Consolidated
Financial Statements


(Expressed
in Canadian dollars)





YM
BIOSCIENCES INC.





Years
ended June 30, 2010, 2009 and 2008











KPMG
      LLP
              Telephone
              (416)
      228-7000Chartered
      Accountants
              Fax
              (416)
      228-7123Yonge
      Corporate Centre
              Internet
              www.kpmg.ca4100
      Yonge Street Suite 200Toronto
      ON  M2P 2H3Canada




REPORT
OF INDEPENDENT REGISTERED


PUBLIC
ACCOUNTING FIRM




To the
Board of Directors of YM Biosciences Inc.




We have
audited the accompanying consolidated balance sheets of YM Biosciences Inc.
(the "Company") and subsidiaries as at June 30, 2010 and 2009 and the
related consolidated statements of operations and comprehensive loss and deficit
and cash flows for each of the years in the three-year period ended June 30,
2010.  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).  Canadian generally accepted auditing standards and
the standards of the Public Company Accounting Oversight Board (United States)
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company and subsidiaries
as at June 30, 2010 and 2009 and the results of their operations and their cash
flows for each of the years in the three-year period ended June 30, 2010 in
conformity with Canadian generally accepted accounting principles.




Canadian
generally accepted accounting principles vary in certain significant respects
from U.S. generally accepted accounting principles.  Information
relating to the nature and effect of such differences is presented in note 18 to
the consolidated financial statements.




As
discussed in note 2(p) to the consolidated financial statements, effective July
1, 2008, the Company adopted The Canadian Institute of Chartered Accountants'
Handbook Section 1400, General Standards on Financial Statement
Presentation.










Chartered
Accountants, Licensed Public Accountants




Toronto,
Canada




September
23, 2010





KPMG LLP
is a Canadian limited liability partnership and a member firm of the
KPMG


network
of independent member firms affiliated with KPMG International
Cooperative


(“KPMG
International”), a Swiss entity.


KPMG
Canada provides services to KPMG LLP.





YM
BIOSCIENCES INC.


Consolidated
Balance Sheets


(Expressed
in Canadian dollars, unless otherwise noted)





June 30,
2010 and 2009









2010
                        
                        
                        2009AssetsCurrent
      assets:Cash
      and cash equivalents (note 4)
                        
                        $
                        19,460,141
                        
                        
                        $
                        2,337,716Short-term
      deposits (note 4)
                        
                        
                        26,184,991
                        
                        
                        
                        39,713,042Accounts
      receivable
                        
                        
                        161,184
                        
                        
                        
                        564,584Prepaid
      expenses
                        
                        
                        237,962
                        
                        
                        
                        352,85046,044,278
                        
                        
                        
                        42,968,192Property
      and equipment (note 5)
                        
                        
                        84,775
                        
                        
                        
                        96,876Intangible
      asset (note 6)
                        
                        
                        11,645,714
                        
                        
                        
                        3,004,868$
                        57,774,767
                        
                        
                        $
                        46,069,936Liabilities
      and Shareholders' EquityCurrent
      liabilities:Accounts
      payable
                        
                        $
                        699,277
                        
                        
                        $
                        431,028Accrued
      liabilities
                        
                        
                        2,085,824
                        
                        
                        
                        486,723Deferred
      revenue (note 12)
                        
                        
                        1,523,916
                        
                        
                        
                        2,549,5684,309,017
                        
                        
                        
                        3,467,319Deferred
      revenue (note 12)
                        
                        
                        1,650,909
                        
                        
                        
                        2,898,292Shareholders'
      equity:Share
      capital (note 8)
                        
                        
                        203,498,239
                        
                        
                        
                        172,921,153Share
      purchase warrants (note 9)
                        
                        
                        1,473,246
                        
                        
                        
                        –Contributed
      surplus (note 10)
                        
                        
                        14,088,671
                        
                        
                        
                        13,035,123Deficit
                        
                        
                        (167,245,315
                        )
                        
                        
                        (146,251,951
                        )51,814,841
                        
                        
                        
                        39,704,325Basis
      of presentation (note 1)Commitments
      (note 14)$
                        57,774,767
                        
                        
                        $
                        46,069,936




See
accompanying notes to consolidated financial statements.




On behalf
of the Board:





/s/
      David G.P. Allen
                    
                    Director/s/
      Tryon M. Williams
                    
                    Director


1


YM
BIOSCIENCES INC.


Consolidated
Statements of Operations and Comprehensive Loss and Deficit


(Expressed
      in Canadian dollars, unless otherwise
noted)





Years ended June 30,2010
                                      
                                      
                                      2009
                                      
                                      
                                      2008Out-licensing
      revenue (note 12)
                                      
                                      $
                                      2,610,560
                                      
                                      
                                      $
                                      4,543,280
                                      
                                      
                                      $
                                      4,859,085Interest
      income
                                      
                                      
                                      84,391
                                      
                                      
                                      
                                      1,070,264
                                      
                                      
                                      
                                      2,584,0802,694,951
                                      
                                      
                                      
                                      5,613,544
                                      
                                      
                                      
                                      7,443,165Expenses:Licensing
      and product development
                                      
                                      
                                      16,974,790
                                      
                                      
                                      
                                      14,172,845
                                      
                                      
                                      
                                      15,631,550General
      and administrative
                                      
                                      
                                      6,898,209
                                      
                                      
                                      
                                      4,839,870
                                      
                                      
                                      
                                      6,831,95523,872,999
                                      
                                      
                                      
                                      19,012,715
                                      
                                      
                                      
                                      22,463,505Loss
      before the undernoted
                                      
                                      
                                      (21,178,048
                                      )
                                      
                                      
                                      (13,399,171
                                      )
                                      
                                      
                                      (15,020,340
                                      )Gain
      on foreign exchange
                                      
                                      
                                      194,036
                                      
                                      
                                      
                                      67,075
                                      
                                      
                                      
                                      32,463Gain
      (loss) on short-term deposits
                                      
                                      
                                      (9,352
                                      )
                                      
                                      
                                      (40,200
                                      )
                                      
                                      
                                      172,276Loss
      on disposal of property and equipment
                                      
                                      
                                      
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      (70,143
                                      )Other
      income
                                      
                                      
                                      –
                                      
                                      
                                      
                                      307,140
                                      
                                      
                                      
                                      –Loss
      before income taxes
                                      
                                      
                                      (20,993,364
                                      )
                                      
                                      
                                      (13,065,156
                                      )
                                      
                                      
                                      (14,885,744
                                      )Current
      income taxes (note 15)
                                      
                                      
                                      –
                                      
                                      
                                      
                                      4,310
                                      
                                      
                                      
                                      –Loss
      and comprehensive loss for the year
                                      
                                      
                                      (20,993,364
                                      )
                                      
                                      
                                      (13,069,466
                                      )
                                      
                                      
                                      (14,885,744
                                      )Deficit,
      beginning of year
                                      
                                      
                                      (146,251,951
                                      )
                                      
                                      
                                      (133,182,485
                                      )
                                      
                                      
                                      (118,296,741
                                      )Deficit,
      end of year
                                      
                                      $
                                      (167,245,315
                                      )
                                      
                                      $
                                      (146,251,951
                                      )
                                      
                                      $
                                      (133,182,485
                                      )Basic
      and diluted loss per common share
                                      
                                      $
                                      (0.33
                                      )
                                      
                                      $
                                      (0.23
                                      )
                                      
                                      $
                                      (0.27
                                      )Weighted
      average number of common shares outstanding
                                      
                                      
                                      63,607,316
                                      
                                      
                                      
                                      55,835,356
                                      
                                      
                                      
                                      55,835,356




See
accompanying notes to consolidated financial statements.


2


YM
BIOSCIENCES INC.


Consolidated
      Statements of Cash Flows


(Expressed
      in Canadian dollars, unless otherwise
noted)







Years ended June 30,2010
                              
                              
                              2009
                              
                              
                              2008Cash
      provided by (used in):Operating
      activities:Loss
      for the year
                              
                              $
                              (20,993,364
                              )
                              
                              $
                              (13,069,466
                              )
                              
                              $
                              (14,885,744
                              )Items
      not involving cash:Amortization
      of property and  equipment
                              
                              
                              63,837
                              
                              
                              
                              91,896
                              
                              
                              
                              125,271Amortization
      of intangible asset
                              
                              
                              2,938,891
                              
                              
                              
                              1,060,541
                              
                              
                              
                              1,060,541Impairment
      of intangible asset
                              
                              
                              1,944,317
                              
                              
                              
                              –
                              
                              
                              
                              –Loss
      on disposal of property and  equipment
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              70,143Unrealized
      loss on short-term  deposits
                              
                              
                              9,352
                              
                              
                              
                              41,912
                              
                              
                              
                              –Stock-based
      compensation
                              
                              
                              983,242
                              
                              
                              
                              760,760
                              
                              
                              
                              2,063,973Change
      in non-cash operating  working capital:Accounts
      receivable and prepaid  expenses
                              
                              
                              705,474
                              
                              
                              
                              (138,930
                              )
                              
                              
                              (61,483
                              )Accounts
      payable, accrued liabilities and deferred revenue
                              
                              
                              (2,395,174
                              )
                              
                              
                              (4,694,597
                              )
                              
                              
                              (5,844,790
                              )(16,743,425
                              )
                              
                              
                              (15,947,884
                              )
                              
                              
                              (17,472,089
                              )Financing
      activities:Issuance
      of common shares  on exercise of options
                              
                              
                              89,139
                              
                              
                              
                              –
                              
                              
                              
                              –Net
      proceeds from issuance of shares  and warrants
                              
                              
                              19,389,596
                              
                              
                              
                              –
                              
                              
                              
                              –19,478,735
                              
                              
                              
                              –
                              
                              
                              
                              –Investing
      activities:Short-term
      deposits, net
                              
                              
                              13,518,699
                              
                              
                              
                              15,226,783
                              
                              
                              
                              14,742,701Additions
      to property and equipment
                              
                              
                              (41,163
                              )
                              
                              
                              (60,372
                              )
                              
                              
                              (37,770
                              )Proceeds
      from sale of property and equipment
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              38,99613,477,536
                              
                              
                              
                              15,166,411
                              
                              
                              
                              14,743,927Increase
      (decrease) in cash and cash equivalents
                              
                              
                              16,212,846
                              
                              
                              
                              (781,473
                              )
                              
                              
                              (2,728,162
                              )Net
      cash assumed on acquisition (note 3)
                              
                              
                              909,579
                              
                              
                              
                              –
                              
                              
                              
                              –Cash
      and cash equivalents, beginning of year
                              
                              
                              2,337,716
                              
                              
                              
                              3,119,189
                              
                              
                              
                              5,847,351Cash
      and cash equivalents, end of year
                              
                              $
                              19,460,141
                              
                              
                              $
                              2,337,716
                              
                              
                              $
                              3,119,189Supplemental
      disclosure of non-cash transactions:Issuance
      of common shares on acquisition of Cytopia Limited (note
3)
                              
                              $
                              12,515,903
                              
                              
                              $
                              –
                              
                              
                              $
                              –Issuance
      of stock options on acquisition of Cytopia Limited (note
3)
                              
                              
                              126,000
                              
                              
                              
                              –
                              
                              
                              
                              –Issuance
      of broker warrants (note 8(a))
                              
                              
                              175,371
                              
                              
                              
                              –
                              
                              
                              
                              –




See
accompanying notes to consolidated financial statements.


