reserved
the $2,220,000 acquisition deposits due to uncertainty of the collections. We
are vigorously pursuing all legal avenues with our legal counsel in Italy.
However, if we are unable to arrive at a satisfactory resolution, we may need to
expend additional resources to litigate this matter.

FACILITIES. Our executive, administrative and operating offices are located at
2445 McCabe Way, Suite 150, Irvine, California, 92614, which represent our only
facilities. We have a lease for this space which runs for three years through
March 31, 2006, with 5,455 square feet of space at a cost of $10,365.50 per
month. On April 1, 2005 our lease increased to $11,445 per month. We believe
these facilities are adequate for our current and projected requirements as we
intend to outsource all manufacturing and distribution.

ITEM 2. DESCRIPTION OF PROPERTY.
---------------------------------

PROPERTY HELD BY US. As of the date specified in the following table, we held
the following property:

============================= =================== =========================
Property March 31, 2005 March 31, 2004
----------------------------- ------------------- -------------------------
Cash and Equivalents $1,169 $76,181
----------------------------- ------------------- -------------------------
Property and Equipment, net $45,044 $63,510
============================= =================== =========================

OUR FACILITIES. Our executive, administrative and operating office is located at
2445 McCabe Way, Suite 150, Irvine, CA 92614. We have a three year lease for
these premises, which through March 31, 2006. The premises consist of 5,455
square feet of space at a cost of $10,365.50 per month. On April 1, 2005 our
lease increased to $11,445 per month. We believe that our facilities are
adequate for our needs and that additional suitable space will be available on
acceptable terms as required. We do not own any real estate.

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 are a defendant in a suit brought by our former
landlord for breach of lease agreement and alleged unpaid rent in the County of
Orange, Superior Court of California, Case #03CC02904. We believe that the
landlord breached the rental agreement and as such, we do not owe any unpaid
rent. Further, we believe that our security deposit and other collateral will be
sufficient to cover this claim should an adverse ruling result, even though we
anticipate a favorable outcome to this suit. In addition, we are in the process
of submitting cross-claims for damages incurred and are also appealing the
Court's recent ruling denying Arbitration per the parties' Arbitration
Agreement. The landlord obtained a writ of attachment in the amount of $58,840,
which remains contested, and the landlord's Motion for Summary Judgment was
denied. However, to reflect this contingency, we have accrued $60,000 for a
potential judgment in this case.

INNOFOOD/MODOFOOD: On July 28, 2003, we entered into a Stock Exchange Agreement
("Agreement") with InnoFood Inc. ("InnoFood") wherein we agreed, among other
things, to provide InnoFood with Funding totaling $5,000,000 in exchange for,
among other things, 100% interest in InnoFood and a 49% interest in ModoFood
S.P.A. The completed purchase of InnoFood was not to occur until the $5,000,000
funding was delivered. Under the Agreement, we were obligated to provide
InnoFood with the funding on or before December 31, 2003. Due to what we
consider to be significant breaches by InnoFood, we were unwilling to provide
the required funding by the December 31,

2003 deadline. We did provide InnoFood with $2,220,000. We have confirmation
that $1,850,000 of the funds provided to InnoFood was sent to Modofood S.P.A.,
an Italian company ("Modofood"). InnoFood originally entered into a Licensing
Agreement with Modofood to market and distribute Modofood's food processing
technology. On October 17, 2003, we entered into a Letter of Understanding
("LOU") with InnoFood to restructure the relationship between ourselves and
InnoFood. We believe that InnoFood may have misled our management regarding
certain material matters. As a result, the definitive agreements were never
prepared and parties did not finalize the matters referenced in the LOU.

On January 1, 2004, InnoFood sent us a letter attempting to terminate the
original InnoFood Agreement and the October 17, 2003 LOU. InnoFood claimed that
we breached both the Agreement and the LOU by failing to provide the funding
called for under those agreements. With the letter of termination, InnoFood
delivered a signed Promissory Note agreeing to pay back $2,160,000 (net of
$60,000 interest InnoFood charged to us for non-payments). The Promissory Note
accrues interest at 10% and is due and payable on or before January 15, 2009. We
believe that this Promissory Note represents an acknowledgment of InnoFood's
debt to us. As of March 31, 2005, we have not accepted the terms of this
Promissory Note, and negotiation with InnoFood regarding the purchase has
stalled.

We believe that InnoFood breached not only the InnoFood Agreement but also the
LOU. We intend to vigorously pursue InnoFood, but have not determined whether or
not we will file a lawsuit against InnoFood. We are also in discussions with
Modofood, the technology licensor, regarding potential resolution directly with
that company. If needed, we may also consider pursuing legal action against
Modofood if we are unable to resolve these matters informally with either
company.

CONSUMER SURVEY CENTER DISPUTE. A suit was filed against us and our President by
Consumer Survey Center, Inc. ("CSC"). CSC is apparently claiming that we owe
$34,900 for services allegedly provided by CSC for market research and product
pricing research services. CSC is also claiming that our President, Chaslav
Radovich, personally guaranteed the debt. The suit was filed on December 17,
2003 in the Superior Court of California, County of San Mateo for breach of
contract. CSC has accepted 23,850 shares of the Company's stock for the debt.
These shares were issued and delivered to CSC in May of 2004.

GRYPHON MASTER FUND, LP. On November 8, 2004, Gryphon Master Fund, LP, one of
our selling security holders, filed a lawsuit against us in United States
District Court, Northern District of Texas, Dallas Division. The lawsuit seeks
repayment of the $600,000 convertible note payable, accrued interest on the
convertible note payable within the prescribed period, penalties for failing to
register the shares underlying the conversion of the convertible note payable,
attorneys fees and court costs. We are attempting to negotiate a resolution. As
of March 31, 2005, Gryphon asserts that we have accrued $1,503,658 related to
this matter. We dispute this amount due in part to having provided Gryphon with
305,000 forebearance shares to offset accrued interest and penalties. The value
of these forebearance shares is estimated to be $692,500, thus reducing the
accrued total to $811,158.

GEMINI PARTNERS, INC. V. COBALIS CORP. On or about December 8, 2004, Gemini
Partners, Inc., filed a complaint in the Superior Court of Orange County,
California, against us for Breach of Contract, Promissory Estoppel, Common
Counts and Quantum Meruit. Gemini Partners, Inc., is claiming that we failed and
refused to pay for services related to our patent valuation. On or about January
27, 2005, Gemini Partners, Inc., filed a Request for Default claiming that we
had not responded to the complaint within the statutorily allotted period. It is
unclear whether the default was entered. Gemini Partners is claiming damages in
an amount less than $25,000. We have accrued $25,000 related to this matter. As
of April 11, 2005 we paid Gemini Partners in full.

JAMES LUCE. We believe there is potential litigation involving James Luce, a
former officer of Biogentec, Inc., who believes he is due certain sums and/or
stock under his employment contract. He has also indicated that he intends to
bring suit against us unless the matter is resolved to his satisfaction.
However, due to Linda Burkett information which has surfaced regarding InnoFood,
we believe that we might now take legal action against James Luce, InnoFood,
ModoFood and all their directors.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
----------------------------------------------------------

Not applicable.

PART II

ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
------------------------------------------------------------------------

REPORTS TO SECURITY HOLDERS. We are a reporting company with the Securities and
Exchange Commission, or SEC. The public may read and copy any materials filed
with the SEC at the SEC's Public Reference Room at 450 Fifth Street N.W.,
Washington, D.C. 20549. The public may also obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov.

PRICES OF COMMON STOCK. We participate in the OTC Bulletin Board, an electronic
quotation medium for securities traded outside of the Nasdaq Stock Market, and
prices for our common stock are published on the OTC Bulletin Board under the
trading symbol "BGTH". This market is extremely limited and the prices quoted
are not a reliable indication of the value of our common stock.

Approximately seventeen (17) professional market makers hold themselves out as
willing to make a market in 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

--------------------------------------------------------------------------------
9/30/02* $ .01 $ .01
--------------------------------------------------------------------------------
12/31/02* $ .05 $ .05
--------------------------------------------------------------------------------
3/31/03 * $ .01 $ .01
--------------------------------------------------------------------------------
6/30/03* $ .05 $ .05
--------------------------------------------------------------------------------
9/30/03 $ 3.80 $ 3.75
--------------------------------------------------------------------------------
12/31/03 $ 3.50 $ 3.50
--------------------------------------------------------------------------------
03/31/04 $ 1.90 $ 1.55
--------------------------------------------------------------------------------
06/30/04 $ 1.35 $ 1.35
--------------------------------------------------------------------------------
09/30/04 $ 3.25 $ 2.40
--------------------------------------------------------------------------------
12/31/04 $ 1.25 $ 1.20
--------------------------------------------------------------------------------
03/31/05 $ 0.62 $ 0.57
--------------------------------------------------------------------------------
06/30/05 $ 0.57 $ 0.42
--------------------------------------------------------------------------------
* Quoted market price prices are for shares of our stock prior to the
reverse-merger with Biogentec effective July 2, 2003.

COMMON STOCK. We are authorized to issue 50,000,000 shares of $.001 par value
common stock and 5,000,000 shares of $.001 par value preferred stock. As of July
7, 2005, there were 336 record holders of our common stock and there were
25,279,756 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. There were 1,000 shares of our preferred stock issued and
Outstanding to Gryphon Master Fund, which among other preferences and
designations is convertible into shares of our common stock. Based on opinion
letters provided to Gryphon, we consider these shares to have been converted
into 416,000 shares of Common A shares for which we have issued a legal opinion
for 216,785 shares on December 8, 2004 and we believe that Gryphon has already
sold this entire position in the open market.

OPTIONS. We have 5,400,000 exercisable options to purchase shares of our common
stock currently outstanding, of which 225,000 were issued in 2001, 825,000 were
issued in 2002, and 4,250,000 were issued in 2004.

In February 2004, we agreed to grant Mr. Ernest Armstrong, one of our officers,
directors and principal shareholders, 1,200,000 options to purchase shares of
our common stock. In addition, St. Petka Trust, our majority shareholder, agreed
to transfer to Mr. Armstrong 1,000,000 options to purchase shares of our common
stock that St. Petka Trust owns.

WARRANTS. We issued 90,000 warrants on September 15, 2003 to Gryphon. There are
also warrants attached to shares of the preferred stock issued to Gryphon which
are convertible to 104,167 shares of our common stock. 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 are our employees. These warrants
are partially vested with three years vesting period. In October 2004, we issued
1,000,000 warrants to purchase shares of our common stock at $1.75 per share to
DLZ for consulting services. In September 2004, we issued 50,000 warrants to
purchase shares of our common stock at $1.00 per share to Kevin Pickard for
accounting services rendered to us. 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.

RECENT SALES OF UNREGISTERED SECURITIES.

In January 2005, we issued 1,250 shares to Catherine Posey for consulting
services related to clinical trials. We also issued 75,000 shares to Jason Lyons
for consulting services. In February 2005, we issued 30,000 shares to Tejeda &
Tejeda, Inc. and 25,000 shares to Ibis Consulting Group for consulting services.
We also issued 100,000 shares to Lawrence May, our board member for related
consulting services. We also issued 15,000 shares to Sean Mulhearn and 15,000
shares to Melinda Mulhearn for consulting services related to the manufacture of
our product, and 200,000 shares to the Wells Group for consulting services
related to financial public relations. We also issued 150,000 shares to Cyndel &
Co, Inc. for consulting services. We are in dispute with Cyndel & Co. Inc. over
not performing and planning to cancel/rescind these shares. In March 2005, we
issued 48,000 shares to Seth Shaw for consulting services, 12,000 shares to
David Hovey, Jr. for consulting services, 60,000 shares to Sean Mulhearn for
consulting services and 37,500 to Tejeda & Tejeda Inc. for consulting services.
These shares were all issued in reliance on that exemption from registration
under Section 4(2) of the Act, as transactions not involving any public
offering. The shares were issued to these consultants as compensation for their
services to us, and who by virtue of those relationships, were familiar with our
business and were able to assess the risks and merits of the investment.

DIVIDENDS. There have been no cash dividends declared on our common stock.
Dividends are declared at the sole discretion of our Board of Directors. Equity
Compensation Plans. We have the following plan in place which was approved in
2002.

---------------------------------- -------------------------------- --------------------------------- ------------------------------
PLAN CATEGORY NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE PRICE NUMBER OF SECURITIES REMAINING
ISSUED UPON EXERCISE OF OF OUTSTANDING OPTIONS, AVAILABLE FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, WARRANTS WARRANTS AND RIGHTS(B) UNDER EQUITY COMPENSATION
AND RIGHTS (A) (EXCLUDING SECURITIES
REFLECTED IN COLUMN (A))
---------------------------------- -------------------------------- --------------------------------- ------------------------------
Equity compensation plans N/A N/A N/A
approved by security holders
---------------------------------- -------------------------------- --------------------------------- ------------------------------
Equity compensation plans not 2,350,000 $1.62 N/A
approved by security holders
---------------------------------- -------------------------------- --------------------------------- ------------------------------
Total 2,350,000 $1.62 N/A
---------------------------------- -------------------------------- --------------------------------- ------------------------------

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:

o a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading;
o 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;
o 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;
o a toll-free telephone number for inquiries on disciplinary actions;
o definitions of significant terms in the disclosure document or in the
conduct of trading in penny stocks; and
o 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:

o the bid and offer quotations for the penny stock;
o the compensation of the broker-dealer and its salesperson in the
transaction;
o 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
o 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 ARE NOT BASED ON HISTORICAL FACT.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "MAY", "SHALL", "COULD", "EXPECT", "ESTIMATE",
"ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR
SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN
COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS,
HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY
IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.

THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY
FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED
ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS
SPECIFIED IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION
TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
---------------------------------------------------------------------------

Our Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis, we
evaluate our estimates and judgments, including those related to revenue
recognition, accrued expenses, financing operations, and contingencies and
litigation. We base our estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of our financial statements include estimates as to the
appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources, primarily valuation of patent costs and
stock-based compensation. The methods, estimates and judgments we use in
applying these most critical accounting policies have a significant impact on
the results we report in our consolidated financial statements.

OVERVIEW

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, St. Petka, Inc. formally changed its name to BioGentec
Incorporated. On July 2, 2003, BG was merged into Togs for Tykes Acquisition
Corp. ("TTYK"), a wholly owned subsidiary formed for the purpose of acquiring
BG. On July 6, 2004, BioGentech Corp. changed its name to Cobalis Corp. 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 BG's outstanding common stock
(19,732,705 shares of $0.001 par value stock) wase exchanged for 19,732,705
shares newly issued shares of $0.001 par value stock of Cobalis Corp. common
stock. This transaction was consummated with the filing of the Articles of
Merger with the State of Nevada on July 2, 2003. 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 SFAS 141, this acquisition was treated as a recapitalization for
accounting purposes, in a manner similar to reverse acquisition accounting.

GOING CONCERN

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation as a going concern. We incurred a net
loss of $8,101,014 for the year ended March 31, 2005 and as of March 31, 2005,
we had a working capital deficit of $6,039,751 and a stockholder deficit of
$6,156,945. In addition, as of March 31, 2005, we have not developed a
substantial source of revenue. These conditions raise substantial doubt as to
our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts, or amounts and classification of liabilities that might be necessary
should we be unable to continue as a going concern.

We are currently attempting to raise additional debt and equity financing for
operating purposes and expect to begin selling our product in Australia in late
2005.

We require substantial capital to pursue our operating strategy, which includes
commercialization of our products, and we currently have limited cash for
operations. Until we can obtain revenues sufficient to fund working capital
needs and additional research and development costs necessary to obtain the
regulatory approvals for commercialization, we will be dependent upon external
sources of financing.

We believe that actions presently being taken to revise our operating and
financial requirements provide the opportunity for us to continue as a going
concern. There can be no assurances that sufficient financing will be available
on terms acceptable to us, or at all. If we are unable to obtain such financing,
we will be forced to scale back operations, which could have an adverse effect
on our financial condition and results of operations.

CRITICAL ACCOUNTING POLICY AND ESTIMATES

Our Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. On an on-going basis, management evaluates its estimates
and judgments, including those related to revenue recognition, accrued expenses,
financing operations, and contingencies and litigation. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. The most
significant accounting estimates inherent in the preparation of our consolidated
financial statements include estimates as to the appropriate carrying value of
certain assets and liabilities which are not readily apparent from other
sources, primarily valuation of patent costs and stock-based compensation. The
methods, estimates and judgments we use in applying these most critical
accounting policies have a significant impact on the results we report in our
consolidated financial statements.

Patent Cost Valuation. The determination of the fair value of certain acquired
assets and liabilities is subjective in nature and often involves the use of
significant estimates and assumptions. Determining the fair values and useful
lives of intangible assets especially 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 record stock-based compensation to outside
consultants at fair market value in general and administrative expense. We do
not record expense relating to stock options granted to employees with an
exercise price greater than or equal to market price at the time of grant. We
report pro-forma net loss and loss per share in accordance with the requirements
of SFAS 123 and 148. This disclosure shows net loss and loss per share as if we
had accounted for our employee stock options under the fair value method of
those statements. Pro-forma information is calculated using the Black-Scholes
pricing method at the date of grant. This option valuation model requires input
of highly subjective assumptions. Because our 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 model does not
necessarily provide a reliable single measure of fair value of our employee
stock options.

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 a cash and cash equivalents of $1,169 at March 31, 2005. Our total
current assets at March 31, 2005 equal to $1,169. We also had the following long
term assets: $45,044 in property and equipment, net, $2,298 in net website
development costs, and $680,464 represented by net value of our patents and
$40,000 in deposits. Our total assets as of March 31, 2005 were $768,975.

Our total current liabilities were $6,040,920 at March 31, 2005, which was
represented by a cash overdraft of $11,941, accounts payable of $326,819 and
accrued expenses of $2,208,084, due to related parties of $2,862,357, warrant
liability of $31,719, and convertible note payable of $600,000. Our liabilities
exceeded our assets by $5,271,945 as of March 31, 2005.

We have financed our operations primarily through cash generated from related
party debt financing and from the private placement sales of equity securities,
as well as issuing a convertible debenture. During the year ended March 31,
2005, we received an additional $1,440,192 from a related party and issued
838,476 shares of our common stock that were registered in Form S-8 as payment
for certain accounts payable, past due salaries to certain related parties and
amounts due to consultants.

Our cash used in investing activities was $5,094 for the year ended March 31,
2005, as compared to $2,146,612 for the year ended March 31, 2004, a decrease of
$2,141,518. In fiscal 2004, we made an acquisition deposit of $2,220,000 related
to our InnoFood acquisition.

Our net cash provided by financing activities was $1,452,133 for the year ended
March 31, 2005 compared to $3,302,350 for the year ended March 31, 2004. The
decrease of $1,850,217 is primarily due to the proceeds received in fiscal 2004
from the sale a preferred stock ($885,000), convertible debentures and notes
payable ($1,815,000) offset by an increase in funding from a related party of
approximately $900,000.

RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2005 AS COMPARED TO THE YEAR
ENDED MARCH 31, 2004

REVENUES AND COST OF SALES

We had no significant revenues for the year ended March 31, 2005 and March 31,
2004 as we are undertaking a Phase III clinical trial in order to obtain FDA
approval of PreHistin (TM) as an over the counter drug. Our net revenues were
$434 less $2,500 for cost of sales for a gross loss of $2,066 for the year ended
March 31, 2005 as compared net sales of $4,708 less $12,402 for cost of sales
for a gross loss of $7,694 for the year ended March 31, 2004.

OPERATING EXPENSES

Our operating expenses for the year ended March 31, 2005 were $6,402,505
compared to $4,554,669 for the year ended March 31, 2004. For both periods, we
incurred expenses for two major purposes: i) ongoing development of our
PreHistin (TM) product and related product management and ii) general management
and fund raising efforts. For the year ended March 31, 2005, this amount was
represented by $81,702 in depreciation and amortization, $3,631,692 in
professional fees, $274,084 in salary and wages, $133,104 in rent expense,
$1,913,449 in marketing and research, and $368,474 in other operating expenses,

as compared to the year ended March 31, 2004, where we had $116,158 in
depreciation and amortization, $738,257 in professional fees, $789,383 in salary
and wages, $125,680 in rent expense, $150,083 in marketing and research, an
impairment loss of $2,331,522 and $303,586 in other operating expenses. Our
operating expenses increased during the year ended March 31, 2005 as compared to
the year ended March 31, 2004 principally as a result of the increase in
professional fees, which include payments for accounting, legal and shareholder
relations and the increase in marketing and research from our Phase III clinical
trials offset by a decrease in impairment expense. 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. In
fiscal 2004 we took and impairment expense related to the write off of the
acquisition deposit to InnoFood and the writedown of the value of one of our
patents.

Interest expense and financing costs for the year ended March 31, 2005 were
$1,806,862 compared to $1,350,617 for the year ended March 31, 2004. 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 includes 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, 2005, we fully amortized the debt discount and debt issue costs associated
with the $600,000 convertible note payable due to the lawsuit filed by the
holder of the convertible note payable. However, we dispute the note holder's
assertion based on the issuance of 305,000 forebearance shares to Gryphon, the
note holder, to offset penalties and interest, which in our opinion reduces the
total to $811,158. We are currently litigating the matter and have filed a
countersuit in response to Gryphon's suit as described above.

The change in the fair value in the warrant liability relates to the decrease in
the value of the detachable warrants issued in connection with the convertible
note payable and convertible preferred stock. Due to the decrease of our stock
price, the fair value of these warrants has decreased resulting in the decrease
of the warrant liability.

OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.

Over the next 12 months, we plan to continue moving forward with the completion
of the Phase III clinical trials of our allergy prevention product, PreHistin
(TM), followed immediately by submission of an application to the FDA for
marketing approval of PreHistin (TM) as an over the counter ("OTC") allergy
medication. We hope to receive approval from the FDA in 2006, enabling our
marketing launch in the United States of the product for the 2006 allergy
season. We estimate the cost to complete the Phase III clinical trials and the
submission of the application to the FDA for marketing approval will be
approximately $3,000,000.

While continuing with the US FDA approval process, we are working to finalize
the international launch strategy in the primary global markets. Discussions are
progressing with potential joint venture partners for marketing, manufacturing,
regulatory approval and distribution throughout the world, the most advanced of
which are with companies in Australia and Japan. In addition to seeking approval
from the FDA for the primary indication of seasonal allergic rhinitis (hay
fever) for PreHistin (TM), we plan to conduct additional studies to validate the
viability of approval for supplemental indications and alternative delivery
mechanisms. The tests will be a combination of clinical trials and laboratory
analyses.

In addition to seeking approval from the FDA for the primary indication of
seasonal allergic rhinitis (hay fever) for PreHistin (TM), we plan to conduct
additional studies to validate the viability of approval for supplemental
indications and alternative delivery mechanisms. The tests will be a combination
of clinical trials and laboratory analyses.

We are also actively pursuing the acquisition and development of products that
we hope will enable us to leverage our resources. Areas of focus are OTC
pharmaceutical products and nutritional supplements.

As of March 31, 2005, we had a cash of $1,169. To fully execute our business
plan for the next 12 months, we will need to raise additional funds in order to
complete the Phase III clinical trials, submit the PreHistin (TM) application to
the United States FDA and execute a marketing launch of the PreHistin (TM)
product. We will also need to raise funds to execute studies for the further
development of the PreHistin (TM) product line and to complete the acquisition
of additional products. Along with our investment bankers, we plan to raise
these funds through private and institution or other equity offerings. We may
attempt to secure other loans from lending institutions or other sources. There
is no guarantee that we will be able to raise additional funds through offerings
or other sources. If we are unable to raise funds, our ability to continue with
product development will be hindered.

Other than the research and development related to our PreHistin (TM) product,
we do not plan to engage in any other research and development unless we are
able to raise additional funds. We do not anticipate any significant hiring over
the next 12 months.

OFF-BALANCE SHEET ARRANGEMENTS

There are no off balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.

ITEM 7. FINANCIAL STATEMENTS

The financial statements required by Item 7 are presented in the following
order:

COBALIS CORP. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2005 AND 2004
AND FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2005

Contents

Page

Report of Independent Registered Public Accounting Firm

Financial Statements:

Consolidated Balance Sheet as of March 31, 2005

Consolidated Statements of Operations for the years ended March 31, 2005
and 2004, and from November 21, 2000 (inception) to March 31, 2005

Consolidated Statement of Stockholders' Deficit for the period from
November 21, 2000 (Inception) to March 31, 2005

Consolidated Statements of Cash Flows for the years ended March 31, 2005
and 2004, and from November 21, 2000 (inception) to March 31, 2005

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of
Cobalis Corp.
Irvine, California

We have audited the accompanying consolidated balance sheets of Cobalis Corp.
(formerly Biogentech Corp.) and subsidiary as of March 31, 2005, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year then ended. 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 audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
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 audit provides 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, 2005, and the results of its operations and its cash
flows for the year then ended, in conformity with U.S. generally accepted
accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has losses from operations, has
not generated significant revenue, and has a working capital deficiency. These
factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ Kabani & Company, Inc.
Certified Public Accountants

Huntington Beach, California
June 20, 2005

COBALIS CORP. AND SUBSIDIARY
(FORMERLY BIOGENTECH CORP.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET

March 31,
2005
---------------

ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 1,169

---------------
TOTAL CURRENT ASSETS 1,169

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $68,576 45,044
WEBSITE DEVELOPMENT COSTS, net of accumulated amortization of $32,309 2,298
PATENTS, net of accumulated amortization of $224,851 680,464
DEPOSIT 40,000

---------------
TOTAL ASSETS $ 768,975
===============

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Cash overdraft $ 11,941
Accounts payable 326,819
Accrued expenses 2,208,084
Due to related parties 2,862,357
Warrant liability 31,719
Convertible note payable 600,000

