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Bontan Corporation Inc.

Consolidated Financial Statements

For the Three and Nine Months Ended December 31, 2008 and 2007

(Canadian Dollars)

(UNAUDITED – see Notice to Reader dated February 12, 2009)

Index

Notice to Reader issued by the Management	2

Consolidated Balance Sheets	3

Consolidated Statements of Operations	4

Consolidated Statements of Cash Flows	5

Consolidated Statement of Shareholders’ Equity Consolidated Statement of Comprehensive Loss and Accumulated Other Comprehensive Loss	6-7
Notes to Consolidated Financial Statements	7-20

BONTAN CORPORATION INC.

NOTICE TO READER OF THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements for Bontan Corporation Inc. for the three and nine months ended December 31, 2008 have been prepared by management in accordance with Canadian generally accepted accounting principles, consistently applied. These consolidated financial statements have not been reviewed by the auditors of the Company.

These financial statements are presented on the accrual basis of accounting. Accordingly, a precise determination of many assets and liabilities is dependent upon future events. Therefore, estimates and approximations have been made using careful judgement. Recognizing that the management is responsible for both the integrity and objectivity of the financial statements, management is satisfied that these financial statements have been fairly presented.

February 12, 2009

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Bontan Corporation Inc.

Consolidated Balance Sheets

(Canadian Dollars)

(Unaudited – see Notice to Reader dated February 12, 2009)

	Note		December 31, 2008		March 31, 2008
					(Audited)
Assets
Current
Cash			$	450,405	$	1,259,062
Short term investments	3, 11(vii) & 11(viii)			1,191,025		3,633,760
Prepaid consulting services		5		42,941		285,896
Other receivables	11(ix) & (x)			115,966		54,198

			$	1,800,337	$	5,232,916
Office equipment and furniture		4	$	10,073	$	6,206
			$	1,810,410	$	5,239,122
Liabilities and shareholders' equity
Current liabilities
Accounts payable	11(vi)		$	85,964	$	30,339
Accrued liabilities				19,700		28,685
Total current liabilities			$	105,664	$	59,024
Shareholders' Equity
Capital stock		6	$	32,884,988	$	32,901,488
Warrants		8		2,153,857		2,153,857
Contributed surplus				4,077,427		4,077,427
Accumulated other comprehensive loss				(4,342,897)		(1,306,768)
Deficit				(33,068,629)		(32,645,906)
				(37,411,526)		(33,952,674)
Total shareholders' equity			$	1,704,746	$	5,180,098
			$	1,810,410	$	5,239,122

Commitments and Contingent Liabilites (Note 10)

Related Party Transactions (Note 11)

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

(signed) (signed)

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

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Bontan Corporation Inc.

Consolidated Statements of Operations

(Canadian Dollars)

(Unaudited – see Notice to Reader dated February 12, 2009)

	Note		Three months ended		Nine months ended		Three months ended		Nine months ended
			December 31, 2008				December 31, 2007
Income
Gain on disposal of short term investments			$	(151,279)	$	44,649	$	(16,441)	$	59,220
Interest				1,267		7,176		17,670		64,351

				(150,012)		51,825		1,229		123,571
Expenses
Consulting fees settled for common shares		5		64,499		226,455		78,372		235,262
Payroll				11,571		26,874		-		-
Travel, promotion and consulting		11(v)		77,163		144,443		38,372		125,705
Shareholders information		11(i)		40,171		104,671		29,532		103,399
Exchange loss (gain)				(92,102)		(110,070)		(890)		185,820
Professional fees				6,342		20,353		6,233		20,796
Office and general				9,625		33,789		13,499		30,979
Bank charges and interest				631		1,928		533		1,188
Communication				2,357		9,847		3,684		8,458
Rent	11 (ii)			4,267		12,856		1,427		4,298
Transfer agents fees				1,211		3,402		725		3,377
				125,735		474,548		171,487		719,282
Net loss for period				(275,747)		(422,723)		(170,258)		(595,711)

Basic and diluted loss per share information
Net Loss per share		9	$	(0.01)	$	(0.01)	$	(0.01)	$	(0.02)

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

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Bontan Corporation Inc.

Consolidated Statements of Cash Flows

(Canadian Dollars)

(Unaudited – see Notice to Reader dated February 12, 2009)

		Three months ended		Nine months ended		Three months ended		Nine months ended
		December 31, 2008				December 31, 2007
Cash flows from operating activities
Net loss for year		$	(275,747)	$	(422,723)	$	(170,258)	$	(595,711)
Amortization of office equipment and furniture			507		1,389		-		-
Gain on disposal of short term investments			151,279		(44,649)		16,441		(59,220)
Consulting fees settled for common shares	5		64,500		226,455		78,372		235,262
Net change in working capital components
Prepaid and other receivables			(51,699)		(61,768)		(21,936)		17,307
Accounts payable and accrued liabilities			68,938		46,639		2,793		(6,312)
			(42,222)		(254,657)		(94,588)		(408,674)
Investing activities
Purchase of property,plant & equipment			-		(5,256)		-		(2,299)
Purchase of short term Investments			(521,070)		(2,363,220)		(587,092)		(2,478,778)
Net proceeds from sale of short term investments			470,545		1,814,476		57,527		1,348,927
			(50,525)		(554,000)		(529,565)		(1,132,150)
Financing activities
Common shares issued net of issuance costs					-		-		110,201
			-		-		-		110,201
Decrease in cash during period			(92,747)		(808,657)		(624,153)		(1,430,623)
Cash at beginning of period			543,152		1,259,062		2,208,458		3,014,928
Cash at end of period		$	450,405	$	450,405	$	1,584,305	$	1,584,305
Supplemental disclosures
Non-cash operating activities
Consulting fees settled for common shares and	5				226,455		78,372
options and expensed during the period			64,500						235,262
Consulting fees prepaid in shares	5		(81,000)		42,941		(78,372)		40,884
		$	(16,500)	$	269,396	$	-	$	276,146
Non - cash financing activity
Shares returned for cancellation			(16,500)		(16,500)
		$	(16,500)	$	(16,500)	$	-	$	-

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

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Bontan Corporation Inc.

Consolidated Statement of Shareholders’ Equity

(Canadian Dollars)

For the nine months ended December 31, 2008

(Unaudited – see Notice to Reader dated February 12, 2009)

	Number of Shares		Capital Stock		Warrants		Contributed surplus		Accumulated Deficit		Accumulated other comprehensive loss		Shareholders' Equity
Balance March 31, 2007		28,430,203	$	32,413,811	$	2,215,213		4,069,549	$	(32,074,107)			$	6,624,466
Warrants excercised		315,540		122,446				-						122,446
Value of warrants transferred to capital stock upon exercise				61,356		(61,356)
Finder fee				(12,245)										(12,245)
Issued under 2007 Consultant stock compensation plan		1,350,000		316,120										316,120
Options granted								7,878						7,878
Net loss										(571,799)				(571,799)
Unrealised loss on short term investments considered avilable for sale, cumulative to march 31, 2008 on adoption of new Accounting Policy												(1,306,768)		(1,306,768)

Balance, March 31, 2008		30,095,743	$	32,901,488	$	2,153,857		4,077,427	$	(32,645,906)	$	(1,306,768)	$	5,180,098
Unrealised gain on short term investments considered available for sale during the six months ended Sept. 30, 2008												(1,858,291)		(1,858,291)
Net loss for the six months										(146,976)				(146,976)
Balance, September 30, 2008		30,095,743	$	32,901,488	$	2,153,857	$	4,077,427	$	(32,792,882)	$	(3,165,059)	$	3,174,831
Unrealised loss on short term investments considered available for sale during the quarter ended Dec. 31, 2008												(1,177,838)		(1,177,838)
Shares returned for cancellation		(275,000)		(16,500)										(16,500)
Net loss for the quarter										(275,747)				(275,747)
Balance, December 31, 2008		29,820,743	$	32,884,988	$	2,153,857		4,077,427	$	(33,068,629)	$	(4,342,897)	$	1,704,746

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

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Bontan Corporation Inc.

