|SEC 1852
(06-2001) | Persons who potentially are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
|------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

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

OR

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

For the fiscal year ended __March 31, 2006_______________________

OR

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

For the transition period from ______________ to  ________________

Commission file number   _ 0-29108____________________________

___________________Biotech Holdings Ltd.__________________________________                      
(Exact name of Registrant as specified in its charter)

___________________Biotech Holdings Ltd.__________________________________
                     
(Translation of Registrant^s name into English)

______________________Alberta, Canada______________________________________
                    
(Jurisdiction of incorporation or organization)

#160 - 3751 Shell Road
                         
Richmond, British Columbia, Canada, V6X 2W2______________________________________________________________________
                                        
(Address of principal executive offices)







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

Title of each class			Name of each exchange on which registered

_____________None_________________     _______________________________

__________________________________     _______________________________

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

_________NONE____________________________________________________   (Title of Class)

__________________________________________________________________                           
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

___________________Common Shares Without Par Value________________                             
(Title of Class)

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

92,229,512 Common Shares Without Par Value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x

o

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

x

o

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

p

p







> PART I

Item 1.	Identity of Directors, Senior Management and Advisers

This information is not required to be provided because it is an annual report filing.

Item 2.	Offer Statistics and Expected Timetable

This information is not required to be provided because it is an annual report filing.

Item 3.	Key Information

The table in this section sets forth selected consolidated financial data.  Such data, for and as of the end of the five previous fiscal periods, are derived from the consolidated financial statements of Biotech Holdings Ltd. (the "Company").  The selected financial data are expressed in Canadian dollars.
The selected financial data should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto contained elsewhere in the Annual Report.

Critical Accounting Policies

The Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP").  Differences with generally accepted accounting principles in the United States ("U.S. GAAP") are set forth in Note 18 to the Consolidated Financial Statements of the Company (Item 17 of this Form 20F).  Some accounting policies have a significant impact on the amounts reported in these financial statements. The Consolidated Financial Statements include a section describing the Company^s significant accounting policies.  Note that the preparation of this Form 20-F requires the Company to make estimates and assumptions that:

> - may affect the reported amount of assets and liabilities;
> - may affect the contingent assets and liabilities as disclosed at the date of the financial statements and;
> - may affect the reported amounts of revenues and expenses during the reported period.

There can be no assurance that actual results will not differ from those estimates.

The Company believes, as explained below, that our most critical accounting policies comprise the following:

> Revenue Recognition
> 
> The Company^s principal revenue will be derived from its Type II diabetes drug currently distributed in Mexico. The Company has entered into agreements with two non-related companies in Mexico.  The first company manufactures and packages the tablets from a pre-mix of active ingredients manufactured by the Company in Canada.  The second company markets the drug.
> 
> Revenue from product sales will be recognized upon the delivery of the product to a retailer or final consumer when persuasive evidence of an arrangement exists, the price is fixed or determinable and collection is reasonably assured and the Company has no future performance obligations under any licensing agreement or other significant post-delivery obligations.
> To March 31, 2006, the Company had generated $482,840 (2005: $Nil) in revenues from its Type II diabetes drug.
> 
> Technology Interests
> 
> Technology Interests consist of the cost of purchasing the Company^s rights to manufacture and sell DIAB II (also known under the trademarks Sucanon and Glucanin), a Type II Diabetes medication developed by the Company.  Management is required to use its professional judgement in determining whether Technology Interests have suffered permanent impairments in value and whether carrying costs are recoverable.  Under U.S. GAAP, writedown is necessary when carrying costs are not recoverable.

The Company^s last fiscal period ended March 31 of the current year.  All fiscal periods are for the full year. The following table is a summary of certain selected financial information of the Company, in accordance with Canadian GAAP, for the Company^s most
recently completed fiscal period and for the

|Fiscal year ended          |                |                  |                  |                |               
|-------------------------- | -------------- | ---------------- | ---------------- | -------------- | --------------
|March 31,                  | 2006           | 2005             | 2004             | 2003           | 2002          
|                           |                |                  |                  |                |               
|Revenues                   | $      482,840 | $            nil | $            nil | $        9,731 | $       49,981
|Loss from continuing       |                |                  |                  |                |               
|Operations                 | (2,012,869)    | (1,755,128)      | (1,460,669)      | (1,679,020)    | (1,960,624)   
|                           |                |                  |                  |                |               
|Profit (Loss) from         |                |                  |                  |                |               
|discontinued operations    |                |                  |                  |                |               
|including amortization of  |                |                  |                  |                |               
|goodwill and gain          |                |                  |                  |                |               
|from debt restructuring    | 76,224         | 239,057          | (846,282)        | (1,397,420)    | (1,430,276)   
|                           |                |                  |                  |                |               
|Net loss for the year      | (1,936,645)    | (1,516,071)      | (2,306,951)      | (3,076,440)    | (3,390,900)   
|Loss per share             | (0.02)         | (0.02)           | (0.03)           | (0.04)         | (0.06)        
|                           |                |                  |                  |                |               
|Working Capital Deficiency | (2,083,586)    | (1,644,095)      | (2,156,781)      | (1,859,903)    | (1,029,444)   
|Total Assets               | 795,570        | 1,759,027        | 2,232,225        | 3,629,040      | 5,853,429     
|Long Term Debt             | 224,343        | 224,343          | 224,343          | 3,325,526      | 2,876,125     
|Total Liabilities          | 2,553,069      | 2,437,211        | 2,788,489        | 5,504,202      | 5,042,967     
|Shareholders^ Equity       |                |                  |                  |                |               
|(Deficiency)               | (1,757,499)    | (678,184)        | (556,264)        | (1,875,162)    | 810,462       
|Number of issued common    |                |                  |                  |                |               
|Shares at March 31         | 92,229,512     | 90,134,310       | 87,542,219       | 73,928,130     | 69,928,130    
|Dividends per share        | nil            | nil              | nil              | nil            | nil           















The figures below are presented in accordance with U.S. GAAP (expressed in Canadian Dollars).

|                           | Year ended     | Year ended      | Year ended      | Year ended    | Year ended  
|-------------------------- | -------------- | --------------- | --------------- | ------------- | ------------
|                           | March 31,      | March 31,       | March 31,       | March 31,     | March 31,   
|                           | 2006           | 2005            | 2004            | 2003          | 2002        
|Revenues                   | $      482,840 | $           nil | $           nil | $       9,731 | $     49,981
|Net Loss                   | (1,936,645)    | (1,514,599)     | (4,939,328)     | (2,964,870)   | (5,248,125) 
|Loss per share             | (.02)          | (.02)           | (.06)           | (.04)         | (.09)       
|                           |                |                 |                 |               |             
|Working Capital Deficiency | (2,083,586)    | (1,644,095)     | (2,156,781)     | (1,859,903)   | (1,029,444) 
|Total Assets               | 795,570        | 1,757,555       | 2,230,753       | 2,684,492     | 4,902,101   
|Long Term Debt             | 224,343        | 224,343         | 224,343         | 3,325,526     | 2,876,125   
|Total Liabilities          | 2,553,069      | 2,437,211       | 2,788,489       | 5,504,202     | 5,042,967   
|Shareholders^ (Deficiency) | (1,756,102)    | (679,656)       | (557,736)       | (2,819,710)   | (140,866)   
|                           |                |                 |                 |               |             
|Number of issued common    |                |                 |                 |               |             
|Shares at March 31         | 92,229,512     | 90,134,310      | 87,542,219      | 73,928,130    | 69,928,130  
|Dividend per share         | Nil            | Nil             | Nil             | Nil           | Nil         

Exchange Rate Information

The Company^s accounts are maintained in Canadian dollars.  In this Annual Report, all dollar amounts are expressed in Canadian dollars except where otherwise indicated.



The following table sets forth, for the periods indicated, the high and low rates of exchange of Canadian dollars into United States dollars, the average of such exchange rates on the last day of each month during the periods, and the end of period rates.

|Year Ended |       |       |       |       |      
|---------- | ----- | ----- | ----- | ----- | -----
|March 31   | 2006  | 2005  | 2004  | 2003  | 2002 
|           | US$   | US$   | US$   | US$   | US$  
|           |       |       |       |       |      
|High       | .8850 | .8532 | .7883 | .6854 | .6638
|Low        | .7851 | .7138 | .6690 | .6229 | .6175
|Average    | .8565 | .7842 | .7403 | .6458 | .6393
|End        | .8373 | .8220 | .7648 | .6797 | .6271





The closing exchange rate as at August 18, 2005 was US$ 0.8940 and the high and low exchange rates for each of the previous six months was as follows:

|                   | High  | Low  
|------------------ | ----- | -----
|                   | US$   | US$  
|                   |       |      
|March 2006         | .8850 | .8512
|April 2006         | .8957 | .8493
|May 2006           | .9111 | .8868
|June 2006          | .9148 | .8857
|July 2006          | .9056 | .8726
|To August 18, 2006 | .8973 | .8790

Capitalization and indebtedness

Capitalization and indebtedness is not required for an annual filing.

Risk Factors

This section is intended to be a summary of more detailed discussions elsewhere in this Annual Report.  The risks described below are not the only ones the Company faces.  Additional risks may impair the business operations and the results of operations or financial condition could be materially affected if any of these risks materialize.

In addition to the risk factors inherent in investing in any junior equity, additional risks affecting the Company fall into three principal categories that can be described as follows:

a. Financial

i) risk that the Company will not be able to raise financing sufficient to make up for its ongoing losses

ii) risk  that, for the investing public, continuing issuance of equity to make up for losses significantly dilutes the per-share value of the Company^s assets and potential earnings

iii) risk that, in the event that the Company experiences financial difficulty, it may lose control of its primary marketing assets, that is, its rights to market the DIAB II product (also known under the trademarks Sucanon and Glucanin).

iv) risk of diminution or loss of liquidity in the market for the Company^s securities, due either to fluctuations in securities markets or to investor perception of the Company, thus reducing the ability of third parties to use sale of shares as a method of generating capital for funding the Company

v) risk that ongoing losses will reduce the Company^s ability to obtain credit from suppliers, thus increasing the pressure on the Company as a going concern. These concerns are expressed in the Comments by Auditors for U.S. Readers On Canada-U.S. Reporting Differences and Note 1 of the attached Audited Consolidated Financial Statements

vi) risk that major creditors of the Company could place the Company in receivership or bankruptcy by acting on their charges against the Company

b. Drug-related

i) risk that the Company^s principal product will not begin to produce significant revenue in the only markets where it is currently approved (Mexico, China and Peru)

ii) risk that other regulatory approvals will not be forthcoming

iii) risk that competitive products in the Type II Diabetes therapy field will emerge during the next few years and reduce or negate any competitive therapeutic advantages currently offered by DIAB II (also known under the trademarks Sucanon and Glucanin)

iv) risk that DIAB II or other products produced by the Company will lead to lawsuits that are not covered by the Company^s insurance

v)  risk that, although the product is clearly indicated as not for pregnant women, will be taken by women who are or become pregnant and suffer or claim to suffer medical problems related to using the drug

vi) risk that a Type I or insulin-dependent diabetic will take the drug and will suffer a hypoglycemic episode

vii) risk that competitors within the market will in various ways act to reduce the commercial success of the drug

viii) risk that the drug will have unexpected side-effects which may place new constraints on its commercial viability.

c. Risk related to obtaining and enforcing patents

i) the Company relies significantly on trade secrets for the protection of its Type II Diabetes product in jurisdictions where obtaining or enforcing patent rights is either not feasible or not possible; management believes that difficulties in replicating the composition and production process for its Type II Diabetes product will continue to protect the drug from being copied in such markets but acknowledges that one or more competitors could potentially copy essential aspects of  the drug, thus leading to a loss of intellectual knowledge, and potentially having an impact on revenues

d. Management-related

i) risk that management of Biotech Holdings is sharply focused on a few key managers or a single key manager and that loss of the services of these persons or this person for any reason would be severely negative for the prospects of ongoing operations

ii) risk that additional management needed for creating and guiding meaningful growth at the Company will be difficult  to attract

e. Political risk

i) risk that markets in which the drug are sold or are to be sold in Latin America are politically unstable and that one or more of these markets will undergo a significant political change, such as imposition of price controls, which impacts the company^s ability to sell the drug profitably

Item 4 Information on the Company

A.   
History and development of the Company

Biotech Holdings Ltd. (the "Company") was incorporated in Alberta, Canada and is an integrated pharmaceutical company whose common shares traded on The Alberta Stock Exchange (the "ASE") until November 1999 at which time the ASE was merged into The Canadian Venture Exchange (the "CDNX" now called the "TSX Venture Exchange") under the symbol "BIO.V".  The Company also trades on the NASD OTC-BB under the symbol "BIOHF".  In 2001 the Company was listed on the Frankfurt Stock Exchange under the symbol "925970.F".

The Company^s business focus is on developing the distribution of the Company^s Type II Diabetes drug known as DIAB II (also known as Sucanon and Glucanin). The operations of the Company^s subsidiary for the development, manufacture and distribution of lotions and creams were discontinued during the year ended March 31, 2003, based on a management decision that the subsidiary had limited prospects for developing profitable operations in the near-term. The Company^s business focus remains the development and distribution of the Company^s Type II Diabetes drug, particularly in Mexico and Latin America.

The Company^s head office and principal office are located at #160 - 1501 Shell Road, Richmond, British Columbia, V6X 2W2, Telephone No. (604) 295-1119, and the registered office of the Corporation is located at 1000 Canterra Tower, 400 - 3rd Avenue S.W., Calgary, Alberta, T2P 4H2.

The Company^s discussion of its anticipated future operations and the other forward looking statements contained in this Form 20-F involve a number of material risks and uncertainties.  In addition to the factors specifically discussed in context hereafter, factors that could cause actual results to differ materially are regulatory requirements imposed upon the Company^s lines of business, international political instability and changes in economic conditions, advances in development of competing products, the Company^s ability to acquire protection for its intellectual property rights, and its ability to obtain financing on acceptable terms when and as required.

History of the Company and Its Subsidiaries

The Company^s history has had the following highlights:

