EXHIBIT 99.3

                    Consolidated Financial Statements
                    (Expressed in Canadian dollars)

                    YM BIOSCIENCES INC.
                    (A DEVELOPMENT STAGE COMPANY)

                    Years ended June 30, 2004, 2003 and 2002

<PAGE>

[LOGO]
KPMG

        KPMG LLP                                    Telephone (416) 228-7000
        CHARTERED ACCOUNTANTS                       Fax      (416) 228-7123
        Yonge Corporate Centre                      Internet    www.kpmg.ca
        4100 Yonge Street Suite 200
        Toronto ON M2P 2H3
        Canada


AUDITORS' REPORT TO THE SHAREHOLDERS

We have  audited  the  consolidated  balance  sheets of YM  Biosciences  Inc. (a
development  stage  company) as at June 30,  2004 and 2003 and the  consolidated
statements of operations and deficit and cash flows for each of the years in the
three-year period ended June 30, 2004 and for the period from August 17, 1994 to
June  30,  2004.  These  financial  statements  are  the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 2004 and
2003 and the results of its  operations and its cash flows for each of the years
in the three-year  period ended June 30, 2004 and for the period from August 17,
1994 to June 30, 2004 in accordance with Canadian generally accepted  accounting
principles.

/s/ KPMG LLP

Chartered Accountants

Toronto, Canada
August 18, 2004, except
as to note 11 which is
as of October 1, 2004


                     KPMG LLP, a Canadian limited liability
                   partnership is the Canadian member firm of
                    KPMG International, a Swiss cooperative.

<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Consolidated Balance Sheets

June 30, 2004 and 2003
(Amounts in Canadian dollars, unless otherwise noted)

<TABLE>
<CAPTION>
====================================================================================
                                                            2004            2003
-----------------------------------------------------------------------------------

Assets

Current assets:
<S>                                                     <C>             <C>
     Cash and cash equivalents (note 1(b))              $  5,493,907    $  7,675,466
     Short-term deposits (note 1(c))                      14,893,951               -
     Marketable securities (note 2)                           19,715         783,622
     Accounts receivable and prepaid expenses                463,838         168,187
     -------------------------------------------------------------------------------
                                                          20,871,411       8,627,275

Capital assets (note 3)                                       11,381          22,567
------------------------------------------------------------------------------------
                                                        $ 20,882,792    $  8,649,842
====================================================================================

Liabilities and Shareholders' Equity

Current liabilities:
     Accounts payable                                   $    993,272    $    101,506
     Accrued liabilities                                     170,439         221,077
     -------------------------------------------------------------------------------
                                                           1,163,711         322,583

Shareholders' equity:
     Share capital (note 5)                               59,841,914      44,729,104
     Share purchase warrants (note 5)                      3,627,239               -
     Contributed surplus (note 5)                             29,816           9,965
     Deficit accumulated during the development stage    (43,779,888)    (36,411,810)
     -------------------------------------------------------------------------------
                                                          19,719,081       8,327,259

Commitments (note 7)
Subsequent events (note 11)

------------------------------------------------------------------------------------
                                                        $ 20,882,792    $  8,649,842
====================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       1
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Operations and
Deficit Accumulated During the Development Stage
(Amounts in Canadian dollars, unless otherwise noted)

<TABLE>
<CAPTION>
===========================================================================================================
                                                                                                       From
                                                                                               inception on
                                                                                            August 17, 1994
                                                       Years ended June 30,                     to June 30,
                                                   2004            2003           2002                 2004
-----------------------------------------------------------------------------------------------------------

<S>                                        <C>             <C>             <C>                 <C>
Interest income                            $    347,187    $    273,232    $    154,112        $  2,788,418

Expenses:
     General and administrative               3,130,324       1,877,509       1,864,289          14,293,992
     Licensing and product
       development                            5,066,569       3,965,385       4,729,216          30,876,387
----------------------------------------------------------------------------------------------------------
                                              8,196,893       5,842,894       6,593,505          45,170,379
----------------------------------------------------------------------------------------------------------

Loss before the undernoted                   (7,849,706)     (5,569,662)     (6,439,393)        (42,381,961)

Gain on sale of marketable securities           638,332              --              --             638,332

Unrealized loss on marketable securities             --      (1,812,158)             --          (1,812,158)
----------------------------------------------------------------------------------------------------------
Loss before income taxes                     (7,211,374)     (7,381,820)     (6,439,393)        (43,555,787)

Income taxes                                         --              --           7,300               7,300
----------------------------------------------------------------------------------------------------------
Loss for the period                          (7,211,374)     (7,381,820)     (6,446,693)        (43,563,087)

Deficit, beginning of period                (36,411,810)    (28,969,893)    (22,523,200)                 --

Cost of purchasing shares for
   cancellation in excess of book
   value (note 5)                              (156,704)        (60,097)             --            (216,801)

-----------------------------------------------------------------------------------------------------------
Deficit, end of period                     $(43,779,888)   $(36,411,810)   $(28,969,893)       $(43,779,888)
===========================================================================================================

Basic and diluted loss per
   common share                            $      (0.34)   $      (0.56)   $      (0.50)
===========================================================================================================

Weighted average number of
   common shares outstanding                 21,353,479      13,218,177      12,991,039
===========================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       2
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Cash Flows
(Amounts in Canadian dollars, unless otherwise noted)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                                               From
                                                                                                       inception on
                                                                                                    August 17, 1994
                                                                       Years ended June 30,             to June 30,
                                                             2004            2003           2002               2004
-------------------------------------------------------------------------------------------------------------------

