Exhibit
      99.2






**MANAGEMENT’S
      DISCUSSION AND ANALYSIS**


**For
      the year-ended June 30, 2006**





The
      following Management’s Discussion and Analysis of Financial Condition and
      Results of Operations (“MD&A”) should be read in conjunction with the
      consolidated financial statements for the years ended June 30, 2006, June 30,
      2005, and June 30, 2004 and the notes thereto. The financial statements have
      been prepared by management in accordance with accounting principles generally
      accepted in Canada (Canadian GAAP). These accounting principles differ in
      certain respects from United States GAAP. The differences, as they affect our
      consolidated financial statements, are set out in Note 16 to the audited
      consolidated financial statements for the fiscal year ended June 30, 2006.
      All
      amounts presented are in Canadian dollars unless otherwise stated.





**FORWARD-LOOKING
      STATEMENTS**


This
      management’s discussion and analysis (MD&A) contains or incorporates by
      reference forward-looking statements. All statements other than statements
      of
      historical fact included or incorporated by reference and that address
      activities, events or developments that we expect or anticipate may or will
      occur in the future are forward-looking statements. While any forward-looking
      statements, and any assumptions upon which they are based, are made in good
      faith and reflect our current judgment regarding the direction of our business,
      actual results may vary, sometimes materially, from any estimates, predictions,
      projections, assumptions or other suggestions of future performance herein.
      Undue reliance should not be placed on these forward-looking statements, which
      are based upon our assumptions and are subject to known and unknown risks and
      uncertainties and other factors, including those discussed under "Risk and
      Uncertainties" in this MD&A, some of which are beyond our control, which may
      cause actual results, levels of activity and achievements to differ materially
      from those estimated or projected and expressed in or implied by such
      statements. We undertake no obligation to update publicly or revise any
      forward-looking statements contained herein, and such statements are expressly
      qualified by this cautionary statement. See "Risk and
      Uncertainties".





**NATURE
      OF OPERATIONS**





The
      Company is a development stage company engaged in the licensing and
      commercialization of drug products and technologies from original research.
      The
      Company evaluates drug projects, technologies and products and the prospective
      markets for them and obtains, as appropriate, a license for the further
      development and marketing of the products.





The
      Company expends money on the evaluation, licensing and further development
      of
      certain drug products and on providing licensing, marketing, clinical
      development and regulatory affairs skills, patent advice and funding to
      facilitate the introduction of the licensed products into the principal
      pharmaceutical markets. This involves taking the products researched and
      developed by others and progressing them through the clinical and regulatory
      processes in Canada and elsewhere in order to achieve regulatory approval for
      their sale in the markets to which the Company has rights.





The
      Company will incur expenditures either directly or pursuant to agreements with
      certain partners, on behalf of joint ventures. These will include: costs
      associated with the conduct of clinical trials; the collection and collation
      of
      data; the organizing of data and market information for each product; the
      development and production of non-confidential and confidential dossiers on
      each
      licensed product and the marketing of the information contained in the dossiers
      to prospective commercialization partners; and the negotiation and completion
      of
      out-licensing arrangements for the licensed products.





Although
      the Company originally did not intend to establish its own manufacturing or
      marketing infrastructure for its products, the Company may participate in
      ownership of manufacturing facilities and the marketing of the products if
      appropriate opportunities are available.





**ACQUISITION
      OF EXIMIAS**





In
      May
      2006, the Company completed the acquisition of Eximias Pharmaceutical
      Corporation for share and




1




cash
      consideration of approximately $38,910,000, including transaction costs. Eximias
      is a privately held development-stage company that was engaged in the
      acquisition, development and commercialization of products for the treatment
      of
      cancer and cancer-related disorders. Upon completion of the transaction, Eximias
      became a wholly-owned subsidiary of the Company operating as YM Biosciences
      USA
      Inc. and serves as the Company’s base of operations in the United States. The
      acquisition was accounted for as a purchase of assets, primarily consisting
      of
      approximately $38,037,000 in cash and $2,927,000 of identifiable intangible
      assets, represented by the experience and expertise of Eximias’ senior
      management team. Liabilities of approximately $2,442,000 were also assumed.
      The
      assets, liabilities, and results of operations of Eximias have been included
      in
      the consolidated financial statement of the Company from May 9, 2006, the
      completion date of the acquisition.