> - The Company was originally incorporated under the name LMK Technologies Inc. ("LMK") under the provisions of the Business Corporations Act (Alberta) on August 20, 1993.
> - Pursuant to a prospectus dated February 9, 1994, the Company, acting under the name of Conserve Energy Corporation ("Conserve"), made an initial public offering of 2,500,000 common shares at $0.10 per share.
> - In January, 1995 the Conserve identified Biotech Holdings Inc. ("Holdings") as a potential acquisition.  On December 14, 1995 the Company^s shareholders approved the acquisition of all of the issued and outstanding shares of Holdings in exchange for 15 million shares issued to the shareholders of Holdings and approved the Company^s name change to Biotech Holdings Ltd. to reflect its corporate direction in the biotechnology field.
> - On September 11, 1998 Holdings sold its operational assets to Biotech Laboratories Inc. ("Laboratories"), another subsidiary of the Company, in exchange for Laboratories^ assumption of $2,000,000 in collateralized debts on the books of Holdings.
> - In November, 2002 the Company^s primary operating subsidiary, Biotech Laboratories Inc. discontinued operations.
> - On December 12, 2002, the Company filed a proposal under federal creditor protection legislation in Canada.  The purpose of the filing of the proposal was to protect the interests of all stakeholders of the Company from an action taken by the landlord of Laboratories. The landlord in question undertook to seize Laboratories assets and the filing of the proposal prevented the landlord^s seizure from continuing.
> - On May 21, 2003, both the Company and Laboratories received approval from the Supreme Court of British Columbia in the matter of two proposals regarding its creditors pursuant to the Bankruptcy and Insolvency Act of Canada.  These proposals, accepted by the required majority of creditors, allows for the operating subsidiary to maintain operations and generate funds from those operations to pay a portion of its pre-proposal liabilities.  Under the proposal, preferred creditors shall be paid in full in priority to all claims of unsecured creditors.  Provision for payment of claims of unsecured creditors shall be made in the lesser amount of 10% or $25,000 on each day, which is one year, one year six months and two years, respectively, after the end of the month of court ratification.
> - On November 3, 2003, the Company announced that it received formal regulatory approval for the sale of its Type II Diabetes drug in Mexico.
> - December 1, 2004 - the Company announced that it had received its first order for Sucanon from Farmacias Benavides, the largest pharmacy chain in Mexico.
> - National television and radio advertising for the sale of Sucanon in Mexico began in May 2005.  Revenues from shipments made prior to the launch of the advertising were recognized in the quarter ended June 30, 2005.
> - November 21, 2005 - the Company announced that the TSXV had completed a compliance review and had identified a number of issues which in the Exchange^s view required clarification, particularly the fact of ongoing relationships that the Company had with a number of companies controlled by the Robert Rieveley and his spouse and contraventions of Exchange policy which had occurred pursuant to that fact.
> The resulting clarifications confirmed: that a company called R. Rieveley and Associates has provided financing and was as of June/05 owed $233,348 by the Company; that a company called Wenroth Limited ("Wenroth") provides financing via loans and as of June 30, 2005 was owed $13,497; that the company called Inreg Corporation ("Inreg") provides financing via loans bearing interest at 8% and was owed $96,265 by the Company as of June 30/05; that a company called Penne Investments has provided financing to the Company via loans but had no loans to the Company outstanding as of June 30, 2005; that Allburg Holdings Inc. ("Allburg") provides financing to the Company via loans and held as of June 30, 2005 a note payable of $116,927 and bearing interest at 8%; further that Allburg owns 25% of the Company^s 75%-owned subsidiary Smith Rothe Pharmaceutical Inc., which has been granted by the Company an exclusive license to manufacture and market the Company^s Sucanon Type II Diabetes medication in all countries outside Oriental Asia, in return for a royalty equal to 25% of Sucanon profits in any country where the license is granted, which royalties for the three months ended June 30/05 totalled $17,165; that a company called Seabright Holdings Ltd. indirectly finances the Company through Seabright^s owning of the shares of Allburg, Inreg and Wenroth, this ownership also making Allburg the largest creditor of the company; that the Company^s Sucanon medication is manufactured on behalf of the Company by a private company controlled by Robert Rieveley, which transfers Sucanon to the Company at cost, receiving no profit from the manufacturing operation, and the the private company was owed $6,092 as of June 30/05; that general security agreements registered with the provincial government in Victoria support the above-described loans and financing arrangements; additionally, that an independent director of the Company, Geoff Herring, owns a company, Grand Poisson & Chemical Consulting, which provides chemical analysis and quality control testing of the Company^s diabetes medication.
> The contraventions of Exchange policy were summarized in the report as follows: that the company failed to issue press releases disclosing the existence and terms of the above-noted agreements with the related parties; that the Company failed to disclose the related party agreements in the Company^s Management Discussion and Analysis ("MD&A") reports filed with audited and interim financial statements; that the Company failed to file with the Exchange in a timely manner the majority of related party agreements noted above; that the company failed to file for approval by the Exchange a majority of the agreements with related parties; that the Company had not disclosed all materials facts regarding development progress of Sucanon and the level of market acceptance of Sucanon.
> The Exchange also required the Company to provide a clarification regarding the drug or herbal remedy status of Sucanon, in response to which the Company pointed out that Sucanon has a natural or herbal component but that this does not preclude it from being classified as a drug since a class of herbally based drugs, which may be sold on an OTC basis, is available to Mexican regulators, who approved the use of Sucanon for reduction of symptoms of Type II Diabetes.
> The Exchange also determined that the Company^s signing policy was in contravention of Exchange policy requiring all company cheques to have two signatures; the Company complied with this requirement by implementing a policy of each cheque to be signed by an officer and by a director who are unrelated to each other.
> The Exchange further determined that 429,185 shares plus warrants issued to Mr. Rieveley at $0.375, with an expiry date of January 27, 2006, had been issued in satisfaction of debt and not in consideration of cash and that by failing to file for this share issuance in compliance with Exchange policy the Company had inadvertently made an incorrect filing to the Exchange.
> In addition to the above, the Exchange required and the Company acceded to: execution of agreements with Mr. Rieveley whereby he agreed to the cancellation 429,185 warrants at $0.375 per share; an undertaking signed by each of the directors recognizing that any further violations of Exchange requirements could result in a review of the acceptability of each of the directors and officers of the Company to be a director, officer, agent or consultant of any company traded on the Exchange.
> The Exchange also required that: the Company will ensure that its future public disclosures do not contain promotional language; that the Company disclose all relevant terms of contracts and agreements completed by the Company; and that the Company issue timely updates informing the marketplace of the status of events that are delayed or are not proceeding.
> - December 6, 2005 - it was announced that trading in the Company^s shares was halted on the TSX Venture Exchange pending the appointment of two independent directors to the Company^s board of directors satisfactory to the Exchange, including possessing the requisite degree of positive public company experience.- February 2, 2006 - it was announced that the TSX Venture Exchange had upgraded its halt trading announced in December to a suspension of trading in the Company^s shares on the Exchange.  The Company had presented one directorial candidate who was accepted by the Exchange.  (Subsequent to March 31, 2006, the Exchange accepted a second directorial candidate.)
> 
> 
> Capital ExpendituresThe following table details the company^s principal capital expenditures under the three categories of Property and Equipment, Technology Interests and Formulations and deferred costs since March 31, 2003:
> Property and Equipment for
> Continuing OperationsCost March 31, 2003
> $    249,991AdditionsProduction Equipment
> 46,780Laboratory Equipment
> 1,610Laboratory Equipment Reclassified fromEquipment Held for Resale
> 232,056Write-off of Fully Amortized ComputerSoftware
> (128,070)Cost March 31, 2004
> $         402,367AdditionsLaboratory Equipment
> 3,169Computer Equipment
> 2,254Cost March 31, 2005
> $         407,790AdditionsLaboratory Equipment
> 3,792Cost March 31, 2006
> $    411,582Technology InterestsCost March 31, 2003, 2004, 2005 and 2006
> $      4,461,282Formulations and Deferred CostsCost March 31, 2003
> $  2,517,726Write-off of fully amortized deferredCosts
> (2,514,045)Cost March 31, 2004
> $          3,681Write-off of fully amortized deferredCosts
> (3,681)Cost March 31, 2005 and 2006
> $                
> NilThe Company currently has no major capital expenditures in progress and has no commitments for such capital expenditures as at the date of this filing.
> 
> Public Takeover Offers
> 
> There have been no public takeover offers by third parties in respect of the Company^s shares or by the Company in respect of other companies^ shares in the last and current financial year.
> 
> B.	Business Overview
> 
> The Company^s business focus is on developing the distribution of the Company^s Type II Diabetes drug known as DIAB II (also known as Sucanon and Glucanin). The operations of the Company^s subsidiary for the development, manufacture and distribution of lotions and creams were discontinued during the year ended March 31, 2003, based on a management decision that the subsidiary had limited prospects for developing profitable operations in the near-term. The Company^s business focus remains the development and distribution of the Company^s Type II Diabetes drug, particularly in Mexico and Latin America.Sales and Revenue Activity AnalysisDuring the past three fiscal years, sales and revenue from the distribution of the Company^s personal care products and from the sale of its Type II Diabetes drug in Mexico, have had the following distribution amongst activities and geographic markets:
> Fiscal
> Fiscal
> Fiscal2006
> 2005
> 2004Drug Sales in Mexico
> $   482,840
> $              nil
> $                nilPersonal Care Product Division Sales:Canada (Discontinued Operations)
> nil
> nil
> 163,417U.S.A. (Returns) (Discontinued Operations)
> nil
> nil
> (65,135)Total Sales from Discontinued Operations
> nil
> nil
> 98,282Total Sales in Year
> $   482,840
> $             nil
> $        98,282Note: The Personal Care product business was discontinued during the year ended March 31, 2003. .  Under the terms of the lease agreement for the discontinued operations, the lessee fulfilled orders for the Company from February 1, 2003 to July 1, 2003 and paid the costs of production which were repaid by the Company from the proceeds of the orders sold.  The $(65,135) US sales in fiscal year 2004 resulted from returned goods that were manufactured in fiscal year 2003.  The consolidated statement of operations nets these sales with the expenses from these operations and reflects the losses from these discontinued operations as a single line item.Personal Care Products
> In a process known as private label manufacturing the Company manufactured products for a number of retail chain stores using Company developed formulations under the stores^ brand names.  In addition, the Company also manufactured products which were distributed direct to retailers under the Company^s brand names.
> 
> The operations of the Company^s subsidiary for the development, manufacture and distribution of lotions and creams were discontinued during the year ended March 31, 2003, based on a management decision that the subsidiary had limited prospects for developing profitable operations in the near-term.
> 
> As background information, the Company had minimal sales activity during the period from April 1995 to September 1996 so management decided to reactivate commercial production through private label manufacturing.  Initially private label sales increased steadily but started to decline in the two years prior to the closure of the business.  The operations did not prove profitable and, as a result, the decision was made to close.
> Pharmaceutical Business
> 
> Although the pharmaceutical business has not yet reached profitability, the Company has significant investment in capital and has expended considerable efforts in getting its Type II Diabetes drug registered in various countries in Latin America and elsewhere.  The potential of the drug has enabled the Company to receive financial support from its investors.
> 
> The pharmaceutical business is divided into the following regions:
> - China and other "Asia Countries" which are defined as Indonesia, Philippines, Malaysia, Kampuchea (Cambodia), Thailand, Laos, China, Mongolia, Japan, North Korea, South Korea, Vietnam, Hong Kong, Macao, and Singapore and;
> - All other countries.
> 
> Structure of the Chinese Pharmaceutical Business
> 
> The history and structure of the Company^s operations in China is described in the Company^s 20-F filings for the years March 31, 2005 and prior.  The Company suspended its Chinese operations during the fiscal year ended March 31, 2003 due to economic reasons.Structure of Other Countries Pharmaceutical Business
> 
> Allburg Holdings Inc.
> 
> Allburg Holdings Inc. ("Allburg"), previously known as Wanchi Inc., has been granted an exclusive license to manufacture and sell DIAB II, make any claims and to use all patent rights in all countries outside Oriental Asia.  As a condition of this license Allburg must sub-license these rights, and this sub-license may only be granted to companies that are at least 50% owned by the Company (see Exhibit 3.8 to the Company^s Registration Statement previously filed with the March 31, 1996 Form 20-F).  Allburg granted an exclusive license to sub-contract the manufacture and marketing of the Company^s Type II diabetes drug known variously as DIAB II, Sucanon and Glucanin make claims and to use all patent rights in countries outside Oriental Asia to Smithe Rothe Pharmaceutical, Inc. ("Smith Rothe").
> During 1999, Allburg sold a 25% interest in DIAB II to Immunis Corp. for $2.43 million worth of shares in Immunis.  In January 2001, the Company purchased that 25% interest from Immunis Corp. by issuing 8,613,419 of its common shares at $0.26 per share to Immunis Corp. for a total consideration of $2,239,489.  The Company has a 75% interest in rights to DIAB II in countries other than the Asia Countries.
> Pursuant to US GAAP, shares should be valued at the date of issue.  The closing price of 26 cents per share represents a 12 percent discount of the weighted average share price before and after the date of the transaction.  As per the above analysis, the number of shares issued represents a considerable discount from their intrinsic worth.
> 
> In December 2002, a Director of the Company purchased Allburg.  This purchase resulted in his indirect ownership of 25% of Smith Rothe.
> 
> History of Operations and Business Structure
> 
> Approval for the sale of the diabetes drug was received from Peruvian regulatory authorities in November 2001.  The Company couldn^t agree on terms with a suitable distributor in Peru because under the terms of the approval, as a prescription product, the drug could only be marketed directly through doctors.
> Approval for the sale of the diabetes drug was received from Mexican regulatory authorities in November, 2003 as a non-prescription medication for the reduction of symptoms of Type II diabetes.  The Company^s Type II Diabetes drug is variously known as DIAB II, Sucanon and Glucanin (hereinafter referred to as Sucanon).
> 
> During the year ended March 31, 2005, the Company entered into agreements with two non-related companies in Mexico.  The first company manufactures and packages the tablets from a pre-mix of active ingredients manufactured by the Company in Canada.  The second company distributes and markets the drug.
> 
> On December 1, 2004 the Company announced that it had received its first order for Sucanon.  Shipments of Sucanon were made starting in December 2004. Due to delays in the launch of the Company^s advertising campaign, it was felt that the Company had had future performance obligations to meet prior to recognizing initial sales. As a result, revenues of $50,278 in shipments made in the period from December 2004 to March 31, 2005 were deferred until the first quarter of the fiscal year ended March 31, 2006.
> 
> During the year ended March 31, 2006, Smith Rothe incorporated an operating company in Mexico, Pharmaroth Latin America S.A. de C.V. to co-ordinate the production and marketing of Sucanon in Mexico.Clinical Information for the Type II Diabetes Medication
> 
> 
> Clinical Trials
> 
> This drug is used both as a prophylactic and a therapeutic.  The clinical trials, which were undertaken under the name "DIAB II", have shown this drug to be effective and safe.  Although the clinical trial protocols are similar to those required for FDA approval, the stages specified below relate to the Chinese drug approval authorities.  Clinical trials were done in China because of the lower cost than would be the case in North America.
> Stage I trials were conducted on rat muscle cells.  Binding and internalization of insulin was evaluated as well as monitoring changes in intracellular glucose metabolism under dosage.
> Stage II trials were conducted on both dogs and rats.  Tests included general pharmacology, pharmokinetics, acute toxicity including establishing an LD50 rate, and long term toxicity.
> Stage III trials were conducted using three hospitals and sixty doctors.  Over 1,500 patients were interviewed and tested with the results from 370 patients submitted for approval in the first quarter of 1995.  Trials were conducted on a double blind basis.  Participation time for each applicant was six months including one month each before and after DIAB II treatment or placebos.  Dietary intake was strictly controlled with breakfast, lunch and dinner provided to participants.  Twice per week through the duration of the trial fasting glucose, fasting cholesterol and blood tests were conducted.  Once every two weeks 100 gram oral glucose tolerance tests were conducted.
> Although an approval has been received to market DIAB II in China, in Peru (during the 2001 fiscal year) and in Mexico (during the 2004 fiscal year), there can be no assurance supplemental clinical trials will demonstrate the required efficacy to obtain approval in other countries.  Failure to successfully complete the existing clinical trials or other clinical trials contemplated on a timely basis could have a material adverse effect on the Company^s future business, financial condition and results of operations.
> 
> Summary of Results
> 
> DIAB II is a synthesized compound that includes a synthetic and a herbal component, the two together having a significant hypoglycemic effect in Non-Insulin Dependent Diabetes Mellitus (NIDDM) patients.  Animal tests and clinical trials have shown that this product increases the binding and internalization of insulin in peripheral cells.  DIAB II is a promising new product for NIDDM therapy, especially for those with IGT and mild/medium NIDDM (<230 mg/dL, or <13 mmole/L).
> The results of the clinical trials were positive, achieving a high patient satisfaction rate and successfully reducing the clinical symptoms and signs of diabetes.  The dosage form utilized was successful, and the product has been approved for use as a drug in China, indicated as a therapy for NIDDM and IGT.  The following conclusions were reached by Clinical Trial Centers and approved by the Chinese Government:
> - 
> DIAB II reduces the clinical symptoms and signs of diabetes, which include polyuria, polydipsia, polyphagia, and fatigue.
> 
> - 
> DIAB II significantly lowers fasting venous plasma glucose levels and significantly improves the 2-hour glucose tolerance in NIDDM patients.
> -
> DIAB II is effective in 87% of the NIDDM patients in the clinical trial.
> 
> - 
> DIAB II significantly lowers fasting venous plasma cholesterol and triglyceride levels in NIDDM patients.
> 
> - 
> The dosage form of DIAB II is acceptable for clinical uses.
> 
> - 
> No adverse side effect was observed in the clinical trials.

This product has also shown significant benefit in combination uses with other oral hypoglycaemics, e.g. sulfonylureas and/or biguanides.  When used in combination with current hypoglycaemics, DIAB II is shown to decrease the primary and secondary failure to respond to these other agents, thus significantly improving the overall clinical success rate.

Manufacturing of the Drug

DIAB II is a pressed tablet that is coated and then packaged in a blister-pack form for distribution.  In order to safe-guard the proprietary information of the drug, the active ingredient in the drug is manufactured at the Company^s facility in Vancouver, British Columbia and then shipped to Mexico (and in the past to China) for tableting.  The tableting and packaging of the drug in Mexico is being undertaken on a contract basis by unaffiliated manufacturers.Marketing of DIAB II

It is intended that DIAB II will be marketed throughout the world under licenses granted by Volkspharm.  Volque has been granted an exclusive license to market DIAB II to all Asia Countries.  Allburg has been granted an exclusive license to market DIAB II to all countries other than Asia Countries.  Allburg must sub-license these rights, and the sub-license may only be granted to companies that are at least 50% owned by the Company or its subsidiaries.  The Company has a 75% interest in rights to DIAB II in countries other than the Asia Countries.  The 25% minority interest in these rights is owned by a Company controlled by a Director of the Company.

DIAB II is an oral hypoglycemic that typically requires a doctor^s prescription (in Peru and China), though the regulatory approval received in Mexico also permits Sucanon to be dispensed by a pharmacist  without prescription.  Prescriptions are filled through a pharmacy or through a hospital.  Pricing of the drug has been established so that it is affordable for the majority of the urban population in Mexico.

The primary market for DIAB II is IGT (Impaired Glucose Tolerance) and mild-medium NIDDM (Non-Insulin Dependent Diabetes Mellitus) patients.  At present, dietary therapy is the primary recommended regimen for IGT sufferers.

That regimen involves the close monitoring of a patient^s diet to reduce calorie intake in order to decrease blood sugar (glucose) levels.  However, complications arise due to the difficulty in monitoring the patient^s diet in order to achieve satisfactory blood sugar, nutrient and energy levels; similarly, as IGT and NIDDM severity increases, this dietary treatment has decreased effectiveness.

DIAB II has been tested successfully as an alternative to dietary therapy in treating IGT and mild-medium NIDDM patients, as it not only provides control of blood sugar levels but also gives patients a feeling of well being and enhances the metabolism of glucose at the cellular level.

In Mexico and Peru, where regulatory approval has been received, marketing of Sucanon (DIAB II) is to be carried out by marketing companies which are unrelated to the Company.

Sale of DIAB II Outside of Asia Countries

Allburg may grant the rights to sell DIAB II outside of Asia Countries, but only to companies in which the Company owns at least a 50% interest.  The names DIAB II and Sucanon has been trademarked for the marketing of the drug in North America.

During the 2004 fiscal year, the Company located a suitable space in the Vancouver, Canada area where equipment specifically related to Sucanon pre-mix manufacture was installed.  The facilities are used for pre-mixing of Sucanon powder for supply to tableters.  Tableting for the Mexico and Peru markets - the Company^s first markets outside China --- is carried out by a tableter in Mexico.Company Highlights of Fiscal 2006

The following are highlights of the Company^s business during fiscal 2006:

