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UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark one)

™

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

™

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

For the fiscal year ended March 31, 2005

™

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

For the transition period from ______________ to __________________

Commission file number: 0-30314

Bontan Corporation Inc.

(Exact name of Registrant as specified in its charter)

Inapplicable

(Translation of Registrant’s name into English)

Province of Ontario, Canada

(Jurisdiction of incorporation or organization)

47 Avenue Road, Suite 200, Toronto, Ontario, Canada, M5R 2G3

(Address of principal executive offices)

Securities to be registered pursuant to Section 12(b) of the Act.: None

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Common shares without par value

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act : None

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report

Common shares without par value – 12,971,720 as at March 31, 2005

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 report) and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark which financial statement item the registrant has elected to follow

Item 17: X Item 18

TABLE OF CONTENTS

Page No.

Forward-looking Statements

Foreign Private Issuer Status and Currencies and Exchange Rates

Part I

Item 1. Identity of Directors, Senior Management and Advisors

Item 2. Offer Statistics and Expected Timetable

Item 3. Key Information

Item 4. Information on the Company

Item 5. Operating and Financial Review and Prospects

Item 6. Directors, Senior Management and Employees

Item 7. Major Shareholders and Related Party Transactions

Item 8. Financial Information

Item 9. The Offer and Listing

Item 10. Additional Information

Item 11. Quantitative and Qualitative Disclosures About Market Risk

Item 12. Description of Securities Other Than Equity Securities

Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Item 14. Material Modifications to the Rights of Security Holders

and Use of Proceeds

Item 15. [Reserved]

Item 16. Audit Committee, Code of Ethics, and Principal Accountant's Fees, and Services

Part III

Item 17. Financial Statements

Item 18. Financial Statements

Item 19. Exhibits

FORWARD LOOKING STATEMENTS

This annual report includes "forward-looking statements." All statements, other than statements of historical facts, included in this annual report that address activities, events or developments, which we expect or anticipate, will or may occur in the future are forward-looking statements.

The words "believe", "intend", "expect", "anticipate", "project", "estimate", "predict" and similar expressions are also intended to identify forward-looking statements.

These forward-looking statements address, among others, such issues as:

- - Future earnings and cash flow, - future plans and capital expenditures, - expansion and other development trends of the resource sector.

- - Expansion and growth of our business and operations, and

- Our prospective operational and financial information.

These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties, which could cause actual results to differ materially from our expectations, including the risks set forth in "Item 3-Key Information-Risk Factors" and the following:

Fluctuations in prices of our products and services,

Potential acquisitions and other business opportunities,

General economic, market and business conditions, and

Other risks and factors beyond our control.

Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.

Unless the context indicates otherwise, the terms "Bontan Corporation Inc." the "Company”,"Bontan", “we”, “us”, “our” are used interchangeably in this Annual Report and mean Bontan Corporation Inc. and its subsidiaries.

FOREIGN PRIVATE ISSUER STATUS AND CURRENCIES AND EXCHANGE RATES

Foreign Private Issuer Status:

Bontan Corporation Inc., is a Canadian corporation incorporated under the laws of the Province of Ontario. Approx. 86% of its common stock is held by non-United States citizens and residents and our business is administered principally outside the United States; As a result, we believe that we qualify as a "foreign private issuer" for continuing to report regarding the registration of our common stock using this Form 20-F annual report format.

Currency

The financial information presented in this Annual Report is expressed in Canadian dollars ("CDN $") and the financial data in this Annual Report is presented in accordance with accounting principles generally accepted in Canada ("Can. GAAP"). Such financial data conforms in all material respects with accounting principles generally accepted in the United States ("U.S. GAAP") except as disclosed in Note 18 of the Notes to Consolidated Financial Statements contained herein.

All dollar amounts set forth in this report are in Canadian dollars, except where otherwise indicated.

PART I

ITEM 1 – IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2 – OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3 – KEY INFORMATION

(A) SELECTED FINANCIAL DATA

This Report includes consolidated financial statements of the Company for the years ended March 31, 2005, 2004 and 2003.These financial statements were prepared in accordance with accounting principles generally accepted in Canada. Reference is made to Financial Statement Notes for a discussion of the material differences between Canadian GAAP and U.S. GAAP, and their effect on the Company's financial statements.

The following is a selected financial data for the Company for each of the last five fiscal years 2001 through 2005 on a consolidated basis. The data is extracted from the audited financial statements of the Company for each of the said years.

SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY FINANCIAL STATEMENTS (Canadian $)

Operating data – Fiscal year ended March 31

	2005	2004	2003	2002	2001

Revenue	$400,963	$46,958	$15,256	$66,860	$351,242
Loss from continuing operations	($4,876,898)	($1,360,958)	($319,363)	($1,332,926)	($1,717,204)
Loss from discontinued operations	($179,678)	-	-	-	-
Net Loss	($5,056,576)	($1,360,958)	($319,363)	($1,332,926)	($1,717,204)
Net loss per share (1)	($0.43)	($0.26)	($0.31)	($1.92)	($2.82)
Working capital (Deficit)	$4,734,269	($311,005)	($314,491)	($133,419)	$526,296
Total assets	$5,075,158	$3,085,584	$28,676	$206,596	$908,644
Capital stock	$28,280,890	$24,287,903	$20,393,106	$20,393,106	$19,814,829
Shareholders' equity(Deficit)	$4,950,837	$2,219,348	($314,491)	$4,872	$759,251
Weighted average number of shares outstanding ( 2 )	11,700,303	5,221,071	1,032,376	693,087	608,489

1. The effect of potential share issuances pursuant to the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted losses per share are the same.
2.. Weighted average number of shares for a year was calculated by dividing the total of the number of shares outstanding at the end of each of the months by twelve. Weighted average number for the fiscal years 2003,2002 and 2001 were adjusted to reflect 7:1 stock consolidation in fiscal 2004

Selected Financial Data (U.S. GAAP) – Fiscal year ended March 31

	2005	2004	2003	2002	2001

Comprehensive Loss	($5,273,144)	($1,360,958)	($230,532)	($1,358,366)	($1,851,725)
Loss per share	($0.45)	($0.26)	($0.22)	($1.96)	($3.04)
Total assets	$4,858,590	$3,085,584	$28,676	$28,676	$774,123
Shareholders' equity(Deficit)	$4,734,269	$2,219,348	($314,491)	($133,419)	$625,000

The Company has not declared or paid any dividends in any of its last five financial years.

Exchange Rates

In this Annual Report on Form 20-F, unless otherwise specified, all monetary amounts are expressed in Canadian dollars. The exchange rates used herein were obtained from Bank of Canada; however, they cannot be guaranteed.

On August 31, 2005, the exchange rate, based on the noon buying rates, for the conversion of Canadian dollars into United States dollars (the “Noon Rate of Exchange”) was $1.19

The following table sets out the high and low exchange rates for each of the last six months.

2005	August	July	June	May	April	March

High for period	$1.22	$1.24	$1.26	$1.27	$1.26	$1.24
Low for period	$1.19	$1.21	$1.23	$1.24	$1.22	$1.20

The following table sets out the average exchange rates for the five most recent financial years calculated by using the average of the Noon Rate of Exchange on the last day of each month during the period.

Year Ended March 31, 2005
	2005	2004	2003	2002	2001
Average for the year	1.28	1.35	1.54	1.57	1.51

(B) CAPITALIZATION AND INDEBTEDNESS

Not applicable

(C) REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable

(D) RISK FACTORS

The following is a brief discussion of those distinctive or special characteristics of the Company’s operations and industry that may have a material impact on, or constitute risk factors in respect of, the Company’s future financial performance.

We have a history of operating losses and may not achieve or sustain profitability in the future.

We have incurred significant operating losses during recent fiscal years. We have not yet had any revenue from the exploration activities on our properties nor have we found that development activity is warranted on any of our properties. As of March 31, 2005, we had an accumulated deficit of approximately $27.1 million.

We expect to continue to incur losses until it is determined that properties in which we have an investment can be sufficiently developed for commercialization. Even if it is determined that such properties should be developed for commercialization, there is no certainty that the Company will produce revenue, operate profitably or provide a return on investment in the future. We cannot assure you that we will be able to achieve or sustain profitable operations in the future.

There is substantial doubt about our ability to continue as a going concern.

The audit report of our auditors covering the March 31, 2005 consolidated financial statements contains comments stating that conditions and events exist that cast substantial doubt on our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.

In the past, the Company has relied on borrowings from shareholders and sales of equity securities to meet most of its cash requirements. There can be no assurance that funding from these sources will be available or sufficient in the future to satisfy operational requirements and cash commitments. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

We will need to raise additional funds in the future, which may not be available to us.

The Company is currently without a source of revenue and will most likely be required to issue additional securities to finance its operations and the development of its projects. We may not be able to obtain additional financing on acceptable terms or at all. Failure to obtain additional financing on a timely basis could cause the Company to sell or forfeit its interest in its properties and reduce or terminate its operations on such properties or discontinue operations entirely.

There is a substantial risk of dilution through possible equity financings and stock options.

Any equity or debt financings, if available at all, may cause dilution to our then-existing shareholders. If additional funds are raised through the issuance of equity securities, the net tangible book value per share of our common shares would decrease and the percentage ownership of then current shareholders would be diluted.

Additionally, the Company may in the future grant to some or all of its own and its subsidiaries' directors, officers, insiders and key consultants options to purchase the Company's common shares as non-cash incentives to those people. Such options may be granted at exercise prices equal to market prices at time when the public market is depressed or below fair market value. To the extent that significant numbers of such options may be granted and exercised, the interests of the then existing shareholders of the Company may be subject to additional dilution.

Our operations are subject to substantial exploration and development risks.

The Company is participating in resource properties in the hope of locating reserves. The Company's property interests are in the exploration stage only. Accordingly, there is little likelihood that the Company will realize any profits in the short to medium term. Any profitability in the future from the Company's business will be dependent upon locating reserves, which itself is subject to numerous risk factors.

The business of exploring for and producing oil and gas involves a substantial risk of investment loss, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The principal resources necessary for the exploration and production of crude oil and natural gas are leasehold prospects under which crude oil and natural gas reserves may be discovered, drilling rigs and related equipment to explore for such reserves and knowledgeable personnel to conduct all phases of crude oil and natural gas operations, all of which requires a substantial investment.

Drilling oil and gas wells involves the risk that the wells will be unproductive or that, although productive, the wells do not produce oil and/or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations.

A productive well may become uneconomic in the event water or other deleterious substances are encountered, which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. As with any petroleum property, there can be no assurance that oil and gas will be produced from the properties in which the Company has interests.

In addition, the marketability of oil and gas, which may be acquired or discovered, will be affected by numerous factors beyond the control of the Company. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection.

The extent of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital. There is no assurance that our exploration and development activities in our current and future resource properties will ultimately yield oil or gas in commercial quantities. Drilling for oil and gas may be unprofitable. Dry holes and wells that are productive but do not produce sufficient net revenues after drilling, operating and other costs are unprofitable. We can not assure you that we will be able to achieve profitable operations in the future.

Our interests are subject to uninsurable risks.

Our industry also experiences numerous operating risks. These operating risks include the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, natural gas leaks, ruptures or

discharges of toxic gases. Such events could result in substantial damage to oil and gas wells, producing facilities and other property and personal injury.

Although management believes the operator of any properties in which the Company and its subsidiaries may acquire interests, will acquire and maintain appropriate insurance coverage in accordance with standard industry practice, the Company and its subsidiaries may suffer losses from uninsurable hazards or from hazards which the operator has chosen not to insure against because of high premium costs or other reasons. If any of these industry-operating risks occur, the Company and its subsidiaries may face liability. The payment of any such liabilities may have a material, adverse effect on the Company's financial position. We cannot assure you that insurance held by the operator of any of our properties will be adequate to cover losses or liabilities.

Environmental and other regulatory requirements may delay production and development of our resource interests.

The current or future operations of the Company, including development activities and commencement of production on its properties, require permits from various governmental authorities and such operations will be subject to laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, safety and other matters. Companies engaged in the development and operation of natural resource properties and related facilities generally experience increased costs, and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. There can be no assurance that approvals and permits required to commence production on its properties will be obtained. Additional permits and studies, which may include environmental impact studies conducted befo re permits can be obtained, may be necessary prior to operation of the properties in which the Company acquires interests and there can be no assurance that the operator of these interests or the Company will be able to obtain or maintain all necessary permits that may be required to commence construction, development or operation of oil and gas extraction facilities at these properties on terms which enable operations to be conducted at economically justifiable costs.

Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions against the operator of any of our resource properties or us, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.

Conducting business in foreign countries subjects us to special risks which we have no control over.

Company’s current business strategy involves participation in overseas projects in the resource sector. Consequently, the Company will be subject to certain risks associated with foreign ownership, including currency fluctuations, inflation, political instability and political risk. Oil, gas and other resource exploration and production activities in foreign countries may be affected in varying degrees by political stability and government regulations relating to the resource industry. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, restriction of earnings, taxation laws, expropriation of property, environmental legislation, water use and workplace safety.

We are dependent upon of our key managerial consultants, the loss of which would negatively affect our business.

Our performance depends on a small number of key managerial consultants. In particular, we believe our success is highly dependent upon the services of our Chief Executive Officer and Chief Principal Officer, Mr. Kam Shah, as well as Mr. Terrance Robinson who has been significantly involved in locating and negotiating our resource investments. Loss of either of their services could negatively affect our business.

Our officers and directors reside outside of the United States and there is a risk that civil liabilities and judgments may be unenforceable.

The Company and its officers and all but one of its directors are residents of countries other than the United States, and most of the Company's assets are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or enforce in the United States against such persons judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of United States federal securities laws or state securities laws.

Our share price has been volatile in the past and may decline in the future.

In recent years, the securities markets in Canada and the United States have experienced a high level of price and volume volatility, and the market prices of securities of many companies, particularly small mineral exploration companies like the Company, have experienced wide fluctuations which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. Our shares may continue to experience significant market price and volume fluctuations in the future in response to factors, which are beyond our control.

Shares eligible for future sale may depress our stock price.

At March 31, 2005, we had 12,971,720 shares of common stock outstanding of which 4,841,769 are restricted securities under Rule 144 promulgated under the Securities Act. We also have 8,879,571 and 4,4 million shares of commons stock issuable under presently exercisable warrants and options, respectively. 4,073,699 of our restricted shares and 7,266,012 shares of the common stock issuable upon exercise of the warrants have now been registered under the US Securities Act and will be eligible for resale in the public market. The shares of the common stock issuable upon exercise of the stock options have been registered under the US Securities Act.

Sales of shares of common stock pursuant to an effective registration statement or under Rule 144 or another exemption under the US Securities Act could have a material adverse effect on the price of our common stock and could impair our ability to raise additional capital through the sale of equity securities.

We do not intend to pay dividends.

All of the Company's available funds will be invested to finance the growth of the Company's business and therefore investors cannot expect and should not anticipate receiving a dividend on the Company's common shares in the foreseeable future.

Our common stock is subject to penny stock rules.

The capital stock of the Company would be classified as “penny stock” as defined in Reg. § 240.3a51-1 promulgated under the Securities Exchange Act of 1934 (the “1934 Act”). In response to perceived abuse in the penny stock market generally, the 1934 Act was amended in 1990 to add new requirements in connection with penny stocks. In connection with effecting any transaction in a penny stock, a broker or dealer must give the customer a written risk disclosure document that (a) describes the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) describes the broker’s or dealer’s duties to the customer and the rights and remedies available to such customer with respect to violations of such duties, (c) describes the dealer market, including “bid” and “ask” prices for penny stock and the significance of the spread between the bid and ask prices, (d) contains a toll-free telephone number for inquiries on disciplinary histories of brokers and dealers, and (e) define significant terms used in the disclosure document or the conduct of trading in penny stocks. In addition, the broker-dealer must provide to a penny stock customer a written monthly account statement that discloses the identity and number of shares of each penny stock held in the customer’s account, and the estimated market value of such shares. The extensive disclosure and other broker-dealer compliance related to penny stocks may result in reducing the level of trading activity in the secondary market for such stocks, thus limiting the ability of the holder to sell such stock.

Your rights and responsibilities as a shareholder will be governed by Canadian law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.

We are incorporated under Ontario Canada law. The rights and responsibilities of holders of our shares are governed by our memorandum of association, our articles of association and by Canadian law. These rights and responsibilities may differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations.

Changing regulation of corporate governance and public disclosure can cause additional expenses and failure to comply may adversely affect our reputation and the value of our securities.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and new and changing provisions of Canadian securities laws, are creating uncertainty because of the lack of specificity and varying interpretations of the rules. As a result, the application of the rules may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and a ttention from revenue-generating activities to compliance activities. Any failure to comply with applicable laws may materially adversely affect our reputation and the value of our securities.

If we fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002, our reputation and the value of our securities may be adversely affected.

Beginning with our annual report for the year ending March 31, 2007, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include an internal control report of management with our annual report on Form 20-F, which is to include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. That report will also be required to include a statement that our independent auditors have issued an attestation report on management’s assessment of our internal control over financial reporting. In order to achieve compliance with Section 404 within the prescribed period, management is in the process of adopting a detailed project work plan to assess the adequacy of our internal control over financial reporting, validate through testing that controls are functioning as documented, remediate any control weaknesses that may be identified, and implem ent a continuous reporting and improvement process for internal control over financial reporting. Any failure to comply with Section 404, including issuing the required management report and obtaining the attestation report on management’s assessment from our independent auditors, may materially adversely affect our reputation and the value of our securities.

ITEM 4 – INFORMATION ON THE COMPANY

(A) HISTORY AND DEVELOPMENT OF THE COMPANY

Bontan Corporation Inc. (“the Company’) was incorporated under the Business Corporation Act (Ontario) in 1973 and is based in Toronto, Ontario, Canada.

The Company’s registered office is situated at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada M5R 2G3The Company is a reporting issuer in the provinces of Ontario. The Company’s shares have been listed on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “BNTNF” in the United States.

The Company went through several name changes and five major changes in its business activities. Details of these changes were provided in the Registration Statement F-20 dated June 12, 2000 and the annual reports FormF-20 for the subsequent fiscal years.

The Company was incorporated under the name “Kamlo Gold Mines Limited and remained an inactive shell from the date of incorporation to 1985.

Between 1986 and 1982, the Company was involved in the development of a new technology for the marine propulsion business. During this period, the Company went through three name changes.

Between 1993 and 1996, the Company was involved in the distribution and manufacture of a snack food. During this period, the Company went through two more name changes.

The Company remained an inactive shell since the closure of snack food business in November 1996 until December 1998 when it changed its name to Dealcheck.com Inc. and agreed on a new business strategy. This strategy focused on investing in new and emerging technology oriented projects and businesses.

In 1999, the company successfully raised $3.2 million, which were invested in various projects and companies over the next two years as per the new business strategy of the company. Unfortunately, IT sector performed poorly since 2001 and new and emerging technology-based businesses suffered significant losses, financial problems and bankruptcies. These factors adversely affected the company’s investments and its profitability. The company had to write off all its investments by the end of the fiscal 2003.

In April 2003, the Company changed its business focus to resource industry based on the recommendations of its shareholders in the last shareholders’ meeting. At that time, the Company commenced and successfully completed a private placement of approximately 8.9 million common shares, raising approximately US$3.1 million. These funds were primarily invested in projects involving oil and gas exploration and diamond mining as explained under Item 5 of this report.

The Company relies principally on equity financing to fund its projects and expenditures.

(B) BUSINESS OVERVIEW

The Company continued to focus on the resource sector as per the business plan agreed during the fiscal year 2004.

In the fiscal 2004, the Company advanced approximately US$1.9 million to a non-affiliated corporation for acquiring an indirect participation interest (IPI) in an oil exploration project in Papua New Guinea (“Oil Project”). On July 9, 2004, these advances were converted into 15,262 common shares of Interoil Corporation and .75% IPI in the Oil Project as per the terms of the IPI agreement. The shares were sold for approximately US$500,000 during the fiscal 2005 and Ipi was sold for US$3.2 million in July 2005.

In September 2004, the company acquired a subsidiary in Brazil and began investing in diamond mining joint venture projects. However, owing to unfavourable political and regulatory situation, which was causing significant increasing in the time and costs estimates on the projects, the company decided to abandon these projects and close the Brazilian operations in December 2005. The total cost of approximately $180,000 relating to the Brazilian subsidiary and joint venture participation was expensed.

In October 2004, the Company entered into an exploration agreement with a private investor group in the United States under which it acquired 49% gross working interest in a gas exploration project in the State of Louisiana. Total costs of the project are estimated at US$7 million. The company paid approximately US$180,000 as its share of the exploration cost by March 31, 2005 and a further sum of US$3.6 million towards its share of the exploration costs between April 2005 and August 15, 2005. The company has now fully pre-paid its share of the exploration costs.

The following are the key features of the gas project:

The Company has a 49% gross working interest in the initial test well under the gas exploration project in eastern Calcasieu Parish, Louisiana. There are further two wells identified provided the first one finds a proven gas reserve. The Company’s share in the subsequent wells will be 41%.

In addition to the Company, two long time Pittsburgh, Pa. operators hold an interest, as well as smaller interests held by Wadi Petroleum of Houston and companies controlled by several former senior major oil company executives.

Keystone Oil Company based in Dallas, Texas, is the operator for the exploration program

Brammer Engineering of Shreveport, La. Is the project engineer. Brammer is a widely known operations management company and operates for a broad range of major and independent companies in Louisiana as well as offshore

A turnkey drilling contract has been signed with Grey Wolf, Inc for the initial well. Grey Wolf, Inc. is a leading provider of contract oil and gas land drilling services in the United States serving both major and independent oil and gas companies with a premium fleet of 127 rigs. Approximately 95% of the wells drilled by Grey Wolf are targeted to natural gas.

The initial well is identified as Placid Richard et.al. The zones to be tested by the initial well have possible reserves of up to 50 billion cubic feet equivalent of gas (BCFE)

Drilling began on its initial test well, Placide Richard No. 1 on August 21, 2005 and has reached a depth of 4,745 as at August 30, 2005.

(C) ORGANIZATIONAL STRUCTURE

As at March 31, 2005, the Company had the following wholly–owned subsidiaries:

Subsidiary	Date of incorporation / acquisition	Comments on current status

Foodquest Inc.		Inactive since 1998 is currently a shell with no assets or liabilities.
1388755 Ontario Inc.		Inactive since April 2003. The subsidiary was engaged in development of a prototype of a wireless and portable Internet appliance for medical data logging system. However, due to several technical problems, the project was shelved and all investment written off. Currently a shell with no assets or liabilities.
Bontan Diamond Corporation	20-Feb-04	Originally engaged in diamond mining in Brazil but business discontinued in December 2004 and has been inactive since then.
Bontan Oil & Gas Corporation	20-Feb-04	Interest in gas projects
Bontan Gold Corporation	20-Feb-04	Not yet active
Bontan Mineral Corporation	20-Feb-04	Not yet active
Bontan Trading Corporation	20-Feb-04	Not yet active

(D) PROPERTY PLANTS AND EQUIPMENT

The administrative head office of the Company is located in subleased premises at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada. There is no long-term lease commitment.

Total area of the premises is approximately 950 sq. ft., and about 30% of this premise is subleased to the Company.

See Operating and Financial Review and Prospects – Item 5 for further details.

ITEM 5 – OPERATING AND FINANCIAL REVIEW AND PROSPECTS

(A) OPERATING RESULTS

The following discussion should be read in conjunction with the Audited Financial

Statements of the Company and notes thereto contained elsewhere in this report.

Results of Operations

Year ended March 31	2005	2004	2003
	in 000' CDN $	in 000' CDN $	in 000' CDN $
Income	401	47	15
Expenses	5,278	1,408	335

Loss for year - continuing operations	(4,877)	(1,361)	(320)
loss for year - discontinued operations	(180)
Net loss for year	(5,057)	(1,361)	(320)
Deficit at end of year	(27,125)	(22,069)	(20,708)

Overview

The following were the key events in fiscal 2005 –

The Company completed its private placement on May 26, 2004 and raised additional $646,679 in fiscal 2005, raising a total of $3.8 million through issuance of 8.9 million units.

In July 2004, the Company converted its advances of US$2.1 million relating to an oil exploration project in Papua New Guinea into 15,262 shares of Interoil Corporation at a cost of approx. US$0.3 million and a .75% indirect participation interest in the oil exploration project at the remaining cost of approx. US$1.8 million. The shares were sold by February 2005 for US$.5 million and .75% interest was sold in July 2005 for US$3.2 million.

In September 2004, the Company began investing in diamond mining activities in Brazil by acquiring a subsidiary in Brazil and signing two joint venture projects. However, the Brazilian operations were discontinued in December 2004 owing to the company’s adverse assessment of the expected funding requirements and local environment. In October 2004, total investment of approx. $0.2 million was written off.

the Company acquired 49% working interest in a gas project in the State of Louisiana and began making investments towards pre-exploration costs like seismic survey. To total amount invested by the end of the year was $216,568.

The Company issued stocks and options to various consultants under the two plans registered under the US Securities Act, which were valued at approx. $6.5 million. $4.8 million was expensed and $1.7 was deferred.

During the fiscal year 2004, the Company adopted a new business plan focusing on resource sector. It’s key activities were the private placement campaign and advances of approx. US$ 2.1 million to a non related private corporation for investment into an oil exploration project in Papua New Guinea.

During fiscal 2003, the Company was inactive due to discontinuation and write off of all its interests in projects involving new and emerging technologies under its previous business plan.

Income

During the fiscal 2005, no income was generated from the operating segments, which were energy and minerals. The Company made a net capital gain of approx. $417,000 from disposal of 15,262 shares of Interoil Corporation that it received by converting part of its advances for a oil exploration project in Papua new Guinea made in fiscal 2004 and certain other shares of non related corporations that it bought as part of its temporary investments of surplus funds. The Company also earned interest of approx. $1,600 on its surplus funds at the brokerage firm.