3


YM
BIOSCIENCES INC.


Notes
      to Consolidated Financial
Statements


(Expressed
      in Canadian dollars, unless otherwise
noted)





Years
ended June 30, 2010, 2009 and 2008







YM
Biosciences Inc. (the "Company" or "YM") was incorporated on August 17,
1994 under the laws of the Province of Ontario and was continued under the laws
of the Province of Nova Scotia on December 11, 2001.  It has
entered into licensing agreements with certain biotechnology, pharmaceutical and
medical institutes or has acquired technology originated in such
institutes.  The acquisitions of licenses provide exclusive rights for
certain territories for certain products or families of products developed and
rights of first refusal on additional territories, additional products or
extensions to existing products.  The Company is developing
certain therapeutic products for patients with cancer.




1.
            Basis
      of presentation:




These
consolidated financial statements have been prepared on a going-concern basis,
which assumes that the Company will continue in operation for the foreseeable
future and, accordingly, will be able to realize its assets and discharge its
liabilities in the normal course of operations.  Management has
assessed the Company's ability to continue as a going concern.  Since
inception, the Company has concentrated on product licensing and
development.  It has had no net earnings, minimal revenue, negative
operating cash flows and has financed its activities primarily through the
issuance of shares and warrants.  The Company's ability to continue as
a going concern is dependent on obtaining additional investment capital and the
achievement of profitable operations.  There can be no assurance that
the Company will be successful in increasing revenue or raising additional
investment capital to generate sufficient cash flows to continue as a going
concern.  These consolidated financial statements do not reflect the
adjustments that might be necessary to the carrying amount of reported assets,
liabilities, revenue and expenses and the balance sheet classifications used if
the Company were unable to continue operations in accordance with this
assumption.




Taking
into consideration the cash and short-term deposits, management has projected
that the Company has sufficient cash resources to fund its operations beyond the
next 12 months.


4


YM
BIOSCIENCES INC.


Notes
      to Consolidated Financial Statements
(continued)


(Expressed
      in Canadian dollars, unless otherwise
noted)





Years
ended June 30, 2010, 2009 and 2008









2.
            Significant
      accounting policies:




The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP") which,
except as described in note 18, conform in all material respects to accounting
principles generally accepted in the United States ("United States
GAAP").  Significant accounting policies are summarized
below:




(a)
            Basis
      of consolidation:




The
consolidated financial statements include the assets and liabilities and results
of operations of all wholly-owned subsidiaries and variable interest entities
("VIEs") where the Company is the primary beneficiary, after elimination of
intercompany transactions and balances.




The
Company consolidates all VIEs of which it is the primary beneficiary in
accordance with Canadian GAAP.  VIEs are entities in which equity
investors do not have controlling financial interest or the equity at risk is
not sufficient to permit the entity to finance its activities without additional
subordinated financial support by other parties.   The Company's
only VIE is CIMYM BioSciences Inc., an 80% owned joint venture incorporated in
Canada.




The
Company proportionately consolidated its joint venture and has made provisions
for any advances to the joint venture that did not eliminate on consolidation,
such that the Company has recorded 100% of the results of operations and cash
flows of this entity since its inception.




(b)
            Foreign
      currency translation:




Foreign
currency transactions entered into by the Company and financial statements of
integrated foreign operations are translated into Canadian dollars using the
temporal method.  Under this method, monetary assets and liabilities
are translated at year-end rates of exchange, non-monetary assets and
liabilities are translated at historic rates of exchange and consolidated
statement of operations and comprehensive loss and deficit items are translated
at actual rates prevailing during the year.  Exchange gains and losses
are included in income.


5


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008








2.
            Significant
      accounting policies (continued):




(c)
            Revenue
      recognition:




Revenue
is deemed to be realized and earned when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the Company's
price to the customer is fixed or determinable, and collectibility is reasonably
assured.




Contingent
revenue attributable to the achievement of regulatory or developmental
milestones is recognized only on the achievement of the applicable
milestone.




Non-refundable,
up-front fees for access to the Company's proprietary technology in connection
with certain research and development collaborations are deferred and recognized
as revenue on a systematic basis over the estimated term of the related
collaboration required until the milestone associated with commercial approval
of the first indication in the licensee's territory has been satisfied and the
milestone payment received, or until it is determined that no further
collaboration is required.  The estimated term is based on a drug
development plan as discussed with licencees.




The
Company has license agreements that specify that certain royalties are earned by
the Company on sales of licensed products in the licensed
territories.  Licensees report sales and royalty information in the 90
days after the end of the quarter in which the activity takes place and
typically do not provide the Company with forward estimates or current-quarter
information.  Because the Company is not able to reasonably estimate
the amount of royalties earned during the period in which these licensees
actually ship products, royalty revenue is not recognized until the royalties
are reported to the Company and the collection of these royalties is reasonably
assured.




(d)
            Cash
      and cash equivalents:




Cash and
cash equivalents are recorded at fair value.  Cash equivalents consist
of highly liquid bankers' acceptances issued by Canadian Schedule A banks, with
terms extending up to 90 days from the date of acquisition.  Cash is
on deposit with Canadian Schedule A banks.


6


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008








2.
            Significant
      accounting policies (continued):




(e)
            Short-term
      deposits:




Short-term
deposits are recorded at fair value and consist mainly of highly liquid bankers'
acceptances issued by Canadian Schedule A banks with terms extending beyond 90
days from the date of acquisition and are held to maturity.




(f)
            Property
      and equipment:




Property
and equipment are stated at cost less accumulated
amortization.  Amortization is provided to amortize the cost of
property and equipment over their estimated useful lives using the straight-line
method over the following periods:





Computer
      equipment
              3
      yearsFurniture
      and equipment
              5
      yearsLeasehold
      improvements
              Term
      of lease




(g)
              Intangible
      asset:




The
intangible asset consists of acquired technologies and is amortized on a
straight-line basis over the estimated time to market of three years for Cytopia
technologies.




(h)
            Impairment
      of long-lived assets:




The
Company reviews the carrying value of the intangible asset with a finite life
and property and equipment for existence of facts or changes in circumstances
that might indicate a condition of impairment.  An impairment loss
would be recognized when estimates of undiscounted future cash flows expected to
result from the use of an asset and its eventual disposition are less than the
carrying amount.  Such impairment loss would be calculated as the
excess of carrying value over fair value of the long-lived
asset.


7


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008








2.
            Significant
      accounting policies (continued):




(i)
            Development
      costs:




To date,
all development costs incurred have been expensed.  Development costs
include costs associated with product development activities, including salaries
of scientific and technical staff and payments to third parties for development
activities.  Development costs that meet specific stringent criteria
related to technical, market and financial feasibility are
capitalized.  To date, none of the development costs have met such
criteria.




(j)
            Government
      assistance:




Government
assistance, including investment tax credits relating to development costs, is
recorded as a reduction of the development costs when there is reasonable
assurance that the assistance will be received.




(k)
              Income
      taxes:




The
Company uses the asset and liability method of accounting for income
taxes.  Under the asset and liability method, future 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 tax assets and
liabilities are measured using enacted or substantively 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 year that includes the date of enactment or substantive
enactment.




In
assessing the realizability of future income tax assets, management considers
whether it is more likely than not that some portion or all of the future income
tax assets will be realized.  The ultimate realization of future
income tax assets is dependent upon the generation of future taxable income
during the period in which the temporary differences are
deductible.  Management considers the scheduled reversals of future
income tax liabilities, the character of the future income tax asset and tax
planning strategies in making this assessment.  To the extent that
management believes that the realization of future income tax assets does not
meet the more-likely-than-not realization criteria, a valuation allowance is
recorded against the future income tax assets.


8


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008








2.
            Significant
      accounting policies (continued):




(l)
            Stock-based
      compensation:




The
Company has a stock option plan for directors, officers, employees and service
providers.  All stock options issued under the plan have an exercise
price equal to the fair market value of the underlying shares on the date of the
grant.  The Company uses the fair value-based method for all options
granted to service providers and for employee stock options granted on or after
July 1, 2002.  Under the fair value-based method, compensation cost is
measured at the fair value of the award at the date of grant using the
Black-Scholes option pricing model.  Forfeitures are accounted for on
an estimated basis based on historical trends.  Compensation cost is
expensed over the vesting period of the awards.  The settlement method
was used to account for employee stock options granted before July 1,
2002.  Under the settlement method, no compensation cost was
recognized at the date of grant or recognized over the vesting
period.  Any consideration paid by employees on the exercise of stock
options or purchase of stock is credited to share capital.




(m)
              Basic
      and diluted loss per common
share:




Basic
loss per common share is computed by dividing loss for the year by the weighted
average number of common shares outstanding during the year.  Diluted
loss per common share is computed similarly to basic loss per common share,
except that the weighted average number of shares outstanding is increased to
include additional shares from the assumed exercise of stock options and
warrants, if dilutive.  The number of additional shares is calculated
by assuming that outstanding stock options and warrants were exercised and that
proceeds from such exercises were used to acquire shares of common stock at the
average market price during the year.  These common equivalent shares
were not included in the calculation of the weighted average number of shares
outstanding for diluted loss per common share as the effect would have been
anti-dilutive.