Consolidated Statement of Comprehensive Loss and Accumulated Other Comprehensive Loss

(Canadian Dollars)

(Unaudited – see Notice to Reader dated February 12, 2009)

	Note		Three months ended		Nine months ended		Three months ended		Nine months ended
			December 31, 2008				December 31, 2007

Net loss for period				(20,222)		(422,723)		(170,258)		(595,711)
Other comprehensive loss
Unrealised gain(loss) for period on short term investments considered available for sale		3		(1,177,838)		(3,036,129)		(590,257)		(1,404,236)
Comprehensive Gain(loss)				(1,198,060)		(3,458,852)		(760,515)		(1,999,947)

Accumulated other comprehensive income(loss)
Beginning of period				(3,165,059)		(1,306,768)		145,723		959,702
Other comprehensive gain(loss) for period				(1,177,838)		(3,036,129)		(590,257)		(1,404,236)
Accumulated other comprehensive income (loss), end of period			$	(4,342,897)	$	(4,342,897)	$	(444,534)	$	(444,534)

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

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

1. NATURE OF OPERATIONS

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

The company focuses on projects where the other project partners have proven experience in oil and gas exploration, development and distribution.

The Company currently does not have any active project participation and has now expanded its search for participation in suitable projects in all sectors.

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2. PRINCIPLES AND USE OF ESTIMATES

These financial statements consolidated the accounts of the Company and its wholly owned subsidiary, Bontan Oil and Gas Corporation., and have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") with respect to interim financial statements, applied on a consistent basis. Accordingly, they do not include all of the information and footnotes required for compliance with GAAP in Canada for annual audited financial statements. These Statements and notes should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report for the fiscal year ended March 31, 2008.

The accounting policies adopted for the preparation of these Statements are the same as those applied for the Company’s audited financial statements for the fiscal year ended March 31, 2008, except for the adoption of the new accounting and disclosure policies detailed below.

The preparation of these Statements and the accompanying unaudited notes requires management to make estimates and assumptions that affect the amounts reported. In the opinion of management, these Statements reflect all adjustments necessary to state fairly the results for the periods presented. Actual results could vary from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

Adoption of new accounting and disclosure policies

Effective April 1, 2008 the Company adopted two new accounting standards issued by The Canadian Institute of Chartered Accountants ("CICA") on financial instruments comprising handbook sections 3862 "Financial Instruments – Disclosures" and 3863 "Financial Instruments – Presentation", which apply to interim and annual financial statements. These sections revise and enhance the current disclosure requirements but do not change the existing presentation requirements for financial instruments. The new disclosures provide additional information on the nature and extent of risks arising from financial instruments to which the Company is exposed and how it manages those risks. This disclosure is provided in note 13. The Company also adopted CICA handbook section 1535 "Capital Disclosures", which requires the Company to disclose qualitative and quantitative information relating to its objectives, policies and processes for managing its capital. This disclosure is provided in note 14.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

2. PRINCIPLES AND USE OF ESTIMATES – Continued....

Future accouting changes

International Financial Reporting Standards (“IFRS”)

In January 2006, the CICA’s Accounting Standards Board ("AcSB") formally adopted the strategy of replacing Canadian GAAP with IFRS for Canadian enterprises with public accountability. The current conversion timetable calls for financial reporting under IFRS for accounting periods commencing on or after January 1, 2011. On February 13, 2008 the AcSB confirmed that the use of IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. For these entities, IFRS will be required for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company is currently assessing the impact of IFRS on its consolidated financial statements.

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Goodwill and Intangible Assets

In November 2007, the CICA approved Handbook Section 3064, “Goodwill and Intangible Assets” which replaces the existing Handbook Sections 3062, “Goodwill and Other Intangible Assets” and 3450 “Research and Development Costs”. This standard is effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2009, with earlier application encouraged. The standard provides guidance on the recognition, measurement and disclosure requirements for goodwill and intangible assets. The application of this standard will have no impact on the Company’s consolidated financial statements.

3.	SHORT TERM INVESTMENTS

	December 31, 2008				March 31, 2008
	Carrying average costs		fair market value		Carrying average costs		fair market value
Marketable securities		5,211,460		1,191,025		4,637,738		3,330,970
Non-marketable securities		322,460		-		302,790		302,790
	$	5,533,920	$	1,191,025	$	4,940,528	$	3,633,760
Unrealised loss before tax			$	(4,342,895)			$	(1,306,768)
Movements in unrealised (loss)gain
At beginning of period				(1,306,768)				959,702
(loss)gain during period				(3,036,129)				(2,266,470)
At end of year			$	(4,342,897)			$	(1,306,768)

a. Marketable securities

Marketable securities are designated as “available-for-sale”.

Marketable securities are stated at fair value based on quoted market prices on the balance sheet as at December 31, 2008. An unrealised loss of $ 3,036,129 for the nine months ended December 31, 2008 was included in the consolidated statement of comprehensive loss and accumulated other comprehensive loss.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

3.	SHORT TERM INVESTMENTS – Continued....

As at December 31, 2008, the Company held warrants in certain marketable securities which are exercisable at its option to convert into equal number of common shares of the said securities. The total exercise price of these warrants was $ 135,519 and the market value of the underlying securities was $37,953 as at that date. These warrants would expire between November 2009 and March 2012.These warrants and the underlying unrealised gains and losses have not been accounted for in the financial statements since the Company has not yet determined if it would exercise these warrants before their expiry dates.

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b. Non-marketable securities

The Company held shares in three private corporations as at December 31, 2008, which are designated as “Available for sale”. The carrying cost of these investments was $322,460. Based on the management review of the affairs of the above investee companies and discussions with their management, it was concluded that there was no other than temporary impairment in the carrying costs of these investments as at December 31, 2008. The factors considered in our impairment review included length of time the security was held, extent to which the fair value was below cost, current financial conditions of the investee companies, near term prospects of the investee companies and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.

The Company however believed that as at December 31, 2008, the value of these investments was seriously affected due partly to the overall adverse market conditions and has therefore valued them at zero value. An unrealised loss of $ 322,460 was included in the consolidated statement of comprehensive loss and accumulated other comprehensive loss.