During the fiscal 2004, no income was generated from the operating segment, which was energy. The revenue of approx. $47,000 resulted from year-end exchange gains. The Company had significant transactions in US Dollars. It raised about $2.6 million in US Dollars through private placement and invested about $1.9 million dollars in oil exploration project. These transactions constituted over 90% of the transactions during the fiscal year and were converted into Canadian dollar at rates prevailing on the dates of the transactions as per the Company’s accounting policy. The exchange rates between Canadian Dollar and US Dollar fluctuated significantly during the year from CDN$1.47 = US$1 at March 31, 2003 to CDN$1.31=US$1 at March 31, 2004 – almost 11% decline in US dollar value verses Canadian dollar.

There were no operating segments in the fiscal 2003. The revenue mainly came form the year-end exchange gain of approx. $13,000 from conversion of US dollar transactions and balances into Canadian dollars.

Expenses

The overall analysis of the expenses is as follows:

Year ended March 31	2005	2004	2003

Operating expenses	$461,939	$704,214	$245,788
Stock based compensation	4,815,922	703,702	-
Loss from discontinued operations	179,678	-	-
Product development costs	-	-	88,831

	$5,457,539	$1,407,916	$334,619

Operating Expenses

Travel, promotion and consulting -

Year ended March 31,	2005	2004	2003

Travel,meals and entertainment	$58,675	$50,005	$871
Consulting	81,950	351,639	104,684
Promotion	61,178	677

	$201,803	$402,321	$105,555

% of operating expenses	0.430630	0.571305	0.429455

Travel, meals and entertainment

Expenses in fiscal 2005 related to the visits to the USA and Brazil in connection with the Company’s projects and prospective new business opportunities.

Most of these expenses during the fiscal 2004 were incurred by the CEO of the Company, Mr. Terence Robinson in meeting with the prospective investors in connection with private placement campaign and also in pursuing leads provided by various consultants in business prospects, which conform to the new business strategy of the Company.

There were no new initiatives during fiscal 2003. This explains the significantly lower travel and entertainment.

Consulting costs

Consulting fee relate to cash fees of $28,000 paid to Mr. Terence Robinson, the ex-CEO of the company who serves as consultant , $13,000 (US$10,000) paid to Snapper Inc. under a consulting contract which was terminated on May 31, 2004 and the balance of the fees were paid to administrative assistant and other temporary consultants. The Company preferred to settle the fees of their consultants in shares and options in order to retain its funds for business investments purposes. This is the reason for significant decline in the cash fee compared to the fees paid in fiscal 2004.

Most of the consulting fees paid in fiscal 2004 were attributable to two consultants – approx. $268,000 was paid to Snapper Inc., a shareholder corporation towards consulting fee and finder’s fee and approx. $112,000 to chief executive officer under a consulting agreement, which provided for a fee of $10,000 per month.

Consulting fee for the fiscal 2003 included a fee of approx. $93,000 paid to Snapper Inc.

Promotion costs

Promotional costs for fiscal 2005 include general business entertainment costs of approx. $ 22,000 by Mr. Terence Robinson payable per consulting contract and special promotional efforts made through Googles adwords and overtures of approx. $26,000.

There was no major promotional activity during fiscal years 2004 and 2003.

Professional fees

Professional fees in fiscal 2005 were $116,479, in fiscal 2004 were $110,547 and in fiscal 2003 were $45,339.

Fiscal 2005 professional fee include fee of $ 36,000 charged by Kam Shah, CEO for accounting services, $22,478 for the audit services and balance was mostly legal fees. Higher legal fees were due to legal work involved in reviewing various project related documents and registration of stock compensation and stock option plans and issuing opinions under rule 144 with respect to the removal of restrictive legends on the restricted shares issued under the private placement.

Major item in fiscal 2004 consisted of fees of $93,135 for accounting services. Of this, $27,610 was paid to a shareholder corporation, Current Capital Corp. for providing financial and accounting services under an Expense Sharing Agreement dated April 1, 2003 for one year. The agreement was not renewed on expiry. The balance of $65,525 was paid to an executive by issuance of shares under the “2001 Consultants’ Stock Compensation Plan” The common shares were valued at their fair market value of US$0.50 per share.

Fees for fiscal 2003 were relatively smaller due to lack of any new business initiatives and consisted mainly of audit and accounting fees.

Shareholders information

Shareholder information costs comprise investor and media relations fee, costs of holding annual general meeting of the shareholders and various regulatory filing fees. Total cost for fiscal 2005 was $127,205, for fiscal 2004 was $165,431 and for fiscal 2003 was $63,657..

Major item was media relations fee of $117,053 charged by a shareholder corporation, Current Capital Corp charged under a Investor relations contract dated April 1, 2003 and Media relation contract dated April 1, 2003. Both the contracts provide for a monthly fee of US$5,000 each.

Fiscal 2004 costs mainly include fees of $160,628 charged by Current Capital Corp. under the contracts mentioned above. The fee amount was relatively less in fiscal 2005 due mainly to favourable CDN/US exchange rate.

Fee for fiscal 2003 mainly includes fee of $60,000 for an investor relation services provided by Current Capital Corp. at the fee of $10,000 per month. The fee was only for the first six months period since the said contract was canceled effective October 1, 2002.

Other operating costs

These costs include rent, telephone, Internet, transfer agents fees and other general and administration costs. Other operating costs in fiscal 2005 were $34,350, in fiscal 2004 were $25,916 and in fiscal 2003 were $31,237.

The company received a Notice of Termination dated February 6, 2003 from the landlord, wherein the landlord claimed rent arrears of $28,924 and current plus next three months rent and damage for the loss of rent for the remaining term of the lease. The management is of the opinion that they have a strong case against the landlord for not paying such rent and penalty besides no further communication was received since then from the landlord. The management therefore reversed the provision of approx. $37,000 in fiscal 2005.

Stock based compensation

	2005	2004	2003

Stock Comepnsation	695,834	703,702	-
Options granted	4,120,088	-	-
	$4,815,922	$703,702	$-

Unearned stock compensation	$1,732,929	$-	$-

Stock based compensation is made up of the Company’s common shares and options to acquire the Company’s common shares being issued to various consultants and directors of the Company for services provided. The Company used this method of payment mainly to conserve its cash flow for business investments purposes. This method also allows the Company to avail the services of consultants with specialized skills and knowledge in the business activities of the Company without having to deplete its limited cash flow.

The Company has registered two Plans under the US Securities Act. These Plans cover approx. 2.2 million common shares and 5.5 million options.

During fiscal 2005, approx. 929,000 shares were issued under the Consultants compensation plan to eleven consultants for services provided in fiscal 2005 and to be provided during the fiscal 2006. These shares were valued at the fair value, based on the market value on the date of issue, of approx. $1.2 million. Approx.. 347,000 shares valuing at approx. $590,000 related to the services to be provided in the fiscal 2006 and have therefore been carried as deferred compensation while the remaining value was expensed in fiscal 2005.

During the fiscal 2005, the Company also allotted all the 5.5 registered Options to eleven individuals, which were valued at approx. $5.3 million using the Black-Scholes option-pricing model. Approx. $4.1 was expensed and the balance 1.1 million was deferred. Further details on the Options are available in note 9 to the financial statements for fiscal 2005.

This is the first year when the Company granted options to various consultants and also the first year when the options granted were valued using Black Scholes option price model and recorded as expense according to the new accounting policy. This factor accounts for the significant increase in costs during the fiscal year 2005.

The following table summarizes the stock and option granted by each consultant and nature of the services provided by the consultants:

Name of the consultant

Number of shares/options given in fiscal 2005

Total value assigned in the financials ( in CDN$)

Experience of the consultant

Services performed by the consultant

1	Robert Kennedy	94,286 shares $28,888 250,000 options exercisable at US$1/option $327,376	Mr. Kennedy has over ten years of experience as an effective negotiators and deal makers	Mr. Kennedy was offered 250,000 shares for his services between June 1, 2003 and June 1, 2004. Mr.Kennedy’s services were primarily retained to search and evaluate new business opportunities for the Company in line with its new business plan He helped bring in the Oil project in Papua New Guinea for the Company and worked out the initial terms
2	Kam Shah	450,000 options exercisable at an average price of US$0.54 /option $496,851	Mr. Shah is a Canadian CA and US CPA with over fifteen years of experience in financial, regulatory, corporate and business issues	Mr. Shah is the chief executive office and chief financial officer of the Company. He took the options in lieu of remuneration for the period from November 1, 2004 to December 31, 2005.
3	John Robinson	42,466 shares $28,722 1,915,000 options exercisable at US$.35/option $2,430,538	Mr. Robinson has an extensive knowledge of the oil exploration projects. He was involved in evaluating two other oil exploration projects in the past	Mr. Robinson was offered 207,143 shares for his services between April 1, 2003 and June 30, 2004. He played an important role in securing the Oil project for the Company and was also responsible for reviewing and monitoring and reporting on the technical and work progress on the oil exploration project in Papua New guinea
4	Dean Bradley	20,000 options exercisable at an average price of US$.51/options $30,748	Mr. Bradley is a businessman with over twenty years of experience.	Mr. Bradley is an independent director and the chairman of the audit committee of the Company. Options given were in recognition of his services as audit committee chairman.
5.	Kevin Marland	15,000 options exercisable at an average price of US$.92/option $14,311	Mr. Markland is a consultant with over fifteen years of experience in IT consulting and its general business applications	Mr. Markland was an independent director and a member of the audit committee of the Company. Options were in recognition of his services as audit committee member and also for occasionally attending to IT needs of the Company.
6	Kate Topelko	20,000 options exercisable at an average price of US$.55/option $18,626	Miss Topelko has over five years of administrative experience	Miss Topelko was an assistant to Mr. Shah and was responsible for EDGAR filing and assisting Mr. Shah in other operational matters.
7	Rich Elder	600,000 options exercisable at US$.35/options $824,453	Mr. Elder is a businessman with an extensive network of contacts and experience in the oil and gas business.	Mr. Elder’s services were primarily retained to search and evaluate new business opportunities for the Company in line with its new business plan
8	Jeffrey Forster	8,333 shares $4,874 100,000 options exercisable at an average price of US$1.25 $85,860	Mr. Forster is a financial analyst and a businessman with over fifteen years of experience. He is based in Miami, Florida. Mr. Forster is a president of Park Avenue Capital Corp.	Mr. Forster was retained as a consultant for a period from November 8, 2004 to October 31, 2005 for a total of 20,000 shares plus options. Mr. Forster ‘s services were primarily retained to search and evaluate new business opportunities for the Company in line with its new business plan
9	Steve Todd	20,000 options exercisable at an average price of US$.75/option $9,477	Mr. Todd has over five years of background in evaluating projects in the resource sector	Mr. Todd assisted Mr. Robinson in monitoring the oil project in Papua New Guinea.
10	Howard Gostfrad	13,333 shares $32,412 20,000 options exercisable at US$1.75 $24,259	Mr. Gostfrad is a businessman based in North Miami area with extensive business contacts in Florida.	Mr. Howard was given a total of 20,000 shares plus options for his services between December 2004 and May 31, 2005 Mr. Howard’s services were primarily retained to search and evaluate new business opportunities for the Company in line with its new business plan
11	Terence Robinson	290,500 shares $566,426 2,090,000 options exercisable at US$.50/option $1,002,738	Mr. Robinson is a 20-year veteran in negotiating and bringing business deals. He has an extensive network of valuable contacts	Mr. Robinson was chief executive officer until May 2004. He has been involved in the Company for over ten years and is a key consultant. The shares and options were in lieu of his consulting fee for the period July 2004 to December 2005. Mr. Robinson was a key player in bringing in the Oil deal and Louisiana Gas deal for the Company. Mr. Robinson is an independent negotiator for the company and is responsible for searching and concluding business opportunities on an on-going basis.
12	Scot Clayton	160,713 shares $110,121 Further 25,000 shares $32,269	Mr. Clayton is an European- based entrepreneur with extensive contacts all over Europe and the Carribean.	Mr. Clayton was given a total of 642,857 shares for his services between June 30, 2003 and June 30, 2004. His contract was further extended for the period from January 1, 2005 to December 31, 2005 for which he was given 100,000 shares His services were primarily retained to search and evaluate new business opportunities for the Company in line with its new business plan
13	Jim Kerby	250,000 shares $17,333	An independent businessman based in Toronto, Canada with wide reaching contacts in North America.	Mr. Kerby was given a total of 100,000 shares for his services between June 30, 2003 and June 30, 2004. His services were primarily retained to search and evaluate new business opportunities for the Company in line with its new business plan
14	Mark Kesselman	100,000 shares $65,640	Mr. Kesselman is a New York city based private businessman. He has 30 years of corporate finance and marketing experience with extensive network of worldwide contacts.	Mr. Kasselman’s services were primarily retained to search and evaluate new business opportunities for the Company in line with its new business plan
15	Sunil Jhaveri	47,167 shares $92,364	Mr. Jhaveri is a businessman based in Hong Kong with extensive contacts in Mongolia and Far East	Mr. Jhaveri was given a total of 141,500 shares for his services between December 1, 2004 and December 31, 2005. Mr. Jhaveri is primarily retained to search exploration projects in Mongolia where he has primary contacts at the government levels.

During the fiscal 2004, the Company issued approx. 1 million shares under the Consultants stock compensation plan to six individual consultants for services provided.

No shares or options were issued in the fiscal 2003.

Loss from discontinued operations

The Company incurred losses of $179,678 from a discontinued operation during the fiscal 2005. No such loss was incurred in fiscals 2004 and 2003.

The losses related to the diamond mining activities, which the Company commenced in June 2004 but were discontinued in December 2004.

Losses were made up of expenses of approx. $121,000 relating to operations of the Brazilian office and approx. $55,000 relating to the costs of investments in two joint ventures, which was originally deferred but was written off on the closure of the operations.

On June 14, 2004, The Company’s subsidiary, Bontan Diamond Corporation, acquired 100% equity in a Brazilian Corporation, Astrogemas Mineração Ltda (“AML”). AML set up a representative office in Brazil whose primary purpose was to identify opportunities for alluvial diamond mining in joint venture with landowners/licence owners and others. The

Cost of the office was financed by the Company until November 2004, when the key consultants, Mr. Fracis Guardia, the chief geologist on the project and Fernando, the brazilian geologist and the director of the Brazilian office, resigned and closed down the office in December 2004. The Company also concluded by then that it was not cost effective to continue to support Brazilian operations which were affected adversely by the local conditions involving significant delays in permits an licenses and costs projections which turned out to be far higher than the ones originally provided to the Company .

Operational costs mainly comprised fees of $ 57,000 paid to various consultants and meals and travels of $33,000.

The details of the project costs of $55,000, which were fully written off can be found in note 7 to the financial statements for the fiscal 2005.

(B) Liquidity and Capital Resources

The Company has financed its operations principally through the sale of its equity securities. The Company does not have any producing resource properties, its only revenue source in fiscal 2005 comprised interest income earned from amounts on deposit and gain on sale of shares of Interoil acquired under an IPI agreement as explained earlier. The amount of interest income earned is expected to decrease as the Company continues exploring its existing gas properties. The Company will continue to obtain additional funding through the sale of its equity securities unless its gas project finds proven reserves and starts generating revenue in the near future.

Working Capital

As at March 31, 2005, the Company had a net working capital of $4.8 million compared to a working capital deficit of $311,005 as at March 31, 2004.

Significant improvement in the working capital at the end of fiscal 2005 was mainly due to reclassification of Interest in oil properties of $2.1 million from long term to current asset. The reclassification reflected the Company’s decision to sell this asset rather than hold it till commercial exploitation. The asset was subsequently sold for US$3.2 million

Cash on hand as at March 31, 2005 was $860,330. The improved cash position was mainly due to sale of common shares of Interoil Corporation received in exchange of the part of the Company’s IPI in oil properties as explained elsewhere in this report. The sale generated cash inflow of around $625,000.

Operating cash flow

During the fiscal 2005, net cash outflow of $437,528 from the operations was off set by the net cash inflow of $738,253 from the financing activities and $59,064 from the investing activities, thus resulting in a net cash increase of $359,789 which was added to the cash of $500,541 at the beginning of the year, resulting in a cash on hand of $860,330 at the end of the year.

Cash flow from financing activities related to cash received from private placement and exercise of options as further explained below under “financing activities”. Cash flow from investing activities included the new investments of $216,568 towards our 49% working interest in gas properties in the State of Louisiana and liquidation of advances of $2.5 million and investment of $2.1 million in acquiring .75% interest in oil project and net investment of approx. $93,000.

Key Financing activities

The following outlines the Company’s key financing activities during the fiscal year 2005:

On May 26, 2004, the Company closed its private placement campaign, which began on April 28, 2003. Under this campaign, the Company raised an additional $649,679 and paid finder’s fee of $35,238 on the amount raised during the fiscal 2005. Additional 1.3 million shares were issued under the private placement.

During the year, 1.1 million stock options were exercised for which the company received option price of $624,773 in cash.

During the year, the Company issued shares and options to various consultants under the two Plans registered under the US Securities Act. Full details of these shares and options are given under “stock based compensation” sub-section of the Results of the Operations section of this report.

Key investing activities

The following outlines the key investing activities during the fiscal year 2005:

In fiscal 2004, the company advanced to a non affiliated private corporation a sum of $2.5 million towards acquiring an indirect participation interest (IPI) in an oil exploration project in Papua New Guinea (the Porject) managed and owned by Interoil Corporation, a non related public company trading on AMEX.. On July 9, 2004, the Company converted $0.3 milion of its advances into 15,262 shares of Interoil Corporation and used the balance to acquire .75% IPI in the project. The Company did not incur any further costs on this project during the year. The shares held by the Company were disposed off for about $625,000. Subsequently, on July 5, 2005, the Company sold its 0.75% IPI for US$3.2 million.

The company acquired a private corporation in Brazil and paid for its operating costs and also invested some funds in two joint venture projects involving alluvial diamond mining operations. However, the Brazilian operations were discontinued in December 2004 and all deferred costs were written off. Full details of these events are given above under “loss from discontinued operations” section of this report.

On October 15, 2004, the Company acquired 49% working interest in a gas project in the State of Louisiana. The Project is co-owned with a consortium of private individuals and corporations with extensive knowledge and experience in gas exploration project in general and exploration work in the State of Louisiana in particular. Under the terms of the exploration agreement, the Company paid a total of $216,568 towards its share of the leases and geophysical surveys costs up to March 31, 2005.

(C)

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

The Company has not spent any funds on research and development during the fiscal years 2005, 2004 and 2003.

(D)

TREND INFORMATION

There are no trends, commitments, events or uncertainties presently known to management that are reasonably expected to have a material effect on the Company’s business, financial condition or results of operation other than uncertainty as to the speculative nature of the business (Refer to the heading entitled “Risk Factors”).

(E)

OFF-BALANCE SHEET ARRANGEMENTS

At March 31, 2005, 2004 and 2003, the Company did not have any off balance sheet arrangements, including any relationships with unconsolidated entities or financial partnership to enhance perceived liquidity.

(F)

CONTRACTUAL OBLIGATIONS

Not applicable.

(G)

SAFE HARBOUR

Not applicable.

ITEM 6 – DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

(A) DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth all current directors and executive officers of the Company, with each position and office held by them in the Company, and the period of service as such:

Name and Position With the Company	Other principal directorships	Principal business activities outside the Company
Kam Shah Director and Chairman Chief Executive Officer and Chief Financial Officer	Director – Noble House Entertainment Inc.	Provides accounting services to Current Capital Corp. and Noble House Entertainment Inc. as Chief Financial Officer and a part time practice as chartered accountant
Terence Robinson Key Consultant	None	President of TR Network Inc. – an independent organisation providing business and financial services
Dean Bradley – Director	Director of Recycled Rubber Products Inc., South Carolina and Director of Quasar Jets America, Inc., Florida. Both are for profit “C” corporations.	Chief Executive Officer of Recycled Rubber Products Inc. and Quasar Jets America, Inc.
Kevin Markland – Director	None	IT consulting
Damian Lee	Director and Chairman of Noble House Entertainment Inc.	Chief executive officer – Noble house Entertainment Inc. and a writer, director and producer of motion pictures

Kam Shah joined the Company as a Chief Financial Officer and was appointed to the Board on January 3, 1999. He worked with Pricewaterhouse Coopers LLP and Ernst & Young. He is a US Certified Public Accountant and a Canadian Chartered Accountant. He has over fifteen years of international experience in corporate financial analysis, mergers & acquisitions. Mr. Shah is responsible for the financial and statutory matters of the Company and effective May 17, 2004, following resignation of the Chairman, Mr. Terence Robinson, has also assumed the responsibilities of the chairman of the Board and Chief Executive Officer of the Company until the next annual general meeting.

Mr. Shah is also a consultant providing accounting and tax services to Current Capital Corp., (CCC) a private Ontario corporation, having its head office in Toronto. CCC provides investors’ and media relations services to public companies including Bontan Corporation. Mr. Shah is a CFO in Noble House Entertainment Inc., an Ontario reporting corporation engaged in the development, production, manufacture and distribution of commercial entertainment materials in all formats.

Terence Robinson was Chairman of the Board and Chief Executive Officer of the Company since October 1, 1991. He resigned from the Board on May 17, 2004 but continues with the Company as a key consultant. He will advise the board in the matters of shareholders relations, fund raising campaigns, introduction and evaluation of investment opportunities and overall operating strategies for the Company. He has over 18 years of experience as merchant banker and venture capitalist and has successfully secured financing for a number of start-up and small cap companies and currently runs his own consulting firm in the name of TR Network Inc..

Dean Bradley is a non-executive independent director based in Florida. He was first appointed director of the Company on November 20, 2000. He assists the Company from time to time in introducing new businesses and liaising with businesses in the USA in which the Company has equity interest. Mr. Bradley had been CEO of many corporations including real estate, mining, manufacturing, and import/export and financial services corporations and is currently involved in two ventures as explained above..

Kevin Markland is a non-executive independent director based in Toronto, Ontario. He was first appointed director of the Company on May 17, 2004. Mr. Markland also assists the company from time to time in liasing with businesses and making introductions on behalf of Bontan. Mr. Markland has experience in the entertainment industry and technology sector. Mr. Markland resigned as director on April 12, 2005 and was replaced by Mr. Damian Lee.

Damian Lee has been appointed as non-executive director on April 12, 2005 and is based in Toronto, Ontario. Mr. Lee is a twenty-year veteran of the film industry. Mr. Lee’s movie credits which comprise as producer on 34 films, as writer on 20 films, as director on 14 films, as actor on 7 films and as assistant director on 2 films. He cast Jim Carrey, Hayden Christensen and Jason Priestley, among others, in their first feature film roles. Mr. Lee has written, directed and produced some of the most successful films in Canadian history, many of which spawned profitable and entertaining sequels.

Management Team

The Company‘s current management team consists only of Mr. Kam Shah whose background details are given above. Mr. Terence Robinson is a key consultant who basically acts in an advisory role with no specific authority to bind the Company.

Mr. Shah’s consulting agreement expired on March 31, 2005. A new agreement was signed on April 1, 2005, which is effective for five years to March 31, 2010. Copy of the new agreement is included in the Exhibits attached to this annual report.

(B) COMPENSATION

The compensation payable to directors and officers of the Company and its subsidiary is summarized below:

General

The Company does not compensate directors for acting solely as directors. Except as described below, the Company does not have any arrangements pursuant to which directors are remunerated by the Company or its subsidiary for their services in their capacity as directors, other than options to purchase shares of the Company which may be granted to the Company’s directors from time to time and the reimbursement of direct expenses.

The Company does not have any pension plans.

Statement of Executive Compensation

The following table and accompanying notes set forth all compensation paid by the Company to its directors and senior management for the fiscal year ended March 31, 2005

	ANNUAL COMPENSATION				LONG-TERM COMPENSATION
					Awards		Payouts
Name and principal position	Year	Fee	Bonus	Other annual compensation (5)	Securities under options/SARs Granted (1)	Shares or units subject to resale restrictions	LTIP (2) payouts	all other compensation
		($)	($)	($)	(#)	($)	($)

Kam Shah - CEO and CFO	2005	36,000	-	1,100	450,000/ nil	-	-	-
CFO	2004	65,525	-	-	Nil/Nil	-	-	-
CFO	2003	7,000	-	-	Nil/Nil	-	-	-

Terence Robinson - CEO/Consultant (3) & (4)	2005	311,250	-	-	2,090,000 /nil	-	-	-
CEO	2004	112,150	-	-	Nil/Nil	-	-	-
CEO	2003	-	-	-	Nil/Nil	-	-	-

Dean Bradley - an independent director	2005	-	-	-	20,000/nil	-	-	-
	2004	-	-	-		-	-	-
	2003	-	-	-		-	-	-

Kevin Markland - an independent director	2005	-	-	-	15,000/nil	-	-	-
	2004	n/a	n/a	n/a		n/a	n/a	n/a
	2003	n/a	n/a	n/a		n/a	n/a	n/a

Notes:

“SAR” means stock appreciation rights

“LTIP” means long term incentive plan

Mr. Terence Robinson resigned as a CEO effective May 17, 2004 but continues as a consultant since that date.

Fee paid to Mr. Terence Robinson for the fiscal year 2005 included cash payment of $28,037 and 145,250 common shares of the Corporation at a valuation of $283,213 issued under Consultant stock option plan. Mr. Robinson was also issued an additional 145,250 common shares of the Corporation at a valuation of $283,213 under the Consultant stock option plan towards his fee from April 1, 2005 to December 31, 2005.