9


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008








2.
            Significant
      accounting policies (continued):




(n)
            Use
      of estimates:




The
preparation of financial statements 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
years.  Significant items subject to such estimates include, but are
not limited to determination of the fair value of the intangible asset,
stock-based compensation expense, amortization periods and the valuation of
long-lived assets and future income taxes.  Actual results could
differ from those estimates.




(o)
            Financial
      instruments:




Financial
assets and financial liabilities are initially recorded at fair value and their
subsequent measurements are determined in accordance with their classification.
The classification depends on the purpose for which the financial instruments
were acquired or issued and their characteristics.  Cash and cash
equivalents and short-term deposits are classified as held-for-trading assets
and are accounted for at fair value.  All changes in fair value are
included in loss for the year in which they arise.  Accounts
receivable are classified as loans and receivables, and after initial
recognition are recorded at amortized cost.  Accounts payable and
accrued liabilities are classified as other financial liabilities, and after
initial recognition are recorded at amortized cost.


10


YM
BIOSCIENCES INC.


Notes
      to Consolidated Financial Statements
(continued)


(Expressed
      in Canadian dollars, unless otherwise
noted)





Years
ended June 30, 2010, 2009 and 2008








2.
            Significant
      accounting policies (continued):




(p)
            New
      accounting pronouncements:




(i)
            General
      standards on financial statement
presentation:




On July
1, 2008, the Company adopted amendments of The Canadian Institute of Chartered
Accountants' ("CICA") Handbook Section 1400, General Standards of Financial
Statement Presentation, which includes requirements to assess and disclose an
entity's ability to continue as a going concern, as disclosed in note
1.  The adoption of this change did not have an impact on the
Company's consolidated financial statements.




(ii)
            Goodwill
      and intangible asset:




In
February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible
Assets, which replaced Handbook Section 3062, Goodwill and Other Intangible
Assets, and Handbook Section 3450, Research and Development
Costs.  This new section establishes standards for the recognition,
measurement and disclosure of goodwill and intangible assets and was adopted
effective July 1, 2009 for the Company.  The adoption of this change
did not have an impact on the Company's consolidated financial
statements.




(iii)
            Financial
      instruments:




In June
2009, the CICA issued amendments to Handbook Section 3862, Financial Instruments
- Disclosures, enhancing disclosure requirements about liquidity risk and fair
value measurements of financial instruments and was adopted effective July 1,
2009 for the Company.  The adoption of this change did not have a
significant impact on the Company's consolidated financial
statements.


11


YM
BIOSCIENCES INC.


Notes
      to Consolidated Financial Statements
(continued)


(Expressed
      in Canadian dollars, unless otherwise
noted)





Years
ended June 30, 2010, 2009 and 2008








2.
            Significant
      accounting policies (continued):




(iv)
            Business
      combinations, non-controlling interests and consolidated financial
      statements:




In
January 2009, the CICA issued Handbook Section 1582, Business Combinations
("Section 1582"), to replace Handbook Section 1581, Business Combinations
("Section 1581"), which aligns this section with International Financial
Reporting Standard 3, Business Combinations; Handbook Section 1602,
Non-controlling Interests ("Section 1602"), which is equivalent to the
corresponding provisions of International Financial Reporting Standard 27,
Consolidated and Separate Financial Statements; and Handbook Section 1601,
Consolidated Financial Statements, which together with Section 1602 establishes
standards for the preparation of consolidated financial statements, replacing
Handbook Section 1600, Consolidated Financial Statements.  These
sections are effective for fiscal years beginning on or after January 1, 2011;
however, earlier adoption is permitted if all sections are adopted
together.  As a result of the acquisition of Cytopia Limited
("Cytopia") and given current differences among Canadian GAAP, International
Financial Reporting Standards ("IFRS") and United States GAAP, the Company
elected to early adopt these sections effective July 1, 2009.  One of
the impacts of adopting Section 1582 is that acquisition costs for business
combinations are expensed in the statement of operations rather than capitalized
as a part of the net assets of the acquired company.  For the year
ended June 30, 2010, acquisition costs included in general and administrative
expenses were $857,000.  Section 1582 also requires supplemental pro
forma disclosures of consolidated operating results of the Company and the
acquired entity (note 3).


12





YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008







2.
            Significant
      accounting policies (continued):




(q)
            Recent
      accounting pronouncements issued and not yet effective are as
      follows:




International
      financial reporting standards:




The
Accounting Standards Board of Canada announced that public companies in Canada
are required to adopt IFRS for fiscal years beginning on or after January 1,
2011.  The Company is required to prepare its first financial
statements that are compliant with IFRS for the interim period ending September
30, 2011.  The Company's plan will assess the impact that IFRS has on
its accounting policies and implementation decisions, financial statement
presentation and disclosure options available on initial changeover to IFRS,
information technology and data systems, and internal control over financial
reporting.  The Company has completed an initial assessment of the
differences between lFRS and Canadian GAAP and identified the only significant
measurement difference is in the accounting for stock-based compensation
expenses.  Both Canadian GAAP and IFRS require the fair value of stock
options granted to be expensed over the vesting period.  The Company's
stock options generally vest one-third immediately and one-third on each of the
first and second anniversaries.  The Company currently expenses
one-third of the fair value immediately and two-thirds equally over 24
months.  lFRS requires one-third of the fair value to be expensed
immediately, one-third equally over 12 months and one-third equally over 24
months.  The preliminary estimate of the impact on the consolidated
financial statements as at June 30, 2010 would be an increase in loss for the
year ended June 30, 2010 of approximately $51,000, with a corresponding increase
in equity of the same amount.  The Company is in the process of
detailed review, documentation and selection of accounting policy choices, and
is evaluating the effect the adoption of the standards will have on its
consolidated financial statements.


13


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008









3.
            Acquisition
      of Cytopia:




On
January 29, 2010, the Company acquired Cytopia, a clinical-stage, drug
development company based in Melbourne, Australia.  The Company
applied the acquisition method of accounting for the business
combination.




The
purchase price, determined by the fair value of the consideration given at the
date of acquisition, and the fair value of the assets acquired and liabilities
assumed on the date of acquisition was as follows:





Fair
      value of consideration paid:7,276,688
      common shares of the Company
                                
                                $
                                12,515,903138,442
      stock options of the Company
                                
                                
                                126,000$
                                12,641,903Assets
      acquired:Cash
                                
                                $
                                909,579Accounts
      receivable
                                
                                
                                187,186Property
      and equipment
                                
                                
                                10,573Intangible
      asset (CYT 387 and CYT 997)
                                
                                
                                13,524,05414,631,392Liabilities
      assumed:Accounts
      payable and accrued liabilities
                                
                                
                                (1,989,489
                                )Net
      assets acquired
                                
                                $
                                12,641,903


14


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










3.
            Acquisition
      of Cytopia (continued):




This
transaction was conducted by a Scheme of Arrangement (the "Arrangement"),
whereby the Company acquired all of the issued shares and options in
Cytopia.  The terms of the Arrangement were as follows:




(a)
            Cytopia
      shareholders received 0.0852 common shares of the Company for each Cytopia
      common share held at the record date.  This resulted in the
      issuance of a total of 7,215,053 common shares of the Company, based on
      the number of Cytopia common shares outstanding on the date of the
      Arrangement.




(b)
            The
      holders of Cytopia partly paid shares received 61,635 common shares of the
      Company and 138,442 fully vested stock options in the Company as
      consideration for the exchange of their partly paid
  shares.




The value
of the Company's common shares issued was determined using the closing price of
the Company's common shares on the Toronto Stock Exchange on the acquisition
date of January 29, 2010 of $1.72.  The $126,000 value of the stock
options issued to holders of Cytopia partly paid shares was determined using the
Black-Scholes option pricing model with the following
assumptions:  share price of $1.72; exercise prices of $3.00 to
$15.00; risk-free interest rate of 3.3%; volatility factor of 83.6%; and
estimated life prior to exercise of options of seven years.




Cytopia
option holders received 225,950 fully vested Company stock options in
consideration for the cancellation of their Cytopia options.  The
value of these stock options of $57,000 was recorded in stock-based compensation
expense.  The value of stock options issued to Cytopia option holders
was determined using the Black-Scholes option pricing model with the following
assumptions:  share price of $1.72; exercise prices of $3.71 to
$15.27; risk-free interest rate of 1.4%; volatility factor of 99.6% to 117.5%;
and estimated life prior to exercise of options of one to thirty
months.


15


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










3.
            Acquisition
      of Cytopia (continued):




The
assets and liabilities and revenue and expenses of Cytopia have been included in
the consolidated financial statements of the Company from the date of
acquisition, January 29, 2010.  From January 30, 2010 to June 30,
2010, the total revenue and loss of Cytopia included in the consolidated
financial statements were $58 thousand and $1.897 million,
respectively.




Supplemental
financial information presented below summarizes selected results of operations
on a pro forma basis as though the acquisition of Cytopia occurred as of the
beginning date of the current period (July 1, 2009).  This pro forma
information is for informational purposes only and does not purport to represent
what the results of operations for the period presented would have been had the
acquisition of Cytopia occurred at the beginning of the period, or to project
the results of operations for any future period.




The pro
forma condensed combined revenue and loss for the year ended June 30, 2010, had
the acquisition date been July 1, 2009, are $2.631 million and $26.789 million,
respectively.




4.
            Cash
      and cash equivalents and short-term
deposits:




As a
condition of the March 10, 2010 prospectus financing, the Company agreed to
restrict use of $12.337 million of the net proceeds raised to fund drug
development activities not related to Cuba or for general purposes not related
to the Cuban licensed products and technologies, except those activities
expressly consented under the licenses granted by the U.S. Office of Foreign
Asset Control.  As at June 30, 2010, the remaining restricted proceeds
were approximately $6.829 million and unrestricted cash and cash
equivalents and short-term deposits totalled approximately $38.816
million.