Cash provided by (used in):

Operating activities:
<S>                                                  <C>             <C>             <C>               <C>
     Loss for the period                             $ (7,211,374)   $ (7,381,820)   $ (6,446,693)     $(43,563,087)
     Items not involving cash:
         Depreciation                                      14,910          59,640          48,061           258,947
         Unrealized loss on
           marketable securities                               --       1,812,158              --         1,812,158
         Gain on sale of
           marketable securities                         (638,332)             --              --          (638,332)
         Stock-based compensation                          19,851           9,965              --            29,816
     Change in non-cash operating working capital:
         Accounts receivable
           and prepaid expenses                          (295,651)         21,927          (9,508)         (463,838)
         Accounts payable and
           accrued liabilities                            841,128         (51,803)       (163,825)        1,163,711
-------------------------------------------------------------------------------------------------------------------
                                                       (7,269,468)     (5,529,933)     (6,571,965)      (41,400,625)

Financing activities:
     Issuance of common shares
       on exercise of options                           1,544,375              --              --         1,544,375
     Issuance of common shares
       on exercise of warrants                            222,348              --              --           222,348
     Redemption of preferred shares                            --         (80,372)             --        (2,630,372)
     Repurchase of common shares                         (230,379)        (19,390)             --          (249,769)
     Net proceeds from issuance of
       shares and special warrants                     17,047,001              --      11,739,407        61,769,990
-------------------------------------------------------------------------------------------------------------------
                                                       18,583,345         (99,762)     11,739,407        60,656,572

Investing activities:
     Short-term deposits, net                         (14,893,951)             --              --       (14,893,951)
     Proceeds on sale of
       marketable securities                            1,402,239              --              --         1,402,239
     Restricted cash                                           --         600,000        (600,000)               --
     Additions to capital assets                           (3,724)         (2,361)         (2,808)         (270,328)
-------------------------------------------------------------------------------------------------------------------
                                                      (13,495,436)        597,639        (602,808)      (13,762,040)
-------------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash
   and cash equivalents                                (2,181,559)     (5,032,056)      4,564,634         5,493,907

Cash and cash equivalents,
   beginning of period                                  7,675,466      12,707,522       8,142,888                --

-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
   end of period                                     $  5,493,907    $  7,675,466    $ 12,707,522      $  5,493,907
===================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

The Company was  incorporated  on August 17, 1994 under the laws of the Province
of Ontario.  The Company continued under the laws of the Province of Nova Scotia
on December 11, 2001. The Company is a development stage company.  Its long-term
viability  is  dependent  on the  success  of  its  regulatory  submissions  and
licensing and marketing  activities,  its ability to obtain additional financing
and to  earn a  sufficient  market  share  once  its  licensed  products  are in
commercial  production.  The Company has entered into licensing  agreements with
certain biotechnology, pharmaceutical and medical institutes. The licenses grant
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.

1.    SIGNIFICANT ACCOUNTING POLICIES:

      The  accompanying  financial  statements  are prepared in accordance  with
      accounting principles generally accepted in Canada. Significant accounting
      policies are summarized below:

      (a)   Basis of presentation:

            These consolidated  financial statements include the accounts of the
            Company,  its subsidiaries,  CBQYM Inc. (Ontario and Barbados),  and
            its  proportionate  share  of  the  revenue,  expenses,  assets  and
            liabilities of the 80%-owned incorporated joint ventures, CIMYM Inc.
            (Ontario and Barbados).

            The Company has made a provision of  $4,870,939  as of June 30, 2004
            (2003 -  $5,240,642),  which  is equal to the  amount  by which  the
            funding  provided to the joint  ventures by way of preferred  shares
            and loans  exceeds  the  Company's  proportionate  share of expenses
            incurred.  Provision  for the advances has been made in the accounts
            consistent with the classification of the expenditures being funded,
            such that the Company has consolidated all of the underlying results
            of  operations  of the joint  ventures.  The  provisions  may not be
            required in the future if recovery from the joint  ventures  appears
            certain.

            During the year,  the Company  increased its ownership in CBQYM Inc.
            from 80% to 100% for nominal  consideration.  The Company intends to
            wind up CBQYM Inc.  subsequent  to year end. As such,  the assets of
            this company have been valued on a liquidation  value basis. No gain
            or loss on winding up this company is expected by management.


                                       4
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------


1.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (b)   Cash and cash equivalents:

            Cash and cash  equivalents  are recorded at cost.  Cash  equivalents
            consist  of highly  liquid,  held-to-maturity  deposits,  with terms
            extending to 90 days from the date of acquisition.

      (c)   Short-term deposits:

            Short-term  deposits  are  recorded  at cost and  consist  of highly
            liquid,  held-to-maturity  deposits,  with terms extending beyond 90
            days from the date of acquisition.

      (d)   Marketable securities:

            Marketable  securities  are recorded at the lower of cost and market
            value.  Market  values of shares and  warrants  held are  determined
            based on their quoted market prices.  Losses arising from changes in
            the market value are included in net earnings or loss for the year.

      (e)   Capital assets:

            Capital  assets  are stated at cost less  accumulated  depreciation.
            Depreciation is provided to amortize the cost of capital assets over
            their estimated useful lives using the straight-line method over the
            following periods:

--------------------------------------------------------------------------------

           Computer equipment                                3 years
           Furniture and equipment                           5 years
           Leasehold improvements                      Term of lease

--------------------------------------------------------------------------------

      (f)   Development costs:

            To date, all development costs 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 has met such  criteria.  The  Company has made no
            expenditures for scientific research.