---------------
TOTAL CURRENT LIABILITIES 6,040,920

CONVERTIBLE PREFERRED STOCK (dividends on arrears of $112,500) 885,000

COMMITMENTS AND CONTINGENCIES -

STOCKHOLDERS' DEFICIT
Common stock; $0.001 par value; 50,000,000 shares
authorized; 24,630,628 shares issued and outstanding 24,631
Additional paid-in capital 12,023,750
Deficit accumulated during the development stage (18,205,326)

---------------
TOTAL STOCKHOLDERS' DEFICIT (6,156,945)
---------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 768,975
===============

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

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
2005 2004 March 31, 2005
---------------- --------------- ---------------------

(unaudited) (unaudited)

NET SALES $ 434 $ 4,708 $ 5,589

COST OF SALES 2,500 12,402 31,342

---------------- --------------- ---------------------
GROSS PROFIT (LOSS) (2,066) (7,694) (25,753)
---------------- --------------- ---------------------

OPERATING EXPENSES:
Professional fees 3,631,692 738,257 5,584,786
Salary and wages 274,084 789,383 1,975,778
Rent expense 133,104 125,680 416,363
Marketing and research 1,913,449 150,083 2,245,372
Depreciation and amortization 81,702 116,158 434,365
Impairment expense - 2,331,522 2,331,522
Other operating expenses 368,474 303,586 1,121,312
---------------- --------------- ---------------------
TOTAL OPERATING EXPENSES 6,402,505 4,554,669 14,109,498
---------------- --------------- ---------------------

LOSS FROM OPERATIONS (6,404,571) (4,562,363) (14,135,251)

OTHER INCOME (EXPENSE)
Interest expense and financing costs (1,806,862) (1,350,617) (3,504,835)
Change in fair value of warrant liability 110,419 209,341 319,760

---------------- --------------- ---------------------
TOTAL OTHER INCOME (EXPENSE) (1,696,443) (1,141,276) (3,185,075)
---------------- --------------- ---------------------

LOSS BEFORE PROVISION FOR INCOME TAXES (8,101,014) (5,703,639) (17,320,326)

PROVISION FOR INCOME TAXES - - -
---------------- --------------- ---------------------

NET LOSS (8,101,014) (5,703,639) (17,320,326)

PREFERRED STOCK DIVIDENDS 75,000 922,500 997,500
---------------- --------------- ---------------------

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS $ (8,176,014) $ (6,626,139) $ (18,317,826)
================ =============== =====================

NET LOSS PER SHARE:
BASIC AND DILUTED $ (0.36) $ (0.32) $ (0.96)
================ =============== =====================

WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED 22,458,344 20,630,593 19,148,636
================ =============== =====================

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

COBALIS CORP. AND SUBSIDIARY
(FORMERLY BIOGENTECH CORP.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2005

(Information presented from inception to March 31, 2004 is unaudited)

Deficit
accumulated Total
Additional during the stockholders'
Common stock paid-in Deferred development equity
Shares Amount capital compensation stage (deficit)
----------- --------- ---------- ---------- --------- ----------

Balance at inception (November 21, 2000) - $ - $ - $ - $ - $ -
Issuance of founder's shares in exchange
for property and equipment 16,300,000 16,300 - - - 16,300
Issuance of common stock for cash - November 2000 @ $1.00 30,000 30 29,970 - - 30,000
Issuance of common stock for cash - December 2000 @ $1.00 15,000 15 14,985 - - 15,000
Issuance of common stock for cash - February 2001 @ $1.00 12,000 12 11,988 - - 12,000
Issuance of common stock for cash - March 2001 @ $1.00 125,000 125 124,875 - - 125,000
Issuance of common stock for services - March 2001 @ $1.00 10,000 10 9,990 - - 10,000
Contributed capital - - 62,681 - - 62,681
Net 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) 47,565

Issuance of common stock for cash - April 2001 @ $1.00 10,000 10 9,990 - - 10,000
Issuance of common stock for telephone equipment -
April 2001 @ $1.00 6,750 7 6,743 - - 6,750
Issuance of common stock for cash - May 2001 @ $1.00 11,000 11 10,989 - - 11,000
Issuance of common stock for website development -
May 2001 @ $1.00 17,000 17 16,983 - - 17,000
Issuance of common stock for legal services -
May 2001 @ $1.00 1,000 1 999 - - 1,000
Issuance of common stock for cash - June 2001 @ $1.00 23,500 24 23,476 - - 23,500
Issuance of common stock for cash - July 2001 @ $1.00 20,000 20 19,980 - - 20,000
Issuance of common stock for cash - August 2001 @ $1.00 25,000 25 24,975 - - 25,000
Issuance of common stock for services, related party -
September 2001 @ $1.00 65,858 66 65,792 - - 65,858
Issuance of common stock for cash - September 2001 @ $1.00 15,000 15 14,985 - - 15,000
Issuance of common stock for services - September 2001 @ $1.00 11,000 11 10,989 - - 11,000
Issuance of stock options for services - September 2001 - - 32,000 - - 32,000
Issuance of common stock for cash - October 2001 @ $1.00 5,000 5 4,995 - - 5,000
Issuance of common stock for cash - December 2001 @ $1.00 30,000 30 29,970 - - 30,000
Issuance of common stock for services -
December 31, 2001 @ $1.00 33,000 33 32,967 - - 33,000
Issuance of common stock for services, related party -
December 2001 @ $1.00 117,500 118 117,382 - - 117,500
Issuance of common stock for prepaid advertising -
December 2001 @ $1.00 15,600 15 15,585 - - 15,600
Issuance of common stock for property and equipment -
January 2002 @ $3.00 1,000 1 2,999 - - 3,000
Issuance of common stock for services, related party -
January 2002 @ $1.00 33,000 33 32,967 - - 33,000
Issuance of common stock for cash - February 2002 @ $2.00 20,000 20 39,980 - - 40,000
Issuance of common stock for cash - March 2002 @ $2.00 12,500 12 24,988 - - 25,000
Contributed capital - - 211,269 - - 211,269
Deferred compensation - - - (60,108) - (60,108)
Net loss - - - - (1,144,249) (1,144,249)
----------- --------- ---------- ---------- --------- ----------
Balance at March 31, 2002, as restated 16,965,708 16,966 1,005,492 (60,108) (1,367,665) (405,315)

Issuance of common stock for services - April 2002 @ $2.00 3,000 3 5,997 - - 6,000
Issuance of common stock for cash - April 2002 @ $1.00 10,000 10 9,990 - - 10,000
Issuance of common stock for cash - April 2002 @ $2.00 17,500 17 34,983 - - 35,000
Issuance of common stock for cash - May 2002 @ $1.00 10,000 10 9,990 - - 10,000
Issuance of common stock for cash - May 2002 @ $2.00 16,000 16 31,984 - - 32,000
Issuance of stock options for services - May 2002 - - 350,000 - - 350,000
Contributed capital - bonus expense - - 50,000 - - 50,000
Issuance of common stock for cash - June 2002 @ $1.00 5,000 5 4,995 - - 5,000
Issuance of common stock for cash - June 2002 @ $2.00 5,000 5 9,995 - - 10,000
Issuance of common stock for cash - July 2002 @ $1.00 5,000 5 4,995 - - 5,000
Issuance of common stock for cash - August 2002 @ $2.00 10,000 10 19,990 - - 20,000
Issuance of common stock for cash - September 2002 @ $2.00 10,000 10 19,990 - - 20,000
Issuance 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 - - 100,000
Issuance of common stock for cash - December 2002 @ $2.00 20,000 20 39,980 - - 40,000
Issuance of common stock for services - December 2002 @ $2.00 15,000 15 29,985 - - 30,000
Issuance of common stock for patents - December 2002 @ $2.00 2,000,000 2,000 1,285,917 - - 1,287,917
Contributed capital 292,718 - - 292,718
Issuance of common stock for exercise of options - December 2002 574,000 574 574,028 - - 574,602
Deferred compensation 60,108 60,108
Contributed capital 5,000 - - 5,000
Issuance of common stock for services - January 2003 25,000 - - 25,000
Issuance of common stock for cash February 2003 @ $2.00 11,500 12 22,988 - - 23,000
Issuance of common stock for cash March 2003 @ $2.00 5,000 5 9,995 - - 10,000
Deferred compensation 54,000 - 54,000
Net 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) 502,022

Issuance of common stock for cash April 2003 @ $2.00 70,000 70 139,930 - - 140,000
Issuance of common stock for cash May 2003 @ $2.00 30,000 30 59,970 - - 60,000
Acquisition 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 - - 378,000
Issuance of common stock for services February 2004 @ $2.20 100,000 100 219,900 - - 220,000
Issuance of common stock for services February 2004 @ $1.85 20,000 20 36,980 - - 37,000
Value of beneficial converstion feature of convertible
debenture issued in September 2003 346,870 - - 346,870
Fair value allocated to warrant liability for detachable
warrants issued with preferred stock (181,849) - - (181,849)
Dividend on preferred stock 885,000 - (885,000) -
Deferred compensation 196,000 - 196,000
Net 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 - - 314,500
Issuance of common stock for services June 2004 @ $1.75 10,000 10 17,490 - - 17,500
Issuance of common stock for conversion of debt June 2004 @ $1.60 371,317 371 593,736 - - 594,107
Issuance of common stock for services July 2004 @ $1.35 7,489 8 10,101 10,109
Issuance of common stock for services July 2004 @ $1.10 75,000 75 82,425 82,500
Issuance of common stock for services August 2004 @ $0.75 100,000 100 74,900 75,000
Conversion of debt to common stock September 2004 @ 2.22 857,143 857 1,902,000 1,902,857
Issuance of common stock for services October 2004 @ $2.20 4,758 5 10,463 10,468
Issuance of common stock for services October 2004 @ $2.55 375,000 375 955,875 956,250
Issuance of common stock for services December 2004 @ $1.45 5,000 5 7,245 7,250
Issuance of common stock for services December 2004 @ $1.30 63,676 63 82,715 82,778
Issuance of common stock for services January 2005 @ $1.05 1,250 1 1,312 1,313
Issuance of common stock for services January 2005 @ $1.18 75,000 75 88,425 88,500
Issuance of common stock for services February 2005 @ $1.10 155,000 155 170,345 170,500
Issuance of common stock for services February 2005 @ $1.06 100,000 100 105,900 106,000
Issuance of common stock for services February 2005 @ $0.95 30,000 30 28,470 28,500
Issuance of common stock for services February 2005 @ $1.05 80,628 81 84,578 84,659
Issuance of common stock for services February 2005 @ $1.00 467,159 467 466,692 467,159
Issuance of common stock for services February 2005 @ $0.96 350,000 350 335,650 336,000
Issuance of common stock for financing costs March 2005 @ $0.81 50,000 50 40,450 40,500
Issuance of common stock for services March 2005 @ $0.80 5,000 5 3,995 4,000
Issuance of common stock for services March 2005 @ $0.75 120,000 120 89,880 90,000
Issuance of common stock for services March 2005 @ $0.68 37,500 38 25,462 25,500

Fair 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)
========= ========= ========== ======== =========== ==========

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

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

Cumulative from
Year Ended November 21, 2000
March 31, March 31, (inception) to
2005 2004 March 31, 2005
------------ ------------ ---------------

(unaudited) (unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,101,014) $ (5,703,639) $ (17,320,326)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense 81,702 116,158 434,365
Common stock issued for services 2,643,986 257,000 3,208,344
Common stock issued for penalty 314,500 378,000 692,500
Common stock issued for financing costs 40,500 - 40,500
Change in value of warrant liability (110,419) (209,341) (319,760)
Amortization of debt issue costs 67,882 15,618 83,500
Exercise of stock options for services - - 26,960
Amortization of discounts on notes 492,137 24,363 790,128
Issuance of stock options/warrants for services 553,715 - 960,715
Capital contribution - bonus (related party) - - 50,000
Amortization of prepaid advertising - - 15,600
Amortization of deferred compensation - 196,000 250,000
Discount on common stock issued for settlement of debt - - 50,000
Impairment expense - 2,331,522 2,331,522
Changes in assets and liabilities: -
Prepaid expenses and other assets 11,619 (8,133) -
Inventory 5,903 97 6,250
Accounts payable 214,864 94,988 735,209
Accrued expenses 1,948,857 947,084 2,895,941
Amounts due to related parties 313,717 478,436 1,437,840
------------ ------------ ---------------
Net cash used in operating activities (1,522,051) (1,081,817) (3,630,712)
------------ ------------ ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,562) (25,937) (87,569)
Increase in patent costs - - (24,711)
Change in restricted cash - 100,000 -
Merger fees and costs - - -
Increase in acquisition deposits - (2,220,000) (2,220,000)
Increase in other deposits - - (40,000)
Increase in capitalized website (3,532) (675) (18,097)

------------ ------------ ---------------
Net cash used in investing activities (5,094) (2,146,612) (2,390,377)
------------ ------------ ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in cash overdraft 11,941 11,941
Payment on contract - - (161,000)
Proceeds from advances - related party 1,455,692 563,650 2,324,949
Proceeds from issuance of notes payable - 1,215,000 1,215,000
Proceeds from sale of common stock - 200,000 806,500
Proceeds from sale of preferred stock - 885,000 885,000
Proceeds from convertible debenture - 600,000 600,000
Capital contribution - - 571,668
Payment of debt issue costs - (83,500) (83,500)
Payments on advances - related party (15,500) (77,800) (148,300)
------------ ------------ ---------------
Net cash provided by financing activities 1,452,133 3,302,350 6,022,258
------------ ------------ ---------------

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (75,012) 73,921 1,169

CASH AND CASH EQUIVALENTS, Beginning of period 76,181 2,290 -
------------ ------------ ---------------

CASH AND CASH EQUIVALENTS, End of period $ 1,169 $ 76,211 $ 1,169
============ ============ ===============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid $ - $ - $ -
============ ============ ===============
Income taxes paid $ - $ - $ -
============ ============ ===============

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

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:(UNAUDITED)

FOR THE PERIOD FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2003
-------------------------------------------------------------------

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.

