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Bontan Corporation Inc.

Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2009 and 2008

(Canadian Dollars)

(UNAUDITED – see Notice to Reader dated November 20, 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	8-22

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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 six months ended September 30, 2009 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.

November 20, 2009

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Bontan Corporation Inc.

Consolidated Balance Sheets

(Canadian Dollars)

(Unaudited – see Notice to Reader dated November 20, 2009)

	Note		September 30, 2009		March 31, 2009
					(Audited)
Assets
Current
Cash			$	239,789	$	352,958
Short term investments	3,12(vi) & (vii)			1,306,187		1,091,563
Prepaid consulting services		5		-		20,484
Other receivables	12(viii)			99,692		118,508

			$	1,645,668	$	1,583,513
Office equipment and furniture		4	$	8,405	$	9,434
			$	1,654,073	$	1,592,947
Liabilities and shareholders' equity
Current liabilities
Accounts payable		12(v)	$	60,920	$	96,544
Audit and consulting fees accrued				21,576		55,474
Total current liabilities			$	82,496	$	152,018
Shareholders' Equity
Capital stock		6	$	32,808,349	$	32,854,075
Warrants		8		2,251,652		2,192,927
Contributed surplus				4,154,266		4,154,266
Accumulated other comprehensive loss				(3,338,649)		(4,425,018)
Deficit				(34,304,041)		(33,335,321)
				(37,642,690)		(37,760,339)
Total shareholders' equity			$	1,571,577	$	1,440,929
			$	1,654,073	$	1,592,947

Commitments and Contingent Liabilities (Note 11)
Related Party Transactions (Note 12)

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 November 20, 2009)

			Three months ended		Six months ended		Three months ended			Six months ended
	Note		September 30, 2009				September 30, 2008
Income
Gain on disposal of short term investments				(542,096)		(539,277)	$	7,379		$	195,928
Interest				-		-		1,958			5,909

				(542,096)		(539,277)		9,337			201,837
Expenses
Consulting fees		10,12(v)		111,264		197,612		86,505			197,614
Payroll				10,203		21,720		9,872			15,303
Travel, meals and promotions				16,870		37,658		11,653			31,622
Shareholders information		12(i)		34,679		71,917		34,041			64,500
Exchange loss				21,742		44,762		(33,704	)		(17,968)
Professional fees				8,592		18,873		9,862			14,011
Office and general				8,446		17,709		7,081			23,282
Bank charges and interest				285		815		746			1,297
Communication				2,704		6,069		4,256			7,490
Rent	12(ii)			4,504		9,370		4,150			8,589
Amortisation				515		1,030		507			882
Transfer agents fees				1,183		1,908		1,122			2,191
				220,987		429,443		136,091			348,813
Net loss for period				(763,083)		(968,720)		(126,754)			(146,976)

Basic and diluted loss per share information
Net Loss per share		9	$	(0.02)	$	(0.03)	$	(0.00)		$	(0.00)

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 November 20, 2009)

	Note		September 30, 2009					September 30, 2008
Cash flows from operating activities
Net loss for year				(763,083)			(968,720)	$	(126,754)	$	(146,976)
Amortization of office equipment and furniture				515			1,030		507		882
Loss(Gain) on disposal of short term investments				542,096			539,277		(7,379)		(195,928)
Consulting fees settled for common shares		5		20,804			41,288		80,999		161,955
Net change in working capital components
Other receivables				(10,611)			18,816		(34,716)		(10,069)
Accounts payable				(69,332)			(35,624)		(154)		(7,063)
Audit and consulting fees accrued				(45,677)			(33,898)		(18,749)		(15,236)
			$	(325,288)		$	(437,831)	$	(106,246)		(212,435)
Investing activities
Purchase of office equipment and furniture				-			-		(5,256)		(5,256)
Purchase of short term Investments				(87,115	)		(87,115)		(278,172)		(1,842,150)
Net proceeds from sale of short term investments				270,484			337,363		132,762		1,343,931
			$	183,369		$	250,248	$	(150,666)	$	(503,475)
Financing activities
Common shares issued net of issuance costs				74,414			74,414		-		-
			$	74,414		$	74,414	$	-	$	-
Decrease in cash during period				(67,505)			(113,169)		(256,912)		(715,910)
Cash at beginning of period				307,294			352,958		800,064		1,259,062
Cash at end of period				239,789			239,789	$	543,152	$	543,152
Supplemental disclosures

Non-cash operating activities
Consulting fees settled for common shares and	5						80,999		161,955
options and expensed during the period			20,804		41,288
Consulting fees prepaid in shares	5		-		-		123,941		123,941
		$	20,804	$	41,288	$	204,940	$	285,896

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 six months ended September 30, 2009

(Unaudited – see Notice to Reader dated November 20, 2009)

	Number of Shares		Capital Stock			Warrants		Contributed surplus		Accumulated Deficit			Accumulated other comprehensive loss		Shareholders' Equity
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
Issued under private placement		1,000,000		62,280					-							62,280
Finder fee				(6,228)												(6,228)
Value of warrants issued under private placement transferred to contributed surplus				(39,070)			39,070									-
Shares canceled		(275,000)		(64,395)												(64,395)
Options revaluation upon changes in the terms									76,839							76,839)
Net loss											(689,415)					(689,415)
Unrealised loss on short term investments net of tax considered available for sale														(3,118,250)		(3,118,250)
Balance, March 31, 2009		30,820,743	$	32,854,075		$	2,192,927	$	4,154,266	$	(33,335,321)		$	(4,425,018)	$	1,440,929
Unrealised gain on short term investments net of tax, considered available for sale														316,203		316,203
Net loss for the quarter											(205,637)					(205,637)
Balance, June 30, 2009		30,820,743	$	32,854,075		$	2,192,927	$	4,154,266	$	(33,540,958)		$	(4,108,815)	$	1,551,495
Shares canceled		(350,000)		(81,957	)											(81,957)
Issued under 2009 Consultant stock compensation plan		100,000		20,542												20,542
Issued under private placement		1,500,000		82,682												82,682
Finder's fee				(8,268)												(8,268)
Warrants issued under private placement				(58,725)			58,725									-
Unrealised gain on short term investments net of tax, considered available for sale														770,166		770,166
Net loss for the quarter											(763,083)					(763,083)
Balance, September 30, 2009		32,070,743	$	32,808,349		$	2,251,652	$	4,154,266	$	(34,304,041)		$	(3,338,649)	$	1,571,577

