***September        28, 2005***

**YM        BIOSCIENCES INC.**

----

**AUDITORS'        REPORT TO THE SHAREHOLDERS**

----

**YM        BIOSCIENCES INC.**

----

|                                                                |   | **2005** |        | **2004**                                                     |   |
|---------------------------------------------------------------------|--------|----------|-------------|--------------------------------------------------------------|--------|
|                                                                |   |     |        | (Restated                    - note                    1(n)) |   |
|                                                                |   |     |        |                                                         |   |
| Assets                                                              |   |     |        |                                                         |   |
|                                                                |   |     |        |                                                         |   |
| Current                    assets:                                  |   |     |        |                                                         |   |
| Cash                    and cash equivalents                        |   | $        | 686,373     |                                                         | $      | 5,493,907 |   |
| Short-term                    deposits                              |   |     | 29,882,472  |                                                         |   | 14,893,951 |   |
| Marketable                    securities (note 3)                   |   |     | 4,834       |                                                         |   | 19,715 |   |
| Accounts                    receivable and prepaid expenses         |   |     | 1,751,373   |                                                         |   | 463,838 |   |
|                                                                |   |     | 32,325,052  |                                                         |   | 20,871,411 |   |
|                                                                |   |     |        |                                                         |   |   |   |
| Acquired                    technologies (note 5)                   |   |     | 5,648,141   |                                                         |   | - |   |
|                                                                |   |     |        |                                                         |   |   |   |
| Capital                    assets (note 4)                          |   |     | 226,698     |                                                         |   | 11,381 |   |
|                                                                |   |     |        |                                                         |   |   |   |
|                                                                |   | $        | 38,199,891  |                                                         | $      | 20,882,792 |   |
|                                                                |   |     |        |                                                         |   |   |   |
| Liabilities                    and Shareholders' Equity             |   |     |        |                                                         |   |   |   |
|                                                                |   |     |        |                                                         |   |   |   |
| Current                    liabilities:                             |   |     |        |                                                         |   |   |   |
| Accounts                    payable                                 |   | $        | 2,995,457   |                                                         | $      | 993,272 |   |
| Accrued                    liabilities                              |   |     | 830,158     |                                                         |   | 170,439 |   |
|                                                                |   |     | 3,825,615   |                                                         |   | 1,163,711 |   |
|                                                                |   |     |        |                                                         |   |   |   |
| Deferred                    revenue                                 |   |     | 534,157     |                                                         |   | - |   |
|                                                                |   |     |        |                                                         |   |   |   |
| Shareholders'                    equity:                            |   |     |        |                                                         |   |   |   |
| Share                    capital (note 7)                           |   |     | 87,487,802  |                                                         |   | 59,841,914 |   |
| Share                    purchase warrants (note 7)                 |   |     | 5,313,283   |                                                         |   | 3,627,239 |   |
| Contributed                    surplus (note 7)                     |   |     | 1,790,928   |                                                         |   | 569,195 |   |
| Deficit                    accumulated during the development stage |   |     | (60,751,894 | )                                                            |   | (44,319,267 | ) |
|                                                                |   |     | 33,840,119  |                                                         |   | 19,719,081 |   |
|                                                                |   |     |        |                                                         |   |   |   |
| Commitments                    (note 10)                            |   |     |        |                                                         |   |   |   |
|                                                                |   |     |        |                                                         |   |   |   |
|                                                                |   | $        | 38,199,891  |                                                         | $      | 20,882,792 |   |

----

----

----

**YM        BIOSCIENCES INC. **

----

|                                                                                                                                                                                                                                                                                                   |       |     | ** **  | ** **                                  | ** ** | ** **                                      | ** ** | **From**                                                                   |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|-------------|---------------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------------------|-------------|
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       | **inception                    on**                                        |        |
|                                                                                                                                                                                                                                                                                                   |       |     |        | **Years                    ended June 30,** |       |                                            |       | **August                      17, 1994****to June                    30,** | ** **  |
| ** **                                                                                                                                                                                                                                                                                             | ** ** | **2005** |        | **2004**                                    |       | **2003**                                        |       | **2005**                                                                   |        |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |  (Restated                    - note 1(n)) |       |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |
| Revenue                                                                                                                                                                                                                                                                                                |       | $        | 748,020     |                                        | $          | -                                               |       | $                                                                          | -           |   | $ | 748,020 |   |
| Interest                    income                                                                                                                                                                                                                                                                     |       |     | 703,873     |                                        |       | 347,187                                         |       |                                                                       | 273,232     |   |   | 3,492,291 |   |
|                                                                                                                                                                                                                                                                                                   |       |     | 1,451,893   |                                        |       | 347,187                                         |       |                                                                       | 273,232     |   |   | 4,240,311 |   |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Expenses:                                                                                                                                                                                                                                                                                              |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| General                    and administrative                                                                                                                                                                                                                                                          |       |     | 6,314,357   |                                        |       | 3,610,848                                       |       |                                                                       | 1,936,364   |   |   | 21,147,729 |   |
| Licensing                    and product development                                                                                                                                                                                                                                                   |       |     | 10,981,950  |                                        |       | 5,066,569                                       |       |                                                                       | 3,965,385   |   |   | 41,858,337 |   |
|                                                                                                                                                                                                                                                                                                   |       |     | 17,296,307  |                                        |       | 8,677,417                                       |       |                                                                       | 5,901,749   |   |   | 63,006,066 |   |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Loss                    before the undernoted                                                                                                                                                                                                                                                          |       |     | (15,844,414 | )                                           |       | (8,330,230                                      | )          |                                                                       | (5,628,517  | ) |   | (58,765,755 | ) |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Gain                    on sale of marketable securities                                                                                                                                                                                                                                               |       |     | -           |                                        |       | 638,332                                         |       |                                                                       | -           |   |   | 638,332 |   |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Unrealized                    loss on marketable securities                                                                                                                                                                                                                                            |       |     | (14,881     | )                                           |       | -                                               |       |                                                                       | (1,812,158  | ) |   | (1,827,038 | ) |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Loss                    before income taxes                                                                                                                                                                                                                                                            |       |     | (15,859,295 | )                                           |       | (7,691,898                                      | )          |                                                                       | (7,440,675  | ) |   | (59,954,461 | ) |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Income                    taxes                                                                                                                                                                                                                                                                        |       |     | -           |                                        |       | -                                               |       |                                                                       | -           |   |   | 7,300 |   |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Loss                    for the period                                                                                                                                                                                                                                                                 |       |     | (15,859,295 | )                                           |       | (7,691,898                                      | )          |                                                                       | (7,440,675  | ) |   | (59,961,761 | ) |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Deficit,                    beginning of period, as restated                                                                                                                                                                                                                                           |       |     | (44,319,267 | )                                           |       | (36,470,665                                     | )          |                                                                       | (28,969,893 | ) |   | - |   |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Cost                    of purchasing shares for cancellation in excess of book value                    (note                    7)                                                                                                                                                                   |       |     | (573,332    | )                                           |       | (156,704                                        | )          |                                                                       | (60,097     | ) |   | (790,133 | ) |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Deficit,                    end of period                                                                                                                                                                                                                                                              |       | $        | (60,751,894 | )                                           | $          | (44,319,267                                     | )          | $                                                                          | (36,470,665 | ) | $ | (60,751,894 | ) |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Basic                    and diluted loss per common share                                                                                                                                                                                                                                             |       | $        | (0.47       | )                                           | $          | (0.36                                           | )          | $                                                                          | (0.56       | ) |   |   |   |
|                                                                                                                                                                                                                                                                                                   |       |     |        |                                        |       |                                            |       |                                                                       |        |   |   |   |   |
| Weighted                    average number of common shares outstanding (excludes 2,777,778                    common                    shares held in escrow for contingent additional payment related                    to the                    acquisition of Delex Therapeutics Inc. (note 2)) |       |     | 34,046,450  |                                        |       | 21,353,479                                      |       |                                                                       | 13,218,177  |   |     |                   |   |

