**YM          BIOSCIENCES INC.**

----

|   | **KPMG                    LLP****Chartered                    Accountants**Yonge                    Corporate Centre4100                    Yonge Street Suite 200Toronto                    ON  M2P 2H3Canada | Telephone    (416)                    228-7000Fax             (416)                    228-7123Internet        www.kpmg.ca |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**AUDITORS'          REPORT TO THE SHAREHOLDERS**

----

**YM          BIOSCIENCES INC.**

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

|                                                                                             |   | 2007   |         |   | 2006   |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------|
|                                                                                             |   |   |         |   |   |   |
| Assets                                                                                           |   |   |         |   |   |   |
|                                                                                             |   |   |         |   |   |   |
| Current                    assets:                                                               |   |   |         |   |   |   |
|     Cash                    and cash                    equivalents (note 4) |   | $      | 5,847,351    |   |   | $      | 2,735,317 |   |
|     Short-term                    deposits (note 4)                          |   |   | 69,724,438   |   |   |   | 85,606,117 |   |
|     Accounts                    receivable                                   |   |   | 370,011      |   |   |   | 2,214,775 |   |
|     Prepaid                    expenses                                      |   |   | 347,010      |   |   |   | 318,338 |   |
|                                                                                             |   |   | 76,288,810   |   |   |   | 90,874,547 |   |
|                                                                                             |   |   |         |   |   |   |   |   |
| Property                    and equipment (note                    6)                            |   |   | 325,040      |   |   |   | 304,985 |   |
|                                                                                             |   |   |         |   |   |   |   |   |
| Intangible                    assets (note                    7)                                 |   |   | 5,125,950    |   |   |   | 8,868,528 |   |
|                                                                                             |   |   |         |   |   |   |   |   |
|                                                                                             |   | $      | 81,739,800   |   |   | $      | 100,048,060 |   |
|                                                                                             |   |   |         |   |   |   |   |   |
| Liabilities                    and Shareholders'                    Equity                       |   |   |         |   |   |   |   |   |
|                                                                                             |   |   |         |   |   |   |   |   |
| Current                    liabilities:                                                          |   |   |         |   |   |   |   |   |
|     Accounts                    payable                                      |   | $      | 1,169,211    |   |   | $      | 2,367,042 |   |
|     Accrued                    liabilities                                   |   |   | 2,103,755    |   |   |   | 1,350,923 |   |
|     Deferred                    revenue (note 13)                            |   |   | 4,702,132    |   |   |   | 738,297 |   |
|                                                                                             |   |   | 7,975,098    |   |   |   | 4,456,262 |   |
|                                                                                             |   |   |         |   |   |   |   |   |
| Deferred                    revenue (note                    13)                                 |   |   | 8,929,900    |   |   |   | 844,275 |   |
|                                                                                             |   |   |         |   |   |   |   |   |
| Shareholders'                    equity:                                                         |   |   |         |   |   |   |   |   |
|     Share                    capital                    (note 9)             |   |   | 172,921,153  |   |   |   | 172,771,544 |   |
|     Share                    purchase                    warrants (note 10)  |   |   | 4,553,308    |   |   |   | 4,597,988 |   |
|     Contributed                    surplus (note 11)                         |   |   | 5,657,082    |   |   |   | 3,944,492 |   |
|     Deficit                    accumulated during the development stage      |   |   | (118,296,741 | )      |   |   | (86,566,501 | ) |
|                                                                                             |   |   | 64,834,802   |   |   |   | 94,747,523 |   |
|                                                                                             |   |   |         |   |   |   |   |   |
| Basis                    of presentation (note                    1)                             |   |   |         |   |   |   |   |   |
| Commitments                    (note                    14)                                      |   |   |         |   |   |   |   |   |
|                                                                                             |   |   |         |   |   |   |   |   |
|                                                                                             |   | $      | 81,739,800   |   |   | $      | 100,048,060 |   |

----

**YM          BIOSCIENCES INC.**

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

|                                                                                                                                                                                                                  |   |                                                       |         |   | Period                    from                        |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------------|--------|-------------------------------------------------------|--------|
|                                                                                                                                                                                                                  |   |                                                       |         |   | inception                    on                       |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   | August                    17,                    1994 |   |
|                                                                                                                                                                                                                  |   | Years                    ended June                    30, |         |   | to                    June 30,                        |   |
|                                                                                                                                                                                                                  |   | 2007                                                       |         |   | 2006                                                  |   |   | 2005 |   |   | 2007 |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |
| Revenue                    (note                    13)                                                                                                                                                               |   | $                                                          | 4,407,890    |   |                                                  | $      | 1,151,135 |   |   | $ | 748,020 |   |   | $ | 6,307,045 |   |
| Interest                    income                                                                                                                                                                                    |   |                                                       | 3,239,540    |   |                                                  |   | 1,397,558 |   |   |   | 703,873 |   |   |   | 8,129,389 |   |
|                                                                                                                                                                                                                  |   |                                                       | 7,647,430    |   |                                                  |   | 2,548,693 |   |   |   | 1,451,893 |   |   |   | 14,436,434 |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                                                                                                                                                             |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
|     General                    and                    administrative                                                                                                                              |   |                                                       | 6,978,336    |   |                                                  |   | 7,951,470 |   |   |   | 6,314,357 |   |   |   | 36,086,535 |   |
|     Licensing                    and                    product development                                                                                                                       |   |                                                       | 28,758,469   |   |                                                  |   | 20,188,577 |   |   |   | 10,981,950 |   |   |   | 90,796,383 |   |
|     Impairment                    of                    intangible assets (note 7)                                                                                                                |   |                                                       | 1,829,538    |   |                                                  |   | – |   |   |   | – |   |   |   | 1,829,538 |   |
|                                                                                                                                                                                                                  |   |                                                       | 37,566,343   |   |                                                  |   | 28,140,047 |   |   |   | 17,296,307 |   |   |   | 128,712,456 |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Loss                    before the                    undernoted                                                                                                                                                      |   |                                                       | (29,918,913  | )      |                                                  |   | (25,591,354 | ) |   |   | (15,844,414 | ) |   |   | (114,276,022 | ) |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Loss                    on foreign                    exchange                                                                                                                                                        |   |                                                       | (142,552     | )      |                                                  |   | (220,630 | ) |   |   | – |   |   |   | (363,182 | ) |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Loss                    on marketable                    securities                                                                                                                                                   |   |                                                       | –      |   |                                                  |   | (2,623 | ) |   |   | (14,881 | ) |   |   | (1,191,329 | ) |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Loss                    before income                    taxes                                                                                                                                                        |   |                                                       | (30,061,465  | )      |                                                  |   | (25,814,607 | ) |   |   | (15,859,295 | ) |   |   | (115,830,533 | ) |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Income                    taxes (note                    15)                                                                                                                                                          |   |                                                       | 1,668,775    |   |                                                  |   | – |   |   |   | – |   |   |   | 1,676,075 |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Loss                    for the                    period                                                                                                                                                             |   |                                                       | (31,730,240  | )      |                                                  |   | (25,814,607 | ) |   |   | (15,859,295 | ) |   |   | (117,506,608 | ) |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Deficit,                    beginning of                    period                                                                                                                                                    |   |                                                       | (86,566,501  | )      |                                                  |   | (60,751,894 | ) |   |   | (44,319,267 | ) |   |   | – |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Cost                    of purchasing shares for                    cancellation in excess of book value (note 9)                                                                                                     |   |                                                       | –      |   |                                                  |   | – |   |   |   | (573,332 | ) |   |   | (790,133 | ) |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Deficit,                    end of                    period                                                                                                                                                          |   | $                                                          | (118,296,741 | )      |                                                  | $      | (86,566,501 | ) |   | $ | (60,751,894 | ) |   | $ | (118,296,741 | ) |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Basic                    and diluted loss per common                    share                                                                                                                                         |   | $                                                          | (0.57        | )      |                                                  | $      | (0.59 | ) |   | $ | (0.47 | ) |   |   |   |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                    average number of common                    shares outstanding                                                                                                                            |   |                                                       | 55,804,674   |   |                                                  |   | 43,755,160 |   |   |   | 34,046,450 |   |   |   |   |   |
|                                                                                                                                                                                                                  |   |                                                       |         |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Excludes                    common shares held in                    escrow for contingent additional payment related to the acquisition                    of                    Delex Therapeutics Inc. (note 3(b)) |   |                                                       | 2,380,953    |   |                                                  |   | 2,380,953 |   |   |   | 2,777,778 |   |   |   |   |   |