16


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










5.
            Property
      and equipment:





2010
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          2009Accumulated
                                          
                                          
                                          Net
      book
                                          
                                          
                                          
                                          
                                          
                                          Accumulated
                                          
                                          
                                          Net
      bookCost
                                          
                                          
                                          amortization
                                          
                                          
                                          value
                                          
                                          
                                          Cost
                                          
                                          
                                          amortization
                                          
                                          
                                          valueComputer
      equipment
                                          
                                          $
                                          471,083
                                          
                                          
                                          $
                                          411,950
                                          
                                          
                                          $
                                          59,133
                                          
                                          
                                          $
                                          419,259
                                          
                                          
                                          $
                                          359,857
                                          
                                          
                                          $
                                          59,402Furniture
      and equipment
                                          
                                          
                                          99,574
                                          
                                          
                                          
                                          85,203
                                          
                                          
                                          
                                          14,371
                                          
                                          
                                          
                                          99,574
                                          
                                          
                                          
                                          80,316
                                          
                                          
                                          
                                          19,258Leasehold
      improvements
                                          
                                          
                                          52,539
                                          
                                          
                                          
                                          41,268
                                          
                                          
                                          
                                          11,271
                                          
                                          
                                          
                                          52,539
                                          
                                          
                                          
                                          34,323
                                          
                                          
                                          
                                          18,216$
                                          623,196
                                          
                                          
                                          $
                                          538,421
                                          
                                          
                                          $
                                          84,775
                                          
                                          
                                          $
                                          571,372
                                          
                                          
                                          $
                                          474,496
                                          
                                          
                                          $
                                          96,876




6.
            Intangible
      asset:





2010
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2009Accumulated
                                            
                                            
                                            Net
      book
                                            
                                            
                                            
                                            
                                            
                                            Accumulated
                                            
                                            
                                            Net
      bookCost
                                            
                                            
                                            amortization
                                            
                                            
                                            value
                                            
                                            
                                            Cost
                                            
                                            
                                            amortization
                                            
                                            
                                            valueAcquired
      technologies:AeroLef
                                            
                                            $
                                            7,348,185
                                            
                                            
                                            $
                                            7,348,185
                                            
                                            
                                            $
                                            –
                                            
                                            
                                            $
                                            7,348,185
                                            
                                            
                                            $
                                            4,343,317
                                            
                                            
                                            $
                                            3,004,868CYT
      387 andCYT
      997 (note 3)
                                            
                                            
                                            13,524,054
                                            
                                            
                                            
                                            1,878,340
                                            
                                            
                                            
                                            11,645,714
                                            
                                            
                                            
                                            –
                                            
                                            
                                            
                                            –
                                            
                                            
                                            
                                            –$
                                            20,872,239
                                            
                                            
                                            $
                                            9,226,525
                                            
                                            
                                            $
                                            11,645,714
                                            
                                            
                                            $
                                            7,348,185
                                            
                                            
                                            $
                                            4,343,317
                                            
                                            
                                            $
                                            3,004,868





AeroLef:




In 2005,
on acquisition of Delex Therapeutics Inc. ("Delex"), the Company recorded
$7,348,185 of acquired technologies which includes the intellectual property and
in-process research and development of the Company's inhalation delivered
fentanyl product, AeroLef, to treat acute and breakthrough pain, including
cancer pain.  In June 2010, the Company decided to terminate the
AeroLef development program, and accordingly, the remaining net asset balance of
$1.944 million was impaired in the fourth quarter of fiscal
2010.


17


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










7.
            Consolidation
      of variable interest entity:




The
consolidated financial statements include the revenue and expenses of CYMYM
BioSciences Inc., an incorporated joint venture, as follows:





Years
      ended June 30,2010
                              
                              
                              2009
                              
                              
                              2008Out-licensing
      revenue
                              
                              $
                              2,265,292
                              
                              
                              $
                              4,474,671
                              
                              
                              $
                              4,802,291Expenses:Licensing
      and product development
                              
                              
                              5,602,617
                              
                              
                              
                              9,886,659
                              
                              
                              
                              8,277,154General
      and administrative
                              
                              
                              10,236,759
                              
                              
                              
                              4,312,867
                              
                              
                              
                              5,677,86015,839,376
                              
                              
                              
                              14,199,526
                              
                              
                              
                              13,955,014Loss
      for the year
                              
                              $
                              (13,574,084
                              )
                              
                              $
                              (9,724,855
                              )
                              
                              $
                              (9,152,723
                              )




8.
            Share
      capital:




Authorized:


500,000,000
      Class A preferred shares


500,000,000
      Class B preferred shares, Series 1


500,000,000
      Class A non-voting common shares


500,000,000
      common shares




Issued:





Number
      ofshares
                        
                        
                        AmountCommon
      shares:Balance,
      June 30, 2007, 2008 and 2009
                        
                        
                        55,835,356
                        
                        
                        $
                        172,921,153Issued
      on exercise of options
                        
                        
                        164,579
                        
                        
                        
                        144,833Issued
      on acquisition of Cytopia (note 3)
                        
                        
                        7,276,688
                        
                        
                        
                        12,515,903Issued
      pursuant to prospectus offering (a)
                        
                        
                        14,583,000
                        
                        
                        
                        14,594,464Issued
      pursuant to prospectus offering (d)
                        
                        
                        2,500,000
                        
                        
                        
                        3,321,886Balance,
      June 30, 2010
                        
                        
                        80,359,623
                        
                        
                        $
                        203,498,239





18





YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










8.
            Share
      capital (continued):




(a)
            On
      March 10, 2010, the Company completed a prospectus offering of 14,583,000
      units at U.S. $1.20 per unit for gross proceeds of U.S. $17,499,600 (Cdn.
      $17,895,081), and net cash proceeds of U.S. $15,712,614 (Cdn.
      $16,067,710).  Each unit consisted of one common share and
      one-half common share purchase warrant.  In connection with the
      financing, the Company issued 874,980 broker warrants having an aggregate
      fair value of U.S. $171,496 (Cdn. $175,371), estimated using the
      Black-Scholes option pricing model.  Each whole common share
      purchase warrant and each broker warrant entitles the warrant holder to
      acquire one common share at an exercise price of U.S. $1.60 per share at
      any time from September 10, 2010 to its expiry on March 10,
      2015.




The
allocation of the U.S. $1.20 unit issue price to the common shares and the
one-half common share purchase warrants was based on the relative fair values of
the common shares and the common share purchase warrants.  The fair
value of the warrants was determined using the Black-Scholes option pricing
model.  The common shares were allocated a price of U.S. $1.102 per
share and the one-half common share purchase warrants were allocated a price of
$0.098 per half-warrant.  The costs of the issue were allocated on a
pro rata basis to the common shares and one-half common share purchase
warrants.  Accordingly, U.S. $14,271,927 (Cdn. $14,594,464) was
allocated to common shares and U.S. $1,440,687 (Cdn. $1,473,246) to common
share purchase warrants, net of issue costs.  Assumptions used to
determine the value of the common share purchase warrants and the broker
warrants were: dividend yield 0%; risk-free interest rate 2.6%; expected
volatility 25%; and average expected life of 60 months.




(b)
            From
      May 2, 2005 to May 2, 2010, 2,380,953 common shares were held in escrow
      for contingent payments related to the Delex acquisition.  These
      common shares were returned to the Company for cancellation because the
      milestones were not met by May 2,
2010.


19


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008







8.
            Share
      capital (continued):




(c)
            On
      April 23, 2010, the Company entered into a Sales Agreement with Cantor
      Fitzgerald & Co. ("CF&Co"), under which the Company may, at its
      discretion, from time to time, sell up to a maximum of 7,750,000 of its
      common shares through an at-the-market equity offering program known as a
      Controlled Equity Offering.  CF&Co will act as sales agent
      for any sales made under the Controlled Equity Offering.  The
      common shares will be sold at market prices prevailing at the time of a
      sale (if any) of the common shares or at prices negotiated with CF&Co,
      and, as a result, prices may vary between purchasers and during the period
      of the offering.  The Company is not required to sell any of the
      reserved shares at any time during the term of the Controlled Equity
      Offering, which extends until October 16, 2011, and the Sales Agreement
      does not prohibit the Company from conducting additional
      financings.  There are no standby fees for having established
      the arrangement.  CF&Co will receive a cash fee equal to but
      not exceeding 5.0% of the first aggregate gross proceeds of U.S. $5
      million and, thereafter, 3% of the gross proceeds realized from the sale
      of common shares for services rendered in connection with the
      offering.  No common shares have been sold under this agreement
      to June 30, 2010.




(d)
            On
      June 2, 2010, the Company completed a prospectus offering of 2,500,000
      common shares at U.S. $1.27 per common share for gross proceeds of U.S.
      $3,175,000 (Cdn. $3,367,723), resulting in net cash proceeds of Cdn.
      $3,321,886.


20


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008









9.
            Share
      purchase warrants:




The
Company has issued warrants for the purchase of common shares for a specified
price for a specific period of time.  Nominal value was ascribed to
the warrants issued prior to June 30, 2002.  Warrants issued
after that date have been valued on a relative fair value basis using the
Black-Scholes option pricing model.  The following table contains
information regarding the outstanding warrants to acquire common shares for the
years ended June 30, 2010, 2009 and 2008.





WeightedaverageNumber
      of
                            
                            
                            exercisewarrants
                            
                            
                            price
                            
                            
                            AmountOutstanding,
      June 30, 2007
                            
                            
                            8,972,277
                            
                            
                            $
                            2.89
                            
                            
                            $
                            4,553,308Expired
                            
                            
                            (3,262,512
                            )
                            
                            
                            3.69
                            
                            
                            
                            (1,402,769
                            )Outstanding,
      June 30, 2008
                            
                            
                            5,709,765
                            
                            
                            
                            2.43
                            
                            
                            
                            3,150,539Expired
                            
                            
                            (5,709,765
                            )
                            
                            
                            2.43
                            
                            
                            
                            (3,150,539
                            )Outstanding,
      June 30, 2009
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –Issued
      pursuant to prospectus offering (a)
                            
                            
                            8,166,480
                            
                            
                            $
                            U.S.
      1.60
                            
                            
                            
                            1,473,246Outstanding,
      June 30, 2010
                            
                            
                            8,166,480
                            
                            
                            $
                            U.S.
      1.60
                            
                            
                            $
                            1,473,246





(a)
            In
      connection with the March 10, 2010 financing, the Company issued 8,166,480
      common share purchase warrants with an exercise price of U.S. $1.60 per
      common share.  The warrants may be exercised at any time from
      September 10, 2010 to their expiry on March 10,
  2015.