----

**YM        BIOSCIENCES INC. **

----

|                                                                                               |   |     |        |                                        |   |                                      |   | **From**                                                                   |       |
|----------------------------------------------------------------------------------------------------|--------|----------|-------------|---------------------------------------------|--------|-------------------------------------------|--------|----------------------------------------------------------------------------|------------|
|                                                                                               |   |     |        |                                        |   |                                      |   | **inception                    on**                                        |       |
|                                                                                               |   |     |        | **Years                    ended June 30,** |   |                                      |   | **August                      17, 1994****to                    June 30,** |       |
|                                                                                               |   | **2005** |        | **2004**                                    |   | **2003**                                  |   | **2005**                                                                   |       |
|                                                                                               |   |     |        |                                        |   | (Restated                    - note 1(n)) |   |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |
| Cash                    provided by (used in):                                                     |   |     |        |                                        |   |                                      |   |                                                                       |       |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |
| Operating                    activities:                                                           |   |     |        |                                        |   |                                      |   |                                                                       |       |
| Loss                    for the period                                                             |   | $        | (15,859,295 | )                                           | $      | (7,691,898                                | )      | $                                                                          | (7,440,675 | ) | $ | (59,961,761 | ) |
| Items                    not involving cash:                                                       |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Depreciation                    of capital assets                                                  |   |     | 11,717      |                                        |   | 14,910                                    |   |                                                                       | 59,640     |   |   | 270,664 |   |
| Amortization                    of acquired technologies                                           |   |     | 137,760     |                                        |   | -                                         |   |                                                                       | -          |   |   | 137,760 |   |
| Unrealized                    loss on marketable securities                                        |   |     | 14,881      |                                        |   | -                                         |   |                                                                       | 1,812,158  |   |   | 1,827,039 |   |
| Gain                    on sale of marketable securities                                           |   |     | -           |                                        |   | (638,332                                  | )      |                                                                       | -          |   |   | (638,332 | ) |
| Stock-based                    compensation                                                        |   |     | 1,278,955   |                                        |   | 500,375                                   |   |                                                                       | 68,820     |   |   | 1,848,150 |   |
| Non-cash                    issuance of warrants                                                   |   |     | 192,750     |                                        |   | -                                         |   |                                                                       | -          |   |   | 192,750 |   |
| Change                    in non-cash operating working capital:                                   |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Accounts                    receivable and prepaid expenses                                        |   |     | (367,916    | )                                           |   | (295,651                                  | )      |                                                                       | 21,927     |   |   | (831,754 | ) |
| Accounts                    payable and accrued liabilities and deferred revenue                   |   |     | 2,396,216   |                                        |   | 841,128                                   |   |                                                                       | (51,803    | ) |   | 3,559,927 |   |
|                                                                                               |   |     | (12,194,932 | )                                           |   | (7,269,468                                | )      |                                                                       | (5,529,933 | ) |   | (53,595,557 | ) |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Financing                    activities:                                                           |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Repayment                    of debentures (note 2)                                                |   |     | (1,469,425  | )                                           |   | -                                         |   |                                                                       | -          |   |   | (1,469,425 | ) |
| Issuance                    of common shares on exercise of options                                |   |     | 109,318     |                                        |   | 1,544,375                                 |   |                                                                       | -          |   |   | 1,653,693 |   |
| Issuance                    of common shares on exercise of warrants                               |   |     | 432,402     |                                        |   | 222,348                                   |   |                                                                       | -          |   |   | 654,750 |   |
| Redemption                    of preferred shares                                                  |   |     | -           |                                        |   | -                                         |   |                                                                       | (80,372    | ) |   | (2,630,372 | ) |
| Repurchase                    of common shares                                                     |   |     | (779,909    | )                                           |   | (230,379                                  | )      |                                                                       | (19,390    | ) |   | (1,029,679 | ) |
| Net                    proceeds from issuance of shares and special warrants                       |   |     | 18,884,120  |                                        |   | 17,047,001                                |   |                                                                       | -          |   |   | 80,654,111 |   |
|                                                                                               |   |     | 17,176,506  |                                        |   | 18,583,345                                |   |                                                                       | (99,762    | ) |   | 77,833,078 |   |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Investing                    activities:                                                           |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Short-term                    deposits, net                                                        |   |     | (14,988,521 | )                                           |   | (14,893,951                               | )      |                                                                       | -          |   |   | (29,882,472 | ) |
| Proceeds                    on sale of marketable securities                                       |   |     | -           |                                        |   | 1,402,239                                 |   |                                                                       | -          |   |   | 1,402,239 |   |
| Restricted                    cash                                                                 |   |     | -           |                                        |   | -                                         |   |                                                                       | 600,000    |   |   | - |   |
| Additions                    to capital assets                                                     |   |     | (27,034     | )                                           |   | (3,724                                    | )      |                                                                       | (2,361     | ) |   | (297,362 | ) |
|                                                                                               |   |     | (15,015,555 | )                                           |   | (13,495,436                               | )      |                                                                       | 597,639    |   |   | (28,777,595 | ) |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Decrease                    in cash and cash equivalents                                           |   |     | (10,033,981 | )                                           |   | (2,181,559                                | )      |                                                                       | (5,032,056 | ) |   | (4,540,074 | ) |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Cash                    assumed on acquisition of Delex                                            |   |     | 5,226,447   |                                        |   | -                                         |   |                                                                       | -          |   |   | 5,226,447 |   |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Cash                    and cash equivalents, beginning of period                                  |   |     | 5,493,907   |                                        |   | 7,675,466                                 |   |                                                                       | 12,707,522 |   |   | - |   |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Cash                    and cash equivalents, end of period                                        |   | $        | 686,373     |                                        | $      | 5,493,907                                 |   | $                                                                          | 7,675,466  |   | $ | 686,373 |   |
|                                                                                               |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Non-cash                    items:                                                                 |   |     |        |                                        |   |                                      |   |                                                                       |       |   |   |   |   |
| Issuance                      of 3,412,698 common shares                      on Delex acquisition |   | $        | 9,862,697   |                                        | $      | -                                         |   | $                                                                          | -          |   | $ | 9,862,697 |   |