----

**YM          BIOSCIENCES INC.**

|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|-------------|--------|--------------------------------|--------|-------------|--------|--------|--------|-------------------------------------------------------|--------|
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   | Period                    from                        |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   | inception                    on                       |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   | August                    17,                    1994 |   |
|                                                                                                                                                |   | Years                    ended June                    30, |        |   | to                    June 30, |   |
|                                                                                                                                                |   | 2007                                                       |        |   | 2006                           |   |        | 2005   |   |   | 2007                                                  |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |
| Cash                    provided by (used                    in):                                                                                   |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |
| Operating                    activities:                                                                                                            |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |
|     Loss                    for the                    period                                                                   |   | $                                                          | (31,730,240 | )      |                           | $      | (25,814,607 | )      |   | $      | (15,859,295                                           | )      |   | $ | (117,506,608 | ) |
|     Items                    not                    involving cash:                                                             |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
|         Depreciation                    of                    property and equipment                        |   |                                                       | 107,107     |   |                           |   | 61,017      |   |   |   | 11,717                                                |   |   |   | 438,789 |   |
|         Amortization                    of                    intangible assets                             |   |                                                       | 1,913,040   |   |                           |   | 1,269,158   |   |   |   | 137,760                                               |   |   |   | 3,319,958 |   |
|         Impairment                    of                    intangible assets                               |   |                                                       | 1,829,538   |   |                           |   | –     |   |   |   | –                                               |   |   |   | 1,829,538 |   |
|         Loss                    on sale of                    marketable securities                         |   |                                                       | –     |   |                           |   | 2,623       |   |   |   | 14,881                                                |   |   |   | 1,191,329 |   |
|         Stock-based                    compensation                                                         |   |                                                       | 1,716,913   |   |                           |   | 2,588,413   |   |   |   | 1,278,955                                             |   |   |   | 6,153,476 |   |
|         Stock-based                    consideration                                                        |   |                                                       | –     |   |                           |   | 100,000     |   |   |   | 192,750                                               |   |   |   | 292,750 |   |
|         Warrants-based                    consideration                                                     |   |                                                       | –     |   |                           |   | 54,775      |   |   |   | –                                               |   |   |   | 54,775 |   |
|     Change                    in                    non-cash operating working capital:                                         |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
|         Accounts                    receivable and prepaid expenses                                         |   |                                                       | 1,816,092   |   |                           |   | (672,639    | )      |   |   | (367,916                                              | )      |   |   | 311,701 |   |
|         Accounts                    payable and accrued liabilities and deferred                    revenue |   |                                                       | 11,604,460  |   |                           |   | (1,599,032  | )      |   |   | 2,396,216                                             |   |   |   | 13,663,354 |   |
|                                                                                                                                                |   |                                                       | (12,743,090 | )      |                           |   | (24,010,292 | )      |   |   | (12,194,932                                           | )      |   |   | (90,250,938 | ) |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
| Financing                    activities:                                                                                                            |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
|     Repayment                    of                    debentures                                                               |   |                                                       | –     |   |                           |   | –     |   |   |   | (1,469,425                                            | )      |   |   | (1,469,425 | ) |
|     Issuance                    of                    common shares on exercise of options                                      |   |                                                       | 11,232      |   |                           |   | 851,322     |   |   |   | 109,318                                               |   |   |   | 2,516,246 |   |
|     Issuance                    of                    common shares on exercise of warrants                                     |   |                                                       | 89,375      |   |                           |   | 3,627,430   |   |   |   | 432,402                                               |   |   |   | 4,371,555 |   |
|     Redemption                    of                    preferred shares                                                        |   |                                                       | –     |   |                           |   | –     |   |   |   | –                                               |   |   |   | (2,630,372 | ) |
|     Purchase                    of                    shares for cancellation                                                   |   |                                                       | –     |   |                           |   | –     |   |   |   | (779,909                                              | )      |   |   | (1,029,679 | ) |
|     Net                    proceeds                    from issuance of shares and warrants                                     |   |                                                       | –     |   |                           |   | 42,622,618  |   |   |   | 18,884,120                                            |   |   |   | 123,276,729 |   |
|                                                                                                                                                |   |                                                       | 100,607     |   |                           |   | 47,101,370  |   |   |   | 17,176,506                                            |   |   |   | 125,035,054 |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
| Investing                    activities:                                                                                                            |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
|     Short-term                    deposits, net                                                                                 |   |                                                       | 15,881,679  |   |                           |   | (55,529,720 | )      |   |   | (14,988,521                                           | )      |   |   | (69,530,513 | ) |
|     Proceeds                    on                    sale of marketable securities                                             |   |                                                       | –     |   |                           |   | 2,211       |   |   |   | –                                               |   |   |   | 1,404,450 |   |
|     Additions                    to                    property and equipment and intangible assets                             |   |                                                       | (127,162    | )      |                           |   | (54,791     | )      |   |   | (27,034                                               | )      |   |   | (577,315 | ) |
|                                                                                                                                                |   |                                                       | 15,754,517  |   |                           |   | (55,582,300 | )      |   |   | (15,015,555                                           | )      |   |   | (68,703,378 | ) |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
| Increase                    (decrease) in cash and                    cash equivalents                                                              |   |                                                       | 3,112,034   |   |                           |   | (32,491,222 | )      |   |   | (10,033,981                                           | )      |   |   | (33,919,262 | ) |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
| Net                    cash assumed on                    acquisition                                                                               |   |                                                       | –     |   |                           |   | 34,540,166  |   |   |   | 5,226,447                                             |   |   |   | 39,766,613 |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
| Cash                    and cash                    equivalents,beginning of period                                                                 |   |                                                       | 2,735,317   |   |                           |   | 686,373     |   |   |   | 5,493,907                                             |   |   |   | – |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
| Cash                    and cash equivalents, end of                    period                                                                      |   | $                                                          | 5,847,351   |   |                           | $      | 2,735,317   |   |   | $      | 686,373                                               |   |   | $ | 5,847,351 |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
| Non-cash                    items:                                                                                                                  |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |
|     Issuance                        of                        common shares on Delex acquisition (note 3(b))                    |   | $                                                          | –     |   |                           | $      | 1,464,284   |   |   | $      | 9,862,697                                             |   |   | $ | 11,326,981 |   |
|     Issuance                    of                    common shares on Eximias acquisition (note 3(a))                          |   |                                                       | –     |   |                           |   | 35,063,171  |   |   |   | –                                               |   |   |   | 35,063,171 |   |
|     Issuance                    of                    common shares in exchange for licensed patents                            |   |                                                       | –     |   |                           |   | 100,000     |   |   |   | –                                               |   |   |   | 100,000 |   |
|                                                                                                                                                |   |                                                       |        |   |                           |   |        |   |   |   |                                                  |   |   |   |   |   |

----

**YM          BIOSCIENCES INC.**

----

| **1.** | **Basis                    of presentation:** |
|--------|-----------------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **2.** | **Significant                    accounting policies:** |
|--------|---------------------------------------------------------|

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

|         (b) | Consolidation                    of variable interest entity: |
|-----------------------------------------------------|---------------------------------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **2.** | **Significant                    accounting policies                    (continued):** |
|--------|----------------------------------------------------------------------------------------|

|         (c) | Revenue                    recognition: |
|-----------------------------------------------------|-----------------------------------------|

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

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

|   | (f) | Marketable                    securities: |
|--------|-----|-------------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **2.** | **Significant                    accounting policies                    (continued):** |
|--------|----------------------------------------------------------------------------------------|

|         (g) | Property                    and equipment: |
|-----------------------------------------------------|--------------------------------------------|

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

|   | (h) | Intangible                    assets: |
|--------|-----|---------------------------------------|

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

|   | (j) | Development                    costs: |
|--------|-----|---------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **2.** | **Significant                    accounting policies                    (continued):** |
|--------|----------------------------------------------------------------------------------------|

|         (k) | Government                    assistance: |
|-----------------------------------------------------|-------------------------------------------|

|   | (l) | Income                    taxes: |
|--------|-----|----------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **2.** | **Significant                    accounting policies                    (continued):** |
|--------|----------------------------------------------------------------------------------------|

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

|   |        (n) | Basic                    and diluted loss per common share: |
|--------|-----------------------------------------------|-------------------------------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **2.** | **Significant                    accounting policies                    (continued):** |
|--------|----------------------------------------------------------------------------------------|

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

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

|   | (i) | Accounting                    changes: |
|--------|-----|----------------------------------------|

|   | (ii) | Capital                    disclosures: |
|--------|------|-----------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **2.** | **Significant                    accounting policies                    (continued):** |
|--------|----------------------------------------------------------------------------------------|

|   | (iii) | Financial                    instruments: |
|--------|-------|-------------------------------------------|

|   | (iv) | Financial                    instruments - disclosure: |
|--------|------|--------------------------------------------------------|

----

**YM              BIOSCIENCES INC.**

----

| **2.** | **Significant                    accounting policies                    (continued):** |
|--------|----------------------------------------------------------------------------------------|

|   | (v) | Financial                    instruments - presentation: |
|--------|-----|----------------------------------------------------------|

|   | (vi) | General                    standards on financial statement                    presentation: |
|--------|------|----------------------------------------------------------------------------------------------|

|   | (vii) | International                    financial reporting standards: |
|--------|-------|-----------------------------------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **3.** | **Acquisitions:** |
|--------|-------------------|

|         (a) | Acquisition                    of Eximias: |
|-----------------------------------------------------|--------------------------------------------|

|                                                                                                                        |   |   |       |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|
| Assets                    acquired:                                                                                         |   |   |       |
|     Cash                                                                                                |   | $      | 38,037,072 |   |
|     Short-term                    deposits                                                              |   |   | 193,925    |   |
|     Property                    and                    equipment                                        |   |   | 84,513     |   |
|     Prepaid                    expenses                                                                 |   |   | 109,101    |   |
|     Workforce                                                                                           |   |   | 2,927,261  |   |
|     Future                    tax                    assets (net of valuation allowance of $26,885,000) |   |   | –    |   |
|                                                                                                                        |   |   | 41,351,872 |   |
|                                                                                                                        |   |   |       |   |
| Liabilities                    assumed:                                                                                     |   |   |       |   |
|     Accrued                    expenses                                                                 |   |   | (2,432,679 | ) |
|     Obligations                    under capital leases                                                 |   |   | (9,116     | ) |
|                                                                                                                        |   |   | (2,441,795 | ) |
|                                                                                                                        |   |   |       |   |
| Net                    assets                    acquired                                                                   |   | $      | 38,910,077 |   |
|                                                                                                                        |   |   |       |   |
| Consideration                    given:                                                                                     |   |   |       |   |
|     5,630,648                    common shares                                                          |   | $      | 35,063,171 |   |
|     Cash                                                                                                |   |   | 3,496,906  |   |
|     Acquisition                    costs                                                                |   |   | 350,000    |   |
|                                                                                                                        |   |   |       |   |
|                                                                                                                        |   | $      | 38,910,077 |   |