21


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










10.
            Contributed
      surplus:





Balance,
      June 30, 2007
                          
                          $
                          5,657,082Stock-based
      compensation
                          
                          
                          2,063,973Expiry
      of warrants
                          
                          
                          1,402,769Balance,
      June 30, 2008
                          
                          
                          9,123,824Stock-based
      compensation
                          
                          
                          760,760Expiry
      of warrants
                          
                          
                          3,150,539Balance,
      June 30, 2009
                          
                          
                          13,035,123Stock-based
      compensation
                          
                          
                          983,242Exercise
      of options
                          
                          
                          (55,694
                          )Options
      issued on acquisition of Cytopia (note 3)
                          
                          
                          126,000Balance,
      June 30, 2010
                          
                          $
                          14,088,671





11.
            Stock-based
      compensation:




The
Company has granted stock options pursuant to a stock option
plan.  Under the plan, options to purchase common shares may be
granted to directors, officers, employees and service providers of the
Company.




Compensation
cost recognized as an expense for the year ended June 30, 2010 for stock-based
employee compensation awards was $983,242 (2009 - $760,760; 2008 -
$2,063,973).




As at
June 30, 2010, total compensation cost related to non-vested awards not yet
recognized was $664,504 and the weighted average period over which it is
expected to be recognized was 0.63 years.  The Company has 4,470,972
stock options that have been authorized but not granted.


22


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










11.
            Stock-based
      compensation (continued):




The fair
value of each option granted was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:





2010
                        
                        
                        2009
                        
                        
                        2008Number
      of options issued
                        
                        
                        1,544,392
                        
                        
                        
                        2,114,250
                        
                        
                        
                        2,110,290Risk-free
      interest rate
                        
                        
                        0.5%
      - 3.3
                        %
                        
                        
                        1.9%
      - 3.3
                        %
                        
                        
                        3.2%
      - 4.4
                        %Volatility
      factor
                        
                        
                        83%
      - 115
                        %
                        
                        
                        68%
      - 87
                        %
                        
                        
                        72%
      - 74
                        %Dividend
      rate
                        
                        
                        0
                        %
                        
                        
                        0
                        %
                        
                        
                        0
                        %Expected
      life of options
                        
                        0 -
      7 years
                        
                        
                        4 -
      7 years
                        
                        
                        7
      yearsVesting
      period (months)
                        
                        0
      to 24
                        
                        
                        0
      to 24
                        
                        
                        0
      to 24Weighted
      average fair value of options granted
                        
                        $
                        1.00
                        
                        
                        $
                        0.31
                        
                        
                        $
                        1.13Fair
      value of options granted
                        
                        $
                        1,544,392
                        
                        
                        $
                        660,001
                        
                        
                        $
                        2,374,465




The
following tables reflect the activity under the stock option plan for the years
ended June 30, 2010, 2009 and 2008 and the share options outstanding at the end
of the year:





2010
                                              
                                              
                                              2009
                                              
                                              
                                              2008Weighted
                                              
                                              
                                              
                                              
                                              
                                              Weighted
                                              
                                              
                                              
                                              
                                              
                                              Weightedaverage
                                              
                                              
                                              
                                              
                                              
                                              average
                                              
                                              
                                              
                                              
                                              
                                              averageexercise
                                              
                                              
                                              
                                              
                                              
                                              exercise
                                              
                                              
                                              
                                              
                                              
                                              exerciseNumber
                                              
                                              
                                              price
                                              
                                              
                                              Number
                                              
                                              
                                              price
                                              
                                              
                                              Number
                                              
                                              
                                              priceOutstanding,beginning of year
                                              
                                              
                                              6,563,615
                                              
                                              
                                              $
                                              2.08
                                              
                                              
                                              
                                              5,633,102
                                              
                                              
                                              $
                                              2.80
                                              
                                              
                                              
                                              4,196,205
                                              
                                              
                                              $
                                              3.63Granted
                                              
                                              
                                              1,544,392
                                              
                                              
                                              
                                              3.07
                                              
                                              
                                              
                                              2,114,250
                                              
                                              
                                              
                                              0.55
                                              
                                              
                                              
                                              2,110,290
                                              
                                              
                                              
                                              1.51Expired
                                              
                                              
                                              (360,457
                                              )
                                              
                                              
                                              2.49
                                              
                                              
                                              
                                              (1,183,737
                                              )
                                              
                                              
                                              2.78
                                              
                                              
                                              
                                              (673,393
                                              )
                                              
                                              
                                              3.96Exercised
                                              
                                              
                                              (164,579
                                              )
                                              
                                              
                                              0.54
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –Outstanding,
      end of year
                                              
                                              
                                              7,582,971
                                              
                                              
                                              
                                              2.29
                                              
                                              
                                              
                                              6,563,615
                                              
                                              
                                              
                                              2.08
                                              
                                              
                                              
                                              5,633,102
                                              
                                              
                                              
                                              2.80Exercisable,
      end of year
                                              
                                              
                                              6,193,865
                                              
                                              
                                              $
                                              2.57
                                              
                                              
                                              
                                              4,664,072
                                              
                                              
                                              $
                                              2.60
                                              
                                              
                                              
                                              4,342,733
                                              
                                              
                                              $
                                              3.17


23


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










11.
            Stock-based
      compensation (continued):




As at
June 30, 2010:





Options
      outstanding
                                    
                                    
                                    Options
      exercisableWeighted
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    Weightedaverage
                                    
                                    
                                    Weighted
                                    
                                    
                                    
                                    
                                    
                                    average
                                    
                                    
                                    Weightedremaining
                                    
                                    
                                    average
                                    
                                    
                                    
                                    
                                    
                                    remaining
                                    
                                    
                                    averageRange
      of
                                    
                                    
                                    Number
                                    
                                    
                                    contractual
                                    
                                    
                                    exercise
                                    
                                    
                                    Number
                                    
                                    
                                    contractual
                                    
                                    
                                    exerciseexercise
      prices
                                    
                                    
                                    outstanding
                                    
                                    
                                    life
      (years)
                                    
                                    
                                    price
                                    
                                    
                                    exercisable
                                    
                                    
                                    life
      (years)
                                    
                                    
                                    price$
                                    0.50
      - $ 1.00
                                    
                                    
                                    
                                    1,789,986
                                    
                                    
                                    
                                    8.0
                                    
                                    
                                    $
                                    0.50
                                    
                                    
                                    
                                    1,160,890
                                    
                                    
                                    
                                    7.9
                                    
                                    
                                    $
                                    0.50$
                                    1.01
      - $ 2.00
                                    
                                    
                                    
                                    3,369,855
                                    
                                    
                                    
                                    6.9
                                    
                                    
                                    
                                    1.57
                                    
                                    
                                    
                                    2,609,845
                                    
                                    
                                    
                                    6.3
                                    
                                    
                                    
                                    1.58$
                                    2.01
      - $ 3.00
                                    
                                    
                                    
                                    103,063
                                    
                                    
                                    
                                    5.7
                                    
                                    
                                    
                                    2.72
                                    
                                    
                                    
                                    103,063
                                    
                                    
                                    
                                    5.7
                                    
                                    
                                    
                                    2.72$
                                    3.01
      - $ 4.00
                                    
                                    
                                    
                                    871,658
                                    
                                    
                                    
                                    4.2
                                    
                                    
                                    
                                    3.44
                                    
                                    
                                    
                                    871,658
                                    
                                    
                                    
                                    4.2
                                    
                                    
                                    
                                    3.44$
                                    4.01
      - $15.27
                                    
                                    
                                    
                                    1,448,409
                                    
                                    
                                    
                                    3.9
                                    
                                    
                                    
                                    5.49
                                    
                                    
                                    
                                    1,448,409
                                    
                                    
                                    
                                    3.9
                                    
                                    
                                    
                                    5.497,582,971
                                    
                                    
                                    
                                    6.3
                                    
                                    
                                    
                                    2.29
                                    
                                    
                                    
                                    6,193,865
                                    
                                    
                                    
                                    5.7
                                    
                                    
                                    
                                    2.57


24


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008










12.
            Out-licensing
      agreements:




The
following table reflects revenue from out-licensing agreements entered into with
third parties for the development of the Company's products:





Deferred
      revenue
                                  
                                  
                                  Revenue
      recognizedInitial
                                  
                                  
                                  as
      at June 30,
                                  
                                  
                                  for
      years ended June 30,Date
      of agreement
                                  
                                  Product
                                  
                                  license
      fee
                                  
                                  
                                  2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009
                                  
                                  
                                  2008November
      3, 2006
                                  
                                  Tesmilifene
                                  
                                  $
                                  230,400
                                  
                                  
                                  $
                                  –
                                  
                                  
                                  $
                                  120,400
                                  
                                  
                                  $
                                  120,400
                                  
                                  
                                  $
                                  33,600
                                  
                                  
                                  $
                                  26,800July
      25, 2006
                                  
                                  Nimotuzumab
                                  
                                  
                                  16,226,950
                                  
                                  
                                  
                                  3,174,825
                                  
                                  
                                  
                                  5,179,975
                                  
                                  
                                  
                                  2,005,149
                                  
                                  
                                  
                                  3,271,563
                                  
                                  
                                  
                                  4,056,735January
      20, 2006
                                  
                                  Nimotuzumab
                                  
                                  
                                  1,152,788
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  192,131
                                  
                                  
                                  
                                  384,262August
      30, 2005
                                  
                                  Nimotuzumab
                                  
                                  
                                  441,792
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  6,995
                                  
                                  
                                  
                                  6,995
                                  
                                  
                                  
                                  57,433
                                  
                                  
                                  
                                  96,643January
      26, 2005
                                  
                                  Tesmilifene
                                  
                                  
                                  620,311
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  140,490
                                  
                                  
                                  
                                  140,490
                                  
                                  
                                  
                                  35,009
                                  
                                  
                                  
                                  29,995Royalty
      andmiscellaneous
      revenue
                                  
                                  Nimotuzumab
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  337,526
                                  
                                  
                                  
                                  953,544
                                  
                                  
                                  
                                  264,650$
                                  18,672,241
                                  
                                  
                                  $
                                  3,174,825
                                  
                                  
                                  $
                                  5,447,860
                                  
                                  
                                  $
                                  2,610,560
                                  
                                  
                                  $
                                  4,543,280
                                  
                                  
                                  $
                                  4,859,085




Under the
terms of the agreements, the Company continues to be involved in the development
of its products and is not required to fund any development in the licensed
territories.  The agreements also entitle the Company to receive
milestone payments on the occurrence of regulatory approval and royalties on the
commercial sale of the developed product.  Initial license fee revenue
is non-refundable and is deferred and recognized as revenue over the term of the
related collaboration.