4.	OFFICE EQUIPMENT AND FURNITURE

	Cost		Accumulated amortisation		Net book value		Net book value
	As at December 31, 2008						March 31, 2008
							(Audited)
Office furniture		4,725		1,111		3,614		4,252
Software		5,256		262		4,994
Computer		2,298		833		1,465		1,954

	$	12,279	$	2,206	$	10,073	$	6,206

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

5. PREPAID CONSULTING SERVICES

Prepaid consulting services relate to the fair value of shares and options issued under the Company’s Consultants’ Stock Compensation and Stock Option Plans to consultants for services that will be performed during the period subsequent to the balance sheet date. Changes during the period were as follows:

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	Balance at April 1, 2008		Deferred during period		Canceled during period		Expensed during period		Balance at September 30, 2008
Options	$	7,878	$	-			$	(5,910)	$	1,968
Stocks		278,018		-		(16,500)		(220,545)		40,973
	$	285,896	$	-	$	(16,500)	$	(226,455)	$	42,941

	Balance at April 1, 2007		Deferred during the year				Expensed during the year		Balance at March 31, 2008
Options	$	-	$	7,878			$	-	$	7,878
Stocks		276,146		316,120				(314,248)		278,018
	$	276,146	$	323,998			$	(314,248)	$	285,896

	Balance at April 1, 2007		Deferred during period				Expensed during period		Balance at September 30, 2007
Stocks		276,146		-				(235,262)		40,884
	$	276,146	$	-			$	(235,262)	$	40,884

Two of the Consultants who were issued shares in lieu of cash for their services requested the management that they would like to cancel the shares issued to them and instead receive cash payments from the Company owing to the fact that the Company’s share price remained depressed and lacked any substantial movements through the period and as a result they were unable to sell any shares and earn any compensation for their services.

On December 12, 2008, the Board of Directors of the Company accepted their request and approved the following :

Mr. Terence Robinson to be paid a cash compensation of $60,000 for the six months ended December 31, 2008 in return for 275,000 previously issued under Consultant Compensation Plan for cancellation.

Mr. John Robinson to be paid $ 82,000 in four instalments - $20,489 on December 16, 2008, $20,489 on December 31, 2008, $20,489 on March 31, 2009 and the balance $20,533 on June 30, 2009 in return for 350,000 shares previously issued under Consultant Compensation Plan for cancellation.

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

5. PREPAID CONSULTING SERVICES - Continued.....

Mr. Terence Robinson returned 275,000 shares for cancellation. These were cancelled before December 31, 2008 and cancellation value was determined to be $16,500 based on the market price of the Company’s common shares on the date of cancellation. A liability has been included in payable for $ 60,000 which became payable to him upon return of the shares.

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Mr. John Robinson has not yet returned the shares for cancellation and hence cash liability and related shares cancellation has not yet been accounted for by the Company.

6. CAPITAL STOCK

(a) Authorized

Unlimited number of common shares

(b) Issued

	December 31, 2008				March 31, 2008
					(Audited)
	Common				Common
	Shares		Amount		Shares		Amount
Beginning of period		30,095,743	$	32,901,488		28,430,203	$	32,413,811
Canceled ( note 5)		(275,000)	$	(16,500)
Warrants exercised		-		-		315,540		122,446
Expenses relating to warrants excercised				-				(12,245)
Value of warrants transferred to capital stoock upon exercise		-		-				61,356
Issued under 2007 Consultant Stock Compensation Plan		-		-		1,350,000		316,120
		29,820,743	$	32,884,988		30,095,743	$	32,901,488

On December 12, 2008, The Board of Directors of the Company approved a private placement to raise equity funds up to US$500,000. The private placement consists of Units up to maximum of ten million, to be issued at US0.05 per Unit. Each Unit would comprise one common share of the Company and one full warrant convertible into one common share of the Company at an exercise price of US$0.10 each within two years of the issuance of warrant.

Till the date of this report, the Company has not received any subscription under the above private placement.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

7. STOCK OPTION PLANS

(a) The following is a summary of all Stock Option Plans as at December 31, 2008:

Plan	Date of registration *	# of Options
		Registered		issued		Expired		Exercised		Outstanding
1999 Stock option Plan	April 30, 2003		3,000,000		3,000,000		(70,000)		(1,200,000)		1,730,000
2003 Stcok Option Plan	July 22, 2004		2,500,000		2,500,000		(155,000)		(400,000)		1,945,000
The Robinson Plan	December 5, 2005		1,100,000		1,100,000		-		-		1,100,000
2005 Stock Option Plan	December 5, 2005		1,000,000		50,000		-		-		50,000
			7,600,000		6,650,000		(225,000)		(1,600,000)		4,825,000

* Registered with the Securities and Exchange Commission of the United States of America (SEC) as required under the Securities Act of 1933.

All options were fully vested on the dates of their grant.

(b)	There were no movements during the nine months and quarter ended December 31, 2008. The weighted average exercise price of the outstanding stock options is US$o.15 (March 31, 2008: US$.46.)

(c)

On December 12, 2008, the Board of Directors of the Company approved extension of expiry dates of all outstanding options by one year from the date of their expiry and revision of the exercise price to US$0.15 for all options. The market price of the Company’s common shares on December 12, 2008 was US$0.05.Fair value of these options was not recalculated due to these changes.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

7. STOCK OPTION PLANS – Continued……

(d) Details of weighted average remaining life of the options granted and outstanding are as follows:

		December 31, 2008				March 31, 2008
								(Audited)
		Options outstanding & excercisable						Options outstanding & excercisable
Exercise price in US$		Number		Weighted average remaining contractual life (years)		Exercise price in US$		Number		Weighted average remaining contractual life (years)
	0.15		4,825,000		2.02
							0.35		1,680,000		1.67
							0.50		3,015,000		1.85
							0.75		125,000		1.38
							1.00		5,000		1.38
	0.15		4,825,000		2.02		0.46		4,825,000		1.78

All options were fully vested immediately as at December 31 and March 31, 2008. 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 more than the market price on the date of the grants for 1,995,000 options and less than the market price for the balance of 2,830,000 options. Upon expiry or termination of the contracts, vested options must be exercised within 30 days for consultants and 90 days for directors.

WARRANTS

(a)	Movement in warrants during the period are as follows:

	December 31, 2008						March 31, 2008
							(Audited)
	# of warrants		Weighted average exercise price		Fair value		# of warrants		Weighted average exercise price		Fair value

Issued and outstanding, beginning of period		12,846,420		0.35		2,153,857		13,161,960		0.44		2,215,213
Exercised during period		-				-		(315,540)				(61,356)
Issued and outstanding, end of period		12,846,420		0.35		2,153,857		12,846,420		0.44		2,153,857

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

8.	WARRANTS – Continued..........

(b) Details of weighted average remaining life of the warrants granted and outstanding are as follows:

(c)

On December 12, 2008, the Board of Directors of the Company approved reduction in exercise price of 11,124,460 warrants issued as part of 2006 private placement from US$0.35 to US$0.25 and extension of their expiry date by six months from the expiry dates. The market price of the Company’s common shares on December 12, 2008 was US$0.05.Fair value of these warrants was not recalculated due to these changes.

9. LOSS PER SHARE

Loss per share is calculated on the weighted average number of common shares outstanding during the period, which were 30,065,187 shares and 30,004,076 for the nine and three months ended December 31, 2008, respectively. (Nine months and three months ended December 31, 2007– 28,710,563 and 28,745,743 respectively).