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 November 20, 2009)

	Note		Six months ended						Year ended March 31
			2009			2008			2009
			(Unaudited)			(Unaudited)			(Audited)
Net loss for period			$	(968,720	)	$	(146,976	)	$	(689,415	)
Other comprehensive loss
Unrealised gain(loss) for period on short term investments, net of tax considered available for sale		3		1,086,369			(1,858,291	)		(3,118,250	)
Comprehensive income(loss)				117,649			(2,005,267	)		(3,807,665	)

Accumulated other comprehensive loss
Beginning of period				(4,425,018	)		(1,306,768	)		(1,306,768	)
Other comprehensive income(loss) for period				1,086,369			(1,858,291	)		(3,118,250	)
Accumulated other comprehensive loss, end of period		3	$	(3,338,649	)	$	(3,165,059	)	$	(4,425,018	)

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

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 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.

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, 2009.

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, 2009 except as discussed below for the adoption of new accounting standards.

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

Goodwill and intangible assets

In February 2008, the Canadian Institute of Chartered Accountants (“CICA”) issued accounting standard Section 3064 “Goodwill, and intangible assets”, replacing accounting standard Section 3062 “Goodwill and other intangible assets” and accounting standard Section 3450 “Research and development costs”. Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of intangible assets and goodwill subsequent to its initial recognition. The new Section was applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted the new standards for its fiscal year beginning April 1, 2009. Adoption of this standard has no material impact on the Company’s consolidated financial statements.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

2. PRINCIPLES AND USE OF ESTIMATES - continued

Adoption of new accounting and disclosure policies

Credit risk and the fair value of financial assets and financial liabilities

Effective April 1, 2009, the Company adopted the recommendations of the Emerging Issues Committee Abstract EIC -173, “Credit Risk and the Fair Value of Financial Assets and Financial Liabilities” which states that an entity’s own credit and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities. These recommendations were particularly applied in evaluating the fair values of the short term investments.

Recent accounting pronouncements

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’s transition date of April 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ending March 31, 2011. The financial reporting impact of the transition cannot be reasonably estimated at this time.

The initial phase of implementation included conceptual application of the new rules, analysis of the Company’s accounting data and assessment of key areas that may be impacted. In this phase, short term investments were identified. The next phase will include the analysis of accounting policy alternatives available under IFRS as well as the determination of changes required to existing information systems and business processes.

Business combinations

In January 2009, the CICA issued the new handbook Section 1582, Business Combinations, effective for fiscal years beginning on or after January 1, 2011. Earlier adoption of Section 1582 is permitted. This pronouncement further aligns Canadian GAAP with US GAAP and IFRS and changes the accounting for business combinations in a number of areas. It establishes principles and requirements governing how an acquiring company recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree, and goodwill acquired. The section also establishes disclosure requirements that will enable users of the acquiring company’s financial statements to evaluate the nature and financial effects of its business combinations. Although the Company is considering the impact of adopting this pronouncement on the consolidated financial statements, it will be limited to any future acquisitions beginning in fiscal 2012.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

2. PRINCIPLES AND USE OF ESTIMATES - continued

Adoption of new accounting and disclosure policies

Consolidated financial statements and non-controlling interests

In January 2009, the CICA issued the new handbook Section 1601, Consolidated Financial Statements, and Section 1602, Non-controlling Interests, effective for fiscal years beginning on or after January 1, 2011. Earlier adoption of these recommendations is permitted. These pronouncements further align Canadian GAAP with US GAAP and IFRS. Sections 1601 and 1602 change the accounting and reporting for ownership interest in subsidiaries held by parties other than the parent. Non-controlling interests are to be presented in the consolidated statement of financial position within the entity but separate from the parent’s equity. The amount of consolidated net income attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statement of income. In addition, these pronouncements establish standards for a change in a parent’s ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. They also establish reporting requirements for providing sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. The Company is currently considering the impact of adopting these pronouncements on its consolidated financial statements in fiscal 2012 in connection with the conversion to IFRS.

3.	SHORT TERM INVESTMENTS

	September 30, 2009				March 31, 2009
	Carrying average costs		fair market value		Carrying average costs		fair market value
Marketable securities		4,933,238		1,306,187		5,253,571		1,091,563
Non-marketable securities		253,610		-		263,010		-
	$	5,186,848	$	1,306,187	$	5,516,581	$	1,091,563
Unrealised loss before tax			$	(3,880,661)			$	(4,425,018)
Movements in unrealised (loss)gain
At beginning of period				(4,425,018)			$	(1,306,768)
(loss)gain during period				1,086,369			$	(3,118,250)
At end of year			$	(3,338,649)			$	(4,425,018)

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

3.	SHORT TERM INVESTMENTS – continued

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 September 30, 2009. An unrealised gain of $1,086,369 for the six months ended September 30, 2009 was included in the consolidated statement of comprehensive loss and accumulated other comprehensive loss.

