report.

months

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

We are in

Currently,goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our interests or objectives, and they may have competing interests in our markets that could create conflict of interest issues. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor our joint venture partners would have full control over the joint venture. Disputes between us and our joint venture partners may result in litigation or arbitra tion that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Our investment in the offshore Israel project may exceed returns from the project.

Our operations are subject to substantialthose properties. The success and timing of exploration and development risks.

activities on properties operated by others therefore will depend upon a number of factors outside of our control, including:

The business of exploring forrecover drilling or completion costs or to be economically viable.  If the seismic and producing oil and gas involves a substantial risk of investment loss which, even a combination of experience, knowledge and careful evaluationother data are inconclusive or unsatisfactory, the joint venture may not be able to overcome.  attract industry partners to conduct exploratory drilling on its properties.

Drillingyour investment in us.  We cannot predict whether any prospect will produce oil or natural gas or commercial quantities of oil and natural gas, nor can we predict the amount of time it will take to recover any oil or natural gas we do produce. Drilling activities may be unprofitable, not only from non-productive wells involves the riskbut also from wells that the wells will be unproductive or that, although productive, the wells do not produce oil and/or natural gas in economic quantities. Other hazards, such as unusualsufficient quantities or unexpected geological formations, pressures, fires, blowouts, lossquality to return a profit.

A productive well may become uneconomicnatural gas production from wells in which we have an interest will significantly affect our revenue, cash flow, access to capital and future growth. Historically, the markets for oil and natural gas have been volatile and are likely to continue to be volatile in the event water or other deleterious substances are encountered, which impair or prevent the production of oil and/or gas from the well.  In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances.  As with any petroleum property, there can be no assurance thatfuture. The markets and prices for oil and natural gas will be produced from the properties in which the Company had and may in future have interests.  

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

include:

In determining the purchase price for our future interests, we will rely on both internal and external assessments relating to estimates of exploration, production and possible reserves that may prove to be materially inaccurate.

The price we are willing to pay for an interest in an oil and gas project is based on a combination of projected exploration and production costs and on the estimates of potential reserves. Actual costs and reserve could vary materially from these estimates. Consequently, the interests we acquire may be less unproductive than expected, or not productive at all, which could adversely affect us or cause us to lose our entire invest, or both.  Initial assessments of an interest will be based on areport by engineers or firms of engineers and these initial assessments may differ significantly from our subsequent assessments.

Our interests are subject to uninsurable risks.

Our industry also experiences numerous operating risks. These operating risks include the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, natural gas leaks, ruptures or discharges of toxic gases. Such events could result in substantial damage to oil and gas wells, producing facilities and other property and personal injury.  Although management believes the operator of any properties in which the Company and its subsidiaries may acquire interests, will acquire and maintain appropriate insurance coverage in accordance with standard industry practice, the Company and its subsidiaries may suffer losses from uninsurable hazards or from hazards which the operator has chosen not to insure against because of high premium costs or other reasons.  If any of these industry operating risks occur, the Company and its subsidiaries may face liability. &nbs p;The payment of any such liabilitiesprices may have a material adverse effect on our and IPC Cayman’s financial condition, results of operations, liquidity, ability to finance planned capital expenditures or  ability to secure funding from industry partners.

Environmentalfinancial condition.

The current or future operations of the Company, including development activities and commencement of production on its properties, require permits from various governmental authorities and such operations will bejoint venture partners are subject to laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, safetypromulgated by the State of Israel

may require us and our joint venture partners to incur substantial costs of remediation. In addition, we and our joint venture partners may incur costs and penalties in addressing regulatory agency procedures involving instances of possible non-compliance.  The financial implications, i f any, cannot be estimated at this stage.

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

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

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

Our shortterm investments are susceptible toa more active trading market fluctuationsand other risks.

We have approximately $6.3 million in cash ($3 million) and marketable securities ($3.3 million) as of March 31, 2007. Our marketable securities are primarily securities of publicly held Canadian corporations.  The value of these securities is subject to market fluctuations as well as the specific risks of each particular issuer.  Although we believe we have diversified our portfolio, we may lose some of our original investment in the event that an investment does not perform as anticipated.