                                       5
<PAGE>


YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

1.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (g)   Government assistance:

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

      (h)   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.


                                       6
<PAGE>


YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

1.    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

      (i)   Stock-based compensation:

            The  Company  has a  stock  option  plan  for  directors,  officers,
            employees and service  providers,  as described in note 6. 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 applies the intrinsic  value-based  method of accounting
            to its stock option plan. No compensation expense is recorded on the
            grant of options to  directors,  officers  and  employees  under the
            plan. Consideration paid by directors, officers and employees on the
            exercise  of stock  options is recorded  as share  capital.  Options
            issued to service  providers  of the  Company  are valued  using the
            Black-Scholes  fair value option pricing  model.  The value of these
            options  is  expensed  during  the  period in which the  service  is
            rendered and is recorded as contributed surplus.

      (j)   Measurement uncertainty:

            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 year.  Actual  results could differ
            from those estimates.

2.    MARKETABLE SECURITIES:

      On September  25, 2002,  as set out in note 5, the Company  issued Class B
      preferred  shares in exchange for  1,100,000  ordinary  shares and 220,000
      warrants of New  Opportunities  Investment  Trust  ("NOIT") as part of the
      NOIT  initial  prospectus  offering.  The cost of the NOIT  investment  of
      $2,595,780  was  determined  with  reference  to the  market  value of the
      Company's  Class B  preferred  shares at that time.  Since the date of the
      original  listing of the NOIT  shares  and  warrants  on the London  Stock
      Exchange to June 30, 2003, the value of these shares and warrants declined
      by  $1,812,158  with such  amount  being  reflected  as a loss in the 2003
      consolidated  statements of  operations.  On January 9, 2004,  the Company
      completed a transaction, whereby it sold 1,100,000 ordinary shares of NOIT
      at their  market  value of  (pound)0.55  (approximately  $1.29) per share,
      resulting in a net gain of $638,332.  As at June 30, 2004,  the marketable
      securities  consist of 220,000 share purchase warrants in NOIT that have a
      market value of $69,491 (2003 - $783,622).


                                       7
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

3.    CAPITAL ASSETS:

      --------------------------------------------------------------------------
                                                       Accumulated      Net book
      June 30, 2004                         Cost      depreciation         value
      --------------------------------------------------------------------------

      Computer equipment                $132,022          $123,394      $  8,628
      Furniture and equipment             75,042            72,289         2,753
      Leasehold improvements              45,205            45,205            --

      --------------------------------------------------------------------------
                                        $252,269          $240,888      $11,381
      ==========================================================================

      --------------------------------------------------------------------------
                                                       Accumulated      Net book
      June 30, 2003                         Cost      depreciation         value
      --------------------------------------------------------------------------

      Computer equipment                $130,457          $112,902      $ 17,555
      Furniture and equipment             72,883            67,871         5,012
      Leasehold improvements              45,205            45,205            --

      --------------------------------------------------------------------------
                                        $248,545          $225,978      $ 22,567
      ==========================================================================

4.    INVESTMENT IN JOINT VENTURES:

      The consolidated  financial  statements include the Company's share of the
      revenue and expenses of incorporated  joint ventures,  and makes provision
      for all  advances  made to the joint  ventures  that do not  eliminate  on
      consolidation.  This accounting  effectively  results in 100% of the joint
      ventures   revenues  and  expenses  being  included  in  the  consolidated
      financial statements as follows:

<TABLE>
<CAPTION>
      =========================================================================================
                                                                                          From
                                                                                  inception on
                                                                                    August 17,
                                                                                       1994 to
                                                     Years ended June 30,             June 30,
                                             2004           2003           2002           2004
      -----------------------------------------------------------------------------------------

<S>                                   <C>            <C>            <C>            <C>
      General and administrative
        expenses                      $ 2,413,500    $ 1,857,887    $ 2,027,777    $10,806,727
      Licensing and product
        development cost                  946,453      1,774,823      2,846,255     18,756,437

      -----------------------------------------------------------------------------------------
      Loss for the period             $ 3,359,953    $ 3,632,710    $ 4,874,032    $29,563,164
      =========================================================================================
</TABLE>


                                       8
<PAGE>

5.    WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS:

      Special warrants:

      On December 15, 2003, the Company completed the sale of 10,895,658 special
      warrants by way of private placement.  Each special warrant sold for $1.75
      and  entitled  the holder to receive  one common  share and  one-half of a
      share purchase warrant to purchase one additional common share. As part of
      the  consideration for arranging the private  placement,  the Company also
      issued  1,089,566  special agent  warrants  entitling  agents to receive a
      share  purchase  warrant to  purchase  one  additional  common  share.  On
      February  17,  2004,  pursuant  to a  prospectus  filed  with the  Ontario
      Securities Commission,  the special warrants were automatically  exercised
      and the  Company  issued  10,895,658  common  shares and  5,447,829  share
      purchase  warrants which are exchangeable  with $2.50 for one common share
      for five years and 1,089,566  share purchase  warrants to agents which are
      exchangeable  with  $1.75  for one  common  share  for five  years.  Total
      proceeds amounted to $19,067,402,  less issuance costs of $2,990,115.  The
      share  purchase  warrants were recorded at fair value of $3,725,820  using
      the Black-Scholes fair value option pricing model.