As at September 30, 2009, 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 $ $ 123,632 (March 31, 2009: $138,189) and the market value of the underlying securities was $ 40,788 as at that date (March 31, 2009: $ 34,509). 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 between November 2009 and April 2012.

b. Non-marketable securities

The Company held shares in two private corporations as at September 30, 2009, which are designated as “Available for sale”. 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 September 30, 2009 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 September 30, 2009 and March 31, 2009, the value of these investments was seriously affected due partly to the overall adverse market conditions and has therefore continued to value them at zero value.

4.	OFFICE EQUIPMENT AND FURNITURE

	Cost		accumulated amortisation		Net book value		Net book value
	As at September 30, 2009						March 31, 2009
							(Audited)
Office furniture		4,725		1,663		3,062		3,402
Computer		2,298		1,213		1,085		1,302
Software		5,256		998		4,258		4,730
	$	12,279	$	3,874	$	8,405	$	9,434

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 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:

	Balance at April 1, 2009		Deferred during period		Canceled during period		Expensed during period		Balance at September 30, 2009

Stocks		20,484		20,804		(81,957)		40,669		-
	$	20,484	$	20,804	$	(81,957)	$	40,669	$	-

	Balance at April 1, 2008		Deferred during the year		Canceled during the year		Expensed during the year		Balance at March 31, 2009
Options	$	7,878	$	76,839	$	-	$	(84,717)	$	-
Stocks		278,018		-		(64,395)		(193,139)		20,484
	$	285,896	$	76,839	$	(64,395)	$	(277,856)	$	20,484

	Balance at April 1, 2008		Deferred during period				Expensed during period		Balance at September 30, 2008
Options		7,878		-				(3,940)		3,938
Stocks		278,018		1				(158,016)		120,003
	$	285,896	$	1			$	(161,956)	$	123,941

(a)

In December 2008, the directors approved payment of fee in cash to two consultants upon their returning, for cancelation, common shares of the Company issued earlier in settlement of the said fee. One of the consultants, Mr. Terence Robinson returned his shares prior to March 31, 2009 and the other consultant, Mr. John Robinson returned, for cancelation, 350,000 in July 2009 and hence cash liability of $82,000 and related shares cancelation was accounted for by the Company during the quarter ended September 30, 2009.

(b)	The Company issued 50,000 common shares each to two new consultants whose services were hired with effect from September 1, 2009. The shares issued covered their fees for September 2009 and were valued at market price of the Company’s common shares on the date of issue.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

6. CAPITAL STOCK

(a) Authorized

Unlimited number of common shares

(b) Issued

	September 30, 2009				March 31, 2008
					(Audited)
	Common				Common
	Shares		Amount		Shares		Amount
Beginning of period		30,820,743	$	32,854,075		30,095,743	$	32,901,488
Canceled (note 5(a))		(350,000)		(81,957)		(275,000)		(64,395)
Issued under 2009 Consultant stock compensation plan (a)		100,000		20,542
Issued under private placement (b)		1,500,000		82,682		1,000,000		62,280
Finder's fee (b)		-		(8,268)				(6,228)
Value assigned to warrants issued under private placement (note 8(a) ( i))		-		(58,725)		-		(39,070)
		32,070,743	$	32,808,349		30,820,743	$	32,854,075

(a)

On April 7, 2009, the Company registered 2009 Consultant Stock Compensation Plan with Securities and Exchange Commission in a registration statement under the US Securities Act of 1933. 3 million common shares of the Company were registered under the Plan. No shares have yet been allocated under this Plan. During September 30, 2009, 100,000 common shares were issued to two consultants out of this plan in settlement of their fee for the month. These shares were valued at the market price of the common shares prevailing on the date of issue.

(b)

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. The units and underlying common shares and warrants have not been registered with SEC under the US Securities Act of 1933.

The board also approved a finder’s fee at 10% of the proceeds from the issuance of units and warrants attached thereto payable to Current Capital Corp., a related party (note 12).

During the three months ended September 30, 2009,, the Company received four subscriptions for a total of 1.5 million units. The total number of units subscribed as at September 30, 2009 was 2.5 million. The closing date for this private placement was revised to October 15, 2009 and the balance of 7.5 million units was subscribed by October 13, 2009.

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Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

7. STOCK OPTION PLANS

(a) The following is a summary of all Stock Option Plans as at September 30, 2009::

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 quarter ended September 30, 2009. The weighted average exercise price of the outstanding stock options is US$0.15 (March 31, 2009: $0.15, September 30, 2008: $0.46.)

	June30, 2009		March 31, 2009
Number of options oustanding and excercisable		4,825,000		4,825,000
Exercise price in US$		0.15		0.15
Weighted average remaining contractual life (years)		1.27		1.78

All options were fully vested immediately as at September 30 and March 31, 2009. 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.

- 14 -

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

WARRANTS

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

September 30, 2009						March 31, 2009
						(Audited)
# of warrants		Weighted average exercise price		Fair value		# of warrants		Weighted average exercise price		Fair value

	13,846,420		0.24		2,192,927		12,846,420		0.44		2,153,857
	1,500,000		0.10		58,725		1,000,000		0.1		39,070
	15,346,420		0.23		2,251,652		13,846,420		0.24		2,192,927

(i)

The company issued 1.5 million warrants under a 2009 private placement relating to Units subscribed during the current quarter as explained in Note 6(a). These warrants are convertible into equal number of common shares at an exercise price of US$0.10 per warrant and expire within two years of their issue.

The fair value of these warrants has been estimated using a Black-Scholes option price model with the following assumptions:

Risk free interest rate

Expected dividend

nil

Expected volatility

185%

Expected life

730 days

Market price

US$0.35

The fair value of the warrants as per the Black-Scholes option price model amounted to $475,353. Using the relative fair value method, an amount of $58,725 (87%) has been accounted for as reduction in value of shares and increase in value of warrants.