Further, approximately $1.6 million or 48% of our investments are invested in one Canadian marketable security. While the market value of this security at March 31, 2007 was $2.7 million and continued at that level on May 10, 2007, the date of this report, there is no guarantee that the market price would continue to be higher than our cost. In the event, we are unable to or do not sell these securities on time and their market price gets adversely affected for whatever reasons, we may lose significant sum of money. We are minimising this risk by having all our investments monitored on a daily basis by consultants with substantial experience and knowledge of the investment market.

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

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

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

Any equity or debt financings, if available at all, may cause dilution to our then-existing shareholders. If additional funds are raised through the issuance of equity securities, the net tangible book value per share of our common shares would decreasewill develop. Accordingly, investors must assume they may have to bear the economic risk of an investment in our common shares for an indefinite period of time.

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

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

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

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

Risk Factors Relating to Our Common Shares

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

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

Shares eligible for future sale may depress our stock price.

At March 31, 2007, we had approximately 28.4 million shares of common stock outstanding. We also have approximately 13 million and 4.8 million shares of commons stock issuable under presently exercisable warrants and options respectively, All suchare exercised, additional common shares are registered pursuant to an effective registration statement underwill be issued and that issuance will increase the Act and arenumber of shares eligible for resale in the public market.  SalesThe sale of a significant number of shares of common stock pursuant to an effective registration statementby our shareholders, or under Rule 144 or another exemption under the Actperception that such sales could occur, could have a material adversedepressive effect on the public market price of our common stock and could impair our abilityshares.

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

Our common stock is subject to penny stock rules.

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

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

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

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

Changing laws, regulationsyour shares by diluting your ownership interest in us and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and new and changing provisions of Canadian securities laws, are creating uncertainty because of the lack of specificity and varying interpretations of the rules. As a result, the application ofreducing your voting power. Shareholders have no pre-emptive rights.

Beginning with our annual report for the year ending March 31, 2008,SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 will require us to includeperform an internal control report of management with our annual report on Form 20-F, which is to include management’s assessment of our internal controls over financial reporting and certify the effectiveness of ourthose controls. The standards that must be met for management to assess the internal controlcontrols over financial reporting as ofnow in effect are complex, and require significant documentation, testing and possible remediation to meet the end of the fiscal year. That report will also be requireddetailed standards. We may encounter problems or delays in completing activities necessary to include a statement that our independent auditors have issuedmake an attestation report on management’s assessment of our internal controlcontrols over financial reporting. In order to achieve compliance with Section 404 withinIf we cannot perform the prescribed period, management is in the process of adopting a detailed project work plan to assess the adequacy ofassessment or certify that our internal controlcontrols over financial reporting validate through testing that controls are functioning as documented, remediate any control weaknesses thateffective, investor confidence and share value may be identified, and implement a continuous reporting and imp rovement process for internal control over financial reporting. Any failure to comply with Section 404, including issuing the required management report and obtaining the attestation report on management’s assessment from our independent auditors,negatively impacted.

We were originally incorporated under the Business Corporation Act (Ontario)Ontario in 1973 under the original name of Kamlo Gold Mines Limited and went through multiple name changes and five major changes in our business activities including a marine propulsion business, a snack food business, and an emerging technology investments business. Details of these changes are provided in our Registration Statement on Form 20-F dated June 12, 2000 and a summary is provided in our Annual Report on Form 20-F dated August 29, 2006.  On April 21, 2003, we changed our name to "Bontan Corporation Inc." when we adopted our business strategy to focus on the natural resource sector.

The Company’s registered office is situated at 47 Avenue Road, Suite 200,Toronto, Ontario, Canada M5R 2G3. The Company is a reporting issuer in the provinces of Ontario. The Company’s shares have been listed on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “BNTNF” in the United States.

The following is a summary of our key past events:

a.

The Company was incorporated under the name “Kamlo Gold Mines Limited and remained anLimited.  We were inactive shell from the date of incorporation tountil 1985.

b.

Between 1986 and 1982, the Company1992, our company was involved in the development of a new technology for the marine propulsion business. During this period, the Companyour company went through three name changes.

e.

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

2005.

It23.21% equity interest in IPC Cayman and is representing our current beliefinterest in the offshore Israel project through its participation in the steering committee that has been formed to govern activities with respect to the two drilling licenses. This interest has further reduced to 10.45% owing to sale of 5% of the interest to the Operator.