The Company had approximately 12.8 million warrants and 4.8 million options, which were not exercised as at December 31, 2008. 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

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

10. COMMITMENTS AND CONTINGENT LIABILITIES

(a)	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$10,000.00

(b)

The Company entered into a 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 fee for each of the years is to be decided at the board meeting after the end of the third quarter of the calendar year. The fee for the calendar year ending December 31, 2008 consisted of 450,000 common shares of the Company issued under 2007 Consultant compensation plan. Mr. Shah was also approved cash fee of $10,000 plus taxes per month for the period from January 2008 to May 200 for his services in connection with the new internal control compliance matters. Effective June 1, 2008, Mr. Shah was allowed to draw $10,000 per month in arrears until market price of the company's common shares reaches $0.50 provided that such drawings will be considered as fee advances to be repaid when the market price of the common shares of the Company stays at $0.50 or above for a consecutive period of three months. In January 2009, the board approved a cash fee of $10,000 plus taxes per month for the first six months to June 30, 2009. Fee for the remaining term will be decided later. Further, the contract provides for a lump sum compensation of US$250,000 for early termination of the contract without cause. The plans as may be decided by the board of directors from time to time.

(c)

The Company entered into a consulting contract with Mr. Terence Robinson, a key consultant and a former 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 accepted 550,000 common shares issued under 2007 Consultant Stock Compensation Plan, in lieu of his fees for the year ending December 31, 2008. However, he was allowed to return half of the issued shares, 275,000 for cancellation and instead be paid a cash fee of $60,000 ( see also Note 5)

(d)

The Company has a consulting contract with Mr. John Robinson. Mr. John Robinson is sole owner of Current Capital Corp., a firm with which the Company has an ongoing contract for media and investor relations, and a brother of Mr. Terence Robinson who is a key consultant to the Company and a former Chief Executive Officer of the Company. On March 28, 2008, the Company renewed the consulting contract with Mr. John Robinson for another year to June 30, 2009. The consulting fee was agreed to be US$82,000 which was pre-paid by issuance of 350,000 common shares under 2007 Consultant Stock Compensation Plan. Mr. Robinson will provide services that include assisting the management in evaluating new projects and monitoring short term investment opportunities that the Company may participate in from time to time. The Company allowed Mr. Robinson to return the shares issued for cancellation and to be paid instead cash of $82,000 in four instalments. Mr. Robinson has not yet returned the shares for cancelation. ( see also note 5)

(e)	The Company has agreed to payment of a finder’s fee to Current Capital Corp., a related party, at the rate of 10% of the proceeds from exercise of any of the outstanding warrants. The likely fee if all the remaining warrants are exercised will be approximately US$450,000.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

11. 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. Amounts are for nine months ended December 31, 2008 and balances are at that date. Comparative amounts are for the nine months ended December 31, 2007 and balances as at that date.

(i)	Included in shareholders information expense is $ 96,384 (2007 – $ 94,589) 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 $12,856 for rent (2007: $ 4,298).

(iii)

Finders fees of $ nil (2007: $12,245) was charged by CCC in connection with the private placement.

(iv)	Business expenses of $12,997 (2007: $11,810) were reimbursed to directors of the corporation and $47,240 (2007 - $83,826) to a key consultant and a former chief executive officer of the Company.

(v)	Cash fee paid to directors for services of $27,500 (2007: $ nil). Fees prepaid to a director $2,588 (Expense advance to director in 2007: $ 2,500). These fees are included under travel, promotion and consulting expenses.

(vi)	Accounts payable includes $9,489 (2007: $7,079 ) due to CCC, $3,955 (2007: $1,728) due to directors and $66,557 (2007: $6,541) due to a key consultant and a former chief executive officer of the Company.

(vii)

Included in short term investments is an investment of $200,000 (2007: $100,000) in a private corporation controlled by a brother of the key consultant. The investment was stated at market value which was considered nil as at December 31, 2008 ($200,000 as at December 31, 2007)

(viii)

Included in short term investments is an investment of $1,837,956 carrying cost and $466,146 fair value (2007: $1,923,740 carrying cost and $ 1,820,475 fair value) in a public corporation controlled by a key shareholder of the Company. This investment represents common shares acquired in open market or through private placements and represents less than 1% of the total issued and outstanding shares of the said Corporation.

(ix)	Included in other receivable is an advance of $70,000 made to Chief Exeecutive Officer (2007: $ nil). The advance is repayable upon happening of certain events as explained in note 10 (b) and carries no interest.

(x)	Included in other receivable is an advance of US$2,500 made to a director (2007: $ nil), advance is repayable on demand and carries no interest.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

12. SEGMENTED INFORMATION

As at December 31 and March 31, 2008, 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 accounting policies of the segments are same as those described in Note 2 of the audited consolidated financial statements for the year ended March 31, 2008.

The Company had no business activity in the above segment.

The Company is now seeking business participation opportunities in all sectors. This may change the future major business segments for the Company.

Geographic Information

The Company operates from one location in Canada. Its assets were located in Canada as at December 31, 2008, March 31, 2008 and December 31, 2007.

13. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISKS

The Company is exposed in varying degrees to a number of risks arising from financial instruments. Management’s close involvement in the operations allows for the identification of risks and variances from expectations. The Company does not participate in the use of financial instruments to mitigate these risks and has no designated hedging transactions. The Board approves and monitors the risk management processes. The Board’s main objectives for managing risks are to ensure liquidity, the fulfilment of obligations, the continuation of the Company’s search for new business participation opportunities, and limited exposure to credit and market risks while ensuring greater returns on the surplus funds on hand. There were no changes to the objectives or the process from the prior period.

The types of risk exposure and the way in which such exposures are managed are as follows:

(a) Concentration risk:

Concentration risks exist in cash and cash equivalents because significant balances are maintained with one financial institution and two brokerage firms. The risk is mitigated because the financial institution is a prime Canadian bank and the brokerage firms are well known Canadian brokerage firms with good market reputation.

(b) Market price risk:

Market risk primarily arises from the Company’s short term investments in marketable securities which accounted for approximately 66% of total assets of the Company as at December 31, 2008 (69% at March 31, 2008). Further, the Company’s holding in one Canadian marketable security accounted for approximately 39% (March 31, 2008: 31%) of the total short term investment in marketable securities or 26% (March 31, 2008: 21%) of total assets at December 31, 2008.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

13. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISKS – Continued ....

The management tries to mitigate this risk by daily monitoring of all its investments by experienced consultants and ensuring that investments are made in companies which are financially stable with viable businesses.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due.

The Company ensures there is sufficient capital to meet short term business requirements. In addition, management and key consultants have opted to accept the Company’s common shares instead of cash towards their fee to ensure greater cash flow for other operational and business needs.

One of management’s goals is to maintain an optimal level of liquidity through the active management of the assets, liabilities and cash flows.

The Company’s maintains limited cash for its operational needs while most of its surplus cash is invested in short term marketable securities which are available on short notice to fund the Company’s operating costs and other financial demands.

(d) Currency risk

The operating results and financial position of the Company are reported in Canadian dollars. Cash and short term investments held in US dollars were approximately 5% of total assets at December 31, 2008 (23% as at March 31, 2008). The results of the Company’s operations are therefore subject to currency transaction and translation risk.

The fluctuation of the US dollar in relation to the Canadian dollar will consequently impact the loss of the Company and also affect the value of the Company’s assets and the amount of shareholders’ equity.

Comparative foreign exchange rates are as follows:

December 31, 2008 March 31, 2008

US Dollar to CDN Dollar 1.2246 1.0279

The Company has not entered into any agreements or purchased any foreign currency hedging arrangements to hedge possible currency risks at this time.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

December 31, 2008 and 2007

(Unaudited – see Notice to Reader dated February 12, 2009)

14. CAPITAL DISCLOSURES

The Company considers the items included in Shareholders’ Equity as capital. The Company currently has no debts or significant financial commitments. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue new business opportunities and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or adjust the amount of cash and short term investments.