      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 of
                                                        shares           Amount
      --------------------------------------------------------------------------

      Class B preferred shares, Series 1:
          Balance, June 30, 2002                    3,750,000     $ 11,514,407
          Issued from treasury (NOIT)                 759,000        2,595,780
          Shares repurchased for cancellation         (46,200)         (29,329)
          Conversion to common shares              (4,462,800)     (14,080,858)

      --------------------------------------------------------------------------
      Balance, June 30, 2004 and 2003                      --     $         --
      ==========================================================================


                                       9
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

5.    WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):

<TABLE>
<CAPTION>
      ================================================================================
                                                            Number of
                                                               shares           Amount
      --------------------------------------------------------------------------------

      Common shares:
<S>                                                        <C>            <C>
         Issued on incorporation, August 17, 1994                   7     $          1
         Issued to founding shareholders during fiscal 19   4,204,250          224,457
         Issued on private placement, August 1996             125,009           10,000
         Issued on exercise of special warrants, June 199   4,484,613       13,167,901
         Issued on private placement, August 1997             272,250        1,139,366
         Issued on private placement, March/April 2000      3,813,840       15,366,701
         Issued on exercise of stock options, May 2000         23,125           75,156
         Issued pursuant to licensing agreement,
            November 2000                                      50,000          450,000
      --------------------------------------------------------------------------------
         Balance, June 30, 2001                            12,973,094       30,433,582
         Issued pursuant to a licensing agreement              25,000          225,000
      --------------------------------------------------------------------------------
         Balance, June 30, 2002                            12,998,094       30,658,582
         Conversion of preferred shares, June 12, 2003      4,462,800       14,080,858
         Shares purchased for cancellation                    (19,000)         (10,336)
      --------------------------------------------------------------------------------
         Balance, June 30, 2003                            17,441,894       44,729,104
         Shares repurchased for cancellation                 (169,900)         (73,675)
         Issued on the exercise of special warrants,
            February 2004                                  10,895,658       13,321,181
         Issued on exercise of stock options                   23,000           44,375
         Issued on exercise of warrants                       118,939          320,929
         Issued on exercise of compensation options           375,000        1,500,000
      --------------------------------------------------------------------------------
       Balance, June 30, 2004                              28,684,591     $ 59,841,914
      ================================================================================
</TABLE>

      On September 25, 2002, the Company completed a share purchase transaction,
      whereby the Company issued 759,000 Class B preferred  shares,  Series 1 at
      their  market  value of  (pound)1.45  (approximately  $3.42)  per share in
      consideration  for 1,100,000  ordinary shares and 220,000 warrants of NOIT
      under NOIT's U.K. prospectus offering.

      During  the  year  ended  June  30,  2003,   the  Company   purchased  for
      cancellation  46,200 Class B preferred shares,  Series 1 and 19,000 common
      shares under a normal course  issuer bid, at a total cost of $99,762.  The
      excess  of  $60,097  over the book  value of the  shares  was  charged  to
      deficit.


                                       10
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

5.    WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):

      On June 12, 2003,  the Class B preferred  shares,  Series 1  automatically
      converted into common shares on a one-for-one basis.

      During  the  year  ended  June  30,  2004,   the  Company   purchased  for
      cancellation  169,900 common shares under a normal course issuer bid, at a
      total cost of $230,379.  The excess of $156,704 over the book value of the
      shares was charged to deficit.

      Share purchase warrants:

      The Company has issued  warrants for the purchase of common  shares.  Each
      warrant  entitles  the holder to purchase  one common share of the Company
      for a specified price for a specific period of time. No value was ascribed
      to the warrants issued prior to June 30, 2002.  Warrants issued after that
      date have been  valued on a relative  basis using the  Black-Scholes  fair
      value option  pricing  model.  The following  table  contains  information
      regarding the warrants to acquire common shares outstanding as of June 30,
      2004. As of June 30, 2004, all outstanding warrants were exercisable.

<TABLE>
<CAPTION>
      ===============================================================================
                                                              Weighted
                                                               average
                                                   Number of  exercise
                                                      shares     price         Amount
      -------------------------------------------------------------------------------
      Outstanding, June 30, 2002 and
<S>                                               <C>            <C>     <C>
        June 30, 2003                              3,020,669     $4.50    $        --
      Issued February 2004 on exercise of
        special warrants at relative fair value    5,447,829      2.50      2,756,106
      Issued February 2004 on exercise of
        special agent warrants at fair value       1,089,566      1.75        969,714
      Exercised                                     (118,939)     1.87        (98,581)
      Expired                                     (2,613,725)     4.50             --

      -------------------------------------------------------------------------------
      Outstanding, June 30, 2004                   6,825,400      2.53    $ 3,627,239
      ===============================================================================
</TABLE>


                                       11
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

5. WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):

       As at June 30, 2004:

      ==========================================================================
                                                                        Weighted
                                                                         average
                                                                       remaining
      Range of                                       Number          contractual
      exercise price                            outstanding         life (years)
      --------------------------------------------------------------------------

      $1.75                                         989,566                 4.46
      $2.50                                       5,428,890                 4.46
      $4.00                                         125,000                 2.00
      $4.50                                         244,444                 1.25
      $9.00                                          37,500                 0.25

      ==========================================================================

6.    STOCK OPTIONS:

      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.  Of
      the 2,523,252 options  outstanding at June 30, 2004,  143,382 were granted
      to vest  immediately and the remainder were granted to vest over time. The
      option exercise prices range from $1.50 to $4.50.

      On April 1, 2004,  the Company  issued 2,500 stock options in exchange for
      investor  relations  services  rendered.  The fair value of these  options
      using the  Black-Scholes  fair value  option  pricing  model of $3,601 was
      expensed and recorded as contributed surplus.