> - 
> April 8, 2005 - The Company announced that it had received and accepted an offer $621,181 for a private placement.  As a result of the private placement, 2,020,202 common shares were issued at $0.307 ($0.2475 USD) per share along with 2,020,202 warrants exercisable at $0.400 ($0.33 USD) each exercisable until October 6, 2006.  The funding was for advertising in Mexico.
> 
> - 
> April 15, 2005 - The Company announced that the commencement of the Sucanon infomercial was available viewing on the Company^s website.  The infomercial was produced for the Latin American market.
> 
> - 
> April 20, 2005 - The Company announced that it had received its first order for Sucanon from Wal-Mart in Mexico.
> 
> 
> 
> - 
> May 19, 2005 - the Company announced that national radio and television advertising for Sucanon in Mexico was scheduled to begin on May 26, 2005.  The advertising program for Sucanon was described as starting with a 28-minute infomercial on diabetes and Sucanon, to be broadcast more than 80 times during the first six weeks.  Shorter forms of the infomercial materials were expected to be broadcast subsequently.
> 
> - 
> July 14, 2005 - the Company announced that the average number of Sucanon packages shipped per month had increased from approximately 600 per month to 2700 in the month of June. The company indicated that it believed the increase was related to the start of television advertising of Sucanon in late May.
> 
> - 
> August 5, 2005 - the Company announced that revenues for the seven months from December 2004 through June 30, 2005 will be reported as sales in the quarter ending June 30, 2005 due to revenue recognition policies as described in the amended December 31, 2004 quarterly report and the Management Discussion and Analysis appended thereto, setting May 26, 2005 as the date of revenue recognition to fulfill advertising support agreements with customers.
> 
> - 
> November 21, 2005 - the Company announced that the TSXV had completed a compliance review and had identified a number of issues which in the Exchange^s view required clarification, particularly the fact of ongoing relationships that the Company had with a number of companies controlled by the CEO of the Company, Mr. Robert Rieveley and his spouse and contraventions of Exchange policy which had occurred pursuant to that fact.
> The resulting clarifications confirmed: that a company called R. Rieveley and Associates has provided financing and was as of June/05 owed $233,348 by the Company; that a company called Wenroth Limited ("Wenroth") provides financing via loans and as of June 30, 2005 was owed $13,497; that the company called Inreg Corporation ("Inreg") provides financing via loans bearing interest at 8% and was owed $96,265 by the Company as of June 30/05; that a company called Penne Investments has provided financing to the Company via loans but had no loans to the Company outstanding as of June 30, 2005; that Allburg Holdings Inc. ("Allburg") provides financing to the Company via loans and held as of June 30, 2005 a note payable of $116,927 and bearing interest at 8%; further that Allburg owns 25% of the Company^s 75%-owned subsidiary Smith Rothe Pharmaceutical Inc., which has been granted by the Company an exclusive license to manufacture and market the Company^s Sucanon Type II Diabetes medication in all countries outside Oriental Asia, in return for a royalty equal to 25% of Sucanon profits in any country where the license is granted, which royalties for the three months ended June 30/05 totalled $17,165; that a company called Seabright Holdings Ltd. indirectly finances the Company through Seabright^s owning of the shares of Allburg, Inreg and Wenroth, this ownership also making Allburg the largest creditor of the company; that the Company^s Sucanon medication is manufactured on behalf of the Company by a private company controlled by Robert Rieveley, which transfers Sucanon to the Company at cost, receiving no profit from the manufacturing operation, and the the private company was owed $6,092 as of June 30/05; that general security agreements registered with the provincial government in Victoria support the above-described loans and financing arrangements; additionally, that an independent director of the Company, Geoff Herring, owns a company, Grand Poisson & Chemical Consulting, which provides chemical analysis and quality control testing of the Company^s diabetes medication.
> The contraventions of Exchange policy were summarized in the report as follows: that the company failed to issue press releases disclosing the existence and terms of the above-noted agreements with the related parties; that the Company failed to disclose the related party agreements in the Company^s Management Discussion and Analysis ("MD&A") reports filed with audited and interim financial statements; that the Company failed to file with the Exchange in a timely manner the majority of related party agreements noted above; that the company failed to file for approval by the Exchange a majority of the agreements with related parties; that the Company had not disclosed all materials facts regarding development progress of Sucanon and the level of market acceptance of Sucanon.
> The Exchange also required the Company to provide a clarification regarding the drug or herbal remedy status of Sucanon, in response to which the Company pointed out that Sucanon has a natural or herbal component but that this does not preclude it from being classified as a drug since a class of herbally based drugs, which may be sold on an OTC basis, is available to Mexican regulators, who approved the use of Sucanon for reduction of symptoms of Type II Diabetes.
> The Exchange also determined that the Company^s signing policy was in contravention of Exchange policy requiring all company cheques to have two signatures; the Company complied with this requirement by implementing a policy of each cheque to be signed by an officer and by a director who are unrelated to each other. 
> The Exchange further determined that 429,185 shares plus warrants issued to Mr. Rieveley at $0.375, with an expiry date of January 6, 2006, had been issued in satisfaction of debt and not in consideration of cash and that by failing to file for this share issuance in compliance with Exchange policy the Company had inadvertently made an incorrect filing to the Exchange.
> In addition to the above, the Exchange required and the Company acceded to: execution of agreements with Mr. Rieveley whereby he agreed to the cancellation 429,185 warrants at $0.375 per share; an undertaking signed by each of the directors recognizing that any further violations of Exchange requirements could result in a review of the acceptability of each of the directors and officers of the Company to be a director, officer, agent or consultant of any company traded on the Exchange.
> The Exchange also required that: the Company will ensure that its future public disclosures do not contain promotional language; that the Company disclose all relevant terms of contracts and agreements completed by the Company; and that the Company issue timely updates informing the marketplace of the status of events that are delayed or are not proceeding.
> - 
> December 6, 2005 - it was announced that trading in the Company^s shares was halted on the TSX Venture Exchange pending the appointment of two independent directors to the Company^s board of directors satisfactory to the Exchange, including possessing the requisite degree of positive public company experience.
> 
> - 
> February 2, 2006 - it was announced that the TSX Venture Exchange had upgraded its halt trading announced in December to a suspension of trading in the Company^s shares on the Exchange.  The Company had presented one directorial candidate who was accepted by the Exchange.  (Subsequent to March 31, 2006, the Exchange accepted a second directorial candidate.)
> 
> Subsequent to March 31, 2006, the Company made the following announcements:
> 
> - 
> June 23, 2006 - it was announced, the Board of Directors replaced  896,000 stock options exercisable at $0.25 per share which expired on January 2, 2006, with new stock options exercisable at $0.16 per share. The replacement options vest on October 22, 2006 and expire on June  22, 2008.  A total of 560,000 of these options were granted to Directors and Officers of the Company and the remaining 336,000 were granted to Consultants to the Company.
> 
> - 
> The Board of Directors also replaced 545,000 stock options exercisable at $0.55 per share which expired or were cancelled by March 24, 2006 with new stock options exercisable at $0.10 per share. These replacement options will vest October 22, 2006 and expire on June 22, 2008. A total of 470,000 of these options were granted to directors and officers and 75,000 were granted to consultants to the company.  The stock options described above comply with the Stock Option Plan approved by the shareholders on September 30, 2005 and are subject to the approval of the TSX Venture Exchange.
> 
> - 
> In July 2006 the trustee acting in the proposal of the Company filed a certificate with the Supreme Court of British Columbia that certified that the Company had fully performed its obligations required under the proposal.  At the same time, the trustee acting in the proposal of Biotech Laboratories Inc. filed a notice of default with the Supreme Court of British Columbia stating that the creditors could take proceedings to place Biotech Laboratories Inc. in bankruptcy at their own expense.
> 
> Research & Development - the Company^s Type II Diabetes drug
> 
> Research expenditures are expensed in the year in which they are incurred.  During fiscal 2006 the Company expensed $Nil (2005 - $5,576 and 2004 - $18,682) in drug related research costs.
> It is the Company^s policy to defer all costs that relate to the development of new products where management is satisfied as to the technological, commercial and financial viability of individual products.  These costs are amortized on a straight-line basis over a five year period.  All deferred development costs were fully amortized in the year ended March 31, 2005 and no additional amounts were capitalized.
> Patents and Proprietary Information
> 
> 
> The Company, itself and through Volque, pursues a policy of seeking patent protection where possible for the valuable patentable subject matter of its proprietary technology.  The Company believes that patent and trade secret protection is important in its business, and that its success will depend, in part, on its ability to obtain and enforce strong patents, to maintain trade secret protection and to operate without infringing the proprietary rights of others.  Volkspharm has patent applications pending in Canada on DIAB II for which the Company, through Allburg (see "Associated Company" above), has been granted exclusive licensing rights to countries other than Asia Countries.  See Exhibit 3.8 "Assignment of 50% Interest Rights" of the Company^s Registration Statement (previously filed with the March 31, 1996 Form 20F).
> No assurance can be given that patents will issue from any pending applications or that claims now or in the future, if any, allowed under issued patents will be sufficiently broad to protect the Company^s technology.  In addition, no assurance can be given that patents issued or licensed by the Company will not be challenged, invalidated, infringed or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company.  The commercial success of the Company will also depend in part on the Company or any of its affiliates not infringing patents or proprietary rights of others and not breaching the licenses granted to the Company.
> Although the Company is presently unaware of the need for or risk of any such action, litigation, which could result in substantial cost to the Company, may also be necessary to enforce any patents issued to the Company and/or Volkspharm or to determine the scope and validity of other parties^ proprietary rights, which may affect the Company^s products and technology.  If the outcome of any such litigation is adverse to the Company, the Company^s business could be materially affected.  To determine the priority of invention, the Company and/or Volkspharm may also have to participate in interference proceedings declared by the United States Patent and Trademark Office, which could result in substantial cost to the Company.
> Patent protection is provided in the People^s Republic of China "PRC" through the Patent Law of the People^s Republic of China of 1984 ("PRC Patent Law").  For a discussion of the differences between U.S. and PRC patent law, please refer to the Company^s Registration Statement previously filed with the March 31, 1996 Form 20F.
> There has been, and the Company believes that there may be in the future, significant litigation in the industry regarding patent and other intellectual property rights and that, if the Company becomes involved in such litigation, it could consume substantial resources.  Significant legal issues frequently arise regarding the extent to which patent protection is afforded in the pharmaceutical field.  The Company, therefore, also relies upon trade secrets, know-how, and continuing technological advancement to develop and maintain its competitive position.  Disclosure and use of the Company^s know-how is generally controlled in part under confidentiality agreements with the parties involved.  In addition, the Company has confidentiality agreements or non-disclosure agreements with certain of its key employees, consultants, officers and directors.  There can be no assurance, however, that all confidentiality agreements will be honored, that others will not independently develop equivalent technology, that disputes will not arise as to ownership of intellectual property, or that disclosure of the Company^s trade secrets will not occur.  Furthermore, there can be no assurance that others have not obtained or will not obtain patent protection that will exclude the Company from using its trade secrets and confidential information.  Non-disclosure or confidentiality agreements would be difficult and expensive to enforce, and may not be upheld by the courts, especially those of foreign nations.  Inability to protect any patents or enforce its non-disclosure or confidentiality agreements, especially in foreign countries where much of the Company^s business may be established, could enable others to take advantage of the Company^s technology without compensation, causing it substantial economic loss.
> The Company believes its competitive position in the diabetes therapy market has some strengths.  First, the Company^s Sucanon (DIAB II) product is clinically effective and may have fewer side effects than competing products as a diabetes monotherapy.  In addition, Sucanon may also be an effective combination therapy. The President of the Company received, during calendar year 2000, two U.S. patents covering use of an insulin-sensitizing drug in a combination with a standard therapy for Type II Diabetes.  These rights, as they pertain to Sucanon, were assigned to the Company in December 2001.  Third, the Company believes that industrial processing and trade secrets are sufficient to maintain confidentiality and control over the production of Sucanon, whether patents for the product are granted or not.
> Competition
> 
> 
> The pharmaceutical and biotechnology industries are characterized by rapidly evolving technology and intense competition.  The Company anticipates that it will face increased competition in the future as new products enter the market and advanced technologies become available.  There can be no assurance that existing products or new products developed by the Company^s competitors will not be more effective, or be more effectively marketed and sold, than any that may be developed by the Company.  Competitive products may render the Company^s products obsolete and non-competitive prior to the Company^s recovering research, development or commercialization expenses incurred with respect to any such products.  The Company^s competitors include major pharmaceutical, diagnostic, chemical and biotechnology companies, many of which have financial, technical, and marketing resources significantly greater than those of the Company.  Many of the Company^s existing or potential competitors, particularly large pharmaceutical companies, also have significantly greater experience than the Company in undertaking research, preclinical studies and human clinical trials of new pharmaceutical products, obtaining FDA and other regulatory approvals, and manufacturing and marketing such products.  Accordingly, the Company^s competitors may succeed in commercializing products more rapidly or effectively than the Company, which could have a material adverse affect on the Company^s business, financial condition or results of operations.
> In addition, many biotechnology companies have formed collaborations with large, established pharmaceutical companies to support research, development and commercialization of products that may be competitive with those of the Company.  Academic institutions, government agencies and other public and private research organizations are also conducting research and seeking patent protection and may commercialize products on their own or through joint ventures.  The Company is aware of certain products manufactured or under development by competitors that are used for the detection or treatment of diabetes, the markets which the Company has targeted for product commercialization.  The existence of these products, or other products or treatments of which the Company is not aware, or products or treatments that may be developed in the future, may adversely affect the marketability of products developed by the Company.
> Many pharmaceutical and biotechnology companies, alone and in collaboration with larger pharmaceutical companies, have developed and are marketing, or are developing, various products for the treatment of diabetes.
> There are three basic classes of existing drugs for the treatment of NIDDM: sulfonylureas,  biguanides and insulin sensitizers.  Acarbose is being marketed at the present as a fourth class; however, for the purposes of this document it will be considered as similar to the biguanides.  The primary mechanism of the sulfonylurea group of drugs is to stimulate increased insulin production from the pancreas in an attempt to enhance glucose utilization.  The biguanide and acarbose group of drugs in general act to decrease glucose absorption in the digestive tract.  By comparison the insulin sensitizers act to re-sensitize the cell membrane to enhance the uptake of glucose. Some drugs frequently described as  biguanides, such as metformin, also have significant insulin-sensitizing characteristics and can also be classified as insulin-sensitizers.
> Other than biguanides with insulin-sensitizing action, there are, in addition to DIAB II, only two insulin sensitizers which currently have regulatory approval anywhere in the world; a third one, troglitazone (brand name "Rezulin") was withdrawn from the market world-wide due to concerns regarding liver toxicity.  Leaving asides the biguanides with insulin-sensitizing action and DIAB II, the existing insulin-sensitizers are all in the glitazone or TZD (thiazolidinendione) class and  are generally described as peroxisome proliferator-activated receptor agonists ("PPAR agonists").  The main action of these agents is to enhance glucose uptake by peripheral cells.  The activity of PPAR^s is believed to be strongest in white fat tissue.  The "glitazones" have a number of side-effects reported during the trial process including increased liver dysfunction and weight gain.
> The mechanism of action of DIAB II on the other hand as an insulin sensitizer is to enhance the binding of insulin to the receptor sites primarily  in  muscle cells, increasing the sensitivity of such cells to insulin.  This increased sensitivity results in enhanced absorption and consequently, utilization of glucose in the muscle cells.
> All drugs in these classes have been shown to be effective in resolving the medical condition of high blood sugar levels; however, there is a considerable variance amongst the drug classes in the degree of side effects experienced and the long term efficacy in all patients.  It is intended that DIAB II will be marketed based on the benign nature of the drug as well as the subjective benefits associated with the increased utilization of glucose experienced during DIAB II usage.
> Generally, sulfonylureas and biguanides are prescribed to NIDDM patients with serum blood glucose levels above 140 mg/dL only after dietary regimens fail to control the condition.  Diabetes Mellitus is a prolonged disease, and it is clinically difficult to administer sulfonylureas for too long a period.  The difficulties for long term use arise from a wide variety of side-effects and drug resistance.
> For Sucanon (DIAB II), an important factor in competition may be the timing of market introduction of the Company^s or competitors^ products.  Accordingly, the relative speed with which the Company^s competitors can develop products, complete the clinical trials and approval processes, and supply commercial quantities of the product to the market are key factors for competitiveness.  The Company^s competition will be determined in part by the potential indications for which the Company^s products receive approval by regulatory authorities.  The development by competitors of new treatment methods for diabetes could render the Company^s drug non-competitive or obsolete.  The Company expects that competition among products approved for sale will be based, among other things, on product efficacy, safety, reliability, availability, price and intellectual property protection.
> The Company^s competitive position also depends upon its ability to secure market acceptance for its Type II Diabetes drug.  There can be no assurance that Sucanon (DIAB II) will achieve market acceptance.  The degree of market acceptance will depend upon a number of factors, including the receipt of regulatory approvals, the establishment and demonstration in the medical community of the clinical efficacy and safety of Sucanon (DIAB II), and the establishment and demonstration of the potential advantages over existing and new treatment methods and reimbursement policies of government and third party payors.  There can be no assurance that physicians, patients, payors or the medical community in general will accept and utilize Sucanon (DIAB II).  Additionally, the Company^s competitive position depends upon its ability to attract and retain qualified personnel, obtain patent or other proprietary protection, establish collaborative relationships and secure manufacturing.
> As noted above in reference to TZD drugs, the principal competitors to Sucanon (DIAB II) for diabetes therapy are "Avandia" from GlaxoSmithKline and "Actos" from Eli Lilly.  The Company believes that its Sucanon (DIAB II) product will be able to compete effectively in the marketplace based on studies that have been carried out showing that Sucanon is clinically effective and may have fewer side effects than the competitor drugs.
> Government Regulation
> 
> 
> Regulation by governmental authorities in Canada, the United States and other countries is a significant factor in the production and marketing of Sucanon (DIAB II) and the Company^s ongoing research and development activities. Sucanon (DIAB II) has received approval for sale in China, Peru and Mexico. In November 3, 2003 the Company announced that it received formal written approval from the Mexican national regulator for the sale of Sucanon in Mexico.
> Pharmaceutical and biological products intended for therapeutic or prophylactic use for humans are governed by the FDA in the United States, by the Health Protection Branch ("HPB") in Canada and by comparable agencies in other countries.  For most of these products, the regulations require extensive clinical trials and other testing and government review and final approval prior to marketing the product.  This procedure is likely to take a number of years and involves the expenditure of substantial resources.  For example, before obtaining regulatory approval for the commercial sale of Sucanon (DIAB II) in Canada and the United States, the Company must demonstrate through preclinical studies and clinical trials that the product is safe and efficacious.  The results from the Company^s preclinical studies and early clinical trials may not be predictive of results obtained in large-scale clinical trials, and there can be no assurance that the Company^s or its collaborators^ clinical trials will demonstrate safety and efficacy even though the results indicating safety and efficacy were achieved in human clinical trials results in China.  There can be no assurance that regulatory approval will be received for any countries other than those already received (China, Peru and Mexico).  A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials.  In addition, government regulations specify standards for manufacturing and marketing pharmaceutical products.  Any failure by the Company or its collaborators or licensees to obtain, or any delay in obtaining, regulatory approvals, could adversely affect the marketing of Sucanon (DIAB II) and its ability to receive product or royalty revenue.  There can be no assurance that Sucanon (DIAB II) will be approved by the FDA, HPB or any other government agency on a timely basis, if at all.
> Sales of therapeutic products outside Canada and the United States are subject to regulatory requirements that vary widely from country to country.  Whether or not FDA or HPB approval has been obtained, final approval of a product by comparable regulatory authorities of other countries must be obtained prior to the commencement of marketing the product in those countries.  The time required to obtain any such approval may be longer or shorter than that required by FDA or HPB approval.
> International Operations
> 
> 
> It is management^s intention that marketing of Sucanon (DIAB II) will be conducted through a partnership with either local distributors or through the creation of a strategic alliance with a large multi-national pharmaceutical company.  To that end, management of the Company has had preliminary discussions with a number of multi-national corporations.  These discussions have involved licensing of the product for distribution in selected areas of the world.  The Company has also received a number of enquiries from distribution firms around the world with respect to the licensing of this drug.  The Company is taking contact with potential national distributors in Latin American countries and elsewhere in the world that may be interested in purchasing Sucanon pre-mix and producing, packaging, marketing  and distributing Sucanon tablets in their own markets.
> Most of the Company^s sales of Sucanon (DIAB II) are expected to be made in international markets.  The Company will require regulatory approval prior to undertaking sales activity in a particular country.  Sales of Sucanon (DIAB II) in international markets are subject to certain risks common to such sales, including government regulation, export and import license requirements, risks of tariffs or trade barriers and political and economic instability.  There can be no assurance that these risks will not materially adversely affect the Company in the future.
> The Company expects to price sales of its products in the currency of the country in which it is sold.  Accordingly, the prices of its products in Canadian dollars will vary as the value of the Canadian dollar fluctuates against such local currencies.  In addition, any royalty payments to be made to the Company will be made as a percentage of sales denominated in the currency of the country where sales are made.  There can be no assurance that there will not be increases in the value of the Canadian dollar against such currencies, reducing the Canadian dollar return to the Company on the sales of its products.  Furthermore, there can be no assurance that significant fluctuations in foreign currency values will not occur that will create sufficient differences in the relative prices of the products in different countries, such that the Company will find it necessary to reduce its prices in certain local currencies in order to bring the relative cost of its products into line.  Although the Company may seek to implement hedging techniques with respect to its foreign currency transactions in the future, it does not currently do so, and there can be no assurance that such techniques, if employed, would be successful.
> In Mexico, where the Company initiated sales of Sucanon (DIAB II) in the first quarter of fiscal 2006, distribution and marketing of DIAB II under the trade name Sucanon has been carried out by an independent Mexican marketing group. The company opened an office in Mexico to co-ordinate the marketing efforts and the supply of Sucanon to the market in Mexico.  The Company does not plan to be involved in the sales and marketing of Sucanon in Peru and other countries and plans to engage the services of third-party marketing companies to achieve its distribution and marketing goals.
> Product Liability
> 
> 
> The use of any of the Company^s products in clinical trials, and the sale of any approved products, may expose the Company to liability claims resulting from the use of its products.  These claims might be made directly by consumers, healthcare providers or by pharmaceutical companies or others selling such products.  The Company currently has liability insurance which includes all products sold by the Company in Canada and the United States.  The Company^s product liability insurance does not cover liability claims with respect to clinical trial products or for any product sold by Volque.  There can be no assurance that the Company will be able to obtain or maintain sufficient, commercially reasonable product liability insurance for any products approved for marketing.  A product liability claim brought against the Company could have a material adverse effect on its business, financial condition or results of operations.
> C.   Organizational Structure
> 
> The following table provides details of the Company^s significant present subsidiaries:
> 
> 
> Percent
> Biotech^sPercent
> of Direct
> ProportionCountry of
> of Direct
> & Indirect
> of VotingSubsidiary Name
> Incorporation
> Ownership
> Ownership
> PowerBiotech Laboratories Inc.
> Canada
> 100.0%
> 100.0%
> 100.0%401718 B.C. Ltd. (formerlyBiotech Holdings Inc.)
> Canada
> 100.0%
> 100.0%
> 100.0%314202 B.C. Ltd
> Canada
> 100.0%
> 100.0%
> 100.0%Volkspharm Healthcare Incorporated
> Canada
> 0.0%
> 37.5%
> 50.0%Volque Pharmaceutical Company Ltd.
> Smith Rothe Pharmaceutical, Inc.
> China
> Barbados
> 40.0%
> 75.0%
> 59.1%
> 75.0%
> 59.1%
> 75.0%During the year ended March 31, 2006, Smith Rothe incorporated an operating company in Mexico, Pharmaroth Latin America S.A. de C.V. to co-ordinate the production and marketing of Sucanon in Mexico.
> D. Description of Property
> Manufacturing Facility
> 
> In January, 2004 the Company leased a location in the Vancouver, BC area, totaling approximately 2,400 square feet, for housing equipment and facilities for production of pre-mix powder for Sucanon (DIAB II), which is at present the Company^s sole product.
> The equipment in the former manufacturing facility was moved out of the former production facilities and equipment not related to the production of the Type II Diabetes drug has been stored and is held for resale.  The proceeds from the equipment sale will be applied to secured outstanding debts of the Company.