As at December 31, 2008, the shareholders’ equity was approximately $ 1.7 million (March 31, 2008: $ 5.2 million). Approximately 71% or $1.2 million was held in short term investments (March 31, 2008: $3.6 million or 69%) and the balance was held in cash. Absence of any external debts ensures the Company’s continued financial strength.

The Company is not subject to any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital.

The Company expects its current capital resources will be sufficient to carry its business plans and operations through its current operating period.

15.	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"). Which are not materially different from principles, practices and methods used in the United States ("US GAAP") and in SEC Regulation S-X.

Future U.S. accounting policy changes

There were no new accounting developments in the US standards that would affect the results of operations or financial position of the Company other than those detailed in the audited consolidated financial statements for the year ended March 31, 2008.

16.	PRIOR PERIOD COMPARATIVES

Certain prior period comparatives have been restated to conform to the current presentation.

- 20 -

mda_3q.htm

BONTAN CORPORATION INC.

QUARTER ENDED DECEMBER 31, 2008

MANAGEMENT’S DISCUSSION AND ANALYSIS

Prepared as at February 12, 2009

Index

Overview 2

Business Environment &# 160; 3

Results of Operations 5

Liquidity and Capital Resources 10

Key Contractual Obligations 12

Off Balance Sheet arrangements 13

Transactions with related parties & #160;

Financial and derivative instruments 14

New accounting policies 15

Critical accounting estimates 16

Disclosure controls and procedures 17

Internal controls over financial reporting 17

Public securities filing 18

- 1 -

Management Discussion and Analysis

The following discussion and analysis by management of the consolidated financial condition and financial results for Bontan Corporation Inc. for the three months ended December 31, 2008 should be read in conjunction with the unaudited Consolidated Financial Statements for the three and nine months ended December 31, 2008, unaudited Consolidated Financial Statements and Management Discussion & Analysis for the six months ended September 30, 2008 and the audited Consolidated Financial Statements and Management Discussion and Analysis for the year ended March 31, 2008. The financial statements and the financial information herein have been prepared in accordance with generally accepted accounting principles in Canada as applicable to interim financial statements. 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.

This management discussion and analysis is prepared by management as at February 12, 2009. The Company’s auditors have not reviewed it.

In this report, the words “us”, “our”, “the Company” and “Bontan” have the same meaning unless otherwise stated and refer to Bontan Corporation Inc. and its subsidiary.

Overview

Nature of the Business

Bontan was incorporated under the laws of the province of Ontario, Canada and its shares are publicly traded on the Over The Counter Bulletin Board of NASDAQ under the symbol “BNTNF”. Bontan was a diversified oil and gas exploration company until the fiscal year 2007. However, since writing off its working interest in an exploratory test well in Louisiana in September 2007, the Company has not been able to secure another project which would satisfy its selection criteria. The Company has now extended its search for a new project in all sectors. The Company currently has no active projects on hand.

Summary of Results

During the quarter ended December 31, 2008, the management continued to look for suitable projects to participate into. The project proposals received during the quarter included those relating to technology sector and agricultural sector – none except one met with our minimum acceptable criteria. The one proposal in technology sector is currently being pursued actively.

Meanwhile, the surplus cash on hand continued to remain invested in short-term marketable securities.

- 2 -

The following table summarizes financial information for the 3rd quarter ended December 31, 2008 and the preceding seven quarters: ( All amounts in ‘000 CDN$ except Net income(loss) per share, which are actual amounts)

Quarter ended	31-Dec		30-Sep		Jun-30		Mar-31		Dec. 31		30-Sep		Jun-30		Mar-31
	2008								2007
Total Revenue	$	1	$	9	$	193	$	156	$	18	$	25	$	123	$	499
Net (loss) income		(276)		(127)		(209)		23		(170)		(253)		(172)		309
Working capital		1,694		3,164		6,231		5,174		5,692		6,453		6,907		6,625
Shareholders equity		1,705		3,175		6,237		5,180		5,694		6,455		6,907		6,624
Net loss per share - basic and diluted	$	(0.01)	$	0.00	$	0.00	$	0.00	$	(0.01)	$	(0.01)	$	(0.01)	$	0.00

Number of common shares, options and warrants

These are as follows:

	As at December 31, 2008 and February 12, 2009
Shares issued and outstanding	29,820,743
Warrants issued and outstanding ( a)	12,846,420
Options granted but not yet exercised (b)	4,825,000

(a)	Warrants were convertible into equal number of common shares of the Company at average exercise price of US$0.35. These warrants have weighted average remaining contractual life of 0.47 year at December 31, 2008.

(b)	Options are exercisable into equal number of common shares at an average exercise price of US$0.15 and have a weighted average remaining contractual life of 2.02 years.

Business Environment

Risk factors

Please refer to the Annual Report in the form F-20 for the fiscal 2008 for detailed information as the economic and industry factors that are substantially unchanged.

Forward looking statements

Certain statements contained in this report are forward-looking statements as defined in the U.S. Federal Securities Laws. All statements, other than statements of historical facts, included herein or incorporated by reference herein, including without limitation, statements regarding our business strategy, plans and objectives of management for future operations and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates” or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that such forward-looking statements will prove to be correct.

- 3 -

Each forward-looking statement reflects our current view of future events and is subject to risks, uncertainties and other factors that could cause actual results to differ materially from any results expressed or implied by our forward-looking statements.

Risks and uncertainties include, but are not limited to:

·	Our lack of substantial operating history;

·	The success of the exploration prospects, in which we have interests;

·	Uninsured risks;

·	The impact of competition;

·	The enforceability of legal rights;

·	The volatility of oil and gas prices;

·	Weather and unforeseen operating hazards;

Important factors that could cause the actual results to differ materially from our expectations are disclosed in more detail set forth under the heading “Risk Factors” in the annual report for fiscal 2008. Our forward-looking statements are expressly qualified in their entirety by this cautionary statement.

Currently we do not hold interests in any exploration projects and have no reserves as defined in Canadian National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101").

Business plan

The Company’s primary business plan is now focused on becoming an international diversified company that invests in major projects or businesses in all sectors.

Through its wholly owned subsidiary, the Company will continue to seek highly visible opportunities in countries around the globe that offer exciting and attractive propositions. The company will seek to minimize risk by bringing in either joint venture, carried or working interest partners, depending on the size and scale of the project.

The company’s efforts at securing any project which meets our criteria have not yet been rewarded but the management is convinced that the current downturn in economy on a worldwide scale may offer opportunity to participate in viable projects at a very competitive prices and terms. We are currently pursuing one business opportunity which we believe may have good growth potential.

- 4 -

Results of operations

Three months ended December 31	2008	2007
	in 000' CDN $	in 000' CDN $
Income	(150)	1
Expenses	(126)	(171)
Net loss for year	(276)	(170)
Deficit at end of period	(33,069)	(32,670)

Overview

The following were the key activities in the quarter ended December 31, 2008:

1.	The management continued its efforts at acquiring a suitable business venture and had reviewed several proposals without much success. However, it has focused on one business proposal where negotiations and due diligence are currently continuing.

2.	Deteriorating market conditions affected all our short term investments which eroded further in their values. We disposed of some of these holdings at a loss since their market prices presented least chances of recovery in the near future.