As a
result of a revision to the estimated period of collaboration, the revenue
recognition period for the July 25, 2006 agreement was extended by 12
months.  This change was made as at January 1, 2009.




The
remaining deferred revenue amounts pertaining to the two initial license fees
for Tesmilifene were recognized in the current year because the drug is no
longer being developed and the related contracts are no longer active and no
further collaboration is required.


25


YM
BIOSCIENCES INC.


Notes to
Consolidated Financial Statements (continued)


(Expressed
in Canadian dollars, unless otherwise noted)





Years
ended June 30, 2010, 2009 and 2008









13.
            Related
      party transactions:




Occasionally,
directors will provide assistance to management on a consulting basis to
evaluate new opportunities or provide guidance for drug development
activities.  The fees incurred during the fiscal year ended June 30,
2010 totalled $36,000 (2009 - $66,000; 2008 - $92,000).  The
transactions occurred in the normal course of operations and were measured at
the exchange amount, which is the amount of consideration established and agreed
to by the related parties.




14.
            Commitments:




In
November 2007, the Company entered into a contract for services of a Clinical
Research Organization ("CRO") relating to a pediatric pontine glioma clinical
trial for nimotuzumab in the United States at a cost of approximately $1.557
million (U.S. $1.463 million), of which approximately $1.337 million has
been incurred as at June 30, 2010 and the remaining $220 thousand has
yet to be incurred.  The Company may cancel the contract with
30 days' notice and is obligated for services rendered by CRO through to
the effective date of termination and for any close-out services furnished by
CRO after the termination of the agreement.




In
February 2009, the Company entered into two contracts for CRO services relating
to clinical trials for nimotuzumab.  The first pertains to a
randomized, phase II, double-blind trial in brain metastases from non-small cell
lung cancer ("NSCLC") at a cost of $1.160 million, of which approximately $839
thousand has been incurred as at June 30, 2010 and the remaining
$321 thousand has yet to be incurred.  The second contract
pertains to a randomized, phase II, double-blind trial in NSCLC patients
ineligible for radical chemotherapy at a cost of approximately $1.500 million,
of which approximately $1.074 million has been incurred as at June 30, 2010
and the remaining $426 thousand has yet to be incurred.  The Company
may cancel either contract with 30 days' notice and is obligated for
services rendered by the CRO through the effective date of termination and for
any close-out services furnished by the CRO after the termination of the
agreement.




In
addition to these contracts, the Company has entered into many additional
contracts for pre-clinical and other studies, none of which individually exceeds
$1.000 million, totalling approximately $5.239 million, of which approximately
$2.502 million has been incurred as at June 30, 2010 and the remaining
$2.737 million has yet to be incurred.  Any early termination
penalties cannot exceed the amount of the contract commitment.


26


YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
 14.
              Commitments
      (continued):
  As at
June 30, 2010, the approximate future minimum rental payments relating to
operating leases for premises are as follows:
  2011
                          
                          $
                          330,4092012
                          
                          
                          232,0982013
                          
                          
                          46,397$
                          608,904
  15.
              Income
      taxes:
  (a)
              Reconciliations
      of the income tax provisions with the amounts shown in the consolidated
      statements of operations and comprehensive loss and deficit are as
      follows:
  2010
                                        
                                        
                                        2009
                                        
                                        
                                        2008Average
      Canadian income tax rate
                                        
                                        
                                        29.64
                                        %
                                        
                                        
                                        33.25
                                        %
                                        
                                        
                                        34.82
                                        %Loss
      before income taxes
                                        
                                        $
                                        (20,993,364
                                        )
                                        
                                        $
                                        (13,065,156
                                        )
                                        
                                        $
                                        (14,885,744
                                        )Income
      tax expense calculated  at average Canadian
      income  tax rates
                                        
                                        $
                                        (6,222,433
                                        )
                                        
                                        $
                                        (4,344,164
                                        )
                                        
                                        $
                                        (5,183,330
                                        )Change
      in income taxes  resulting from:Tax
      effect of changes in rates
                                        
                                        
                                        6,024,579
                                        
                                        
                                        
                                        (205,046
                                        )
                                        
                                        
                                        8,185,555Differences
      in rates applicable  to subsidiaries in
      foreign  jurisdictions
                                        
                                        
                                        (52,966
                                        )
                                        
                                        
                                        449,471
                                        
                                        
                                        
                                        186,000Other
      non-deductible items
                                        
                                        
                                        300,718
                                        
                                        
                                        
                                        194,049
                                        
                                        
                                        
                                        734,775Other
      adjustments
                                        
                                        
                                        643,708
                                        
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –Change
      in valuation allowance
                                        
                                        
                                        (693,606
                                        )
                                        
                                        
                                        3,910,000
                                        
                                        
                                        
                                        (3,923,000
                                        )Income
      tax expense
                                        
                                        $
                                        –
                                        
                                        
                                        $
                                        4,310
                                        
                                        
                                        $
                                        –
 
 The
Company acquired accumulated gross deferred tax assets and liabilities of
$14,703,000 and an offsetting valuation allowance of $14,703,000 on its
acquisition of Cytopia (note 3).
  27
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
  
  15.
              Income
      taxes (continued):
  (b)
              The
      tax effects of temporary differences that give rise to significant
      portions of future tax assets and future tax liabilities as at June 30 are
      as follows:
  2010
                      
                      
                      2009Future
      tax assets:Property
      and equipment
                      
                      $
                      4,358,000
                      
                      
                      $
                      4,848,000Investment
      in subsidiary
                      
                      
                      158,000
                      
                      
                      
                      –Financing
      costs
                      
                      
                      785,000
                      
                      
                      
                      41,000Accruals
                      
                      
                      27,000
                      
                      
                      
                      –Deferred
      revenue
                      
                      
                      794,000
                      
                      
                      
                      3,084,000Capital
      loss carryforward
                      
                      
                      131,000
                      
                      
                      
                      152,000Eligible
      capital expenditures
                      
                      
                      35,000
                      
                      
                      
                      41,000Federal
      Ontario harmonization credit
                      
                      
                      973,000
                      
                      
                      
                      1,090,000Non-capital
      losses - United States
                      
                      
                      23,702,000
                      
                      
                      
                      25,552,000Non-capital
      losses - Canada
                      
                      
                      22,441,000
                      
                      
                      
                      21,046,000Non-capital
      losses - Australia
                      
                      
                      18,736,000
                      
                      
                      
                      –Research
      and development expenses
                      
                      
                      6,982,000
                      
                      
                      
                      6,636,00079,122,000
                      
                      
                      
                      62,490,000Future
      tax liabilities:Acquired
      technologies
                      
                      
                      (3,494,000
                      )
                      
                      
                      (871,000
                      )75,628,000
                      
                      
                      
                      61,619,000Less
      valuation allowance
                      
                      
                      75,628,000
                      
                      
                      
                      61,619,000Net
      future tax asset
                      
                      $
                      –
                      
                      
                      $
                      –
  28
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  15.
              Income
      taxes (continued):
  (c)
              The
      Company has available Canadian, United States and Australian non-capital
      loss carryforwards that expire as
follows:
  Canada
                    
                    
                    United States
                    
                    
                    Australia2014
                    
                    $
                    4,915,000
                    
                    
                    $
                    –
                    
                    
                    $
                    –2015
                    
                    
                    16,578,000
                    
                    
                    
                    –
                    
                    
                    
                    –2019
                    
                    
                    –
                    
                    
                    
                    1,000
                    
                    
                    
                    –2020
                    
                    
                    –
                    
                    
                    
                    29,000
                    
                    
                    
                    –2021
                    
                    
                    –
                    
                    
                    
                    88,000
                    
                    
                    
                    –2022
                    
                    
                    –
                    
                    
                    
                    2,719,000
                    
                    
                    
                    –2023
                    
                    
                    –
                    
                    
                    
                    4,813,000
                    
                    
                    
                    –2024
                    
                    
                    –
                    
                    
                    
                    3,179,000
                    
                    
                    
                    –2025
                    
                    
                    –
                    
                    
                    
                    3,286,000
                    
                    
                    
                    –2026
                    
                    
                    13,286,000
                    
                    
                    
                    45,487,000
                    
                    
                    
                    –2027
                    
                    
                    10,200,000
                    
                    
                    
                    5,215,000
                    
                    
                    
                    –2028
                    
                    
                    16,234,000
                    
                    
                    
                    2,754,000
                    
                    
                    
                    –2029
                    
                    
                    13,262,000
                    
                    
                    
                    1,260,000
                    
                    
                    
                    –2030
                    
                    
                    15,290,000
                    
                    
                    
                    879,000
                    
                    
                    
                    –Indefinitely
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    62,452,000$
                    89,765,000
                    
                    
                    $
                    69,710,000
                    
                    
                    $
                    62,452,000
  (d)
              The
      Company has approximately $27,929,000 (2009 - $22,884,000) of unclaimed
      development costs that may be claimed against future taxable
      income.
  (e)
              The
      Company has accumulated net capital losses for tax purposes of
      approximately $1,049,000, which may be carried forward and used to reduce
      taxable capital gains in future
years.
  29
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  15.
              Income
      taxes (continued):
  (f)
              The
      Company performs certain activities that result in investment tax credits
      ("ITCs") that can be used to offset future Canadian and United States
      federal taxes payable and Ontario Research and Development tax credits
      ("ORDTCs") that can be used to offset future Ontario provincial taxes
      payable and Ontario innovation tax credits ("OITCs") that are payable in
      cash from the Province of Ontario.  The Company does not accrue
      the federal ITCs or the ORDTCs as they can only be used to offset future
      taxes payable and the Company has not recorded the benefit of any tax
      assets to date.  The ITCs and ORDTCs expire as
      follows:
 