Option price models used for calculating fair value of warrants 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 measure of the fair value of the Company’s warrants.

- 15 -

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

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

		September 30, 2009				March 31, 2009
						(Audited)
		Warrants outstanding & excercisable				Warrants outstanding & excercisable
Exercise price in US$		Number		Weighted average remaining contractual life (years)		Number		Weighted average remaining contractual life (years)
	0.25		12,846,420		0.75		12,846,420		0.29
	0.10		2,500,000		1.75		1,000,000		1.88

	0.23		15,346,420		0.92		13,846,420		0.40

On June 4, 2009, the Board of Directors of the Company approved a further extension of the expiry date of 11,124,460 warrants issued as part of 2006 private placement and still outstanding by one year from their existing expiry dates. The fair value of these warrants was not recalculated due to this change.

On September 28, 2009, the Board of Directors of the Company approved a further extension of the expiry date of 1,721,960 warrants issued as part of 2003 private placement and still outstanding by nine months from their existing expiry dates. The fair value of these warrants was not recalculated due to this change.

9. LOSS PER SHARE

Loss per share is calculated on the weighted average number of common shares outstanding during the period, which were 30,912,410 shares for the six months and 31,004,076 for the three months ended September 30, 2009 (Six and three months ended September 30, 2008– 30,095,743).

The Company had approximately 15.3 million (September 30, 2008:12.8 million) warrants and 4.8 million options (September 30, 2008: 4.8 million) , which were not exercised as at September 30, 2009. 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.

- 16 -

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

10.	CONSULTING FEE

	Three months ended			Six months ended			Three months ended		Six months ended
	September 30, 2009						September 30, 2008
Fees settled in stocks and options (Note 5)		(61,772	)		(41,288	)		80,999		161,956
Fees settled for cash		173,036			238,900			5,506		35,658

	$	111,264		$	197,612		$	86,505	$	197,614

11. 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

(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. Mr. Shah was approved cash fee of $10,000 plus taxes per month for the year ending December 31, 2009 for his services. 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.

(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. On august 4, 2009, this contract was renewed for another five years effective April 1, 2009. The renewed contract provides for a fixed monthly fee of $10,000 plus taxes. The Consultant will also be entitled 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 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 provides 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. A new Consulting Contract was signed with Mr. John Robinson on July 1, 2009 for period to March 31, 2014. The Contract provides for a fixed monthly fee of $8,500 plus taxes. The Consultant will also be entitled to stock compensation and stock options under appropriate plans as may be decided by the board of directors from time to time.

- 17 -

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

11. COMMITMENTS AND CONTINGENT LIABILITIES - continued

(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 $ 371,000.

12. 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 six months ended September 30, 2009 and balances are at September 30, 2009. Comparative amounts are for the six months ended September 30, 2008 and balances as at September 30, 2008.

(i)	Included in shareholders information expense is $68,812 (2008 – $61,599) 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 $9,370 for rent (2008: $8,589).

(iii)

Business expenses of $9,879 (2008: $9,583) were reimbursed to directors of the corporation and $39,262 (2008 - $34,007) to a key consultant and a former chief executive officer of the Company.

(iv)	Consulting fees include cash fee paid to directors for services of $65,000 (2008: $ 25,000). Fees prepaid to a director $2,402 (2008: $ 2,168). Cash fee paid to key consultant and a former chief executive officer of the Company was $60,000 (2008: nil)

(v)	Accounts payable includes $21,999 (2008: $11,347) due to CCC, $13,000 (2008: $2,803) due to directors and $10,500 (2008: $2,723) due to a key consultant and a former chief executive officer of the Company.

(vi)	Included in short term investments is an investment of $200,000 (2008: $200,000) 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 September 30, 2009 (September 30, 2008: $nil)

(vii) Included in short term investments is an investment of $1,869,381 carrying cost and $710,435 fair value (2008:$1,833,966 carrying cost and $724,620 fair value) in a public corporation controlled by a key shareholer of he Company. This investment represents common shares acquired in open market or through private placemtns and represents les than 1% of the said Corporation.

(viii)

Included in other receivable is a fee advance of $70,000 made to a director. (2008: $ 40,000). The advance is repayable when the market price of the common shares of the Company stays at US$0.50 or above for a consecutive period of three months. These advances do not carry any interest.

(ix)	Finders fee of $ 8,268 (2008: $ nil) was accrued to CCC in connection with the private placement.

- 18 -

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

13. SEGMENTED INFORMATION

As at September 30 and March 31, 2009, 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, 2009.

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 September 30, 2009, March 31, 2009 and September 30, 2008.

14. 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 one brokerage firm. 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 reputationand all its assets are backed up by one of the major Canadian banks.

- 19 -

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

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

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 for several years 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. part of cash and short term investments are held in US dollars – approximately 4% of total assets at September 30, 2009 (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 may also affect the value of the Company’s assets and the amount of shareholders’ equity.

Comparative foreign exchange rates are as follows:

September 30, 2009 March 31, 2009

One US Dollar to CDN Dollar 1.0722 1.2602

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

- 20 -

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

15. 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 September 30, 2009, the shareholders’ equity was approximately $ 1.6 million (March 31, 2009: $ 1.4 million). Approximately 81% or $1.3 million was held in short term investments (March 31, 2009: $1.1 million or 79%) and the balance was held in cash. Absence of any external debts indicates the Company’s continued financial strength. In October 2009, the Company completed its private placement and raised an approximate additional $ 420,000.

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.

16.	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, 2009.

17.	SUBSEQUENT EVENTS

Subsequent events have been evaluated through November 6, 2009 when they were available to be issued.