COBALIS CORP. AND SUBSIDIARY
(FORMERLY BIOGENTECH CORP.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
(CONTINUED):

The Company issued 18,000 shares of its common stock valued at $36,000 for
consulting services provided, which represented the fair market value on the
date of issuance.

During the year ended March 31, 2003, R&R advanced the Company cash and also
paid certain expenses directly on behalf of the Company totaling $292,718. The
Company has recorded these transactions as a contribution to capital as of March
31, 2003.

On May 5, 2002, a related party transferred 25,000 shares of the Company's
common stock valued at $50,000 to an employee of the Company as a bonus. The
fair market value on the date of issuance was $2.00 per share. The Company has
recorded this transaction as a contribution to capital and salary expense as of
March 31, 2003.

During September 2002, a shareholder loaned the Company $50,000, which was
convertible into 50,000 shares of the Company's common stock. The fair market
value of the common stock was $2.00 per share; therefore, the Company recorded a
$50,000 expense relating to this note. Subsequently, on December 31, 2002, the
note holder converted the $50,000 promissory note into 50,000 shares of the
Company's common stock.

During May 2002, the Company granted stock options to three consultants to
purchase a total of 300,000 shares at an exercise price of $1.00 per share. The
options vest immediately on the execution date of the consulting agreement. At
the date of the grant, the fair value of the common stock was $2.00 per share.
The Company valued these options under the Black-Scholes model with a total
valuation of approximately $350,000, which was included in the statements of
operations for the year ended March 31, 2003.

Three employees exercised 574,000 stock options as consideration for the
forgiveness of $574,602 of accrued salaries to these three employees.

On December 19, 2002, the Company issued 2,000,000 shares of its common stock
valued at $1,287,917 in lieu of payment in full under the contract payable
totaling $1,287,917.

On November 5, 2002, the Company entered into an employment agreement with its
new Chief Operating Officer ("COO"). The COO received 500,000 options to
purchase 500,000 shares of the Company's common stock an exercise price totaling
the lesser of $2.00 per share or 75% of the fair market value of the Company's
common stock on date of grant. As of November 5, 2002, the fair market value of
the Company's common stock was $2.00 per share; therefore, the exercise price of
the stock options issued was $1.50 per option. The Company recognized deferred
compensation relating to these options and is amortizing the expense over the
vesting period. During the year ended March 31, 2003, the Company recognized
$54,000 of expense relating to these options. However, due to the fact that
COO's employment was terminated for cause in July of 2004 all these options are
canceled.

On December 27, 2002, the Company entered into an employment agreement with its
Chief Financial Officer ("CFO") on a part-time basis. This agreement became
effective on January 2, 2003. The CFO was granted 25,000 fully vested options to
purchase 25,000 shares of the Company's common stock with an exercise price of
$1.00 per share during January 2003. The fair market value of the common stock
was $2.00 per share; therefore, during January 2003, the Company recognized
$25,000 of compensation expense upon issuance.

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

COBALIS CORP. AND SUBSIDIARY
(FORMERLY BIOGENTECH CORP.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
(CONTINUED):

FOR THE YEAR ENDED MARCH 31, 2004 (UNAUDITED)

In September 2003, the Company sold a convertible debenture with detachable
warrants. The Company calculated the value of the warrants and the convertible
feature of the debenture utilizing the Black-Scholes model. The $169,630 value
of the warrants is included in the warrant liability due to registration rights
in accordance with EITF 00-19. The $346,870 value of the beneficial conversion
debenture was charged to additional paid-in capital.

The Company issued 135,000 shares of its common stock valued at $378,000 for a
penalty associated with its convertible debenture, which represented the fair
market value on the date of issuance.

The Company issued 120,000 shares of its common stock valued at $257,000 for
consulting services and employee bonus.

FOR THE YEAR ENDED MARCH 31, 2005

The Company issued 170,000 shares of its common stock valued at $314,500 for a
penalty associated with its convertible debenture, which represented the fair
market value on the date of issuance.

The Company issued 2,062,460 shares of its common stock valued at $2,643,986 for
consulting services and employee salary and bonuses.

The Company issued 50,000 shares of its common stock valued at $40,500 for
financing costs.

The Company issued 1,228,460 shares of its common stock in exchange for debt
totaling $2,496,964.

COBALIS CORP. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2005 AND 2004 AND THE PERIOD
FROM NOVEMBER 21, 2000 (INCEPTION) TO MARCH 31, 2005

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

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.("TTYK"), 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 will
be 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:

o 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

o 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 biotechnology 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 (TM),
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.

Basis of Presentation
---------------------

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 $8,101,014 for the year
ended March 31, 2005 and as of March 31, 2005, the Company had a working capital
deficiency of $6,039,751 and a stockholder deficit of $6,156,945. In addition,
as of March 31, 2005, the Company has not developed a substantial source of
revenue.

These conditions raise substantial doubt as to the Company's ability to continue
as a going concern. These consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. These
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

The Company is currently attempting to raise additional debt and equity
financing for operating purposes and expects to begin selling its product in
Australia in 2006.

The Company requires substantial capital to pursue its operating strategy, which
includes commercialization of its products, and currently has limited cash for
operations. Until the Company can obtain revenues sufficient to fund working
capital needs and additional research and development costs necessary to obtain
the regulatory approvals for commercialization, the Company will be dependent
upon external sources of financing.

There can be no assurances that sufficient financing will be available on terms
acceptable to the Company, or at all. If the Company is unable to obtain such
financing, the Company will be forced to scale back operations, which could have
an adverse effect on the Company's financial condition and results of
operations. These factors raise substantial doubt about the Company's ability to
continue as a going concern.

Management believes that actions presently being taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern.

Principles of Consolidation
---------------------------

The accompanying consolidated financial statements include the accounts of
Cobalis and its wholly owned subsidiary, BioGentec Inc. The accompanying
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. All
inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates
----------------

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting periods. As of
March 31, 2005, the Company used estimates in determining the realization of its
accounts receivable and inventory, capitalization and amortization of web
development costs and patents, and 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 extends credit
based on an evaluation of the customer's financial condition, generally without
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. 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. The company has no inventory as of March 31, 2005.

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

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

Research and Development
------------------------

The Company incurs costs in the research and development of a dietary
supplement, Alleratin (TM). 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, 2005 and 2004 and the period form November 21, 2000 (inception)
to March 31, 2005, the Company incurred $1,912,054, $66,871 and $2,003,807,
respectively, in research and development expenses.

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 $7,809,
9,000, and $32,309, respectively, for the years ended March 31, 2005 and 2004
and the period from November 21, 2000 (inception) to March 31, 2005.

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, 2005 and 2004 and the period from November 21, 2000
(inception) to March 31, 2005 was $53,865, $87,306, and $333,480, respectively.
Projected amortization expense approximates $54,000, $49,000, $49,000, $49,000
and $49,000, respectively, for each of the five years ended March 31, 2010.
Weighted average life of the remaining patent approximated 16.7 years.

Revenue Recognition
-------------------

The Company will recognize revenue from product sales when shipment of product
to the customer has been made, which is when title passes. The Company will
estimate and record provisions for rebates, sales returns and allowances in the
period the sale is recorded. Shipping and handling charges are included in gross
sales, with the related costs included in selling, general and administrative
expenses. For the years ended March 31, 2005 and 2004, the Company had not
generated any significant revenue.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

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
------------------------

SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
intrinsic value accounting method specified in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to account
for stock-based compensation. The Company has elected to use the intrinsic value
based method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation issued to employees.
For options granted to employees where the exercise price is less than the fair
value of the stock at the date of grant, the Company recognizes an expense in
accordance with APB 25. For non-employee stock based compensation the Company
recognizes an expense in accordance with SFAS No. 123 and values the equity
securities based on the fair value of the security on the date of grant. For
stock-based awards the value is based on the market value for the stock on the
date of grant and if the stock has restrictions as to transferability a discount
is provided for lack of tradability. Stock option awards are valued using the
Black-Scholes option-pricing model.

If the Company had elected to recognize compensation expense based upon the fair
value at the grant date for awards under the Stock Option Plan consistent with
the methodology prescribed by SFAS No. 123 and SFAS No. 148, the Company's net
loss and loss per share would be reduced to the pro forma amounts indicated
below for the years ended March 31, 2005 and 2004:

2005 2004
------------- ---------------
Net loss attributed to common stockholders
As reported $ (8,176,014) $ (6,626,139)
Compensation recognized under APB 25 - -
Compensation recognized under SFAS 123 - (2,177,776)
------------- ---------------
Pro forma $ (8,176,014) $ (8,803,915)
============= ===============

Basic and diluted loss per common share
As reported $ (0.36) $ (0.32)
Pro forma $ (0.36) $ (0.43)

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

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 2005 and 2004:

2005 2004
--------- -----------

Risk-free interest rate: N/A 4.1%
Dividend yields: N/A 0%
Volatility factors: N/A 75%
Weighted average expected life of the option: N/A 3.5 years.

In February 2004, the Company's majority shareholder, St. Petka Trust, granted
1,000,000 options to an employee of the Company. The Company accounted for the
transactions between St. Petka Trust and this employee in accordance with Staff
Bulletin Board (SAB) 5T, "Accounting for Expenses or Liabilities Paid by
Principal Stockholder(s)" which requires the Company to record expense for
services paid by the stockholder for the benefit of the Company. Since the
strike price of the options is higher than the market price of the Company's
stock on the date of the grant, no expense was recorded in accordance with APB
25. The fair value of the options approximates $989,898 under the SFAS 123 which
is included in the calculation of the pro forma net loss.

During the year ended March 31, 2005, the Company issued 3,300,000 warrants to
consultants with a weighted average exercise price of $1.75. The warrants vest
over a period ranging from immediately to three years. The fair value of these
warrants amounted to $1,501,364 which is being amortized to expense over the
terms of the consulting agreements. During the year ended December 31, 2004, the
Company recognized an expense of $553,715 related to these warrants.

Advertising and Marketing Costs
--------------------------------

Advertising costs are expensed as incurred and included in operating expenses.
For the years ended March 31, 2005 and 2004 and for the period from November 21,
2000 (inception) to March 31, 2005, advertising costs were $1,395, $150,083, and
$333,318, 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.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

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, 2005 and 2004, the Company has approximately
5,844,167 and 3,260,834 common stock equivalents, respectively. In addition, as
of March 31, 2005, 716,667 shares of common stock are issuable upon the
conversion of the convertible note payable and convertible preferred stock.

Comprehensive Loss
-------------------

SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the
reporting and display of comprehensive income and its components in the
financial statements. For the years ended March 31, 2005 and 2004 and the period
from November 21, 2000 (inception) to March 31, 2005, the Company has no items
that represent comprehensive income and, therefore, has not included a schedule
of comprehensive income in the financial statements.

Discount on Convertible Note Payable and Preferred Stock
--------------------------------------------------------

Discounts on convertible note payable and preferred stock are the relative fair
values attributed to the detachable warrants issued and the value of the
beneficial conversion features associated with the convertible note payable and
preferred stock. These discounts are accounted for in accordance with Emerging
Issues Task Force ("EITF") 00-27, "Application of Issue No. 98-5 to Certain
Convertible Instruments" issued by the American Institute of Certified Public
Accountants.

Warrant Liability
------------------

Pursuant to EITF 00-19, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock", the Company has recorded
the relative fair value of warrants issued with registration rights on the
Convertible Debenture and the Convertible Preferred Stock in the amount of
$31,719 as a short-term liability until the Company has obtained an effective
registration statement for these shares.

Additionally, the Company is required to report a value of the warrant as a fair
market value and record the fluctuation to the fair value of the warrant
liability to current operations. The fair value decreased by $110,419 and
$209,341 during the years ended March 31, 2005 and 2004, respectively, and such
amount has been included in other income.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

Recently Issued Accounting Pronouncements
------------------------------------------

In November 2004, the FASB issued SFAS No. 151, entitled Inventory Costs -- An
Amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No.
43, Chapter 4, entitled Inventory Pricing [June 1953], to clarify the accounting
for "abnormal amounts" of idle facility expense, freight, handling costs, and
wasted material [spoilage]. Before revision by SFAS No. 151, the guidance that
existed in ARB No. 43 stipulated that these type items may be "so abnormal" that
the appropriate accounting treatment would be to expense these costs as incurred
[i.e., these costs would be current-period charges]. SFAS No. 151 requires that
these type items be recognized as current-period charges without regard to
whether the "so abnormal" criterion has been met. Additionally, SFAS No. 151
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
adoption of SFAS 151 did not impact the consolidated financial statements.