----

**YM        BIOSCIENCES INC. **

----

|   |   |
|--------|--------|

| **1.** | **Significant                    accounting policies:** |
|--------|---------------------------------------------------------|

|  | (a) | Basis                  of presentation: |
|--|-----|-----------------------------------------|

|  | (b) | Revenue                  recognition: |
|--|-----|---------------------------------------|

----

**YM            BIOSCIENCES INC. **

----

| **1.** | **Significant                  accounting policies                  (continued):** |
|--------|------------------------------------------------------------------------------------|

|  | (c) | Cash                    and cash equivalents: |
|--|-----|-----------------------------------------------|

|  | (d) | Short-term                  deposits: |
|--|-----|---------------------------------------|

|  | (e) | Marketable                      securities: |
|--|-----|---------------------------------------------|

|  | (f) | Capital                  assets: |
|--|-----|----------------------------------|

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

----

**YM            BIOSCIENCES INC. **

----

| **1.** | **Significant                  accounting policies                  (continued):** |
|--------|------------------------------------------------------------------------------------|

|  | (g) | Intangible                    assets: |
|--|-----|---------------------------------------|

|  | (h) | Impairment                  of long-lived assets: |
|--|-----|---------------------------------------------------|

|  | (i) | Development                  costs: |
|--|-----|-------------------------------------|

|  | (j) | Government                  assistance: |
|--|-----|-----------------------------------------|

----

**YM            BIOSCIENCES INC. **

----

| **1.** | **Significant                accounting policies                (continued):** |
|--------|--------------------------------------------------------------------------------|

|  | (k) | Income                taxes: |
|--|-----|------------------------------|

|  | (l) | Stock-based                compensation: |
|--|-----|------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **1.** | **Significant                accounting policies                (continued):** |
|--------|--------------------------------------------------------------------------------|

|  | (m) | Use                of estimates: |
|--|-----|----------------------------------|

|  | (n) | Changes                in accounting policies: |
|--|-----|------------------------------------------------|

|  | (i) | Stock-based                compensation: |
|--|-----|------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **1.** | **Significant                accounting policies                (continued):** |
|--------|--------------------------------------------------------------------------------|

|  | (ii) | Consolidation                of variable interest entities: |
|--|------|-------------------------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **1.** | **Significant                accounting policies                (continued):** |
|--------|--------------------------------------------------------------------------------|

|  | (o) | New                accounting pronouncements: |
|--|-----|-----------------------------------------------|

|  | (i) | Share-based                compensation: |
|--|-----|------------------------------------------|

|  | (ii) | Financial                instruments: |
|--|------|---------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **1.** | **Significant                accounting policies                (continued):** |
|--------|--------------------------------------------------------------------------------|

|  | (iii) | Non-monetary                transactions: |
|--|-------|-------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **2.** | **Acquisition:** |
|--------|------------------|

| Assets                  acquired:                                             |   |   |             |
|-------------------------------------------------------------------------------|--------|--------|------------------|
| Cash                                                                          |   | $      | 5,226,447        |   |
| Accounts                  receivable and prepaid expenses                     |   |   | 79,789           |   |
| Investment                  tax credits recoverable                           |   |   | 839,830          |   |
| Capital                  assets                                               |   |   | 200,000          |   |
| Acquired                  technologies                                        |   |   | 5,785,901        |   |
| Future                  tax assets (net of valuation allowance of $2,201,417) |   |   | 2,025,065        |   |
|                                                                          |   |   | 14,157,032  |   |
|                                                                          |   |   |             |   |
| Liabilities                  assumed:                                         |   |   |             |   |
| Debentures                                                                    |   |   | (1,469,425       | ) |
| Accounts                  payable and accrued liabilities                     |   |   | (356,554         | ) |
| Future                  tax liabilities                                       |   |   | (2,025,065       | ) |
|                                                                          |   |   | (3,851,044       | ) |
|                                                                          |   |   |             |   |
| Net                  assets acquired                                     |   | $      | 10,305,988       |   |
|                                                                          |   |   |             |   |
| Consideration                  given:                                         |   |   |             |   |
| 3,412,698                  common shares of YM                           |   | $      | 9,862,697        |   |
| Acquisition                  costs                                            |   |   | 443,291          |   |
|                                                                          |   |   |             |   |
|                                                                          |   | $      | 10,305,988       |   |

----

**YM          BIOSCIENCES INC. **

----

| **2.** | **Acquisition                (continued):** |
|--------|---------------------------------------------|

----

**YM            BIOSCIENCES INC. **

----

| **3.** | **Marketable                securities:** |
|--------|-------------------------------------------|

| **4.** | **Capital                assets:** |
|--------|------------------------------------|

|                                     |   |     |     | **Accumulated**  |   | **Net                  Book** |   |
|------------------------------------------|--------|----------|----------|------------------|--------|-------------------------------|--------|
| **June                  30, 2005**       |   | **Cost** |     | **Depreciation** |   | **Value**                     |   |
|                                     |   |     |     |             |   |                          |   |
| Computer                  equipment      |   | $        | 149,649  |             | $      | 127,737                       |   | $ | 21,912 |   |
| Furniture                  and equipment |   |     | 284,449  |             |   | 79,663                        |   |   | 204,786 |   |
| Leasehold                  improvements  |   |     | 45,250   |             |   | 45,250                        |   |   | - |   |
|                                     |   |     |     |             |   |                          |   |   |   |   |
|                                     |   | $        | 479,348  |             | $      | 252,650                       |   | $ | 226,698 |   |
|                                     |   |     |     |             |   |                          |   |   |   |   |
|                                     |   |     |     |             |   |                          |   |   |   |   |
|                                     |   |     |     |             |   | **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  |   |     | 45,250   |             |   | 45,250                        |   |   | - |   |
|                                     |   |     |     |             |   |                          |   |   |   |   |
|                                     |   | $        | 252,314  |             | $      | 240,933                       |   | $ | 11,381 |   |