Key events are as follows:

(a)	The Company completed its December 2008 private placement by October 13, 2009 and issued an additional 7.5 million Units for proceeds of $359,252 net of finder’s fee at 10% of $39,917.

- 21 -

Bontan Corporation Inc.

Notes to Consolidated Financial Statements

(Canadian Dollars)

September 30, 2009 and 2008

(Unaudited – see Notice to Reader dated November 20, 2009)

17.	SUBSEQUENT EVENTS - continued

(b)

The Company acquired on November 19, 2009, through its wholly owned subsidiary, Bontan Oil and Gas Corporation, an indirect 71.63% working interest in two drilling licenses and one exploration permit in the Levantine Basin, 40 kilometers off the West coast of Israel in the eastern Mediterranean (“Project Assets”). Petroleum License 347 (“Mira”) and Petroleum License 348 (“Sarah”) cover approximately 198,000 acres (803 sq. kilometers), and Petroleum Preliminary Permit 199 (“Benjamin”), covers approximately 461,000 acres (1,865 sq kilometers).

Bontan’s interest is held by its 75% equity interest in Israel Petroleum Company, LTD. (IPC). IPC has acquired an undivided 95.5% working interest in the Project Assets from a private company, subject to approval of the transfer by the Israeli Ministry of Infrastructure.

The consideration paid by Bontan in connection with the acquisition of its interest in IPC was a cash consideration of US$ 1,350,000, 8.6 million common shares and 22.8 million common share warrants. The warrants have a term of 5 years and are exercisable at US$4 per share. The private company retained a 3% overriding royalty in the Project Assets.

Bontan arranged for one-year loans of US$975,000 to cover part of the acquisition cost. The loans accrue interest at 10%, are payable without penalty at any time, and are secured by a minority portion of the shares in IPC. A total of 1.15 million common share warrants have been issued to the lenders as compensation for the loans. The warrants have a five year term and are exercisable at US $0.35 per share.

- 22 -

btn_mda2q10.htm

BONTAN CORPORATION INC.

THREE MONTHS ENDED SEPTEMBER 30, 2009

MANAGEMENT’S DISCUSSION AND ANALYSIS

Prepared as at November 20, 2009

Index

Overview 60; 3

Business environment 4

Results of operations 5

Liquidity and Capital Resources 9

Key contractual obligations 11

Off balance sheet arrangements 11

Transactions with related parties 11

Financial and derivative instruments 12

New accounting policies 13

Critical accounting estimates 14

Disclosure controls and procedures 14

Internal controls over financial reporting 15

Subsequent events 15

Public securities filing 16

- 1 -

Management Discussion and Analysis

The following discussion and analysis by management of the financial condition and financial results for Bontan Corporation Inc. for the three months ended September 30, 2009 should be read in conjunction with the unaudited Consolidated Financial Statements for the three and six months ended September 30, 2009, unaudited Consolidated Financial Statements and Management Discussion & Analysis for the three months ended June 30, 2009 and the audited Consolidated Financial Statements and Annual Report in Form F-20 for the year ended March 31, 2009. 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.

This management discussion and analysis is prepared by management as at November 20, 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

Summary of Results

During the three months ended September 30, 2009, the management remained primarily busy with negotiating a new deal involving certain licences and permit to explore oil and gas in an off shore location off the coast of Israel as explained further under subsequent events section of this report. The Company was also engaged in completing the private placement that it announced in December 2009. The placement was completed on October 15, 2009 – this is further explained later in this report. Further, during this quarter, the management disposed off several of its short term investments at a realised loss of $ 542,000. These investments showed declining value trend and were disposed off to avoid further decline in their values and focus more on other investments which showed signs of improvements as explained later in this report. As a result, at the end of the quarter, the Company had no exploration projects and had no proven reserves of oil or gas. We continue to seek opportunities into other sectors also.

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

The following table summarizes financial information for the quarter ended September 30, 2009 and the preceding seven quarters: (All amounts in ‘000 CDN$ except Net income (loss) per share, which are actual amounts)

Quarter ended	Sept. 30			June 30			Mar 31			Dec. 31			Sept.30			Jun-30			Mar-31		Dec. 31
	2009			2009			2009			2008			2008			2008			2008		2007
Total Revenue		(542	)		3			(150	)		1			9			193			156		18
Net (loss) income		(763	)		(206	)		(266	)		(276	)		(127	)		(20	)		23		(170	)
Working capital		1,564			1,542			1,432			1,694			3,164			6,231			5,174		5,692
Shareholders equity		1,572			1,552			1,441			1,705			3,175			6,237			5,180		5,694
Net loss per share - basic and diluted	$	(0.02	)	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	-		$	-		$	-	$	(0.01	)

- 2 -

Number of common shares, options and warrants

These are as follows:

	As at September 30, 2009 (a) & (b)	As at November 20, 2009
Common shares issued and outstanding	32,070,743	48,338,429
Warrants issued and outstanding	15,346,420	39,199,478
Options granted but not yet exercised	4,825,000	4,825,000

(a)	Warrants are convertible into equal number of common shares of the Company within two years of their issuance or a period as may be extended from time to time, at average exercise price of $0.23. These warrants have weighted average remaining contractual life of 0.92 years.

(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 approximately 1.27 years.

Business Environment

Risk factors

Please refer to the Annual Report in the form F-20 for the fiscal 2009 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. 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.

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;

- 3 -

Important factors that could cause the actual results to differ materially from our expectations are disclosed in more detail under the “Risk Factors” in our Annual report for fiscal 2009. 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"). All information contained herein regarding resources is references to undiscovered resources under NI 51-101, whether stated or not.