Mr. Shah was given an interest-free loan of $20,000 in fiscal 2004. The loan was settled On March 31, 2005. The amount shown under other annual compensation against Mr. Shah represents the value of imputed interest on the loan at 5.5%.

There were a few other consultants who were given shares and options in excess of US$ 100,000 as detailed in item 5(a) under stock based compensation. However, these are independent consultants and do not have any management role in the Company.

Long Term Incentive Plan (LTIP) Awards

The Company does not have a LTIP, pursuant to which cash or non-cash compensation intended to serve as an incentive for performance (whereby performance is measured by reference to financial performance or the price of the Company’s securities) was paid or distributed to the Named Executive Officers during the most recently completed financial year.

Defined Benefit or Actuarial Plan Disclosure

There is no pension plan or retirement benefit plan that has been instituted by the Company and none are proposed at this time.

(C) BOARD PRACTICES

Directors may be appointed at any time in accordance with the by-laws of the Company and then re-elected annually by the shareholders of the Company. Directors receive no compensation for serving as such, other than stock option and reimbursement of direct expenses. Officers are elected annually by the Board of Directors of the Company and serve at the discretion of the Board of Directors.

The Company has not set aside or accrued any amount for retirement or similar benefits to the directors.

Audit Committee

The members of the audit committee consist of Dean Bradley and Damian Lee. The audit committee is charged with overseeing the Company's accounting and financial reporting policies, practices and internal controls. The committee reviews significant financial and accounting issues and the services performed by and the reports of our independent auditors and makes recommendations to our Board of Directors with respect to these and related matters.

The Company’s Audit Committee has adopted the following charter (the “Charter”) that sets out its mandate and responsibilities:

General

The primary function of the Audit Committee is to assist the Board of Directors of the Company (the “Board”) in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the shareholders and others, the systems of internal controls and management information systems established by management and the Company’s external audit process and monitoring compliance with the Company’s legal and regulatory requirements with respect to its financial statements.

The Audit Committee is accountable to the Board. In the course of fulfilling its specific responsibilities hereunder, the Audit Committee is expected to maintain an open communication between the Company’s external auditors and the Board.

The responsibilities of a member of the Audit Committee are in addition to such member’s duties as a member of the Board.

The Audit Committee does not plan or perform audits or warrant the accuracy or completeness of the Company’s financial statements or financial disclosure or compliance with generally accepted accounting procedures, as these are the responsibility of management and the external auditors.

Effective Date

This Charter was implemented by the Board on August 2, 2005.

Composition of Audit Committee

The Committee membership shall satisfy the laws and policies governing the Company and the independence, financial literacy and experience requirements under securities law, stock exchange and any other regulatory requirements as are applicable to the Company.

Relationship with External Auditors

The external auditor is required to report directly to the Audit Committee. Opportunities shall be afforded periodically to the external auditor and to members of senior management to meet separately with the Audit Committee.

Responsibilities

1. The Audit Committee shall be responsible for making the following recommendations to the Board:

(a)

the external auditor to be nominated for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Company; and

(b)

the compensation of the external auditor.

2. The Audit Committee shall be directly responsible for overseeing the work of the external auditor, including the resolution of disagreements between management and the external auditor regarding financial reporting. This responsibility shall include:

(a)

reviewing with management and the external auditor any proposed changes in major accounting policies, the presentation and impact of significant risks and uncertainties, and key estimates and judgments of management that may be material to financial reporting;

(b)

questioning management and the external auditor regarding significant financial reporting issues discussed during the fiscal period and the method of resolution;

(c)

reviewing audited annual financial statements, in conjunction with the report of the external auditor;

(d) reviewing any problems experienced by the external auditor in performing the audit, including any restrictions imposed by management or significant accounting issues on which there was a disagreement with management; and

(d)

reviewing the evaluation of internal controls by the external auditor, together with management’s response.

The Audit Committee shall review interim unaudited financial statements before release to the public.

The Audit Committee shall review all public disclosures of audited or unaudited financial information before release, including any prospectus, annual report, annual information form, and management’s discussion and analysis.

The Audit Committee shall review the appointments of the chief financial officer and any other key financial executives involved in the financial reporting process, as applicable.

Except as exempted by securities regulatory policies, the Audit Committee shall pre-approve all non-audit services to be provided to the Company or its subsidiary entities by the external auditor.

The Audit Committee shall ensure that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements, and shall periodically assess the adequacy of those procedures.

8. The Audit Committee shall establish procedures for:

(a)

the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and

(b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

9. The Audit Committee shall periodically review and approve the Company’s hiring policies, if any, regarding partners, employees and former partners and employees of the present and former external auditor of the Company.

10. Meetings of the Audit Committee shall be scheduled to take place at regular intervals and, in any event, not less frequently than quarterly.

Authority

The Audit Committee shall have the authority to:

(a)

to engage independent counsel and other advisors as it determines necessary to carry out its duties;

(b)

to set and pay the compensation for any advisors employed by the Audit Committee; and

(c)

to communicate directly with the external auditors.

Compensation Committee

The Company does not currently have a Compensation Committee. The directors determined that, in light of the Company’s size and resources, setting up such a committee would be too expensive for the Company at this time. The Company has, however, set up an Independent Review Committee of the Board to review and approve all non-arms' length contracts. This Committee has the same composition as the Audit Committee, and is currently comprised of the two independent directors -Dean Bradley and Damian Lee

(D) EMPLOYEES

The Company presently has no permanent employees. It uses the services of consultants from time to time.

(E) SHARE OWNERSHIP

The Corporation had the following plans as at March 31, 2005:

1999 Stock Option Plan covering 3 million options registered under the Securities Act of 1933 , United States of America ( the Act) on April 30, 2003.

2001 Consultant Stock Compensation Plan covering 1,205,714 shares registered under the Act on April 30, 2003.

2003 Stock Option Plan covering 2.5 million options registered under the Act on July 22, 2004

2003 Stock Compensation Plan covering 1 million shares registered under the Act on July 22, 2004.

As of August 15, 2005, all options under the 1999 and 2003 plans have been granted and of which, there are 4,175,000 options outstanding to purchase equal number of common shares of the Corporation.

As of August 15, 2005, 1,973,667 shares were issued under the 2001 and 2003 consultant stock compensation plan.

The directors now propose to create two additional plans to be named (a) 2005 Consultant Stock Compensation Plan covering 1 million common shares of the Corporation and (b) 2005 Stock Option Plan covering 2.1 million options of which 1.1 million options exercisable at US$0.60 will be set aside for Mr. Terence Robinson for bringing in the prospective buyer of the Company’s interest in oil exploration project in Papua New Guinea and other related services provided in connection with Gas exploration project in Louisiana.

The objective of these Plans is to provide for and encourage ownership of common shares of the Company by its directors, officers, consultants and employees and those of any subsidiary companies so that such persons may increase their stake in the Company and benefit from increases in the value of the common shares. The Plans are designed to be competitive with the benefit programs of other companies in the natural resource industry. It is the view of management that the Plans are a significant incentive for the directors, officers, consultants and employees to continue and to increase their efforts in promoting the Company’s operations to the mutual benefit of both the Company and such individuals and also allow the Company to avail of the services of experienced persons with minimum cash outlay.

The following table sets forth the share ownership of those persons listed in subsection 6.B above and includes details of all options or warrants to purchase of the Company held by such persons at March 31, 2005:

Name	# of Common shares held at March 31, 2005	# of stock options	Exercise price - in US$	Expiry date(s)
Kam Shah	45,471	100,000	$0.35	11-May-09
		100,000	$0.50	11-May-09
		125,000	$0.50	18-Aug-09
		125,000	$0.75	18-Aug-09

Terence Robinson	290,500	2,090,000	$0.50	18-Aug-09

Dean Bradley	0	15,000	$0.35	11-May-09
		5,000	$1.00	18-Aug-09

Kevin Marland	0	10,000	$1.00	expired on May 11, 2005
		5,000	$0.75	expired on August 18, 2005

During the fiscal year 2004, 100,000 shares were issued to Mr. Kam Shah, CFO under 2001 Consultant Stock Compensation Plan. and No options have been granted under 1999 Stock Option Plan.

No options or shares were issued in 2003.

ITEM 7 – MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

(A) MAJOR SHAREHOLDERS

The Company's securities are recorded on the books of its transfer agent in registered form. The majority of such shares are, however, registered in the name of intermediaries such as brokerage houses and clearing-houses on behalf of their respective clients. The Company does not have knowledge of the beneficial owners thereof.

As at August 31, 2005, Intermediaries like CDS & Co, Toronto, Canada and Cede & Co of New York, USA held approx. 67% of the issued and outstanding common shares of the company on behalf of several beneficial shareholders whose individual holdings details were not available. The following are the other registered shareholders holding more than 5% of the common shares of the company as at August 31, 2005.

Name of Shareholder	No. of Shares	% of Issued Shares
Snapper Inc.	2,143,249	14.13%

At August 31, 2005, the Company had 15,171,030 shares of common stock outstanding, which, as per the details provided by the Transfer Agents, were held by 102 record holders excluding the beneficial shareholders held through the intermediaries, 68 of which, holding an aggregate of 2,107,844 shares (13.89%) of common stock, were in the United States.

The Registrant is a publicly owned Canadian corporation, the shares of which are owned by Canadian residents, US residents, and residents of other countries. The Registrant is not owned or controlled directly or indirectly by another corporation or any foreign government. There are no arrangements, known to the Company, the operation of which may at a subsequent date result in a change of control of the Company.

(B) RELATED PARTY TRANSACTIONS

Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount. Related party transactions and balances have been listed below:

(i)

Included in shareholders information expense is $117,053 (2004 – $160,627; 2003 – $60,000) to Current Capital Corp, (CCC) for media relations services. CCC is a shareholder corporation and Mr. Shah – the director, CEO and CFO of the Company provides accounting services as a consultant.

(ii)

CCC charged approximately $24,000 for rent, telephone, consultants’ fees and other office expenses (2004: $62,000 and 2003: $34,000).

(iii)

Finders fee of $35,238 (2004: $352,000, 2003: nil) was charged by CCC in connection with the private placement.

(iv)

Included in professional and consulting fees are fees of $36,000 (2004: $112,150; 2003: $nil) paid to directors of the Company and $28,037 (2004: $111,377, 2003 :$nil) paid to a former director for consulting services.

(v)

Business expenses of $15,205 (2004 - $56,485; 2003 - $nil) were reimbursed to directors of the corporation and $93,244 to a former director who provides consulting services to the Company.

(vi)

Shares issued to director under Consultant’s stock compensation plan – 2005: nil (2004: 100,000 valued at $65,525, 2003: nil). Shares issued to a former director under the Consultant stock compensation plan – 2005: 290,500 valued at $ 566,426 (2004 and 2003: nil).

(vii)

Options issued to directors under Stock option plans – 2005: 485,000 valued at $541,910 (2004 and 2003: nil). Options issued to a former director under Stock option plans – 2005: 2,090,000 valued at $1,002,738 (2004 and 2003: nil)

(viii)

Consulting fees include amounts to Snapper Inc., a shareholder corporation of $12,786 (2004 - $267,894; 2003 - $92,682).

Indebtedness to Company of Directors, Executive Officers and Senior Officers

None of the directors, consultants, executive officers and senior officers of the Company or any of its subsidiaries, proposed nominees for election or associates of such persons is or has been indebted to the Company in excess of $25,000 at any time for any reason whatsoever, including the purchase of securities of the Company or any of its subsidiaries.

Mr. Shah, the CEO and CFO of the Company settled his loan of $20,000 during the fiscal 2005. The loan was taken in the fiscal 2004.

(C) INTERESTS OF EXPERTS AND COUNSEL

Not applicable

ITEM 8 – FINANCIAL INFORMATION

(A) CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Information regarding our financial statements is contained under the caption "Item 17. Financial Statements" below.

Legal Proceedings

There are no material legal proceedings in progress or to the knowledge of the Company, pending or threatened to which the Company is a party or to which any of its properties is subject.

Dividend Policy

Since its incorporation, the Company has not declared or paid, and has no present intention to declare or to pay in the foreseeable future, any cash dividends with respect to its Common Shares. Earnings will be retained to finance further growth and development of the business of the Company. However, if the Board of Directors declares dividends, all Common Shares will participate equally in the dividends, and, in the event of liquidation, in the net assets, of the Company.

(B) SIGNIFICANT CHANGES

The following is a summary of key corporate changes and other significant events that occurred subsequent to March 31, 2005:

(a)

On May 25, 2005, the Company’s registration statement in Form F-3 under the Securities Act of 1933 became effective. The registration statement covered 3,654,699 restricted shares and 5,841,726 common shares issuable upon exercise of outstanding warrants, which were issued under the private placement initiated on April 28, 2003. the registration will enable the Company to have the restrictive legends removed from these shares.

(b)

At the time of the registration of the shares issuable upon exercise of warrants, as explained in 1 above, the Company made to its warrant holders an offer to reduce warrant exercise price to US$ 0.60 from US$1 for a limited period of four days. Five warrant holders took advantage of the offer and exercised 739,524 warrants for a total sum of US$ 443,714.

(c)

On July 5, 2005, the Company sold its .75% Indirect Participation Interest in an oil exploration project in Papua New guinea for a sum of US$ 3.2 million to an independent institutional investor under an IPI purchase agreement dated July 5, 2005. The Company received the funds on July 7, 2005. Under the agreement, the Company will no longer be responsible for any future cash calls and other obligations of the Project, which have been taken over by the buyer.

(d)

The Company received two cash calls relating to its 49% working interest in a gas project in the State of Louisiana, USA from the project operator. The two cash calls dated May 15, 2005 and June 20, 2005 totaled US$ 3,052,700 representing the Company’s 49% of the total estimated drilling and equipment leasing costs of US$6,230,000. The Company paid US$400,000 in June 2005 and the balance of US$2.7 million in July 2005 -within the deadlines agreed with the project operator. The funds remitted by the Company have been deposited in an escrow account and will be released against the actual work.

(e)

On April 12, 2005, one of the independent directors, Mr. Kevin Markland resigned and was replaced by Mr. Damian Lee as an independent director.

ITEM 9 - THE OFFER AND LISTING

(A) OFFER AND LISTING DETAILS

The following table sets forth the reported high and low sale prices for the common shares of the Company as quoted on OTCBB or Pink Sheet.

The following table outlines the annual high and low market prices for the five most recent fiscal years:

Fiscal year ended March 31	High In US $	Low In US$
2005	2.15	.33
2004	2.47	.21
2003	2.17	.21
2002	4.83	.49
2001	19.69	.98

The following table outlines the high and low market prices for each fiscal financial quarter for the two most recent fiscal periods and any subsequent period:

Fiscal Quarter ended	High	Low
	In US$	In US$
June 30, 2005	1.05	.58
March 31, 2005	1.62	.75
December 31, 2004	2.15	.48
September 30, 2004	1.13	.33
June 30, 2004	2.05	.90
March 31, 2004	2.47	1.01
December 31, 2003	1.45	.80
September 30, 2003	2.05	.80
June 30, 2003	1.45	.21

The following table outlines the high and low market prices for each of the most recent six months:

Month	High	Low
	In US$	In US$
July 31, 2005	1.22	.75
June 30, 2005	.87	.58
May 31, 2005	1.05	.74
April 30, 2005	.94	.61
March 31, 2005	1.20`	.75
February 28, 2005	1.36	1.11

Prices prior to April 21, 2003 have been adjusted to reflect 7:1 reverse stock split.

(B) PLAN OF DISTRIBUTION

Not applicable

(C) MARKETS

The Company’s common shares were traded on the Over The Counter Bulletin Board (OTCBB) under the symbol “Deal” and on Canadian Dealing Network (CDN) under the symbol “FDQI” until January 20, 1999.

Effective January 21, 1999. The Company’s shares were traded only on OTCBB. The symbol was further changed to “NMBC” on August 13, 1999 and then to “DCHK” on November 3, 1999.

On May 26, 2000, the Company shares were de-listed from OTCBB and began trading on the “Pink Sheet” pending clearance of the Registration Statement, F-20 by Securities and Exchange Commission (SEC). The Company filed F-20 originally in December 1999 and then filed several amendments in response to the comments received from SEC to its submissions. The SEC clearance was finally received on June 16, 2000 and the common shares of the Company began trading again on OTCBB effective August 2, 2000.

The company changed its name to Bontan Corporation Inc. On April 21, 2003 and its common shares began trading, and currently trade under a new symbol “BNTNF” on OTCBB.

(D) SELLING SHAREHOLDERS

Not applicable.

(E) DILUTION

Not applicable

(F) EXPENSES OF THE ISSUE

Not applicable

ITEM 10 – ADDITIONAL INFORMATION

(A) SHARE CAPITAL

This Form 20F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.

(B) MEMORANDUM AND ARTICLES OF ASSOCIATION

The Memorandum and Articles of the Company are incorporated by reference to the information in our registration statement on Form 20-F filed with the Securities and Exchange Commission, in Washington, D.C. on June 12, 2000 to which our Articles of Incorporation and Memorandum were filed as exhibits.

No further changes have been made to the Company’s Articles/Bylaws.

(C) MATERIAL CONTRACTS

Except for contracts entered into in the ordinary course of business, the Company has not entered into any material contracts in the preceding two years.

(D)

EXCHANGE CONTROLS

There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of the Company’s common shares. Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (5% if the shareholder is a corporation owning at least 10% of the outstanding common shares of the Company) pursuant to Article X of the reciprocal tax treaty between Canada and the United States. See “Item 10 – Additional Information – E. Taxation” below.

Except as provided in the Investment Canada Act (the “Act”), which has provisions which govern the acquisition of a control block of voting shares by non-Canadians of a corporation carrying on a Canadian business, there are no limitations specific to the rights of non-Canadians to hold or vote the common shares of the Company under the laws of Canada or the Province of Ontario or in the charter documents of the Company.

Management of the Company considers that the following general summary fairly describes those provisions of the Act pertinent to an investment in the Company by a person who is not a Canadian resident (a “non-Canadian”).

The Act requires a non-Canadian making an investment which would result in the acquisition of control of the Canadian business to notify the Investment Review Division of Industry Canada, the federal agency created by the Act; or in the case of an acquisition of a Canadian business, the gross value of the assets of which exceeds certain threshold levels or the business activity of which is related to Canada’s cultural heritage of national identity, to file an application for review with the Investment Review Division.

The notification procedure involves a brief statement of information about the investment on a prescribed form, which is required to be filed with Investment Canada by the investor at any time up to 30 days following implementation of the investment. Once the completed notice has been filed, a receipt bearing the certificate date will be issued to the non-Canadian investor. The receipt must advise the investor either that the investment proposal is unconditionally non-reviewable or that the proposal will not be reviewed as long as notice of review is not issued within 21 days of the date certified under the receipt. It is intended that investments requiring only notification will proceed without government intervention unless the investment is in a specific type of business activity related to Canada’s cultural heritage and national identity.

If an investment is reviewable under the Act, an order for review must be issued within 21 days after the certified date on which notice of investment was received. An application for review in the form prescribed is required to be filed with Investment Canada prior to the investment taking place. Once the application has been filed, a receipt will be issued to the applicant, certifying the date on which the application was received. For incomplete applications, a deficiency notice will be sent to the applicant, and if not done within 15 days of receipt of application, the application will be deemed to be complete as of the date it was received. Within 45 days after the complete application has been received, the Minister responsible for the Investment Canada Act must notify the potential investor that the Minister is satisfied that the investment is likely to be of net benefit to Canada. If within such 4 5-day period the Minister is unable to complete the review, the Minister has an additional 30 days to complete the review, unless the applicant agrees to a longer period. Within such additional period, the Minister must advise either that he is satisfied or not satisfied that the investment is likely to be of net benefit to Canada. If the time limits have elapsed, the Minister will be deemed to be satisfied that the investment is likely to be of net benefit to Canada. The investment may not be implemented until the review has been completed and the Minister is satisfied that the investment is likely to be of net benefit to Canada.

If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian must not implement the investment or, if the investment has been implemented, could be penalized by being required to divest himself of control of the business that is the subject of the investment. To date, the only types of business activities which have been prescribed by regulation as related to Canada’s cultural heritage or national identity deal largely with publication, film and music industries. Because the Company’s total assets are less than the $5 million notification threshold, and because the Company’s business activities would likely not be deemed related to Canada’s cultural heritage or national identity, acquisition of a controlling interest in the Company by a non-Canadian investor would not be subject to even the notification requirements under the Investment Canada Act. &nbs p;

The following investments by non-Canadians are subject to notification under the Act:

1. An investment to establish a new Canadian business; and

2. An investment to acquire control of a Canadian business that is not reviewable pursuant to the Act.

The following investments by a non-Canadian are subject to review under the Act:

1. Direct acquisition of control of Canadian businesses with assets of $5 million or more, unless the acquisition is being made by a World Trade Organization (“WTO”) member country investor (the United States being a member of the WTO);

2. Direct acquisition of control of Canadian businesses with assets of $237,000,000 or more by a WTO investor;

3. Indirect acquisition of control of Canadian business with assets of $5 million or more if such assets represent more than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the acquisition is being made by a WTO investor, in which case there is no review;

4. indirect acquisition of control of Canadian businesses with assets of $50 million or more even if such assets represent less than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the acquisition is being made by a WTO investor, in which case there is no review; and

5. An investment subject to notification that would not otherwise be reviewable if the Canadian business engages in the activity of publication, distribution or sale of books, magazines, periodicals, newspapers, film or video recordings, audio or video music recordings, or music in print or machine-readable form.

Generally speaking, an acquisition is direct if it involves the acquisition of control of the Canadian business or of its Canadian parent or grandparent and an acquisition is indirect if it involves the acquisition of control of a non-Canadian parent or grandparent of an entity carrying on the Canadian business. Control may be acquired through the acquisition of actual voting control by the acquisition of voting shares of a Canadian corporation or through the acquisition of substantially all of the assets of the Canadian business. No change of voting control will be deemed to have occurred if less than one-third of the voting control of a Canadian corporation is acquired by an investor.

A WTO investor, as defined in the Act, includes an individual who is a national of a member country of the World Trade Organization or who has the right of permanent residence in relation to that WTO member, a government or government agency of a WTO investor-controlled corporation, limited partnership, trust or joint venture and a corporation, limited partnership, trust or joint venture that is neither WTO-investor controlled or Canadian controlled of which two-thirds of its board of directors, general partners or trustees, as the case may be, or any combination of Canadians and WTO investors.

The higher thresholds for WTO investors do not apply if the Canadian business engages in activities in certain sectors such as uranium, financial services, transportation services or communications.

The Act specifically exempts certain transactions from either notification or review. Included among this category of transactions is the acquisition of voting shares or other voting interests by any person in the ordinary course of that person’s business as a trader or dealer in securities.

(E) TAXATION

U.S. Federal Income Tax Consequences

The following is a summary of the anticipated material U.S. federal income tax consequences to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares of the Company (“Common Shares”).

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.

Scope of this Disclosure

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the Internal Revenue Service (“IRS”), published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this Annual Report. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.

U.S. Holders

For purposes of this summary, a “U.S. Holder” is a beneficial owner of Common Shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S. or any state in the U.S., including the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust.

Non-U.S. Holders

For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Common Shares other than a U.S. Holder. This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders. Accordingly, a non-U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any tax treaties) of the acquisition, ownership, and disposition of Common Shares.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that are liable for the alternative minimum tax under the Code; (f) U.S. Holders that own Common Shares as part of a straddle, hedging transaction, conve rsion transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code; or (i) U.S. Holders that own, directly or indirectly, 10% or more, by voting power or value, of the outstanding shares of the Company. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.

If an entity that is classified as partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership (or “pass-through” entity) and the partners of such partnership (or owners of such “pass-through” entity) generally will depend on the activities of the partnership (or “pass-through” entity) and the status of such partners (or owners). Partners of entities that are classified as partnerships (or owners of “pass-through” entities) for U.S. federal income tax purposes should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.

Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed

This summary does not address the U.S. state and local, U.S. federal estate and gift, or foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. state and local, U.S. federal estate and gift, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares. (See “Taxation—Canadian Federal Income Tax Consequences ” below).

U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares

Distributions on Common Shares

General Taxation of Distributions

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to the Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares and, (b) thereafter, as gain from the sale or exchange of such Common Shares. (See more detailed discussion at “Disposition of Common Shares” below).

Reduced Tax Rates for Certain Dividends

For taxable years beginning after December 31, 2002 and before January 1, 2009, a dividend paid by the Company generally will be taxed at the preferential tax rates applicable to long-term capital gains if (a) the Company is a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend date” (i.e., the first date that a purchaser of such Common Shares will not be entitled to receive such dividend).

The Company generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) the Company is incorporated in a possession of the U.S., (b) the Company is eligible for the benefits of the Canada-U.S. Tax Convention, or (c) the Common Shares are readily tradable on an established securities market in the U.S. However, even if the Company satisfies one or more of such requirements, the Company will not be treated as a QFC if the Company is a “passive foreign investment company” (as defined below) for the taxable year during which the Company pays a dividend or for the preceding taxable year. In 2003, the U.S. Department of the Treasury (the “Treasury”) and the IRS announced that they intended to issue Treasury Regulations providing procedures for a foreign corporation to certify that it is a QFC. Although these Treasury Regulat ions were not issued in 2004, the Treasury and the IRS have confirmed their intention to issue these Treasury Regulations. It is expected that these Treasury Regulations will obligate persons required to file information returns to report a distribution with respect to a foreign security issued by a foreign corporation as a dividend from a QFC if the foreign corporation has, among other things, certified under penalties of perjury that the foreign corporation was not a “passive foreign investment company” for the taxable year during which the foreign corporation paid the dividend or for the preceding taxable year.