----

**YM            BIOSCIENCES INC.**

----

| **3.** | **Acquisitions                    (continued):** |
|--------|--------------------------------------------------|

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

|                                                                                                                       |   |                                                |       |   |          |   |      |                        |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|--------|---------------|--------|-----------|-----------------------------|--------|
|                                                                                                                       |   |                                                |       |   |          |   |      | June                    30, |   |
|                                                                                                                       |   | As                    reported,                     |       |   | Additional    |   |      | 2006                    and |   |
|                                                                                                                       |   | June                    30,                    2005 |       |   | consideration |   |      | 2007                        |   |
|                                                                                                                       |   |                                                |       |   |          |   |      |                        |   |
| Assets                    acquired:                                                                                        |   |                                                |       |   |          |   |      |                        |   |
|     Cash                                                                                               |   | $                                                   | 5,226,447  |   |          | $      | –   |                        |   | $ | 5,226,447 |   |
|     Accounts                    receivable and prepaid expenses                                        |   |                                                | 79,789     |   |          |   | –   |                        |   |   | 79,789 |   |
|     Investment                    tax                    credits recoverable                           |   |                                                | 839,830    |   |          |   | –   |                        |   |   | 839,830 |   |
|     Property                    and                    equipment                                       |   |                                                | 200,000    |   |          |   | –   |                        |   |   | 200,000 |   |
|     Acquired                    technologies                                                           |   |                                                | 5,785,901  |   |          |   | 1,562,284 |                        |   |   | 7,348,185 |   |
|     Future                    tax                    assets (net of valuation allowance of $2,201,417) |   |                                                | 2,025,065  |   |          |   | –   |                        |   |   | 2,025,065 |   |
|                                                                                                                       |   |                                                | 14,157,032 |   |          |   | 1,562,284 |                        |   |   | 15,719,316 |   |
| Liabilities                    assumed:                                                                                    |   |                                                |       |   |          |   |      |                        |   |   |   |   |
|     Payable                    to                    Delex common shareholders                         |   |                                                | (1,469,425 | )      |          |   | –   |                        |   |   | (1,469,425 | ) |
|     Accounts                    payable and accrued liabilities                                        |   |                                                | (356,554   | )      |          |   | –   |                        |   |   | (356,554 | ) |
|     Future                    tax                    liabilities                                       |   |                                                | (2,025,065 | )      |          |   | –   |                        |   |   | (2,025,065 | ) |
|                                                                                                                       |   |                                                | (3,851,044 | )      |          |   | –   |                        |   |   | (3,851,044 | ) |
|                                                                                                                       |   |                                                |       |   |          |   |      |                        |   |   |   |   |
| Net                    assets                    acquired                                                                  |   | $                                                   | 10,305,988 |   |          | $      | 1,562,284 |                        |   | $ | 11,868,272 |   |
|                                                                                                                       |   |                                                |       |   |          |   |      |                        |   |   |   |   |
| Consideration                    given:                                                                                    |   |                                                |       |   |          |   |      |                        |   |   |   |   |
|     3,809,523                    common shares                                                         |   |                                                |       |   |          |   |      |                        |   |   |   |   |
|         (2005                    -                    3,412,698)                   |   | $                                                   | 9,862,697  |   |          | $      | 1,464,284 |                        |   | $ | 11,326,981 |   |
|     Acquisition                    costs                                                               |   |                                                | 443,291    |   |          |   | 98,000    |                        |   |   | 541,291 |   |
|                                                                                                                       |   |                                                |       |   |          |   |      |                        |   |   |   |   |
|                                                                                                                       |   | $                                                   | 10,305,988 |   |          | $      | 1,562,284 |                        |   | $ | 11,868,272 |   |

----

**YM            BIOSCIENCES INC.**

----

| **3.** | **Acquisitions                    (continued):** |
|--------|--------------------------------------------------|

----

**YM              BIOSCIENCES INC.**

----

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

| **5.** | **Financial                    instruments:** |
|--------|-----------------------------------------------|

| **6.** | **Property                    and equipment:** |
|--------|------------------------------------------------|

|                                                          |   |   |    |   |         |   |    |    |   |
|---------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|---------|--------|
|                                                          |   |   |    |   | Accumulated  |   |    | Netbook |   |
| June                    30,                    2007           |   | Cost   |    |   | depreciation |   |    | value   |   |
|                                                          |   |   |    |   |         |   |    |    |   |
| Computer                    equipment                         |   | $      | 357,499 |   |         | $      | 201,286 |    |   | $ | 156,213 |   |
| Furniture                    and                    equipment |   |   | 307,506 |   |         |   | 170,769 |    |   |   | 136,737 |   |
| Leasehold                    improvements                     |   |   | 80,809  |   |         |   | 48,719  |    |   |   | 32,090 |   |
|                                                          |   |   |    |   |         |   |    |    |   |   |   |   |
|                                                          |   | $      | 745,814 |   |         | $      | 420,774 |    |   | $ | 325,040 |   |

|                                                          |   |   |    |   |         |   |    |    |   |
|---------------------------------------------------------------|--------|--------|---------|--------|--------------|--------|---------|---------|--------|
|                                                          |   |   |    |   | Accumulated  |   |    | Netbook |   |
| June                    30,                    2006           |   | Cost   |    |   | depreciation |   |    | value   |   |
|                                                          |   |   |    |   |         |   |    |    |   |
| Computer                    equipment                         |   | $      | 274,804 |   |         | $      | 143,611 |    |   | $ | 131,193 |   |
| Furniture                    and                    equipment |   |   | 298,598 |   |         |   | 124,806 |    |   |   | 173,792 |   |
| Leasehold                    improvements                     |   |   | 45,250  |   |         |   | 45,250  |    |   |   | – |   |
|                                                          |   |   |    |   |         |   |    |    |   |   |   |   |
|                                                          |   | $      | 618,652 |   |         | $      | 313,667 |    |   | $ | 304,985 |   |

----

**YM            BIOSCIENCES INC.**

----

| **7.** | **Intangible                    assets:** |
|--------|-------------------------------------------|

|                                                |   |   |       |   |         |   |      |       |   |   |                        |   |
|-----------------------------------------------------|--------|--------|------------|--------|--------------|--------|-----------|------------|--------|--------|-----------------------------|--------|
|                                                |   |   |       |   | Accumulated  |   |      |       |   |   | Net                    book |   |
| June                    30,                    2007 |   | Cost   |       |   | amortization |   |      | Impairment |   |   | value                       |   |
|                                                |   |   |       |   |         |   |      |       |   |   |                        |   |
| Acquired                    technologies            |   | $      | 7,348,185  |   |         | $      | 2,222,235 |       |   | $      | –                     |   |   | $ | 5,125,950 |   |
| Workforce                                           |   |   | 2,927,261  |   |         |   | 1,097,723 |       |   |   | 1,829,538                   |   |   |   | – |   |
|                                                |   |   |       |   |         |   |      |       |   |   |                        |   |   |   |   |   |
|                                                |   | $      | 10,275,446 |   |         | $      | 3,319,958 |       |   | $      | 1,829,538                   |   |   | $ | 5,125,950 |   |

|                                                |   |   |       |   |         |   |      |    |   |
|-----------------------------------------------------|--------|--------|------------|--------|--------------|--------|-----------|---------|--------|
|                                                |   |   |       |   | Accumulated  |   |      | Netbook |   |
| June                    30,                    2006 |   | Cost   |       |   | amortization |   |      | value   |   |
|                                                |   |   |       |   |         |   |      |    |   |
| Acquired                    technologies            |   | $      | 7,348,185  |   |         | $      | 1,162,980 |    |   | $ | 6,185,205 |   |
| Workforce                                           |   |   | 2,927,261  |   |         |   | 243,938   |    |   |   | 2,683,323 |   |
|                                                |   |   |       |   |         |   |      |    |   |   |   |   |
|                                                |   | $      | 10,275,446 |   |         | $      | 1,406,918 |    |   | $ | 8,868,528 |   |