In December 2004, the FASB issued SFAS No. 152, entitled Accounting for Real
Estate Time-Sharing Transactions -- An Amendment of FASB Statements No. 66 and
67. SFAS No. 152 amends SFAS No. 66 to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided in
AICPA Statement of Position 04-2. SFAS No. 152 also amends SFAS No. 67 to state
that the guidance for (a) incidental operations and (b) costs incurred to sell
real estate projects does not apply to real estate time-sharing transactions.
The accounting for those operations and costs is subject to the guidance of SOP
04-2. This statement is effective for financial statements for fiscal years
beginning after June 15, 2005. The adoption of SFAS 152 did not impact the
consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, entitled Exchanges of
Nonmonetary Assets -- An Amendment of APB Opinion No.29. SFAS No. 153 amends
Opinion 29 to eliminate the exception for nonmonetary exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The adoption of SFAS 153 did
not impact the consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123 (Revised), entitled Share-Based
Payment. This revised Statement eliminates the alternative to use APB Opinion
No. 25's intrinsic value method of accounting that was provided in SFAS No. 123
as originally issued. Under Opinion 25, issuing stock options to employees
generally resulted in recognition of no compensation cost. This Statement
requires entities to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of
those awards. For public companies that file as a small business issuer, this
Statement is effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The adoption of SFAS 123
(Revised) will not impact the consolidated financial statements as the Company
has not granted any equity instruments to employees.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

In May 2005, the FASB issued SFAS No. 154, entitled Accounting Changes and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3. This
Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement
No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes
the requirements for the accounting for and reporting of a change in accounting
principle. This Statement applies to all voluntary changes in accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. Opinion 20 previously required that most voluntary changes in
accounting principle be recognized by including in net income of the period of
the change the cumulative effect of changing to the new accounting principle.
This Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. This Statement defines retrospective application as the application of a
different accounting principle to prior accounting periods as if that principle
had always been used or as the adjustment of previously issued financial
statements to reflect a change in the reporting entity. This Statement also
redefines restatement as the revising of previously issued financial statements
to reflect the correction of an error. The adoption of SFAS 154 did not impact
the consolidated financial statements.

NOTE 2 - ACQUISITION OF CERTAIN ASSETS

On November 22, 2000, the Company entered into an asset purchase agreement to
acquire certain tangible and intangible assets from Gene Pharmaceuticals, LLC,
formerly known as Allergy Limited, LLC ("GP LLC"), an unrelated company. As
consideration, the Company agreed to pay a $150,000 down payment, as well as
royalty payments calculated as a percentage of gross sales of the product known
as "Immune-Eeze," occurring on or after January 1, 2001. The royalty payments
were to be computed and payable quarterly, beginning with the quarter ended
March 31, 2001, at the greater of the:

(i) Buyers Minimum Royalty Obligation;
(ii) rate of 6% of annual gross sales on the first $50,000,000 in gross
sales; and
(iii) rate of 3% of annual gross sales on all gross sales in excess of
$50,000,000.

The Company's minimum royalty obligation to GP LLC in the event that gross sales
in any quarter did not meet certain threshold amounts would total $3,930,000.
The minimum guaranteed purchase price was payable through 2022.

Gross sales are defined as all payments received by the Company on worldwide
sales of all products containing Vitamin B12 including, but not limited to,
sales of all products in pediatric doses and for use by domestic animals.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

Per the asset purchase agreement, the Company had the option to buy the patent
outright with no royalty or future minimum royalty payments for the following:

$5,000,000 through June 30, 2002; $6,000,000 from July 1, 2002 to June 30, 2003;
$7,000,000 from July 1, 2003 to June 30, 2004; or $8,000,000 thereafter.

The tangible and intangible assets purchased resulted in the recording of $6,250
of inventory, $1,080,286 of patents as of November 22, 2000, and, since the
minimum royalty payments did not include interest, the Company has recorded a
discount on the contract payable totaling $2,843,464, using an interest rate of
15.5%, which was being amortized over the life of the payable.

Per the asset purchase agreement, the Company has secured the rights to two
patents, which were valued at their fair market values as of the date of
purchase. The patents are for the introduction of, or "delivery" of,
Cyanocobalamin, via a lozenge, and cover the various forms of B12 used to
provide relief from allergy and bronchial asthma symptoms. The U.S. patent
expires in 2019. Under certain circumstances, this term could be extended by up
to 5 years for regulatory delays involving the FDA under the Hatch-Waxman Act,
35 U.S.C. $156. Additional U.S. and foreign patents covering the use of lozenges
delivering B12 for allergic diseases are in effect until 2019. Amortization was
calculated on a straight-line basis over the shorter of the remaining economic
life or estimated lives of the patents.

Recognition of contingent royalty payments above the guaranteed purchase price
will be expensed in the period they are incurred.

As of March 31, 2002, the Company was in default on the minimum guaranteed
payments. On April 20, 2002, payments relating to the minimum guaranteed
purchase price were extended without penalty until May 31, 2002, at which time
the first payment was due and payable. On June 1, 2002, the Company again
defaulted on the agreement.

Per the asset purchase agreement, in event of default on any of the royalty or
minimum royalty payments to the seller and such default is not cured with in 120
days, all purchased assets would revert back to GP LLC.

On December 19, 2002, GP LLC and the Company entered into a new memorandum of
agreement whereby they amended the terms of the original asset purchase
agreement whereby the purchase price shall be as follows:

a) the sum of all amounts previously paid by the Company under the asset
purchase agreement totaling $161,000;
b) the outstanding contractual obligation for minimum royalty payments be
settled for the issuance of 2,000,000 shares of the Company's common
stock valued; and
c) a royalty calculated at 1.5% of the gross sales of the product, as
defined above.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

Royalty payments shall commence to accrue on December 19, 2002, and will be
computed and payable quarterly. For the years ended March 31, 2005 and 2004 and
the period from November 21, 2000 (inception) to March 31, 2005, no royalty
expense was accrued due to insignificant amount of sales for the periods.

As a result, the Company satisfied its indebtedness to GP LLC, and reduced its
future royalty obligation related to the patents in exchange for the 2,000,000
shares of the Company's common stock.

Also see Note 12 as the Company has restated its consolidated financial
statements as a result of changes in the way it has accounted for this
transaction with GP LLC.

NOTE 3 - PROPERTY AND EQUIPMENT

The cost of property and equipment at March 31, 2005 consisted of the following:

Furniture and fixtures $ 71,500
Office equipment 42,120
---------------
113,620
Less accumulated depreciation and amortization (68,576)
---------------
$ 45,044

Depreciation expense for the years ended March 31, 2005 and 2004 and the period
from November 21, 2000 (inception) to March 31, 2005 was $20,028, $19,852, and
$68,576, respectively.

NOTE 4 - ACCRUED EXPENSES

Accrued expenses at March 31, 2005 consisted of the following:

Accrued clinical trials payable $ 1,117,998
Accrued penalties payable 710,000
Accrued interest payable 168,658
Accrued legal settlement 60,000
Accrued legal fees 25,000
Other 126,428
---------------
$ 2,208,084

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

NOTE 5 - DUE TO RELATED PARTIES

Due to related parties at March 31, 2005 consists of the following:

R&R Holdings, Inc. a) $ 2,634,648
Chaslav Radovich b) 31,250
Other officers/executives c) 196,459
--------------
$ 2,862,357

(a) On January 1, 2001, the Company entered into a consulting contract with R&R
Development, Inc. DBA R&R Holdings, Inc. ("R&R") whereby they would provide
managerial consulting services to the Company at the rate of $125,000 per year
and the rate shall increase to $135,000 per year when and if the Company
completes a merger with a public shell company. R&R is also a shareholder of the
Company. As of March 31, 2005, the Company had accrued $343,642 of consulting
fees relating to this agreement.

R&R advances the Company cash from time to time. As of March 31, 2005, the
Company owed R&R $1,943,050 related to these advances. The Company has accrued
interest on these advances at a rate of 10% per annum. Accrued interest at March
31, 2005 related to these advances totaled $147,309.

In September 2003, R&R advanced the Company an additional amount of $170,000 at
the rate of 10% per annum. These funds were specifically to provide the Company
with additional financing with regard to the InnoFood transaction. (See Note 9)
Accrued interest at March 31, 2005 related to this advance was $30,647.

The amount of 2,634,648 represents the combined total advanced to Cobalis Corp.
from St Petka Trust, RR Holdings Inc., and Silver Mountain Promotions Inc; all
of which are beneficially owned by Radul Radovich, chairman of the board.

(b) The Company currently owes its Chief Executive Officer $31,250 in past due
compensation. The Company is accruing salary to its CEO at an annual rate of
$125,000. During the year ended March 31, 2005, the Company issued to its CEO
251,651 shares of common stock for past due salary of $248,250, interest accrued
on paid due salary of $18,034 and a bonus of $50,000.

NOTE 6 - CONVERTIBLE NOTE PAYABLE

In September 2003, the Company sold a $600,000, three-year, 8% convertible note
payable to Gryphon Master Fund, LP, which is convertible into shares of the
Company's common stock at the initial conversion price of $2.00 per share. This
price is subject to adjustment should the Company issue shares of its common
stock at a price less than $1.75 per share. The convertible note payable was
sold with detachable three-year warrants to purchase 90,000 shares of the
Company's common stock at $2.90 per share. The warrant exercise price is also
subject to adjustment based on sales of the Company's common stock below the
current fair market value on the contract date.

The fair value of these warrants totaling $169,630 was computed using the
Black-Scholes model under the following assumptions: (1) expected life of 3
years; (2) volatility of 104%, (3) risk free interest of 4.39% and (4) dividend
rate of $0%. In addition, since this debt is convertible into equity at the
option of the note holder at beneficial conversion rates, an embedded beneficial
conversion feature was recorded as a debt discount and amortized using the
effective interest method over the life of the debt in accordance with Emerging
Issues Task Force No. 00-27, "Application of Issue No. 98-5 to Certain
Convertible Instruments." Since the intrinsic value of the beneficial conversion
feature and relative fair value of the warrants exceeds the proceeds of the
convertible debt, the amount of the discount assigned to the beneficial
conversion feature and warrants is limited to the amount of the net proceeds of
the convertible debt. Therefore, the Company recorded a discount of $516,500
(consisting of relative fair value of the warrants of $169,630 and beneficial
conversion features of $346,870), the net proceeds received by the Company after
the debt discount of $83,500. For the year ended March 31, 2004, the Company
recorded the amortization of discount in the amounts of $24,363 as interest
expense using the effective interest method. 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. See Note 11.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

The Company also entered into a registration rights agreement whereby the
Company agreed to file a valid registration statement with the Securities and
Exchange Commission to register the shares of common stock underlying the
Convertible Debentures and Debenture Warrants. Pursuant to EITF 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock", the relative fair value of the warrants has
been recorded as a short-term liability until the Company has obtained an
effective registration statement for these shares. If the Company does not file
such an effective registration statement within 30 days of the closing date, or
October 8, 2003, the Company is subject to penalties as follows: 1% of the
principal amount of the funding for the first 30 day period in which the Company
fails to file such registration statement, and 2% for each 30 day period
thereafter. At March 31, 2005, the Company had not filed such a registration
statement and accordingly is currently subject to a penalty of approximately
$210,000.

In addition, the Company is required to report a value of the warrant as a fair
value and record the fluctuation to the fair value of the warrant liability to
current operations. During years ended March 31, 2005 and 2004, the decrease of
the relative fair value of the warrants approximated $68,675 and $87,259,
respectively. The relative fair value of the warrants approximated $13,696 as of
March 31, 2005.

Per the terms of the note agreement, in the event of default, the Company is
subject to accrue interest at a default rate of 18% from the date of the
default. As of March 31, 2005, Company had accrued interest of $168,658 related
to this convertible note payable. In addition, the Company is obligated to remit
125% of the outstanding note balance or $150,000 upon the acceleration of
repayment by the holder.

In January 2004, the Company issued 135,000 shares of its common stock to the
note holder, who agreed not to exercise any or all of its rights or remedies
upon default stated in the note agreement until April 30, 2004. The Company had
not cured the defaults upon the due date. In May 2004, the Company entered into
a Forbearance Agreement with this note holder. Under the terms of the agreement,
the Company agreed to issue 170,000 shares of its common stock to this note
holder as forbearance fee in order for it not to exercise the rights and
remedies upon default stated in the note agreement until the earlier of (1)
September 30, 2004 or (2) such date that further event of default stated in the
note agreement and the forbearance agreement. The Company accrued $692,500 as
interest expense related to these issuances during the year ended March 31,
2004.