As discussed below, the Company does not believe that it was a “passive foreign investment company” for the taxable year ended March 31, 2005, and does not expect that it will be a “passive foreign investment company” for the taxable year ending December 31, 2005. (See more detailed discussion at “Additional Rules that May Apply to U.S. Holders” below). However, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its “passive foreign investment company” status or that the Company will not be a “passive foreign investment company” for the current or any future taxable year. Accordingly, although the Company expects that it may be a QFC, there can be no assurances that the IRS will not challenge the determination made by the Company concerning its QFC status, that the Company will be a QFC for the current or any future taxable year, or that the Company will be able to certify that it is a QFC in accordance with the certification procedures issued by the Treasury and the IRS.

If the Company is not a QFC, a dividend paid by the Company to a U.S. Holder, including a U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains). The dividend rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the dividend rules.

Distributions Paid in Foreign Currency

The amount of a distribution paid to a U.S. Holder in foreign currency generally will be equal to the U.S. dollar value of such distribution based on the exchange rate applicable on the date of receipt. A U.S. Holder that does not convert foreign currency received as a distribution into U.S. dollars on the date of receipt generally will have a tax basis in such foreign currency equal to the U.S. dollar value of such foreign currency on the date of receipt. Such a U.S. Holder generally will recognize ordinary income or loss on the subsequent sale or other taxable disposition of such foreign currency (including an exchange for U.S. dollars).

Dividends Received Deduction

Dividends paid on the Common Shares generally will not be eligible for the “dividends received deduction.” The availability of the dividends received deduction is subject to complex limitations that are beyond the scope of this discussion, and a U.S. Holder that is a corporation should consult its own financial advisor, legal counsel, or accountant regarding the dividends received deduction.

Disposition of Common Shares

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in the Common Shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the Common Shares are held for more than one year. Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Shares generally will be treated as “U.S. source” for purposes of applying the U.S. foreign tax credit rules. (See more detailed discussion at “Foreign Tax Credit” below).

Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses and net capital losses are subject to complex limitations. For a U.S. Holder that is an individual, estate, or trust, capital losses may be used to offset capital gains and up to U.S.$3,000 of ordinary income. An unused capital loss of a U.S. Holder that is an individual, estate, or trust generally may be carried forward to subsequent taxable years, until such net capital loss is exhausted. For a U.S. Holder that is a corporation, capital losses may be used to offset capital gains, and an unused capital loss generally may be carried back three years and carried forward five years from the year in which such net capital loss is recognized.

Foreign Tax Credit

A U.S. Holder who pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.

Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately with respect to specific categories of income (including “passive income,” “high withholding tax interest,” “financial services income,” “general income,” and certain other categories of income). Dividends paid by the Company generally will constitute “foreign source” income and generally will be categorize d as “passive income” or, in the case of certain U.S. Holders, “financial services income.” However, for taxable years beginning after December 31, 2006, the foreign tax credit limitation categories are reduced to “passive income” and “general income” (and the other categories of income, including “financial services income,” are eliminated). The foreign tax credit rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the foreign tax credit rules.

Information Reporting; Backup Withholding Tax

Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from certain sales or other taxable dispositions of, Common Shares generally will be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, U.S. Holders that are corporations generally are excluded from these information repor ting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS. Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the information reporting and backup withholding tax rules.

Additional Rules that May Apply to U.S. Holders

If the Company is a “controlled foreign corporation” or a “passive foreign investment company” (each as defined below), the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares.

Controlled Foreign Corporation

The Company generally will be a “controlled foreign corporation” under Section 957 of the Code (a “CFC”) if more than 50% of the total voting power or the total value of the outstanding shares of the Company is owned, directly or indirectly, by citizens or residents of the U.S., domestic partnerships, domestic corporations, domestic estates, or domestic trusts (each as defined in Section 7701(a)(30) of the Code), each of which own, directly or indirectly, 10% or more of the total voting power of the outstanding shares of the Company (a “10% Shareholder”).

If the Company is a CFC, a 10% Shareholder generally will be subject to current U.S. federal income tax with respect to (a) such 10% Shareholder’s pro rata share of the “subpart F income” (as defined in Section 952 of the Code) of the Company and (b) such 10% Shareholder’s pro rata share of the earnings of the Company invested in “United States property” (as defined in Section 956 of the Code). In addition, under Section 1248 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares by a U.S. Holder that was a 10% Shareholder at any time during the five-year period ending with such sale or other taxable disposition generally will be treated as a dividend to the extent of the “earnings and profits” of the Company that are attributable to such Common Shares. If the Company is both a CFC and a “passive foreign investment compan y” (as defined below), the Company generally will be treated as a CFC (and not as a “passive foreign investment company”) with respect to any 10% Shareholder.

The Company does not believe that it has previously been, or currently is, a CFC. However, there can be no assurance that the Company will not be a CFC for the current or any future taxable year.

Passive Foreign Investment Company

The Company generally will be a “passive foreign investment company” under Section 1297 of the Code (a “PFIC”) if, for a taxable year, (a) 75% or more of the gross income of the Company for such taxable year is passive income or (b) 50% or more of the assets held by the Company either produce passive income or are held for the production of passive income, based on the fair market value of such assets (or on the adjusted tax basis of such assets, if the Company is not publicly traded and either is a “controlled foreign corporation” or makes an election). “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. However, for transactions entered into on or before December 31, 2004, gains arising from the sale of commodities generally are excl uded from passive income if (a) a foreign corporation holds the commodities directly (and not through an agent or independent contractor) as inventory or similar property or as dealer property, (b) such foreign corporation incurs substantial expenses related to the production, processing, transportation, handling, or storage of the commodities, and (c) gross receipts from sales of commodities that satisfy the requirements of clauses (a) and (b) constitute at least 85% of the total gross receipts of such foreign corporation. For transactions entered into after December 31, 2004, gains arising from the sale of commodities generally are excluded from passive income if substantially all of a foreign corporation’s commodities are (a) stock in trade of such foreign corporation or other property of a kind which would properly be included in inventory of such foreign corporation, or property held by such foreign corporation primarily for sale to customers in the ordinary course o f business, (b) property used in the trade or business of such foreign corporation that would be subject to the allowance for depreciation under Section 167 of the Code, or (c) supplies of a type regularly used or consumed by such foreign corporation in the ordinary course of its trade or business.

For purposes of the PFIC income test and assets test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another foreign corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other foreign corporation and (b) received directly a proportionate share of the income of such other foreign corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by the Company from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.

If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”

Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, and any “excess distribution” (as defined in Section 1291(b) of the Code) paid on the Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the Common Shares. The amount of any such gain or excess distribution allocated to prior years of such Non-Electing U.S. Holder’s holding period for the Common Shares generally will be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such prior year. A Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year.

A U.S. Holder that makes a QEF Election generally will not be subject to the rules of Section 1291 of the Code discussed above. However, a U.S. Holder that makes a QEF Election generally will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the “net capital gain” of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) and the “ordinary earnings” of the Company, which will be taxed as ordinary income to such U.S. Holder. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each taxable year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company.

A U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above. A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are “marketable stock” (as defined in Section 1296(e) of the Code). A U.S. Holder that makes a Mark-to-Market Election will include in gross income, for each taxable year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares as of the close of such taxable year over (b) such U.S. Holder’s tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will, subject to certain limitations, be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the Common Shares over (b) the fair market value of such Common Shares as of t he close of such taxable year.

The Company does not believe that it was a PFIC for the taxable year ended March 31, 2005, and does not expect that it will be a PFIC for the taxable year ending March 31, 2006. There can be no assurance, however, that the IRS will not challenge the determination made by the Company concerning its PFIC status or that the Company will not be a PFIC for the current or any future taxable year.

The PFIC rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.

Canadian Taxation

The following summary fairly describes, as of the date hereof, the principal Canadian federal income tax considerations generally applicable to a U.S. Holder who is not and has not been or deemed to be resident in Canada for purposes of the Income Tax Act (Canada) (the "ITA") at any time while such U.S. Holder holds the common stock, is a resident of the U.S. for purposes of the Canada-United States Income Tax Convention (1980), as amended (the "Convention"), and who, for purposes of the ITA, at all relevant times:

• is the beneficial owner of the common stock;

• holds the common stock as capital property;

• does not have a "permanent establishment" or "fixed base" in Canada, as defined in the Convention;

• does not use or hold (and is not deemed to use or hold) the common stock in carrying on a business in Canada; and

• deals at arm's length with us.

Special rules, which are not discussed below, may apply to "financial institutions" and "tax shelters" as defined in the ITA, and to non-resident insurers carrying on an insurance business in Canada and elsewhere.

This summary is based upon the current provisions of the ITA, the regulations thereunder (the "Regulations"), the Convention, all specific proposed amendments to the ITA or the Regulations announced by or on behalf of the Canadian Minister of Finance prior to the date hereof, and the company's understanding of the current published administrative practices of the Canada Revenue Agency. This summary does not otherwise take into account or anticipate any changes in law, whether by way of judicial, governmental or legislative decision or action, administrative practice nor any income tax laws or considerations of any province or territory of Canada or any jurisdiction other than Canada, which may differ from the Canadian federal income tax consequences described in this document.

The common stock will generally constitute capital property to a U.S. Holder unless such U.S. Holder holds such common stock in the course of carrying on a business of trading or dealing in securities or has acquired such common stock in a transaction or transactions considered to be an adventure in the nature of trade.

Under the Convention, dividends paid or credited, or deemed to be paid or credited, on the common stock to a U.S. Holder generally will be subject to Canadian withholding tax at the rate of 15% of the gross amount of those dividends or deemed dividends. If a U.S. Holder is a corporation and owns 10% or more of the company's voting stock, the rate is reduced from 15% to 5%.

Under the Convention, dividends paid to religious, scientific, literary, educational or charitable organizations or certain pension, retirement or employee benefit organizations that have complied with specified administrative procedures are exempt from the aforementioned Canadian withholding tax so long as such organization is resident in and exempt from tax in the U.S.

A U.S. Holder will only be subject to taxation in Canada under the ITA on capital gains realized by the U.S. Holder on a disposition or deemed disposition of the common stock if the common stock constitutes "taxable Canadian property" within the meaning of the ITA at the time of the disposition or deemed disposition and the U.S. Holder is not afforded relief under the Convention. In general, the common stock will not be "taxable Canadian property" to a U.S. Holder if, at the time of its disposition, it is listed on a stock exchange that is prescribed in the Regulations (which includes American Stock Exchange), unless:

at any time within the five-year period immediately preceding the disposition or deemed disposition, the U.S. Holder, persons not dealing at arm's length with the U.S. Holder, or the U.S. Holder together with such non-arm's length persons, owned or had an interest in or a right or option to acquire 25% or more of the issued shares of any class or series of our capital stock;

the U.S. Holder was formerly resident in Canada and, upon ceasing to be a Canadian resident, elected under the ITA to have the common stock deemed to be "taxable Canadian property; or

the U.S. Holder's common stock was acquired in a tax deferred exchange in consideration for property that was itself "taxable Canadian property."

If a U.S. Holder's common stock is "taxable Canadian property," subject to the availability of an exemption under the Convention, such U.S. Holder will recognize a capital gain (or a capital loss) for the taxation year during which the U.S. Holder disposes, or is deemed to have disposed of, the common stock. Such capital gain (or capital loss) will be equal to the amount by which the proceeds of disposition exceed (or are less than) the U.S. Holder's adjusted cost base of such common stock and any reasonable costs of making the disposition. One-half of any such capital gain (a "taxable capital gain") must be included in income in computing the U.S. Holder's income and one half of any such capital loss (an "allowable capital loss") is generally deductible by the U.S. Holder from taxable capital gains arising in the year of disposition. To the extent a U.S. Holder has insufficient taxable capital gains in the current taxatio n year against which to apply an allowable capital loss, the deficiency will constitute a net capital loss for the current taxation year and may generally be carried back to any of the three preceding taxation years or carried forward to any future taxation year, subject to certain detailed rules in the ITA in this regard.

This summary does not take into account any provincial, territorial or foreign tax considerations, which may differ significantly from those discussed herein.

This summary is of a general nature only and is not intended to be relied on as legal or tax advice or representations to any particular investor. Consequently, potential investors are urged to seek independent tax advice in respect of the consequences to them of the acquisition of common stock having regard to their particular circumstances.

(F) DIVIDEND AND PAYING AGENTS

Not applicable

(G) STATEMENT BY EXPERTS

Not applicable

(H) DOCUMENTS ON DISPLAY

The documents concerning the Company referred to in this Annual Report may be inspected at the Company's office at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada, M5R 2G3. The Company may be reached at (416) 860-0211. Documents filed with the Securities and Exchange Commission ("SEC") may also be read and copied at the SEC's public reference room at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.

The Company is subject to reporting requirements as a “reporting issuer” under applicable securities legislation in Canada and as a “foreign private issuer” under the Securities Exchange Act of 1934 (the “Exchange Act”). As a result, we must file periodic reports and other information with the Canadian securities regulatory authorities and the Securities and Exchange Commission.

A copy of this Annual Information Form/Form 20-F Annual Report and certain other documents referred to in this Annual Report and other documents filed by us may be retrieved from the system for electronic document analysis and retrieval (“SEDAR”) system maintained by the Canadian securities regulatory authorities at www.sedar.ca or from the Securities and Exchange Commission electronic data gathering, analysis and retrieval system(“EDGAR”) at www.sec.gov/edgar.

(I) SUBSIDIARY INFORMATION

The documents concerning the Company’s subsidiaries referred to in this Annual Report may be inspected at the Company's office at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada, M5R 2G3.

ITEM 11 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company holds no material financial instruments.

The Company is exposed to foreign currency exchange rate risk as it currently incurs liabilities in United States dollars and Canadian dollars. Further, the Company also plans activities in different countries involving different local currencies. Exchange rates for these currencies in the future may have an adverse effect on our earnings or assets when these currencies are exchanged for Canadian dollars. The Company has not entered into forward foreign exchange contracts in an attempt to mitigate this risk. To date, losses and gains resulting from foreign exchange transactions have been included in our results of operations. Further discussion of foreign currency risk is set forth in Item 3 D under the heading, “Conducting business in foreign countries.”

The Company has no debt instruments subject to interest payments, sales contracts, swaps, derivatives, or forward agreements or contracts, or inventory.

The Company has no currency or commodity contracts, and the Company does not trade in such instruments.

The Company periodically accesses the capital markets with the issuance of new shares to fund operating expenses and new projects, and the Company does not maintain significant cash reserves over periods of time that could be materially affected by fluctuations in interest rates or foreign exchange rates.

ITEM 12 – DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13 – DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14 – MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

No modifications or qualifications have been made in the prior Fiscal Year to the instruments defining the rights of the holders of our Common Shares and no material amount of assets securing our securities has been withdrawn or substituted by us or anyone else (other than in the ordinary course of business).

On July 5, 2005, the Company sold its .75% indirect participation interest in oil exploration project in Papua New Guinea fos a sum of US$3.2 million. The carrying cost of the asset was approx. US$1.7 million. This is further explained under item 8 (B) “Significant Changes”.

ITEM 15 CONTROLS AND PROCEDURES

A. Evaluation of Disclosure Controls and Procedures

The Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended) as of a date (the "Evaluation Date") within 90 days prior to the filing date of this report. Based upon that evaluation, the Chief Executive Officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective in timely alerting them to the material information relating to the Company (or the Company's consolidated subsidiaries) required to be included in the Company's periodic SEC filings.

B. Changes in Internal Controls

There were no significant changes made in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Mr. Kam Shah currently assumes the dual role of CEO and CFO and is currently the only executive director of the Company. Given the current size and nature of operations of the Company, strong financial and business background of Mr. Shah and existence of two independent directors out of three, the Company believes that existence of only one executive officer would not adversely affect the Company’s disclosure controls and procedures.

ITEM 16

[RESERVED]

ITEM 16 (A) AUDIT COMMITTEE FINANCIAL EXPERTS

As at the Company’s financial year ended March 31, 2005, the audit committee consisted of two directors, one of whom, Mr. Dean Bradley would be determined as a financial expert, as that term is defined under Section 407 of the Sarbanes-Oxley Act of 2002. Mr. Bradley’s background is described under Item 6(A) Directors and senior management.

Effective April 12, 2005, Mr. Kevin Markland was replaced by Mr. Damian Lee as independent director and was also appointed to, the audit committee to replace Mr. Markland. Mr. Dean Bradley continues as a financial expert.

ITEM 16 (B) CODE OF ETHICS

We have adopted a Code of Ethics, which applies to all employees, consultants, officers and directors.

ITEM 16 (C)

PRINCIPAL ACCOUNTANT’S FEES AND SERVICES

The following outlines the expenditures for accounting fees for the last two fiscal periods ended:

	March 31 2004	March 31 2004

Audit Fees (1)	25,000	16,425
Audit Related Fees	-	-
Tax Fees	--	-
All Other Fees (2)	-	495

(1)

Audit fee for the fiscal year 2005 has not yet been agreed. The amount shown is the management’s estimate.

(2)

Other fees relate to services rendered in connection with opinions rendered and reviews carried out in respect of various filings with SEC.

Under our existing policies, the audit committee must approve all audit and non-audit related services provided by the auditors.

ITEM 16 (D)

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

The information referred to in this section is not required as to the fiscal year ended March 31, 2005, which is the period covered by this Annual Report on Form 20-F.

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The information referred to in this section is not required as to the fiscal year ended March 31, 2005, which is the period covered by this Annual Report on Form 20-F.

PART III

ITEM 17 – FINANCIAL STATEMENTS

See the Financial Statements and Exhibits listed in Item 19 hereof and filed as part of this Annual Report. These financial statements were prepared in accordance with Canadian GAAP and are expressed in Canadian dollars. Such financial statements have been reconciled to U.S. GAAP (see Note 18 therein). For a history of exchange rates in effect for Canadian dollars as against U.S. dollars, see Item 3(A) Exchange Rates of this Annual Report.

ITEM 18 – FINANCIAL STATEMENTS

Not applicable.

ITEM 19 -- EXHIBITS

(a)

Financial Statements

Description of Document	Page No.
Cover Sheet	F-1
Independent Auditor’s Report dated July 27, 2005	F-2
Comments by Auditors for US Readers on Canada-US Reporting Differences dated July 27, 2005 Consolidated Balance Sheets as at March 31, 2005 and 2004	F-3 F-4
Consolidated Statements of Operations for the Fiscal Years Ended March 31, 2005, 2004 and 2003	F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2005, 2004, and 2003	F-6
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended March 31, 2005, 2004, and 2003	F-7
Notes to the Financial Statements	F-8

(b)

Exhibits

The following documents are filed as part of this Annual Report on Form 20-F

1.1

Articles of Incorporation of the Company - Incorporated herein by reference to Exhibit 1(ix) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000

1.2

By-Laws of the Company - Incorporated herein by reference to Exhibit 1(xi) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000

1.3

Certificate of name change from Kamlo Gold Mines Limited to NRT Research Technologies Inc. - Incorporated herein by reference to Exhibit 1(iii) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000

1.4

Certificate of name change from NRT Research Technologies Inc. to NRT Industries Inc. - Incorporated herein by reference to Exhibit 1(iv) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000

1.5

Certificate of name change from NRT Industries Inc. to CUDA Consolidated Inc. - Incorporated herein by reference to Exhibit 1(v) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000

1.6

Certificate of name change from CUDA Consolidated Inc. to Foodquest Corp. - Incorporated herein by reference to Exhibit 1(vi) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000

1.7

Certificate of name change from Foodquest Corp. to Foodquest International Corp. - Incorporated herein by reference to Exhibit 1(vii) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000

1.8

Certificate of name change from Foodquest International Corp. to Dealcheck.com Inc. - Incorporated herein by reference to Exhibit 1(viii) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000

1.9

Certificate of name change from Dealcheck.com Inc. to Bontan Corporation Inc. - Incorporated herein by reference to Exhibit 1(viii) to the Company’s Annual Report on Form 20-F filed on September 23, 2003

2.(a)

Specimen Common Share certificate - Incorporated herein by reference to Exhibit 1(viii) to the Company’s Annual Report on Form 20-F filed on September 23, 2003

4.(a)1

IPI Contract between PNG Venture Company and Advisory Group dated July 22, 2003 assumed by the Company – Incorporated herein by reference to Exhibit 4 (a) to the Company’s Annual Report on Form 20-F for fiscal 2004 filed on August 30, 2004.

4.(a).2i

Investor relations contract with Current Capital Corp. dated April 1, 2003

4.(a)2.ii

Media Relation Contrcat with Current Capital corp. dated April 1, 2003

4.(a)2.iii

A letter dated April1, 2005 extending the contracts under 4(a)2.i and ii.

4(b) 1

Indirect Participation Interest Purchase Agreement dated July 5, 2005

4.(b).2

Exploration Agreement Bell City, South Area, Calcasieu Parish, Louisiana dated June 16, 2004.

4. (c)1

Consulting Agreement dated April 1, 2005 with Kam Shah

4. (c).2

Consulting Agreement dated April 1, 2003 with Terence Robinson - Incorporated herein by reference to Exhibit 4 (a) to the Company’s Annual Report on Form 20-F for fiscal 2004 filed on August 30, 2004.

4.(c)(iv)1.i

2001 Consultant Stock Compensation Plan and 1999 Stock Option Plan - Incorporated herein by reference to Form S-8 filed on April 30, 2003

4.(c)(iv)2

2003 Consultant Stock Compensation Plan and 2003 Stock Option Plan – Incorporated herein by reference to Form S-8 filed on July 22, 2004

12.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

1.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

14 (a)

A board resolution dated May 1, 2004 amending Section 5 of the 1999 Stock Option Plan filed under 4 (c )(iv)1.i above.

SIGNATURES

The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

Dated at Toronto, Ontario, Canada, this 31st day of August, 2005.

BONTAN CORPORATION INC.

Per: (signed) Kam Shah

Title: Chairman and CEO

Exhibit 12.1

CERTIFICATION

I, Kam Shah certify that:

1. I have reviewed this annual report on Form 20-F of Bontan Corporation Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [omitted pursuant to Transition Period provisions at Section III of Release 34-47986 of the Securities and Exchange Commission entitled “Management’s Reports on Internal Control over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports”] for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) [omitted pursuant to Transition Period provisions at Section III of Release 34-47986 of the Securities and Exchange Commission entitled “Management’s Reports on Internal Control over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports”];

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: August 31, 2005

/s/ Kam Shah

Kam Shah

Chief Executive Officer and Chief Financial Officer

Exhibit 13.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 20-F of Bontan Corporation Inc.. for the year ended March 31, 2005, as filed with the Securities and Exchange Commission, I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Date: August 31, 2005

/s/ Kam Shah

Kam Shah

Chief Executive Officer and Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Endnotes

CURRENT CAPITAL CORP

CURRENT CAPITAL CORP.

SUITE 200, 47 AVENUE ROAD

TORONTO, ONTARIO M5R 2G3

April 1, 2003

Mr. Terence Robinson

Chief Executive Officer

Dealcheck.com Inc.

47 Avenue Road, Suite 200

Toronto, Ontario M5R 2G3

Dear Mr. Robinson:

RE: Investor Relations Contract

This letter confirms the terms of the agreement (“Agreement”) between Bontan Corporation Inc. (“Corporation”) and Current Capital Corp. (“CCC”).

Recitals.

The Corporation has agreed to engage CCC as an independent contractor and consultant to provide Investor Relations service solutions to the Corporation, and CCC has agreed to provide these services to the Corporation, subject to the terms and conditions described in this letter.

Terms.

The initial term of the engagement is for a period of 12 months from the date of this letter. This agreement will be automatically renewed at the end of the initial term for an additional 12 months. Either party may cancel this Agreement by delivering a 30-day written notice.

Services.

CCC will provide to the Corporation the following Investor Relations service solution package:

Shareholder Conversion/Identification Program

Outbound Correspondence and Email Communications

Introduction and on-going communications support for existing shareholders

Broker Communications

Corporate Introduction to Canadian and US institutions and fund managers

Inbound/Outbound Correspondence and Email Communications

Daily contact with retail brokers on behalf of Bontan to introduce and update

Ongoing Development of Investment Highlights Strategy

Press Release Consulting and Archive

Disseminate press releases to shareholders and increase awareness of the company’s profile among brokers, institutions and analysts

Costs.

The Corporation will be responsible for all printing and distribution, press release and/or advertising costs recommended by CCC. The Corporation will also be responsible for all travel related costs incurred by CCC when providing its services as determined by CCC when pre-approved and prepaid by the Corporation. An additional 15% administration cost will be included on the development and implementation of special events presentations subject to pre-approval.

Compensation for Services. The Corporation will pay CCC a monthly fee of USD$5,000.00, plus applicable taxes, on signing and on the 1^st (first) of every month thereafter.

Please sign this Letter of Agreement in the space provided below to indicate your agreement with the terms stated in this letter.

Sincerely,

CURRENT CAPITAL CORP.

By: /s/Robert Kennedy

President

AGREED AND ACCEPTED

DEALCHECK.COM

By: /s/Terence Robinson

Chief Executive Officer

CURRENT CAPITAL CORP

CURRENT CAPITAL CORP.

SUITE 200, 47 AVENUE ROAD

TORONTO, ONTARIO M5R 2G3

April 1, 2003

Mr. Terence Robinson

Chief Executive Officer

Dealcheck.com Inc.

47 Avenue Road, Suite 200

Toronto, Ontario M5R 2G3

Dear Mr. Robinson:

RE: Media Relations Contract

This letter confirms the terms of the agreement (“Agreement”) between Bontan Corporation Inc. (“Corporation”) and Current Capital Corp. (“CCC”).

Recitals.

The Corporation has agreed to engage CCC as an independent contractor and consultant to provide Media Relations service solutions to the Corporation, and CCC has agreed to provide these services to the Corporation, subject to the terms and conditions described in this letter.

Terms.

Services.