      On January 24, 2003,  the Company  issued 10,000 stock options in exchange
      for investor relations services rendered.  The fair value of these options
      using the  Black-Scholes  fair value  option  pricing  model of $9,965 was
      expensed and recorded as contributed surplus.

      On October 1, 2003,  the Company  issued  25,000 stock options in exchange
      for investor relations services rendered.  The fair value of these options
      using the  Black-Scholes  fair value option  pricing  model of $16,250 was
      expensed and recorded as contributed surplus.


                                       12
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

6.    STOCK OPTIONS (CONTINUED):

      The  following  tables  outline  the  impact and  assumptions  used if the
      compensation  cost for the Company's  stock  options  issued to directors,
      officers and employees was determined under the fair  value-based  method.
      The  Company has applied  the pro forma  disclosure  provisions  to awards
      granted on or after July 1, 2002.  The pro forma effect of awards  granted
      prior to July 1, 2002 has not been included.

<TABLE>
<CAPTION>
      ================================================================================
                                                                  2004            2003
      --------------------------------------------------------------------------------
<S>                                                        <C>             <C>
      Loss for the year, as reported                       $(7,211,374)    $(7,381,820)
      Pro forma loss for the year                           (7,691,898)     (7,440,675)
      Pro forma loss per common share - basic and diluted        (0.36)          (0.56)

      ================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
      ==================================================================================
      Issue date                                               2004                 2003
      ----------------------------------------------------------------------------------
<S>                                                    <C>             <C>
      Number of options of issued                           825,620              597,500
      Risk-free interest rate                          3.2% - 4.43%        2.75% - 4.11%
      Volatility factor                                  86% - 120%                  120%
      Contractual life of options                      5 - 10 years         5 - 10 years
      Vesting period (months)                               12 - 40     Immediately - 24
      Weighted average fair value of options granted         $ 1.17               $ 1.28

      ==================================================================================
</TABLE>


                                       13
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

6.    STOCK OPTIONS (CONTINUED):

      The following  tables reflect the activity under the stock option plan for
      the years ended June 30, 2004 and 2003 and the share  options  outstanding
      at June 30, 2004:

<TABLE>
<CAPTION>
      =============================================================================================
                                                       2004                         2003
      ---------------------------------------------------------------------------------------------
                                                              Weighted                     Weighted
                                                               average                      average
                                                              exercise                     exercise
                                                 Number          price        Number          price
      ---------------------------------------------------------------------------------------------

<S>                                           <C>           <C>            <C>           <C>
      Outstanding, beginning of year          1,727,132     $     3.34     1,209,632     $     4.04
      Granted                                   825,620           1.64       597,500           1.70
      Cancelled/forfeited                        (6,500)          2.94       (80,000)          4.19
      Exercised                                 (23,000)          1.93            --             --
      ---------------------------------------------------------------------------------------------
      Outstanding, end of year                2,523,252           2.80     1,727,132           3.34
      =============================================================================================

      Exercisable, end of year                1,604,151     $     3.40     1,092,170     $     3.90
      =============================================================================================
</TABLE>


      As at June 30, 2004:

<TABLE>
<CAPTION>
      ==============================================================================================
                                        Options outstanding                  Options exercisable
                             -----------------------------------------   ---------------------------
                                              Weighted
                                               average        Weighted                      Weighted
                                             remaining         average                       average
      Range of                   Number    contractual        exercise         Number       exercise
      exercise price        outstanding   life (years)           price    exercisable          price
      ----------------------------------------------------------------------------------------------
<S>                          <C>                   <C>       <C>             <C>           <C>
      $   1.50                  25,000             0.2       $    1.50         25,000      $    1.50
      $   1.75               1,080,620             8.0            1.75        316,698           1.75
      $   2.00                  60,000             8.8            2.00         21,000           2.00
      $   2.10                  50,000             9.8            2.10         16,667           2.10
      $   2.50                 167,500             7.7            2.50         74,050           2.50
      $   3.25                 425,300             3.0            3.25        425,300           3.25
      $   4.00                  12,500             3.4            4.00         12,500           4.00
      $   4.50                 702,332             5.5            4.50        712,936           4.50

      ----------------------------------------------------------------------------------------------
      $1.50 - $4.50          2,523,252             6.4            2.80      1,604,151           3.40
      ==============================================================================================
</TABLE>


                                       14
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

6.    STOCK OPTIONS (CONTINUED):

      As at June 30, 2003:

<TABLE>
<CAPTION>
      ===========================================================================================
                                     Options outstanding                   Options exercisable
                         ------------------------------------------    --------------------------
                                           Weighted
                                            average        Weighted                      Weighted
                                          remaining         average                       average
      Range of                Number    contractual        exercise         Number       exercise
      exercise price     outstanding   life (years)           price    exercisable          price
      -------------------------------------------------------------------------------------------

<S>                        <C>                  <C>        <C>           <C>              <C>
      $1.75                  351,500            9.8        $   1.75         17,575        $  1.75
      $2.00                   60,000            9.8            2.00          3,000           2.00
      $2.50                  176,000            9.2            2.50         32,050           2.50
      $3.25                  425,300            4.1            3.25        425,300           3.25
      $4.00                   10,000            4.5            4.00          7,500           4.00
      $4.50                  704,332            6.5            4.50        606,745           4.50

      -------------------------------------------------------------------------------------------
      $1.75 - $4.50        1,727,132            7.0            3.34      1,092,170           3.90
      ===========================================================================================
</TABLE>

7.    COMMITMENTS:

      As part of the license  agreements for certain  products,  the Company has
      committed to make certain product development payments. These payments are
      obligations of the Company so long as the Company continues to support the
      development of certain products.