Therefore,IPC Cayman and the total cash proceeds received by us or our shareholders in such transaction. International Three Crown Petroleum LLC will also receive a warrant to purchase a number of our common shares which is equal to the product of 5% of our percentage ownership interest in IPC Cayman and the fair market v alue of all consideration received by us in such transaction, divided by the market price of one common share as of the date of issuance of the warrant.  The exercise price of the warrant will be equal to the market price.  In addition, International Three Crown Petroleum LLC will receive $50,000 for every $1,000,000 increase in current business model, basedassets received by IPC Cayman or Bontan from investors introduced by International Three Crown Petroleum LLC to IPC Cayman or Bontan.

a.

We will focus only onfield of oil and gas exploration projects;

and development. Over the past few years, a number of legislative bills which would affect this are have been proposed (but not yet passed), and such bills, if passed into law, could have a negative effect on our business and activities.

c.

We will investon our resources in projects which involves multiple well exploration potentials;

financial statements.

oil and gas properties.

2009:

2008:

Professional fee

Fiscal 2007 professional fees consisted of audit fee of $ 31,700 and legal fee of $21,384. Legal fees related to filingattention of the 2007 Consultant Stock Compensation Plan, Registration statement for the shares issued and issuable under the 2006 private placement and other legal matters.

Fiscal 2006 fees included audit fee of $28,000 and approximately $35,000 for the legal fees. Increased legal fees were due to filing of registration statements for various stock compensation and option Plans and prospectus for warrants and shares issued under private placement.

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

a timely basis.

increased business activities.

On January 16, 2007, the Company registered 2007 Consultant Stock Compensation Plan. An additional one million common shares were registered under this Plan with the US Securities and Exchange Commission. TheIn addition, the Company registered 1.7 millionhad 350,000 common shares under thisunissued from the existing Plan. On February 8, 2007, the company issued 1,150,000The total of 1,350,000 common shares under this Planwas issued to three existing consultants who are all related parties, for a value of $313,486 based on the market price of the Company’s common shares on the date of their issuance.

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

(a)

John has been providing consulting services for the last few years. These services mainly included review of oil and gas proposals that are received and short listing them for further review and analysis by CEO. In addition, John also does constant research on companies acquiring oil and gas interest and major oil and gas plays under consideration. The research has always proved useful in negotiating proper terms on any proposals and saved the company from over paying. During the past year, John also played an important role in managing our short term investments of around $6 million. These investments grew by over 100% during the period and provided the Company with a healthy cash flow. Owing to the above, we have extended John's contract for another year to June 30, 2008 and negotiated settlement of his fee for this period by issuance of the recommended number of shares.

(b)

Terence provides two main services to the company. Owing to his extensive network, he is constantly in touch with some of our key shareholders and potential investors to ensure that whenever the company needs additional funding, it can be easily raised through private placement. We had two such successful placements during the past five years. The second important service is business development through his network. The company receives lucrative proposals for acquiring interest in oil and gas projects from contacts known to Terence. Once we finalize such a project, he also helps secure best pricing. For the past few months, Terence was involved in deciding on the marketable securities in which the company's surplus funds got invested on a short term basis. Our funds grew by over 100% owing to his selection of the marketable securities and decisions to buy and sell at the right time. He will continue to provide these services during the year 2006 and has agreed to accept the proposed number of common shares in lieu of histheir fees for such services.

During fiscal 2006, the board of directors of the Company approved and created three new Plans, which were all registered with Securities and Exchange Commission of the United States of America as required under the Securities Act of 1933:

1.

2005 Consultant Stock Compensation Plan covering one million common shares, which were issued to five consultants including directors and key consultants of the company for their services and valued at $327,827. $60,398 was expensed in fiscal 2006 and the balance was deferred.

2.

The Robinson Plan covering 1.1 million options exercisable at an option price of US$0.50 per option to convert into equal number of common shares within five years to December 5, 2010. These options were granted to Mr. Terence Robinson, a key consultant for services rendered in connection with the sale of IPI interest in oil exploration project. These options were valued at $655,779 and were off set against the net gain from the sale as explained earlier in this report.

3.

2005 Stock Option Plan covering one million options. None of the options were granted to anyone as at March 31, 2006.

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

follows:

connection with fund raising negotiations which were not successful.

equity and debt financing.

raise the required funds.

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

Company except in case of short term investments where he is authorized to buy and sell marketable securities on behalf of the Company and also advises as to when to buy or sel l. He is however not authorized to withdraw or deposit any cash from and into our accounts with the brokerage firms.

time.