 Ontario
                    
                    
                    Canada
                    
                    
                    United States2019
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    2,0002020
                    
                    
                    –
                    
                    
                    
                    6,000
                    
                    
                    
                    9,0002021
                    
                    
                    –
                    
                    
                    
                    257,000
                    
                    
                    
                    119,0002022
                    
                    
                    –
                    
                    
                    
                    426,000
                    
                    
                    
                    79,0002023
                    
                    
                    –
                    
                    
                    
                    354,000
                    
                    
                    
                    204,0002024
                    
                    
                    –
                    
                    
                    
                    301,000
                    
                    
                    
                    185,0002025
                    
                    
                    –
                    
                    
                    
                    422,000
                    
                    
                    
                    208,0002026
                    
                    
                    –
                    
                    
                    
                    1,060,000
                    
                    
                    
                    373,0002027
                    
                    
                    –
                    
                    
                    
                    1,049,000
                    
                    
                    
                    214,0002028
                    
                    
                    –
                    
                    
                    
                    926,000
                    
                    
                    
                    97,0002029
                    
                    
                    212,000
                    
                    
                    
                    994,000
                    
                    
                    
                    47,0002030
                    
                    
                    204,000
                    
                    
                    
                    879,000
                    
                    
                    
                    –$
                    416,000
                    
                    
                    $
                    6,674,000
                    
                    
                    $
                    1,537,000
  The
Company accrues and records cash refundable OITCs amounts directly against
development expenses where there is reasonable assurance that the assistance
will be realized.  During the year, the Company received cash
refundable OITCs claims related to prior years in the amount of
$300,000.  At June 30, 2010, OITCs receivable amounted to nil
(2009 - $300,000; 2008 - $158,742).
  2010
                    
                    
                    2009
                    
                    
                    2008Gross
      development expenses
                    
                    $
                    16,674,790
                    
                    
                    $
                    14,456,637
                    
                    
                    $
                    15,613,224OITCs
                    
                    
                    –
                    
                    
                    
                    (283,792
                    )
                    
                    
                    18,326Licensing
      and product development expenses
                    
                    $
                    16,674,790
                    
                    
                    $
                    14,172,845
                    
                    
                    $
                    15,631,550
  30
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  15.
              Income
      taxes (continued):
  (g)
              The
      Province of Ontario harmonized its corporate taxation system with the
      Government of Canada effective at the commencement of the first taxation
      year that included January 1, 2009.  At that time, the
      Company's accumulated loss carryforwards, undepreciated capital costs,
      research and development expenditure pools and undeducted eligible capital
      expenditures for Ontario purposes were required to be adjusted to the
      federal values.  Since the Company's Ontario balances exceeded
      its federal balances, the reduction resulted in a harmonization credit of
      $973,000 (2009 - $1,090,000) which can be utilized to reduce Ontario taxes
      payable over the next four years.  A full valuation allowance
      has been provided against the future tax
amount.
  16.
              Capital
      management:
  The
Company's primary objective when managing capital is to ensure that it has
sufficient cash resources to fund its development and commercialization
activities and to maintain its ongoing operations.  To secure the
additional capital necessary to pursue these plans, the Company may attempt to
raise additional funds through the issuance of equity or by securing strategic
partners.
  The
Company includes cash and cash equivalents and short-term deposits in the
definition of capital.
  The
Company is not subject to externally imposed capital requirements and there has
been no change with respect to the overall capital management strategy during
the 12 months ended June 30, 2010.
  17.
              Financial
      instruments:
  (a)
              Financial
      assets and liabilities:
  The
Company has determined the estimated fair values of its financial instruments
based on appropriate valuation methodologies; however, considerable judgment is
required to develop these estimates.  The carrying values of current
monetary assets and liabilities approximate their fair values due to their
relatively short periods to maturity.
  31
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 Years
ended June 30, 2010, 2009 and 2008
 
  17.
              Financial
      instruments (continued):
  (b)
              Risks
      arising from financial instruments and risk
  management:
  The
Company's activities expose it to a variety of financial risks: market risk
(including foreign exchange and interest rate risks), credit risk and liquidity
risk.  Risk management is the responsibility of the Company, which
identifies, evaluates and, where appropriate, mitigates financial
risks.
  (i)
              Foreign
      exchange risk:
  The
Company operates in Canada, the United States and Australia and has
relationships with entities in other countries.  Foreign exchange risk
arises because the cost of transactions denominated in foreign currencies may
vary due to changes in exchange rates ("transaction exposures").
  Balances
in foreign currencies at June 30, 2010 were approximately:
  AustralianU.S. dollars
                        
                        
                        dollarsCash
      and short-term deposits
                        
                        $
                        7,774,871
                        
                        
                        €
                        234,535Accounts
      receivable
                        
                        
                        –
                        
                        
                        
                        22,189Accounts
      payable and accrued liabilities
                        
                        
                        (22,185
                        )
                        
                        
                        (1,612,781
                        )$
                        7,752,686
                        
                        
                        €
                        (1,356,057
                        )
  Fluctuations
in the U.S. and Australian dollar exchange rate may potentially have a
significant impact on the Company's results of operations.
  (ii)
              Interest
      rate risk:
  The
Company is exposed to interest rate risk to the extent that short-term deposits
are at a fixed rate of interest and their market value can vary with the change
in market interest rates.  The Company's maximum exposure to interest
rate risk is based on the effective interest rate and the current carrying value
of these assets.  The Company monitors market interest rates and
mitigates against interest rate risk by not investing in deposits longer than 18
months.
  32
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  17.
              Financial
      instruments (continued):
  There is
a risk that future cash flows from invested cash, cash equivalents and
short-term deposits will vary as the market interest rates fluctuate because
these investments earn interest at market rates.  Based on the June
30, 2010 balance of approximately $45.645 million, a variation of 100 basis
points in the market interest rate could affect the consolidated statement of
operations and comprehensive loss and deficit by approximately $456
thousand.  For the year ended June 30, 2010, the Company recorded
interest income of $84 thousand (2009 - $1.070 million; 2008 - $2.584
million) in relation to these assets.
  (iii)
              Credit
      risk:
  Accounts
receivable are subject to normal credit risk.  The maximum exposure to
credit risk is equal to the carrying value of the accounts
receivable.  The Company regularly assesses the accounts receivable
and takes action to collect the amounts or provide adequate reserves against
doubtful accounts.  The Company currently has no reserve for doubtful
accounts as there have been no bad debts to date.
  (iv)
              Liquidity
      risk:
  Liquidity
risk is the risk that the current financial obligations exceed the cash
available to satisfy those obligations at any point in time.  The
Company's objective in managing liquidity risk is to maintain sufficient readily
available cash in order to meet its liquidity requirements.  The
Company achieves this by maintaining sufficient cash and cash
equivalents.
  18.
              Canadian
      and United States accounting policy
differences:
  The
Company's consolidated financial statements are prepared in accordance with
Canadian GAAP, which differ in certain respects from those applied in the United
States.  The following items present the impact of material
differences between Canadian GAAP and United States GAAP on the Company's
consolidated financial statements.
  33
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  18.
              Canadian
      and United States accounting policy differences
    (continued):
  (a)
              Consolidated
      statements of operations and comprehensive
loss:
  The
following table reconciles loss for the year as reported in the consolidated
statements of operations and comprehensive loss and deficit reported under
Canadian GAAP to what would have been reported had the statements been prepared
in accordance with United States GAAP:
  2010
                                              
                                              
                                              2009
                                              
                                              
                                              2008Loss
      for the year based on Canadian GAAP
                                              
                                              $
                                              (20,993,364
                                              )
                                              
                                              $
                                              (13,069,466
                                              )
                                              
                                              $
                                              (14,885,744
                                              )Amortization
      of acquired technologies (i)
                                              
                                              
                                              1,060,551
                                              
                                              
                                              
                                              1,060,541
                                              
                                              
                                              
                                              1,060,541Change
      in fair value of warrants (iii)
                                              
                                              
                                              (4,885,234
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –Impairment
      of acquired technologies
                                              
                                              
                                              1,944,317
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –Loss
      for the year and comprehensive loss based on United States
      GAAP
                                              
                                              $
                                              (22,873,730
                                              )
                                              
                                              $
                                              (12,008,925
                                              )
                                              
                                              $
                                              (13,825,203
                                              )2010
                                              
                                              
                                              2009
                                              
                                              
                                              2008Basic
      and diluted loss per share (ii)
                                              
                                              $
                                              (0.28
                                              )
                                              
                                              $
                                              (0.22
                                              )
                                              
                                              $
                                              (0.25
                                              )Weighted
      average number of common shares outstanding
                                              
                                              
                                              63,607,316
                                              
                                              
                                              
                                              55,835,356
                                              
                                              
                                              
                                              55,835,356
  (i)
              Under
      United States GAAP, effective for business combinations prior to July 1,
      2009, the Company's acquired technologies, which primarily comprise
      patents and technologies which require regulatory approval to be
      commercialized and which have no proven alternative future uses, were
      considered in-process research and development and were immediately
      expensed upon acquisition.  The Company's acquired technologies
      relating to the Delex acquisition do not have an alternative future use
      given their specialized nature.  Under Canadian GAAP, the
      acquired technologies were considered to be development assets that were
      capitalized and amortized over their expected useful
  lives.
  34
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  18.
              Canadian
      and United States accounting policy differences
    (continued):
  (ii)
              Loss
      per common share has been calculated using the weighted average number of
      common shares outstanding during the year.  The potential effect
      of share options is not dilutive to the loss per common
    share.
  (iii)
              United
      States GAAP requires that share purchase warrants with a strike price in a
      foreign currency other than the Company's functional currency requires
      them to be classified as long-term liabilities and measured at fair value
      with changes in fair value recognized in the consolidated statements of
      operations.
  (b)
              Consolidated
      statement of changes in shareholders'
equity:
  United
States GAAP requires the inclusion of a consolidated statement of changes in
shareholders' equity for each year a statement of operations is
presented.  Shareholders' equity under United States GAAP was as
follows:
 
 Share
                    
                    
                    
                    
                    
                    
                    
                    
                    Additionalpurchase
                    
                    
                    Share
                    
                    
                    