This convertible debenture is presented in the accompanying balance sheet as a
current liability as the Company has not made required interest payment on this
convertible debenture which is an event of default that give the holder the
right to call the convertible debenture.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

A rollforward of the convertible note payable is as follows:

Balance, March 31, 2003 $ -
Issuance of convertible debenture 600,000
Original discounts recorded on convertible debenture (516,500)
Amortization of discounts 24,363
---------------
Balance, March 31, 2004 $ 107,863
Amortization of discounts 492,137
---------------
Balance, December 31, 2004 $ 600,000
===============

The Company capitalized $83,500 of debt issues costs that is being amortized
over the life of the Convertible Note. During the year ended March 31, 2004, the
Company amortized $15,618 relating to debt issue costs. During the year ended
March 31, 2005, the Company fully amortized the debt issue costs associated with
the $600,000 convertible note payable due to the lawsuit filed by the holder of
the convertible note payable. See Note 12.

NOTE 7 - CONVERTIBLE PREFERRED STOCK

In September 2003, the Company sold 1,000 shares of its 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 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 $2.90 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.

Pursuant to EITF 00-19, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock", approximately $181,849,
the relative fair value of the warrants, has been recorded as a short-term
liability until the Company has obtained an effective registration statement for
these shares.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

If the Company does not file such an effective registration statement within 30
days of the closing date, or October 25, 2003, the Company is subject to
penalties as follows: 1% of the value of the shares and the warrants paid by the
purchaser for the first 30 day period in which the Company fails to file such
registration statement, and 2% for each 30 day period thereafter. At March 31,
2005, the Company had not filed such a registration statement and accordingly is
currently subject to a penalty of $350,000.

In addition, the Company is required to report a value of the warrant as a fair
value and record the fluctuation to the fair value of the warrant liability to
current operations. During the years ended March 31, 2005 and 2004, the decrease
of the relative fair value of the warrants approximated $41,744 and $122,082,
respectively. The relative fair value of the warrants approximated $18,023 as of
March 31, 2005.

As of March 31, 2005, the Company has not declared any preferred dividends and
there was $112,500 of dividends in arrears related to the 1,000 share of
convertible preferred stock.

Pursuant to the Amended and Restated Articles of Incorporation, the Company is
authorized to issue up to 5,000,000 shares of preferred stock. The Company has
designated the issuance of a series of Preferred Stock to be called the "7.5%
Convertible Preferred Stock." The total number of shares of Convertible
Preferred Stock that the Company shall have the authority to issue is 1,000.
Each share of the Convertible Preferred Stock has a par value of $0.001 per
share. The holder of each share of the Convertible Preferred Stock shall be
entitled to the number of votes equal to the number of shares of common stock
into which such share of Convertible Preferred Stock could be converted for
purposes of determining the shares entitled to vote at any regular, annual or
special meeting of shareholders of the Company.

NOTE 8 - 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 7).

Common Stock
------------

The Company has authorized 50,000,000 shares of $0.001 par value common stock.

The Company entered into a consulting agreement and agreed to issue to the
consultant 100,000 share on each of the following dates: August 1, 2004,
February 1, 2005 and July 31, 2005. The Company also agreed to issue to this
consultant 200,000 warrants with an exercise price of $1.75 per share on each of
the following dates: November 1, 2004, May 1, 2005 and July 31, 2005. As of
March 31, 2005, the Company has recognized a liability of $49,344 related to
these unissued shares and warrants.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

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 Company is in the
process of amending the stock option plan to increase the number of shares
authorized to be issued.

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

Transactions under the Plans during the years ended March 31, 2004 and 2005 are
summarized as follows:

The following table summarizes the options outstanding:

Weighted
Stock Average
Option Exercise
Plan Price
-------------- ---------------

Balance, March 31, 2003 1,150,000 $ 1.22
Granted 1,200,000 $ 2.00
Exercised - $ -
Canceled - $ -
--------------
Balance, March 31, 2004 2,350,000 $ 1.62
Granted - $ -
Exercised - $ -
Canceled - $ -
--------------
Balance, March 31, 2005 2,350,000 $ 1.62
==============

Exercisable at March 31, 2005 2,350,000 $ 1.22
===============

The weighted average remaining contractual life of options outstanding issued
under the Plan is 2.18 years at March 31, 2005. The exercise price for the
options outstanding under the Plan at March 31, 2005 are as follows:

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

Number of Exercise
Options Price
----------------- ----------------

625,000 $1.00
25,000 $1.10
500,000 $1.50
1,200,000 $2.00
-----------------
2,350,000
=================

For options granted during the year ended March 31, 2004 where the exercise
price was greater than the stock price at the date of the grant, the
weighted-average fair value of such options was $0.99 and the weighted-average
exercise price of such options was $2.00. No options were granted during the
year ended March 31, 2004 where the exercise price was equal to or less than the
stock price at the date of grant. In addition to the 1,200,000 options granted
by the Company during the year ended March 31, 2004, the Company's majority
stockholder also granted an employee an option to purchase 1,000,000 of its
shares at an exercise price of $2.00. The pro forma expense related to these
1,000,000 options is included in the pro forma disclosure in Footnote No. 1.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of employee stock options.

Warrants

The Company has issued warrants in connection with the issuance of a convertible
debenture and convertible preferred stock. The following table summarizes the
warrants outstanding:

Weighted-
Average
Exercise
Warrants Price

Balance, March 31, 2003 - $ -
Granted 194,167 $ 2.89
Exercised - $ -
Canceled - $ -
--------------
Balance, March 31, 2004 194,167 $ 2.89
Granted 3,300,000 $ 1.75
Exercised - $ -
Canceled - $ -
--------------
Balance, March 31, 2005 3,494,167 $ 1.80
===============

Exercisable at March 31, 2005 3,494,167 $ 1.80
===============

The fair value for these warrants was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the years ended March 31, 2005 and 2004, respectively: risk-free
interest rate of 3.50% and 4.23%; dividend yields of 0% and 0%; volatility
factors of the expected market price of the Company's common stock of 108% and
ranging from 110% to 180%; and a weighted average expected life 2 to 3 years and
1 to 3 years.

The weighted average remaining contractual life of warrants outstanding is 3.91
years at March 31, 2005. The exercise price for the warrants outstanding at
March 31, 2005 are as follows:

Number of Exercise
Warrants Price
----------------- -------------
3,300,000 $1.75
90,000 $2.88
104,167 $2.90
-----------------
3,494,167
=================

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

NOTE 9 - IMPAIRMENT EXPENSE

On July 28, 2003, the Company entered into a definitive agreement (the "InnoFood
Agreement") to acquire InnoFood, Inc. ("InnoFood"), owner of certain rights to a
proprietary food processing technology developed by Modofood S.P.A. of Brescia,
Italy. The agreement provided the Company exclusive distribution rights (through
the acquisition of InnoFood) of Modofood's proprietary food sterilization and
preservation technology for North America, Central America, South America and
Japan, as well as the exclusive rights to negotiate on behalf of Modofood for
Southeast Asia, including Taiwan, China and Indonesia.

Under the terms of the agreement, InnoFood shareholders would receive one share
of the Company's common stock and one warrant to purchase one share of the
Company's common stock for every twelve (12) shares of InnoFood common stock.
InnoFood shareholders were also to receive one InnoFood preferred share for
every 1,200 InnoFood common shares. The agreement called for the Company to
infuse $5 million of working capital prior to December 31, 2003.

Prior to December 31, 2003, the Company has advanced InnoFood the sum of
$2,220,000.

On October 17, 2003 the Company entered into a Letter of Understanding ("LOU")
with InnoFood to restructure the relationship between the Company and InnoFood.
The Company believed that InnoFood may have misled the Company's management
regarding certain material matters. As a result, the definitive agreements were
never prepared and parties did not finalize the matters referenced in the LOU.

On January 8, 2004, InnoFood sent the Company a letter explaining that InnoFood
was terminating the original InnoFood agreement and the October 17, 2003 LOU.
InnoFood claimed that the Company breached both the original Agreement and the
LOU by failing to provide the funding provided for under those agreements. With
the letter of termination, InnoFood delivered a signed Promissory Note agreeing
to pay back the $2,160,000 (net of interest of $60,000 InnoFood charged to the
Company for non-payments). The Promissory Note accrues interest at 10% and is
due and payable on or before January 15, 2009. As of June 30, 2005, the Company
has not yet accepted the terms of this promissory note and is still in
negotiation with InnoFood regarding the purchase.

The Company believes that InnoFood breached not only the original InnoFood
Agreement but also the LOU. The Company intends to vigorously pursue InnoFood
and all other responsible parties, but has not determined whether it will file
suit against InnoFood and any other parties. The Company may also consider
pursuing legal action against Modofood S.P.A.; if it is unable to resolve these
matters informally through negotiations now taking place. In the meantime, the
Company is attempting to resolve this dispute without court intervention.

Since the Company believes that InnoFood breached the original agreement and the
LOU, it did not fund the additional $2,780,000 which was to be used by InnoFood
as working capital to expand its operations to be able to generate an operating
profit. Due to the lack of funding received by InnoFood by the Company or
another party, the Company believes that InnoFood's current financial condition
is not sufficient to be able to repay the Promissory Note InnoFood issued to the
Company. As a result, the Company has written off the entire amount of the
acquisition deposit paid to InnoFood in the amount of $2,220,000.

As more fully disclosed in Note 1, the Company also recorded an impairment
charge of $111,522 related to the writedown of one of its patents.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

NOTE 10 - 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, 2005 are as
follows:

Deferred tax assets:
Federal net operating loss $ 3,703,000
State net operating loss 383,000
Equity instruments issued for compensation/services 1,295,000
Accrued compensation 229,000
Impairment expense 888,000
-------------
6,498,000
Total deferred tax assets
Less valuation allowance (6,498,000)
-------------

$ --
=============

During the years ended March 31, 2005 and 2004, the valuation allowance
increased by $3,021,000 and $2,193,000, respectively.

At March 31, 2005, the Company had federal and state net operating loss ("NOL")
carryforwards of approximately $10,949,000 and $5,157,000, respectively, which
include federal and state NOL in the amount of approximately $4,200,000 and
$1,662,000 respectively, from Biogentec, Inc., prior to the effective date of
the reverse merger on July 2, 2003. Federal NOLs could, if unused, expire in
varying amounts in the years 2020 through 2025. State NOLs, if unused, could
expire in varying amounts from 2005 through 2010.

The reconciliation of the effective income tax rate to the federal statutory
rate for the years ended March 31, 2005 and 2004 is as follows:

2005 2004
----------- -----------
Federal income tax rate (34.0%) (34.0%)
State tax, net of federal benefit (6.0%) (6.0%)
Equity instruments issued for
Compensation/services 12.8% 4.4%
Accrued compensation 0.2% 3.7%
Impairment expense 0.0% 16.4%
Increase in valuation allowance 27.0% 15.5%
----------- -----------
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.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Litigation
----------

Gryphon Master Fund, LP v. Cobalis Corp.: On November 8, 2004, the Gryphon
Master Fund, LP filed a lawsuit against the Company in United States District
Court, Northern District of Texas, Dallas Division. The lawsuit seeks repayment
of the $600,000 convertible note payable, accrued interest on the convertible
note payable, penalties for failing to register the shares underlying the
conversion of the convertible note payable, attorney fees and court costs. As of
March 31, 2005, the Gryphon asserts that the Company has accrued $1,503,658
related to this matter. However, the Company disputes this assertion based on
the issuance of 305,000 forebearance shares to Gryphon to offset penalties and
interest, reducing the total in the Company's opinion to $811,158. The matter is
currently in litigation via a countersuit initiated by the Company in response
to Gryphon's suit as described above.

Burkett v. Cobalis, et al.: On January 5, 2005, Linda Burkett filed a complaint
in the Superior Court of Orange County, California against, among others,
Cobalis Corp. and Innofood. Cobalis Corp. was included as a defendant in the
following causes of action: Breach of Contract; Money Lent; Money Had and
Received; Conversion; Fraud; and Negligent Misrepresentation. In essence, Ms.
Burkett is claiming that she "loaned" all named defendants $250,000 and that the
funds were never paid back. It appears that the funds were sent directly to
Innofood and that Cobalis Corp. was added as a defendant under the theory that
Cobalis Corp. somehow allegedly benefited from the funds. Ms. Burkett is
claiming various damages, including, but not limited to, repayment of funds,
interest and related economic damages. In February 2005, Cobalis Corp. was
dismissed as a defendant in this matter due to not being involved or knowing
anything about this loan transaction.

Gemini Partners, Inc. v. Cobalis Corp.: On or about December 8, 2004, Gemini
Partners, Inc., filed a complaint in the Superior Court of Orange County,
California, against Cobalis Corp. for Breach of Contract, Promissory Estoppel,
Common Counts and Quantum Meruit. Gemini Partners, Inc., is claiming that
Cobalis Corp. failed and refused to pay for services related to Cobalis Corp.'s
patent valuation. On or about January 27, 2005, Gemini Partners, Inc., filed a
Request for Default claiming that Cobalis Corp. had not responded to the
complaint within the statutorily allotted period. It is unclear whether the
default was entered. Gemini Partners is claiming damages in an amount less than
$25,000. The Company has accrued $25,000 in the accompanying consolidated
balance sheet related to this matter. As of April 11, 2005 we paid Gemini
Partners in full.