CCC will provide to the Corporation the following Investor Relations service solution package:

Media Relations

Media Relations Marketing Strategy Overview written on a Quarterly Basis and Reviewed Respectively

Interest development, stewardship and ongoing opportunities researched, developed and implemented with targeted media sources consistent with the Corporation’s media marketing strategy

Ongoing inbound/outbound correspondence and email communications relevant to media relations as well as daily updates surrounding news from the Corporation will be updated on CCC’s website

Communications

News Releases; writing and content development

Profile Page: a 1-2 page supplement for both Investor Relations and Media Relations

Coordination for all levels of online, press, television and radio interviews

Assistance in Press and IR packages and will include content development

Phone, e-mail and fax exposure to journalists and editors of financial newspapers, magazines, newsletters, websites, trade publications, etc.

Development and monitoring of online discussion forums

Introduction to 3^rd Party Management Conference Call/Webcast Opportunities

CCC will provide the Corporation with monthly updates that represent the media relation’s activity

Regular distribution to the subscribers of the Current Capital News newsletter, all-corporate announcements and earnings announcements of the Corporation inclusive

Financial Marketing Programs

Introduction to Sponsored Newsletter Writers

Introduction to Sponsored Analyst Reports

Expansion of Internet Marketing Initiatives (as budget permits)

Coordination and Management of Print Marketing Opportunities (as budget permits)

Costs.

Compensation for Services. The Corporation will pay CCC a monthly fee of USD$5,000.00, plus applicable taxes, on signing and on the 1^st (first) of every month thereafter.

Please sign this Letter of Agreement in the space provided below to indicate your agreement with the terms stated in this letter.

Sincerely,

CURRENT CAPITAL CORP.

By: /s/Robert Kennedy

President

AGREED AND ACCEPTED

DEALCHECK.COM

By: /s/Terence Robinson

Chief Executive Officer

Bontan Corporation Inc

Bontan Corporation Inc.

47 Avenue Road, Suite 200

Toronto, Ontario, Canada M5R 2G3

T: 416-860-0211

F: 416-361-6228

April 1, 2005

Mr. John Robinson

President

Current Capital Corp.

47 Avenue Road

Suite 200

Toronto, ON

M5R 2G3

Dear John:

Following our discussions, we are pleased to confirm that the following two agreements relating to investor relations and media relations services respectively, have been extended for further two year term up to April 1, 2007 on the same terms and conditions outlined therein, unless revised by a written agreement between the two parties:

Investor relations contract dated April 1, 2003

Media relation contract dated April 1, 2003

Please sign on a copy of this letter as your agreement to the details as outlined above.

Sincerely,

/s/Kam Shah

Kam Shah

Chief Executive Officer

We confirm and accept the terms outlined above.

/s/John Robinson

John Robinson

President

Current Capital Corp.

EXPLORATION AGREEMENT

EXPLORATION AGREEMENT

BELL CITY, SOUTH AREA

Calcasieu Parish, Louisiana

This agreement (the “Agreement”), when executed by the parties hereto in the manner provided herein, will constitute the entire agreement by and between Keystone Oil Company, Inc. (“Keystone”), a Texas Corporation, whose address is 5646 Milton Street, Suite 713, Dallas, TX 75206 and Bontan Oil and Gas Corporation (“Bontan”), a Canadian Corporation, whose address is 47 Avenue Road, Suite 200, Toronto, Ontario, Canada M5R2G3 (individually a “Party”, or collectively the “Parties”). This Agreement will control the acquisition of oil and gas leases and the drilling and testing of a well or wells for the purpose of producing oil and natural gas located within the Bell City, South Prospect (the “Prospect”) in Calcasieu Parish, Louisiana. The Prospect consists of all lands included within the Area of Mutual Interest (the “AMI”) as defined on the attac hed Exhibit A which by reference is incorporated herein and made a part hereof.

Keystone represents that, based on its own geological and geophysical evaluation of the AMI, it has identified areas within the AMI which warrant further evaluation by drilling. Also Keystone has identified portions of the AMI which, pending results of the initial test well, warrant further evaluation by acquiring additional seismic data subsequent to drilling, testing and completion of the initial test well. Bontan hereby represents that it has obtained a technical report, through the services of a qualified, consulting geophysicist who is not an employee of, or contractor to, Keystone, which describes the geo-scientific aspects of the AMI. On the basis of this report and on business and financial considerations, Bontan has determined that its participation in the Prospect is appropriate for, and suitable to, Bontan.

THEREFORE,

The Parties agree as follows:

1. Regardless of the date of execution, the effective date of this Agreement is May 1, 2004, and the Agreement will remain in force and effect for so long as the oil and gas leases within the AMI continue in force, unless earlier terminated, or extended, by written consent of both Parties.

2. In consideration for its interest acquired in the Prospect as set forth in Paragraph 3 hereof, Bontan will pay to Keystone a geological fee of $19,600 and a prospect fee (for recovery of Keystone’s cost) of $124,950. $5,000 of said geological fee is to be paid upon execution of the Agreement by Bontan with the balance of $14,600 to be paid upon completion of lease acquisition in the area described in Exhibit A as the initial prospect area (the “Initial Prospect Area”). Said prospect fee is to be paid upon completion of lease acquisition in the Initial Prospect Area of a minimum of 1,300 net and gross mineral acres or such larger position within the Initial Prospect Area as Keystone determines, in its sole determination, is a sufficient leasehold position to drill a test well (the “Initial Well”) on the Initial Prospect Exploration Agreement

page 2 of 6

Area. Without the prior written consent of Bontan, no lease shall be taken within the Initial

Prospect Area (I) naming any person or entity other than Keystone as lessee or (ii) containing restrictions on assignability of the lessee’s interest.

3. Bontan will own an undivided forty-nine percent (49 %) lessee interest in any lease acquired within the Initial Prospect Area by paying forty-nine percent (49 %) of the cost of lease acquisition. For leases acquired outside the Initial Prospect Area, but within the AMI, Bontan will own forty-one and sixty-five hundredths percent (41.65%) undivided lessee interest by paying forty-one and sixty-five hundredths percent (41.65%) of the cost of lease acquisition. The cost of lease acquisition will include lessor bonus, brokerage, title examination and curative, recording and any other costs or fees incidental to lease acquisition and maintenance, all subject to the other terms hereof. Subject to the terms of any lease acquired hereunder, Bontan will receive a recorded assignment of its undivided interest in said lease within sixty (60) days subsequent to the completion of the Initial Well as a well capable of production. Bontan will bear the cost of preparing and recording said assignment. If the Initial Well is a dry hole, Bontan will receive said assignment only if Bontan commits to pay its proportionate share of any delay rentals that may become due under the leases within the Initial Prospect Area within the next year. The decision to pay, and each owner’s elections regarding the paying of delay rentals will be made in accordance with the Operating Agreement (herein so-called), attached hereto as Exhibit B, but if Bontan elects to pay delay rentals on leases within the Initial Prospect Area, it will pay forty-nine percent (49 %) of any such delay or other rentals for leases acquired within the Initial Prospect Area. Bontan’s leasehold interest will be subject to a proportionally reduced overriding royalty interest in favor of Keystone and its assigns in each lease equal to the lesser of (I) 4% and (ii) the difference between lessor royalty and thirty percent (30 %), in any event proportionall y reduced if the respective lease covers less than all of the minerals in any tract covered by such lease. As used herein, lease acquisition will include any renewal or extension of a lease taken within two (2) years of the expiration of such lease, or a top lease of same.

The cost of lease acquisition in the Initial Prospect Area will not exceed the gross amount of $400,000 (8/8 lessee interest) without the prior written approval of Bontan. If Bontan elects not to participate in acquisition of leases costing in excess of $400,000, or fails to respond within 15 business days to a written proposal for said lease acquisition, then Bontan will have no interest in, or rights to, said leases. Keystone will not acquire any lease providing lessor royalty equal to more than thirty percent (30 %) without the prior written consent of Bontan.

4. Pending acquisition of the adequate leasehold required by Section 2 above, Bontan will participate in drilling the Initial Well by paying forty-nine percent (49 %) of the actual cost for drilling and completion to earn a forty-nine percent (49 %) working interest before payout. The Initial Well will be drilled at a location selected by Keystone in Sec.12-T11S-R7W to a sufficient depth, estimated to be 15,300 feet, to test the sand (or its stratigraphic Exploration Agreement

page 3 of 6

equivalent) encountered in the Tee No.2 Richard well (Sec.13-T11S-R7W) in the depth

interval 15,050 to 15,130 feet as measured by electric log. The failure by Bontan or Keystone to participate in drilling the Initial Well will result in the forfeiture of rights as provided in the Operating Agreement.

5. The Initial Well only will be subject to a proportionally reduced fifteen percent (15 %) of 8/8 working interest backin after payout in favor of Keystone and its assigns. Costs included for the purpose of calculating payout will be the geological fee of $19,600, the prospect fee of $124,950, and Bontan’s actual costs for leasehold acquisition, including brokerage expense, title examination, drilling, testing and completion, unitization expense, lease operating expense, and state and local taxes. Keystone will be responsible for preparing, or causing the preparation of, monthly payout status reports and will provide said record to the Parties monthly until payout occurs.

6. Subject to the non-consent provisions of the Operating Agreement, Bontan will have the right, but not the obligation, to participate in any well drilled subsequent to the Initial Well (a “Subsequent Well”) with a working interest equal to forty-one and sixty-five hundredths percent (41.65 %) which is equal to the initial working interest of forty-nine percent (49 %) less a backin after payout equal to fifteen percent (15 %) proportionally reduced, whether or not the Initial Well has paid out at the time when any Subsequent Well may be proposed. The Operating Agreement contains provisions requiring Bontan and Keystone successors and assigns to offer to each other the right to participate in acquisitions within the AMI, and neither Bontan nor Keystone will transfer any interest in any leases acquired under Section 2 above or in this Agreement unless the transfer is made expressly subject to this Agreement an d the Operating Agreement.

7. With respect to the currently licensed 3-D seismic data (five square miles), any future expenditures for geological and/or geophysical studies that may be deemed by Keystone as necessary to select the drillsite location for any Subsequent Well will be charged to the cost of the respective Subsequent Well. Said expenditures are restricted to actual costs incurred by Keystone, including, but not limited to, rental of a computer work station, seismic processing and travel expenses, but will not include compensation for time required for such studies by Keystone personnel. However, if additional seismic data are acquired within the AMI (“After Acquired Seismic”), in addition to the costs enumerated above, Keystone will receive compensation in the amount of $250 (8/8 basis) per day for services rendered pursuant to processing and interpreting said seismic data. However, nothing contained herein will requi re Bontan to participate in acquisition of After Acquired Seismic without Bontan’s prior written approval.

8. All drilling, testing, completion, producing and marketing operations, whether for the Initial Well or for a Subsequent Well, will be conducted subject to the Operating Agreement (and attached COPAS, Gas Balancing Agreement and other Exhibits). A Division Order Exploration Agreement

page 4 of 6

identifying the interest owned by each Party will be executed by each Party; subsequent to

said execution each Party will be paid any proceeds that may be due from the sale of oil and/or natural gas directly by the holder of the Division Order or by the first purchaser of production as applicable.

9. Keystone will make periodic and timely cash calls to Bontan pursuant to funding the

lease and seismic acquisitions contemplated herein, and Bontan will timely respond by providing the required funds to Keystone within seven (7) business days. Failure by Bontan to so remit funds following thirty (30) days written notice of non-payment by Keystone will result in Bontan’s forfeiture of its rights to, and interest in, the proposed acquisition. Pre-billing for drilling cost and accounting for other operational matters will be covered by the Operating Agreement.

10. Keystone, at its sole option, may assign any portion of its compensation and/or interest created in and under this Agreement to a third party, or parties.

11. Bontan acknowledges and represents to Keystone that: (I) it is able to bear the economic, operational and geo-scientific risks of the investment(s) contemplated herein; (ii) its interest acquired hereunder is for its own account and not for the direct distribution or sale thereof; (iii) it has no intention of distributing or selling any interests in violation of the Securities Act of 1933 or any other applicable federal or state securities law or regulations; (iv) it is acting solely for its own account in making any evaluation of the AMI.

12. The terms and provisions hereof are binding upon and inure to the benefit of the Parties and their respective legal representatives, successors and, to the extent permitted by this Agreement, their assigns.

13. Nothing contained herein shall be construed as creating or forming a partnership, a mining partnership or similar association or entity whatever. In no event will the Parties be liable as partners. Each Party is responsible only for its own obligations and is liable only for its proportionate share of the costs hereunder.

14. KEYSTONE WILL NOT HAVE ANY LIABILITY TO BONTAN HEREUNDER ON ANY BASIS, WHETHER IN CONTRACT, TORT JOINTLY, CONCURRENTLY, SEVERALLY OR OTHERWISE, FOR ANY LOSSES, DIRECT OR INDIRECT, EXCEPT AS MAY RESULT FROM INTENTIONAL GROSS

NEGLIGENCE OR WILLFUL CRIMINAL CONDUCT OF KEYSTONE.

15. This Agreement may be amended only in writing executed by both Parties.

16. Due to the proprietary nature of operations contemplated herein, the Parties will hold all information regarding the status of, or results from, any operation conducted hereunder in Exploration Agreement

page 5 of 6

strictest confidence. No public disclosure of said information is to be made except as may be

required by law, rule or regulation promulgated by a governing authority or authorities.

17. Any dispute among the Parties which has not been resolved within twenty (20) days shall be submitted to binding arbitration in Dallas, Texas in accordance with the Rules of the American Arbitration Association. Any award rendered by the arbitrator or arbitration panel shall be final and enforceable in a court of competent jurisdiction. The prevailing Party shall be entitled to recover costs and attorney’s fees incurred in connection with the arbitration proceeding. The arbitrator (s) shall permit reasonable discovery, enforce relevant production by subpoena, and may award equitable as well as legal relief. Any Party may apply to the courts in Dallas, Texas for the appointment of an impartial arbitrator (or, in the discretion of the court, a panel of impartial arbitrators) to hear and resolve any dispute arising between the Parties concerning the impartiality of the arbitrator. The costs associated with any such application to such court shall be divided equally among the Parties. The fees of the arbitrator shall be paid by the Party against whom the award is rendered. Any arbitration award shall be appealable on the ground that it is erroneous as a matter of law. Nothing contained herein shall preclude the Parties from stipulating to mediation as a less expensive and more expeditious means of resolving disputes between them or from obtaining injunctive relief from a Texas court pending arbitration or mediation.

18. This Agreement is governed by and constructed in accordance with the laws of the State of Texas to the fullest extent possible.

19. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions will nevertheless continue in full force and effect without being impaired or invalid in any manner.

20. In the event that any terms of this Agreement conflict with any concurrent terms or provisions of the Operating Agreement the terms of the Exploration Agreement will prevail.

21. If, because of force majeure any Party is rendered unable, in whole or in part, to carry out its obligations, other than obligations to pay money, the affected Party will give the other Party prompt notice describing the force majeure situation in reasonable detail, whereupon the obligations will be suspended during, and to the extent prevented by, the force majeure. As used herein, the phrase “Force Majeure” means strike, lockout or other industrial disturbance; act of a public enemy, war, blockade, riot; lightening, fire, storm, flood or explosion; government action or inaction, restraint or delay; unavailability of drilling rigs or other facilities or equipment or transportation thereof including inability to secure workers, lease brokers, title abstracts; inability to obtain ingress or egress to conduct operations; or any other cause, whether similar or dissimilar, which is not reasonably within the c ontrol of the effected Party, provided, however, the effected Party will exercise all reasonable diligence to remove the cause of the force majeure.

Exploration Agreement

page 6 of 6

22. All first notices shall be in writing and delivered in person or by U.S. or Canadian Mail,

Fax or other agreed upon methods. However, if a drilling rig is on location and standby

charges are accumulating, or will begin accumulating, such notices will be given by telephone and immediately confirmed in writing. Notices will be deemed given only when received by the Party whom such notice is directed. Each Party’s response to a proposal will be in writing to the other Party. Failure of either Party to respond to a notice within the required period will be deemed to be a negative vote. All notices will be sent to the Parties or their appointed representative at the above address. Each Party will have the right to change its designated representative and/or address by giving thirty (30) days prior notice to the effective date of the change.

23. All monetary references stated herein, and all monetary transactions contemplated herein are in United States Dollars.

Agreed to and Executed this 16 Day of June , 2004, but effective as of May 1, 2004,

Keystone Oil Company, Inc.

By: /s/ Robert O. Gross

Robert O. Gross, President

Agreed to and Executed this 21 Day of JUNE , 2004, but effective as of May 1, 2004,

Bontan Oil and Gas Corporation

By: /s/ Kam Shah

Kam Shah

CONSULTING AGREEMENT

THIS AGREEMENT made as of the 1^st day of April 1, 2005 (the “EFFECTIVE DATE”).

BETWEEN

KAM SHAH

(hereinafter referred to as the “CONSULTANT”)

OF THE FIRST PART

-and-

BONTAN CORPORATION INC., a corporation incorporated

under the laws of the province of Ontario,

(hereinafter referred to as the “CORPORATION”)

OF THE SECOND PART

WHEREAS the Consultant has certain considerable expertise in the area of accounting, treasury, statutory compliances, and business management

AND WHEREAS the Corporation is engaged in the resource sector the “CORPORATION’S BUSINESS”);

AND WHEREAS the Corporation desires to obtain and apply the expertise of the Consultant to the Corporation’s Business:

THIS AGREEMENT WITNESSES that in consideration of Ten Dollars ($10.00) paid by each party to the other, the receipt and sufficiency of which is hereby acknowledged by each, together with the covenants and agreements herein contained, the parties hereto agree as follows:

CONSULTING SERVICES – The Corporation hereby retains the services of the Consultant, on a non-exclusive basis, and the Consultant hereby agrees to provide the consulting services to the Corporation described in this Agreement.

SCOPE OF SERVICES – The Consultant shall act in a dual capacity as CHIEF FINANCIAL OFFICER and CHIEF EXECUTIVE OFFICER of the Corporation until the duration of this agreement and render all the services usually associated with such titles.

QUALIFICATIONS – The Consultant represents that he has all the necessary knowledge, experience, abilities, qualifications and contracts to effectively perform the Services. The Consultant represents that he shall provide the Services in such manner as to permit the Corporation to have full benefit of the Consultant’s knowledge, experience, abilities, qualifications and contacts and that it shall provide the Services in strict compliance with all applicable laws and regulations.

TERM OF AGREEMENT – The provision of services by the Consultant to the Corporation hereunder shall commence on the Effective Date and shall, subject to Section 14 of this Agreement, remain in force until March 31, 2010. Thereafter, the Corporation may in its sole discretion extend this Agreement for a further 5 – year term, with any additional extensions subject to Section 14.

COMPENSATION – In full consideration of the Consultant’s performance of the Services after the Effective Date the Corporation and the Consultant have agreed to the allotment of 450,000 Stock Options vesting immediately during the first year of this agreement. The consultant’s fee for the remaining years of the term shall be mutually agreed at the beginning of each of the years. In addition, the Corporation shall grant to the Consultant options (the CONSULTANT OPTIONS) pursuant to and in accordance with the Option Plan that may be approved by the shareholders from time to time. The number and price of options will be decided by the Board of Directors of the Corporation.

REIMBURSEMENT OF EXPENSES – Consultant shall be entitled to full reimbursement of expenses incurred by him in connection with the affairs of the Corporation including travel, entertainment, parking and cellular phone expenses.

CONFIDENTIAL INFORMATION –

As used herein the words “CONFIDENTIAL INFORMATION” include:

such information as a director, officer or senior employee of the Corporation may from time to time designate to the Consultant as being included in the expression “Confidential Information”;

any secret or trade secret or know how of the Corporation or any information relating to the Corporation or to any person, firm or other entity with which the Corporation does business which is not known to persons outside the Corporation including, without limitation, the commission of or results from any exploration conducted or authorized by the Corporation or its agents in connection with any of the Corporation’s mining properties or claims;

any information, process or idea that is not generally known outside of the Corporation;

all proprietary information relating to the Corporation; and

all investor information now existing or currently under development by the Corporation.

(1)

The Consultant acknowledges that the foregoing is intended to be illustrative and that other Confidential information may currently exist or arise in the future.

(2)

The Corporation and the Consultant acknowledge and agree that the relationship between them is one of mutual trust and reliance.

(3)

The Consultant acknowledges that he may be exposed from time to time to information and knowledge, including Confidential Information relating to all aspects of the business of the Corporation, the disclosure of any of which to the Corporation’s competitors, customers, or the general public may be highly detrimental to the best interests of the Corporation.

(4)

The Consultant acknowledges that the business of the Corporation cannot be properly protected from adverse consequences of the actions of the Consultant other than by restrictions as hereinafter set forth.

(5)

The Consultant agrees that he will not disclose at any time during the term of this Agreement or after termination of this Agreement any of the Confidential Information (whether or not conceived, originated, discovered or developed in whole or in part by the Consultant) it being expressly acknowledged and agreed by the Consultant that the Confidential Information shall be kept strictly confidential at all times. The Confidential Information shall not include any information, which is already in the public domain or becomes so through no fault of the Consultant.

(6)

In the event this Agreement is terminated for any reason whatsoever, whether by passage of time or otherwise, the Consultant shall forthwith upon such termination return to the Corporation each and every copy of any Confidential Information (including all notes, records and documents pertaining thereto) in the possession or under the control of the consultant at that time, and the Consultant shall continue to be subject to the restrictions of this Section 7 notwithstanding termination of this Agreement.

(7)

The Consultant hereby acknowledges that, as between the Consultant and the Corporation, the Corporation is and shall remain the sole owner of all right, title and interest in the Confidential Information, including, but not limited to any and all rights and copyright, patent, trade secret and trademark. In the event this Agreement is terminated for any reason whatsoever, whether by affluxion of time or otherwise, the Consultant shall forthwith upon such termination return to the Corporation each and every copy of any Confidential Information (including all notes, records and documents pertaining thereto) in the possession or under the control of the Consultant at that time.

NON – COMPETITION – The Consultant agrees with the Corporation that the Consultant will not, for the period commencing on the Effective Date and until six (6) months following the date of termination of this Agreement, participate directly or indirectly, in any business which is substantially similar to the Corporation’s Business or competitive with the Corporation’s Business anywhere within Canada whether:

(1)

as a principal or partner;

(2)

in conjunction or association with any incorporated or unincorporated entity as an officer, director or similar official of any incorporated or unincorporated entity (including, without restricting the generality of the foregoing any corporation, partnership, joint venture, association syndicate or trust) engaged in any of the activities included as part of the Corporation’s Business (each of which entities is hereinafter referred to as the “OTHER ENTITY”);

(3)

as the consultant or advisor to or agent of any Other Entity be engaged in any manner whatsoever, directly or indirectly, in the vermiculite industry;

(4)

as a holder of shares in any Other Entity engaged in a vermiculite – related business in such number which, together with all shares in such Other Entity which are subject to an agreement to, or which in fact, vote (or otherwise act) in concert with the Consultant, exercise the effective control of any such Other Entity;

(5)

by canvassing or soliciting on behalf of the Other Entity orders for the Corporation’s Business; or

(6)

by providing, directly or indirectly, financial or other assistance to a business which is substantially similar to or competitive with the Corporation’s Business.

CONSULTANT NOT AN EMPLOYEE – The parties acknowledge and agree that the Consultant shall provide the Services to the Corporation as an independent contractor and not as an employee of the Corporation and that an employer – employee relationship is not created by this Agreement. The Consultant shall have no power or authority to bind the Corporation or to assume or create any obligation or responsibility, expressed or implied, on the Corporation’s behalf, or in its name, nor shall it represent to anyone that it has such power or authority, except as expressly provided in this Agreement. As the Consultant is not an employee of the Corporation, he shall not be entitled to receive from the Corporation any benefits whatsoever and the Corporation shall not be required to make contributions for unemployment insurance, Canada Pension, workers compensation and other similar lev ies in respect of any fee for services to be paid to the Consultant pursuant to this Agreement.

10.

NO DEROGATORY REMARKS – The Consultant agrees with the Corporation that from and after the Effective Date the Consultant and the Corporation shall not make any derogatory remarks regarding the Corporation and the Consultant, respectively, and that the Consultant will not take any act as a result of which the relations between the Corporation and its suppliers, customers, employees or others may be impaired or which act may otherwise be detrimental to the business of the Corporation as the same is now or may hereafter be carried on by the Corporation. The Corporation shall be affixed with the same policy as the Consultant in this regard.

11.

CONSULTANT SHALL NOT CONTRACT ON BEHALF OF CORPORATION – The Consultant shall not enter into any contract or commitment in the name of or on behalf of the Corporation or bind the Corporation in any respect whatsoever, nor shall he represent to anyone that he has such power or authority other than the powers and authority vested in him under the terms of this agreement.

12.

USE OF CONSULTANT’S WORK – Notwithstanding any other provisions of this Agreement, the Corporation shall not be bound to act or otherwise utilize the Consultant’s advice or materials produced by the Consultant in the performance of the Services.

13.

TERMINATION –

(1)

This Agreement shall, if not previously terminated as provided for herein, automatically be terminated at the close of business March 31, 2010, subject to the sole discretion of the Corporation to extend the Agreement for a further 5 – year term. Thereafter, unless either party has given 10 days prior written notice, the Agreement will be automatically extended for further 5 – year terms. Any options not exercised at the time of notice of termination shall expire fourteen (14) days after the date of the written notice of termination.

(2)

This Agreement may be immediately terminated by mutual consent of the parties at any time during the term of this Agreement, except that if the agreement is terminated by the Corporation before the expiry of the term without any cause, Consultant shall be entitled to a lump sum compensation of $250,000.

(3)

The Corporation or the consultant may immediately terminate this Agreement in the event that the other party is in breach of any of the terms or conditions of the Agreement applicable to that other party.