      The Company committed to product development payments of $100,000 per year
      and to consulting  services payments of $50,000 per year to the University
      of Manitoba and The Manitoba Cancer Treatment and Research  Foundation for
      a three-year  period ended  November 2003.  Payment of  obligations  under
      these contracts has now been completed.

      The Company has entered into a clinical  research  services contract dated
      March 2004 for management  services relating to a clinical trial involving
      up to 700 patients and 67 sites.  The contract is expected to be completed
      by December 31, 2006; however,  this is subject to change. The Company can
      terminate  this contract by providing 30 days' notice and a penalty of 10%
      of any remaining commitment.


                                       15
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

7.    COMMITMENTS (CONTINUED):

      The  Company  leases  premises  under a  five-year  lease that  expires in
      January 2008.  Under the terms of the lease, the Company can terminate the
      lease at any time with six  months  notice  plus a penalty  of two  months
      rent. Annual minimum payments under this operating lease for the next four
      years from June 30, 2004 are as follows:

      ==========================================================================

      2005                                                         $      58,632
      2006                                                                60,287
      2007                                                                58,636
      2008                                                                35,560

      --------------------------------------------------------------------------
                                                                   $     213,115
      ==========================================================================

8.    INCOME TAXES:

      The Company and its joint venturers have non-capital losses for income tax
      purposes available for application against future taxable income in Canada
      and Barbados. The losses expire as follows:

      ==========================================================================
                                               Canada                Barbados
      --------------------------------------------------------------------------

      2005                                 $       217,000      $             --
      2006                                         125,000               930,000
      2007                                         285,000             2,229,000
      2008                                         642,000             2,079,000
      2009                                       1,687,000             3,500,000
      2010                                       2,102,000             5,019,000
      2011                                       5,927,000             3,802,000
      2012                                              --             2,600,000
      2013                                              --             1,704,000

      --------------------------------------------------------------------------
                                            $    10,985,000      $    21,863,000
      ==========================================================================

      The Company has a pool of scientific research and experimental development
      expenditures  available to reduce future  taxable  income of $2,113,000 at
      June 30, 2004 (2003 - $1,439,000). The pool has no expiry date.


                                       16
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

8.    INCOME TAXES (CONTINUED):

      The Company  earned  $397,825 of  investment  tax credits  during the year
      (2003 -  $110,115;  2002 -  $65,612),  of which  $94,425  is  included  in
      accounts  receivable  at June  30,  2004  (2003 - nil).  The  Company  has
      investment tax credit carryforwards of $1,365,000 at June 30, 2004 (2003 -
      $1,160,000) available to reduce future taxes payable. These investment tax
      credits expire as follows:

      ==========================================================================

      2011                                                        $      259,000
      2012                                                               424,000
      2013                                                               371,000
      2014                                                               311,000

      --------------------------------------------------------------------------
                                                                  $    1,365,000
      ==========================================================================

      No future tax benefit resulting from the non-capital  losses,  the pool of
      scientific  research  and  experimental  development  expenditures  or the
      investment tax credit carryforwards has been reflected in the consolidated
      financial  statements as a full  valuation of $5,711,000 has been taken at
      June 30, 2004 (2003 - $2,988,000; 2002 - $1,933,000).

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:

      The Company's consolidated financial statements are prepared in accordance
      with generally accepted accounting  principles  ("GAAP") in Canada,  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.

      (a)   Development stage enterprise:

            United  States GAAP  requires  certain  additional  disclosures  for
            development stage enterprises. These require cumulative amounts from
            the enterprise's  inception be presented.  For ease of presentation,
            these disclosures have been disclosed in the consolidated statements
            of  operations  and  deficit  and  cash  flows  and  note 5 to these
            consolidated financial statements as appropriate.


                                       17
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):

      (b)   Statement of income (loss) and comprehensive income (loss):

            The following  table  reconciles  loss for the period as reported in
            the consolidated statements of operations and deficit reported under
            Canadian  GAAP to what would have been  reported had the  statements
            been prepared in accordance with United States GAAP.

<TABLE>
<CAPTION>
      ==================================================================================
                                                  2004            2003             2002
      ----------------------------------------------------------------------------------
<S>                                      <C>              <C>              <C>
      Loss for the period based on
         Canadian GAAP                   $  (7,211,374)   $ (7,381,820)    $ (6,446,693)
      Unrealized gain on
         marketable securities                  49,776               -                -

      ----------------------------------------------------------------------------------
       Loss for the period and
         comprehensive loss
         based on United States GAAP     $  (7,161,598)   $ (7,381,820)    $ (6,446,693)
      ==================================================================================

      Basic and diluted loss per share   $       (0.34)   $      (0.56)    $      (0.50)

      ==================================================================================

      Weighted average number of
         common shares outstanding          21,353,479      13,218,177       12,991,039

      ==================================================================================
</TABLE>


                                       18
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):

      Canadian GAAP requires that marketable securities be recorded at the lower
      of cost and market value and does not permit the written-down  value to be
      adjusted upward for subsequent  recoveries of market value. The marketable
      securities  held by the Company are  classified  as trading  securities in
      accordance with FASB Statement 115,  Accounting for Certain Investments in
      Debt and Equity Securities. Under United States GAAP, these securities are
      measured at market value each period end and any unrealized  holding gains
      and losses are reported in the  consolidated  statements of operations and
      deficit.  During the year ended 2003,  the Company  recognized a charge of
      $1,812,158  for an other  than  temporary  decline  in market  value  and,
      accordingly,  there  was no  difference  in  the  carrying  amount  of the
      marketable  securities under United States GAAP and Canadian GAAP.  During
      the year ended June 30, 2004, the  unrealized  increase in market value of
      securities  held was $49,776.  As such, this amount has been recognized as
      an unrealized  gain for United  States GAAP purposes with a  corresponding
      increase in investments and shareholders' equity under United States GAAP.