----

**YM              BIOSCIENCES INC.**

----

| **8.** | **Consolidation                    of variable interest                    entity:** |
|--------|--------------------------------------------------------------------------------------|

|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   |                              |   |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|------------|--------|-------------------------------|--------|------------|--------|--------|--------|-----------------------------------|--------|
|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   | Period                      from  |   |
|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   | inception                      on |   |
|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   | August                      17,   |   |
|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   | 1994                      to      |   |
|                                                                                                |   | Years                      ended June                      30, |       |   | June                      30, |   |
|                                                                                                |   | 2007                                                           |       |   | 2006                          |   |       | 2005   |   |   | 2007                              |   |
|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   |                              |   |
| Revenue                                                                                             |   | $                                                              | 4,236,398  |   |                          | $      | 858,210    |   |   | $      | 661,866                           |   |   | $ | 5,756,474 |   |
|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   |                              |   |   |   |   |   |
| Expenses:                                                                                           |   |                                                           |       |   |                          |   |       |   |   |   |                              |   |   |   |   |   |
|     General                      and                      administrative        |   |                                                           | 2,458,547  |   |                          |   | 3,252,091  |   |   |   | 2,188,580                         |   |   |   | 18,713,032 |   |
|     Licensing                      and                      product development |   |                                                           | 8,913,425  |   |                          |   | 1,444,277  |   |   |   | 706,344                           |   |   |   | 29,820,483 |   |
|                                                                                                |   |                                                           | 11,371,972 |   |                          |   | 4,696,368  |   |   |   | 2,894,924                         |   |   |   | 48,533,515 |   |
| Loss                      before income                      taxes                                  |   |                                                           | (7,135,574 | )      |                          |   | (3,838,158 | )      |   |   | (2,233,058                        | )      |   |   | (42,777,041 | ) |
|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   |                              |   |   |   |   |   |
| Income                      taxes                                                                   |   |                                                           | 1,622,695  |   |                          |   | –    |   |   |   | –                           |   |   |   | 1,622,695 |   |
|                                                                                                |   |                                                           |       |   |                          |   |       |   |   |   |                              |   |   |   |   |   |
| Loss                      for the                      period                                       |   | $                                                              | (8,758,269 | )      |                          | $      | (3,838,158 | )      |   | $      | (2,233,058                        | )      |   | $ | (44,399,736 | ) |

----

**YM              BIOSCIENCES INC.**

----

| **9.** | **Share                    capital:** |
|--------|---------------------------------------|

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

|                                                                                                                    |   |                         |       |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|--------|--------|--------|
|                                                                                                                    |   | 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                    pursuant                    to licensing agreement,November 2000      |   |                         | 50,000     |   |   |   | 450,000 |   |
|     Issued                    pursuant                    to a licensing agreement,October 2001     |   |                         | 25,000     |   |   |   | 225,000 |   |
|     Conversion                    of                    preferred shares, June 12, 2003             |   |                         | 4,462,800  |   |   |   | 14,080,858 |   |
|     Issued                    on the                    exercise of special warrants,February 2004  |   |                         | 10,895,658 |   |   |   | 13,321,181 |   |
|     Shares                    purchased for cancellation                                            |   |                         | (188,900   | )      |   |   | (84,011 | ) |
|     Issued                    on                    exercise of stock options                       |   |                         | 46,125     |   |   |   | 119,531 |   |
|     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 |   |

----

**YM            BIOSCIENCES INC.**

----

| **9.** | **Share                    capital (continued):** |
|--------|---------------------------------------------------|

|                                                                                                                     |   |                         |       |   |   |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|--------|--------|--------|
|                                                                                                                     |   | Number                    of |       |   |   |   |
|                                                                                                                     |   | shares                       |       |   | Amount |   |
|                                                                                                                     |   |                         |       |   |   |   |
| Balance,                    June 30,                    2005                                                             |   |                         | 38,584,288 |   |   |   | 87,487,802 |   |
|     Issued                    on                    exercise of options                              |   |                         | 395,967    |   |   |   | 1,286,170 |   |
|     Issued                    on                    exercise of warrants                             |   |                         | 1,311,008  |   |   |   | 4,397,499 |   |
|     Issued                    from                    escrow pursuant to Delex acquisition agreement |   |                         | 396,825    |   |   |   | 1,464,284 |   |
|     Issued                    pursuant                    to licensing agreement                     |   |                         | 26,316     |   |   |   | 100,000 |   |
|     Issued                    pursuant                    to public offering, February 2006          |   |                         | 9,436,471  |   |   |   | 42,622,618 |   |
|     Issued                    on                    acquisition of Eximias, May 9, 2006              |   |                         | 5,630,648  |   |   |   | 35,413,171 |   |
|                                                                                                                     |   |                         |       |   |   |   |   |   |
|     Balance,                    June                    30, 2006                                     |   |                         | 55,781,523 |   |   |   | 172,771,544 |   |
|     Issued                    on                    exercise of options                              |   |                         | 3,333      |   |   |   | 15,554 |   |
|     Issued                    on                    exercise of warrants                             |   |                         | 50,500     |   |   |   | 134,055 |   |
|                                                                                                                     |   |                         |       |   |   |   |   |   |
| Balance,                    June 30,                    2007                                                             |   |                         | 55,835,356 |   |   | $      | 172,921,153 |   |

----

**YM            BIOSCIENCES INC.**

----

| **10.** | **Share                    purchase warrants:** |
|---------|-------------------------------------------------|

|                                                                                                           |   |                         |       |   |     |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|--------|----------|--------|--------|--------|--------|
|                                                                                                           |   |                         |       |   | Weighted |   |   |   |   |
|                                                                                                           |   |                         |       |   | average  |   |   |   |   |
|                                                                                                           |   | Number                    of |       |   | exercise |   |   |   |   |
|                                                                                                           |   | warrants                     |       |   | price    |   |   | Amount |   |
|                                                                                                           |   |                         |       |   |     |   |   |   |   |
| Outstanding,                    June 30, 2002 and                    2003                                      |   |                         | 3,020,669  |   |     | $      | 4.50   |   |   | $ | – |   |
| Issue                    of special                    warrants                                                |   |                         | 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                                                                                                        |   |                         | (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 |   |
| Expired                                                                                                        |   |                         | (369,444   | )      |     |   | 4.33   |   |   |   | – |   |
| Exercised                                                                                                      |   |                         | (1,370,286 | )      |     |   | 2.92   |   |   |   | (770,070 | ) |
| Issued                    in settlement of                    obligation                                       |   |                         | 17,500     |   |     |   | 4.42   |   |   |   | 54,775 |   |
|                                                                                                           |   |                         |       |   |     |   |   |   |   |   |   |   |
| Outstanding,                    June 30,                    2006                                               |   |                         | 9,022,777  |   |     |   | 2.88   |   |   |   | 4,597,988 |   |
| Exercised                                                                                                      |   |                         | (50,500    | )      |     |   | 1.77   |   |   |   | (44,680 | ) |
|                                                                                                           |   |                         |       |   |     |   |   |   |   |   |   |   |
| Outstanding,                    June 30,                    2007                                               |   |                         | 8,972,277  |   |     |   | 2.89   |   |   | $ | 4,553,308 |   |

----

**YM            BIOSCIENCES INC.**

----

| **10.** | **Share                    purchase warrants                    (continued):** |
|---------|--------------------------------------------------------------------------------|

|                                 |        |                              |
|--------------------------------------|-------------|-----------------------------------|
|                                 |        | Weighted                          |
|                                 |        | average                           |
|                                 |        | remaining                         |
| Range                      of        | Number      | contractual                       |
| exercise                      prices | outstanding | life                      (years) |
|                                 |        |                              |
| $1.75                                | 562,346     | 1.46                              |
| $2.50                                | 5,129,919   | 1.46                              |
| $3.15                                | 90,000      | 0.51                              |
| $3.35                                | 361,690     | 0.25                              |
| $3.75                                | 2,810,822   | 0.25                              |
| $4.42                                | 17,500      | 0.61                              |
|                                 |        |                              |

| **11.** | **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 |   |
| Stock-based                    compensation                  |   |   | 2,588,413 |   |
| Exercise                    of                    options    |   |   | (434,849  | ) |
|                                                         |   |   |      |   |
| Balance,                    June 30,                    2006 |   |   | 3,944,492 |   |
| Stock-based                    compensation                  |   |   | 1,716,913 |   |
| Exercise                    of                    options    |   |   | (4,323    | ) |
|                                                         |   |   |      |   |
| Balance,                    June 30,                    2007 |   | $      | 5,657,082 |   |