> There are a number of related-party notes payable issued which have been collateralized by the assets of this facility totaling approximately $0.64 million (2005: $0.45 million).  (See Note 6 of the Consolidated Financial statements attached.)
> Tableting, Filling and Packaging
> 
> When the Company discontinued its lotions and creams operation in fiscal 2003, the Company retained critical pieces of equipment for manufacture of DIAB II pre-mix powder and for quality control of ingredients and the final product.  This equipment, plus the subsequent purchases of additional equipment is adequate to meet production  requirements of DIAB II (Sucanon) in the Mexico and Peru markets.
> Sales and Administration Office
> 
> 
> The sales and administration office is a 2,600 square foot leased premises located in suburban Vancouver.  The use of this office is expected to be meet the Company^s requirements at least for the next three years.
> Item 5		Operating and Financial Review and Prospects
> 
> A.     	Operating Results
> 
> US Generally Accepted Accounting Principles
> The Consolidated Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP").  Differences with generally accepted accounting principles in the United States ("U.S. GAAP"), are set forth in Note 18 to the Consolidated Financial Statements of the Company (Item 17 of this Form 20F).  Some accounting policies have a significant impact on the amounts reported in these financial statements. The Consolidated Financial Statements includes a section describing the Company^s significant accounting policies
> Year Ended March 31, 2006 Compared
> With Year Ended March 31, 2005
> Operating Results
> 
> Shipments of the Company^s Type II Diabetes drug Sucanon started in December 2004.  Due to unexpected delays in the launch of the TV advertising campaign for Sucanon, it was felt that a retailer would have had a reasonable expectation that the advertising should have started sooner and that the Company therefore had future performance obligations to meet prior to recognizing the $50,278 sales to March 31, 2005.  The shipments from December 2004 to June 30, 2005 were therefore recognized as revenue in the quarter ended June 30, 2005, when the TV advertising campaign began (May 26, 2005).
> Revenues from the sale of Sucanon in the year ended March 31, 2006 were $482,840 which resulted in a Gross Profit of $353,553.  There were no revenues in the same period endedMarch 31, 2005.
> Operating expenses totaled $2,366,422 representing a $611,294 (34.8%) increase from the $1,755,128 expenses incurred in the year ended March 31, 2005.  The expense categories with significant increases included:
> a. The Company incurred $571,985 in product marketing costs in the year.  These expenses were included in amounts receivable throughout the year because they were considered to be advances to the marketing company for advertising and were wholly repayable once sales levels reached a certain contracted level.  Management and the audit committee met to review developments with regard to these amounts; this review led to a determination to expense a significant portion of these advances.
> 
> 
> b. The Company deals predominantly in US Dollars in Mexico.  Due to the strengthening of the Canadian dollar against the US dollar, the Company had a $60,101 foreign exchange loss
> 
> c.	General, administrative and selling expenses increased from $438,704 to $658,529 ($219,825 or 50.1%) in the year.  Mexican office expenses (the Mexican office only operated for part of the prior year) increased by $98,721.  Salaries and benefits increased by $38,890 and Communication and travel expenses increased by $22,874.
> 
> The net loss for the year was $1,936,645 which was $420,574 (27.7%) higher than the $1,516,071 loss incurred in the year ended March 31, 2005.
> 
> Financial Highlights
> 
> Operating activities used $989,047 (2005: $964,746) in cash while financing activities provided $573,786 (2005: $1,007,647) in cash flow and investing activities provided $42,936 (2005: $21,072) in cash.  As a result cash decreased $372,325 (2005: increased $63,973) in the year.  As at March 31, 2006, the working capital deficiency was $2,083,586 (2005: $1,644,095).
> Management plans to raise debt and equity capital on a private placement basis to finance the operating and capital requirements of the Company.  It is management^s intention to continue using debt and equity to finance planned capital expansion and initial market development in Latin America and other markets and operations until such time as the Company^s operations are self-sustaining.
> During the year ended March 31, 2006, the Company issued a total of 2,095,202 common shares for consideration of $638,431 ($573,786 net of private placement finder^s fees). After taking into account the $1,936,645 loss in the year, and adding back the $283,544 in stock-based compensation expense and the common share issuances, the shareholders^ deficiency has increased from $678,184 as at March 31, 2005 to $1,757,499 as at March 31, 2006.
> Year Ended March 31, 2005 Compared
> With Year Ended March 31, 2004
> Operating Results
> 
> During the year ended March 31, 2005, the Company^s business focus was on the development and the distribution of the Company^s Type II Diabetes drug variously known as DIAB II, Sucanon and Glucanin (hereinafter referred to as Sucanon). The Company^s business focus remains the development and distribution of Sucanon, particularly in Mexico and Latin America.  Approval for the sale of the diabetes drug was received from Mexico in November, 2003.
> The manufacture of Sucanon began in the fiscal year ended March 31, 2005.  The Company manufactures a pre-mix of the active ingredients in British Columbia.  The pre-mix is shipped to a non-related manufacturer in Mexico for tableting and packaging.  Quality control of the tablets manufactured in Mexico is carried out by a random selection of coated and uncoated tablets which are sent to Vancouver for quality control tests at the Company^s production facilities and other facilities in the Vancouver area.
> In December 2004, the Company began shipping its Type II Diabetes drug Sucanon to Mexican retailers.  Shipments in the month had a wholesale value of $29,147 and were previously reported in the Company^s third quarter financial statements.The Company reviewed its accounting policy for revenue recognition and at that time was satisfied that the conditions for revenue recognition were met.
> In July 2005, management met with the Company^s Audit Committee and the Company^s auditors to discuss the year end financial statements.  The question of revenue recognition was discussed at length.  It was noted that collections for these shipments did not commence until June 2005, which was beyond their credit terms.  Upon further investigation, it was determined that there were unexpected delays in the launch of the TV advertising campaign for Sucanon until May 26, 2005.  It was felt that a retailer would have had a reasonable expectation that the advertising should have started sooner and that as at December 31, 2004, the Company therefore had future performance obligations to meet prior to recognizing the $29,147 sales previously reported.  In retrospect, with regards to conservatism, the shipments of December and subsequent shipments were not recognized until May 26, 2005 (the first quarter of the fiscal year ended March 31, 2006) when the TV advertising campaign began.
> The third quarter financial statements of fiscal 2005 were amended and restated to satisfy this more stringent approach to the Company^s revenue recognition policy. The overall effect that the restatement on the third quarter results had assets reduced by $23,358, liabilities reduced by $3,743, non-controlling interest reduced by $4,432 and the net loss and deficit for the quarter and 9 month period was increased by $17,183.  Although the overall effect of these adjustments may not be considered material, the fact that sales were being eliminated from the Consolidated Statements of Operations may be perceived as material.
> The Company would like to emphasize that the product was shipped in the period and deferred the recognition of these sales until the quarter ended June 30, 2005.  The Company believed that it had set in place safeguards to ensure the collection of these receivables.
> Operating expenses increased from $1,460,669 in 2004 to $1,755,128 in 2005.  The $294,459 increase represents a 20.2% increase over the prior year.  Expenses with significant increases include stock based compensation increased $315,323, plant set-up costs increased $105,311.  Interest on current debt was reduced by $131,454.
> The net loss for the year was $1,516,071 which was $790,880 (34.3%) less than the $2,306,951 loss incurred in the year ended March 31, 2004.
> Financial Highlights
> 
> Operating activities used $964,746 (2004: $225,003) in cash while financing activities provided $1,007,647 (2004: $564,851) in cash flow and investing activities provided $21,072 (2004: $19,172) in cash.  As a result cash increased $63,973 (2004: $359,020) in the year.  As at March 31, 2005, the working capital deficiency was $1,644,095 (2004: $2,156,781).
> Management plans to raise debt and equity capital on a private placement basis to finance the operating and capital requirements of the Company.  It is management^s intention to continue using debt and equity to finance planned capital expansion and initial market development in Latin America and other markets and operations until such time as the Company^s operations are self-sustaining.
> During the year ended March 31, 2005, the Company issued a total of 2,592,091 common shares for consideration of $1,007,647. After taking into account the $1,516,071 loss in the year, and adding back the $386,504 in stock-based compensation expense and the common share issuances, the shareholders^ deficiency has increased from $556,264 as at March 31, 2004 to $678,184 as at March 31, 2005.
> Foreign Currency Fluctuations
> 
> The Company^s main source of revenues and purchases are from Canada and the United States.  The Canadian dollar has not been subjected to wide fluctuations when compared to the US dollar.  As a result, foreign exchange has not had a material effect on the Company^s operations.
> Legal Proceedings
> 
> On December 12, 2002, the Company filed a proposal under federal creditor protection legislation in Canada.  The purpose of the filing of the proposal was to protect the interests of all stakeholders of the Company from an action taken by the landlord of Laboratories.  The lease of the plant was in the Company^s name.  The landlord in question undertook to seize Laboratories assets and the filing of the proposal prevented the landlord^s seizure from continuing.
> On May 21, 2003, both the Company and Laboratories received approval from the Supreme Court of British Columbia in the matter of two proposals regarding its creditors pursuant to the Bankruptcy and Insolvency Act of Canada.  These proposals, accepted by the required majority of creditors, allows for the operating subsidiary to maintain operations and generate funds from those operations to pay a portion of its pre-proposal liabilities.  Under the proposal, preferred creditors shall be paid in full in priority to all claims of unsecured creditors.  Provision for payment of claims of unsecured creditors shall be made in the lesser amount of 10% and $25,000 on each day, which is one year, one year six months and two years, respectively, after the end of the month of court ratification.  The proposals also allow the companies to provide ongoing business to its suppliers.  Creditors of the subsidiary after the filing of the proposal will be paid in full, in priority to preferred and general unsecured creditors.
> In July 2006 the trustee acting in the proposal of the Company filed a certificate with the Supreme Court of British Columbia that certified that the Company had fully performed its obligations required under the proposal.  At the same time, the trustee acting in the proposal of Biotech Laboratories Inc. filed a notice of default with the Supreme Court of British Columbia stating that the creditors could take proceedings to place Biotech Laboratories Inc. in bankruptcy at their own expense.
> The Company is the subject of legal disputes arising from the normal course of business.  In 1998, Cheron Holdings Ltd., one of Holdings^ previous suppliers, filed a claim against Biotech Holdings Inc. in B.C. Supreme Court, Kamloops Division, for $711,000 which exceeds the payable amount on Holdings^ books by approximately $250,000.  This supplier is claiming non-payment of outstanding amounts.  Management has issued a $1 million counter claim to this suit. On September 11, 1998 Holdings sold the operational assets to Biotech Laboratories Inc., another subsidiary of Biotech, in exchange for the assumption of $2,000,000 in collateralized debts on the books of Holdings.  This action was taken in order to continue operations until settlement of both the claim and the counter suit.  The operations of Holdings are now being carried on by Laboratories. The outcome of the legal disputes is not determinable; however, in the opinion of management, they would not have a material adverse financial impact on the Company.  There has been no legal activity on this claim since the filing of the Company^s $1 million counter claim.
> Governmental, Economic, Fiscal and Political Influences
> 
> None of the above influences have materially affected the operations of the Company in the past.  Canada is an original partner in the North American Free Trade Agreement (NAFTA) and as a result enjoys the economic benefits that this agreement provides.
> B. Liquidity and Capital Resources
> 
> As referred to previously, the Company has incurred operating losses in each of the last three fiscal years and has an accumulated deficit of $29,595,443 and a Shareholders^ Deficiency of $1,757,499 at March 31, 2006.  These factors, among others, raise substantial doubt about the Company^s ability to be able to continue as a going concern.  The future of the Company and the realization of its asset values will depend upon the Company^s ability to obtain adequate financing and continuing support from shareholders and creditors including refinancing and to attain profitable operations.
> Management plans to raise debt and equity capital on a private placement basis to finance the operating and capital requirements of the Company.  It is management^s intention to continue using debt and equity to finance planned capital expansion and initial market development in Latin America and other markets and operations until such time as the Company^s operations are self-sustaining.
> During the year ended March 31, 2006, the Company issued a total of 2,095,202 common shares for consideration of $638,431 ($573,786 net of private placement finder^s fees). After taking into account the $1,936,645 loss in the year, and adding back the $283,544 in stock-based compensation expense and the common share issuances, the shareholders^ deficiency has increased from $678,184 as at March 31, 2005 to $1,757,499 as at March 31, 2006.
> Operating activities used $989,047 (2005: $964,746) in cash while financing activities provided $573,786 (2005: $1,007,647) in cash flow and investing activities provided $42,936 (2005: $21,072) in cash.  As a result cash decreased $372,325 (2005: increased $63,973) in the year.  As at March 31, 2006, the working capital deficiency was $2,083,586 (2005: $1,644,095).
> Commitments for Capital Expenditures
> 
> The Company has not made any material commitments for capital expenditures during the year or during the subsequent interim period.
> C. 
> Research and Development
> 
> Research expenditures are expensed in the year in which they are incurred.  During fiscal 2006 the Company expensed $Nil (2005 - $5,576  and 2004 - $18,682) in drug related research costs.
> It is the Company^s policy to defer all costs that relate to the development of new products where management is satisfied as to the technological, commercial and financial viability of individual products.  These costs are amortized on a straight-line basis over a five year period.  All deferred development costs were fully amortized in the year ended March 31, 2005 and no additional amounts were capitalized.
> D.     Trend Information
> 
> The Company intends to maintain fixed monthly overhead in the $150,000 range during the balance of the 2007 fiscal year, while focusing strictly on advancing Sucanon (DIAB II) production and marketing for markets in Latin America.  Maintenance of overhead at these relatively low levels is expected to be achieved by limiting any expansion of head-office overhead and sub-contracting sales and marketing to arms^ length companies in the Latin American markets where Sucanon is planned to be launched.
> Mexico is a significant pharmaceutical market, the eighth largest in the world.  The Mexico and Peru markets together comprise approximately 150 million people, with a higher prevalence of Type II Diabetes than in North America.  Given that sales in these markets are projected to have relatively high profit margins for the Company, entry into these markets would be likely to have a significantly positive effect on the Company^s revenues.  Furthermore, the Company plans to submit essentially the same regulatory application package, that has received approval in Mexico, in a number of other Latin American countries where the Company has distribution agreements, specifically, Chile, Argentina, Venezuela and Colombia.
> 
> The Company has been suspended from trading since December 6, 2005 on the TSX Venture Exchange. During the period of suspension, sales of the Company^s Sucanon diabetes medication continued in Mexico through distributors set up by a Mexican marketing company. While sales have continued through these distributors, marketing efforts with regard to making direct contact with clinics, doctors and patients have been taken over increasingly by the Company^s management group in Mexico.
> The Company has also been working to open markets for Sucanon in Latin America beyond Mexico. In Argentina, the Company has selected a distributor for Sucanon. This distributor is in the process of preparing a submission to Argentina^s medical regulator.  The time-frame for this regulatory submission is not known at this point and there is no assurance that a regulatory submission, in Argentina, if made, will lead to approval of Sucanon for the Argentine market. As Argentina and Mexico both belong to the Mercosur Agreement, under which pharmaceutical approval in one Mercosur country expedites approval in other Mercosur countries, the Company believes that a regulatory approval in Argentina is likely. The costs of making the application are borne by the distributor.
> The Company has also started discussions with a potential distributor for the United Arab Emirates. There is no assurance that sales in this market will occur or will be material. The Company has been advised that no regulatory approval is necessary for the sale of Sucanon in this market.
> Item 6 Directors, Senior Management and Employees
> A. 
> Directors , senior management and key employees
> 
> The following is a list of the current directors, senior officers and key employees of the Company, their municipalities of residence, their current position with the Company and their principal occupations during the past five years:
> Name and Municipality of
> Positions and Offices Held
> Principal OccupationResidence
> with the CorporationRobert B. Rieveley
> President and Chief
> President and Chief Executive Officer of BiotechVancouver, BC
> Executive Officer, director
> Holdings Ltd.,  President of Biotech Laboratoriesand member of the audit
> Inc., Vancouver, BC, CanadaCommittee since 1995Johan de Rooy, FCA
> Director and Chairman of
> Lecturer in the Faculty of Commerce and BusinessVancouver, BC
> the Audit Committee since
> Administration at the University of British Columbia1998
> since 1984.  He has served as a National Directorfor the Canadian Cancer Society, as the Presidentof the British Columbia Cancer Agency and as aMember of Council for the Institute of CharteredAccountants of B.C.Gale Belding
> Executive Vice-President
> Executive Vice-President of Biotech Holdings Ltd.Vancouver, BC
> and director since 1995Cheryl Rieveley
> Director since 1995
> Secretary/Treasurer of the Company and RCARVancouver, BC
> 
> Investments Limited, Vancouver, BCArt Cowie
> Director.  Appointed by the
> Planning Consultant (community planner), forVancouver, BC
> Directors and approved by the
> professional firms, private and government clients.TSX Venture Exchange
> Additionally, he has experience in public service on(February 22, 2006) to fill a
> private and public planning issues and served asvacancy created by the
> Chair of the Vancouver Port Authority and asresignation of Dr. Geoff
> director for the Pacific National Exhibition and SuHerring
> Sungold International Holding Corp.Ross Wilmot
> Director.  Appointed by the
> Financial Consultant. Past President d CFO for 6Directors and approved by the
> and technology and resource companies.  PresentlyTSX Venture Exchange (June
> Mr. Wilmot is President for the Cedarwoods Group26, 2006) to fill an additional
> in BC.  He has been a director of 6 public companiesdirector position requested by
> has been involved in RTO situations and the writingthe TSX Venture Exchange
> of Corporate Governance Procedures. He is a C.A.and holds a B.A.S.C. along with a M.A.S.C.Lorne Brown
> Chief Financial Officer since
> Chief Financial Officer for the Company, priorLangley, BC
> June, 1999
> thereto Controller and Director A&A InternationalIndustries Inc., Port Coquitlam, BC.There are no arrangements or understandings between any of the officers or directors of the Company as to their election or employment, and no family relationships other than Robert and Cheryl Rieveley, who are husband and wife.
> B.   Compensation of Directors and Officers
> 
> The Company does not pay any cash compensation to directors in their capacity as directors.The Company compensates four officers and directors, Mr. Rieveley, Mrs. Rieveley, Mrs. Belding and Mr. Brown.  See "Directors and Officers of Company" above.
> The compensation paid to the Company^s directors, officers and senior management during the fiscal period ended March 31, 2006 was $316,976.
> In addition to the foregoing, all of the executive officers of the Company are also entitled to reimbursement of all reasonable business expenses and, from time to time, the grant of stock options (see "Options to Purchase Securities from Company or Subsidiaries - Stock Options", below).
> No plan exists, and no amount has been set aside or accrued by the Company or any of its subsidiaries, to provide pension, retirement or similar benefits for directors and officers of the Company, or any of its subsidiaries.
> Other than as herein set forth, the Corporation did not pay any additional compensation to the executive officers or directors (including personal benefits and securities or properties paid or distributed, which compensation was not offered on the same terms to all full time employees) during the last fiscal year.
> C   Board Practices
> 
> The directors of the Company are elected by the shareholders at each Annual General Meeting and typically hold office until the next Annual General Meeting at which time they may be re-elected or replaced.
> The articles of the Company permit the directors to appoint directors to fill any vacancies that may occur on the board.  The articles of the Company also permit the directors to add additional directors to the board between successive Annual General Meetings so long as the number appointed does not exceed by more than one third of the number of directors appointed at the last Annual General Meeting.  Individuals appointed as directors to fill vacancies on the board or added as additional directors hold office like any other director until the next Annual General Meeting at which time they may be re-elected or replaced.
> Stock options was the only form of directors compensation in fiscal 2006 (see "Options to Purchase Securities from Company or Subsidiaries - Stock Options").
> Apart from the above, the Company does not have any service contracts with any Director or provide any benefits upon termination of employment.
> The Company^s audit committee consists of three independent Directors Mr. Johan de Rooy, FCA, Committee Chairman, Mr. Art Cowie (since February, 2006) and Mr. Ross Wilmot (since June 2006) together with Mr. Robert Rieveley, the Company^s President and Chief Executive Officer.  The audit committee meets with the Company^s independent auditors annually where the role and responsibilities of both the auditor and the committee are reviewed.  The independent Directors also meet with the auditor separately from management to discuss any outstanding issues.  The Committee also meets on a quarterly basis to review and discuss the quarterly financial statements.  All financial statements are approved by the Committee and their recommendations for approval are passed on to the Board of Directors for final approval.
> The Company does not have a remuneration committee.  Executive remuneration issues are decided at the full Board level.
> D   Employees
> 
> 
> At March 31, 2006 the Company had 5 (2005 - 5; 2004 - 5) employees in Canada.  Temporary employees are periodically required in periods of high volume production.  The Company is not unionized.
> E    Share Ownership
> 
> The following is a list of Common Shares held by the directors, officers and employees referred to in Item 6 A. above as at the Company^s record date August 23, 2006:
> Directors, Officers and Employees
> Common
> Percent
> Series I
> Percent
> Total
> PercentShares
> of
> Convertible
> of
> Voting
> ofHeld
> Common
> Preferred
> Preferred
> Shares Held
> Votingor
> Shares
> Shares
> Shares
> or Controlled
> SharesControlled
> 
> HeldRobert Rieveley, C.E.O. (1)
> 20,347,531
> 22.1%
> 13,806,907
> 100.0%
> 33,424,272
> 31.5%Gale Belding, Director, Executive V.P.
> 310,000
> 0.3%
> 
> 
> 310,000
> 0.3%Johan de Rooy, Director
> 352,500
> 0.4%
> 
> 
> 352,500
> 0.3%Art Cowie, Director
> 100,000
> 0.1%
> 
> 
> 100,000
> 0.1%Cheryl Rieveley, Director (1)
> 0
> 0.0%
> 
> 
> 0
> 0.0%Ross Wilmot, Director
> 0
> 0.0%
> 
> 
> 0
> 0.0%Lorne Brown, C.F.O.
> 50,000
> 0.0%
> 
> 
> 50,000
> 0.0%Total Held
> 21,160,031
> 22.9%
> 13,806,907
> 100.0%
> 34,236,772
> 32.2%Shares outstanding at Record Date
> 92,229,512
> 
> 13,806,907
> 
> 106,036,419(1)Shares held directly and indirectly by the Rieveley Family Trust.  Robert and Cheryl Rieveley are directors and officers of Biotech Holdings Ltd. They also have a beneficial interest in the Rieveley Family Trust which is owed over $640,000The following table provides a list of stock options outstanding, granted, exercised and expired during the year ended March 31, 2006:
> ----------------Directors
> & Officers
> Only----------Grant
> Vest
> Expiry
> Option
> Total
> Directors
> Expired
> Granted
> Directors
> TotalDate
> Date
> Date
> Price
> Outstanding
> & Officers
> in year
> in year
> & Officers
> Outstanding31-Mar-05
> Outstanding
> 
> 
> Outstanding
> 31-Mar-0631-Mar-05
> 
> 
> 31-Mar-0615-Aug-03
> 15-Dec-03
> 15-Dec-05
> $0.14
> 50,000
> -
> 
> 
> -
> -3-Nov-03
> 3-Mar-04
> 3-May-05
> $0.23
> 75,000
> -
> 
> 
> -
> -2-Jan-04
> 2-May-04
> 2-Jan-06
> $0.25
> 896,000
> 560,000
> 560,000
> -
> -
> -11-Aug-04
> 11-Feb-05
> 11-Aug-06
> $0.54
> 25,000
> -
> 
> 
> -
> 25,00011-Aug-04
> 5-Aug-05
> 11-Aug-06
> $0.54
> 25,000
> -
> 
> 
> -
> 25,00011-Aug-04
> 11-Feb-06
> 11-Aug-06
> $0.54
> 25,000
> -
> 
> 
> -
> 25,00026-Aug-04
> 26-Feb-05
> 26-Aug-06
> $0.66
> 50,000
> -
> 
> 
> -
> 50,00026-Aug-04
> 26-Aug-05
> 26-Aug-06
> $0.66
> 50,000
> -
> 
> 
> -
> 50,00026-Aug-04
> 26-Feb-06
> 26-Aug-06
> $0.66
> 50,000
> -
> 
> 
> -
> 50,00024-Nov-04
> 24-Apr-05
> 24-Mar-06
> $0.55
> 545,000
> 430,000
> 430,000
> 
> -
> -24-Nov-04
> 24-Apr-06
> 24-Mar-07
> $0.55
> 770,000
> 570,000
> 70,000
> 
> 500,000
> 700,00024-Nov-04
> 24-Apr-07
> 24-Mar-08
> $0.55
> 1,290,000
> 1,000,000
> 100,000
> 
> 900,000
> 1,190,00022-Feb-06
> 22-Jun-06
> 22-Feb-08
> $0.135
> 0
> 0
> 
> 300,000
> 300,000
> 300,0003,851,000
> 2,560,000
> 1,160,000
> 300,000
> 1,700,000
> 2,415,000A breakdown of outstanding options as at March 31, 2006 to Directors and Officers was as follows:
> Grant Date
> 
> 24-Nov-04
> 24-Nov-04
> 22-Feb-06
> TotalExercise Date
> 
> 24-Apr-06
> 24-Apr-07
> 22-Jun-06Expiry Date
> 
> 24-Mar-07
> 24-Mar-08
> 22-Feb-08Option Price
> 
> $        0.55
> $       0.55
> $     0.135Cheryl Rieveley              Director
> 
> 90,000
> 120,000
> 
> 210,000Gale Belding                  Director
> 
> 90,000
> 120,000
> 
> 210,000Johan de Rooy               Director
> 
> 70,000
> 100,000
> 
> 170,000Art Cowie
> Director
> 
> 
> 
> 300,000
> 300,000Ross Wilmot Director
> 
> 
> 
> 
> 0Robert Rieveley Director & CEO
> 
> 200,000
> 500,000
> 
> 700,000Lorne Brown                       CFO
> 
> 50,000
> 60,000
> 
> 110,000Total
> 
> 500,000
> 900,000
> 300,000
> 1.700,000There are no arrangements involving the employees in the capital of the company, including any arrangement involving the issue or granting of options or shares or securities of the Company.
> Private Placements and Common Share Warrants
> 
> 
> During the year ended March 31, 2006, the Company completed with related party investors ("the Investors") a private placement of 2,020,202 common shares for gross proceeds of $621,181 cash (net proceeds of $556,536 after a finders fee of $64,645).  The Investors also received 2,020,202 warrants to acquire common shares at $ 0.40 per share, expiring on October 6, 2006.
> In November 2005, the Company agreed to a private placement with a related party. The private placement was subject to the approval of the TSX Venture Exchange and was for the purchase of 984,666 common shares at $0.12 per share.  The purchase includes warrants to purchase 984,666 common shares at $0.16 per share until November 7, 2007.  In January 2006 the TSX Venture Exchange approved this private placement but as at March 31, 2006 the shares were not issued and the amount received has been included in amounts due to related parties.  The shares are expected to be issued upon the resumption of trading of the Company^s shares on the TSX Venture Exchange.
> During the year ended March 31, 2005, the Company completed with both third party and related party investors ("the Investors") a $764,240 private placement of 1,528,480 common shares for cash.  The allocation between related and third party investors was 480,000 common shares for the related parties and 1,048,480 common shares for third parties.  The Investors also received 1,528,480 warrants to acquire common shares at $ 0.55 per share, expiring on December 16, 2006.
> Warrants to Purchase Common Shares
> The following table summarizes the number of fully exercisable common share warrants outstanding and the exercise price thereof:
> 2006
> 2005
> 2004Outstanding, beginning of year
> 3,244,146
> 1,826,777
> 9,561,798Issued at $0.375 per shareexpiring January 27, 2006
> -
> -
> 1,826,777Issued at $0.400 per shareexpiring October 6, 2006
> 2,020,202
> -
> -Issued at $0.55 per shareexpiring December 16, 2006
> -
> 1,528,480
> -Expired January 27, 2006 $0.375
> (1,715,666)
> -
> -Exercised $0.375
> -
> (111,111)Exercised $0.14
> -
> -
> (561,798)Exercised $0.16
> -
> -
> (4,000,000)Exercised $0.17
> -
> -