Business plan

The Company’s primary business plan has been expanded to cover projects not only in resource sector but in all other sectors given our inability to find any suitable projects in oil and gas exploration that could satisfy the Company’s business model. Most of the exploration projects that we reviewed so far were either technically highly speculative or not cost effective or demanded unreasonably higher acquisition price. However, during the three months ended September 30, 2009, we were able to commence negotiations on a lucrative deal involving acquisition of certain licences and permit to explore oil and gas properties in an off shore location off the coast of Israel. The project was finally negotiated successfully and we acquired 71.63% working interest in the said properties in November 2009, as explained later under subsequent events section.

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.

Results of operations

Three months ended September 30	2009	2008
	in 000' CDN $	in 000' CDN $
Income	(542)	9
Expenses	(221)	(136)
Net loss for period	(763)	(127)
Deficit at end of period	(34,304)	(32,793)

Overview

During the three months ended September 30, 2009, the main activities were as follows:

a.	Completing private placement to raise US$ 500,000 that was announced previously in December 2009. This was completed in October 2009.

b.	Reviewing various short term investments in our investment portfolio and disposing off significant portion of those investments which indicated declining values.

c.	Negotiating a new project involving certain licenses and permit to explore oil and gas in an offshore location off the coast of Israel in partnership with an experienced oil and gas company. The Company acquired 71.63% working interest in November 2009.

All the above events have been discussed further later in this report.

- 4 -

During the quarter ended September 30, 2008, the management mainly focused on completing the annual audit and filings of the audited financials and annual reports will Canadian and US regulatory authorities. We also completed and updated the Manual of Internal Controls over financial reporting for the Company and introduced certain procedures to formalize and document our on-going internal control processes.

During the period, we reviewed proposals relating to web development and mobile technology. These projects appeared expensive and more speculative and as a result were not pursued further.

Income

There was no revenue during the quarter ended September 30, 2009. Several short term investments were disposed of during this quarter resulting in a realized loss of approximately $542,000, which is explained below.

Income during the quarter ended September 30, 2008 consisted of interest of approximately $ 2,000 earned on cash balances with brokerage firms and balance reflected gains realized on disposal of short term investments.

Gains and Losses on disposal of short term investments

During the quarter ended September 30, 2009, management reviewed its short-term investment portfolio and identified several holdings whose market value remained depreciated for quite some time and shows no signs of any recovery in the near future. We therefore decided to dispose of these investments and focus on those whose values are likely to improve.

Twelve holdings form the portfolio having carrying cost of $832,010 were sold for total proceeds of $289,998, resulting in a loss of $542,012.

Expenses

The overall analysis of the expenses is as follows:

Three months ended September 30	2009	2008

Operating expenses	$ 77,778	$ 73,418
Consulting fee and payroll	121,467	96,377
Exchange loss (gain)	21,742	(33,704)

	$ 220,987	$ 136,091

Operating Expenses

Three months ended September 30	2009	2008

travel, meals and promotions	$ 16,870	$ 11,653
Shareholder information	34,679	34,041
Professional fees	8,592	9,862
Other	17,637	17,862

	$ 77,778	$ 73,418

Travel, meals and promotions

These expenses were substantially incurred by the key consultant, Mr. Terence Robinson and included his local club expenses and expenses on travels to meet his contacts in connection with new business proposals or to seek new potential investors for the Company.

During the three months ended September 30, 2009, Mr. Robinson visited Vancouver, New York and UK in connection with one business proposal and also to complete a private placement campaign.

2008 period expenses included approximately $5,500 in visiting Los Angeles and New York in connection with a networking conference.

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 consists of 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 shareholder Corporation where the Chief Executive and Financial Officer of the Company provide accounting services.

The minor differences in fee between the fiscal periods 2009 and 2008 were due to changes in the exchange rates between Canadian and US dollars. US dollar was equal to $1.097 Canadian dollar on an average during the quarter ended September 30, 2009 while it was equal to $1.042 Canadian dollar during the quarter ended September 30, 2008.

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.

Professional fees

Professional fees primarily consist of audit and legal fees.

During the quarter ended September 30, 2009, audit fee was accrued at $6,250 on the basis of the estimated annual fee of $25,000. The balance of the fee for this period consisted of fees charged by our corporate lawyer to provide services in connection with certain regulatory matters.

During the quarter ended September 30, 2008, audit fee accrual was same - $ 6,250 and balance consisted of legal fee.

Other operating costs

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

We will continue to monitor these costs so as to keep them at minimum.

All other costs remained largely consistent.

- 5 -

Consulting fees and payroll

Thre months ended September 30 2008 2009

(61,722) 80,999

173,036 ; 5,506

10,203 9,872

$121,467 96,377

Stock based compensation is made up of the Company’s common shares and options 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 following were the key details forming part of consulting fee and payroll costs during the quarter ended September 30, 2009 and 2008:

Fee settled in common shares represented shares previously allotted to Mr. John Robinson, a consultant for his service being deferred and now expensed for the period. However, Mr. John Robinson returned all the shares – 350,000 common shares of the Company – on August 12, 2009 for cancelation and instead was paid cash fee of $82,000 as approved by the board of directors of the company. This transaction will be accounted for in the second quarter ending September 2009. ( for the 2008 period, three consultants were issued shares in settlement of their fees – Mr. Kam Shah, CEO, Mr. Terence Robinson, key consultant and Mr. John Robinson)

Fees settled in cash consisted of fee of $30,000 each paid to Mr. Kam Shah, the chief executive and financial officer and Mr. Terence Robinson, a key consultant for the quarter. The balance of the fee was paid to the two independent directors for their services as members of the audit committee. ( 2008 period cash fee included $20,000 paid to Mr. Shah for services)

c.	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.