----

**YM          BIOSCIENCES INC. **

----

| **5.** | **Acquired                technologies:** |
|--------|-------------------------------------------|

|                                   | ** ** |     |      | **Accumulated**  |   | **Net                  Book** |   |
|----------------------------------------|------------|----------|-----------|------------------|--------|-------------------------------|--------|
| **June                  30, 2005**     |       | **Cost** |      | **Amortization** |   | **Value**                     |   |
|                                   |       |     |      |             |   |                          |   |
| Acquired                  technologies |       | $        | 5,785,901 |             | $      | 137,760                       |   | $ | 5,648,141 |   |

| **6.** | **Consolidation                of variable interest                entities:** |
|--------|--------------------------------------------------------------------------------|

|                                                     |   |     |      |                                      |   |      |   | **From**                               |      |
|----------------------------------------------------------|--------|----------|-----------|-------------------------------------------|--------|-----------|--------|----------------------------------------|-----------|
|                                                     |   |     |      |                                      |   |      |   | **inception                  on**      |      |
|                                                     |   |     |      |                                      |   |      |   | **August                  17,**        |      |
|                                                     |   |     |      | **Years                  ended June 30,** |   |      |   | **1994                    to**June 30, |      |
|                                                     |   | **2005** |      | **2004**                                  |   | **2003**  |   | **2005**                               |      |
|                                                     |   |     |      |                                      |   |      |   |                                   |      |
| General                  and administrative expenses     |   | $        | 2,188,580 |                                      | $      | 2,413,500 |   | $                                      | 1,857,887 |   | $ | 13,002,394 |   |
|                                                     |   |     |      |                                      |   |      |   |                                   |      |   |   |   |   |
| Licensing                  and product development costs |   |     | 706,344   |                                      |   | 946,453   |   |                                   | 1,774,823 |   |   | 19,462,781 |   |
|                                                     |   |     |      |                                      |   |      |   |                                   |      |   |   |   |   |
| Loss                  for the period                     |   | $        | 2,894,924 |                                      | $      | 3,359,953 |   | $                                      | 3,632,710 |   | $ | 32,465,175 |   |

----

**YM          BIOSCIENCES INC. **

----

| **7.** | **Share                capital, warrants and contributed                surplus:** |
|--------|------------------------------------------------------------------------------------|

|  | (a) | 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                  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, June 12, 2003     |   |                                           | (4,462,800 | )          |   | (14,080,858 | ) |
|                                                            |   |                                           |       |       |   |   |   |
| Balance,                  June 30, 2005 and 2004                |   |                                           | -          |       | $      | - |   |

----

**YM          BIOSCIENCES INC. **

----

| **7.** | **Share                capital, warrants and contributed surplus                (continued):** |
|--------|------------------------------------------------------------------------------------------------|

|                                                                                             |   | **Number                  of** |       |       |   |
|--------------------------------------------------------------------------------------------------|--------|--------------------------------|------------|------------|--------|
|                                                                                             |   | **shares**                     |       | **Amount** |   |
|                                                                                             |   |                           |       |       |   |
| Common                  shares:                                                                  |   |                           |       |       |   |
| Issued                  on incorporation, August 17, 1994                                        |   |                           | 7          |       | $      | 1 |   |
| Issued                  to founding shareholders during fiscal 1996                              |   |                           | 4,204,250  |       |   | 224,457 |   |
| Issued                  on private placement, August 1996                                        |   |                           | 125,009    |       |   | 10,000 |   |
| Issued                  on exercise of special warrants, June 1997                               |   |                           | 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 |   |
| Issued                  pursuant to a licensing agreement, October 2001                          |   |                           | 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 |   |
| Shares                  repurchased for cancellation                                             |   |                           | (300,500   | )          |   | (206,577 | ) |
| Issued                    on exercise of special warrants, September                    30, 2004 |   |                           | 6,601,588  |       |   | 17,390,826 |   |
| Issued                  on exercise of options                                                   |   |                           | 61,110     |       |   | 166,540 |   |
| Issued                  on exercise of warrants                                                  |   |                           | 124,801    |       |   | 432,402 |   |
| Issued                  on acquisition of Delex, May 2, 2005                                     |   |                           | 3,412,698  |       |   | 9,862,697 |   |
|                                                                                             |   |                           |       |       |   |   |   |
| Balance,                  June 30, 2005                                                          |   |                           | 38,584,288 |       | $      | 87,487,802 |   |

----

**YM          BIOSCIENCES INC. **

----

| **7.** | **Share                capital, warrants and contributed surplus                (continued):** |
|--------|------------------------------------------------------------------------------------------------|

|  | (b) | Special                warrants: |
|--|-----|----------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **7.** | **Share                capital, warrants and contributed surplus                (continued):** |
|--------|------------------------------------------------------------------------------------------------|

|  | (c) | Share                purchase warrants: |
|--|-----|-----------------------------------------|

|                                                                                                          |   |                           |       | **Weighted** |   |       |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------------------------------|------------|--------------|--------|------------|--------|
|                                                                                                          |   |                           |       | **average**  |   |       |   |
|                                                                                                          |   | **Number                  of** |       | **exercise** |   |       |   |
|                                                                                                          |   | **shares**                     |       | **price**    |   | **Amount** |   |
|                                                                                                          |   |                           |       |         |   |       |   |
| Outstanding,                  June 30, 2002 and 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 |   |
| Expired/adjusted                                                                                              |   |                           | (49,553    | )            |   | 9.00       |   |   | - |   |
| Exercised                                                                                                     |   |                           | (124,801   | )            |   | 1.82       |   |   | (88,187 | ) |
| Issued                  pursuant to financing                                                                 |   |                           | 3,993,961  |         |   | 2.37       |   |   | 1,581,481 |   |
| Issued                  in exchange for services                                                              |   |                           | 100,000    |         |   | 3.15       |   |   | 192,750 |   |
|                                                                                                          |   |                           |       |         |   |       |   |   |   |   |
| Outstanding,                  June 30, 2005                                                                   |   |                           | 10,745,007 |         |   | 2.93       |   | $ | 5,313,283 |   |