----

**YM              BIOSCIENCES INC.**

----

| **12.** | **Stock-based                    compensation:** |
|---------|--------------------------------------------------|

|                                                                                     |                                                        |                                                        |                                                        |
|------------------------------------------------------------------------------------------|-------------------------------------------------------------|-------------------------------------------------------------|-------------------------------------------------------------|
| Issue                      date                                                          | 2007                                                        | 2006                                                        | 2005                                                        |
|                                                                                     |                                                        |                                                        |                                                        |
| Number                      of options                      issued                       | 165,000                                                     | 2,268,000                                                   | 860,487                                                     |
| Risk-free                      interest                      rate                        | 3.9%                      - 4.1%                            | 4.0%                      - 4.6%                            | 3.0%                      -                      4.3%       |
| Volatility                      factor                                                   | 51%                      - 73%                              | 55%                      - 120%                             | 120%                                                        |
| Contractual                      life of                      options                    | 10                      years                               | 1                      - 10                      years      | 1/8                      - 10                      years    |
| Vesting                      period                      (months)                        | immediately                      to                      24 | immediately                      to                      24 | immediately                      to                      24 |
| Weighted                      average fair value of                      options granted | $1.41                                                       | $2.00                                                       | $1.96                                                       |
| Fair                      value of                      options                          | $232,931                                                    | $4,542,930                                                  | $1,685,240                                                  |
|                                                                                     |                                                        |                                                        |                                                        |

|                                                                 |   |   |      |   |     |   |                                  |   |   |   |      |   |   |   |                                  |   |     |   |
|----------------------------------------------------------------------|--------|--------|-----------|--------|----------|--------|---------------------------------------|--------|--------|--------|-----------|--------|--------|--------|---------------------------------------|--------|----------|--------|
|                                                                 |   | 2007   |      |   | 2006     |   |                                  | 2005   |   |
|                                                                 |   |   |      |   | Weighted |   |                                  |   |   |   | Weighted  |   |   |   |                                  |   | Weighted |   |
|                                                                 |   |   |      |   | average  |   |                                  |   |   |   | average   |   |   |   |                                  |   | average  |   |
|                                                                 |   |   |      |   | exercise |   |                                  |   |   |   | exercise  |   |   |   |                                  |   | exercise |   |
|                                                                 |   | Number |      |   | price    |   |                                  | Number |   |   | price     |   |   | Number |                                  |   | price    |   |
|                                                                 |   |   |      |   |     |   |                                  |   |   |   |      |   |   |   |                                  |   |     |   |
| Outstanding,                    beginning of                    year |   |   | 4,779,789 |   |     |   | $                      3.78 |   |   |   | 3,169,330 |   |   |   | $                      2.92 |   |     |   | 2,523,252 |   |   |   | $                      2.80 |   |
| Granted                                                              |   |   | 165,000   |   |     |   | 3.49                                  |   |   |   | 2,268,000 |   |   |   | 4.69                                  |   |     |   | 860,487 |   |   |   | 3.11 |   |
| Cancelled/forfeited                                                  |   |   | (745,251  | )      |     |   | 4.53                                  |   |   |   | (256,465  | )      |   |   | 3.71                                  |   |     |   | (153,299 | ) |   |   | 3.05 |   |
| Exercised                                                            |   |   | (3,333    | )      |     |   | 3.37                                  |   |   |   | (401,076  | )      |   |   | 2.21                                  |   |     |   | (61,110 | ) |   |   | 1.79 |   |
|                                                                 |   |   |      |   |     |   |                                  |   |   |   |      |   |   |   |                                  |   |     |   |   |   |   |   |   |   |
| Outstanding,                    end of                    year       |   |   | 4,196,205 |   |     |   | 3.63                                  |   |   |   | 4,779,789 |   |   |   | 3.78                                  |   |     |   | 3,169,330 |   |   |   | 2.92 |   |
|                                                                 |   |   |      |   |     |   |                                  |   |   |   |      |   |   |   |                                  |   |     |   |   |   |   |   |   |   |
| Exercisable,                    end of                    year       |   |   | 3,587,176 |   |     |   | $                      3.55 |   |   |   | 3,058,820 |   |   |   | $                      3.39 |   |     |   | 2,165,673 |   |   |   | $                      3.09 |   |
|                                                                 |   |   |      |   |     |   |                                  |   |   |   |      |   |   |   |                                  |   |     |   |   |   |   |   |   |   |

----

**YM            BIOSCIENCES INC.**

----

| **12.** | **Stock-based                    compensation (continued):** |
|---------|--------------------------------------------------------------|

|                               |   |   |                                   |      |   |                                   |   |   |     |   |   |                                  |   |   |     |      |
|------------------------------------|--------|--------|----------------------------------------|-----------|--------|----------------------------------------|--------|--------|----------|--------|--------|---------------------------------------|--------|--------|----------|-----------|
|                               |   |   | Options                    outstanding |      |   | Options                    exercisable |   |
|                               |   |   |                                   |      |   | Weighted                               |   |   |     |   |   |                                  |   |   |     |      |
|                               |   |   |                                   |      |   | average                                |   |   | Weighted |   |   |                                  |   |   | Weighted |      |
|                               |   |   |                                   |      |   | remaining                              |   |   | average  |   |   |                                  |   |   | average  |      |
| Range                    of        |   |   | Number                                 |      |   | contractual                            |   |   | exercise |   |   | Number                                |   |   | exercise |      |
| exercise                    prices |   |   | outstanding                            |      |   | life                    (years)        |   |   | price    |   |   | exercisable                           |   |   | price    |      |
|                               |   |   |                                   |      |   |                                   |   |   |     |   |   |                                  |   |   |     |      |
| $1.75                  - $2.74     |   |   |                                   | 938,095   |   |                                   |   | 5.8    |     |   |   | $                      1.85 |   |   |     | 938,095   |   |   |   | $                      1.85 |   |
| $2.75                  - $3.74     |   |   |                                   | 1,391,110 |   |                                   |   | 7.3    |     |   |   | 3.34                                  |   |   |     | 1,130,257 |   |   |   | 3.29 |   |
| $3.75                  - $4.74     |   |   |                                   | 1,394,500 |   |                                   |   | 6.8    |     |   |   | 4.41                                  |   |   |     | 1,107,159 |   |   |   | 4.42 |   |
| $4.75                  - $5.74     |   |   |                                   | 472,500   |   |                                   |   | 4.2    |     |   |   | 5.74                                  |   |   |     | 411,665   |   |   |   | 5.74 |   |
|                               |   |   |                                   |      |   |                                   |   |   |     |   |   |                                  |   |   |     |      |   |   |   |   |   |   |
| $1.75                  - $5.74     |   |   |                                   | 4,196,205 |   |                                   |   | 6.4    |     |   |   | 3.63                                  |   |   |     | 3,587,176 |   |   |   | 3.55 |   |

|                               |   |   |                                   |      |   |                                   |   |   |     |   |   |                                  |   |   |     |      |
|------------------------------------|--------|--------|----------------------------------------|-----------|--------|----------------------------------------|--------|--------|----------|--------|--------|---------------------------------------|--------|--------|----------|-----------|
|                               |   |   | Options                    outstanding |      |   | Options                    exercisable |   |
|                               |   |   |                                   |      |   | Weighted                               |   |   |     |   |   |                                  |   |   |     |      |
|                               |   |   |                                   |      |   | average                                |   |   | Weighted |   |   |                                  |   |   | Weighted |      |
|                               |   |   |                                   |      |   | remaining                              |   |   | average  |   |   |                                  |   |   | average  |      |
| Range                    of        |   |   | Number                                 |      |   | contractual                            |   |   | exercise |   |   | Number                                |   |   | exercise |      |
| exercise                    prices |   |   | outstanding                            |      |   | life                    (years)        |   |   | price    |   |   | exercisable                           |   |   | price    |      |
|                               |   |   |                                   |      |   |                                   |   |   |     |   |   |                                  |   |   |     |      |
| $1.75                              |   |   |                                   | 747,345   |   |                                   |   | 5.0    |     |   |   | $                      1.75 |   |   |     | 727,595   |   |   |   | $                      1.75 |   |
| $2.00                              |   |   |                                   | 60,000    |   |                                   |   | 6.8    |     |   |   | 2.00                                  |   |   |     | 57,000    |   |   |   | 2.00 |   |
| $2.10                              |   |   |                                   | 50,000    |   |                                   |   | 7.8    |     |   |   | 2.10                                  |   |   |     | 50,000    |   |   |   | 2.10 |   |
| $2.50                              |   |   |                                   | 86,750    |   |                                   |   | 3.4    |     |   |   | 2.50                                  |   |   |     | 83,850    |   |   |   | 2.50 |   |
| $2.75                              |   |   |                                   | 35,000    |   |                                   |   | 8.4    |     |   |   | 2.75                                  |   |   |     | 23,333    |   |   |   | 2.75 |   |
| $3.15                              |   |   |                                   | 691,274   |   |                                   |   | 7.5    |     |   |   | 3.15                                  |   |   |     | 487,292   |   |   |   | 3.15 |   |
| $3.25                              |   |   |                                   | 316,250   |   |                                   |   | 0.8    |     |   |   | 3.25                                  |   |   |     | 316,250   |   |   |   | 3.25 |   |
| $3.38                              |   |   |                                   | 10,000    |   |                                   |   | 9.0    |     |   |   | 3.38                                  |   |   |     | 9,500     |   |   |   | 3.38 |   |
| $3.61                              |   |   |                                   | 533,670   |   |                                   |   | 7.6    |     |   |   | 3.61                                  |   |   |     | 180,833   |   |   |   | 3.61 |   |
| $4.00                              |   |   |                                   | 12,500    |   |                                   |   | 1.4    |     |   |   | 4.00                                  |   |   |     | 12,500    |   |   |   | 4.00 |   |
| $4.36                              |   |   |                                   | 852,000   |   |                                   |   | 9.9    |     |   |   | 4.36                                  |   |   |     | 284,000   |   |   |   | 4.36 |   |
| $4.50                              |   |   |                                   | 535,000   |   |                                   |   | 3.4    |     |   |   | 4.50                                  |   |   |     | 535,000   |   |   |   | 4.50 |   |
| $5.74                              |   |   |                                   | 850,000   |   |                                   |   | 9.4    |     |   |   | 5.74                                  |   |   |     | 291,667   |   |   |   | 5.74 |   |
|                               |   |   |                                   |      |   |                                   |   |   |     |   |   |                                  |   |   |     |      |   |   |   |   |   |   |
| $1.75                  - $5.74     |   |   |                                   | 4,779,789 |   |                                   |   | 5.9    |     |   |   | 3.78                                  |   |   |     | 3,058,820 |   |   |   | 3.39 |   |