The Company created a new 2009 Consultant Stock Compensation Plan and registered it with Securities and Exchange Commission on April 7, 2009. Three million common shares of the company have been registered for issuance to consultants for services in lieu of cash fee. 100,000 shares were issued to two independent consultants up to September 30, 2009. Similarly, the company still had 950,000 un-allotted options from the 2005 Stock Option Plan.

Exchange Loss

Exchange loss related to translation losses 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 4% cash and short term investments are in US dollars.

During the quarter ended September 30, 2009, Canadian dollar strengthened against US dollar – from CDN $ 1.13 at June 30, 2009 per US$ 1 to 1.07 at September 30, 2009 – over 5% decline and hence US dollar based assets had lower Canadian values on translation at September 30, 2009 resulting in an exchange loss of approximately $21,700.

The situation was quite opposite during the quarter ended September 30, 2008. Canadian dollar value declined by approximately 4% over the US Dollar during the quarter and approximately 17% of the cash and short term investments were in US dollar – resulting in a gain of approximately $33,700.

- 6 -

Liquidity and Capital Resources

Working Capital

As at September 30, 2009, the Company had a net working capital of approximately $1.6 million compared to a working capital of $1.4 million as at March 31, 2009.

Almost entire working capital at September 30, 2009 and March 31, 2009 was in the form of cash and short term investments.

Some improvement in the liquid working capital, despite additional operating cash outflows was entirely due to improvement in the market value of the short term investments on hand which rose by approximately $770,000.

Cash on hand as at September 30, 2009 was approximately $240,000 compared to $352,000 as at March 31, 2009.

Sudden deterioration in the stock market condition during the past several months has severely affected the Company’s short term investment portfolio value and as a result its working capital base. However, the stock market has now shown signs of improvements and market prices of some of the key investments in our portfolio have begun to rise – reflected in unrealised gain of $$770,000 during the quarter ended September 30, 2009. We believe that this trend is more likely to continue and will shortly result in much improved liquidity for the Company. – for example, market value of one of our main investments, which constituted approximately 40% of our total portfolio carrying costs increased from $ 710,435 at September 30, 2009 to $955,858 at November 23, 2009, the date of this report.

Meanwhile, we continue to monitor our expenses and short term portfolio closely. The Company had no external borrowings at September 30, 2009.

Operating cash flow

During the quarter ended September 30, 2009, operating activities generated a net cash outflow of approximately $325,000 which was met partly from the proceeds of the sales of short term investments and balance from cash on hand.

During the quarter ended September 30, 2008, operating activities required net cash outflow of $106,246. Operating cash requirements were met primarily through cash on hand.

All the three consultants – Mr. Kam Shah, Mr. Terence Robinson and Mr. John Robinson were to be paid their consulting fees in cash for the remainder of the fiscal year. This would have increased operating cash requirements for the future period. However, as explained in subsequent event, the Company secured a significant working interest in oil and gas play in November 2009 and hence these consultants have opted to accept shares to preserve cash for the new business activities. No shares have yet been allotted.

We hope to meet the expected increase in operating cash requirement through profitable disposal of some of our short term investments which have begun to grown in value and from equity financing through private placement.

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Investing cash flows

During the quarter ended September 30, 2009, the management reviewed its entire short term portfolio and disposed off several investments which continued to decline in value and showed no sign for any improvement in the near future. Approximately thirteen of such investments were disposed off at a realised loss of $542,000. The disposal generated a net cash flow of $270,000, which after netting off small acquisitions of $87,000 resulted in net investment cash flow of $183,000.

During the three months ended September 30, 2008, the Company invested approximately 278,000 in short term marketable securities while realised approximately $133,000 from the disposal of such securities, which were reinvested. Net additional investments were funded from the available cash on hand.

Composition of our short term investments:

The Company had short term investments at a carrying cost of approximately $5.2 million as at September 30, 2009 – of which $4.9 million or 94% was held in Canadian currency and the balance 6% was held in US currency. Approximately 94% of the investments were in 12 public companies while 6% was invested in two private companies. These investments were stated at their fair value of approximately $1.3 million as at September 30, 2009 and the difference representing unrealised loss of approximately $3.9 million was transferred to accumulated other comprehensive loss and included under shareholders equity.

The Company had short term investments at a carrying cost of approximately $5.6 million as at September 30, 2008 – of which $5.4 million or 96% was held in Canadian currency and the balance 4% was held in US currency. Approximately 95% of the investments were in 34 public companies while 5% was invested in three private companies. These investments were stated at their fair value of approximately $2.5 million as at September 30, 2008 and the difference representing unrealised loss was transferred to accumulated other comprehensive loss and included under shareholders equity.

Significant decline in fair value between September 2008 and June 2009 was mainly caused by adverse stock market conditions which aggravated during this period. However, overall fair value improved since March 31, 2009 from $ 1.1 million to $1.3 million, reflecting improvement in stock market.

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.

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The following are our key investments:

March 31,	September 30, 2009						March 31, 2009
	in 000'
	# of shares		cost		fair value		# of shares		cost		fair value
Marketable Securities
Brownstone Ventures Inc.		1,292		1869		710		1,227		1838		362
Roadrunner Oil & Gas Inc.		1,679		643		151		1,529		627		145
Skana Capital Corp		773		706		201		773		706		186
9 (March 31, 2009: 23 ) other public companies - mainly resource sector				1715		244				2082		399
			$	4,933	$	1,306			$	5,253	$	1,092
Non-marketable securities
Cookee Corp		1,000		200		-		1,000		200		-
One other private company ( 2008: two private companies, 2007: )				54		-				63		-
			$	254	$	-			$	263	$	-

			$	5,187	$	1,306			$	5,516	$	1,092

Management carried out a thorough review of its portfolio during the quarter ended September 30, 2009. Several investments whose values continued to decline during the last twelve months and showed no sign of improvements were disposed off at a loss as explained earlier, so that we can monitor the remaining closely. We believe that the fundamentals of the remaining investments in our portfolio are strong and they will eventually either recover fully or current temporary losses in value declining significantly. For example, combined market value of the three main holdings detailed above increased to approximately $1.5 million at November 20, 2009 from $1.1 million at September 30, 2009 – approximately 36% increase.