Lease Dispute: 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. The Company believes that the landlord breached the
agreement and, as such, the Company does not believe it owes any unpaid rent.
The landlord holds a sufficient security deposit to cover the disputed amount.
The landlord also recently obtained a writ of attachment in the amount of
$58,840. The Company has accrued a liability of $60,000 for potential
unfavorable outcome.

In the ordinary course of business, the Company is generally subject to claims,
complaints, and legal actions. At March 31, 2005, 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.

(INFORMATION FROM INCEPTION TO MARCH 31, 2004 IS UNAUDITED)

Leases
------

The Company currently leases its corporate office under an operating lease that
expires in March 2006. The Company has paid a security deposit of $40,000 per
the terms of the lease agreement.

Rent expense for the years ended March 31, 2005 and 2004 and for the period from
November 22, 2000 (inception)to March 31, 2005, was $133,104, $125,680, and
$416,363, respectively.

Future minimum lease payments applicable to non-cancelable operating leases as
of March 31, 2005, are as follows:

Operating
Leases
Year ending March 31,
2006 137,466
---------------

Net Minimum Lease Payments $ 137,466
===============

Common Shares Issued For Loan Collateral
----------------------------------------

During July 2003, the Company was negotiating with a lender in Germany for a
loan in the amount of approximately $2,400,000. On July 31, 2003, the Company
issued 3,000,000 shares of its restricted common stock as collateral for this
loan. This transaction was never completed, there was no consideration to serve
as basis for a transaction, and the Company is in the process of attempting to
cancel the share certificate. These shares were canceled in August 2004.

NOTE 12 - RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS

As discussed in Note 2, the Company entered into agreements with GP LLC to
purchase certain patents and other assets. The Company previously had valued the
patents based on the present value of the minimum contractual obligations using
a 6% discount rate. Per the December 19, 2002 agreement, the Company issued to
GP LLC 2,000,000 shares of the Company's common stock in exchange for the
minimum contractual payments. At the time the Company valued the transaction
based on the deemed current value of the Company's common stock, which resulted
in the Company increasing the carrying value of the patents by $1,658,378. The
Company's stock was not publicly traded so the Company valued its stock at $2.00
per share which was the most recent price that the Company had sold shares for
cash. After this increase in the value of patents, the patents carrying value
was $3,905,832. At March 31, 2003, the patents were appraised at $3,850,000
which resulted in the Company writing down the value of the patents by $55,832.

The Company has restated its previously issued consolidated financial statements
to reflect using a discount rate of 15.5% rather than 6% to value the minimum
contractual obligations and to value the 2,000,000 shares of common stock issued
in the December 19, 2002 transaction at the carrying value of the contractual
obligation that was exchanged for the shares rather than at the deemed current
value of the shares at the date of issuance.

In addition, the Company did not amortize the value of its patents. The
accompanying consolidated financial statements have been restated to reflect the
amortization of the Company's patents over the estimated useful life of the
patents using the straight line method. Amortization expense for the years ended
March 31, 2001, 2002 and 2003 was $20,458, $84,690 and $87,161, respectively.

The effects of the restatement are as follows:

As previously
filed As restated

March 31, 2001
Patents $ 2,222,744 $ 1,100,756
Accumulated amortization of patents $ - $ 20,458
Contract payable $ 2,206,422$ 1,092,530
Total Stockholders' equity $ 76,117 $ 47,565
Net loss $ (194,864) $ (223,416)

March 31, 2002
Patents $ 2,246,005 $ 1,124,017
Accumulated amortization of patents $ - $ 105,148
Contract payable $ 2,259,533$ 1,176,802
Total Stockholders' deficit $ (260,911) $ (405,315)
Net loss $ (1,028,397) $ (1,144,249)

March 31, 2003
Patents $ 3,850,000 $ 1,125,466
Accumulated amortization of patents $ - $ 192,309
Total Stockholders' equity $ 3,418,865 $ 502,022
Net loss $ (2,087,652) $ (2,148,008)

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
-------------------------------------------------------

There have been no changes in or disagreements with our accountants that are
required to be disclosed pursuant to Item 304 of Regulation S-B except for the
following:

On December 1, 2004, our independent auditor, Stonefield Josephson, Inc.,
Certified Public Accountants, 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 Josephson
completing their review and contained several errors, including the following:

o the valuation of certain warrants and common stock granted to
non-employees were computed incorrectly and consequently the related
expense amount was incorrectly recorded;
o 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;
o 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;
o Note 8 regarding Restatement of Prior Year Financial Statements should
have included the restated information for the three months ended
September 30, 2003; and
o 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 Josephson, Inc. prior to filing.

On July 15, 2005, we filed our annual report on Form 10-KSB for the fiscal year
ended March 31, 2005 without the permission of Stonefield Josephson, Inc., our
former auditor, due to a fee dispute with Stonefield Josephson, Inc. Our annual
report erroneously included a report dated July 20, 2005, which purported to be
from Stonefield Josephson, Inc., implying that additional auditing procedures
had been performed by that firm, when that had not occurred. Therefore, this
amended annual report is being filed to remove the Stonefield Josephson report.

Stonefield Josephson has notified us that it has withdrawn its report dated July
8, 2004 on the Company's 2004 and 2003 financial statements and its report dated
May 23, 2003 on the Company's 2003 and 2002 financial statements, effective
immediately. Stonefield Josephson also notified us that reliance should not be
placed on the aforementioned reports on any related financial statements.

During 2003, we changed our fiscal year end from December 31 to March 31.

ITEM 8A. CONTROLS AND PROCEDURES.
---------------------------------

(a) Evaluation of disclosure controls and procedures. We maintain controls and
procedures designed to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Based upon
their evaluation of those controls and procedures performed, our chief executive
officer and the principal financial officer concluded that our disclosure
controls and procedures were adequate.

(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.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
----------------------------------------------------------------------

EXECUTIVE OFFICERS AND DIRECTORS. Our directors and principal executive officers
are as specified on the following table:

=================== ======== ===================================================
Name Age Position
------------------- -------- ---------------------------------------------------
Chaslav Radovich 45 Chief Executive Officer, President, Secretary,
Treasurer and a Director
------------------- -------- ---------------------------------------------------
Radul Radovich 82 Director
------------------- -------- ---------------------------------------------------
Ernest Armstrong 45 Vice President of Business Development, Director
------------------- -------- ---------------------------------------------------
Kevin Prendiville 50 Director
------------------- -------- ---------------------------------------------------
Lawrence May 56 Director
=================== =========== ================================================

RADUL "RUDY" RADOVICH, CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Radovich, age 82,
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 not an officer or director of any other reporting company.

CHASLAV "CHAS" RADOVICH, PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR. Mr.
Radovich, age 45, was Founder and CEO of Best Electronics, Inc., from 1986
through 1992. Best Electronics was a wholesaler-distributor of computer memory
and peripheral products for companies including Intel, NEC, Toshiba, Motorola
and Texas Instruments. From inception, Best Electronics, Inc. was profitable and
Mr. Radovich grew earnings by more than 24% per year, while strategically
expanding the staff to 25. Since 1992, he has been an independent investor and
investment banker with R & R Holdings, Inc. Over the last ten years, Mr.
Radovich has raised well over $100 million for private and public companies and
played an instrumental role in taking many of them public, including Healthstar,
Pharmaprint, Logon America and AimSmart. Mr. Radovich is not an officer or
director of any other reporting company.

ERNEST ARMSTRONG, VICE PRESIDENT-BUSINESS DEVELOPMENT AND A DIRECTOR. Mr.
Armstrong, age 45, as CEO of Gene Pharmaceuticals, LLC, has overseen clinical
research on allergic rhinitis products and out-licensed medical technology for
us. From 1991 through 1996, Mr. Armstrong was Founder and President of Broncorp,
Inc., a research-based pharmaceutical company focused on drug-delivery
technologies and on developing treatments for asthma and allergy. He was an
Associate Professor of International Business at Dai-Ichi Economics College,
Fukuoka, Japan 1998-1991. Armstrong speaks seven languages and previously lived
in Canada, France, Guatemala, Italy, Japan and Switzerland. His education
includes: BA-International Marketing and core courses for BS in Biology,
Humboldt State University, Arcata, California; BA-French, University of
Aix-en-Provence, France; MBA-San Francisco State University. Mr. Armstrong is
not an officer or director of any other reporting company.

ALSO ON OUR BOARD OF DIRECTORS:

KEVIN J. PRENDIVILLE, M.D., F.A.C.S. Dr. Prendiville is a Diplomate of the
American Board of Ophthalmology and a Fellow of the American College of
Surgeons. Since 1986, he has operated a thriving ophthalmology practice in
Cottonwood and Sedona, Arizona, specializing in small incision cataract surgery,
cosmetic and functional eyelid surgery as well as excimer laser vision
correction. Dr. Prendiville also serves as Medical Director for the
Cottonwood/Verde Valley Eye Surgery Center and, since 1989, has held numerous
medical leadership positions at Verde Valley Medical Center in Cottonwood. Dr.
Prendiville is not an officer or director of any other reporting company.

LAWRENCE A. MAY, M.D. Dr. May brings extensive medical and entrepreneurial
experience to our Board of Directors. He has served as the medical director for
Physician Therapeutics since 2003. From 1997 to 2003, Dr. May served as an
executive vice president for Herbalife, and was the chairman of its medical
advisory board. Prior to that, Dr. May was in private medical practice since
1979. Dr. May earned his M.D. degree in 1974, and his Bachelor's degree in
Economics in 1970, both at Harvard University. Dr. May was also licensed by the
National Board of Medical Examiners in 1977. Dr. May is not an officer or
director of any other reporting company.

Chaslav Radovich is the son of Radul Radovich. There are no orders, judgments,
or decrees of any governmental agency or administrator, or of any court of
competent jurisdiction, revoking or suspending for cause any license, permit or
other authority to engage in the securities business or in the sale of a
particular security or temporarily or permanently restraining any of our
officers or directors from engaging in or continuing any conduct, practice or
employment in connection with the purchase or sale of securities, or convicting
such person of any felony or misdemeanor involving a security, or any aspect of
the securities business or of theft or of any felony. Nor are any of the
officers or directors of any corporation or entity affiliated with us so
enjoined.

OUR MEDICAL ADVISORY BOARD. Our Medical Advisory Board consists of nine doctors,
preeminent 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 the
company's foundation product, as well as products in our development pipeline.

The members of this 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 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.

LYNDON E. MANSFIELD, MD, PRINCIPAL INVESTIGATIVE PHYSICIAN. Dr. Mansfield, a key
medical advisor and the Principal Investigative Physician for BioGentec Inc.
since 1992, has conducted many allergy related clinical research studies for
major pharmaceutical companies and was instrumental in preparing and presenting
the prior trial results for Prehistin(TM)to the FDA. Education: Temple
University, Thomas Jefferson Medical University - Doctor of Medicine. Residency:
Pediatrics - Brooke Army Medical Center. Board Certifications: Pediatrics,
Allergy and Clinical Immunology, Diagnostic Laboratory Immunology/Clinical Lab,
Immunology. Professional Societies: Fellow, American Academy Allergy &
Immunology Allergy & Immunology, Fellow, American College of Allergists,
Association of Medical Laboratory Immunologists.

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.

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.

There are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining any of our officers or directors from engaging in or continuing any
conduct, practice or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or misdemeanor involving a
security, or any aspect of the securities business or of theft or of any felony,
nor are any of the officers or directors of any corporation or entity affiliated
with us so enjoined.

Our directors will serve until the next annual meeting of stockholders. Our
executive officers are appointed by our Board of Directors and serve at the
discretion of the Board of Directors.

AUDIT COMMITTEE AND FINANCIAL EXPERT. We do not have an audit committee, nor do
we have a financial expert on our Board of Directors as that term is defined by
Item 401(e)2.

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, 2005 our executive officers,
directors, and greater than 10% stockholders complied with all applicable filing
requirements, with the exception of Kevin Prendiville, one of our directors.

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. We are in the
process of preparing and adopting a code of ethics.

ITEM 10. EXECUTIVE COMPENSATION
----------------------------------

Any compensation received by our officers, directors, and management personnel
will be determined from time to time by our Board of Directors. Our officers,
directors, and management personnel will be reimbursed for any out-of-pocket
expenses incurred on our behalf.

Summary Compensation Table. The table set forth below summarizes the annual and
long-term compensation for services in all capacities to us payable to our chief
executive officer and our other executive officers during the fiscal years
ending March 31, 2004 and March 31, 2005. Our Board of Directors may adopt an
incentive stock option plan for our executive officers which would result in
additional compensation.