3.	In December 2008, the board of directors of the Company approved several key matters:

a. A private placement to raise up to US$ 500,000 through issuance up to ten million units at US$0.5 comprising one common share of the Company and one warrant which can be converted into one common share at an exercise price of US$0.10 each within two years. The private placement notices were sent to the previous private placement participants and to date no subscription has been received. The Company plans to keep the private placement open for another month.

b. The expiry date for 11,124,460 warrants issued in connection with 2006 private placement has been extended by another six months and exercise price lowered to US$ 0.25 from US$ 0.35.

c. The expiry date of 4,825,000 options allowed to management, consultants and directors has been extended by one year and option price reduced to US$0.15 from an average of US$0.46.

All the above changes were made in response to deteriorating economic and market conditions which would make it almost impossible to attract further equity financing at original prices since average market price of the Company’s common shares remaining at around US$0.05 with very limited liquidity through most of the period.

- 5 -

d. Two of the consultants of the Company who were originally issued common shares in lieu of cash for their services were allowed to return some or all of their shares for cancellation and instead they were to be paid in cash. Only one of them has returned shares so far.

The following were the key events during the three months ended December 31, 2007:

1.	We reviewed and discussed five projects – two related to oil and gas explorations, one in health care industry, one in computer hardware and one in coal development. However, our efforts were unsuccessful.

In December 2007, the Board of Directors approved a supplementary 2007 Consultant stock compensation plan to cover one million additional common shares under the Plan. The Plan was registered by way of filing of form F-3 with US Securities and Exchange Commission on December 12, 2007. Total common shares now registered under 2007 Plan are 2.5 million of which 1,350,000 common shares have yet to be issued under the Plan. These shares are usually issued to consultants in lieu of their fees in order to save the Company’s funds for projects.

3.	The surplus funds meanwhile continued to be invested in short term marketable securities. Approximately $4.5 million remained invested in marketable securities. The fair value of these investments at December 31, 2007 was $4.1 million.

Income

Three months ended December 31	2008	2007
	in 000' CDN $	in 000' CDN $
Interest	1	18
Losses on disposal of short term investments	(151)	(16)
	(150)	1

Interest income during the quarters ended December 31, 2008 and 2007 related to interest earned on cash balances with brokerage firms. Average cash holdings during the December 2008 quarter were $400,000 versus cash holding of approximately $1 million during the December 2007 quarter. Further interest rates allowed on deposits went down by over a percentage since 2007 which explains significant decline in the interest income.

- 6 -

Gains and losses on disposal of short term investment were realized on disposal of short term investments. Losses during the 2008 quarter were mainly attributed to sales of two securities which generated losses of approximately $159,000. Management did not believe that prices of these securities would improve in the near future and that holding them further would only result in more losses. it was therefore considered prudent to cut our losses now.

Expenses

The overall analysis of the expenses is as follows:

Three months ended December 31,	2008		2007
	in 000$
Operating expenses	$	154	$	94
Consulting fees settled for common shares		64		78
Exchange gains		(92)		(1)

	$	126	$	171

Operating Expenses

Three months ended September 30	2008		2007
	in 000$
Travel, meals and entertainment	$	12		21
Consulting		66		17
Payroll		12		-
Shareholders' information		40		30
Other		24		26

	$	154		94

Travel, meals and entertainment

These expenses mainly related to travel and local entertainment incurred by the key consultant, Mr. Terence Robinson in meeting and exploring new business opportunities and dealing with key shareholders and prospective investors.

During the quarter ended December 31, 2008, there was no significant travelling.

Majority of expenses for the quarter ended December 31, 2007 related to his trip to New York in October 2007 to meet with business prospects re coal mining projects. He also met with some of the venture funds managers , who could be potential investor in the Company if we could acquire interest in right projects.

- 7 -

Consulting and payroll costs

Consulting fee for the quarter ended December 31, 2008 included a provision for $60,000 payable to Mr. terence Robinson as cash fee for the six months ended December 31, 2008 in lieu of 275,000 common shares , previously issued under Consultant compensation plan , being returned by him for cancellation as approved by the Board of Directors of the Company in December 2008.

The administrative assistant was hired as an employee in May 2008 for the first time. The payroll reflected the salary and related expenses in connection with this position. In prior periods, administrative work used to be carried out by a contract person.

Shareholder information

Shareholder information costs comprise investor and media relations fee, costs of holding annual general meeting of the shareholders and various regulatory filing fees.

Major cost for the three months ended December 31 2008 and 2007 consisted of fees for the media relation and investor relation services provided by Current Capital Corp. under contracts dated July 1, 2004, which are being renewed automatically unless canceled in writing by a 30-day notice for a total monthly fee of US$10,000. Current Capital Corp., is a related party. Fees for 2008 quarter were $34,785 versus $29,568 for the 2007 quarter. The difference is due to unfavourable exchange rates between US and Canadian dollar.

The management believes that such services are essential even in the current periods when the Company does not have any active business. In fact, these services are more vital to ensure our existing shareholder base and prospective investors/brokers and other interested parties are constantly kept in contact and their comments and concerns are brought to the attention of the management on a timely basis.

Other operating costs

These costs include rent, professional fee, telephone, Internet, transfer agents fees and other general and administration costs.

Increase in rent cost was off set by decrease in telecommunication and other costs and as a result, these costs, as a whole, did not change significantly.

Rent increased from $1,427 for the quarter ended December 31, 2007 to $4,267 for the quarter ended December 31, 2008. Effective April 1, 2008, the Company subleased larger premises from Current Capital Corp – from approximately 300 sq. ft. to 1,000 sq. ft. to allow for rooms for meeting and visitors. This would enable the management to meet prospective investors, shareholders, business partners, auditors and other visitors in the office rather than outside in a restaurant and achieve further savings in related entertainment expenses.

- 8 -

The following were significant changes in other operating costs in 2007 period compared to 2006 period:

a.	During the quarter ended December 31, 2007, cost of directors and officers insurance premium of $4,292 was incurred, The previous year’s quarter had cost of $2,804 since the insurance was obtained only in November 2006 and covered part of the quarter.

d.	Effective April 1, 2007, audit fee has been accrued on a quarterly basis based on an estimated annual fee of $25,000. Thus, a fee of $6,250 was accrued for the quarter ended December 31, 2007. In fiscal 2007 and prior years, audit fee used to be accrued at the year end and not on a quarterly basis.

c.	During the quarter ended December 31, 2006, the Company paid fee of $2,620 to an accounting firm for preparation and filing of US tax returns. This cost was not recurred in the quarter ended December 31, 2007 since the US tax returns were compiled and filed in-house.

d.	During the quarter ended December 31, 2006, legal fees of approximately $8,000 were incurred on preparation and filing of a prospectus to remove legends from shares and warrants relating to the private placement. No such costs were incurred during the quarter ended December 31, 2007.

All other costs remained consistent.

Consulting fees settled for Common Shares

Three months ended December 31,	2008		2007
	in 000$
Stocks	$	62	$	78
Options	$	2	$	-
	$	64	$	78

Stock based compensation is made up of 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. Value of stock compensation expense related the services rendered during the quarter, essentially by three consultants – Mr. Kam Shah, the executive and financial officer, Mr. Terence Robinson, the key consultant and Mr. John Robinson. Value of option expensed related to the services provided during the quarter by the two independent directors in their capacity as audit committee members.