> (3,000,000)Exercised $0.10
> -
> -
> (2,000,000)Outstanding, end of year
> 3,548,682
> 3,244,146
> 1,826,777Outstanding warrants to purchase common shares at March 31, 2006 were as follows:
> Exercise Price
> Number
> Expiry Date$0.400
> 2,020,202
> October 6, 2006$0.550
> 1,528,480
> December 16, 20063,548,682Preferred Share Warrants
> 
> At March 31, 2006 and 2005, 13,806,907 convertible preferred shares were outstanding from the exercise of preferred share warrants during 2004.  No cash dividend had been declared to date.  However, the 8% per annum dividend on these shares for the year ended March 31, 2006 would have amounted to $110,455 (2005: $110,455; 2004: $67,900).  The cumulative effect to March 31, 2006 of the dividend at 8% per annum from date of issuance would have amounted to $288,810.  This would have an insignificant effect on net loss or on basic and diluted loss per share.
> The following table summarizes the Company^s preferred share warrants outstanding at March 31, 2006, 2005 and 2004, and the changes for the years then ended:
> ExercisePrice
> 2006
> 2005
> 2004Balance outstanding,beginning of year
> $	0.21
> -
> -
> 5,700,000$	0.10
> -
> -
> 13,806,907-
> -
> 19,506,907Exercised
> $	0.10
> -
> -
> (13,806,907)Expired
> $	0.21
> -
> -
> (5,700,000)Balance outstanding andexercisable, end of year
> 
> -
> -
> -Item 7 Major Shareholders and Related Party Transactions
> A   Major Shareholders
> 
> On December 14, 1995, the shareholders of Conserve, now the Company, approved the acquisition of Holdings.  Control of the Company changed upon the closing of the share exchange on January 25, 1996 (see Exhibit 3.1 previously filed with the March 31, 1996 Form 20F).  With the issuance of 15,000,000 of a total of 18,241,665 common shares, the shareholders of Holdings then held approximately 82% of the issued and outstanding shares of the Company.  As at the Annual General Meeting ("AGM") record date (August 12, 2005), the Company had a total of 92,229,512 (2004: 87,542,219) common shares issued and outstanding. Also, there were 13,806,907 Series I Convertible Preferred Shares issued and outstanding on March 31, 2005 and 2004.  These preferred shares are voting and are convertible into Common Shares on a 1:1 basis.  They have a cumulative cash dividend of 8% of the original amount contributed plus accrued interest.
>   
> Class of Shares
> 
> Shares Owned
> Percent of
> Percent Held
> Percent HeldAug. 23, 2006
> Class
> In 2005
> In 2004Common
> Rieveley Family Trust
> 20,347,531
> 22.1%
> 21.3%
> 23.8%Immunis Holdings Corp.
> 8,613,419
> 9.3%
> 9.3%
> 9.8%28,960,950
> 31.4%
> 30.6%
> 33.6%Total Outstanding Sharesas of AGM record date
> 92,229,512
> 92,229,512
> 92,229,512
> 87,542,219Preferred
> Rieveley Family Trust
> 13,806,907
> 100.0%
> 100.0%
> 100.0%Total Voting Shares
> Rieveley Family Trust
> 34,154,438
> 32.2%
> 31.5%
> 34.2%Immunis Holdings Corp.
> 8,613,419
> 8.1%
> 8.1%
> 8.5%42,767,857
> 40.3%
> 39.6%
> 42.7%Total Outstanding Sharesas of AGM record date
> 
> 106,036,419
> 106,036,419
> 101,349,126The major shareholders of the Company do not have different voting rights in comparison with other
> shareholders.
> U.S. Shareholders
> 
> The following table indicates the approximate number of registered holders of common shares with United States addresses and the portion and percentage of common shares so held in the United States.  On August 23, 2006 (the record date for the Annual General Meeting), 92,229,512 common shares were outstanding.
> Total Number of Registered Holders 
> 248
> Number of U.S. Registered
> Holders
> 203
> Number of Registered Common Shares Held in the U.S.
> 6,586,426
> Percentage of Registered Common Shares Held in the U.S.
> 7.1%
> 
> The computation of the number and percentage of common shares held in the United States is based upon the number of common shares held by record holders with United States addresses and by trusts, estates or accounts with United States addresses as disclosed to the Company following inquiry to all record holders known to the trustees, executors, guardians, custodians, or the fiduciaries holding common shares for one or more trusts, estates or accounts.  United States residents may beneficially own common shares held of record by non-United States residents.
> Control
> 
> Except as disclosed above, to the best of the Company^s knowledge, the Company is not directly or indirectly owned or controlled by another corporation(s), any foreign government, or by any other natural or legal person(s) severally or jointly.  Furthermore, the company is not aware of any arrangements for the change of control of the Company or subsequent arrangements that would result in a change of its control.
> B    Related Party Transactions
> 
> Allburg Holdings Inc. ("Allburg"), previously known as Wanchi Inc., has been granted an exclusive license to manufacture and sell the Company^s Type II Diabetes drug DIAB II (Sucanon), make any claims and to use all patent rights in all countries outside Oriental Asia.  As a condition of this license Allburg must sub-license these rights, and this sub-license may only be granted to companies that are at least 50% owned by the Company (see Exhibit 3.8 to the Company^s Registration Statement previously filed with the March 31, 1996 Form 20-F).  During 1999, Allburg sold a 25% interest in DIAB II (Sucanon) to Immunis Corp.  In January 2001, the Company purchased that 25% interest from Immunis Corp. by issuing 8,613,419 of its common shares at $0.26 per share to Immunis Corp.  Pursuant to US GAAP, shares should be valued at the date of issue.  The closing price of 26 cents per share represents a 12 percent discount of the weighted average share price before and after the date of the transaction.  As per the above analysis, the number of shares issued represents a discount from their intrinsic worth.
> Note 10 to the Consolidated Financial Statements highlights the following amounts paid or payable to related parties based on exchange values which represented the amounts agreed upon by the related parties:
> 2006
> 2005
> 2004Management fees paid to an officer/director
> $	144,000
> $	144,000
> $	   144,000Salaries and benefits paid to officers and directors
> 172,976
> 127,032
> 125,368Interest accrued on Notes Payable (Note 6)
> 56,766
> 63,239
> 117,119Rent and services paid to companies controlled bydirectors
> 86,216
> 98,795
> 36,860Net sales to (returns from) a company controlled
> by a  director
> -
> -
> (65,135)Purchase of equipment from a significantshareholder
> -
> -
> 13,438Note: The Company does not pay any cash compensation to directors in their capacity as directors.
> 
> Ongoing related party associations:
> 
> The Company has ongoing relationships with the following related parties. The following related parties are controlled by Mr. Robert Rieveley and his spouse, Cheryl Rieveley. These entities perform the following services to the Company and are party to the following agreements with the Company:
> Secured Debt controlled by Mr. Robert Rieveley and his spouse, Cheryl Rieveley
> 
> The following notes bear interest at the rate of 8% per annum compounded annually and due on demand. They are collateralized by a General Security Agreement providing a charge over the assets of the Company:
>   Balance Mar 31, 2006R Rieveley & Associates
> $   284,141Wenroth Limited ("Wenroth")
> 14,308InReg Corporation ("InReg")
> 102,056Allburg Holdings ("Allburg")
> 123,961In addition to the above R Rieveley & Associates advanced $118,160 to the Company.  This amount was outstanding on March 31, 2006 and is secured by a General Security Agreement, non-interest bearing and payable on demand.
> The General Security Agreements mentioned above have been registered with the Personal Property Security Registry in Victoria, B.C. Once the respective loans are paid in full the registration becomes null and void.
> #20 Seabright Holdings Ltd. indirectly finances the Company as it owns the shares of Allburg, InReg, and Wenroth making it the Company^s largest creditor. Additionally, #20 Seabright Holdings Ltd. is a secured creditor of the Company through its ownership of Allburg, InReg and Wenroth. The terms and amounts due to Allburg, InReg and Wenroth are described above.
> In addition to interest charged on the above-mentioned notes, the Company had the following transactions with the secured creditors:
> The Company retains the services of Mr. Rieveley through an employment agreement with his company, R Rieveley & Associates.  Management Fees paid to R Rieveley and Associatesin the year ended March 31, 2006 amounted to $144,000.  During the year ended March 31, 2006 R Rieveley and Associates advanced $37,000 to the Company.
> In November 2005, the Company agreed to a private placement with R Rieveley and Associates. The private placement was subject to the approval of the TSX Venture Exchange and was for the purchase of 984,666 common shares at $0.12 per share for a total consideration of $118,160.  The purchase includes warrants to purchase 984,666 common shares at $0.16 per share until November 7, 2007.  In January 2006 the TSX Venture Exchange approved this private placement but as at March 31, 2006 the shares were not issued and the amount received has been included in amounts due to related parties.  The shares are expected to be issued upon the resumption of trading of the Company^s shares on the TSX Venture Exchange.  The consideration received is non-interest bearing and secured by a general security agreement.
> The Company owns 75% of Smith Rothe Pharmaceutical Inc.  ("Smith Rothe"). Smith Rothe has been granted an exclusive license to sub-contract the manufacture and marketing of the Company^s Type II diabetes drug Sucanon make claims and to use all patent rights in countries outside Oriental Asia.  The 25% non-controlling interest of Smith Rothe is held by Allburg and the 25% amount earned by the non-controlling interest will be reflected as single line items on both the Consolidated Balance Sheet and Consolidated Statements of Operations once marketing profits are realized.
> 
> Other companies controlled by Mr. Robert Rieveley and his spouse, Cheryl Rieveley
> 
> Notes payable to RCAR Investment Ltd., are unsecured, bear interest at the rate of 8% per annum compounded annually and due on demand.  As of March 31, 2006 the Company owed RCAR $276,295.
> Sucanon is manufactured on behalf of the Company by a private company controlled by R. Rieveley.  The manufacturing process is performed by employees of the Company.  The private company transfers Sucanon to the Company at cost and receives no profit for this manufacturing operation. The Company uses this private company to maintain confidentiality regarding the manufacturing process for Sucanon. As of March 31, 2006, the Company owed the private company $8,221
> First Choice Communications provides the Company with office space and computer services. Expenses paid to this company for services in the year ended March 31, 2006 were $55,452.
> Penne Investments Services Inc. ("Penne") provides financing to the Company via loans.  As March 31, 2006 the Company had no amounts owing to Penne.
> Due to Related Parties
> 
> The following table summarizes amounts due to related parties on March 31 of each year:
> 2006
> 2005
> 2004Due to Related Parties - UnsecuredAmounts due to a director and companies controlled by adirector are unsecured, payable on demand and bear nointerest.
> $    33,179
> $    33,097
> $    38,119Notes payable to a company controlled by the Company^spresident, are unsecured, payable on demand and bear interestat 8% per annum compounded annually.  During 2006 $20,466(2005 - $18,950; 2004 - $17,547) in interest was accrued.
> 276,295
> 255,829
> 236,879Total Unsecured
> $  309,474
> $  288,926
> $  274,998Due to Related Parties - SecuredNotes payable bearing interest at a rate of 8% per annum compoundedannually and due on demand.  Collateralized by a general securityagreement providing a charge over the assets of the Company.During the year ended March 31, 2006, the notes were increased byadvances of $37,000 (2005: $1,100) and were reduced by $Nil (2005:$200,000) paid directly to the lender.During the year ended March 31, 2004, the notes were reduced throughthe exercising of 9,000,000 common share warrants for $1,350,000and the exercising of 13,806,907 convertible preferred share warrantsfor $1,380,637.  Also during the year ended March 31, 2004, theamount was reduced by $37,997 from payments received fromequipment sales.During the year ended March 31, 2006, interest expense of $36,300was accrued (2005: $44,289; 2004: $159,572)
> 524,466
> 451,166
> 605,777Amounts advanced by a company controlled by a director secured bya general security agreement, non-interest bearing and payable ondemand.
> 118,160
> 0
> 0Total Secured
> 2,626
> 451,166
> 605,777Total Due to Related Parties
> $  952,100
> $  740,092
> $  880,775Item 8    Financial Information
> 
> Audited Consolidated Financial Statements for March 31, 2006, together with the report of the auditors are attached at the end of this filing.  The Consolidated Balance Sheets provide a two year comparison, all other statements provide three year comparative statements.
> Sales and capital assets by geographic region are summarized in Note 15 of the Audited Consolidated Financial Statements.
> Legal Proceedings
> 
> On December 12, 2002, the Company filed a proposal under federal creditor protection legislation in Canada.  The purpose of the filing of the proposal was to protect the interests of all stakeholders of the Company from an action taken by the landlord of Laboratories.  The lease of the plant was in the Company^s name.  The landlord in question undertook to seize Laboratories assets and the filing of the proposal prevented the landlord^s seizure from continuing.
> On May 21, 2003, both the Company and Laboratories received approval from the Supreme Court of British Columbia in the matter of two proposals regarding its creditors pursuant to the Bankruptcy and Insolvency Act of Canada.  These proposals, accepted by the required majority of creditors, allows for the operating subsidiary to maintain operations and generate funds from those operations to pay a portion of its pre-proposal liabilities.  Under the proposal, preferred creditors shall be paid in full in priority to all claims of unsecured creditors.  Provision for payment of claims of unsecured creditors shall be made in the lesser amount of 10% and $25,000 on each day, which is one year, one year six months and two years, respectively, after the end of the month of court ratification.  The proposals also allow the companies to provide ongoing business to its suppliers.  Creditors of the subsidiary after the filing of the proposal will be paid in full, in priority to preferred and general unsecured creditors.
> In July 2006 the trustee acting in the proposal of the Company filed a certificate with the Supreme Court of British Columbia that certified that the Company had fully performed its obligations required under the proposal.  At the same time, the trustee acting in the proposal of Biotech Laboratories Inc. filed a notice of default with the Supreme Court of British Columbia stating that the creditors could take proceedings to place Biotech Laboratories Inc. in bankruptcy at their own expense.
> The Company is the subject of legal disputes arising from the normal course of business.  In 1998, Cheron Holdings Ltd., one of Holdings^ previous suppliers, filed a claim against Biotech Holdings Inc. in B.C. Supreme Court, Kamloops Division, for $711,000 which exceeds the payable amount on Holdings^ books by approximately $250,000.  This supplier is claiming non-payment of outstanding amounts.  Management has issued a $1 million counter claim to this suit. On September 11, 1998 Holdings sold the operational assets to Biotech Laboratories Inc., another subsidiary of Biotech, in exchange for the assumption of $2,000,000 in collateralized debts on the books of Holdings.  This action was taken in order to continue operations until settlement of both the claim and the counter suit.  The operations of Holdings are now being carried on by Laboratories. The outcome of the legal disputes is not determinable; however, in the opinion of management, they would not have a material adverse financial impact on the Company.  There has been no legal activity on this claim since the filing of the Company^s $1 million counter claim.
> Dividend Policy
> 
> The Company has not paid dividends on the common shares in any of its last three fiscal years.  The directors of the Company will determine if and when dividends should be declared and paid in the future based on the Company^s financial position at the relevant time.  All of the common shares of the Company are entitled to an equal share in any dividends declared and paid.
> Significant Changes
> 
> There have been no significant changes to the Company^s operations since March 31, 2006.
> Item 9   The Offer and Listing
> 
> Biotech Holdings Ltd. (the "Company") was incorporated in Alberta, Canada and is an integrated pharmaceutical company whose common shares traded on The Alberta Stock Exchange (the "ASE") until November 1999 at which time the ASE was merged into The Canadian Venture Exchange (the "CDNX", now the TSX Venture Exchange) under the symbol "BIO.V".  The Company also trades on the NASD OTC-BB under the symbol "BIOHF".  In 2001 the Company was listed on the Frankfurt Stock Exchange under the symbol "925970.F".
> 
> On December 6, 2005 it was announced that trading in the Company^s shares was halted on the TSX Venture Exchange pending the appointment of two independent directors to the Company^s board of directors satisfactory to the Exchange, including possessing the requisite degree of positive public company experience.
> 
> On February 2, 2006 it was announced that the TSX Venture Exchange had upgraded its halt trading announced in December to a suspension of trading in the Company^s shares on the Exchange.  The Company had presented one directorial candidate who was accepted by the Exchange.  (Subsequent to March 31, 2006, the Exchange accepted a second directorial candidate.)
> 
> On August 30, 2006, the Company shares resumed trading on the TSX Venture Exchange.
> The following summarizes the high and low prices and the combined trading volume of the Company^s common shares on the TSX Venture Exchange prior to the trading halt and the period from August 30 to September 22, 2006.
> Calendar Period
> High (Cdn$)
> Low (Cdn$)
> VolumeMonthly Data (last six months)July 2005
> 0.42
> 0.29
> 1,165,600August 2005
> 0.42
> 0.19
> 3,113,700September 2005
> 0.29
> 0.23
> 727,600October 2005
> 0.27
> 0.20
> 1,200,800November 2005
> 0.24
> 0.11
> 5,319,900To December 5, 2005
> 0.20
> 0.16
> 528,500August 30 to September 22, 2006
> 0.13
> 0.07
> 1,304,607
> Calendar Period
> High (Cdn$)
> Low (Cdn$)
> VolumeQuarterly DataJune 30, 2006
> 
> 
> HaltedMarch 31, 2006
> 
> 
> HaltedDecember 31, 2005
> 0.27
> 0.11
> 7,049,200September 30, 2005
> 0.42
> 0.19
> 5,006,900June 30, 2005
> 0.59
> 0.38
> 3,940,550March 31, 2005
> 0.68
> 0.35
> 3,759,600December 31, 2004
> 0.75
> 0.45
> 4,623,700September 30, 2004
> 0.79
> 0.45
> 4,692,600June 30, 2004
> 1.23
> 0.54
> 17,739,700Calendar Period
> High (Cdn$)
> Low (Cdn$)
> VolumePast 5 Years Annual DataYear ended March 31,2006
> 0.42
> .011
> 12,056,1002005
> 1.23
> 0.35
> 30,815,6002004
> 1.03
> 0.04
> 48,052,0102003
> 0.14
> 0.02
> 14,685,0882002
> 0.46
> 0.04
> 11,513,7532001
> 0.90
> 0.22
> 4,686,401The following summarizes the high, low and closing prices of the Company^s common shares on the NASD - OTC-BB:
> 
> Monthly Data (last six months):
> Date
> High (US$)
> Low (US$)
> Close (US$)July 2006
> 0.08
> 0.04
> 0.05June 2006
> 0.10
> 0.06
> 0.07May 2006
> 0.09
> 0.06
> 0.09April 2006
> 0.11
> 0.06
> 0.08March 2006
> 0.14
> 0.08
> 0.10February 2006
> 0.15
> 0.11
> 0.11Quarterly Data:
> Date Range
> High (US$)
> Low (US$)
> Close (US$)April - June 2006
> 0.11
> 0.04
> 0.07January - Mar. 2006
> 0.15
> 0.08
> 0.10October - Dec. 2005
> 0.22
> 0.08
> 0.10July - Sept. 2005
> 0.33
> 0.20
> 0.21April - June 2005
> 0.48
> 0.29
> 0.32January - Mar. 2005
> 0.55
> 0.29
> 0.37October - Dec. 2004
> 0.64
> 0.36
> 0.50July - Sept. 2004
> 0.61
> 0.34
> 0.470On August 23, 2006, 92,229,512 Common Shares and 13,806,907 Series I Convertible Preferred Shares were outstanding.
> There have been no significant trading suspensions on the OTC-BB in the past three years.  However, as mentioned previously, on December 6, 2005 it was announced that trading in the Company^s shares was halted on the TSX Venture Exchange pending the appointment of two independent directors to the Company^s board of directors satisfactory to the Exchange, including possessing the requisite degree of positive public company experience.
> On February 2, 2006 it was announced that the TSX Venture Exchange had upgraded its halt trading announced in December to a suspension of trading in the Company^s shares on the Exchange.  The Company had presented one directorial candidate who was accepted by the Exchange.  (Subsequent to March 31, 2006, the Exchange accepted a second directorial candidate.)
> 
> On August 30, 2006, the Company shares resumed trading on the TSX Venture Exchange.
> 
> Item 10   Additional Data
> 
> A   Share Capital
> This information is not required to be provided because it is an annual report filing.
> B   Memorandum and Articles of Association
> The Company^s Articles of Incorporation. Bylaws and other agreements were filed with the Company^s original 20-F filing received by the SEC on March 11, 1997.
> CMaterial Contracts
> 
> The Company has not entered into any material contracts in the past two years other than during the ordinary course of business or have been previously disclosed in this filing.
> D   Exchange Controls
> Canada has no system of currency exchange controls.  There are no governmental laws, decrees or regulations in Canada that restrict the export or import of capital, including but not limited to, foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-resident holders of the Company^s securities.
> 
> There is no limitation on the right of non-resident or foreign owners to hold such securities or vote, imposed by Canadian law or by the charter or other constituent documents of the Company, as to the common shares of the Company to be registered hereunder.
> The Company^s accounts are maintained in Canadian dollars.  In this Annual Report, all dollar amounts are expressed in Canadian dollars except where otherwise indicated.
> E   Taxation
> 
> Under the Canada-United States Tax Convention Act of 1984, dividends paid by a Canadian company to residents of the United States are subject to a 15% withholding tax in Canada. However, the withholding tax is reduced to 10% of the gross amount if the beneficial owner in the United States is a company which owns at least 10% of the voting stock of the Canadian company.
> F   Dividends and Paying Agents
> 
> This information is not required to be provided because it is an annual report filing.
> G   Statement of Experts
> 
> This information is not required to be provided because it is an annual report filing.
> H   Documents on Display
> 
> The Company^s Articles of Incorporation. Bylaws and other agreements were filed with the Company^s original 20-F filing received by the SEC on March 11, 1997.
> Item 11   Quantitative and Qualitative Disclosures About Market Risk
> 
> Not applicable at this time.
> Item 12   Description of Securities Other than Equity Securities
> 
> Not applicable.
> Item 13   Defaults, Dividend Arrearages and Delinquencies
> 
> No Preference shares have been issued by the Company and therefore has not had any dividends.
> Item 14   Material Modifications to the Rights of Security Holders and Use of Proceeds
> 
> There have been no material modifications to the rights of Security Holders.
> Item 15   [Reserved]
> 
> Not applicable.
> Item 16   [Reserved]
> 
> Not applicable.
> CONTROLS AND PROCEDURES
> 
> As of March 31, 2006, we, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in the reports we file under the Securities Exchange Act of 1934, within the time periods specified in the SEC^s rules and forms.  Our management necessarily applied its judgement in assessing the costs and benefits of those controls and procedures, which by their nature can provide only reasonable assurance regarding management^s control objectives.
> There have been no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
> Item 17    Financial Statements
> 
> The financial statements of the Company are annexed hereto and have been prepared by the Company in accordance with generally accepted accounting principles in Canada, which differ in certain respects from generally accepted accounting principles in the United States as outlined in the financial statements.  The table of contents to the consolidated financial statements and accompanying notes to the consolidated financial statements is attached to this Form 20-F.
> 
> The Consolidated Financial Statements are filed as part of this registration statement.
> 
> Financial Statements
> 
> The following financial statements are attached to and form part of this Annual Report:
> Consolidated Financial Statements of the Company
> Page(s)Report of Independent Registered Chartered Accountants
> 50Comments by Independent Registered Chartered Accountants for U.S. Readerson Canada-United States of America Reporting Differences
> 51Consolidated Balance Sheets as of 31 March 2006 and 2005
> 52Consolidated Statements of Operations for the fiscal years ended March 31, 2006, 2005and 2003
> 53Consolidated Statement of Changes in Shareholders^ Deficiency for the fiscal yearsended March 31, 2006, 2005 and 2004
> 54Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2006, 2005and 2004
> 55Summary of Significant Accounting Policies and Notes to the Consolidated Financial Statements
> 56 - 80All financial statement schedules described in Regulation S-X are omitted because the information is not required, is not material or is otherwise included in the consolidated financial statements or the related notes thereto.
> Item 19    Exhibits
> 
> No Exhibits are attached to this filing
> CERTIFICATION required by Rule 13a-14(b) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) 
> (17 CFR 240.15d-14(a)) under the Securities and Exchange Act of 1934, as amended
> 
> I, Robert B. Rieveley, the President and Chief Executive Officer of Biotech Holdings Ltd., certify that:
> (1)  
> I have reviewed this Annual Report ("report") on Form 20-F for the fiscal year ended March 31, 2006 of Biotech Holdings Ltd. (the "Company")
> 
> 
> 
> (2) 
> Based on my knowledge, this report does not contain any untrue statement of a material fact  or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
> 
> 
> 
> (3)
> Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
> 
> 
> 
> (4) 
> The company^s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:(a) 
> Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
> 
> (b) 
> Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
> 
> (c) 
> Evaluated the effectiveness of the company^s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by his report based on such evaluation; and
> 
> (d) 
> Disclosed in this report any change in the company^s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company^s internal control over financial reporting; and
> 
> (5) 
> The company^s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company^s auditors and the audit committee of the company^s board of directors (or persons performing the equivalent functions):
> (a) 
> All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company^s ability to record, process, summarize and report financial information; and
> (b) 
> Any fraud, whether or not material, that involves management or other employees who have a significant role in the company^s internal control over financial reporting.
> 
> Date: 22 September, 2006
> 
> 
> 
> 
> /s/ Robert B. Rieveley
> 
> Robert B. Rieveley,
> President and Chief Executive Officer
> 
> CERTIFICATION required by Rule 13a-14(b) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) 
> (17 CFR 240.15d-14(a)) under the Securities and Exchange Act of 1934, as amended
> 
> I, Lorne D. Brown, the Chief Financial Officer of Biotech Holdings Ltd., certify that:
> (1)  I have reviewed this Annual Report ("report")on Form 20-F for the fiscal year ended March 31, 2006 of Biotech Holdings Ltd. (the "Company")
> 
> (2)  Based on my knowledge, this report does not contain any untrue statement of a material fact  or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
> 
> (3)  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
> 
> (4)  The company^s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:(a) 
> Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
> 
> 
> (b) 
> Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
> 
> (c) 
> Evaluated the effectiveness of the company^s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by his report based on such evaluation; and
> 
> (d) 
> Disclosed in this report any change in the company^s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company^s internal control over financial reporting; and
> 
> (5)  The company^s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
> company^s auditors and the audit committee of the company^s board of directors (or persons performing the equivalent functions):
> (a) 
> All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company^s ability to record, process, summarize and report financial information; and
> 
> (b) 
> Any fraud, whether or not material, that involves management or other employees who have a significant role in the company^s internal control over financial reporting.
> 
> Date: 22 September, 2006
> 
> /s/ Lorne D. Brown
> 
> Lorne D. Brown,
> 
> Chief Financial Officer
> 
> CERTIFICATION PURSUANT TO
> 18 U.S.C. Section 1350 as adopted pursuant to Section 906
> Of the Sarbanes-Oxley Act of 2002
> 
> In connection with the Annual Report of Biotech Holdings Ltd. (the "Company") on Form 20-F for the year ended March 31, 2006, as filed with the Securities Exchange Commission on the date hereof (the "REPORT"), I, Robert B. Rieveley, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
> (1) 
> The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
> 
> 
> 
> (2) 
> The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
> 
> Dated:   September __22___, 2006
> 
> /s/ Robert B. Rieveley
> ______________________________________
> Robert B. Rieveley, President and C.E.O.
> 
> 
> CERTIFICATION PURSUANT TO
> 18 U.S.C. Section 1350 as adopted pursuant to Section 906
> Of the Sarbanes-Oxley Act of 2002
> 
> In connection with the Annual Report of Biotech Holdings Ltd. (the "Company") on Form 20-F for the year ended March 31, 2006, as filed with the Securities Exchange Commission on the date hereof (the "REPORT"), I, Lorne D. Brown, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
> 
> (1) 
> The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
> 
> 
> 
> (2) 
> The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
> 
> Dated:   September _22__, 2006
> 
> /s/ Lorne D. Brown
> ______________________________________
> Lorne D. Brown, C.F.O.SIGNATURES
> The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
> 
> 
> Date _22 September, 2006
> 
> Biotech Holdings Ltd.
> 
> /s/ Robert B. Rieveley
> __________________________
> Robert B. Rieveley, President
> and Chief Executive OfficerBiotech
> Holdings Ltd.
> Consolidated Financial Statements(Expressed in Canadian Dollars)For the years ended March 31, 2006 and 2005



