(4)

This Agreement shall be terminated automatically and with immediate effect if at any time either the Corporation or the Consultant becomes insolvent or voluntarily or involuntarily bankrupt, or makes an assignment for the benefit of either party’s creditors.

(5)

Notwithstanding any other provision hereon, upon termination of this Agreement by the Corporation pursuant to subsections 14 (a), (c), or (d) above,

14.

INDEMNIFICATION – The Corporation hereby agrees to indemnify the Consultant and save him harmless from and against any and all losses, expenses, liabilities, claims (including fines, penalties and interest thereon), costs (including legal costs on a solicitor – client basis) and damages for or by reason of or in any way arising out of the Consultant’s compliance with the terms of this Agreement.

15.

AMENDMENTS AND WAIVERS – No amendment to this Agreement shall be valid or binding unless set forth in writing and duly executed by both of the parties hereto. No waiver of any breach of any term or provision of this Agreement shall be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided in the written waiver, shall be limited to the specific breach waived.

16.

ASSIGNMENT – The Consultant shall not assign, transfer, sub-contract or pledge this Agreement or any rights or the performance of any obligation arising under this Agreement, without the prior written consent of the Corporation.

17.

SURVIVAL – Without limitation, the parties acknowledge that Sections 7, 8 and 14 shall survive the termination of this Agreement.

18.

SEVERABILITY – If any provision of this Agreement is determined to be invalid or unenforceable in whole or in part, such invalidity or unenforceability shall attach only to such provision or part thereof and the remaining part of such provision and all other provisions hereof shall continue in full force and effect.

19.

FURTHER ASSURANCES – Each party hereto agrees from time to time, subsequent to the date hereof, to execute and deliver or cause to be executed and delivered to the other of them such instruments or further assurances as may, in the reasonable opinion of the other of them, be necessary or desirable to give effect to the provisions of this Agreement.

20.

GOVERNING LAW – This Agreement and the rights and obligations and relations of the parties hereto shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein (but without giving effect to any conflict of laws rules). The parties hereto agree that the courts of Ontario shall have jurisdiction to entertain any action or other legal proceedings based on any provisions of this Agreement. Each party hereto does hereby attorn to the jurisdiction of the courts of the Province of Ontario.

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.

SIGNED, SEALED AND DELIVERED

)

by: /s/Kam Shah

)

Kam Shah

)

Consultant

)

by: /s/Kevin Markland

)

Bontan Corporation Inc.

)

Per:

)

Name: Kevin Markland

)

Title: Director

)

by: /s/Dean Bradley

)

Bontan Corporation Inc.

)

Per:

)

Name: Dean Bradley

)

Title: Director

DRAFT June 27, 2000

EXECUTION COPY

INDIRECT PARTICIPATION INTEREST

PURCHASE AGREEMENT

BETWEEN

BONTAN CORPORATION INC.,

AS SELLER,

AND

KINGS ROAD INVESTMENTS LIMITED

AS PURCHASER,

July 5, 2005

EXECUTION COPY

- i -

TABLE OF CONTENTS

ARTICLE 1 PURCHASE AND SALE

Section 1.1

Purchase and Sale

Section 1.2

Certain Definitions

ARTICLE 2 PURCHASE PRICE

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER

Section 3.1

Existence and Qualification

Section 3.2

Power

Section 3.3

Authorization and Enforceability

Section 3.4

No Conflicts

Section 3.5

Consents to Assignment and Preferential Rights

Section 3.6

Bontan IPI

Section 3.7

Completion Election

Section 3.8

Litigation

Section 3.9

Liability for Brokers’ Fees

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER

Section 4.1

Existence and Qualification

Section 4.2

Power

Section 4.3

Authorization and Enforceability

Section 4.4

No Conflicts

Section 4.5

Litigation

Section 4.6

Liability for Brokers’ Fees

ARTICLE 5 COVENANTS OF THE PARTIES

Section 5.1

Public Announcements

Section 5.2

Assumption of Obligations

Section 5.3

Further Assurances

ARTICLE 6 CONDITIONS TO CLOSING

Section 6.1

Conditions of Seller to Closing

Section 6.2

Conditions of Purchaser to Closing

ARTICLE 7 CLOSING

Section 7.1

Time and Place of Closing

Section 7.2

Obligations of Seller at Closing

Section 7.3

Obligations of Purchaser at Closing

ARTICLE 8 TAX MATTERS

ARTICLE 9 INDEMNIFICATION; LIMITATIONS

Section 9.1

Indemnification

Section 9.2

Indemnification Actions

Section 9.3

Survival; Limitation on Actions

ARTICLE 10 TERMINATION

Section 10.1

Termination

Section 10.2

Notice of Termination

Section 10.3

Effect of Termination

ARTICLE 11 MISCELLANEOUS

Section 11.1

Counterparts

Section 11.2

Notices

Section 11.3

Expenses

Section 11.4

Governing Law

Section 11.5

Captions

Section 11.6

Waivers

Section 11.7

Assignment

Section 11.8

Records

Section 11.9

Entire Agreement

Section 11.10

Amendment

Section 11.11

No Third-Person Beneficiaries

Section 11.12

References

Section 11.13

Construction

Section 11.14

Dispute Resolution

INDIRECT PARTICIPATION INTEREST PURCHASE AGREEMENT

This Indirect Participation Interest Purchase Agreement (this “Agreement”) is dated as of July 5, 2005 (the “Effective Date”), by and between Bontan Corporation Inc., an Ontario corporation (“Seller”) and Kings Road Investments Limited, a Cayman Islands limited liability company (“Purchaser”). Seller and Purchaser are sometimes referred to collectively as the “Parties” and individually as a “Party.”

RECITALS

WHEREAS, Seller, as successor in interest to Advisory Group Limited, is a party to that certain Indirect Participation Interest Agreement (the “Bontan IPI Agreement”) with PNG Drilling Ventures Limited (“PNGDV”) dated July 21, 2003, whereby Seller agreed to participate in funding certain of PNGDV’s drilling obligations in connection with an exploration program on the Licenses (as defined herein) pursuant to that certain Drilling Participation Agreement between PNGDV’s parent corporation, InterOil Corporation (“InterOil”) and PNGDV in exchange for a .75% Indirect Participation Interest Percentage in the Participation Area (as defined in the Bontan IPI Agreement) (the “Bontan IPI” or the “Contract Interests”); and

WHEREAS, Seller wishes to sell, transfer, convey, assign and deliver, and Purchaser wishes to acquire, purchase and pay for, all of Seller’s right, title and interest in and to the Bontan IPI.

NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE 1 PURCHASE AND SALE

Section 1.1

Purchase and Sale

. On the terms and conditions contained in this Agreement, Seller agrees to sell, transfer, convey, assign and deliver to Purchaser and Purchaser agrees to agrees to acquire, purchase and pay for, the Contract Interests.

Section 1.2

Certain Definitions

. As used herein:

(a)

“AAA” shall have the meaning given to such term in Section 11.14(b).

(b)

“Affiliate” means, with respect to any Person, a Person that directly or indirectly controls, is controlled by or is under common control with such Person, with control in such context meaning the ability to direct the management or policies of a Person through ownership of voting shares or other securities, pursuant to a written agreement, or otherwise.

(c)

“Agreement” shall have the meaning given to such term in the Preamble.

(d)

“Assignment” shall have the meaning given to such term in Section 7.2(a)(i).

(e)

“Bontan IPI” is defined in the first Recital.

(f)

“Claim” shall have the meaning given to such term in Section 9.2(b).

(g)

“Claim Notice” shall have the meaning given to such term in Section 9.2(b).

(h)

“Closing” shall have the meaning given to such term in Section 7.1.

(i)

“Closing Date” shall have the meaning given to such term in Section 7.1.

(j)

“Contract Interests” is defined in the first Recital.

(k)

“Damages” shall have the meaning given to such term in Section 9.1(c).

(l)

“Dispute” shall have the meaning given to such term in Section 11.14(a).

(m)

“Effective Date” shall have the meaning given to such term in the Preamble.

(n)

“Governmental Authority” means any government and/or any political subdivision thereof, including departments, courts, commissions, boards, bureaus, ministries, agencies or other instrumentalities.

(o)

“Indemnified Person” shall have the meaning given to such term in Section 9.2(a).

(p)

“Indemnifying Person” shall have the meaning given to such term in Section 9.2(a).

(q)

“InterOil” is defined in the first Recital.

(r)

“Laws” means all constitutions, laws, statutes, rules, regulations, ordinances, orders, decrees, requirements, judgments and codes of Governmental Authorities.

(s)

“Licenses” means, individually and collectively, PPL 236, PPL 237 and PPL 238 in Papua New Guinea or any PDL that may be issued out of any such PPL, and includes any extension, renewal or variation of such License.

(t)

“Oil and Gas Act” means the Oil and Gas Act 1998 (No. 49 of 1998) of Papua New Guinea, as amended from time to time.

(u)

“Party” and “Parties” shall have the meaning given to such terms in the Preamble.

(v)

“PDL” means a Petroleum Development License granted under the Oil and Gas Act.

(w)

“Person” means any individual, corporation, partnership, limited liability company, trust, estate, Governmental Authority or any other entity.

(x)

“PPL” means a Petroleum Prospecting License granted under the Oil and Gas Act.

(y)

“Purchase Price” shall have the meaning given to such term in Article 2.

(z)

“Purchaser” shall have the meaning given to such term in the Preamble.

(aa)

“Records” means all documents, books, records, technical information and other data in the possession of or otherwise obtainable by Seller reasonably related to Contract Interests, excluding any materials that are privileged.

(bb)

“Seller” shall have the meaning given to such term in the Preamble.

(cc)

“Tax” means all taxes, including income tax, surtax, remittance tax, presumptive tax, net worth tax, special contribution, production tax, pipeline transportation tax, value added tax, withholding tax, gross receipts tax, windfall profits tax, profits tax, severance tax, personal property tax, real property tax, sales tax, service tax, transfer tax, use tax, excise tax, premium tax, customs duties, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, social security, unemployment tax, disability tax, alternative or add-on minimum tax, estimated tax, and any other assessments, duties, fees, levies or other charges imposed by a Governmental Authority together with any interest, fine or penalty thereon, or addition thereto.

ARTICLE 2 PURCHASE PRICE

The “Purchase Price” for the Contract Interests shall be Three Million Two Hundred Thousand United States Dollars (U.S. $3,200,000).

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to the Purchaser as of the date of this Agreement and, except as otherwise expressly provided, as of the Closing Date, that:

Section 3.1

Existence and Qualification

. Seller is a corporation duly organized and validly existing under the laws of Ontario, Canada and is duly qualified to do business as a foreign corporation in each jurisdiction in which it is required to qualify in order to conduct its business.

Section 3.2

Power

. Seller has the corporate power to enter into and perform this Agreement (and all documents required to be executed and delivered by Seller at Closing) and to consummate the transactions contemplated by this Agreement (and such documents).

Section 3.3

Authorization and Enforceability

. The execution, delivery and performance of this Agreement (and all documents required to be executed and delivered by Seller at Closing), and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller (and all documents required to be executed and delivered by Seller at Closing shall be duly executed and delivered by Seller) and this Agreement constitutes, and at the Closing such documents shall constitute, the valid and binding obligations of Seller, enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as by general principles of equity (regardless of whether suc h enforceability is considered in a proceeding in equity or at law).

Section 3.4

No Conflicts

. The execution, delivery and performance of this Agreement by Seller, and the consummation of the transactions contemplated by this Agreement shall not (A) violate any provision of the articles of incorporation, by-laws or other organizational documents of Seller, (B) result in default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, license or agreement to which Seller is a party or by which it is bound, (C) violate any judgment, order, ruling, or decree applicable to Seller as a party in interest or (D) violate any Laws applicable to Seller.

Section 3.5

Consents to Assignment and Preferential Rights

. No third Person has any preferential right, right of first opportunity or any similar right to purchase the Contract Interests and the consummation of the transactions contemplated herein will not require the consent of, or the provision of notice of such transactions to, any third Persons other than InterOil and/or PNGDV.

Section 3.6

Bontan IPI

. Seller owns and has valid title to the Contract Interests free and clear of all liens, charges and encumbrances. Seller and PNGDV are the only parties to the Bontan IPI Agreement and neither Seller nor, to the knowledge of Seller, PNGDV has assigned, delegated or otherwise encumbered any its rights or duties under the Bontan IPI Agreement. Neither Seller nor, to the knowledge of Seller, PNGDV is in breach of or default under the Bontan IPI Agreement. To the knowledge of the Seller, the Bontan IPI Agreement is a valid, binding and enforceable agreement of Seller and PNGDV in accordance with its terms. The Bontan IPI Agreement has not been modified, amended or supplemented, either orally or in writing. Seller has not received any notice alleging any breach or default under the Bontan IPI Agreement on the part of any party thereto, and Seller is not awa re of any existing facts or circumstances which with the giving of notice or the lapse of time, or both, would constitute a breach or default under the Bontan IPI Agreement. There is no dispute between the current or any prior parties to the Bontan IPI Agreement as to the interpretation thereof or as to whether any party is or was in breach or default thereunder, and no party to the Bontan IPI Agreement has given notice of its intention to, or its evaluation of whether to, terminate the Bontan IPI Agreement.

Section 3.7

Completion Election

. Seller has elected, or will do so prior to Closing, to participate in the completion of the Black Bass well currently being drilled as part of the exploration program under the Bontan IPI Agreement.

Section 3.8

Litigation

. There are no actions, suits or proceedings pending, or to such Seller’s knowledge, threatened before any Governmental Authority or arbitrator against Seller or any of its Affiliates which are reasonably likely to impair Seller’s ability to perform its obligations under this Agreement.

Section 3.9

Liability for Brokers’ Fees

. Purchaser shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Seller for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation to an intermediary in connection with the negotiation, execution or delivery of this Agreement or any agreement or transaction contemplated hereby.

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Seller as follows:

Section 4.1

Existence and Qualification

. Purchaser is a company organized, validly existing and in good standing under the laws of the Cayman Islands.

Section 4.2

Power

. Purchaser has the corporate power to enter into and perform this Agreement (and all documents required to be executed and delivered by Purchaser at Closing) and to consummate the transactions contemplated by this Agreement (and such documents).

Section 4.3

Authorization and Enforceability

. The execution, delivery and performance of this Agreement (and all documents required to be executed and delivered by Purchaser at Closing), and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser (and all documents required to be executed and delivered by Purchaser at Closing will be duly executed and delivered by Purchaser) and this Agreement constitutes, and at the Closing such documents will constitute, the valid and binding obligations of Purchaser, enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy or other similar laws affecting the rights and remedies of creditors generally as well as by general principles of equity (regardles s of whether such enforceability is considered in a proceeding in equity or at law).

Section 4.4

No Conflicts

. The execution, delivery and performance of this Agreement by Purchaser, and the consummation of the transactions contemplated by this Agreement, will not (i) violate any provision of the memorandum and articles of association, articles of incorporation, by-laws or other organizational documents of Purchaser, (ii) result in a default (with due notice or lapse of time or both) or the creation of any lien or encumbrance or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, license or agreement to which Purchaser is a party or by which it is bound, (iii) violate any judgment, order, ruling, or decree applicable to Purchaser as a party in interest or (iv) violate any Laws applicable to Purchaser or any of its assets, except any matters described in clauses (ii), (iii) or (iv) above which would not have a material adverse effect on Purchaser or its properties.

Section 4.5

Litigation

. There are no actions, suits or proceedings pending, or to such Purchaser’s knowledge, threatened before any Governmental Authority or arbitrator against Purchaser or any of its Affiliates which are reasonably likely to impair Purchaser’s ability to perform its obligations under this Agreement.

Section 4.6

Liability for Brokers’ Fees

. Seller shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Purchaser, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation to an intermediary in connection with the negotiation, execution or delivery of this Agreement or any agreement or transaction contemplated hereby.

ARTICLE 5 COVENANTS OF THE PARTIES

Section 5.1

Public Announcements

. No Party shall make any press release or other public announcement regarding the existence of this Agreement, the contents hereof or the transactions contemplated hereby without the prior written consent of the other Party; provided, however, the foregoing shall not restrict disclosures (a) that are required by applicable securities or other Laws or the applicable rules of any stock exchange having jurisdiction over the disclosing Party or its Affiliates, or (b) to Governmental Authorities, provided, however, that the other Party shall have the right to review and provide reasonable comment prior to any disclosure under this Section. Notwithstanding the foregoing exceptions, Seller shall not make any press release or other public announcement using the name of Purchaser or Polygon Investment Partners, LP or any of their respective Affiliates unless Seller provides Purchaser a written opinion of counsel stating that such disclosure is required by applicable securities or other Laws or the applicable rules of any stock exchange having jurisdiction over Seller or its Affiliates. Purchaser hereby acknowledges that upon the closing of the transactions contemplated by this Agreement, Seller will file a 6-K with the U.S. Securities and Exchange Commission disclosing the transactions reflected hereunder. Seller shall not identify the name of Purchaser if in Seller’s counsel’s reasonable determination such disclosure is not necessary to comply with Seller’s SEC reporting obligations.

Section 5.2

Assumption of Obligations

. Effective at Closing, and without limiting the obligations of any Party under Article 9, Purchaser agrees to assume and pay, perform, and discharge all obligations of Seller with respect to the Contract Interests, that, by the terms of such Contract Interests, arise after Closing, relate to periods following the Closing and are to be observed, paid, discharged or performed, as the case may be, in each case at any time after Closing, excluding any obligation to the extent it constitutes a violation of a representation or warranty made by Seller in this Agreement.

Section 5.3

Further Assurances

. After Closing, Seller and Purchaser agree to take such further actions and to execute, acknowledge and deliver all such further documents as are reasonably requested by the other Party for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement.

ARTICLE 6 CONDITIONS TO CLOSING

Section 6.1

Conditions of Seller to Closing

. The obligations of Seller to consummate the transactions contemplated by this Agreement are subject, at the option of Seller, to the satisfaction on or prior to Closing of each of the following conditions:

(a)

Representations. The representations and warranties of Purchaser set forth in Article 4 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date;

(b)

Performance. Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;

(c)

No Action. On the Closing Date, no suit, action, or other proceeding (excluding any such matter initiated by Seller or its Affiliates) shall be pending or threatened before any Governmental Authority or body of competent jurisdiction seeking to enjoin or restrain the consummation of the transactions contemplated by this Agreement or recover substantial damages from Seller or any Affiliate of Seller resulting therefrom, and no temporary restraining order, preliminary or permanent injunction or other order which would prevent the consummation of the transactions contemplated by this Agreement shall have been issued by any competent Governmental Authority or arbitrator; and

(d)

Consents and Waivers. All material consents and approvals required for the consummation of the transactions contemplated by this Agreement shall have been granted.

Section 6.2

Conditions of Purchaser to Closing

. The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject, at the option of Purchaser, to the satisfaction on or prior to Closing of each of the following conditions:

(a)

Representations. The representations and warranties of Seller set forth in Article 3 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date;

(b)

Performance. Seller shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;

(c)

No Action. On the Closing Date, no suit, action, or other proceeding (excluding any such matter initiated by Purchaser or any of its Affiliates) shall be pending or threatened before any Governmental Authority or body of competent jurisdiction seeking to enjoin or restrain the consummation of the transactions contemplated by this Agreement or recover substantial damages from Purchaser or any Affiliate of Purchaser resulting therefrom, and no temporary restraining order, preliminary or permanent injunction or other order which would prevent the consummation of the transactions contemplated by this Agreement shall have been issued by any competent Governmental Authority or arbitrator; and

(d)

Consents and Waivers. All consents and approvals required for the consummation of the transactions contemplated by this Agreement shall have been granted.

(e)

Execution of Amended And Restated Indirect Participation Interest Agreement. Simultaneously with the Closing, InterOil shall enter into an Amended and Restated Indirect Participation Interest Agreement with Purchaser or its designee, in form and substance acceptable to Purchaser in its sole and absolute discretion.

(f)

Material Adverse Change. There shall not have occurred, in Purchaser’s reasonable discretion, since the Effective Date, an event, circumstance, change or effect that is reasonably likely to have a material adverse effect on the value or condition (financial or otherwise) of, or prospects arising from, the Contract Interests.

ARTICLE 7 CLOSING

Section 7.1

Time and Place of Closing

. The consummation of the assignment and purchase of the Contract Interests contemplated by this Agreement (the “Closing”) shall, unless otherwise agreed to in writing by Purchaser and Seller, take place at a time and location to be agreed among the Parties after all conditions in Article 6 to be satisfied prior to Closing have been satisfied or waived, subject to the provisions of Article 9. The date on which the Closing occurs is referred to herein as the “Closing Date.”

Section 7.2

Obligations of Seller at Closing

. At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Purchaser of its obligations pursuant to Section 7.3.

(a)

Seller shall deliver or cause to be delivered to Purchaser the following:

(i)

An assignment and assumption agreement (an “Assignment”) with respect to the Contract Interests, duly executed by an authorized officer of Seller;

(ii)

A certificate duly executed by the secretary or any assistant secretary of Seller, dated as of the Closing, attaching and certifying on behalf of Seller (A) complete and correct copies of the articles of incorporation and bylaws of Seller, each as in effect as of the Closing, (B) the resolutions of the Board of Directors of Seller authorizing the execution, delivery and performance by Seller of this Agreement and the transactions contemplated hereby, (C) the incumbency of each officer of Seller executing this Agreement or any other documents in connection with the Closing, and (D) any required approval by the stockholders of Seller of this Agreement and the transactions contemplated hereby; and

(iii)

Any additional assignments or other documents reasonably required to consummate the transactions contemplated by this Agreement.

Section 7.3

Obligations of Purchaser at Closing

. At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Seller of its obligations pursuant to Section 7.2, Purchaser shall deliver or cause to be delivered to Seller, among other things, the following:

(a)

Wire transfers of the Purchase Price in immediately available funds in U.S. Dollars to Seller;

(b)

An Assignment with respect to the Contract Interests duly executed by an authorized officer of Purchaser; and

(c)

Any additional assignments or other documents reasonably required to consummate the transactions contemplated by this Agreement.

ARTICLE 8 TAX MATTERS

Seller shall be responsible for all Taxes based upon or measured by gross proceeds, income, profits or capital gains of such Seller, including without limitation income Taxes arising as a result of any gain recognized by such Seller on the transfer of the Contract Interests. Seller shall pay 100% of any sales, use, excise, real property transfer or gain, gross receipts, goods and services, registration, documentary, stamp or transfer Taxes, recording fees or other Taxes and fees incurred and imposed upon, or with respect to, the transfer of the Contract Interests contemplated hereby.

ARTICLE 9 INDEMNIFICATION; LIMITATIONS

Section 9.1

Indemnification

(a)

From and after Closing, Purchaser shall indemnify, defend and hold harmless Seller from and against all Damages incurred or suffered by Seller

(i)

caused by or arising out of or resulting from Purchaser’s breach of any covenants or agreements contained herein, or

(ii)

caused by or arising out of or resulting from any material breach of any representation or warranty made by Purchaser contained in Article 4 of this Agreement or in the certificate delivered by Purchaser at Closing pursuant to Section 7.3(c),

but excepting in each case Damages suffered by Seller against which Seller would be required to indemnify Purchaser under Section 9.1(b) at the time the claim notice is presented as a consequence of a breach of Seller’s representations, warranties, covenants or agreements.

(b)

From and after Closing, Seller shall indemnify, defend and hold harmless Purchaser from and against all Damages incurred or suffered by Purchaser

(i)

caused by or arising out of or resulting from ownership of the Contract Interests prior to or on the Closing Date,

(ii)

caused by or arising out of or resulting from Seller’s breach of any covenants or agreements contained herein, or

(iii)

caused by or arising out of or resulting from any material breach of any representation or warranty made by the indemnifying Seller contained in Article 3 of this Agreement, or in the certificate delivered by Seller at Closing pursuant to Section 7.2(a),

but excepting in each case Damages suffered by Purchaser against which Purchaser would be required to indemnify Seller under Section 9.1(a) at the time the claim notice is presented as a consequence of a breach of Purchaser’s representations, warranties, covenants or agreements.

The foregoing indemnity obligations of the parties shall include claims alleging or involving joint, concurrent or comparative negligence, but such indemnity shall not extend to liability resulting from the negligence or act of an Indemnified Party (including its employees, agents and independent contractors) where such negligence or act is the primary cause of the liability for which indemnity is sought.

(c)

“Damages”, for purposes of this Article 9, shall mean the amount of any actual liability, loss, cost, expense, claim, award or judgment incurred or suffered by any Indemnified Person arising out of or resulting from the indemnified matter, whether attributable to personal injury or death, property damage, contract claims, torts or otherwise including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.

(d)

The indemnity to which each Party is entitled under this Section 9.1 shall be for the benefit of and extend to such Party’s present and former Affiliates, and its and their respective directors, officers, employees, and agents. Any claim for indemnity under this Section 9.1 by any such Affiliate, director, officer, employee or agent must be brought and administered by the applicable Party to this Agreement. No Indemnified Person other than Seller and Purchaser shall have any rights against either Seller or Purchaser under the terms of this Section 9.1 except as may be exercised on its behalf by Purchaser or Seller, as applicable, pursuant to this Section 9.1(d). Each of Seller and Purchaser may elect to exercise or not exercise indemnification rights under this Section on behalf of the other Indemnified Persons affiliated with i t in its sole discretion and shall have no liability to any such other Indemnified Person for any action or inaction under this Section.

Section 9.2

Indemnification Actions

. All claims for indemnification under Section 9.1 shall be asserted and resolved as follows:

(a)

For purposes of this Article 9, the term “Indemnifying Person” when used in connection with particular Damages shall mean the Person having an obligation to indemnify another Person or Persons with respect to such Damages pursuant to this Article 9, and the term “Indemnified Person” when used in connection with particular Damages shall mean a Person having the right to be indemnified with respect to such Damages pursuant to this Article 9.