Financing cash flows

The board also approved a finder’s fee at 10% of the proceeds from the issuance of units and warrants attached thereto payable to Current Capital Corp., a related party.

During the three months ended September 30, 2009,, the Company received four subscriptions for a total of 1.5 million units for a net proceeds of $74,414. The total number of units subscribed as at September 30, 2009 was 2.5 million. The closing date for this private placement was revised to October 15, 2009 and the balance of 7.5 million units was subscribed by October 13, 2009.

There was no financing activity during the three months ended September 30, 2008.

Key Contractual obligations

These are detailed in Note 11 – commitments and contingent liabilities to the consolidated unaudited financial statements for the six months ended September 30, 2009.

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Off balance sheet arrangements

At September 30, 2009 and 2008, 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 s 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. In addition,

2.	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.

Financial and derivative Instruments

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

Financial Market and Credit Risk

At September 30, 2009 we had invested approximately $5.2 million (March 31, 2009: $5.5 million) in short-term marketable securities. Approximately 62% ( March 31, 2009: 57%) of this investment is in common shares of three Canadian listed and traded corporations as detailed above under investing cash flow section.

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.

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The Company is also exposed, in the normal course of business, to credit risk from 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 be able to meet its financial obligations as they become due.

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 does not trade on margins.

Foreign Currency Risk

The majority of our expenditures is in Canadian dollar. As at September 30, 2009; approximately $70,000 – 4% - of our assets were held in US dollar. (As at March 31, 2009: approximately $45,000 or 3%). We incurred a foreign exchange loss of $21,742 for the three months ended September 30, 2009 (see Results of Operations – Exchange loss above), which was relatively higher due to over 5% decline in Canadian dollar exchange rate against US Dollar and treasury activities during the quarter which were in US dollar.

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.

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New accounting policies

Recent accounting pronouncements

There are three new accounting pronouncements –contained in handbook section 1582 – business combinations, Section 1601 – consolidated financial statements and 1602 – non-controlling interests, which are effective on or after January 1, 2011. These are further explained in the unaudited consolidated financial statements for the six months ended September 30, 2009.

International Financial Reporting Standards (“IFRS”)

The Company’s transition date of April 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ending March 31, 2011.

Owing to our limited current activities, we prefer to postpone our detailed planning for conversion to IFRS at a later date when we may have acquired business activities and will have to address greater operational and accounting issues in this context.

However, the key elements of our changeover plan include:

1. Scoping and diagnostic

High level analysis to:

• Assess differences between IFRS and GAAP

• Identify elective and mandatory exceptions available under IFRS 1

• Scope out potential impacts on systems and processes

• Identify impacts on business relationships including contractual arrangements

2. Impact analysis, evaluation and design

• Determine projected impact of adopting IFRS on financial statements and develop accounting processes

• Develop and finalize changes to systems and internal controls

• Address business activities including contractual arrangements, compensation arrangements, budgeting/forecasting

• Prepare reporting templates and training plan

3) Implementation and Review

• Collect and compile IFRS information for reporting

• Execute changes to information systems and business activities

• Communicate

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, 2009. 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 was no new accounting and disclosure policy change during the quarter ended September 30, 2009.

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

Our Chief Executive Officer who also serves as Chief Financial Officer (“CEO”) is primarily responsible in establishing and maintaining controls and procedures concerning disclosure of material information and their timely reporting in consultation and under direct supervision of the audit committee which comprises two independent directors. CEO is assisted by one employee. We therefore do not have an effective internal controls and procedures due to lack of segregation of duties. However, given the size and nature of our current operations and involvement of independent directors in the process significantly reduce the risk factors associated with the lack of segregation of duties.

The CEO has instituted a system of disclosure controls for the Company to ensure proper and complete disclosure of material information. The limited number of consultants and direct involvement of the CEO facilitates access to real time information about developments in the business for drafting disclosure documents. All documents are circulated to the board of directors and audit committee according to the disclosure time-lines.

As at March 31, 2009, the management carried out a comprehensive review and up date of the internal controls existing over the financial reporting. Mitigating controls and procedures were identified wherever possible. New procedures were implemented in a couple of cases where it was evident that controls were not robust enough to ensure appropriate disclosure in a timely manner. Some controls were implemented as a secondary detection mechanism if the initial controls failed to prevent errors from occurring.

There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date the CEO completed his evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls requiring corrective actions other than the lack of segregation of duties.

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Subsequent events

Subsequent events have been evaluated through November 20, 2009, when the unaudited consolidated financial statements were available to be issued.

Key events were:

1.	The Company completed its December 2008 private placement by October 13, 2009 and issued an additional 7.5 million Units for proceeds of $359,252 net of finder’s fee at 10% of $39,917.

The Company acquired on November 19, 2009, through its wholly owned subsidiary, Bontan Oil and Gas Corporation, an indirect 71.63% working interest in two drilling licenses and one exploration permit in the Levantine Basin, 40 kilometres off the West coast of Israel in the eastern Mediterranean (“Project Assets”). Petroleum License 347 (“Mira”) and Petroleum License 348 (“Sarah”) cover approximately 198,000 acres (803 sq. kilometres), and Petroleum Preliminary Permit 199 (“Benjamin”), covers approximately 461,000 acres (1,865 sq kilometres).

All shares and warrants issued are restricted from trading until their resale is registered with the U.S. Securities and Exchange Commission.

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.

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