Biotech Holdings Ltd.

Consolidated Financial Statements

(Expressed in Canadian Dollars)

For the years ended March 31, 2006 and 2005

Contents



Report of Independent Registered Chartered Accountants                                               
3

Comments by Independent Registered Chartered Accountants for U.S. Readers

On Canada-United States of America Reporting Differences                                            
4

Consolidated Financial Statements

Balance Sheets                                                                                                             
5



Statements of Operations                                                                                               
6



Statement of Changes in Shareholders^ (Deficiency)                                                         
7



Statements of Cash Flows                                                                                             
8



Summary of Significant Accounting Policies                                                             
9 - 13



Notes to the Financial Statements                                                                         
14 - 33









Report of Independent Registered Chartered Accountants





To the Shareholders of

Biotech Holdings Ltd.

We have audited the Consolidated Balance Sheets of Biotech Holdings Ltd. as at March 31, 2006 and 2005 and the Consolidated Statements of Operations, Changes in Shareholders^ (Deficiency) and Cash Flows for each of the years in the three year period ended March 31, 2006. These consolidated financial statements are the responsibility of the Company^s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three year period ended March 31, 2006 in accordance with Canadian generally accepted accounting principles.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company^s internal control over financial reporting. Accordingly, we express no such opinion.



/s/   STS Partners LLP Chartered Accountants

STS Partners LLP                      Independent Registered Chartered Accountants

Vancouver, British Columbia, Canada
July 27, 2006

































Comments by Independent Registered Chartered Accountants for U.S. Readers On Canada-United States of America Reporting Differences

To the Shareholders of

Biotech Holdings Ltd.



The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company^s ability to continue as a going concern, such as those described in Note 1 to the consolidated financial statements.  Our report to the shareholders dated July 27, 2006 is expressed in accordance with Canadian reporting standards which do not require a reference to such events and conditions in the Report of Independent Registered Chartered Accountants when these are adequately disclosed in the financial statements.





/s/   STS Partners LLP Chartered Accountants

STS Partners LLP



Independent Registered Chartered Accountants



Vancouver, British Columbia, Canada
July 27, 2006























Biotech Holdings Ltd.

Consolidated Balance Sheets

(Expressed in Canadian Dollars)



|March 31                                   | 2006                                                      | 2005         |          
|------------------------------------------ | --------------------------------------------------------- | ------------ | ---------
|                                          
|Assets                                    
|Current                                    |                                                           |             
|                                           | Cash and cash equivalents                                 | $   68,279   |          
|                                           | Accounts receivable - net                                 | 52,214       |          
|                                           | Advances - net (Note 2)                                   | 75,000       |          
|                                           | Inventory                                                 | 49,647       |          
|                                           |                                                           |              |          
|                                           |                                                           | 245,140      |          
|Property and equipment                     |                                                           |              |          
|                                           | Continuing operations (Note 3)                            | 128,492      |          
|                                           | Held for resale (Notes 3 and 14)                          | 1            |          
|                                           |                                                           |              |          
|Technology interests(Note 4)               | 421,937                                                   |              | 1,015,027
|                                           |                                                           |              |          
|                                           |                                                           | $	795,570    |          
|                                          
|Liabilities and Shareholders^ (Deficiency)
|Liabilities                                |                                                           |              |          
|                                           |                                                           |              |          
|Current                                    |                                                           |              |          
|                                           | Accounts payable and accrued liabilities (Notes 13 and17) | $ 1,376,626  |          
|                                           | Due to related parties (Note 6)                           | 952,100      |          
|                                           |                                                           |              |          
|                                           |                                                           | 2,328,726    |          
|                                           |                                                           |              |          
|Notes payable(Note 7)                      | 224,343                                                   |              | 224,343  
|                                           |                                                           |              |          
|                                           |                                                           | 2,553,069    |          
|Shareholders^ (deficiency)                 |                                                           |              |          
|                                           | Share capital (Note 8) - common voting shares             | 25,733,318   |          
|                                           | - convertible preferred shares                            | 1,380,691    |          
|                                           | Contributed surplus                                       | 723,935      |          
|                                           | Deficit                                                   | (29,595,443) |          
|                                           |                                                           |              |          
|                                           |                                                           | (1,757,499)  |          
|                                           |                                                           |              |          
|                                           |                                                           | $ 795,570    |          

Commitments and contractual agreements(Note 12); Contingency (Note 13);
Subsequent events (Note 19)

Approved by the Board:	 /s/  Robert Rieveley	Director    /s/  Gale Belding	Director

The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.



Biotech Holdings Ltd.

Consolidated Statements of Operations

(Expressed in Canadian Dollars)

|For the years ended March 31                         |                                        | 2006             | 2005             | 2004              
|---------------------------------------------------- | -------------------------------------- | ---------------- | ---------------- | ------------------
|                                                     |                                        |                  |                  |                   
|Sales                                                |                                        | $	482,840        | $        -       | $        -        
|                                                     |                                        |                  |                  |                   
|Cost of sales                                        |                                        | 129,287          | -                | -                 
|                                                     |                                        |                  |                  |                   
|Gross profit                                         |                                        | 353,553          | -                | -                 
|                                                     |                                        |                  |                  |                   
|Expenses                                             |                                        |                  |                  |                   
|                                                     | General, administrative and selling    |                  | 658,529          | 438,704           
|                                                     | Amortization                           |                  | 610,112          | 612,430           
|                                                     | Product marketing costs                |                  | 571,985          | -                 
|                                                     | Stock-based compensation               |                  | 283,544          | 386,504           
|                                                     | Professional fees                      |                  | 64,728           | 41,528            
|                                                     | Interest- current debt and other       |                  | 60,796           | 71,005            
|                                                     | Foreign exchange                       |                  | 60,101           | -                 
|                                                     | Office rent, utilities and maintenance |                  | 56,627           | 92,438            
|                                                     | Plant set-up costs                     |                  | -                | 112,519           
|                                                     |                                        |                  |                  |                   
|                                                     |                                        |                  | 2,366,422        | 1,755,128         
|                                                     |                                        |                  |                  |                   
|Loss from continuing operations                      |                                        | (2,012,869)      | (1,755,128)      | (1,460,669)       
|                                                     |                                        |                  |                  |                   
|Gain from settlement of debt and restructuring       |                                        | 63,000           | 240,161          | 78,560            
|                                                     |                                        |                  |                  |                   
|Loss from discontinued operations                    |                                        |                  |                  |                   
|                                                     | - gain from sale of equipment          |                  | 13,224           | -                 
|                                                     | - results of operations (Note 16)      |                  | -                | -                 
|                                                     | - write-down of assets                 |                  | -                | (1,104)           
|                                                     |                                        |                  |                  |                   
|Net loss for the year                                |                                        | $	(1,936,645)    | $	  (1,516,071)  | $	(2,306,951)     
|                                                     |                                        |                  |                  |                   
|Basic and diluted loss per common share              |                                        |                  |                  |                   
|                                                     |                                        |                  |                  |                   
|                                                     | From continuing operations             |                  | $         (0.02) | $         (0.02)  
|                                                     |                                        |                  |                  |                   
|                                                     | From discontinued operations           |                  | (0.00)           | (0.00)            
|                                                     |                                        |                  |                  |                   
|Net loss for the year                                |                                        | $         (0.02) | $         (0.02) | $           (0.03)
|Weighted average number of common shares outstanding |                                        | 91,829,966       | 88,691,806       | 77,523,091        



The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.



Biotech Holdings Ltd.

Consolidated Statement of Changes in Shareholders^ (Deficiency)

(Expressed in Canadian Dollars)

|For the years ended March 31, 2006, 2005 and 2004   
|----------------------------------------------------
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Balance, March 31, 2003                             
|Common shares issued:                               
|For cash -                                          
|by private placement                                
|by stock options exercised                          
|by warrants exercised                               
|For debt settlement -                               
|by private placement                                
|by warrants exercised                               
|Convertible preferred shares
issued:                
|For debt settlement -                               
|by warrants exercised                               
|Stock-based compensation                            
|Net loss                                            
|Balance, March 31, 2004                             
|Common shares issued:                               
|For cash -                                          
|by private placement                                
|by stock options exercised                          
|by warrants exercised                               
|Stock-based compensation                            
|Options exercised for which stock-based compensation
|has been recorded                                   
|Net loss                                            
|Balance, March 31, 2005                             
|Common shares issued:                               
|For cash -                                          
|by private placement                                
|by stock options exercised                          
|Stock-based compensation                            
|Private placement finders fee                       
|Options exercised for which stock-based compensation
|has been recorded                                   
|Net loss                                            
|Balance, March 31, 2006                             



The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.



Biotech Holdings Ltd.

Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)



|For the years ended March 31                                                         |                                                                 | 2006            |               | 2005                   |              | 2004                    |              
|------------------------------------------------------------------------------------ | --------------------------------------------------------------- | --------------- | ------------- | ---------------------- | ------------ | ----------------------- | -------------
|                                                                                     |                                                                 |                 |               |                        |              |                         |              
|Cash provided by (used in):                                                          |                                                                 |                 |               |                        |              |                         |              
|Operating activities                                                                 |                                                                 |                 |               |                        |              |                         |              
|                                                                                     | Net loss from continuing operations                             |                 | $	(2,012,869) |                        | $(1,755,128) |                         | $ (1,460,669)
|                                                                                     | Items not involving cash:                                       |                 |               |                        |              |                         |              
|                                                                                     | Amortization                                                    |                 | 610,112       |                        | 612,430      |                         | 610,206      
|                                                                                     | Stock-based compensation                                        |                 | 283,544       |                        | 386,504      |                         | 71,181       
|                                                                                     | Changes in non-cash operating 
  working capital items (Note 9) |                 | 130,166       |                        | (208,552)    |                         | 496,571      
|                                                                                     | Net cash (used in) operating activities from                    |                 |               |                        |              |                         |              
|                                                                                     | continuing operations                                           |                 | (989,047)     |                        | (964,746)    |                         | (282,711)    
|                                                                                     | Cash flows from discontinued operations                         |                 | -             |                        | -            |                         | 57,708       
|                                                                                     |                                                                 |                 |               |                        |              |                         |              
|                                                                                     |                                                                 |                 | (989,047)     |                        | (964,746)    |                         | (225,003)    
|Financing activities                                                                 |                                                                 |                 |               |                        |              |                         |              
|                                                                                     | (Increase) in due from related parties                          |                 | -             |                        | -            |                         | (21,036)     
|                                                                                     | (Decrease) in due to related parties                            |                 | -             |                        | -            |                         | (31,703)     
|                                                                                     | Private placement finders fee paid                              |                 | (64,645)      |                        | -            |                         | -            
|                                                                                     | Issuance of common shares                                       |                 | 638,431       |                        | 1,007,647    |                         | 617,590      
|                                                                                     |                                                                 |                 |               |                        |              |                         |              
|                                                                                     |                                                                 |                 | 573,786       |                        | 1,007,647    |                         | 564,851      
|Investing activities                                                                 |                                                                 |                 |               |                        |              |                         |              
|                                                                                     | Purchase of property and equipment                              |                 | (3,794)       |                        | (5,422)      |                         | (34,091)     
|                                                                                     | Proceeds on disposal of property and
equipment held for resale  |                 | 46,730        |                        | 26,494       |                         | 53,263       
|                                                                                     |                                                                 |                 |               |                        |              |                         |              
|                                                                                     |                                                                 | 42,936          |               | 21,072                 |              | 19,172                  |              
|                                                                                     |                                                                 |                 |               |                        |              |                         |              
|Increase (Decrease) in cash and cash equivalents                                     |                                                                 | (372,325)       |               | 63,973                 |              | 359,020                 |              
|Cash and cash equivalents, beginning of year                                         |                                                                 | 440,604         |               | 376,631                |              | 17,611                  |              
|                                                                                     |                                                                 |                 |               |                        |              |                         |              
|Cash and cash equivalents, end of year                                               |                                                                 | $	68,279        |               | $	440,604              |              | $	376,631               |              
|                                                                                     |                                                                 |                 |               |                        |              |                         |              
|Cash and cash equivalents are comprised of:Cash
Short-term investments               |                                                                 | $      68,279
- |               | $      179,621
260,983 |              | $       176,631
200,000 |              
|                                                                                     |                                                                 | $	68,279        |               | $	440,604              |              | $ 376,631               |              
|Supplemental disclosure of cash flow information and non-cash transactions  (Note 9) |                                                                 |                 |               |                        |              |                         |              





The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.



Biotech Holdings Ltd.

Summary of Significant Accounting Policies

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), which in these circumstances conform in all material respects with United States generally accepted principles ("US GAAP") except as described in Note 18.

> Basis of Consolidation

These consolidated financial statements include the accounts of Biotech Holdings Ltd. ("Biotech") (the "Company") and its subsidiaries:  401718 B.C. Ltd. (formerly Biotech Holdings Inc.) ("Holdings"), Biotech Laboratories Inc. ("Laboratories"), 314202 B.C. Ltd. ("314202"), Biotech Pharmaceutical Ltd., Echo Health & Beauty Ltd. ("Echo"), Volque Pharmaceutical Company Ltd. ("Volque"), and 75% of Smith Rothe Pharmaceutical, Inc. ("Smith Rothe"). The Mexican operating company,Pharmaroth Latin America S.A. de C.V., is owned by Smith Rothe.Smith Rothe has been granted an exclusive license to sub-contract the manufacture and marketing of the Company^s Type II diabetes drug known variously as DIAB II, Sucanon and Glucanin make claims and to use all patent rights in countries outside Oriental Asia.  The 25% non-controlling interest of Smith Rothe is held by a company that is controlled by a Director of Biotech.  All significant intercompany transactions and balances have been eliminated on consolidation.



Use of Estimates



The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results may differ from those estimates.

> Going Concern

These consolidated financial statements have been prepared on a going concern basis which contemplates that Biotech will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.  The Company^s ability to continue as a going concern is dependent upon the raising of additional financing, if, as, and when required, and, ultimately, the attainment of profitable operations.



These consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern.

> Cash and Cash Equivalents

Cash and cash equivalents consist of deposits in banks and highly liquid money market securities and investment deposits issued by banks with an original maturity of three months or less.





Biotech Holdings Ltd.

Summary of Significant Accounting Policies

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

> Property and Equipment

Property and equipment are recorded at cost less any impairment losses recognized in accordance with the policy for impairment of long-lived assets as set out below.



Amortization of property and equipment used in continuing operations is provided over the estimated useful lives of the assets using the following bases and annual rates:

> Furniture and fixtures 
> - 10% declining-balance basis
> Laboratory equipment 
> - 10% declining-balance basis
> Production equipment 
> - 10% declining-balance basis
> Computer equipment  
> - 30% declining-balance basis

No amortization is provided for property and equipment held for resale.

The Company reviews the carrying value of its property and equipment on a regular basis and where these carrying values are estimated to exceed the net receivable recoverable amounts, provision is made for these decreases in value.