----

**YM          BIOSCIENCES INC. **

----

| **7.** | **Share                capital, warrants and contributed surplus                (continued):** |
|--------|------------------------------------------------------------------------------------------------|

| As                  at June 30, 2005: |   |            |      |                              |   |
|---------------------------------------|--------|-----------------|-----------|-----------------------------------|--------|
|                                  |   |            |      |                              |   |
|                                  |   |            |      | **Weighted**                      |   |
|                                  |   |            |      | **average**                       |   |
|                                  |   |            |      | **remaining**                     |   |
| **Range                  of**         |   | **Number**      |      | **contractual**                   |   |
| **exercise                  prices**  |   | **outstanding** |      | **life                  (years)** |   |
|                                  |   |            |      |                              |   |
| $1.75                                 |   |            | 964,566   |                              |   | 3.46 |   |
| $2.50                                 |   |            | 5,416,390 |                              |   | 3.46 |   |
| $3.15                                 |   |            | 100,000   |                              |   | 2.50 |   |
| $3.35                                 |   |            | 544,137   |                              |   | 2.25 |   |
| $3.75                                 |   |            | 3,350,470 |                              |   | 2.25 |   |
| $4.00                                 |   |            | 125,000   |                              |   | 1.00 |   |
| $4.50                                 |   |            | 244,444   |                              |   | 0.25 |   |

|  | (d) | Contributed                surplus: |
|--|-----|-------------------------------------|

| Balance,                  June 30, 2002   |   | $      | -         |   |
|-------------------------------------------|--------|--------|-----------|--------|
| Stock-based                  compensation |   |   | 68,820    |   |
|                                      |   |   |      |   |
| Balance,                  June 30, 2003   |   |   | 68,820    |   |
| Stock-based                  compensation |   |   | 500,375   |   |
|                                      |   |   |      |   |
| Balance,                  June 30, 2004   |   |   | 569,195   |   |
| Stock-based                  compensation |   |   | 1,278,955 |   |
| Exercise                  of options      |   |   | (57,222   | )      |
|                                      |   |   |      |   |
| Balance,                  June 30, 2005   |   | $      | 1,790,928 |   |

| **8.** | **Stock-based                compensation:** |
|--------|----------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **8.** | **Stock-based                compensation (continued):** |
|--------|----------------------------------------------------------|

| **Issue                  date**                                 | ** ** | **2005** |                               | **2004** |   |
|-----------------------------------------------------------------|------------|----------|------------------------------------|----------|--------|
|                                                            |       |     |                               |     |   |
| Number                  of options issued                       |       |     | 860,487                            |     |   | 825,620 |   |
| Risk-free                  interest rate                        |       |     | 3.0%                  - 4.3        | %        |   | 3.2%                  - 4.43 | % |
| Volatility                  factor                              |       |     | 120                                | %        |   | 86%                  - 120 | % |
| Contractual                  life of options                    |       |     | 1/8                  - 10 years    |     |   | 5                  -                  10 years |   |
| Vesting                  period (months)                        |       |     | immediately                  to 24 |     |   | 12                  - 40 |   |
| Weighted                  average fair value of options granted |       | $        | 1.96                               |     | $      | 1.17 |   |
| Fair                  value of options                          |       | $        | 1,685,240                          |     | $      | 510,375 |   |

|                                            |   | **2005**   |      | **2004**     |   |
|-------------------------------------------------|--------|------------|-----------|--------------|--------|
|                                            |   |       |      | **Weighted** |   |   |   | **Weighted** |   |
|                                            |   |       |      | **average**  |   |   |   | **average** |   |
|                                            |   |       |      | **exercise** |   |   |   | **exercise** |   |
|                                            |   | **Number** |      | **price**    |   | **Number** |   | **price** |   |
|                                            |   |       |      |         |   |   |   |   |   |
| Outstanding,                  beginning of year |   |       | 2,523,252 |         | $      | 2.80 |   |   | 1,727,132 |   | $ | 3.34 |   |
| Granted                                         |   |       | 860,487   |         |   | 3.11 |   |   | 825,620 |   |   | 1.64 |   |
| Cancelled/forfeited                             |   |       | (153,299  | )            |   | 3.05 |   |   | (6,500 | ) |   | 2.94 |   |
| Exercised                                       |   |       | (61,110   | )            |   | 1.79 |   |   | (23,000 | ) |   | 1.93 |   |
|                                            |   |       |      |         |   |   |   |   |   |   |   |   |   |
| Outstanding,                  end of year       |   |       | 3,169,330 |         |   | 2.92 |   |   | 2,523,252 |   |   | 2.80 |   |
|                                            |   |       |      |         |   |   |   |   |   |   |   |   |   |
| Exercisable,                  end of year       |   |       | 2,165,673 |         | $      | 3.09 |   |   | 1,604,151 |   | $ | 3.40 |   |

----

**YM          BIOSCIENCES INC. **

----

| **8.** | **Stock-based                compensation (continued):** |
|--------|----------------------------------------------------------|

|                                  |   | **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** |   |
|                                  |   |                                     |                                           |                                     |   |   |   |   |   |   |   |
| $1.75                                 |   |                                     | 1,032,810                                      |                                     |   | 8.0 |   | $ | 1.75 |   |   | 668,662 |   | $ | 1.75 |   |
| $2.00                                 |   |                                     | 60,000                                         |                                     |   | 7.8 |   |   | 2.00 |   |   | 39,000 |   |   | 2.00 |   |
| $2.10                                 |   |                                     | 50,000                                         |                                     |   | 8.8 |   |   | 2.10 |   |   | 33,333 |   |   | 2.10 |   |
| $2.50                                 |   |                                     | 136,000                                        |                                     |   | 6.5 |   |   | 2.50 |   |   | 95,450 |   |   | 2.50 |   |
| $2.75                                 |   |                                     | 35,000                                         |                                     |   | 9.4 |   |   | 2.75 |   |   | 11,667 |   |   | 2.75 |   |
| $3.15                                 |   |                                     | 806,938                                        |                                     |   | 9.8 |   |   | 3.15 |   |   | 268,979 |   |   | 3.15 |   |
| $3.25                                 |   |                                     | 366,250                                        |                                     |   | 2.2 |   |   | 3.25 |   |   | 366,250 |   |   | 3.25 |   |
| $4.00                                 |   |                                     | 12,500                                         |                                     |   | 2.4 |   |   | 4.00 |   |   | 12,500 |   |   | 4.00 |   |
| $4.50                                 |   |                                     | 669,832                                        |                                     |   | 2.5 |   |   | 4.50 |   |   | 669,832 |   |   | 4.50 |   |
|                                  |   |                                     |                                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| $1.75                  - $4.50        |   |                                     | 3,169,330                                      |                                     |   | 7.0 |   |   | 2.92 |   |   | 2,165,673 |   |   | 3.09 |   |
|                                  |   |                                     |                                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| As                  at June 30, 2004: |   |                                     |                                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                                     |                                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                                     | **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** |   |
|                                  |   |                                     |                                           |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| $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 |   |