----

**YM              BIOSCIENCES INC.**

----

| **12.** | **Stock-based                    compensation (continued):** |
|---------|--------------------------------------------------------------|

|                               |   |    |                                   |      |   |                                   |   |
|------------------------------------|--------|---------|----------------------------------------|-----------|--------|----------------------------------------|--------|
|                               |   |    | Options                    outstanding |      |   | Options                    exercisable |   |
|                               |   |    |                                   |      |   | Weighted                               |   |   |   |   |   |   |   |   |   |   |
|                               |   |    |                                   |      |   | average                                |   |   | Weighted |   |   |   |   |   | Weighted |   |
|                               |   |    |                                   |      |   | remaining                              |   |   | average |   |   |   |   |   | average |   |
| Range                    of        |   |    | Number                                 |      |   | contractual                            |   |   | exercise |   |   | Number |   |   | exercise |   |
| exercise                    prices |   |    | 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 |   |

----

**YM              BIOSCIENCES INC.**

----

| **13.** | **Out-licensing                    agreements:** |
|---------|--------------------------------------------------|

|                                                       |        |   |                             |       |   |                                                     |   |       |                                                               |   |   |                                                      |   |   |   |      |   |   |   |      |                              |   |
|------------------------------------------------------------|-------------|--------|----------------------------------|------------|--------|----------------------------------------------------------|--------|------------|--------------------------------------------------------------------|--------|--------|-----------------------------------------------------------|--------|--------|--------|-----------|--------|--------|--------|-----------|-----------------------------------|--------|
|                                                       |        |   |                             |       |   |                                                     |   |       |                                                               |   |   |                                                      |   |   |   |      |   |   |   |      | Period                      from  |   |
|                                                       |        |   |                             |       |   |                                                     |   |       |                                                               |   |   |                                                      |   |   |   |      |   |   |   |      | inception                      on |   |
|                                                       |        |   |                             |       |   | Deferred                      revenue                    |   |       | Revenue                      recognized                            |   |   | August                      17,                      1994 |   |
| Date                      of                               |        |   | Initial                          |       |   | as                      at June                      30, |   |       | for                      years ended June                      30, |   |   | to                      June 30,                          |   |
| agreement                                                  | Product     |   | license                      fee |       |   | 2007                                                     |   |       | 2006                                                               |   |   | 2007                                                      |   |   | 2006   |      |   | 2005   |   |      | 2007                              |   |
| November                      3,                      2006 | Tesmilifene |   | $                                | 230,400    |   |                                                     | $      | 180,800    |                                                               |   | $      | –                                                   |   |   | $      | 49,600    |   |   | $      | –   |                              |   | $ | – |   |   | $ | 49,600 |   |
| July                      25,                      2006    | Nimotuzumab |   |                             | 16,226,950 |   |                                                     |   | 12,508,273 |                                                               |   |   | –                                                   |   |   |   | 3,718,677 |   |   |   | –   |                              |   |   | – |   |   |   | 3,718,677 |   |
| January                      20,                      2006 | Nimotuzumab |   |                             | 1,152,788  |   |                                                     |   | 576,394    |                                                               |   |   | 960,657                                                   |   |   |   | 384,263   |   |   |   | 192,132   |                              |   |   | – |   |   |   | 576,395 |   |
| August                      30,                      2005  | Nimotuzumab |   |                             | 441,792    |   |                                                     |   | 161,071    |                                                               |   |   | 294,529                                                   |   |   |   | 133,458   |   |   |   | 147,263   |                              |   |   | – |   |   |   | 280,721 |   |
| January                      26,                      2005 | Tesmilifene |   |                             | 620,311    |   |                                                     |   | 205,494    |                                                               |   |   | 327,386                                                   |   |   |   | 121,892   |   |   |   | 206,770   |                              |   |   | 86,155 |   |   |   | 414,817 |   |
| July                      13,                      2004    | Nimotuzumab |   |                             | –    |   |                                                     |   | –    |                                                               |   |   | –                                                   |   |   |   | –   |   |   |   | 604,970   |                              |   |   | 661,865 |   |   |   | 1,266,835 |   |
|                                                       |        |   | $                                | 18,672,241 |   |                                                     | $      | 13,632,032 |                                                               |   | $      | 1,582,572                                                 |   |   | $      | 4,407,890 |   |   | $      | 1,151,135 |                              |   | $ | 748,020 |   |   | $ | 6,307,045 |   |

----

**YM            BIOSCIENCES INC.**

----

| **14.** | **Commitments:** |
|---------|------------------|

|   |   |   |      |
|--------|--------|--------|-----------|
| 2008   |   | $      | 307,133   |   |
| 2009   |   |   | 233,467   |   |
| 2010   |   |   | 240,236   |   |
| 2011   |   |   | 247,733   |   |
| 2012   |   |   | 158,699   |   |
|   |   |   |      |   |
|   |   | $      | 1,187,268 |   |

----

**YM              BIOSCIENCES INC.**

----

| **15.** | **Income                    taxes:** |
|---------|--------------------------------------|

|         (a) | The                    major components of income tax expense and the income tax rates                    for the                    years ended June 30 are as follows: |
|-----------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                   |   |   |      |   |   |   |
|------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                   |   | 2007   |      |   | 2006   |   |
|                                                                   |   |   |      |   |   |   |
| Income                    tax                    expense               |   | $      | 1,668,775 |   |   | $      | – |   |
|                                                                   |   |   |      |   |   |   |   |   |
|                                                                   |   |   |      |   |   |   |   |   |
| Average                    Canadian income tax                    rate |   |   | 36.12     | %      |   |   | 36.12 | % |
|                                                                   |   |   |      |   |   |   |   |   |

|                                                                                                                                   |   |   |        |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                                                                   |   | 2007   |        |   | 2006   |   |
|                                                                                                                                   |   |   |        |   |   |   |
| Loss                    before income                    taxes                                                                         |   | $      | (30,061,465 | )      |   | $      | (25,814,607 | ) |
|                                                                                                                                   |   |   |        |   |   |   |   |   |
|                                                                                                                                   |   |   |        |   |   |   |   |   |
| Income                        tax                        expense calculated at average Canadian income tax                        rate |   | $      | (10,858,201 | )      |   | $      | (9,324,236 | ) |
| Change                    in income taxes resulting                    from:                                                           |   |   |        |   |   |   |   |   |
|     Differences                    in                    rates due to subsidiary in foreign jurisdiction           |   |   | (298,859    | )      |   |   | (225,984 | ) |
|     Tax                    in                    non-Canadian jurisdiction                                         |   |   | 1,668,775   |   |   |   | – |   |
|     Other                    non-deductible items                                                                  |   |   | 586,813     |   |   |   | 936,913 |   |
|                                                                                                                                   |   |   | (8,901,472  | )      |   |   | (8,613,307 | ) |
|                                                                                                                                   |   |   |        |   |   |   |   |   |
| Adjustments                    in future income tax                    balances                                                        |   |   | 10,570,247  |   |   |   | 8,613,307 |   |
|                                                                                                                                   |   |   |        |   |   |   |   |   |
| Income                    tax                    expense                                                                               |   | $      | 1,668,775   |   |   | $      | – |   |

----

**YM              BIOSCIENCES INC.**

----

| **15.** | **Income                    taxes (continued):** |
|---------|--------------------------------------------------|

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

|                                                                                                                                |   |   |       |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                                                                                                                |   | 2007   |       |   | 2006   |   |
|                                                                                                                                |   |   |       |   |   |   |
| Future                    tax                    assets:                                                                            |   |   |       |   |   |   |
|     Property                    and                    equipment                                                |   | $      | 7,012,000  |   |   | $      | 7,273,000 |   |
|     Financing                    costs                                                                          |   |   | 505,000    |   |   |   | 844,000 |   |
|     Deferred                    revenue                                                                         |   |   | 4,430,000  |   |   |   | 522,000 |   |
|     Capital                    loss                    carryforward                                             |   |   | 194,000    |   |   |   | 197,000 |   |
|     Eligible                    capital expenditures                                                            |   |   | 65,000     |   |   |   | 47,000 |   |
|     Non-capital                    losses - United States                                                       |   |   | 27,011,000 |   |   |   | 26,319,000 |   |
|     Non-capital                    losses - Canada                                                              |   |   | 18,585,000 |   |   |   | 16,308,000 |   |
|     Scientific                    research and experimental development expenses and                    credits |   |   | 10,939,000 |   |   |   | 8,020,000 |   |
|                                                                                                                                |   |   | 68,741,000 |   |   |   | 59,530,000 |   |
|                                                                                                                                |   |   |       |   |   |   |   |   |
| Future                    tax                    liabilities:                                                                       |   |   |       |   |   |   |   |   |
|     Acquired                    technologies                                                                    |   |   | (1,666,000 | )      |   |   | (2,041,000 | ) |
|                                                                                                                                |   |   | 67,075,000 |   |   |   | 57,489,000 |   |
|                                                                                                                                |   |   |       |   |   |   |   |   |
| Less                    valuation                    allowance                                                                      |   |   | 67,075,000 |   |   |   | 57,489,000 |   |
|                                                                                                                                |   |   |       |   |   |   |   |   |
| Net                    future tax                    asset                                                                          |   | $      | –    |   |   | $      | – |   |