(b)

To make claim for indemnification under Section 9.1, an Indemnified Person shall notify the Indemnifying Person of its claim, including the specific details of and specific basis under this Agreement for its claim (the “Claim Notice”). In the event that the claim for indemnification is based upon a claim by a third Person against the Indemnified Person (a “Claim”), the Indemnified Person shall provide its Claim Notice promptly after the Indemnified Person has actual knowledge of the Claim and shall enclose a copy of all papers (if any) served with respect to the Claim; provided that the failure of any Indemnified Person to give notice of a Claim as provided in this Section 9.2 shall not relieve the Indemnifying Person of its obligations under Section 9.1 except to the extent such failure results in insufficient time being available to permit the Indemnifying Person to effectively defend against the Claim or otherwise prejudices the Indemnifying Person’s ability to defend against the Claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.

(c)

In the case of a claim for indemnification based upon a Claim, the Indemnifying Person shall have thirty (30) days from its receipt of the Claim Notice to notify the Indemnified Person whether it admits or denies its obligation to defend the Indemnified Person against such Claim under this Article 9. If the Indemnifying Person does not notify the Indemnified Person within such thirty (30) day period regarding whether the Indemnifying Person admits or denies its obligation to defend the Indemnified Person, the Indemnifying Person shall conclusively be deemed obligated to provide the requested indemnification hereunder. The Indemnified Person is authorized, prior to and during such thirty (30) day period, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnif ying Person and that is not prejudicial to the Indemnifying Person.

(d)

If the Indemnifying Person admits its obligation to indemnify the Indemnified Person, it shall have the right and obligation to diligently defend, at its sole cost and expense, the Claim. The Indemnifying Person shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Person, the Indemnified Person agrees to cooperate in contesting any Claim which the Indemnifying Person elects to contest (provided, however, that the Indemnified Person shall not be required to bring any counterclaim or cross-complaint against any Person). The Indemnified Person may participate in, but not control, any defense or settlement of any Claim controlled by the Indemnifying Person pursuant to this Section 9.2(d). An Indemnifying Person shall not, without the written consent of the Indemnified Person, settle any Claim or consent to the entry of any judgment with respect thereto that (i) does not result in a final resolution of the Indemnified Person’s liability with respect to the Claim (including, in the case of a settlement, an unconditional written release of the Indemnified Person from all liability in respect of such Claim) or (ii) may adversely affect the Indemnified Person (other than as a result of money damages covered by the indemnity).

(e)

If the Indemnifying Person does not admit its obligation to indemnify the Indemnified Person or admits its obligation but fails to diligently defend or settle the Claim, then the Indemnified Person shall have the right to defend against the Claim (at the sole cost and expense of the Indemnifying Person, if the Indemnified Person is entitled to indemnification hereunder), with counsel of the Indemnified Person’s choosing, subject to the right of the Indemnifying Person to admit its obligation to indemnify the Indemnified Person and assume the defense of the Claim at any time prior to settlement or final determination thereof. If the Indemnifying Person has not yet admitted its obligation to indemnify the Indemnified Person, the Indemnified Person shall send written notice to the Indemnifying Person of any proposed settlement and the Indemnif ying Person shall have the option for five (5) days following receipt of such notice to (i) admit in writing its obligation for indemnification with respect to such Claim and (ii) if its obligation is so admitted, assume the defense of the Claim, including the power to reject the proposed settlement. If the Indemnified Person settles any Claim over the objection of the Indemnifying Person after the Indemnifying Person has timely admitted its obligation for indemnification in writing and assumed the defense of the Claim, the Indemnified Person shall be deemed to have waived any right to indemnity therefor.

Section 9.3

Survival; Limitation on Actions

(a)

The representations and warranties and the covenants and agreements of the Parties shall survive the Closing for a period of two (2) years), except as may otherwise be expressly provided herein.

(b)

The amount of any Damages for which an Indemnified Person is entitled to indemnity under this Article 9 shall be reduced by the amount of insurance proceeds realized by the Indemnified Person or its Affiliates with respect to such Damages (net of any collection costs, and excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Person or its Affiliates).

ARTICLE 10 TERMINATION

Section 10.1

Termination

. This Agreement may be terminated at any time prior to the Closing:

(a)

by mutual agreement of the Parties;

(b)

if all the conditions for Closing have not been satisfied or waived on or prior to July 7, 2005, by 5 p.m. Eastern Standard Time, this Agreement will be null and void; or

(c)

by any Party, if a permanent injunction or other order by a Governmental Authority shall have been issued and shall have become final and nonappealable which would make illegal or otherwise restrain in any material respect or prohibit the consummation of the Agreement.

Section 10.2

Notice of Termination

. Any termination of this Agreement under Section 10.1 will be effective upon the delivery of written notice by the terminating Party to the other Parties.

Section 10.3

Effect of Termination

. If this Agreement is terminated pursuant to Section 10.1, this Agreement shall become void and of no further force or effect (except for the provisions of Sections 3.9, 4.6, 11.3, 11.4, 11.11, 11.12, 11.13 and 11.14, all of which shall continue in full force and effect). Notwithstanding anything to the contrary in this Agreement, the termination of this Agreement under Section 10.1 shall not relieve any Party from liability (including liability for consequential damages) for any failure to perform or observe in any material respect any of its agreements or covenants contained herein which are to be performed or observed at or prior to Closing.

ARTICLE 11 MISCELLANEOUS

Section 11.1

Counterparts

. This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement.

Section 11.2

Notices

. All notices that are required or may be given pursuant to this Agreement shall be sufficient in all respects if given in writing, in English and delivered personally, by telecopy or by recognized courier service, as follows:

If to Seller:

47 Avenue Road, Suite 200

Toronto, Ontario, M5R 2G3 Canada

Attention: Kam Shah

(416)361-6228 (fax)

If to Purchaser:

Kings Road Investments Ltd.

c/o Polygon Investment Partners LP

598 Madison Avenue, NY, NY 10128

Attn:

Erik Caspersen and Brandon Jones

Fax:

(212) 359-7303

Either Party may change its address for notice by notice to the other in the manner set forth above. All notices shall be deemed to have been duly given at the time of receipt by the Party to which such notice is addressed.

Section 11.3

Expenses

. All expenses incurred by Seller in connection with or related to the authorization, preparation or execution of this Agreement, and the Exhibits and Schedules hereto and thereto, and all other matters related to the Closing, including without limitation, all fees and expenses of counsel, accountants and financial advisers employed by the Seller incurring such expense, shall be borne solely and entirely by such Seller, and, except as provided in Article 8, all such expenses incurred by Purchaser shall be borne solely and entirely by Purchaser.

Section 11.4

Governing Law

. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

Section 11.5

Captions

. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

Section 11.6

Waivers

. Any failure by either Party to comply with any of its obligations, agreements or conditions herein contained may be waived by the Party to whom such compliance is owed by an instrument signed by the Party to whom compliance is owed and expressly identified as a waiver, but not in any other manner. No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

Section 11.7

Assignment

. No Party shall assign or otherwise transfer all or any part of this Agreement without the prior written consent of the other Party and any transfer made without such consent shall be void. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns.

Section 11.8

Records

. At Closing, Seller shall deliver or cause to be delivered to Purchaser copies of the Records, provided that Seller may retain copies of the Records.

Section 11.9

Entire Agreement

. This Agreement and the documents to be executed hereunder and the Exhibits and Schedules attached hereto constitute the entire agreement between the Parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof.

Section 11.10

Amendment

. This Agreement may be amended or modified only by an agreement in writing signed by both Parties and expressly identified as an amendment or modification.

Section 11.11

No Third-Person Beneficiaries

. Nothing in this Agreement shall entitle any Person other than Purchaser and Seller to any claim, cause of action, remedy or right of any kind, except the rights expressly provided to the Persons described in Section 9.1(d).

Section 11.12

References

. In this Agreement:

(a)

References to any gender includes a reference to all other genders;

(b)

References to the singular includes the plural, and vice versa;

(c)

Reference to any Article or Section means an Article or Section of this Agreement;

(d)

Reference to any Exhibit or Schedule means an Exhibit or Schedule to this Agreement, all of which are incorporated into and made a part of this Agreement;

(e)

Unless expressly provided to the contrary, “hereunder”, “hereof”, “herein” and words of similar import are references to this Agreement as a whole and not any particular Section or other provision of this Agreement; and

(f)

“Include” and “including” shall mean include or including without limiting the generality of the description preceding such term.

Section 11.13

Construction

. The language this Agreement uses is the language that the Parties, represented by counsel, have chosen to express their mutual intent, and the rule of contra proferentum shall not be applied against either Party.

Section 11.14

Dispute Resolution

(a)

On the request of any Party hereto, whether made before or after the institution of any legal proceeding, any action, dispute, claim or controversy of any kind now existing or hereafter arising between any of the Parties hereto in any way arising out of, pertaining to or in connection with this Agreement (a "Dispute") shall be resolved by binding arbitration in accordance with the terms hereof. Any Party may, by summary proceedings, bring an action in court to compel arbitration of any Dispute.

(b)

Any arbitration shall be administered by the American Arbitration Association (the “AAA”) in accordance with the terms of this Section, the Commercial Arbitration Rules of the AAA, and, to the maximum extent applicable, the Federal Arbitration Act. Judgment on any award rendered by an arbitrator may be entered in any court having jurisdiction.

(c)

Any arbitration shall be conducted before one arbitrator. The arbitrator shall be a practicing attorney licensed to practice in the State of New York who is knowledgeable in the subject matter of the Dispute selected by agreement between the Parties hereto. If the Parties cannot agree on an arbitrator within 30 days after the request for an arbitration, then any Party may request the AAA to select an arbitrator. The arbitrator may engage engineers, accountants or other consultants that the arbitrator deems necessary to render a conclusion in the arbitration proceeding.

(d)

To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with the AAA. Arbitration proceedings shall be conducted in New York, New York. Arbitrators shall be empowered to impose sanctions and to take such other actions as the arbitrators deem necessary to the same extent a judge could impose sanctions or take such other actions pursuant to the Federal Rules of Civil Procedure and applicable law. At the conclusion of any arbitration proceeding, the arbitrator shall make specific written findings of fact and conclusions of law. The arbitrator shall have the power to award recovery of all costs and fees to the prevailing Party. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential except for disclosure of informat ion required by applicable law.

(e)

All fees of the arbitrator and any engineer, accountant or other consultant engaged by the arbitrator shall be paid equally by the Parties involved in the dispute, unless otherwise awarded by the arbitrator.

[SIGNATURE PAGE FOLLOWS]

EXECUTION COPY

- 2 -

IN WITNESS WHEREOF, this Agreement has been signed by both Parties as of the date first above written.

BONTAN CORPORATION INC.

Name:

Title:

KINGS ROAD INVESTMENTS LIMITED

Name:

Title:

EXECUTION COPY

- 3 -

<U>MINUTES OF UNANIMOUS ACTION OF THE BOARD OF DIRECTORS OF BONTAN CORPORATION INC

MINUTES OF UNANIMOUS ACTION OF THE BOARD OF DIRECTORS OF BONTAN CORPORATION INC.

The undersigned, being all of the members of the Board of Directors of Bontan Corporation Inc., an Ontario corporation (the “Company”), in lieu of a meeting of the Board of Directors, do hereby take the following actions effective as of the 1^st day of May, 2004:

AMENDMENT TO THE 1999 STOCK OPTION PLAN

WHEREAS, in May 2003, the Company registered on Form S-8 the original issuance of the shares of Common Stock underlying its 1999 Stock Option Plan (the “Option Plan”) with a view to compensate certain consultants and directors from time to time for services rendered in lieu of any cash fee payments;

WHEREAS, by a separate resolution of this date, the Board of Directors authorized the grant of stock options under the Option Plan to a group of optionees (the “Option Grants”) with exercise prices ranging between US$0.35 and US$1.00 (the “Actual Exercise Prices”);

WHEREAS, Section 5 of the Option Plan requires that the exercise price of options granted thereunder be not less than the closing price of the Common Stock on the OTC Bulletin Board on the first date preceding the date of grant or alternatively the weighted average price of the five preceding days, which exercise price as to the Option Grants would be computed at US$1.15 (the “Formula Exercise Price”);

WHEREAS, the Board of Directors authorized the Actual Exercise Prices after determining that such prices better reflected the fair value of the Company’s Common Stock, given the stock’s limited trading volume and high volatility; and

WHEREAS, subsequently, the shareholders in the annual and special meeting of September 20, 2003 authorized the Board of Directors to amend the Option Plan at its discretion;

NOW, THEREFORE, IT IS:

RESOLVED: That Section 5 of the Option Plan be and is hereby replaced, retroactively effective as of May 1, 2004, by the following:

EXERCISE PRICE

“At the time of grant of a Stock Option, the exercise price of such Stock Option shall be such price as is determined by the directors.”

RESOLVED FURTHER: That the officers of the Company are hereby authorized and directed, in the name and on behalf of this Company, to take any and all action which they may deem necessary or advisable to carry out the foregoing resolution as they may deem necessary or advisable.

IN WITNESS WHEREOF, the undersigned have hereunto affixed their signatures.

/s/Terence Robinson

/s/Dean Bradley

/s/Kam Shah

Ethan Frome

Bontan Corporation Inc.

Consolidated Financial Statements

For the Years Ended March 31, 2005 and 2004

(Canadian Dollars)

AUDITORS’ REPORT

To the Shareholders of

Bontan Corporation Inc.

We have audited the consolidated balance sheets of Bontan Corporation Inc. as at March 31, 2005 and 2004, and the consolidated statements of income, retained earnings and cash flows for the years 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 Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the 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 financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all materials respects, the financial position of the company as at March 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

The consolidated financial statements for the year ended March 31, 2003 were audited by another firm of Chartered Accountants, who expressed an opinion without reservation on those consolidated financial statements in their report dated June 16, 2003.

July 27, 2005

Chartered Accountants

Thornhill, Ontario

COMMENTS BY AUDITORS FOR U.S READERS ON CANADA - U.S. REPORTING DIFFERENCES

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the consolidated financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in Note 1 to the consolidated financial statements.

The opinion on page 1 is expressed in accordance with Canadian reporting standards, which do not permit a reference to such events and conditions in the auditors' report when these are adequately disclosed in the consolidated financial statements.

July 27, 2005

Chartered Accountants

Thornhill, Ontario

Bontan Corporation Inc.

Consolidated Balance Sheets

(Canadian Dollars)

March 31, 2005 and 2004

	Note	2005	2004
Assets
Current
Cash		$860,330	$500,541
Short term investments	3	76,387	-
Interest in oil properties	6(i)	2,161,986	-
Deferred stock based compensation	4	1,732,929	-
Prepaid and other receivables		26,958	54,690
		4,858,590	555,231
Advances	5	-	2,530,353
Interest in gas properties	6 (ii)	216,568	-

		$5,075,158	$3,085,584
Liabilities
Current
Accounts payable and accrued liabilities		$109,710	$350,664
Advances from shareholders, non-interest bearing		14,611	515,572
		124,321	866,236
Shareholders' Equity
Capital stock	8	28,280,890	24,287,903
Contributed surplus	9 (iii)	3,795,078	-
Deficit		(27,125,131)	(22,068,555)
		4,950,837	2,219,348
		$5,075,158	$3,085,584

Commitments and Contingent Liabilities (Note 9)
Related Party Transactions (Note 10)

Approved by the Board ”Kam Shah” Director ”Dean Bradley” Director

(signed) (signed)

The accompanying notes are an integral part of these financial statements

Bontan Corporation Inc.

Consolidated Statements of Operations

(Canadian Dollars)

For the Years Ended March 31, 2005, 2004 and 2003

	Note	2005	2004	2003
Income
Gain on disposal of investments		$417,255	$-	$-
Interest		1,606	251	1,880
Exchange (loss)gain		(17,898)	46,707	13,376

		400,963	46,958	15,256
Expenses
Stock based compensation	11	4,815,922	703,702	-
Travel, promotion and consulting		201,803	402,321	105,555
Shareholders information		127,205	165,431	63,657
Professional fees		116,479	110,547	45,339
Communication		17,985	4,105	2,521
Office and general		12,993	4,886	8,150
Transfer agents fees		8,323	7,821	13,175
Bank charges and interest		3,922	3,713	1,449
Project development costs		-	-	88,831
Rent	14(a)	(26,771)	5,390	5,942
		5,277,861	1,407,916	334,619
Loss from continuing operations		(4,876,898)	(1,360,958)	(319,363)
Discontinued operations	13	(179,678)	-	-
Net loss for year		(5,056,576)	(1,360,958)	(319,363)

Basic and diluted loss per share information
Loss from continuing operations		$(0.42)	$(0.26)	$(0.31)
Loss form discontinued operations		$(0.02)	-	-
Net Loss per share	10	$(0.43)	$(0.26)	$(0.31)

The accompanying notes are an integral part of these financial statements

Bontan Corporation Inc.

Consolidated Statements of Cash Flows

(Canadian Dollars)

For the Years Ended March 31, 2005, 2004 and 2003

The accompanying notes are an integral part of these financial statements

Bontan Corporation Inc.

Consolidated Statement of Shareholders’ Equity

(Canadian Dollars)

For the Years Ended March 31, 2005, 2004 and 2003

	Number of Shares	ShareCapital	Contributed surplus	Accumulated Deficit	Shareholders' Equity(Deficit)
Balance March 31, 2002	7,226,030	$20,393,106	$-	$(20,388,234)	$4,872
Net loss	-	-	-	(319,363)	(319,363)
Balance March 31, 2003	7,226,030	20,393,106	-	(20,707,597)	(314,491)
7:1 reverse stock split	(6,193,746)	-	-	-	-
Buy-back of fractional shares	(465)	(939)	-	-	(939)
Issued under a private placement	6,705,015	3,153,591	-	-	3,153,591
Subscribed under a private placement	831,429	393,113	-	-	393,113
Finder's fee paid on private placement	-	(354,670)	-	-	(354,670)
Issued under 2001 Consultant Stock Compensation Plan	225,000	148,675	-	-	148,675
Issued subsequent to the year end to consultants under 2001 Stock Compensation Plan in settlement of services rendered during the year	806,190	555,027	-	-	555,027
Net loss	-	-	-	(1,360,958)	(1,360,958)
Balance March 31, 2004	9,599,453	24,287,903	-	(22,068,555)	2,219,348
Issued under private placement	1,343,124	649,679	-	-	649,679
Finder's fee paid on private placement	-	(35,237)	-	-	(35,237)
Options granted under 1999 and 2001 stock option plans	-	-	5,265,240	-	5,265,240
1999 Stock options exercised	1,100,000	624,773	-	-	624,773
Value transferred from contributed surplus to the extent exercised	-	1,470,162	(1,470,162)	-	-
Issued under 2001 Consultant stock compensation plan	174,524	119,695	-	-	119,695
Issued under 2003 Consultant stock compensation plan	754,619	1,163,915	-	-	1,163,915
Net loss	-	-	-	(5,056,576)	(5,056,576)
Balance March 31, 2005	12,971,720	$28,280,890	$3,795,078	$(27,125,131)	$4,950,837

The accompanying notes are an integral part of these financial statements

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

NATURE OF OPERATIONS

Bontan Corporation Inc. (“the Company”) is a diversified natural resource company that operates and invests in major exploration and exploitation projects in countries around the globe through its subsidiaries by acquiring joint venture, indirect participation interest and working interest in those projects.

GOING CONCERN

The Company’s new business strategy, which evolved in fiscal 2004 involves activities in the exploration and development of oil, gas and mineral resources. The business of exploring for minerals and oil and gas involves a high degree of risk, and few properties that are explored are ultimately developed into producing mines and wells. Significant expenditures may be required to establish proven reserves, to develop recovery processes, and to construct mining, drilling and processing facilities at a particular site. It is not possible to ensure that the current exploration programs in which the Company holds interests will result in profitable commercial operations.

Although the Company has taken steps to verify title to resource properties in which it plans to acquire interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's title. Property title may be subject to prior agreements and non-compliance with regulatory requirements.

The Company expects to selectively explore and develop the portfolio, through joint venture arrangements or otherwise. The scheduling and scale of such future activities will depend on results and market conditions. Repatriation of earnings and capital from overseas countries is subject to compliance with registration requirements. There can be no assurance that restrictions on repatriation will not be imposed in the future.

The Company has experienced negative cash flows from operating activities in recent years. The Company estimates that it will have adequate funds available from current working capital, operations, and committed and prospective financing to meet its existing corporate, administrative and operational obligations in the coming year. If adequate funds are not available from the sources noted above, then the Company may be required to raise additional financing through equity issuance, borrowings and /or sale of its assets. While the Company has been successful in the past in raising financing there is no assurance that the Company will be able to raise the necessary funding to meet its obligations.

These consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which do not materially differ from accounting principles generally accepted in the United States (U.S. GAAP) except as described in Note 18 “Differences from United States Generally Accepted Accounting Principles”.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as detailed below. All inter-company balances and transactions have been eliminated on consolidation.

Subsidiary	Date of incorporation / acquisition	Comments on current status

Foodquest Inc.		Inactive since 1998
1388755 Ontario Inc.		Inactive since April 2003
Bontan Diamond Corporation	20-Feb-04	Business discontinued in December 2004. No further activities.
Bontan Oil & Gas Corporation	20-Feb-04	Interests in oil and gas exploration projects.
Bontan Gold Corporation	20-Feb-04	Not yet active
Bontan Mineral Corporation	20-Feb-04	Not yet active
Bontan Trading Corporation	20-Feb-04	Not yet active

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

SIGNIFICANT ACCOUNTING POLICIES (Continued)

Mineral Properties

The cost of each mineral property, or interest therein, together with exploration costs are capitalized until the properties to which they relate are placed into production, sold or abandoned. These costs will be amortized on the basis of units produced in relation to the proven reserves available on the related property following commencement of production. Costs of abandoned properties are written off to operations.

The costs capitalized do not necessarily reflect present or future values. The ultimate recovery of such amounts depends on the discovery of economically recoverable reserves, successful commercial development of the related properties, availability of financing and future profitable production or proceeds from the disposition of the properties.

Although the Company has taken steps to verify the title to resource properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements, transfers or aboriginal land claims and title may be affected by undetected defects.

Oil and Gas Properties Interest

Interests held in oil and gas properties are recorded on the basis of successful efforts method of accounting for oil and gas exploration and development activities under which direct acquisition costs of development properties, geological and geophysical costs associated with these properties and costs of development and exploratory wells that result in additions to proven reserves are capitalized. When the carrying value of a property exceeds its net recoverable amount that may be estimated by quantifiable evidence of an economic geological resource or reserve, joint venture expenditure commitments or the Company’s assessment of its ability to sell the property for an amount exceeding the deferred costs, provision is made for the impairment in value.

Short-term Investments

Short-term investments are investments that are either highly liquid or are to be disposed of within a one year period and are recorded at lower of cost and market value.

Foreign Currency Translation

The functional currency of the Company is the Canadian dollar. Monetary assets and liabilities are translated at exchange rates in effect at the balance sheet date. Non-monetary assets are translated at exchange rates in effect when they were acquired. Revenue and expenses are translated at the approximate average rate of exchange for the year, except that amortization is translated at the rates used to translate related assets. The resulting gains or losses on translation are included in the consolidated statement of operations.

10.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

SIGNIFICANT ACCOUNTING POLICIES (Continued)

Future Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, as well as for the benefit of losses available to be carried forward to future years for tax purposes. Future income tax assets and liabilities are measured using substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. Future income tax assets are recognized in the financial statements if realization is considered more likely than not.

Stock-Based Compensation Plan

The Company follows a fair value based method of accounting for all Stock-based Compensation and Other Stock-based Payments to employees and non-employees. The fair value of all share purchase options is expensed over their vesting period with a corresponding increase to contributed surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in contributed surplus, is recorded as an increase to share capital. The Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of grant.

The market value of the Company’s share on the date of issuance of shares under any stock compensation plan is considered as fair value of the shares issued.

Loss Per Share

Basic loss per share is calculated by dividing net loss (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. Diluted loss per share reflects the dilution that would occur if outstanding stock options and share purchase warrants were exercised or converted into common shares using the treasury stock method and are calculated by dividing net loss applicable to common shares by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued.

The inclusion of the Company’s stock options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation. Consequently, there is no difference between basic loss per share and diluted loss per share.

SHORT TERM INVESTMENTS

Short-term investments comprise marketable securities. The net cost of the securities on hand at March 31, 2005 of $ 92,735 was written down to its fair market value and an unrealized loss of $16,348 was adjusted against gain on disposal of investments in the consolidated statements of operations.

11.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

DEFERRED STOCK BASED COMPENSATION

Deferred stock option compensation relates to the fair value of shares and options issued under the Company’s Option Plans to consultants for services that will be performed during the period subsequent to the balance sheet date. Changes during the year were as follows:

	Balance at April 1, 2004	Deferred during year	Expensed during year	Balance at March 31, 2005	Balance at March 31, 2004
Options	$-	$1,145,152	$-	$1,145,152	$-
Stocks	-	587,777	-	587,777	-
	$-	$1,732,929	$-	$1,732,929	$-

ADVANCES

The advances comprised funds provided to a non-affiliated corporation from time to time during the previous year for the purpose of acquiring an indirect participation interest (IPI) of approximately 0.88% in phase one of an oil exploration program in Papua New Guinea.

The advances carried no interest, and were secured by a first charge on the IPI and were convertible into such IPI at the option of the Company pursuant to the terms of the loan agreement dated July 21, 2003.