During the 2008 quarter, Mr. Terence Robinson returned 275,000 shares previously issued as compensation for cancelation and instead requested cash payment. This request was accepted by the directors of the Company. The shares were valued at $16,500 for cancelation purposes based on the market price on the date of return.

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Originally these shares were valued at $64,395. The difference of $47,895 was charged to consulting fee.

During the quarters ended December 31, 2008 and 2007, no new Plans were created. However the company still has 950,000 unalloted options from the 2005 Stock Option Plan.

Exchange Losses (gains)

Exchange losses and gains related to translation losses and gains arising from converting foreign currency balances, mainly in US dollar, into Canadian dollar, which is the reporting unit of currency, on consolidation.

The Company’s treasury transactions – issuance of shares, exercise of warrants and options are in US dollar. Similarly, approximately 5% cash and short term investments are in US dollars.

Canadian dollar weakened significantly against US dollar during the quarter ended December 31, 2008 by approximately 16% from $1.059 Canadian per US Dollar as at September 30, 2008 to $1.2246 Canadian per US Dollar at December 31, 2008. This resulted in a capital gain of approximately $92,000 for the quarter.

During the quarter ended December 31, 2007, exchange rate between Canadian dollar and US dollar did not fluctuate much and remained at around CDN$0.99 to US$1. As a result, exchange difference on translation at the end of the quarter was insignificant.

Liquidity and Capital Resources

Working Capital

As at December 31, 2008, the Company had a net working capital of approximately $1.7 million compared to a working capital of $5.2 million as at March 31, 2008.

94% of the working capital – approximately $1.6 million – at December 31, 2008 was in the form of cash and short term investments compared to 94% at March 31, 2008.

Significant decline in the working capital was due to accounting for unrealised losses on short term investments of approximately $1.2 million on application of fair value based on market price as at December 31, 2008. This is further detailed under investment cash flow section below.

Cash on hand as at December 31, 2008 was $0.5 million compared to $1.3 million as at March 31, 2008.

Sudden deterioration in the market condition has severely affected the Company’s working capital base. Management however expects that its existing cash position will enable it to meet its operating needs for the near future and to wait until the market value of its available for sale investments improves.

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Near the end of December 2008, the Company launched a new equity fund raising through a private placement of up to US$ 500,000 to strengthen its working capital. As of the date of this report, no subscription has been received under this private placement.

Operating cash flow

During the quarter ended December 31, 2008, operating activities required net cash outflow of $42,222 compared to the net cash outflow of $94,588 during the quarter ended December 31, 2007.

Operating cash requirements were met primarily through cash on hand.

Investment cash flows

During the three months ended December 31, 2008, the Company invested approximately $521,000 in short term marketable securities while realised approximately $470,000 from the disposal of such securities, which were reinvested. Net additional investments were funded from the available cash on hand.

As a result, the Company had short term investments at a carrying cost of approximately $5.5 million as at December 31, 2008 – of which $5.2 million or 95% was held in Canadian currency and the balance 5% was held in US currency. Approximately 95% of the investments were in 26 public companies while 5% was invested in three private companies.

As at December 31, 2008, the Company held investments with a fair value of $1.2 million as compared to $3.6 million at March 31, 2008, a 67% decrease. The cost base of the Company’s portfolio was $5.5 million as at December 31, 2008 as compared to $4.9 million as at March 31, 2008. As such, the cost of investments exceeded fair value by $4.3 million as at December 31 2008 compared to $1.3 million at March 31, 2008. The decrease reflected unrealized losses in the current period from the restatement to

market of the Company’s investments as at December 31, 2008.

The amounts at which the Company’s publicly-traded investments could be disposed of currently may differ from fair values based on market quotes, as the value at which significant ownership positions are sold is often different than the quoted market price due to a variety of factors such as premiums paid for large blocks or discounts due to illiquidity.

As at December 31, 2008, included in total investments were securities of private companies with a fair value totaling $nil (cost of $322,460) (March 31, 2008 – fair value of $302,790; cost of $302,790). The fair value of the private companies was determined in accordance with the Company’s accounting policy for private company investments.

These unrealised losses reduced the value of short term investment on the balance sheet and increased the accumulated other comprehensive losses, forming part of the shareholders’ equity by the same amount.

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The following is a major composition of the short term investments:

Investment	December 31, 2008						March 31, 2008
	# of Common shares		Cost		Fair value		# of Common shares		Cost		Fair value
Marketable Securities
Brownstone Ventures Inc.		1,226,700	$	1,837,956	$	466,146		1,266,800	$	1,929,049	$	1,140,120
Roadrunner Oil & Gas Inc.		1,507,500	$	625,148	$	143,213		730,000	$	330,867	$	386,900
24 ( 29 at march 31, 2008)other public companies - mainly in Resource sector			$	2,748,356	$	581,666			$	2,377,822	$	1,803,950
			$	5,211,460	$	1,191,025			$	4,637,738	$	3,330,970
Non-marketable securities
Cookee Corp.		1,000,000	$	200,000	$	-			$	200,000	$	200,000
2 other private companies			$	105,990	$	-			$	102,790	$	102,790
			$	305,990	$	-			$	302,790	$	302,790

			$	5,517,450	$	1,191,025			$	4,940,528	$	3,633,760

Management believes that the reduction in fair value of the above investments due to application of mark to market accounting rules is temporary and is a direct effect of the adverse current market conditions in the resource sector in general. The fundamentals of the investee corporations are strong in terms of their financial and portfolio strength. Management has therefore concluded that no provision for any permanent loss in the carrying cost was necessary at December 31, 2008.

Financing cash flows

During the three months ended December 31, 2008 and 2007, there was no additional financing activity.

However, on December 12, 2008, the directors of the Company approved a private placement to raise equity funds of up to US$500,000. The private placement comprises issuance up to ten million units at US$0.05 each, being the prevailing market price, each unit consists of one common share and one warrant exercisable at US$0.10 within two years of its issuance. The private placement was considered necessary to improve the Company’s liquidity and holding ability so that it may be able to gain higher values for its investments once the current market conditions improve.

Up to the date of this report, the Company has not yet received any subscription under its private placement.

Key Contractual Obligations

These are detailed in Note 10 – commitments and contingent liabilities to the consolidated unaudited financial statements for the nine months ended December 31, 2008.

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Off Balance Sheet Arrangements

At December 31, 2008 and 2007, the Company did not have any off balance sheet arrangements, including any relationships with unconsolidated entities or financial partnership to enhance perceived liquidity.

Transactions with Related Parties

Given below is background information on some of the key related parties and transactions with them:

1. Current Capital Corp. (CCC). CCC is a related party in following ways –

(a) Director/President of CCC, Mr. John Robinson is a consultant with Bontan.

(b)

CCC provides media and investor relation services to Bontan under a consulting contract.

(c)

Chief Executive and Financial Officer of Bontan is providing services to CCC as CFO.

(d) CCC and John Robinson hold significant shares, options and warrants in Bontan.

Bontan shares premises with CCC for which CCC charges rent on a quarterly basis based on the actual costs and area occupied. Charges from CCC reflect actual costs and do not include any mark ups.

Another charge from CCC relates to the investor relations and media relation services provided under a contract. The charge is a fixed sum of US$10,000 per month plus taxes.

CCC also charged a finder’s fee at the rate of 10% of the gross money raised for the Company through issuance of shares and warrants under private placements.

Mr. Kam Shah is a director of the Company and also provides services as chief executive and financial officer under a five-year contract. The compensation is decided by the board on an annual basis and is usually given in the form of shares and options.