----

**YM              BIOSCIENCES INC.**

----

| **15.** | **Income                    taxes (continued):** |
|---------|--------------------------------------------------|

| (c)   | The                    Company has available Canadian and United States non-capital                    loss                    carryforwards totalling approximately $56,989,000 and $65,098,000,                    respectively.  These losses expire as                    follows: |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   |       |   |                             |   |
|--------|--------|--------|------------|--------|----------------------------------|--------|
|   |   | Canada |       |   | United                    States |   |
|   |   |   |       |   |                             |   |
| 2008   |   | $      | 3,051,000  |   |                             | $      | – |   |
| 2009   |   |   | 3,683,000  |   |                             |   | – |   |
| 2010   |   |   | 3,789,000  |   |                             |   | – |   |
| 2014   |   |   | 7,158,000  |   |                             |   | – |   |
| 2015   |   |   | 16,300,000 |   |                             |   | – |   |
| 2017   |   |   | –    |   |                             |   | 1,000 |   |
| 2018   |   |   | –    |   |                             |   | 29,000 |   |
| 2019   |   |   | –    |   |                             |   | 88,000 |   |
| 2020   |   |   | –    |   |                             |   | 2,716,000 |   |
| 2021   |   |   | –    |   |                             |   | 4,808,000 |   |
| 2022   |   |   | –    |   |                             |   | 3,175,000 |   |
| 2023   |   |   | –    |   |                             |   | 3,283,000 |   |
| 2024   |   |   | –    |   |                             |   | 4,079,000 |   |
| 2025   |   |   | –    |   |                             |   | 38,258,000 |   |
| 2026   |   |   | 12,827,000 |   |                             |   | 3,099,000 |   |
| 2027   |   |   | 10,181,000 |   |                             |   | 5,562,000 |   |
|   |   |   |       |   |                             |   |   |   |
|   |   | $      | 56,989,000 |   |                             | $      | 65,098,000 |   |

|         (d) | The                    Company has approximately $16,015,000 (2006 - $11,417,000) of                    unclaimed                    development costs that may be claimed against future taxable                    income. |
|-----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|         (e) | The                    Company has accumulated net capital losses for tax purposes of                    approximately $1,191,000, which may be carried forward and used                    to reduce                    taxable capital gains in future                    years. |
|-----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**YM              BIOSCIENCES INC.**

----

| **15.** | **Income                    taxes (continued):** |
|---------|--------------------------------------------------|

| (f)   | The                    Company performs certain activities that result in investment                    tax credits                    ("ITC"), which can be used to offset future Canadian and United                    States                    federal taxes payable, and Ontario innovation tax credits ("OITC"),                    which                    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: |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   |      |   |                             |   |
|--------|--------|--------|-----------|--------|----------------------------------|--------|
|   |   | Canada |      |   | United                    States |   |
|   |   |   |      |   |                             |   |
| 2010   |   | $      | 13,000    |   |                             | $      | – |   |
| 2011   |   |   | 224,000   |   |                             |   | – |   |
| 2012   |   |   | 414,000   |   |                             |   | – |   |
| 2013   |   |   | 328,000   |   |                             |   | 2,000 |   |
| 2014   |   |   | 286,000   |   |                             |   | 9,000 |   |
| 2015   |   |   | 405,000   |   |                             |   | 118,000 |   |
| 2016   |   |   | –   |   |                             |   | 79,000 |   |
| 2017   |   |   | –   |   |                             |   | 204,000 |   |
| 2018   |   |   | –   |   |                             |   | 185,000 |   |
| 2019   |   |   | –   |   |                             |   | 208,000 |   |
| 2020   |   |   | –   |   |                             |   | 350,000 |   |
| 2026   |   |   | 1,351,000 |   |                             |   | 23,000 |   |
| 2027   |   |   | 1,167,000 |   |                             |   | 77,000 |   |
|   |   |   |      |   |                             |   |   |   |
|   |   | $      | 4,188,000 |   |                             | $      | 1,255,000 |   |

|                                                                                 |   |   |       |   |   |   |       |   |   |
|--------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                                                                 |   | 2007   |       |   | 2006   |   |       | 2005   |   |
|                                                                                 |   |   |       |   |   |   |       |   |   |
| Gross                    development                    expenses                     |   | $      | 28,758,469 |   |   | $      | 20,388,577 |   |   | $ | 11,567,191 |   |
| OITC                    refunds                                                      |   |   | –    |   |   |   | (200,000   | )      |   |   | (585,241 | ) |
|                                                                                 |   |   |       |   |   |   |       |   |   |   |   |   |
| Licensing                      and                      product development expenses |   | $      | 28,758,469 |   |   | $      | 20,188,577 |   |   | $ | 10,981,950 |   |

----

**YM              BIOSCIENCES INC.**

----

| **16.** | **Canadian                    and United States accounting policy                    differences:** |
|---------|-----------------------------------------------------------------------------------------------------|

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

----

**YM            BIOSCIENCES INC.**

----

| **16.** | **Canadian                    and United States accounting policy differences                    (continued):** |
|---------|-----------------------------------------------------------------------------------------------------------------|

|         (b) | Consolidated                    statements of operations and                    deficit: |
|-----------------------------------------------------|------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                  |   |   |        |   |   |   |        |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|-------------|--------|--------|
|                                                                                                                                                                                                                                  |   | 2007   |        |   | 2006   |   |        | 2005   |   |
|                                                                                                                                                                                                                                  |   |   |        |   |   |   |        |   |   |
| Loss                        for the year based                        on                                                                                                                                                              |   |   |        |   |   |   |        |   |   |
| Canadian                        GAAP                                                                                                                                                                                                  |   | $      | (31,730,240 | )      |   | $      | (25,814,607 | )      |   | $ | (15,859,295 | ) |
| Unrealized                        loss on marketable                        securities (i)                                                                                                                                            |   |   | —     |   |   |   | –     |   |   |   | (49,776 | ) |
| Reversal                        of stock-based                        compensation expense for employee awards (ii)                                                                                                                   |   |   | –     |   |   |   | –     |   |   |   | 1,278,955 |   |
| Reversal                        of capitalization of                        acquired technologies (iii)                                                                                                                               |   |   | –     |   |   |   | (1,562,284  | )      |   |   | (5,785,901 | ) |
| Amortization                        of acquired                        technologies (iii)                                                                                                                                             |   |   | 1,059,255   |   |   |   | 1,025,220   |   |   |   | 137,760 |   |
|                                                                                                                                                                                                                                  |   |   |        |   |   |   |        |   |   |   |   |   |
| Loss                        for the year and                        comprehensive loss based on United States GAAP                                                                                                                    |   | $      | (30,670,985 | )      |   | $      | (26,351,671 | )      |   | $ | (20,278,257 | ) |
|                                                                                                                                                                                                                                  |   |   |        |   |   |   |        |   |   |   |   |   |
| Basic                        and diluted loss per share                        (iv)                                                                                                                                                   |   | $      | (0.55       | )      |   | $      | (0.60       | )      |   | $ | (0.60 | ) |
|                                                                                                                                                                                                                                  |   |   |        |   |   |   |        |   |   |   |   |   |
|                                                                                                                                                                                                                                  |   |   |        |   |   |   |        |   |   |   |   |   |
| Weighted                        average number of common                        shares outstanding                                                                                                                                    |   |   | 55,804,674  |   |   |   | 43,755,160  |   |   |   | 34,046,450 |   |
|                                                                                                                                                                                                                                  |   |   |        |   |   |   |        |   |   |   |   |   |
| Excludes                        common shares held in                        escrow for contingent additional payment related to the acquisition                        of                        Delex Therapeutics Inc. (note 3(b)) |   |   | 2,380,953   |   |   |   | 2,380,953   |   |   |   | 2,777,778 |   |

----

**YM            BIOSCIENCES INC.**

----

| **16.** | **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 Financial Accounting Standards                    Board                    ("FASB") Statement No. 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 year ended June 30, 2005, the unrealized                    decrease in market value of securities held was $49,776.  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.  During the year ended                    June 30, 2006, the Company sold the remainder of its marketable                    securities and the realized loss of $2,623 has been recognized                    in the                    consolidated statements of operations and                    deficit. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | As                    set out in note 2(m), under Canadian GAAP, the Company has applied                    the                    fair value-based method of accounting for stock options granted                    to                    employees for options granted on or after July 1,                    2002.  Effective July 1, 2005, the Company adopted the fair                    value-based method of accounting for stock options granted to                    employees                    and directors as required by FASB Statement No. 123R in accordance                    with the modified prospective application method.  Accordingly,                    the Company has applied the fair value-based method to all employee                    stock                    options granted on or after July 1, 2005.  Additionally,                    compensation cost for awards granted in prior periods for which                    the                    requisite service has not been rendered as of July 1, 2005 will                    be                    recognized in the consolidated statement of operations and deficit                    as the                    requisite service is                    rendered. |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **16.** | **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 year.  The potential effect                    of share options and share purchase warrants is not dilutive                    to the loss                    per common share. |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**YM            BIOSCIENCES INC.**