----

**YM          BIOSCIENCES INC. **

----

| **9.** | **Out-licensing                agreements:** |
|--------|----------------------------------------------|

|  | (a) | On                July 13, 2004, the Company entered into a License, Development,                Manufacturing and Supply Agreement concerning two of its products.                Under                the terms of this agreement, the existing license agreement is suspended                and in consideration for the suspension of the existing license,                the                Company is entitled, subject to several terms and conditions, to                receive                four payments of U.S. $250,000 over the period ending December 31,                2005.                The Company has no continuing involvement in the research and development                of these products and has no obligations under the development plan                established by the out-licensing agreement. The agreement also entitles                the Company to receive milestone payments on the occurrence of further                development activities and regulatory approval. The Company retains                an                interest in revenue from the manufacture and marketing of the products                or                from their sub-licensing. During the period ended June 30, 2005,                two of                the four payments were received, the specific terms and conditions                were                satisfied and, accordingly, the amount was reflected in                revenue. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (b) | On                January 26, 2005, the Company entered into a License, Development,                Manufacturing and Supply Agreement concerning one of its products.                The                Company continues to be involved in the development of this product                and is                required to supply the units of licensed product required for the                development program. Under the terms of the agreement, the Company                received a license fee of U.S. $500,000, which is being deferred                and                amortized to income over a 36-month period, the expected term of                the                Company's obligations under the agreement. The agreement also entitles                the                Company to receive milestone payments on the occurrence of regulatory                approval and royalties on the commercial sale of the developed                product. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (c) | On                June 13, 2005, the Company entered into a License, Development,                Manufacturing and Supply Agreement concerning one of its products.                The                Company continues to be involved in the development of this product                and is                not required to fund any development in the licensed territory. Under                the                terms of the agreement, the Company is entitled to receive a license                fee                of €300,000. The agreement also entitles the Company to receive milestone                payments on the occurrence of regulatory approval and royalties on                the                commercialized sale of the developed                product. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **10.** | **Commitments:** |
|---------|------------------|

| 2006   |   | $      | 101,700 |   |
|--------|--------|--------|---------|--------|
| 2007   |   |   | 58,636  |   |
| 2008   |   |   | 35,560  |   |
|   |   |   |    |   |
|   |   | $      | 195,896 |   |

----

**YM          BIOSCIENCES INC. **

----

| **11.** | **Income                taxes:** |
|---------|----------------------------------|

|  | (a) | The                tax effect of temporary differences that give rise to significant                portions                of future tax assets and future tax liabilities as at June 30 are                as                follows: |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                  |   | **2005** |       | **2004** |   |
|-------------------------------------------------------|--------|----------|------------|----------|--------|
|                                                  |   |     |       |     |   |
| Future                  tax assets:                   |   |     |       |     |   |
| Capital                  assets                       |   | $        | 50,000     |     | $      | 38,000 |   |
| Capital                  loss carryforward            |   |     | 148,000    |     |   | 152,000 |   |
| Eligible                  capital expenditures        |   |     | 46,000     |     |   | 30,000 |   |
| Marketable                  securities                |   |     | 60,000     |     |   | 60,000 |   |
| Non-capital                  losses - Barbados        |   |     | 468,000    |     |   | 547,000 |   |
| Non-capital                  losses - Canada          |   |     | 12,182,000 |     |   | 4,117,000 |   |
| Scientific                  research and experimental |   |     |       |     |   |   |   |
| development                  expenses and credits     |   |     | 3,984,000  |     |   | 767,000 |   |
|                                                  |   |     | 16,938,000 |     |   | 5,711,000 |   |
|                                                  |   |     |       |     |   |   |   |
| Future                  tax liabilities:              |   |     |       |     |   |   |   |
| Acquired                  technologies                |   |     | (1,977,000 | )        |   | - |   |
|                                                  |   |     | 14,961,000 |     |   | 5,711,000 |   |
|                                                  |   |     |       |     |   |   |   |
| Less                  valuation allowance             |   |     | 14,961,000 |     |   | 5,711,000 |   |
|                                                  |   |     |       |     |   |   |   |
| Net                  future tax asset                 |   | $        | -          |     | $      | - |   |

|  | (b) | The                Company has available Canadian and Barbadian non-capital loss                carryforwards totalling approximately $34,392,000 and $18,727,000,                respectively. These losses expire as                follows: |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | **Canada** |       | **Barbados** |   |
|--------|--------|------------|------------|--------------|--------|
|   |   |       |       |         |   |
| 2006   |   | $          | 660,000    |         | $      | 386,000 |   |
| 2007   |   |       | 1,314,000  |         |   | 1,379,000 |   |
| 2008   |   |       | 4,079,000  |         |   | 1,245,000 |   |
| 2009   |   |       | 3,787,000  |         |   | 2,931,000 |   |
| 2010   |   |       | 2,115,000  |         |   | 4,323,000 |   |
| 2011   |   |       | -          |         |   | 3,048,000 |   |
| 2012   |   |       | -          |         |   | 2,170,000 |   |
| 2013   |   |       | 1,166,000  |         |   | 1,182,000 |   |
| 2014   |   |       | 7,125,000  |         |   | 2,063,000 |   |
| 2015   |   |       | 14,146,000 |         |   | - |   |
|   |   |       |       |         |   |   |   |
|   |   | $          | 34,392,000 |         | $      | 18,727,000 |   |