      Loss per  common  share has been  calculated  using the  weighted  average
      number of common  shares  outstanding  during the  period.  The  potential
      effect of share options and share purchase warrants is not dilutive to the
      loss per common share.


                                       19
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):

      (c)   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 income is presented.  Shareholders' equity under United
            States GAAP is as follows:

<TABLE>
<CAPTION>
      =======================================================================================================
                                                        Deficit
                                                    accumulated                    Accumulated
                                                     during the                          other
                                   Warrants and     development     Contributed  comprehensive
                                  share capital           stage         surplus          income         Total
      -------------------------------------------------------------------------------------------------------

<S>                                <C>             <C>             <C>            <C>            <C>
      Balance, June 30, 2001       $ 30,433,582    $(22,523,200)   $         --   $         --   $  7,910,382
      Issued pursuant to a
        licensing agreement             225,000              --              --             --        225,000
      Issued by public offering      11,514,407              --              --             --     11,514,407
      Loss for the year                      --      (6,446,693)             --             --     (6,446,693)
      -------------------------------------------------------------------------------------------------------

      Balance, June 30, 2002         42,172,989     (28,969,893)             --             --     13,203,096
      Issued from treasury            2,595,780              --              --             --      2,595,780
      Shares repurchased
        for cancellation                (39,665)        (60,097)             --             --        (99,762)
      Stock-based compensation               --              --           9,965             --          9,965
      Loss for the year                      --      (7,381,820)             --             --     (7,381,820)
      -------------------------------------------------------------------------------------------------------

      Balance, June 30, 2003         44,729,104     (36,411,810)          9,965             --      8,327,259
      Special warrants issue         17,047,001              --              --             --     17,047,001
      Issued on stock options            44,375              --              --             --         44,375
      Issued on warrants                222,348              --              --             --        222,348
      Issued on compensation
        options                       1,500,000              --              --             --      1,500,000
      Shares repurchased
        for cancellation                (73,675)       (156,704)             --             --       (230,379)
      Stock-based compensation               --              --          19,851         19,851
      Loss for the year                      --      (7,161,598)             --             --     (7,161,598)
      -------------------------------------------------------------------------------------------------------

      Total shareholders' equity
        under U.S. GAAP,
         June 30, 2004                63,469,153     (43,730,112)         29,816             --     19,768,857

      Unrealized gain on
        marketable securities
        (9(b))                                --         (49,776)             --             --        (49,776)

      -------------------------------------------------------------------------------------------------------
      Total shareholders' equity
        under Canadian GAAP,
        June 30, 2004              $ 63,469,153    $(43,779,888)   $     29,816   $         --   $ 19,719,081
      =======================================================================================================
</TABLE>


                                       20
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):

            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,  except as  disclosed  for loss for the  period  under
            United States GAAP.

      (d)   Investment in joint ventures:

            The Company's  investments in joint ventures have been accounted for
            under Canadian GAAP using the  proportionate  consolidation  method.
            Under United States GAAP,  these  investments  have been analyzed to
            determine  whether any are variable interest entities ("VIEs") under
            FASB  Interpretation  No. 46  (Revised),  Consolidation  of Variable
            Interest  Entities ("FIN 46R"). The Company  determined that each of
            its  investments  in joint  ventures is a VIE and the Company is the
            primary  beneficiary since inception of the entities.  As set out in
            note  1(a),   under  Canadian  GAAP,  the  Company   proportionately
            consolidates the joint ventures and makes provision for any advances
            to the joint  ventures that do not eliminate on  consolidation  such
            that the Company has recorded 100% of the results of operations  and
            cash flows of these  entities  since their  inception.  Accordingly,
            there is no effect on the Company's  financial  condition or results
            of  operations as a result of these  entities  being VIEs and of the
            Company retroactively adopting FIN 46R at March 31, 2004.


                                       21
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):

      (e)   Pro forma stock option disclosure:

            The following table outlines the pro forma impact of options granted
            that have not been recognized as an expense.  The compensation  cost
            for these  options is  determined  under the fair  value  method for
            awards granted on or after July 1, 1995:

<TABLE>
<CAPTION>
            ============================================================================
                                                      2004           2003           2002
            ============================================================================
            Options granted                        798,120        587,500         90,000
            ============================================================================
<S>                                            <C>            <C>            <C>
            Weighted average fair value of
            options granted                    $      1.17    $      1.28    $      1.33
            ============================================================================
            Loss for the period, as reported   $(7,161,598)   $(7,381,820)   $(6,446,693)
            ============================================================================
            Pro forma loss for the period      $(7,768,490)   $(7,680,304)   $(6,751,059)
            ============================================================================
            Pro forma basic and diluted loss
            per share                          $     (0.36)   $     (0.58)   $     (0.52)
            ============================================================================
</TABLE>

            The fair value of each option  granted was  estimated on the date of
            grant using the  Black-Scholes  fair value option pricing model with
            the  assumptions  set out in note 5 for the period from July 1, 2002
            to June 30,  2004 and the  following  assumptions  for  grants  made
            during the period preceding June 30, 2002:

<TABLE>
            ==========================================================================
<S>                                                                      <C>
            Risk-free interest rate                                      4.11% - 5.66%
            Dividend yield                                                          --
            Volatility facto                                                50% - 120%
            Expected life of options                                      5 - 10 years
            Vesting period (months)                           Immediately to 40 months
            ==========================================================================
</TABLE>


                                       22
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):

      (f)   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 period as a result of this GAAP  difference.  Investment tax
            credits earned are as follows:

            ====================================================================
                                                                         From
                                                                 inception on
                                                                   August 17,
                                                                      1994 to
                           Years ended June 30,                      June 30,
                  2004             2003              2002                2004
            --------------------------------------------------------------------

            $  397,825     $    110,115       $    65,612      $    1,761,721

            ====================================================================

      (g)   Income taxes:

            Canadian GAAP requires that future income taxes are 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 has been
            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 future tax assets and related valuation allowances as would have
            been   calculated   using  United  States  GAAP  are   approximately
            $5,698,000,  $2,988,000 and $1,933,000,  respectively, for the years
            ended June 30, 2004, 2003 and 2002.


                                       23
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):

      (h)   Recent accounting pronouncements:

            (i)   Consolidation of variable interest entities:

                  In June 2003, The Canadian Institute of Chartered  Accountants
                  ("CICA")  issued  Accounting  Guideline 15,  Consolidation  of
                  Variable  Interest  Entities  ("AcG-15").   The  Guideline  is
                  harmonized with FASB  Interpretation No. 46,  Consolidation of
                  Variable  Interest  Entities ("FIN 46") and provides  guidance
                  for applying the principles in Section 1590, Subsidiaries,  to
                  those entities  (defined as VIEs and more commonly referred to
                  as  special  purpose  entities),  in  which  either  there  is
                  insufficient  equity  to permit  the  entity  to  finance  its
                  activities without additional  subordinated  financial support
                  from other  parties or the equity  investors  lack one or more
                  specified essential characteristics of a controlling financial
                  interest  (i.e.,  voting  control,  an  obligation  to  absorb
                  expected  losses or the  right to  receive  expected  residual
                  returns). AcG-15 requires consolidation of VIEs by the primary
                  beneficiary.  The primary  beneficiary is defined as the party
                  which has  exposure  to the  majority  of the  VIEs'  expected
                  losses  and/or  expected  residual  returns.  AcG-15  will  be
                  effective for all annual and interim  periods  beginning on or
                  after November 1, 2004.

                  In  December  2003,  FASB  Interpretation  No.  46  (Revised),
                  Consolidation of Variable Interest Entities, superseded FIN 46
                  and is  effective  for the end of the first  reporting  period
                  ending on or after March 15, 2004.

                  The  Company  has  adopted  FIN 46R  for  United  States  GAAP
                  purposes  retroactively  since  the date of  inception  of the
                  joint ventures. Upon adoption of the standard, the Company has
                  determined  that  each of its  investments  in joint  ventures
                  should be  consolidated  from the date when the Company  first
                  became involved with the entities (note 9(d)).


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<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

9.    CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):

      (ii)  Stock-based compensation:

            In December 2002, the FASB issued Statement No. 148,  Accounting for
            Stock-based  Compensation - Transition and Disclosure,  an amendment
            to FASB SFAS No. 123,  Accounting for Stock-based  Compensation,  to
            provide alternative methods of transition for the change to the fair
            value method of accounting for  stock-based  employee  compensation.
            The  Company  has  not yet  chosen  the  method  of  transition.  In
            addition,  this Statement amends the disclosure requirements of SFAS
            No. 123 to require prominent  disclosures in both annual and interim
            financial  statements about the method of accounting for stock-based
            employee  compensation and the effect of the method used on reported
            results.

            The CICA has amended Handbook Section 3870, Stock-based Compensation
            and Other Stock-based  Payments,  to require entities to account for
            employee stock options using the fair value-based  method, for years
            beginning  on or after  January 1, 2004.  As such,  the Company will
            implement the revised standard effective July 1, 2004.

10.   FINANCIAL INSTRUMENTS:

      The  fair  values  of cash  and  cash  equivalents,  accounts  receivable,
      accounts payable and accrued liabilities approximate their carrying values
      because of the short-term nature of these instruments.

11.   SUBSEQUENT EVENTS:

      On September  30,  2004,  the  Corporation  completed a bought deal public
      offering of  6,601,588  units at a price of $3.15 per unit for total gross
      proceeds  of  $20,795,002  (net  $18,611,860).  Each unit  consists of one
      common share and one-half of one common share purchase warrant. Each whole
      purchase  warrant  entitles the holder  thereof to purchase one additional
      common share of YM BioSciences Inc. at a price of $3.75 at any time for up
      to 36 months following the closing.


                                       25
<PAGE>

YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)

Notes to Consolidated Financial Statements (continued)
(Amounts in Canadian dollars, unless otherwise noted)

Years ended June 30, 2004, 2003 and 2002

--------------------------------------------------------------------------------

11.   SUBSEQUENT EVENTS (CONTINUED):

      On September 28, 2004, the American Stock Exchange  approved the Company's
      listing  application.  On September 29, 2004,  the Company's  Registration
      Statement  on Form 20-F in  respect  of the  Company's  common  shares was
      declared effective by the Securities  Exchange  Commission.  On October 1,
      2004, the Company's common shares commenced  trading on the American Stock
      Exchange.

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