==================== ======= ======================================== =============================================== ==============
Annual Compensation Long Term Compensation

-------------------- ------- ---------------------------------------- ----------------------------------------------- --------------
Name and Principal Year Salary Bonus ($) Other Annual Awards Payouts All Other
Position ($) Compensation ($) Compensation
-------------------- ------- ---------- ---------- ------------------ --------------------------------- ------------- --------------
Restricted Securities LTIP
Stock Awards Underlying Payouts ($)
($) Options/SARs (#)
-------------------- ------- ---------- ---------- ------------------ -------------- ------------------ ------------- --------------
Chaslav Radovich - 2004 125,000 None None None None None None
President,
Secretary
-------------------- ------- ---------- ---------- ------------------ -------------- ------------------ ------------- --------------
2005 125,000 50,000 None None None None None
(1) shares
(1)
-------------------- ------- ---------- ---------- ------------------ -------------- ------------------ ------------- --------------
Ernest Armstrong- 2004 100,000 None None None None None None
Vice President of
Business
Development
-------------------- ------- ---------- ---------- ------------------ -------------- ------------------ ------------- --------------
2005 100,000 None None None None None None
-------------------- ------- ---------- ---------- ------------------ -------------- ------------------ ------------- --------------
James Luce, former 2004 150,000 None None None None None None
Chief Operating
Officer, Chief
Marketing Officer
-------------------- ------- ---------- ---------- ------------------ -------------- ------------------ ------------- --------------
2005 150,000 None None None None None None
-------------------- ------- ---------- ---------- ------------------ -------------- ------------------ ------------- --------------
==================== ======= ========== ========== ================== ============== ================== ============= ==============

(1) Mr. Radovich was issued 93,750 shares in lieu of employee wages and
50,000 shares as an employee bonus. Mr. Radovich is owed $31,250 in
accrued salary for the period from December 31, 2004 to March 31, 2005
(2) (insert info about options issuable to Armstrong/Gene Pharmaceuticals, if
terms are available)

COMPENSATION OF DIRECTORS. Our current directors who are also our employees
receive no extra compensation for their service on our board of directors. In
January 2005, we issued 250,000 warrants to purchase shares of our common stock
at $1.75 per share to Lawrence May, one of our directors.

COMPENSATION OF OFFICERS. As of July 7, 2005, our officers have received no
other compensation for their services provided to us, except as described in the
table above.

EMPLOYMENT CONTRACTS. The President of our subsidiary (previously the Executive
Vice President) entered into an employment agreement dated November 22, 2000,
amended on December 31, 2001, which pays an annual salary of up to $125,000 and
certain bonuses. As of March 31, 2005, we have a payable to our President
totaling $31,250. In mid 2004, our president was issued 107,901 shares of our
common stock in satisfaction of $154,500 of past due compensation plus interest.
With the additional issuance of 93,750 shares of S-8 stock issued in February
2005, our president's salary has been paid in full through December 31, 2005; we
have accrued the $31,250 owed him through March 31, 2005.

Ernest Armstrong agreed to serve as our Vice President of Business Development
in conjunction with BioGentec's purchase of the patent underlying our principal
product (formerly known as "Immun-Eeze") in 2000 from Gene Pharmaceuticals, LLP.
Mr. Armstrong receives a salary of $100,000 annually.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
------------------------------------------------------------------------

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 7, 2005, 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 percentages in the table assume
that the selling security holders will not sell any of their shares which are
being registered in this registration statement.

=================== ======================================== ==================================== ===================
Title of Class Name and Address of Beneficial Owner Amount and Nature of Beneficial Percent of Class
Owner
------------------- ---------------------------------------- ------------------------------------ -------------------
Chaslav Radovich 557,851 shares (1)
Common Stock 2445 McCabe Way, Suite 150 President, Secretary, Treasurer 2.2%
Irvine, CA, 92614 and Director
------------------- ---------------------------------------- ------------------------------------ -------------------
St. Petka Trust
Common Stock 46 Calle Fresno 9,183,889 shares (2) 36.3%
San Clemente, CA, 92672
------------------- ---------------------------------------- ------------------------------------ -------------------
Radul Radovich
Common Stock 46 Calle Fresno 9,277,055 shares (2) 36.7%
San Clemente, CA, 92672 Director
------------------- ---------------------------------------- ------------------------------------ -------------------
Silver Mountain Promotions
Common Stock 6446 Silver Dawn Lane 92,833 shares (2) 0.4%
Las Vegas, NV, 89118
------------------- ---------------------------------------- ------------------------------------ -------------------
R&R Holdings
Common Stock 46 Calle Fresno 333 shares (2) <0.1%
San Clemente, CA, 92672
------------------- ---------------------------------------- ------------------------------------ -------------------
Ernest Armstrong 1,978,895 shares (3)
Common Stock 2445 McCabe Way, Suite 150 Vice President Business 7.8%
Irvine, CA, 92614 Development
------------------- ---------------------------------------- ------------------------------------ -------------------
Gene Pharmaceuticals
Common Stock 2445 McCabe Way, Suite 150 1,771,087 shares (3) 7.0%
Irvine, CA, 2614
------------------- ---------------------------------------- ------------------------------------ -------------------
Kevin Prendiville
Common Stock 2445 McCabe Way, Suite 150 280,715 shares (4) 1.1%
Irvine, CA, 92614 Director
------------------- ---------------------------------------- ------------------------------------ -------------------
Lawrence May
Common Stock 2445 McCabe Way, Suite 150 200,000 (5) 0.8%
Irvine, CA, 92614 Director
------------------- ---------------------------------------- ------------------------------------ -------------------
James Hammer (6)
Common Stock 2537 Red Arrow Drive 2,769,643 shares 11.0%
Las Vegas, NV 8913
------------------- ---------------------------------------- ------------------------------------ -------------------
Common Stock Officers and directors as a group 12,190,612 shares 48.2%
=================== ======================================== ==================================== ===================

(1) Chaslav Radovich owns 513,851 individually and is the custodian of the
44,000 shares owned by Milena Radovich, his minor child.
(2) Radul Radovich is one of the beneficiaries of the St. Petka Trust, which
owns 9,183,889 shares. Radul Radovich and his spouse are the owners of
R&R Holdings which holds 333 shares of our stock, and of Silver Mountain
Promotions which holds 92,833 shares of our common stock.
(3) Ernest Armstrong owns 100,000 shares individually, 550 shares as joint
tenants with Beatrice Armstrong, 3,354 shares as joint tenants with
Alicia Armstrong, and is a majority owner of Gene Pharmaceuticals, LLC,
which owns 1,771,087 shares. Mr. Armstrong also has 2,200,000 options to
purchase shares of our common stock.
(4) Kevin Prendiville owns 12,500 shares directly and is one of the trustees
of the Prendiville Revocable Trust and owner of 268,215 shares,.
(5) We issuee Lawrence May 250,000 options to purchase shares of our common
stock in January 2005.
(6) James Hammer owns 1,027,143 individually, 32,500 shares jointly with his
spouse; shares a residence with immediate family members owning 360,000
shares in the aggregate, and is the beneficiary and trustee of a family
trust that owns 1,350,000 shares.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In accordance with Securities and Exchange
Commission rules, shares of our common stock which may be acquired upon exercise
of stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionees. Subject to community property laws, where applicable,
the persons or entities named in the table above have sole voting and investment
power with respect to all shares of our common stock indicated as beneficially
owned by them.

CHANGES IN CONTROL. Our management is not aware of any arrangements which may
result in "changes in control" as that term is defined by the provisions of Item
403(c) of Regulation S-B.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
---------------------------------------------------------

RELATED PARTY TRANSACTIONS.

CONSULTING CONTRACT. BioGentec has a consulting contract with R&R Holdings,
Inc., one of our shareholders ("R&R"), whereby R&R would provide managerial
consulting services to us at the rate of $125,000 per year. As stated in the
agreement, the rate increased to $135,000 per year upon BioGentec's merger with
our wholly-owned subsidiary. R&R is also one of our shareholders. As of
September 30, 2004, we have a payable to R&R under the contract for consulting
fees totaling $276,142 which is included as a payable to related parties. Radul
Radovich, one of our directors, and his spouse are the owners of R&R Holdings.
Radul Radovich and his spouse, the parents of our sole officer and one of our
directors, Chas Radovich, are also beneficiaries of the St. Petka Trust, which
is our majority stockholder.

ADVANCES. During the period from April 1, 2003 to March 31, 2005, R&R advanced
BioGentec additional cash totaling $1,445,692. During the year ended March 31,
2005, we repaid R&R in the amount of $15,500. As of March 31, 2005, R&R has
outstanding advances totaling $1,943,050. The advances, excluding the
transactions being classified as contributions to capital, have been recorded as
demand loans payable. We have imputed interest on the note at a rate of 10% per
annum. As of March 31, 2005, we have outstanding accrued interest payable of
$147,309 on these advances from R&R.

In September 2003, R&R advanced us an additional amount of $170,000 at the rate
of 10% per annum. These funds were specifically to provide us with additional
financing with regard to the InnoFood transaction. (See Note 5 and Note 9 of our
financial statements) Interest expense in the amount of $17,000 was accrued for
the year ended March 31, 2005 relating to this advance. As of March 31, 2005, we
have an outstanding accrued interest payable of $30,647 on these advances.

INTELLECTUAL PROPERTY AGREEMENT. In 2000 BioGentec purchased the patent
underlying our principal product (formerly known as "Immun-Eeze"), along with
pending international patent applications, and certain other tangible assets and
related trademarks, copyrights and customer lists from Gene Pharmaceuticals,
LLC, whose managing member is controlled by Ernest Armstrong, our Vice President
of Business Development for $150,000 plus royalties tied to future sales. In
August 2002, the parties agreed to postpone the payment of royalties in exchange
for 250,000 options to purchase BioGentec's common stock at $1.10 per share. In
December 2002, the parties agreed to supersede the terms of the August 2002
addendum by amending the original agreement to include an additional payment of
2,000,000 shares of BioGentec's common stock at $2.00 per share, plus a
royalties on sales of products. In March 2004, we agreed to further amend the
original underlying agreement including the terms of the royalty provision in
the underlying agreement, although the specific terms have not yet been
finalized.

COMMON STOCK. In February 2004, we issued 20,000 shares of restricted common
stock to Ernest Armstrong, our Vice President of Business Development. The
shares were valued at $1.50 per share.

In April 2004, we issued 622,084 shares of our common stock which we registered
on Form S-8. Of that total, we issued the following to related parties: 120,923
shares to Chaslav Radovich, our President, in lieu of employee wages; 36,231
shares to Ernest Armstrong; and 81,516 shares to James Luce, our former Chief
Operating Officer and Chief Marketing Officer.

In January 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, in lieu of employee
wages (93,750 shares) and as an employee bonus (50,000 shares).

STOCK OPTIONS. In February 2004, we agreed to grant Mr. Ernest Armstrong
1,200,000 options to purchase shares of our common stock. In addition, St. Petka
Trust, our majority shareholder agreed to transfer 1,000,000 of its options to
purchase shares of our common stock to Mr. Armstrong. The exercise prices of
these options were above the market price of our common stock on the date of the
grant; therefore, no expense was recognized.
WARRANTS. 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.

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:

o disclose such transactions in prospectuses where required;
o disclose in any and all filings with the Securities and Exchange
Commission, where required;
o obtain disinterested directors' consent; and
o obtain shareholder consent where required.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------------

(a) Exhibit No.
--------------
3.1 Articles of Incorporation*
3.1.1 Certificate of Amendment to Articles of Incorporation*
3.1.2 Certificate of Amendment to Articles of Incorporation**
3.1.3 Certificate of Amendment to Articles of Incorporation***
3.2 Bylaws*
4.1 Convertible Note with Gryphon Master Fund LP
10.1 Asset Purchase Agreement between BioGentec Inc., (fka St. Petka, Inc.)
and Gene Pharmaceuticals, LLC, (fka Allergy Limited, LLC,) as amended
31 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and
Chief Financial Officer of the Company
32 Section 906 Certification by Chief Executive Officer and Chief
Financial Officer
* Included in the registration statement on Form 10-SB filed on
February 8, 2002.
** Included in Information Statement on Schedule 14C filed June 10, 2003 **
Included in Information Statement on Schedule 14C filed June 10, 2004

(b) Reports on Form 8-K
-----------------------

No reports on Form 8-K were filed during the last quarter of the period covered
by this annual report on Form 10-KSB, except for the following:

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

AUDIT FEES. The aggregate fees billed in each of the fiscal years ended March
31, 2005 and March 31, 2004 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 $54,000 and $66,000, 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,
2005 and March 31, 2004

TAX FEES. For the fiscal years ended March 31, 2005 and March 31, 2004, 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.

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 August 5, 2005.

Cobalis Corp.,
a Nevada corporation

/s/ Chaslav Radovich
-----------------------------
Chaslav Radovich
principal executive officer, president, treasurer
secretary, director

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/ Chaslav Radovich
----------------------------- August 5, 2005
Chaslav Radovich
Principal Executive Officer, President, Treasurer
Secretary, Director

/s/ Radul Radovich
----------------------------- August 5, 2005
Radul Radovich
Director

/s/ Ernest Armstrong
----------------------------- August 5, 2005
Ernest Armstrong
Director

/s/ Kevin Prendiville
----------------------------- August 5, 2005
Kevin Prendiville
Director

/s/ Lawrence May
----------------------------- August 5, 2005
Lawrence May
Director