----

**YM          BIOSCIENCES INC. **

----

| **11.** | **Income                taxes (continued):** |
|---------|----------------------------------------------|

|  | (c) | The                Company has approximately $6,586,000 (2004 - $2,113,000) of unclaimed                development costs that may be claimed against future taxable                income. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (d) | The                Company has accumulated net capital losses for tax purposes of                approximately $843,000 which may be carried forward and used to reduce                taxable capital gains in future                years. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (e) | The                Company performs certain activities that result in investment tax                credits                ("ITC") that can be used to offset future Canadian federal taxes                payable                and Ontario innovation tax credits ("OITC") that are payable in cash                from                the Province of Ontario. The Company does not accrue the federal                ITC as it                can only be used to offset future taxes payable and the Company has                not                recorded any tax assets to date. The ITCs expire as                follows: |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2010   |   | $      | 25,000    |   |
|--------|--------|--------|-----------|--------|
| 2011   |   |   | 261,000   |   |
| 2012   |   |   | 370,000   |   |
| 2013   |   |   | 328,000   |   |
| 2014   |   |   | 282,000   |   |
| 2015   |   |   | 245,000   |   |
|   |   |   |      |   |
|   |   | $      | 1,511,000 |   |

----

**YM          BIOSCIENCES INC. **

----

| **11.** | **Income                taxes (continued):** |
|---------|----------------------------------------------|

|                                                          |   | **2005** |       | **2004** |   | **2003**  |   |
|---------------------------------------------------------------|--------|----------|------------|----------|--------|-----------|--------|
|                                                          |   |     |       |     |   |      |   |
| Gross                  development expenses                   |   | $        | 11,567,191 |     | $      | 5,495,898 |   | $ | 4,075,948 |   |
| OITC                  refunds                                 |   |     | (585,241   | )        |   | (429,329  | )      |   | (110,563 | ) |
|                                                          |   |     |       |     |   |      |   |   |   |   |
| Licensing                    and product development expenses |   | $        | 10,981,950 |     | $      | 5,066,569 |   | $ | 3,965,385 |   |

| **12.** | **Canadian                and United States accounting policy                differences:** |
|---------|---------------------------------------------------------------------------------------------|

|  | (a) | Development                stage enterprise: |
|--|-----|----------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **12.** | **Canadian                and United States accounting policy differences                (continued):** |
|---------|---------------------------------------------------------------------------------------------------------|

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

|                                                                                                                                                                                                                                                                       |   | **2005** |        | **2004** |   | **2003**   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------|--------|------------|--------|
|                                                                                                                                                                                                                                                                       |   |     |        |     |   |       |   |
| Loss                  for the period based on Canadian GAAP                                                                                                                                                                                                                |   | $        | (15,859,295 | )        | $      | (7,691,898 | )      | $ | (7,440,675 | ) |
| Unrealized                  gain (loss) on marketable securities (i)                                                                                                                                                                                                       |   |     | (49,776     | )        |   | 49,776     |   |   | - |   |
| Reversal                  of stock-based compensation expense for                                                                                                                                                                                                          |   |     |        |     |   |       |   |   |   |   |
| employee                  awards (ii)                                                                                                                                                                                                                                      |   |     | 1,278,955   |     |   | 480,524    |   |   | 58,855 |   |
| Reversal                  of capitalization of acquired technologies (iii)                                                                                                                                                                                                 |   |     | (5,785,901  | )        |   | -          |   |   | - |   |
| Amortization                  of acquired technologies (iii)                                                                                                                                                                                                               |   |     | 137,760     |     |   | -          |   |   | - |   |
|                                                                                                                                                                                                                                                                       |   |     |        |     |   |       |   |   |   |   |
|                                                                                                                                                                                                                                                                       |   |     |        |     |   |       |   |   |   |   |
|                                                                                                                                                                                                                                                                       |   |     |        |     |   |       |   |   |   |   |
| Loss                  for the period and comprehensive loss based on United States                  GAAP                                                                                                                                                                   |   | $        | (20,278,257 | )        | $      | (7,161,598 | )      | $ | (7,381,820 | ) |
|                                                                                                                                                                                                                                                                       |   |     |        |     |   |       |   |   |   |   |
| Basic                  and diluted loss per share (iv)                                                                                                                                                                                                                     |   | $        | (0.60       | )        | $      | (0.34      | )      | $ | (0.56 | ) |
|                                                                                                                                                                                                                                                                       |   |     |        |     |   |       |   |   |   |   |
| Weighted                  average number of common shares outstanding (excludes 2,777,778                  common                  shares held in escrow for contingent additional payment related                  to the                  acquisition of Delex (note 2)) |   |     | 34,046,450  |     |   | 21,353,479 |   |   | 13,218,177 |   |

----

**YM          BIOSCIENCES INC. **

----

| **12.** | **Canadian                and United States accounting policy differences                (continued):** |
|---------|---------------------------------------------------------------------------------------------------------|

|  | (i) | 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 June 30, 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 years ended June 30, 2005 and 2004, the unrealized (decrease)                increase in market value of securities held was $(49,776) and $49,776,                respectively. 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. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (ii) | As                set out in note 1(n), 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 retroactively,                and                has restated amounts previously reported. Under United States GAAP,                the                Company continues to apply the intrinsic value method in accordance                with                APB Opinion No. 25 and, accordingly, stock compensation expense for                employee awards recorded for Canadian GAAP purposes of $1,278,955,                $480,524 and $58,885 for the years ended June 30, 2005, 2004                and                2003, respectively, has been reversed for United States GAAP                purposes. |
|--|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **12.** | **Canadian                and United States accounting policy differences                (continued):** |
|---------|---------------------------------------------------------------------------------------------------------|

|  | (iii) | Under                United States GAAP, the Company's acquired technologies, which are                primarily comprised of patents and technologies which require regulatory                approval to be commercialized and which have no proven alternative                future                uses, are considered in-process research and development and are                immediately expensed upon acquisition in accordance with FASB Statement                No. 2, Accounting for Research and Development Costs. The Company's                acquired technologies do not have an alternative future use given                their                specialized nature and limited alternative use. Under Canadian GAAP,                the                acquired technologies are considered to be development assets which                are                capitalized and amortized over their expected useful lives. |
|--|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (iv) | 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. |
|--|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **12.** | **Canadian                and United States accounting policy differences                (continued):** |
|---------|---------------------------------------------------------------------------------------------------------|

|  | (c) | Consolidated                statement of changes in shareholders'                equity: |
|--|-----|------------------------------------------------------------------------------------------|