On July 9, 2004, the Company exercised its option and converted its advances into IPI. (See Note 6 )

OIL AND GAS PROPERTIES INTERESTS

	31-Mar-04	Exploration costs	Amortization	Write-down	31-Mar-05

Interest in oil properties (i)	$-	$2,161,986	$-	$-	$2,161,986
Interest in gas properties (ii)	-	216,568	-	-	216,568

	$-	$2,378,554	$-	$-	$2,378,554

12.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

OIL AND GAS PROPERTIES INTERESTS (Continued)

(i)

On July 9, 2004, the Company converted its advances to a non-affiliated corporation (note 5) for the purpose of acquiring an Indirect Participation Interest (IPI) in a Phase One oil exploration program in Papua New Guinea into (i) US$270,900 into 15,262 shares of InterOil Corporation according to the terms of the IPI agreement and (ii) the balance of the advances of approximately US$1.6 million for a 0.75% IPI. Under the IPI Agreement terms, the funds paid towards IPI would be used for exploration program involving maximum of 16 wells. The program is managed by InterOil Corporation, a non related public company. Should the aggregate of all discoveries resulting from Phase One Exploration Program be less than 5 million barrels of recoverable Petroleum, the Company would receive 89,577 common shares of InterOil Corporation at an agreed valuation of US$17.75 per share under a backstop payment clause in the IPI agreement. Further, until InterOil Corporation elects to proceed with a completion program, the Company will have an option to opt out of the program and convert its IPI into 89,577 common shares of InterOil Corporation at an agreed valuation of US$17.75 per share.

Subsequent to the year-end, the Company sold its IPI to a non-related privately held institutional investor for US$ 3.2 million (see Note 15). As a result, cost of the interest in the oil properties is included under current assets in the financial statements as at March 31, 2005.

(ii)

On October 15, 2004, the Company entered into an exploration agreement with a private investors group in the United States under which it acquired 49% gross working interest in a gas exploration project in the State of Louisiana, USA. The total estimated project cost is approximately US$ 7 million. Up to March 31, 2005, several cash calls were made by the Operators of the project to pay for the seismographic costs and leases secured on the land targeted for exploratory drilling. The Company’s share of these cash calls is included above under exploration costs. Exploratory drilling on this project has not yet begun. Management does not believe that there has been an impairment in the value of the interest, therefore there is no need for any write off or reduction in the capitalized costs.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

MINERAL PROPERTIES

	March 31, 2004	Acquisition costs	Deferred exploration	Write-down	March 31, 2005
Joint venture interest in Brazilian properties
Rio Abaete	$-	$9,374	$18,455	$(27,829)	$-
Coromandel-MG and Goiandira-GO	-	27,570	-	(27,570)	-

	$-	$36,944	$18,455	$(55,399)	$-

Rio Abaeté

- On September 2, 2004, Astrogemas Mineraçāo Ltd. (AML), a subsidiary of Bontan Diamond Corporation, which in turn was a wholly owned subsidiary of the Company entered into a joint venture agreement with a Brazilian corporation to mine for diamonds on two claim areas totalling to 1,593 hectares situated in Rio Abaeté in the State of Mina Gerais in Brazil. Under the agreement, the Company would own a 95% interest and would also be entitled to royalties ranging from 2.5% to 5% on the gross proceeds of diamonds, which might be mined in areas licensed to 40 freelance garimpeiros.

Under the terms of the agreement, the Company was committed to incur a further sum of approximately US$57,000 on plant instalment and licence cost and responsible for the operational costs subject to the land licencee who was also the holder of the remaining 5% interest obtaining the environmental permits.

Environmental permits were not available until December 30, 2004, when the parties to the agreement determined that the risks were excessive and decided to abandon the project. The Company therefore closed its Brazilian operations and Brazilian office accordingly cancelled the agreement and discontinued further work on this project. The acquisition costs and exploration costs, which were deferred, were, as a result, fully written off at December 31, 2004.

Coromandel–MG and Goiandira–GO - On September 22, 2004 AML signed a six-month option agreement originally contracted in June 2004 and expiring in December 2004 with another Brazilian corporation to re-examine at least 18 known intrusives of kimberlitic affinity for their diamond content. The kimberlitoids are covered by 12 claim areas totalling 2,322 hectares, located in the vicinities of Goiandira (Goiás state) and Coromandel (Minas Gerais state).

The option agreement provided for AML to acquire 60% interest in any or all claims should the exploration prove positive within the overall 1-year option period and also a first right of refusal to buy back the 40% interest retained by the claim holder. The option could be extended at the discretion of the Company by paying a further sum of US$30,000 to the claim holder.

However, the Company decided to discontinue its Brazilian operations on December 30, 2004 and chose not to renew the above option. Accordingly, the cost of acquisition of the option was fully written off at December 31, 2004.

13.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

CAPITAL STOCK

(a)

Authorized

Unlimited number of common shares

(b)

Issued

As at March 31		2005		2004
		Common		Common
		Shares	Amount	Shares	Amount
Beginning of year		9,599,453	$24,287,903	7,226,030	$20,393,106	$41,113,386
Reverse stock split		-	-	(6,193,746)	-
Buy-back of fractional shares			-	(465)	(939)
Issued under a private placement	ii	1,343,124	649,679	6,705,015	3,153,591
Subscribed under a private placement		-	-	831,429	393,113
Expenses relating to private placement	ii		(35,237)		(354,670)
Issued under 2001 Consultant Stock Compensation Plan	ii	174,524	119,695	225,000	148,675
Issued subsequent to the year end to consultants under 2001 Stock Compensation Plan in settlement of services rendered during the year		-	-	806,190	555,027
Issued under 2003 Consultant Stock Compensation Plan	iii	754,619	1,163,915	-	-
Options excercised	iv	1,100,000	2,094,935
		12,971,720	$28,280,890	9,599,453	$24,287,903

(i)

On April 28, 2003, the Company reached an agreement with certain accredited investors for a private placement of up to 7,143,000 Units at US$0.35 per Unit for a gross proceeds of about US$2.5 million. Each Unit includes one common share and one common share purchase warrant. Each warrant entitles its holder to acquire one common share of the company at a price of US$1.00 within twenty-four months of the date of issuance of the Unit. The shares issued under this private placement would be restricted in terms of their transferability and salability in accordance with the relevant regulatory requirements. Private placement was closed on May 26, 2004. The actual number of Units subscribed under the private placement was 8,879,571 of which 1,343,124 were subscribed and paid for between April 1, 2004 and May 26, 2004 and the balance of 7,536,447 was subscribed and paid for in the fiscal 2004.

Expenses relating to the private placement represented finder’s fee of 10% of the subscription.

None of the warrants were exercised or expired as at March 31, 2005

14.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

CAPITAL STOCK (b) (Continued)

(ii)

174,524 shares were issued to four independent consultants under 2001 Consultant Stock Compensation Plan for services rendered during fiscal 2005, which were valued at fair market value on the date of issue.

(iii)

754,619 shares were issued to seven independent consultants under 2003 Consultant Stock Compensation Plan for services, valued at the fair market value of shares on the dates of issue. 290,500 shares of the issued shares valued at $566,426 were issued to Mr. Terence Robinson, the former chief executive officer of the Company, for services as a consultant between July 2004 and December 2005, which otherwise were to be paid for in a cash fee of $10,000 per month as per the terms of his consulting contact.

347,404 shares at a fair market valuation of $587,777 relate to the services to be rendered in fiscal 2006. The amount is therefore included under deferred stock compensation on the consolidated balance sheet. (Note 4)

STOCK OPTION PLANS

(a)

The Company has two option plans as follows:

(i)

On April 30, 2003, the Company registered 3 million stock options under “1999 stock option plan” exercisable at option prices ranging from US$0.35 to US$1 with Securities and Exchange Commission of the United States of America (SEC) as required under the Securities Act of 1933.

(ii)

On July 22, 2004, the Company registered 2.5 million stock options under “2003 stock option plan” exercisable at option prices ranging from US$0.50 and US$ 1.75 with SEC as required under the Securities Act of 1933.

(b)

At March 31, 2005, 4.4 million common shares were reserved for issuance under the Company’s stock option plans as follows:

	Number of options	Weighted average exercise price in US$
Outstanding at beginning of year	-	-
Granted	5,500,000	0.48
Exercised	(1,100,000)	0.47
Expired	-	-
Outstanding at end of year	4,400,000	0.48

Options exercisable at year end	3,592,500
Weighted average fair value of options granted during the year	$0.96

15.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

STOCK OPTION PLANS (Continued)

	Options outstanding		Options exercisable
exercise price in US$	Number	weighted average remaining contractual life (years)	Number	weighted average remaining contractual life (years)
0.35	1,740,000	4.34	932,500	4.31
0.50	2,325,000	4.37	2,325,000	4.37
0.75	140,000	3.96	140,000	3.96
1.00	125,000	0.92	125,000	0.92
1.50	50,000	0.84	50,000	0.84
1.75	20,000	0.17	20,000	0.17
0.48	4,400,000	4.19	3,592,500	4.15

All options were granted to consultants and vested immediately on the date of the grant except for 1,615,000 options which vest in four equal instalments of 403,750 at the end of each quarter beginning from the date of the grant. The options can be exercised at any time after vesting within the exercise period in accordance with the applicable option agreement. The exercise price was less than the market price of the stock on the date of the grants. Upon expiry or termination of the contracts, vested options must be exercised within 30 days for consultants and 90 days for directors.

(c)

The fair value of the options granted has been estimated at the date of grant in the amount of $5,265,240 using a Black-Scholes option price model with the following weighted average assumptions:

Risk free interest rate

3.71%

Expected dividends

nil

Expected volatility

170

Expected life

4.1 years

Option pricing models require input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.

The amount of $4,120,088 has been recorded in the consolidated statement of operations as stock based compensation and the balance of $1,145,152 has been included in the deferred stock based compensation in the consolidated balance sheet representing value of services yet to be provided with corresponding contributed surplus recorded in shareholders’ equity. $1,470,162 representing the value of the options exercised during the year was transferred from contributed surplus to capital stock.

16.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

10.

LOSS PER SHARE

Loss per share is calculated on the weighted average number of common

shares outstanding during the year, which were 11,700,303 shares for the year ended March 31, 2005 (2004 – 5,221,071).

11.

STOCK BASED COMPENSATION

	2005	2004
Shares issued as compensation	$695,834	$703,702
Options granted	$4,120,088
	$4,815,922	$703,702

12.

INCOME TAXES

The effective tax rate of nil (2004 – nil) for income taxes varies from the statutory income tax rate of approximately 36 % (2004 – 36%) due to the fact that no tax recoveries have been recorded for losses incurred, as management has not determined whether it is more likely than not that the losses will be utilized before they expire.

The temporary differences that give rise to future income tax assets and future income tax liabilities are presented below:

	2005	2004
Amounts related to tax loss and credit carry forwards	$1,424,000	$1,582,000
Net future tax assets	1,424,000	1,582,000
Less: valuation allowance	(1,424,000)	(1,582,000)
	$-	$-

The Company has carry forward tax losses of approximately $4 million, which may be applied against future taxable income and expire as detailed below. The benefit arising from these losses has not been included in the financial statements.

2006			460,000
2007			687,000
2008			202,000
2009			1,007,000
2010			232,000
2011			1,337,000
2015			30,000
			$3,955,000

17.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

13.

DISCONTINUED OPERATIONS

On December 30, 2004, the Company decided to close its operations in Brazil and discontinue further participation in any diamond mining activities. It had only one existing joint venture which was dissolved due to the failure of the local partner to obtain the environmental permit for exploratory drilling, which was a pre-condition to the Company’s commitment to invest more money into the program. The Company also had option to acquire mining rights in another program. The option expired on December 31, 2004 and was not renewed (see Note 7 for further details).

The following are the details relating to the discontinued operations:

Operating costs

121,279

Assets and deferred costs written off (Note 6)

55,399

176,678

14.

COMMITMENTS AND CONTINGENT LIABILITIES

(a)

The Company received a Notice of Termination dated February 6, 2003 from a previous landlord, wherein the landlord claimed rent arrears of $28,924 and current plus next three months rent and damage for the loss of rent for the remaining term of the lease. The management is of the opinion that they have a strong case against the landlord for not paying such rent and penalty. No further communication has been received from the previous landlord since February 6, 2003. The management therefore reversed the provision of $34,287 made earlier against rent expense in the consolidated statements of operations and believes that the Company has no further liability in the matter.

(b)

The Company entered into media relations and investor relations contracts with Current Capital Corp., a shareholder corporation, effective July 1, 2004 initially for a period of one year and renewed automatically unless cancelled in writing by a 30-day notice for a total monthly fee of US$10,000.

(c)

The Company entered into a new consulting contract with Mr. Kam Shah, the Chief Executive Officer and Chief Financial Officer on April 1, 2005 for a five-year term up to March 31, 2010. The contract provides for payment of the fee, which covered the period from November 2004 to December 31, 2005 by allotment of 450,000 options at prices varying from US$.35 and US$.75 plus reimbursement of expenses. The fee for the remaining period in the fiscal 2006 and subsequent years will be decided at the board meeting after the end of the third quarter of the fiscal 2006. Further, the contract provides for a lump sum compensation of US$250,000 for early termination of the contract without cause. The contract also provides for entitlement to stock compensation and stock options under appropriate plans as may be decided by the board of directors from time to time.

(d)

The Company entered into a consulting contract with Mr. Terence Robinson, the Chief Executive Officer on April 1, 2003 for a six-year term up to March 31, 2009. The contract provides for a monthly fee of $10,000 inclusive of taxes plus reimbursement of expenses and a lump sum compensation of $250,000 for early termination of the contract without cause. Mr. Robinson resigned as chief executive officer effective May 17, 2004, but continued as consultant under the same terms and conditions.

18.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

14.

COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

(e)

On February 19, 2004, the Company’s subsidiary, Bontan Diamond Corporation, entered into a Memorandum of Understanding (MOU) with Mr. Francis Guardia and Astrogemas Mineração Ltda (AML), a Brazilian corporation owned by Francis Guardia to acquire the said corporation and invest up to US$200,000 required to exercise the option in a Brazilian Joint venture to explore and mine diamonds in Brazil and also to explore opportunities for more licenses and/or joint ventures for diamond exploration in Brazil. The MOU also provided opportunity for Mr. Guardia to earn back up to 40% of the equity interest in Bontan Diamond Corporation on achievements of certain agreed milestones.

On February 17, 2004 the Company’s subsidiary, Bontan Diamond Corporation, entered into a five-year exclusive consulting contract with Mr. Francis Guardia to act as Chief Geologist for the company for a monthly fee of US$4,000 plus expenses and bonus.

However, on November 25, 2004, Mr. Guradia resigned and on December 30, 2004, Brazilian office and operations were discontinued. The Company has not received and does not expect any further costs other than the ones already incurred and written off.

(g)

The Company acquired 49% working interest in a gas exploration project in the State of Louisiana, USA. Under the terms of the exploration agreement, the Company is committed to provide funds against cash calls made by the Operators of the program within 15 days or as may be extended by the Operators. Total estimated drilling and completion cost of the project to the Company is approximately US$3.7 million. Subsequent to the year end, the Company paid the drilling costs of approximately US$3.1 million (note19 (c)) and is now committed to pay a further US$ 600,000 upon successful completion of the exploratory drilling based on the Authority for Expenditure provided by the Contractor.

15.

RELATED PARTY TRANSACTIONS

Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount. Related party transactions and balances have been listed below, unless they have been disclosed elsewhere in the financial statements.

(i)

Included in shareholders information expense is $117,053 (2004 – $160,627; 2003 – $60,000) to Current Capital Corp, (CCC) for media relations services. CCC is a shareholder corporation and a director of the Company provides accounting services as a consultant.

(ii)

CCC charged approximately $24,000 for rent, telephone, consultants’ fees and other office expenses (2004: $62,000 and 2003: $34,000).

(iii)

Finders fee of $35,238 (2004: $352,000, 2003: nil) was charged by CCC in connection with the private placement.

(iv)

19.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

15.

RELATED PARTY TRANSACTIONS (Continued)

(v)

Business expenses of $15,205 (2004 - $56,485; 2003 - $nil) were reimbursed to directors of the corporation and $93,244 to a former director who provides consulting services to the Company.

(vi)

(vii)

(viii)

Consulting fees include amounts to Snapper Inc., a shareholder corporation of $12,786 (2004 - $267,894; 2003 - $92,682).

16.

SEGMENTED INFORMATION

As at March 31, 2005, the Company had only one major business segment-

Energy sector: This segment includes the Company’s acquisition of interests in joint ventures and projects relating to exploration and commercial drilling of oil and gas and related products.

The Company discontinued its mineral activities effective December 30, 2004.

The accounting policies of the segments are same as those described in Note 2. The Company evaluates each segment’s performance based on its contribution to consolidated net earnings. There are no inter-segmental charges or transactions. The following table presents summarised financial information for the fiscal years ended March 31, 2005 and 2004.

Geographic Information

The Company operates from one location in Canada. Its assets are located as follows:

	2005	2004

Canada	$2,464,594	$547,363
Papua New Guinea	2,161,986	2,530,353
USA	216,568	-
Brazil	-	7,868

	$4,843,148	3,085,584

20.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

16.

SEGMENTED INFORMATION (Continued)

Business Segments
	Energy	Mineral
2005	sector	sector

Total revenue	$-	$-
Earnings (losses) from operations	$(3,910)	$-
Total assets	$2,378,554	$-
Total liabilities	$-	$-
2004	Energy sector	Mineral sector
Total revenue	$-	$-
Earnings (losses) from operations	$-	$-
Total assets	$2,530,353	$7,868
Total liabilities	$-	$-

Reconciliation to Financial Statements
	2005	2004
Revenue
Total revenue from reportable segments	$-	$-
Other	418,861	46,958
	$418,861	$46,958
Net loss
Total losses from continuing operations
for reportable segments	$(3,910)	$-
Other	(4,872,988)	(1,360,958)
	$(4,876,898)	$(1,360,958)
Assets
Total assets used for reportable segments	$2,378,554	$2,538,221
Other	2,696,604	547,368
	$5,075,158	$3,085,584
Liabilities
Total liabilities used for reportable segments	$-	$-
Other	124,321	866,236
	$124,321	$866,236

21.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

17.

FINANCIAL INSTRUMENTS

The fair value for all financial assets and liabilities are considered to approximate their carrying values due to their short-term nature.

18.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These financial statements have been prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP"). Material variations in the accounting principles, practices and methods used in preparing these consolidated financial statements from principles, practices and methods used in the United States ("US GAAP") and in SEC Regulation S-X are described and quantified below.

	2005			2004
	Balance under Canadian GAAP	Adjustment	Balance under US GAAP	Balance under Canadian GAAP	Adjustment	Balance under US GAAP
Balance Sheets

Current assets	$4,858,590		$4,858,590	$555,231		$555,231
Long term assets	216,568	(216,568)	-	2,530,353		2,530,353
Total assets	$5,075,158	$(216,568)	$4,858,590	$3,085,584		$3,085,584

Current Liabilities	124,321		124,321	866,236		866,236
Capital stock	28,280,890		28,280,890	24,287,903		24,287,903
Contributed surplus	3,795,078		3,795,078
Deficit	(27,125,131)	(216,568)	(27,341,699)	(22,068,555)		(22,068,555)
Liabilities and shareholders' equity	$5,075,158	$(216,568)	$4,858,590	$3,085,584		$3,085,584

22.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

18.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

The impact of significant US GAAP variations on the Consolidated Statement of Operations are as follows:

Year ended March 31	2005	2004	2003

Net Loss for year, Canadian GAAP	(5,056,576)	(1,360,958)	(319,363)
Exploration interests expensed	(216,568)
Write down of product development costs			88,831
Reclassification of unrealized losses on short term investments	16,348
Reclassification of exchange loss(gain) on yea end translation of foreign currency items and balances	17,898	(46,707)	(13,376)
Loss for year US GAAP	(5,238,898)	(1,407,665)	(243,908)
Reclassification of exchange gain(loss) on period end translation of foreign currency items and balances	(17,898)	46,707	13,376
Reclassification of unrealised losses on short term investments	(16,348)	-
Comprehensive loss for year, US GAAP	(5,273,144)	(1,360,958)	(230,532)

Basic and diluted loss per share, US GAAP	(0.45)	(0.26)	(0.22)

23.

Diluted loss per share under US GAAP

The Company had approximately 8.9 million warrants and 4.4 million options, which were not exercised as at March 31, 2005. Inclusion of these warrants and options in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation. Consequently, there is no difference between loss per share and diluted loss per share.

24.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

18.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

The impact of the above differences between Canadian GAAP and US GAAP on the consolidated statements of cash flows would be as follows:

Year ended March 31	2005	2004	2003
Cashflows used in continuing operating activities, Canadian GAAP	(257,850)	(421,566)	(215,618)
Adjustment to oil & gas properties interests	(216,568)	-

Cashflows used in continuing operating activities, US GAAP	(474,418)	(421,566)	(215,618)
Cashflows used in discontinued operating activities, Canadian & US GAAP	(179,678)	-
Cashflows used in operating activities, US GAAP	(654,096)	(421,566)	(215,618)

Cashflows used in investing activities, Canadian GAAP	59,064	(2,530,353)	49460
Adjustment to oil & gas properties interests	216,568	-
Cashflow provided by (used) in investing activities	275,632	(2,530,353)	49,460

Cashflow provided by financing activities, Canadian and US GAAP	738,253	3,432,612	138,298

Increase(decrease) in cash during period, Canadian and US GAAP	359,789	480,693	(27,860)
Cash at beginning of year	500,541	19,848	47708
Cash at end of year	860,330	500,541	19,848

25.

26.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

18.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

(i)

Short-term Marketable securities

In accordance with Canadian GAAP, short-term marketable securities are carried at the lower of aggregate cost and current market values, with unrealized losses being included in the determination of net income (loss) for the year. Statement of Financial Accounting Standard (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, requires that equity securities that have readily determinable fair values be classified as either available-for-sale or trading securities, and that they be reported at fair market values. For available-for-sale securities, unrealized gains or losses are to be reported as other comprehensive income, a separate component of shareholders’ equity, until realized.

There is no difference between Canadian GAAP and United States GAAP on the accounting for short-term marketable securities for the years ended March 31, 2005, 2004 and 2003.

(ii)

Oil and gas properties interests

Under Canadian GAAP, mineral properties, including exploration, development and acquisition costs, are carried at cost until the properties to which they relate are placed into production, sold or where management has determined there to be a permanent impairment in value.

Under U.S. GAAP, mineral property expenditures are expensed as incurred. Once a final feasibility study has been completed however, additional costs incurred to bring the mine into production are capitalized as development costs.

As the Company’s interests in gas project is currently at exploratory stages as explained in Note 5, it has been decided to expense the cost of acquiring the interests and its contribution to exploration costs under the US GAAP. No adjustment is considered necessary as regards the Company’s interest in oil properties since the interest was subsequently sold at a profit and was therefore not considered held for exploration as at March 31, 2005.

(iii)

Stock based compensation

Under United States GAAP, Statement of Financial Accounting Standards No. 123, “Accounting for Stock-based Compensation (“SFAS 123”) recommends, but does not require, companies to establish a fair market value based method of accounting for stock-based compensation plans. The Company has elected for the years ended March 31, 2005 and 2004 to account for stock-based compensation using SFAS 123. Accordingly, compensation cost for stock options is measured at the fair value of options granted.

Under Canadian GAAP, the Company accounts for stock based compensation as disclosed in Note 2. Accordingly, there is no difference between Canadian GAAP and United States GAAP on the accounting for stock-based compensation for the years ended March 31, 2005, 2004 and 2003.

27.

28.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

18.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

New accounting pronouncements

In January 2003, the Financial Accounting Standard Board(the “FASB”) released Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”) that requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate such entity. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. The Company does not have interests in any variable interest entities.

In December 2004, the FASB SFAS 123 (Revised 2004), “Share-Based Payment” [“Statement 123(R)"], which is a revision of SFAS. 123, “Accounting for Stock-Based Compensation” [“Statement 123"]. Statement 123(R) supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and amends SFAS. 95, “Statement of Cash Flows”. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Effective April 1, 2003, the Company has adopted the fair value accounting method provided for under Statement 123 to apply recognition provisions to its stock options granted, modified or settled after February 1, 2003. Statement 123(R) will have no impac t on the consolidated financial statements of the Company.

In December 2004, FASB issued SFAS 153, “Exchanges of Non-Monetary Assets – an amendment of APB Opinion No. 29, “Accounting for Nonmonetary Transactions”. SFAS 123 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS 153 eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetray assets that do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of SFAS 153 should be applied prospectively. The Company does not anticipate that the application of SFAS 153 will have an impact on the consolidated financial statements of the Company.

In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and SFAS 3, which applies to all voluntary changes in 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 is effective for fiscal years beginning after December 15, 2005. The Company does not anticipate that this guidance will impact the consolidated financial statements of the Company.

29.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

March 31, 2005 and 2004

19.

USE OF ESTIMATES

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

20.

SIGNIFICANT POST BALANCE SHEET EVENTS

The following is a summary of key corporate changes and other significant events that occurred subsequent to March 31, 2005:

(a)

(b)

(c)

(d)

The Company received two cash calls relating to its 49% working interest in a gas project in the State of Louisiana, USA from the project operator. The two cash calls dated May 15, 2005 and June 20, 2005 totalled US$ 3,052,700 representing the Company’s 49% of the total estimated drilling and equipment leasing costs of US$6,230,000. The Company met both the cash calls within the deadlines agreed with the project operator. The funds remitted by the Company have been deposited in an escrow account and will be released against the actual work.

(e)

On April 12, 2005, one of the independent directors, Mr. Kevin Markland resigned and was replaced by Mr. Damian Lee as an independent director.

21.

PRESENTATION

Certain prior year’s amounts have been reclassified to conform to current presentation

30.