                    
                    
                    paid-inwarrants
                    
                    
                    capital
                    
                    
                    Deficit
                    
                    
                    capital
                    
                    
                    TotalTotal
      shareholders' equity under U.S. GAAP, June 30, 2007
                    
                    $
                    4,553,308
                    
                    
                    $
                    172,921,153
                    
                    
                    $
                    (121,604,357
                    )
                    
                    $
                    3,895,970
                    
                    
                    $
                    59,766,074Expiry
      of warrants
                    
                    
                    (1,402,769
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    1,402,769
                    
                    
                    
                    –Stock-based
      compensation
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    2,063,973
                    
                    
                    
                    2,063,973Loss
      for the year
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (13,825,203
                    )
                    
                    
                    –
                    
                    
                    
                    (13,825,203
                    )Total
      shareholders' equity under U.S. GAAP, June 30, 2008
                    
                    
                    3,150,539
                    
                    
                    
                    172,921,153
                    
                    
                    
                    (135,429,560
                    )
                    
                    
                    7,362,712
                    
                    
                    
                    48,004,844Expiry
      of warrants
                    
                    
                    (3,150,539
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    3,150,539
                    
                    
                    
                    –Stock-based
      compensation
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    760,760
                    
                    
                    
                    760,760Loss
      for the year
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (12,008,925
                    )
                    
                    
                    –
                    
                    
                    
                    (12,008,925
                    )Total
      shareholders' equity under U.S. GAAP, June 30, 2009
                    
                    
                    –
                    
                    
                    
                    172,921,153
                    
                    
                    
                    (147,438,485
                    )
                    
                    
                    11,274,011
                    
                    
                    
                    36,756,679Issued
      on exercise of options
                    
                    
                    –
                    
                    
                    
                    144,833
                    
                    
                    
                    –
                    
                    
                    
                    (55,694
                    )
                    
                    
                    89,139Issued
      on acquisition of Cytopia
                    
                    
                    –
                    
                    
                    
                    12,515,903
                    
                    
                    
                    –
                    
                    
                    
                    126,000
                    
                    
                    
                    12,641,903Issued
      on financing
                    
                    
                    –
                    
                    
                    
                    17,916,350
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    17,916,350Stock-based
      compensation
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    983,242
                    
                    
                    
                    983,242Loss
      for the year
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (22,873,730
                    )
                    
                    
                    –
                    
                    
                    
                    (22,873,730
                    )Total
      shareholders' equity under U.S. GAAP, June 30, 2010
                    
                    
                    –
                    
                    
                    
                    203,498,239
                    
                    
                    
                    (170,312,215
                    )
                    
                    
                    12,327,559
                    
                    
                    
                    45,513,583Stock-based
      compensation (i)
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (1,818,334
                    )
                    
                    
                    1,761,112
                    
                    
                    
                    (57,222
                    )Share
      purchase warrants (ii)
                    
                    
                    1,473,246
                    
                    
                    
                    –
                    
                    
                    
                    4,885,234
                    
                    
                    
                    –
                    
                    
                    
                    6,358,480Total
      shareholders' equity under Canadian GAAP, June 30, 2010
                    
                    $
                    1,473,246
                    
                    
                    $
                    203,498,239
                    
                    
                    $
                    (167,245,315
                    )
                    
                    $
                    14,088,671
                    
                    
                    $
                    51,814,841
  35
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  18.
              Canadian
      and United States accounting policy differences
    (continued):
  (i)
              Under
      Canadian GAAP, the Company has applied the fair value-based method of
      accounting for stock options granted to employees for options granted on
      or after July 1, 2002.  Effective July 1, 2005, the Company
      adopted the fair valued-based method of accounting for stock options
      granted to employees and directors as required by FASB Statement No.
      123R.  In accordance with one of the transitional options
      permitted under this provision, the Company elected to apply the modified
      prospective application method and, according, has applied the fair
      value-based method to all employee stock options granted on or after July
      1, 2005.  Additionally, compensation cost for awards granted in
      prior periods for which the requisite service has not been rendered as of
      July 1, 2005 will be recognized in the consolidated statement of
      operations as the requisite service is
rendered.
  Prior to
July 1, 2005, the Company applied the fair value-based method of accounting only
to stock-based compensation provided to non-employees and the intrinsic value
method of accounting for stock options granted to employees and directors in
accordance with APB Opinion No. 25 and according, stock compensation expense for
employees awards recorded for Canadian purposes of $1,278,955 and $480,524 for
the years ended June 30, 2005 and 2004, respectively, has been reversed for
United States GAAP purposes.
  (ii)
              United
      States GAAP requires that share purchase warrants with a strike price in a
      foreign currency other than the Company's functional currency requires
      them to be classified as long-term liabilities and measured at fair value
      with changes in fair value recognized in the consolidated statements of
      operations.  The fair value of the warrants are based on inputs
      that are not derived from observable market inputs in the Company's fair
      value hierarchy.
  United
States GAAP requires the disclosures of a consolidated statement of
comprehensive income. Comprehensive income generally encompasses all changes in
shareholders' equity, except those arising from transactions with shareholders.
There have been no material transactions that would have been included in
comprehensive income had the statements been prepared in accordance with United
States GAAP.
  36
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  18.
              Canadian
      and United States accounting policy differences
    (continued):
  (c)
              Investment
      tax credits:
  Canadian
GAAP requires that investment tax credits relating to development costs be
accounted for as a reduction of development costs.  United States GAAP
requires such amounts to be accounted for as a reduction of income tax
expense.  There is no impact on the loss for the year as a result of
this GAAP difference.  For the year ended June 30, 2010, the Company
recognized nil (2009 - $283,792; 2008 - nil) of investment tax
credits.
  (d)
              Income
      taxes:
  Canadian
GAAP requires that future income taxes be calculated using enacted income tax
rates or, where they exist, substantively enacted income tax
rates.  United States GAAP does not permit the use of substantively
enacted rates.  As a full valuation allowance was recorded against all
future tax assets, the future tax assets and valuation allowances are also
different as a result of Canadian/United States GAAP loss
differences.
  The net
future tax assets and related valuation allowances calculated using United
States GAAP were approximately $84,256,000, $70,932,000 and $65,212,000,
respectively, for the years ended June 30, 2010, 2009 and 2008.
  The
Company fully recognizes its tax benefits, which are offset by a valuation
allowance to the extent that it is more likely than not that the deferred tax
assets will not be realized.
  The
parent company and its Canadian subsidiary each file a Canadian federal and
Ontario income tax return.  Generally, the Company is no longer
subject to federal and provincial income tax examinations by Canadian tax
authorities for year ends prior to June 30, 2004.  However, years from
2001 to 2010 remain open with respect to related party
transactions.
  The
Company's U.S. subsidiary files a U.S. federal income tax return and income tax
returns in many U.S. state jurisdictions.  Generally, the Company is
no longer subject to federal and state income tax examinations by U.S. tax
authorities for years prior to 2004.
  The
Company recognizes any interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses.  During the year
ended June 30, 2010, there were no such interest or
penalties.
  37
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  18.
              Canadian
      and United States accounting policy differences
    (continued):
  (e)
              New
      accounting pronouncements:
  (i)
              On
      July 1, 2009, the Company adopted Accounting Standards Codification
      ("ASC") 805, Business Combinations ("ASC 805"), and ASC 810,
      Non-controlling Interests ("ASC 810") in Consolidated Financial
      Statements.  The objective of ASC 805 is to improve the
      relevance, representational faithfulness and comparability of the
      information that a reporting entity provides in its financial reports
      about a business combination and its effects.  ASC 810 requires
      non-controlling interests (previously referred to as minority interests)
      to be treated as a separate component of equity, not as a liability or
      other item outside permanent equity.  This standard applies to
      the accounting for non-controlling interests and transactions with
      non-controlling interest holders in consolidated financial
      statements.  Effective July 1, 2009, as described in note
      2(p)(iv), the Company adopted new Canadian GAAP standards that parallel
      the adoption of these new U.S. standards.  Accordingly, the
      adoption of these U.S. standards did not have any additional impact on the
      Company's consolidated financial
statements.
  (ii)
              On
      July 1, 2009, the Company adopted Disclosures about Derivative Instruments
      and Hedging Activities, which requires enhanced disclosures about an
      entity's derivative and hedging activities and thereby improves the
      transparency of financial reporting.  Mainly, entities are
      required to provide enhanced disclosures about (a) how and why an entity
      uses derivative instruments, (b) how derivative instruments and
      related hedged items are accounted for and (c) how derivative instruments
      and related hedged items affect an entity's financial position, financial
      performance and cash flows.  The adoption of this change did not
      have an impact on the Company's consolidated financial
      statements.
  (iii)
              Accounting
      standards codification:
  On July
1, 2009, the Company adopted the Financial Accounting Standards Board ("FASB")
ASC and The Hierarchy of Generally Accepted Accounting Principles, which became
effective November 13, 2008.  ASC is the source of authoritative
United States GAAP recognized by the FASB to be applied by non-governmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") under authority of federal securities laws are also
sources of authoritative United States GAAP for SEC registrants.  On
November 13, 2008, ASC superseded all then-existing non-SEC accounting and
reporting standards.  All other non-grandfathered non-SEC accounting
literature not included in ASC will become non-authoritative.
  38
  YM
BIOSCIENCES INC.
 Notes to
Consolidated Financial Statements (continued)
 (Expressed
in Canadian dollars, unless otherwise noted)
 
 Years
ended June 30, 2010, 2009 and 2008
 
  18.
              Canadian
      and United States accounting policy differences
    (continued):
  (f)
              Supplemental
      pro forma information:
  Supplemental
pro forma information on the acquisition of Cytopia on January 29, 2010 is
presented in note 3 in accordance with Canadian GAAP.  The pro forma
combined revenue for the year ended June 30, 2010 under United States GAAP is
unchanged at $2.631 million.  Under United States GAAP, as
described in note 18(a)(i), in-process research and development previously
acquired was immediately expensed on acquisition.  Amortization of the
acquired research and development included in the pro forma combined loss for
the year ended June 30, 2010 of $3.005 million was reversed under United States
GAAP and, accordingly, the pro forma combined loss for the year under United
States GAAP was $23.784 million.
  39