|                                                                          |   | **Warrants                  and share capital** |       | **Deficit                  accumulated during the development stage** |   | **Additional                  paid in capital** |   | **Accumulated                  other comprehensive income** |      | **Total** |   |
|-------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|-----------------------------------------------------------------------|--------|-------------------------------------------------|--------|-------------------------------------------------------------|-----------|-----------|--------|
|                                                                          |   |                                            |       |                                                                  |   |                                            |   |                                                        |      |      |   |
| 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 |   |
| Special                  warrants issue                                       |   |                                            | 18,972,307 |                                                                  |   | -                                               |   |                                                        | -         |      |   | - |   |   | 18,972,307 |   |
| Issued                  on options                                            |   |                                            | 166,540    |                                                                  |   | -                                               |   |                                                        | -         |      |   | - |   |   | 166,540 |   |
| Issued                  on warrants                                           |   |                                            | 536,965    |                                                                  |   | -                                               |   |                                                        | -         |      |   | - |   |   | 536,965 |   |
| Shares                  purchased for cancellation                            |   |                                            | (206,577   | )                                                                     |   | (573,332                                        | )      |                                                        | -         |      |   | - |   |   | (779,909 | ) |
| Issued                  on acquisition of Delex                               |   |                                            | 9,862,697  |                                                                  |   | -                                               |   |                                                        | -         |      |   | - |   |   | 9,862,697 |   |
| Loss                  for the year                                            |   |                                            | -          |                                                                  |   | (20,278,257                                     | )      |                                                        | -         |      |   | - |   |   | (20,278,257 | ) |
|                                                                          |   |                                            |       |                                                                  |   |                                            |   |                                                        |      |      |   |   |   |   |   |   |
| Total                  shareholders' equity under U.S. GAAP, June 30, 2005    |   |                                            | 92,801,085 |                                                                  |   | (64,581,701                                     | )      |                                                        | 29,816    |      |   | - |   |   | 28,249,200 |   |
| Stock                  compensation expense                                   |   |                                            | -          |                                                                  |   | (1,818,334                                      | )      |                                                        | 1,761,112 |      |   | - |   |   | (57,222 | ) |
| In                  process research and development acquired                 |   |                                            | -          |                                                                  |   | 5,785,901                                       |   |                                                        | -         |      |   | - |   |   | 5,785,901 |   |
| Amortization                  of in process research and development acquired |   |                                            | -          |                                                                  |   | (137,760                                        | )      |                                                        | -         |      |   | - |   |   | (137,760 | ) |
|                                                                          |   |                                            |       |                                                                  |   |                                            |   |                                                        |      |      |   |   |   |   |   |   |
| Total                  shareholders' equity under Cdn. GAAP, June 30, 2005    |   | $                                               | 92,801,085 |                                                                  | $      | (60,751,894                                     | )      | $                                                           | 1,790,928 |      | $      | - |   | $ | 33,840,119 |   |

----

**YM          BIOSCIENCES INC. **

----

| **12.** | **Canadian                and United States accounting policy differences                (continued):** |
|---------|---------------------------------------------------------------------------------------------------------|

|  | (d) | Pro                  forma stock option                  disclosure: |
|--|-----|----------------------------------------------------------------------|

|                                                        |   | **2005** |        | **2004** |   | **2003**   |   |
|-------------------------------------------------------------|--------|----------|-------------|----------|--------|------------|--------|
|                                                        |   |     |        |     |   |       |   |
| Options                  granted                            |   |     | 852,987     |     |   | 798,120    |   |   | 587,500 |   |
|                                                        |   |     |        |     |   |       |   |   |   |   |
| Weighted                  average fair value of             |   |     |        |     |   |       |   |   |   |   |
| options                  granted                            |   | $        | 1.96        |     | $      | 1.17       |   | $ | 1.28 |   |
|                                                        |   |     |        |     |   |       |   |   |   |   |
| Loss                  for the period, as reported           |   | $        | (20,278,257 | )        | $      | (7,161,598 | )      | $ | (7,381,820 | ) |
|                                                        |   |     |        |     |   |       |   |   |   |   |
| Pro                  forma loss for the period              |   | $        | (21,566,804 | )        | $      | (7,774,072 | )      | $ | (7,688,189 | ) |
|                                                        |   |     |        |     |   |       |   |   |   |   |
| Pro                  forma basic and diluted loss per share |   | $        | (0.63       | )        | $      | (0.36      | )      | $ | (0.58 | ) |

----

**YM          BIOSCIENCES INC. **

----

| **12.** | **Canadian                and United States accounting policy differences                (continued):** |
|---------|---------------------------------------------------------------------------------------------------------|

| Risk-free                  interest rate  | 4.11%                  - 5.66%                 |
|-------------------------------------------|------------------------------------------------|
| Dividend                  yield           | -                                              |
| Volatility                  factor        | 50%                  - 120%                    |
| Expected                  life of options | 5                  -                  10 years |
| Vesting                  period (months)  | Immediately                  to 40 months      |

|  | (e) | Investment                tax credits: |
|--|-----|----------------------------------------|

|   |           |    |     |                                      |     |   |     | **From                    inception                    on** |   |
|--------|----------------|---------|----------|-------------------------------------------|----------|--------|----------|-------------------------------------------------------------|--------|
|   |           |    |     |                                      |     |   |     | **August                    17, 1994 to**                   |   |
|   |           |    |     | **Years                  ended June 30,** |     |   |     | **June                  30,**                               |   |
|   | ** 2005** |    | **2004** |                                      | **2003** |   | **2005** |                                                        |
|   |           |    |     |                                      |     |   |     |                                                        |
|   | $         | 585,241 |     | $                                         | 429,329  |   | $        | 110,563                                                     |   | $ | 2,378,914 |   |

|  | (f) | Income                taxes: |
|--|-----|------------------------------|

----

**YM          BIOSCIENCES INC. **

----

| **12.** | **Canadian                and United States accounting policy differences                (continued):** |
|---------|---------------------------------------------------------------------------------------------------------|

|  | (g) | Acquisition                of Delex: |
|--|-----|--------------------------------------|

|                                                        |   | **2005** |        | **2004** |   | **2003**    |   |
|-------------------------------------------------------------|--------|----------|-------------|----------|--------|-------------|--------|
|                                                        |   |     |        |     |   |        |   |
| Pro                  forma revenue                          |   | $        | 1,459,422   |     | $      | 411,830     |   | $ | 375,922 |   |
| Pro                  forma loss                             |   |     | (16,592,546 | )        |   | (10,256,790 | )      |   | (17,760,879 | ) |
| Pro                  forma basic and diluted loss per share |   |     | (0.49       | )        |   | (0.41       | )      |   | (1.07 | ) |

| **13.** | **Financial                instruments:** |
|---------|-------------------------------------------|

----