> Revenue Recognition

The Company^s principal revenue will be derived from its Type II diabetes drug currently distributed in Mexico. The Company has entered into agreements with two non-related companies in Mexico.  The first company manufactures and packages the tablets from a pre-mix of active ingredients manufactured by the Company in Canada.  The second company markets the drug.



Revenue from product sales will be recognized upon the delivery of the product to a retailer or final consumer when persuasive evidence of an arrangement exists, the price is fixed or determinable and collection is reasonably assured and the Company has no future performance obligations under any licensing agreement or other significant post-delivery obligations.

> Inventory

Inventory is valued at the lower of cost and market. The market value is determined based on the net realizable value of finished goods and the replacement cost for raw materials.  Cost is determined on a first-in, first-out basis.

Product Marketing Costs

Product marketing costs of $571,985 were expensed in the year (2005 - $Nil and 2004 - $Nil).





Biotech Holdings Ltd.

Summary of Significant Accounting Policies

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

> Foreign Exchange Translation

The Company^s and its subsidiaries^ functional currency is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated to Canadian dollars at the year-end exchange rate and all income and expenses are translated at average exchange rates prevailing during the period.  Non-monetary assets and liabilities are translated at the rates prevailing at the dates the assets were acquired or liabilities incurred.  Exchange gains and losses arising on translation are included in earnings.



Exchange rates between the United States dollar and the Canadian dollar for the years reported in these financial statements are as follows:



| |                        | 2006       | 2005       | 2004      
| | ---------------------- | ---------- | ---------- | ----------
| |                        |            |            |           
| | Average for year^s end | $   1.1676 | $   1.2787 | $   1.3532
| |                        |            |            |           
| | As at end of year      | $   1.1943 | $   1.2173 | $   1.3081



Exchange rates between the Mexican peso and the Canadian dollar for the years reported in these financial statements are as follows:



| |                        | 2006       | 2005       | 
| | ---------------------- | ---------- | ---------- | 
| |                        |            |            | 
| | Average for year^s end | $   0.1112 | $   0.1130 | 
| |                        |            |            | 
| | As at end of year      | $   0.1068 | $   0.1086 | 

> Technology Interests

Technology interests are stated at amortized cost less any impairment losses recognized in accordance with the policy for impairment of long-lived assets as set out below.  The Company evaluates the recoverability of these interests when facts and circumstances suggest the asset could be impaired.  Amortization of technology interests is being recorded on a straight-line basis over the shorter of the estimated useful lives or ten years.







Biotech Holdings Ltd.

Summary of Significant Accounting Policies

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

> Impairment of Long-Lived Assets

Property and equipment and other long-lived assets are regularly reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  Impairment is assessed by comparing the carrying amount of an asset to be held and used with the sum of undiscounted cash flows expected from its use and disposal.  If such assets are considered impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds its fair value generally determined on a discounted cash flow basis.  Any impairment results in a write-down of the asset and a charge to income during the year.

> Loss Per Share

Common equivalent shares (consisting of shares issuable on exercise of stock options and warrants) totaling 5,963,682 (2005 - 7,095,146) were not included in the computation of diluted earnings per share because the effect was anti-dilutive.



Undeclared 8% cumulative dividends on convertible preferred shares, aggregating $288,810 to March 31, 2006, have no significant effect on loss per share calculations

> Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, accounts receivable, advances, accounts payable and accrued liabilities and amounts due to related parties.  Management of the Company does not believe that the Company is subject to significant interest, currency or credit risks arising from these financial instruments.  Unless otherwise stated, the respective carrying values of financial instruments approximate their fair values. Fair values were assumed to approximate carrying values since they are short-term in nature or they are receivable or payable on demand.  The fair values of the amounts due to related parties and notes payable were not practicable to determine. The Company does not use any derivative instruments to reduce its exposure to fluctuations in interest rates and foreign currency exchange rates.

Biotech Holdings Ltd.

Summary of Significant Accounting Policies

(Expressed in Canadian Dollars)

March 31, 2006 and 2005



> Stock-Based Compensation

The Company applies the fair value method for valuing stock option grants. Under this method, compensation costs, attributable to share options granted to employees, contractors, officers and directors, are measured at fair value at the grant date and recorded to stock compensation expense over the vesting period of the related option with a corresponding increase to contributed surplus. Upon the exercise of the stock options, consideration paid, together with the amount previously recognized in contributed surplus, is recorded as an increase to share capital.

> Change in Accounting Policy

Effective April 1, 2004, the Company adopted the new Canadian accounting standard for stock-based compensation to employees, officers and directors on a retroactive basis without restatement of prior years. This change resulted in an increase to accumulated deficit of $nil, and an increase to share capital and contributed surplus of $nil. The effect on the current year^s financial statements was an increase of $nil (2005: $102,604) to net loss and a corresponding increase to contributed surplus.



The Company had adopted this standard for stock-based compensation to non-employees in the prior year.

> Future Income Taxes

Income taxes are accounted for by the asset and liability method.  Under this method, future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Future income tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. Management believes that it is not sufficiently likely that the Company will generate sufficient taxable income to allow the  realization of future tax assets and therefore the Company has fully provided for these assets.





Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

1. Nature of Business and Ability to Continue Operations



> The Company^s business focus is on developing the distribution of the Company^s Type II diabetes  drug known variously as DIAB II, Sucanon and Glucanin, particularly in Mexico and Latin America.  The operations of the Company are not subject to any seasonal or cyclical factors
> These consolidated financial statements are stated in Canadian dollars and have been prepared in accordance with generally accepted accounting principles in Canada, on a going-concern basis, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business.  They do not include any adjustments to the recoverability and classification of recorded asset amounts and liabilities that might be necessary should the Company be unable to continue as a going concern.  The Company has incurred recurring operating losses and has an accumulated deficit of $29,595,443 and a Shareholders^ Deficiency of $1,757,499 at March 31, 2006.  These factors, among others, raise substantial doubt about the Company^s ability to be able to continue as a going concern.  The future of the Company and the realization of its asset values will depend upon the Company^s ability to obtain adequate financing and continuing support from shareholders and creditors including refinancing and to attain profitable operations.
> Management plans to raise debt and equity capital on a private placement basis to finance the operating and capital requirements of the Company.  It is management^s intention to continue using debt and equity to finance planned capital expansion and initial market development in Mexico and Latin America and other markets and operations until such time as the Company^s operations are self-sustaining.
> While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate sufficient funds for operations.

2.	Advances

| |                               | 2006     | 2005    
| | ----------------------------- | -------- | --------
| |                               |          |         
| | Advances to marketing company | $	75,000 | $	82,425
| |                               | $	75,000 | $	82,425

> Advances are expenditures incurred by the Company on behalf of its non-related Mexican marketing company.  The advances are recoverable pursuant to contractual obligations (Note 12 (a))

Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

> 3. 
> Property and Equipment
> 
> a)	Continuing Operations

|2006                                                                                | Cost                                      | Accumulated
Amortization                 | Net Book
Value                       
|----------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------- | -------------------------------------
|Production equipment
Laboratory equipment
Furniture and fixtures
Computer equipment | $	46,779
240,627
6,000
118,176

$ 411,582 | $	8,888
161,744
1,626
110,832

$ 283,090 | $	37,891
78,883
4,374
,344

$ 128,492

|2005                                                                                | Cost                                      | Accumulated
Amortization                 | Net Book
Value                         
|----------------------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------- | ---------------------------------------
|Production equipment
Laboratory equipment
Furniture and fixtures
Computer equipment | $	46,779
236,835
6,000
118,176

$ 407,790 | $	4,678
153,190
1,140
107,684

$ 266,692 | $	42,101
83,645
4,860
10,492

$ 141,098

b) Held for Resale

|2006                 | Cost        | Accumulated
Amortization | Net Book
Value
|-------------------- | ----------- | ------------------------ | --------------
|Production equipment | $	1,063,936 | $ 1,063,935              | $ 1           

|2005                 | Cost         | Accumulated
Amortization | Net Book
Value
|-------------------- | ------------ | ------------------------ | --------------
|Production equipment | $  1,097,441 | $ 1,063,935              | $ 33,506      

During the year ended March 31, 2006, amortization expense for the continuing operations was $16,398 (2005: $18,350, and 2004: $8,110) and $Nil (2005: $Nil, and 2004: $Nil) for property and equipment held for resale.







Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

4. Technology Interests

|2006 | Cost        | Accumulated
Amortization | Net Book
Value
|---- | ----------- | ------------------------ | --------------
|     | $	4,461,282 | $ 4,039,345              | $ 421,937     



|2005 | Cost        | Accumulated
Amortization | Net Book
Value
|---- | ----------- | ------------------------ | --------------
|     | $	4,461,282 | $ 3,445,632              | $ 1,015,650   

During the year ended March 31, 2006, amortization expense for technology interests was $593,713 (2005: $593,713, and 2004: $593,713).



5.	Deferred Costs

During the year ended March 31, 2006, amortization expense for deferred costs was $Nil (2005: $368, and 2004: $8,383) and the balance of $1,104 was written off in 2005.







Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

6. Due to Related Parties

|   |                                                                                                                                                                                                                                                                   | 2006      | 2005     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---------
|a) | Unsecured                                                                                                                                                                                                                                                         |           |          
|   | (i) Notes payable to RCAR Investment Ltd., a company controlled by the Company^s president, are unsecured, payable on demand and bear interest at 8% per annum compounded annually.  During 2006 $20,466 (2005 -$18,950, 2004 - $17,547) in interest was accrued. | $	276,295 | $ 255,829
|   | (ii)	Amounts payable to a Director are unsecured, payable on demand and bear no interest.                                                                                                                                                                         | 20,422    | 25,499   
|   | (iii)	Amounts payable to companies controlled by a Director are unsecured, payable on demand and bear no interest.                                                                                                                                                | 12,757    | 7,598    
|   |                                                                                                                                                                                                                                                                   | 309,474   | 288,926  



|b) | Secured                                                                                                                                                                                              |           |          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---------
|   | Notes payable bearing interest at the rate of 8% per annum compounded annually and due on demand.  Collateralized by a general security agreement providing a charge over the assets of the Company. |           |          
|   | During the year ended March 31, 2006, the notes
were increased by advances of $37,000 (2005: $1,100) and were reduced by $Nil (2005-$200,000) paid directly to the lender.                           |           |          
|   | were increased by advances of $37,000 (2005: $1,100) and were reduced by $Nil (2005-$200,000) paid directly to the lender.                                                                           |           |          
|   | During the year, interest expense of $36,300 was accrued (2005: $44,289; 2004: $159,572)                                                                                                             | 524,466   | 451,166  
|   | Amounts advanced by a company controlled by a Director secured by a general security agreement, non-interest bearing and payable on demand.                                                          | 118,160   | -        
|   |                                                                                                                                                                                                      | 642,626   | 451,166  
|   | Total                                                                                                                                                                                                | $	952,100 | $	740,092

The fair value of these notes was not practicable to determine.



Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

7. Notes Payable - long term

|These amounts are unsecured, non-interest bearing and repayable only from a pro-rata share of profits commencing January 26, 2001.  Payments will be limited to the principal amounts of the notes outstanding and no principal repayments are anticipated in 2007.  The fair value of these notes was not practicable to determine. | $  224,343 | $ 224,343
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- | ---------

8.	Share Capital

> Authorized

The Company is authorized to issue an unlimited number of Series Convertible Preferred shares and common shares without par value.  The preferred shares are voting and are convertible into common shares on a 1:1 basis.  They have a cumulative cash dividend of 8% of the original amount contributed plus accrued interest.  The Company^s Articles of Incorporation were amended in 2005 to amend the cumulative cash dividend rate of the Series I Convertible Preferred shares from $0.0368 per share to 8% per annum.



> 

a) 
Private Placements of Common Shares



During the year ended March 31, 2006, the Company completed with related party investors ("the Investors") a private placement of 2,020,202 common shares for gross proceeds of $621,181 cash (net proceeds of $556,536 after a finders fee of $64,645).  The Investors also received 2,020,202 warrants to acquire common shares at $ 0.40 per share, expiring on October 6, 2006.



In November 2005, the Company agreed to a private placement with a related party. The private placement was subject to the approval of the TSX Venture Exchange and was for the purchase of 984,666 common shares at $0.12 per share.  The purchase includes warrants to purchase 984,666 common shares at $0.16 per share until November 7, 2007.  In January 2006 the TSX Venture Exchange approved this private placement but as at March 31, 2006 the shares were not issued and the amount received has been included in amounts due to related parties.  The shares are expected to be issued upon the resumption of trading of the Company^s shares on the TSX Venture Exchange.



During the year ended March 31, 2005, the Company completed with both third party and related party investors ("the Investors") a $764,240 private placement of 1,528,480 common shares for cash.  The allocation between related and third party investors was 480,000 common shares for the related parties and 1,048,480 common shares for third parties.  The Investors also received 1,528,480 warrants to acquire common shares at $ 0.55 per share, expiring on December 16, 2006.







Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005



8.
Share Capital (continued)

b)
Warrants to Purchase Common Shares



The following table summarizes the number of fully exercisable common share warrants outstanding and the exercise price thereof:

| |                                 | 2006        | 2005      | 2004       
| | ------------------------------- | ----------- | --------- | -----------
| |                                 |             |           |            
| | Outstanding, beginning of year  | 3,244,146   | 1,826,777 | 9,561,798  
| | Issued at $0.375 per share      |             |           |            
| | expiring January 27, 2006       | -           | -         | 1,826,777  
| | Issued at $0.400 per share      |             |           |            
| | expiring October 6, 2006        | 2,020,202   | -         | -          
| | Issued at $0.55 per share       |             |           |            
| | expiring December 16, 2006      | -           | 1,528,480 | -          
| | Expired January 27, 2006 $0.375 | (1,715,666) | -         | -          
| | Exercised $0.375                | -           | (111,111) |            
| | Exercised $0.14                 | -           | -         | (561,798)  
| | Exercised $0.16                 | -           | -         | (4,000,000)
| | Exercised $0.17                 | -           | -         | (3,000,000)
| | Exercised $0.10                 | -           | -         | (2,000,000)
| | Outstanding, end of year        | 3,548,682   | 3,244,146 | 1,826,777  

Outstanding warrants to purchase common shares at March 31, 2006 were as follows:

|Exercise Price | Number    | Expiry           
|-------------- | --------- | -----------------
|$0.400         | 2,020,202 | October 6, 2006  
|$0.550         | 1,528,480 | December 16, 2006
|               | 3,548,682 |                  



> c)   Stock Options - Common Shares
> 
> In August 2002, the Exchange amended its policies in respect of incentive stock options such that all issuers, other than capital pool corporations, are required to have stock option plans and approve them annually. On September 30, 2004 the directors of Biotech Holdings Ltd. adopted a revised "rolling" Stock Option Plan for its directors, officers and key employees and it was approved by shareholders at the Annual General Meeting. On July 25, 2005 the Board of Directors approved a "fixed" Stock Option Plan which limits the number of options to be granted. At this Annual General Meeting held on September 30, 2005, the shareholders approved the revised "fixed" Stock Option Plan (the "Plan"). The highlights of the Plan is as follows:
> (i) 
> The maximum number of options granted in any one year is fixed at 8,803,571;
> 
> (ii) 
> No one person may hold options of no more than 5% of the issued and outstanding Shares;

Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

8.	Share Capital (continued)

> c) Stock Options - Common Shares (continued)
> (iii) 
> Options granted under the plan may be exercised for a term of up to five years from the date of grant;
> (iv) 
> Shares issued on exercise of the stock options are payable in full on exercise, and;
> (v)  
> Under the Plan, a stock option is non-assignable and terminates the day the Optionee ceases to be a director, officer or employee of the Corporation or for any reason other than death of the Optionee, in which case the stock option terminates ninety (90) days after the death of the Optionee..

Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

8.
Share Capital (continued)



> c) Stock Options - Common Shares (cont^d)
> The following table summarizes the number of shares under option and the exercise price thereof:



| |                                  | 2006      | 2005      | 2004       
| | -------------------------------- | --------- | --------- | -----------
| | Balance, beginning of year       | 3,851,000 | 2,723,500 | 3,455,000  
| | Granted (per share)              |           |           |            
| | $0.14 (expiring Dec 15, 2005)    | -         | -         | 800,000    
| | $0.23 (expiring May 3, 2005)     | -         | -         | 300,000    
| | $0.25 (expiring January 2, 2006) | -         | -         | 1,350,000  
| | $0.54 (expiring August 11, 2006) | -         | 75,000    | -          
| | $0.66 (expiring August 26, 2006) | -         | 150,000   | -          
| | $0.55 (expiring March 24, 2006)  | -         | 545,000   | -          
| | $0.55 (expiring March 24, 2007)  | -         | 770,000   | -          
| | $0.55 (expiring March 24, 2008)  | -         | 1,290,000 | -          
| | $0.135 (expiring Feb. 22, 2008)  | 300,000   | -         | -          
| | Exercised in year (per share)    |           |           |            
| | $0.12 (expiring May 21, 2004)    | -         | (90,000)  | (1,115,000)
| | $0.14 (expiring Dec. 15, 2005)   | -         | (183,500) | (566,500)  
| | $0.23 (expiring May 3, 2005)     | (75,000)  | (225,000) | -          
| | $0.25 (expiring January 2, 2006) | -         | (454,000) | -          
| | Expired (per share) $0.88        | -         | (750,000) | (750,000)  
| | Expired (per share) $0.45        | -         | -         | (100,000)  
| | Expired (per share) $0.32        | -         | -         | (600,000)  
| | Expired (per share) $0.55        | (495,000) | -         | -          
| | Expired (per share) $0.25        | (896,000) | -         | -          
| | Expired (per share) $0.14        | (50,000)  | -         | -          
| | Cancelled (per share) $0.88      | -         | -         | (50,000)   
| | Cancelled (per share) $0.55      | (220,000) | -         | -          
| | Balance, end of year             | 2,415,000 | 3,851,000 | 2,723,500  
| | Exercisable, end of year         | 225,000   | 1,096,000 | 2,723,500  
| | Weighted average exercise price  | $ 
  0.50 | $0.47     | $   
  0.41

Using the fair value method to value stock options, $321,496 was recorded to stock-based compensation expense. This amount was determined using a Black-Scholes option pricing model assuming no dividends are to be paid, vesting occurring on the date of grant, exercising on the last day before expiry, a weighted average volatility of the Company^s share price of 100% (2005 - 100%; 2004 - 100%) and a weighted average risk free rate of 3.03% (2005 - 3.03%; 2004 - 1.95%).

Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

8.	Share Capital (continued)

c)	Stock Options - Common Shares (cont^d)

Stock options outstanding at March 31, 2006 were as follows:



| | Exercise Price | Number    | Expiry           
| | -------------- | --------- | -----------------
| | $0.54          | 75,000    | August 11, 2006  
| | $0.66          | 150,000   | August 26, 2006  
| | $0.55          | 700,000   | March 24, 2007   
| | $0.135         | 300,000   | February 22, 2008
| | $0.55          | 1,190,000 | March 24, 2008   
| |                | 2,415,000 |                  

Convertible Preferred Shares and Warrants to Purchase Preferred Shares

At March 31, 2006 and 2005, 13,806,907 convertible preferred shares were outstanding from the exercise of preferred share warrants during 2004.  No cash dividend had been declared to date.  However, the 8% per annum dividend on these shares for the year ended March 31, 2006 would have amounted to $110,455 (2005: $110,455; 2004: $67,900).  The cumulative effect to March 31, 2006 of the dividend at 8% per annum from date of issuance would have amounted to $288,810.  This would have an insignificant effect on net loss or on basic and diluted loss per share.

The following table summarizes the Company^s preferred share warrants outstanding at March 31, 2006, 2005 and 2004, and the changes for the years then ended:



| |                                                  | Exercise |      |      |             
| | ------------------------------------------------ | -------- | ---- | ---- | ------------
| |                                                  | Price    | 2006 | 2005 | 2004        
| | Balance outstanding,                             |          |      |      |             
| | Beginning of year                                | $	0.21   | -    | -    | 5,700,000   
| |                                                  | $	0.10   | -    | -    | 13,806,907  
| |                                                  |          | -    | -    | 19,506,907  
| | Exercised                                        | $	0.10   | -    | -    | (13,806,907)
| | Expired                                          | $	0.21   | -    | -    | (5,700,000) 
| | Balance outstanding and Exercisable, end of year |          | -    | -    | -           



No preferred share purchase warrants were outstanding or exercisable as of March 31, 2006.





Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

9.	Supplemental Disclosure of Cash Flow Information and Non-Cash Transactions

a)	Changes in non-cash operating working capital items:



| |                                          |  | For the years ended March 31
| | ---------------------------------------- |  | ----------------------------
| |                                          |  | 2006                        
| |                                          |  |                             
| | Accounts receivable                      |  | $   (45,322)                
| | Advances                                 |  | 7,425                       
| | Inventory                                |  | (10,795)                    
| | Deposits and prepaid expenses            |  | -                           
| | Due from related parties                 |  | -                           
| | Accounts payable and accrued liabilities |  | (33,150)                    
| | Due to related parties                   |  | 212,008                     
| | Loan payable                             |  | -                           
| |                                          |  | $	(130,166)                 

b)	Other Supplemental Information



| |                                                                                                                                          |  | For the years ended March 31
| | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------
| |                                                                                                                                          |  | 2006                        
| |                                                                                                                                          |  |                             
| | Interest paid                                                                                                                            |  | $        
-                 
| |                                                                                                                                          |  |                             
| | Non-cash financing and investing activities:                                                                                             |  |                             
| |                                                                                                                                          |  |                             
| | Issuance (reversal) of preferred shares
through the exercising of preferred share
warrants for settlement of debt due to
related parties |  | -                           
| | Issuance of common shares on settlement of
accounts payable                                                                              |  | -                           
| | Promissory notes payable                                                                                                                 |  | -                           
| | Due to related party debt (Note 5)                                                                                                       |  | -                           
| | Issuance of common shares through the	  exercising of common share warrants for	  settlement of debt due to related parties              |  | -                           

As of March 31, 2006, cash of $68,279 included cash on deposit at a Mexican financial institution of $28,548, denominated in $9,063 US and $168,277 Mexican pesos.