Mr. 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 advises the board in the matters of shareholders relations, fund raising campaigns, introduction and evaluation of investment opportunities and overall operating strategies for the Company.

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Financial and derivative Instruments

We are exposed to financial market and credit risks on investments, liquidity risk and foreign currency exchange rates. We do not use derivative financial instruments.

Financial Market and credit Risks

At December 31, 2008 we had invested approximately $5.5 million (March 31, 2008: $4.9 million) in short-term marketable securities. Approximately 44% (48% as at March 31, 2008) of this investment is in common shares of two Canadian listed and traded corporations.

Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate because of changes in market prices. The Company is exposed to market risk in trading its short term investments, and unfavourable market conditions could result in dispositions of investments at less than favourable prices.

The Company is also exposed, in the normal course of business, to credit risk form the sale of its investments.

A fundamental objective of our investment policy is to obtain better than bank interest return on the surplus funds being held while we review and finalize opportunities for participation in viable business projects. Our investments are mostly in marketable securities quoted and traded on Canadian or US exchanges. We have consultants with extensive experience monitoring our investments on a daily basis. Most of our investments are in oil and gas resource industry.

Liquidity Risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s liquidity and operating results may be adversely affected if the Company’s access to the capital markets is hindered, whether as a result of a downturn in stock market conditions generally or related to matters specific to the Company, or if the value of the Company’s investments declines, resulting in losses upon disposition. The Company generates cash flow primarily from its financing activities and proceeds from the disposition of its investments, in addition to interest earned on its cash balances.

The Company has sufficient cash on hand to meet its operating requirements for the near future. However, if the Company decides to participate in a business project and is unable to raise further equity funds, it may have to either dispose of some of its investments at a significant loss under the current capital market or borrow against it at a higher interest cost or forgo the business opportunity.

The Company does not trade on margins.

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Foreign Currency Risk

The majority of our expenditures is in Canadian dollars. As at December 31, 2008; approximately $94,000 – 5% - of our assets were held in US dollar. (As at March 31, 2008: $1.2 million or 23%). We had a foreign exchange gain of $92,102 for the three months ended December 31, 2008 (see Results of Operations – Exchange losses (gains) above). The decrease in value of the Canadian dollar as compared to the United States dollar resulted in an exchange gain as our US dollar assets were converted at a higher Canadian dollar value.

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, since our subsidiary is fully integrated to the Company.

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.

New Accounting Policies

Capital disclosures and financial instruments – disclosures and presentation

April 1, 2008, the Company adopted three new accounting standards introduced by Canadian Institute of Chartered Accountants: Capital Disclosures (Handbook Section 1535), Financial Instruments – Disclosures (Handbook Section 3862), and Financial Instruments – Presentation (Handbook Section 3863).

Capital disclosures

Handbook Section 1535 specifies the disclosure of (i) an entity’s objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such noncompliance. The Company has included disclosures recommended by the new Handbook section in Note 14 to the unaudited consolidated financials for the nine months ended December 31, 2008.

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Financial instruments

Handbook Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments – Disclosure and Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The Company has included disclosures recommended by the new Handbook section in Note 13 to the unaudited consolidated financials for the nine months ended December 31, 2008.

Future Accounting Changes

International financial reporting standards (“IFRS”)

In January 2006, the Accounting Standards Board ("AcSB") formally adopted the strategy of replacing financial reporting under Canadian GAAP with financial reporting under IFRS, for Canadian enterprises with public accountability. The current conversion timetable calls for financial reporting under IFRS for accounting periods commencing on or after January 1, 2011.

On February 13, 2008, the AcSB confirmed that the use of IFRS will be required in 2011 for publicly accountable for-profit enterprises. Financial reporting under IFRS will be required for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company is currently assessing the impact of IFRS on its consolidated financial statements.

Goodwill and intangible assets

In October 2007, the CICA approved Handbook Section 3064, “Goodwill and Intangible Assets” which replaces the existing Handbook Sections 3062, “Goodwill and Other Intangible Assets” and 3450 “Research and Development Costs”. This standard is effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008, with earlier application encouraged. The standard provides guidance on the recognition, measurement and disclosure requirements for goodwill and intangible assets. The Company does not expect that this standard will have a significant impact on its consolidated financial statements.

Critical accounting estimates

The Company’s unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada. The significant accounting policies used by the Company are same as those disclosed in note 2 to the consolidated financial statements for the year ended March 31, 2008. Certain accounting policies require that the management make appropriate decisions with respect to estimates and assumptions that affect the assets, liabilities, revenue and expenses reported by the Company. The Company’s management continually reviews its estimates based on new information, which may result in changes to current estimated amounts.

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There were no major changes in the accounting policies during the three months ended December 31, 2008.

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in filings made pursuant to Multilateral Instrument 52-109 and as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the applicable regulatory bodies’ rules and forms.

Our management, including our Chief Executive Officer, who also acts as Chief Financial Officer, together with the members of our audit committee, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer has concluded that our disclosure controls and procedures were effective in relation to the level and complexity of activities in our Company as of the end of the period covered by this report.

Internal Controls over Financial Reporting

The Company has designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of the company’s financial reporting and the preparation of financial statements in compliance with Canadian generally accepted accounting principles.

The Company’s Chief Executive Officer and Chief Financial Officer are also responsible for the design of internal controls required in order to provide reasonable assurance that processes used for preparation of financial statements and financial reporting for external purposes are reliable and in accordance with Canadian GAAP. They have evaluated the design of our internal controls and procedures over financial reporting as of the end of the period covered by this report and believe the design to be sufficient to provide such reasonable assurance.

Regardless of how well an internal control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will prevent or detect all misstatements, due to error or fraud, from occurring in the financial statements due to the inherent limitations of any internal control system.

There were no changes in the company’s internal controls over financial reporting that occurred during the three months ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

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Public securities filings

Additional information, including the Company’s annual information form in the Form 20-F annual report is filed with the Canadian Securities Administrators at www. Sedar .. com and with the United States Securities and Exchange Commission and can be viewed at www. Edgar. com

certceo_3q.htm

Form 52-109F2

Certification of Interim Filings – Full Certificate

I, Kam Shah, Chief Executive Officer of Bontan Corporation Inc. certify the following:

1.	Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of Bontan Corporation Inc. (the “issuer”) for the interim period ended December 31, 2008.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair Presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings:

a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:

i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are begin prepared; and

ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1	Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Bontan Corporation Inc. – policies and procedures.

5.2 N/A

5.3 N/A

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any changes in the issuer’s ICFR that occurred during the period beginning on October 1, 2008 and ended on December 31, 2008 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: February 12, 2009

Kam Shah

Chief Executive Officer

certcfo_3q.htm

Form 52-109F2

Certification of Interim Filings – Full Certificate

I, Kam Shah, Chief Financial Officer of Bontan Corporation Inc. certify the following:

1.	Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of Bontan Corporation Inc. (the “issuer”) for the interim period ended December 31, 2008.

5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings:

a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:

i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are begin prepared; and

5.1	Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Bontan Corporation Inc. – policies and procedures.

5.2 N/A

5.3 N/A

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any changes in the issuer’s ICFR that occurred during the period beginning on October 1, 2008 and ended on December 31, 2008 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: February 12, 2009

Sd: Kam Shah

Kam Shah

Chief Financial Officer