----

| **16.** | **Canadian                    and United States accounting policy differences                    (continued):** |
|---------|-----------------------------------------------------------------------------------------------------------------|

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

|                                                                                                                                               |   |     |      |   |    |   |        |                            |   |   |         |   |   |   |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|--------|---------|--------|-------------|---------------------------------|--------|--------|--------------|--------|--------|--------|-----------|
|                                                                                                                                               |   |     |      |   |    |   |        | Deficit                         |   |   |         |   |   |   |      |
|                                                                                                                                               |   |     |      |   |    |   |        | accumulated                     |   |   |         |   |   |   |      |
|                                                                                                                                               |   |     |      |   |    |   |        | during                      the |   |   | Additional   |   |   |   |      |
|                                                                                                                                               |   |     |      |   | Share   |   |        | development                     |   |   | paid-in      |   |   |   |      |
|                                                                                                                                               |   | Warrants |      |   | capital |   |        | stage                           |   |   | capital      |   |   | Total  |      |
|                                                                                                                                               |   |     |      |   |    |   |        |                            |   |   |         |   |   |   |      |
| Total                      shareholders' equity under                      U.S. GAAP,June 30, 2005                                                 |   | $        | 5,313,283 |   |    | $      | 87,487,802  |                            |   | $      | (64,581,701  | )      |   | $      | 29,816    |   |   | $ | 28,249,200 |   |
| Issued                      on exercise of                      options                                                                            |   |     | –   |   |    |   | 1,286,170   |                            |   |   | –      |   |   |   | (398,727  | ) |   |   | 887,443 |   |
| Issued                      on exercise of                      warrants                                                                           |   |     | (715,295  | )      |    |   | 4,397,499   |                            |   |   | –      |   |   |   | –   |   |   |   | 3,682,204 |   |
| Issued                      from escrow pursuant to                      Delex acquisition agreement                                               |   |     | –   |   |    |   | 1,464,284   |                            |   |   | –      |   |   |   | –   |   |   |   | 1,464,284 |   |
| Issued                          pursuant to licensing agreement                                                                                    |   |     | –   |   |    |   | 100,000     |                            |   |   | –      |   |   |   | –   |   |   |   | 100,000 |   |
| Issued                      from equity                      financing                                                                             |   |     | –   |   |    |   | 42,622,618  |                            |   |   | –      |   |   |   | –   |   |   |   | 42,622,618 |   |
| Issued                      from acquisition of                      Eximias                                                                       |   |     | –   |   |    |   | 35,413,171  |                            |   |   | –      |   |   |   | –   |   |   |   | 35,413,171 |   |
| Stock-based                      compensation                                                                                                      |   |     | –   |   |    |   | –     |                            |   |   | –      |   |   |   | 2,552,291 |   |   |   | 2,552,291 |   |
| Loss                      for the                      year                                                                                        |   |     | –   |   |    |   | –     |                            |   |   | (26,351,671  | )      |   |   | –   |   |   |   | (26,351,671 | ) |
|                                                                                                                                               |   |     |      |   |    |   |        |                            |   |   |         |   |   |   |      |   |   |   |   |   |
| Total                      shareholders' equity under                      U.S. GAAP,June 30, 2006                                                 |   |     | 4,597,988 |   |    |   | 172,771,544 |                            |   |   | (90,933,372  | )      |   |   | 2,183,380 |   |   |   | 88,619,540 |   |
| Issued                      on exercise of                      options                                                                            |   |     | –   |   |    |   | 15,554      |                            |   |   | –      |   |   |   | (4,323    | ) |   |   | 11,231 |   |
| Issued                      on exercise of                      warrants                                                                           |   |     | (44,680   | )      |    |   | 134,055     |                            |   |   | –      |   |   |   | –   |   |   |   | 89,375 |   |
| Stock-based                      compensation                                                                                                      |   |     | –   |   |    |   | –     |                            |   |   | –      |   |   |   | 1,716,913 |   |   |   | 1,716,913 |   |
| Loss                      for the                      year                                                                                        |   |     | –   |   |    |   | –     |                            |   |   | (30,670,985  | )      |   |   | –   |   |   |   | (30,670,985 | ) |
|                                                                                                                                               |   |     |      |   |    |   |        |                            |   |   |         |   |   |   |      |   |   |   |   |   |
| Total                      shareholders' equity under                      U.S. GAAP, June                      30,                      2007 |   |     | 4,553,308 |   |    |   | 172,921,153 |                            |   |   | (121,604,357 | )      |   |   | 3,895,970 |   |   |   | 59,766,074 |   |
| Stock-based                      compensation                      expense                                                                         |   |     | –   |   |    |   | –     |                            |   |   | (1,818,334   | )      |   |   | 1,761,112 |   |   |   | (57,222 | ) |
| In-process                      research and                      development acquired                                                             |   |     | –   |   |    |   | –     |                            |   |   | 7,348,185    |   |   |   | –   |   |   |   | 7,348,185 |   |
| Amortization                      of in-process                      research and development acquired                                             |   |     | –   |   |    |   | –     |                            |   |   | (2,222,235   | )      |   |   | –   |   |   |   | (2,222,235 | ) |
|                                                                                                                                               |   |     |      |   |    |   |        |                            |   |   |         |   |   |   |      |   |   |   |   |   |
| Total                      shareholders' equity under                      Canadian GAAP,June 30, 2007                                             |   | $        | 4,553,308 |   |    | $      | 172,921,153 |                            |   | $      | (118,296,741 | )      |   | $      | 5,657,082 |   |   | $ | 64,834,802 |   |

----

**YM            BIOSCIENCES INC.**

----

| **16.** | **Canadian                    and United States accounting policy differences                    (continued):** |
|---------|-----------------------------------------------------------------------------------------------------------------|

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

|                                                                                 |   |   |        |
|--------------------------------------------------------------------------------------|--------|--------|-------------|
|                                                                                 |   | 2005   |        |
|                                                                                 |   |   |        |
| Options                    granted                                                   |   |   | 860,487     |   |
|                                                                                 |   |   |        |   |
|                                                                                 |   |   |        |   |
| Weighted                    average fair value of                    options granted |   | $      | 1.96        |   |
|                                                                                 |   |   |        |   |
|                                                                                 |   |   |        |   |
| Loss                    for the year, as                    reported                 |   | $      | (20,278,257 | ) |
|                                                                                 |   |   |        |   |
|                                                                                 |   |   |        |   |
| Pro                    forma loss for the                    year                    |   | $      | (21,566,804 | ) |
|                                                                                 |   |   |        |   |
|                                                                                 |   |   |        |   |
| Pro                    forma basic and diluted loss                    per share     |   | $      | (0.63       | ) |
|                                                                                 |   |   |        |   |

----

**YM            BIOSCIENCES INC.**

----

| **16.** | **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: |
|--------|-----|--------------------------------------------|

|                                                       |   |   |                                                  |   |   |     |   |   |                                                                              |       |
|------------------------------------------------------------|--------|--------|-------------------------------------------------------|--------|--------|----------|--------|--------|-----------------------------------------------------------------------------------|------------|
|                                                       |   |   |                                                  |   |   |     |   |   | Period                    from                    inception                    on |       |
| Years                    ended June                    30, |   |   | August                    17,                    1994 |   |
| 2007                                                       |   |   | 2006                                                  |   |   | 2005     |   |   | to                    June 30,                    2007                            |       |
|                                                       |   |   |                                                  |   |   |     |   |   |                                                                              |       |
| $–                                                   |   |   | $133,779                                              |   |   | $585,241 |   |   |                                                                              | $2,578,914 |   |
|                                                       |   |   |                                                  |   |   |     |   |   |                                                                              |       |   |   |   |   |

----

**YM            BIOSCIENCES INC.**

----

| **16.** | **Canadian                    and United States accounting policy differences                    (continued):** |
|---------|-----------------------------------------------------------------------------------------------------------------|

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

|                            (g) | Acquisitions: |
|-------------------------------------------------------------------|---------------|

|                                                                             |   |   |        |   |   |   |
|----------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                             |   | 2006   |        |   | 2005   |   |
|                                                                             |   |   |        |   |   |   |
| Pro                    forma                    revenue                          |   | $      | 4,180,287   |   |   | $      | 2,973,452 |   |
| Pro                    forma                    loss                             |   |   | (35,778,180 | )      |   |   | (32,485,406 | ) |
| Pro                    forma basic and diluted loss                    per share |   |   | (0.74       | )      |   |   | (0.82 | ) |
|                                                                             |   |   |        |   |   |   |   |   |

----

**YM              BIOSCIENCES INC.**

----

| **16.** | **Canadian                    and United States accounting policy differences                    (continued):** |
|---------|-----------------------------------------------------------------------------------------------------------------|

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

|   | (i) | Recently                    issued accounting pronouncements: |
|--------|-----|---------------------------------------------------------------|

----

**YM              BIOSCIENCES INC.**

----

| **16.** | **Canadian                    and United States accounting policy differences                    (continued):** |
|---------|-----------------------------------------------------------------------------------------------------------------|