No income taxes were paid and no interest was received in any of the periods presented.







Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

10.	Related Party Transactions

> Amounts paid to related parties were based on exchange amounts which represented the amounts agreed upon by the related parties.  No cash compensation is paid to directors in their capacity as directors.  Amounts paid or payable to related parties not disclosed elsewhere include:

| |                                                                 |  | 2006      |  | 2005      |  | 2004        
| | --------------------------------------------------------------- |  | --------- |  | --------- |  | ------------
| |                                                                 |  |           |  |           |  |             
| | Management fees paid to an officer/director                     |  | $	144,000 |  | $	144,000 |  | $	   144,000
| | Salaries and benefits paid to officers and directors            |  | 172,976   |  | 127,032   |  | 125,368     
| | Interest accrued on Notes Payable (Note 6)                      |  | 56,766    |  | 63,239    |  | 117,119     
| | Rent and services paid to companies controlled by
directors     |  | 86,216    |  | 98,795    |  | 36,860      
| | Net sales to (returns from) a company controlled
by a  director |  | -         |  | -         |  | (65,135)    
| | Purchase of equipment from a significant Shareholder            |  | -         |  | -         |  | 13,438      

11. Income Taxes

The provision for income taxes differs from the amount estimated using the Canadian federal and provincial statutory income tax rates for fiscal years ended as follows:



| |                                                |  | 2006           |  | 2005              |  | 2004           
| | ---------------------------------------------- |  | -------------- |  | ----------------- |  | ---------------
| |                                                |  |                |  |                   |  |                
| | Provision (benefit) at Canadian statutory rate |  | $   (331,000)  |  | $      
(632,000) |  | $	(555,000)    
| | Stock-based compensation                       |  | 102,000        |  | 139,000           |  | 27,000         
| | Effect of changes in effective tax rates       |  | -              |  | 31,000            |  | 246,000        
| | Expiry of loss carry forwards                  |  | 396,000        |  | 543,000           |  | 515,000        
| | Permanent differences and other                |  | 65,000         |  | 3,000             |  | 35,000         
| | (Decrease) increase in valuation allowance     |  | (232,000)      |  | (84,000)          |  | (268,000)      
| |                                                |  | $            - |  | $             
-  |  | $             -



The tax effects of temporary differences that give rise to significant components of the Company^s future income tax assets at March 31, are as follows:

| |                         |  | 2006            |  | 2005            
| | ----------------------- |  | --------------- |  | ----------------
| |                         |  |                 |  |                 
| | Tax loss carry forwards |  | $   3,952,000   |  | $    4,232,000  
| | Property and equipment  |  | 617,000         |  | 569,000         
| | Technology interests    |  | 1,240,000       |  | 1,240,000       
| | Deferred costs          |  | 256,000         |  | 256,000         
| | Valuation allowance     |  | (6,065,000)     |  | (6,297,000)     
| | Net future tax asset    |  | $             - |  | $             
-



Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005



11. Income Taxes



The Company evaluates its valuation allowance requirements based on projected future operations.  When circumstances change and this causes a change in management^s judgment about the recoverability of future income tax assets, the impact of the change on the valuation allowance is reflected in current income.

The Company has non-capital losses carry forward available to reduce future taxable income.  These losses expire as follows:



|2007
2008
2009
2010
2011
2015
2016 | $	1,767,364
2,014,621
1,993,713
1,378,313
2,367,554
1,149,702
308,610

$
10,979,877
|---------------------------------- | -----------------------------------------------------------------------------------



No benefit (if any) of these tax losses has been recorded in these financial statements.



12.	Commitments and Contractual Agreements



a)
In May, 2004, the Company entered into a 5 year agreement with a marketing company in Mexico for the sale of Sucanon in Mexico.  The agreement, among other items, grants the marketing companythe exclusive rights to sell Sucanon in Mexico, specifies the price at which the Company will sell Sucanon to the marketing company, establishes a maximum retail price and minimum monthly sales levels and sets out the terms of repayment for amounts advanced for advertising by the Company.  The agreement has a 5 year renewal clause.  Upon any breach of the terms specified in the agreement, the Company has the option to terminate the agreement.



b)	In November 2004, the Company entered into an agreement with a Mexican manufacturing company for the production of Sucanon.  The agreement specifies that the Company will provide the manufacturer with pre-mix and the manufacturer will tablet the product within production specifications and package Sucanon for a per package price as specified in the agreement.



c)	The Company pays rent on a month-to-month basis.



d)	During the year ended March 31, 2002, the Company entered into a world-wide patent licensing agreement with the President of the Company regarding the use of DIAB II (also known under the trademarks Sucanon and Glucanin) as a combination therapy. Combination therapies as defined in the agreement include those therapies for Type II Diabetes in which DIAB II is combined with or used together with other Type II Diabetes drugs.  This agreement would require payment by the Company, to the President, of 25% of such royalty revenue received by the Company, either from licensing such combinations to third parties or from the Company itself producing such a combination.  The payment of this royalty for combination therapy use was determined by agreement between outside directors and the President.  This agreement will have no impact on revenues received by the Company on sales of DIAB II as a monotherapy, and, in the opinion of the management, this agreement is not anticipated to have a significant impact on expected total revenues.





Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

13. Contingency

The Company is the subject of legal disputes which have arisen in the normal course of business.  In June 1998, one of the Company^s suppliers issued a claim that exceeds the amount accrued by approximately $250,000.  The Company has filed a counter claim against the supplier and the matter is presently in litigation.  In the opinion of management, the outcome of the legal disputes is not presently determinable.  However, it is the opinion of management that this will not have a material adverse financial impact on the Company.

14.	Segmented Information

The Company^s personal healthcare product business was operated in Canada and the United States but was discontinued.  The Company currently operates in one business segment, being the development  and distribution of its Type II diabetes drug.

Sales (returns) by geographic region are summarized as follows:

| |                                  |  | For the years ended March 31
| | -------------------------------- |  | ----------------------------
| |                                  |  | 2006                        
| |                                  |  |                             
| | Canada (discontinued operations) |  | $	-                         
| | U.S.A. (discontinued operations) |  | -                           
| | Mexico                           |  | 482,840                     
| |                                  |  | $	482,840                   



Property and equipment by geographic region as of March 31, are summarized as follows:



|                               |  | 2006      | 2005      | 
|------------------------------ |  | --------- | --------- | 
|                               |  |           |           | 
|Canada (continuing operations) |  | $	128,492 | $	141,098 | 
|Canada (held for resale)       |  | 1         | 33,506    | 
|                               |  | $	128,493 | $	174,604 | 

Major Customers

Current Operations

The Company^s principal revenue will be derived from its Type II diabetes drug currently distributed in Mexico. The Company has entered into agreements with two non-related companies in Mexico.  The first company manufactures and packages the tablets from a pre-mix of active ingredients manufactured by the Company in Canada.  The second company markets the drug.

All the Company^s sales are currently made to this Mexican marketing company, whose orders for product correspond to orders that they receive from their retail customers.  There were no sales in 2005 or 2004.



Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

14. Segmented Information (continued)

Discontinued Operations

The Company had discontinued operations in 2004 only.  One customer from the discontinued operations accounted for 66% of total sales before returns during the year ended March 31, 2004 and for Nil% of total receivable as of March 31, 2004.  Revenues as a percent of total Company sales by each major customer were Overwaitea Food Group 66% of total 2004 sales.  The operations were halted in December, 2003.



15.
Reclassifications



Certain comparative figures have been reclassified to conform to the current year^s financial statement presentation.





16.
Discontinued Operations



The Company^s primary operating subsidiary, Biotech Laboratories Inc., discontinued operations during the year ended March 31, 2003.  A general security agreement registered as a first charge, was granted to the subsidiary, subject to collateral, including inventory, equipment, accounts receivable, intangibles and other personal property of the lessee, to secure payment or performance of obligations and indebtedness of the subsidiary.



As a result of impairment of certain assets, the following were written down during the years ended March 31, 2006, 2005 and 2004:



|                       | For the years ended March 31
|---------------------- | ----------------------------
|                       | 2006                        
|                       |                             
|Property and equipment | $        
-                 
|                       |                             
|                       | $         
-                



The remaining assets and liabilities of the discontinued operations at March 31, 2006 are as follows:



| | Current assets                          |  | $                
- |  | 
| | --------------------------------------- |  | ------------------- |  | 
| | Property and equipment - net book value |  | 1                   |  | 
| |                                         |  |                     |  | 
| |                                         |  | 1                   |  | 
| | Less: current liabilities               |  | (596,011)           |  | 
| |                                         |  | $	(596,010)         |  | 



Revenue for the year ended March 31, 2006 from the discontinued operations was $Nil, (2005 - $Nil; 2004 - $98,282) resulting in an operating loss of $Nil (2005 - $Nil; 2004 - $54,515).



Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005



17.	Proposal to Creditors



On May 21, 2003, the Company^s primary operating subsidiary, Biotech Laboratories Inc., as well as the Company, received approval from the Supreme Court of British Columbia in the matter of two proposals regarding its creditors pursuant to the Bankruptcy and Insolvency Act of Canada.  These proposals, accepted by the required majority of creditors, allows for the operating subsidiary to maintain operations and generate funds from those operations to pay a portion of its pre-proposal liabilities.  For Biotech Laboratories Inc., secured creditors, all being related parties, claimed $9,808,057 of which the net value of the security was estimated to be $568,096.  Unsecured creditors claimed $9,605,170, which included $9,239,961 unsecured debt by secured creditors.  For the Company, all being related parties, claimed $2,702,961.  Unsecured creditors claimed $153,560.  Under the proposal, preferred creditors shall be paid in full in priority to all claims of unsecured creditors.  Provision for payment of claims of unsecured creditors shall be made in the lesser amount of 10% and $25,000 on each day, which is one year, one year six months and two years, respectively, after the end of the month of court ratification.  The proposals also allow the companies to provide ongoing business to its suppliers.  Creditors of the subsidiary after the filing of the proposal will be paid in full, in priority to preferred and general unsecured creditors.



In July 2006 the trustee acting in the proposal of the Company filed a certificate with the Supreme Court of British Columbia that certified that the Company had fully performed its obligations required under the proposal.  At the same time, the trustee acting in the proposal of Biotech Laboratories Inc. filed a notice with the Supreme Court of British Columbia stating that Biotech Laboratories Inc. was in default in performing its obligations required under its proposal and its creditors could take proceedings to place Biotech Laboratories Inc. in bankruptcy at their own expense.



On August 1, 2003, the lessee of the plant equipment (see Note 15 - Discontinued Operations, exercised its option to purchase the laboratory and production equipment of Biotech Laboratories Inc. for $1,500,000, payment to be made monthly beginning August 1, 2003 for 120 equal monthly payments of $14,421, including interest at 3% per year, calculated monthly.



Further, on August 1, 2003, this subsidiary assigned all funds due to it under the sale of plant equipment, to a related party having a registered charge against the equipment.



18.	Reconciliation of Certain Differences Between U.S and Canadian Generally Accepted Accounting Principles



The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") which, in the case of the Company, conform in all material respects with those of the United States ("US GAAP") and with the requirements of the Securities and Exchange Commission ("SEC"), except as follows:

a) The Company had a policy of capitalizing a portion of development costs which relate to the development of proprietary formulas for the Company^s discontinued operations respecting its healthcare product line.  Additionally, in prior years, the Company capitalized certain deferred costs.  US GAAP would require these expenditures to be expensed in the year incurred.

The effect of the above on total assets (per US GAAP) would be to reduce total assets at March 31, 2006 by $Nil (2005 - $1,472).



Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

18.	Reconciliation of Certain Differences Between U.S and Canadian Generally Accepted Accounting Principles (continued)

b) The Company had adopted Financial Accounting Standards Board Statement No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13 and Technical Corrections" ("SFAS No. 145").  SFAS No. 145 requires any gain or loss on early extinguishment of debt to be included in income from continuing operations instead of being classified as an extraordinary item.  Accordingly, under US GAAP, the Company incurred in 2004 only, a loss totaling $2,640,760 on the early extinguishment of debt in continuing operations relating to preferred purchase share warrants and common shares and warrants.

(i) During the year 2004 only, the Company had preferred share purchase warrants outstanding.  Under Canadian GAAP, no accounting recognition had been given to these warrants granted to note holders.  Under US GAAP, the preferred share purchase warrants would be valued in accordance with SFAS No. 123 using the Black-Scholes option pricing model with the following weighted average assumptions:

| |                                                |  |  | 2004 
| | ---------------------------------------------- |  |  | -----
| |                                                |  |  |      
| | Risk-free interest rate                        |  |  | 1.26%
| | Dividend yield                                 |  |  | 0.00%
| | Volatility factor of the expected market price |  |  |      
| | Of the Company^s common shares                 |  |  | 100% 
| | Weighted average expected life of the options  |  |  |      
| | (months)                                       |  |  | 12   



According to EITF 96-19, "Debtor^s Accounting for a Modification or Exchange of Debt Instruments", a restructuring will be considered an extinguishment of debt if the present value of the new debt instrument is substantially different from the old instrument.  In this case, the difference between the fair value of the old debt instrument and the new instrument is recognized as a gain or a loss.



Accordingly, under US GAAP, loss on extinguishment of debts for restructuring of debt instrument totaling $944,093 incurred in 2004 only, would be charged to the Statement of Operations in 2004.



(ii) During the year 2004 only the Company extinguished debt by issuance of shares and warrants.  Under Canadian GAAP, no gain or loss is recorded on the extinguishment of debt for common shares and warrants issued by the Company.  Under US GAAP, a gain or loss is recorded based on the difference between the net book value of the debt and the fair value of the common shares and warrants on the date of issuance.  Such a gain or loss under US GAAP would be presented as loss on extinguishment of debt in the Statement of Operations. Under US GAAP, the total value of common shares and warrants, issued in 2004 only, as an extinguishment of debt was $1,696,667.  The fair value of the common shares is based upon the trading price of the Company^s common shares on the issuance dates.  The warrants were valued using the Black-Scholes option pricing model with the following weighted average assumptions:









Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

18.	Reconciliation of Certain Differences Between U.S and Canadian Generally Accepted Accounting Principles (continued)

| |                                                |  | 2004  |  | 
| | ---------------------------------------------- |  | ----- |  | 
| |                                                |  |       |  | 
| | Risk-free interest rate                        |  | 1.95% |  | 
| | Dividend yield                                 |  | 0.00% |  | 
| | Volatility factor of the expected market price |  |       |  | 
| | of the Company^s common shares                 |  | 100%  |  | 
| | Weighted average expected life of the options  |  |       |  | 
| | (months)                                       |  | 24    |  | 



The value of the warrants based on the Black-Scholes calculation using the above assumptions was not applicable in 2006 and 2005 as there were no issued warrants for common shares in 2006 and 2005.







Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

18. Reconciliation of Certain Differences Between U.S and Canadian Generally Accepted Accounting Principles (continued)

The impact of material differences is as follows:

| |                                                                                                |  | 2006          |  | 2005          |  | 2004            
| | ---------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | ----------------
| |                                                                                                |  |               |  |               |  |                 
| | Net loss for the year per Canadian GAAP                                                        |  | $	(1,936,645) |  | $	(1,516,071) |  | $	(2,306,951)   
| | Amortization and write-off of deferred costs,  net of development expenses during
the year (a) |  | -             |  | 1,472         |  | 8,383           
| | (Loss) on extinguishment of debt (b)                                                           |  | -             |  | -             |  | (2,640,760)     
| | Net loss and comprehensive loss                                                                |  |               |  |               |  |                 
| | per US GAAP                                                                                    |  | $	(1,936,645) |  | $	(1,514,599) |  | $	(4,939,328)   
| | Loss per share in accordance with US
GAAP                                                      |  | $ (0.02)      |  | $ (0.02)      |  | $         (0.06)

| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The impact of the above-noted differences on total shareholders^ deficiency is as follows:
| |                                                                                           
| |                                                                                           
| | Shareholders^ equity (deficiency) per
Canadian GAAP                                       
| | Unamortized balance of deferred costs (a)                                                 
| | Shareholders^ (capital deficit)                                                           
| | per US GAAP                                                                               

19.	Subsequent Events

a)   In June 2006, the Board of Directors replaced  896,000 stock options exercisable at $0.25 per share which expired on January 2, 2006, with new stock options exercisable at $0.16 per share. The replacement options vest on October 22, 2006 and expire on June  22, 2008.  A total of 560,000 of these options were granted to Directors and Officers of the Company and the remaining 336,000 were granted to Consultants to the Company.

b)  
The Board of Directors also replaced 545,000 stock options exercisable at $0.55 per share which expired or were cancelled by March 24, 2006 with new stock options exercisable at $0.10 per share. These replacement options will vest October 22, 2006 and expire on June 22, 2008. A total of 470,000 of these options were granted to directors and officers and 75,000 were granted to consultants to the company.  The stock options described above comply with the Stock Option Plan approved by the shareholders on September 30, 2005 and are subject to the approval of the TSX Venture Exchange.







Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005

19.	Subsequent Events (continued)

c)    In July 2006 the trustee acting in the proposal of the Company filed a certificate with the Supreme Court of British Columbia that certified that the Company had fully performed its obligations required under the proposal.  At the same time, the trustee acting in the proposal of Biotech Laboratories Inc. filed a notice of default with the Supreme Court of British Columbia stating that the creditors could take proceedings to place Biotech Laboratories Inc. in bankruptcy at their own expense.

20. Recent Accounting Pronouncements:

a)  Canadian GAAP:

(i)	       Financial instruments, recognition and measurement:

In January 2005, the Canadian Institute of Chartered Accountants ("CICA") issued new Handbook Section 3855, Financial Instruments, Recognition and Measurement, effective for annual and interim periods beginning on or after October 1, 2006.  This new section establishes standards for the recognition and measurement of all financial instruments, provides a characteristics-based definition of a derivative financial instrument, provides criteria to be used to determine when a financial instrument should be recognized, and provides criteria to be used when a financial instrument is to be extinguished. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position and results of operations.

(ii)	Comprehensive income and equity:

In January 2005, the CICA issued new Handbook Section 1530, Comprehensive Income ("Section 1530"), and Section 3251, Equity ("Section 3251"), effective for annual and interim periods beginning on or after October 1, 2006.  Section 1530 establishes standards for reporting comprehensive income.  The section does not address issues of recognition or measurement for comprehensive income and its components.  Section 3251 establishes standards for the presentation of equity and changes in equity during the reporting period. The requirements in Section 3251 are in addition to Section 1530.  The Company has not yet determined the effect of these new standards on its consolidated financial position and results of operations.

(iii)	Hedges

In January 2005, the CICA issued new Handbook Section 3865, Hedges, effective for annual and interim periods beginning on or after October 1, 2006.  This new section establishes standards of when and how hedge accounting may be applied. Hedge accounting is optional.

(iv)	Non-monetary transactions:

In June 2005, the CICA issued new Handbook Section 3831, Non-monetary Transactions, effective for fiscal periods beginning on or after January 1, 2006. This standard requires all non-monetary transactions to be measured at fair value unless they meet one of four very specific criteria.  Commercial substance replaces culmination of the earnings process as the test for fair value measurement.  A transaction has commercial substance if it causes an identifiable and measureable change in the economic circumstances of the entity.  Commercial substance is a function of the cash flows expected by the reporting entity. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position and results of operations.





Biotech Holdings Ltd.

Notes to the Consolidated Financial Statements

(Expressed in Canadian Dollars)

March 31, 2006 and 2005



> 20.	Recent Accounting Pronouncements (continued)
> (b)	United States GAAP:
> (i)	Accounting for stock-based compensation:
> 
> In December 2004, the Financial Accounting Standards Board ("FASB") revised SFAS No. 123R to require companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees, but expressed no preference for a type of valuation model.  The way an award is classified will affect the measurement of compensation cost.  Liability-classified awards are re-measured to fair value at each balance sheet date until the award is settled. Equity-classified awards are  measured at grant-date fair value and the grant-date fair value is recognized over the requisite service period.  Such awards are not subsequently re-measured.
> 
> In April 2005, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 ("SAB 107") to provide additional guidance regarding the application of SFAS 123R.  SAB107 permits registrants to choose an appropriate valuation technique or model to estimate to estimate the fair value of share options, assuming consistent application, and provides guidance for the development of assumptions used in the valuation process. Based upon SEC rules issued in April 2005, SFAS 123R is effective for fiscal years that begin after June 15, 2005 and will be adopted by the Company effective April 1, 2006.  Additionally, SAB 107 discussed disclosures to be made under "Management^s Discussion and Analysis of Financial Condition and Results of Operations" in registrants^ periodic reports. The Company has not yet determined the effect of this new standard  on its consolidated financial position and results of operations.
> 
> (ii)	Accounting for non-monetary transactions:
> 
> In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets, that amends APB Opinion No. 27, Accounting for Non-monetary Transactions.  The new standard requires non-monetary exchanges to be accounted for at fair value, recognizing any gains or loss, if the transactions meet a commercial substance criterion and fair value is determinable.  The amendment will be effective for non-monetary transactions occurring in fiscal periods beginning after June 15, 2005.  The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position and results of operations.
> 
> (iii)	Accounting for inventory costs:
> 
> In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment to Accounting Research Bulletin No. 43, Chapter 4 ("ARB 43").  This statement amends the guidance in ARB 43, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  ARB 43 previously stated that these expenses may be so abnormal as to require treatment as current-period charges.  SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal".  In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  Prospective application of this statement is required beginning January 1, 2006. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial position and results of operations.