**SELECTED
      ANNUAL FINANCIAL INFORMATION**


**Year
                Ended June 30, 2006****(1)******
            
            
            **Year
                Ended June 30, 2005****(1**)****
            
            
            **Year
                Ended June 30, 2004****(1)**
            **)**Licensing
                Revenue
            
            $
            1,151,135
            
            $
            748,020
            
            $
            -Interest
                income
            
            
            1,397,558
            
            
            703,873
            
            
            347,187Expenses:General
                and administrative
            
            
            7,951,470
            
            
            6,314,357
            
            
            3,610,848Licensing
                and product development
            
            
            20,188,577
            
            
            10,981,950
            
            
            5,066,569Loss
                for the period
            
            
            25,814,607
            
            
            15,859,295
            
            
            7,691,898Deficit,
                beginning of period,
            
            
            60,751,894
            
            
            44,319,267
            
            
            36,470,665Deficit,
                end of period
            
            $
            86,566,501
            
            $
            60,751,894
            
            $
            44,319,267Basic
                and diluted loss per common share
            
            $
            0.59
            
            $
            0.47
            
            $
            0.36Total
                Assets
            
            $
            100,048,060
            
            $
            38,199,891
            
            $
            20,882,792




(1) Canadian GAAP requires the Company to expense the fair value of stock options
      awarded to employees beginning July 2004 and to apply this policy retroactively.
      See Critial Accounting Policies and Estimates - Stock-based
      compensation.





**RESULTS
      OF OPERATIONS**





Revenue
      from out-licensing comes from: the July 2004 agreement signed with Tarcanta
      Inc.
      (a subsidiary of Cancervax Corporation) with respect to products relating to
      HER-1 and TGFa; a January 2005 agreement with Shin Poong Pharmaceutical Co.,
      Ltd. to which the Company licensed the commercial rights for tesmilifene for
      the
      South Korean market; an August 2005 agreement with Kuhnil Pharmaceutical Co.,
      Ltd. to which the Company licensed the commercial rights for nimotuzumab for
      the
      South Korean market; and a January 2006 agreement with Innogene Kalbiotech
      Private Limited to which the Company licensed the commercial rights for
      nimotuzumab for several countries in Asia and Africa.





Interest
      income in fiscal 2006 has increased by $693,685 due to the significant increase
      in the amount invested in short-tem deposits with approximately $42,623,000
      in
      net proceeds generated from the Company’s February 2006 share issuance and from
      $38,037,000 cash obtained through the Eximias acquisition in May
      2006.




Licensing
      and product development expenses increased by $9,206,627 from $10,981,950 for
      the year ended June 30, 2005 to $20,188,577 for the year ended June 30, 2006
      primarily due to the rapid progression of the tesmilifene Phase III clinical
      trial and the inclusion of costs associated with the development of the AeroLEFTM
technology for treatment of pain which was acquired in May 2005. Costs related
      to the tesmilifene Phase III clinical trial in patients with metastatic and
      recurrent breast cancer for the year totaled approximately $8,581,000 compared
      to $7,242,000 during fiscal 2005, an increase of $1,339,000.




2




In
      addition, costs associated with manufacturing of tesmilifene and preclinical
      work for the year ended June 30, 2006 increased by $1,063,000 from approximately
      $1,684,000 for fiscal 2005 to $2,747,000 in fiscal 2006. The costs related
      to
      the development of AeroLEFTM technology for the year ended June 30, 2006 totaled
      $4,115,000, mainly for toxicology studies and other work related to a Phase
      II
      clinical trial which is currently underway, and approximately $1,025,000 of
      amortization in DELEX technology for the year.





In
      August 2005, 396,825 common shares were released from escrow related to the
      acquisition of DELEX on the completion of the first milestone event.
      Accordingly, the current fair value at the time of release of $1,464,284 was
      allocated to acquired technology and credited to common shares.





General
      and administrative expenses for fiscal 2006 increased $1,637,113 compared to
      prior year. This resulted primarily from an increase in stock-based compensation
      expense of $1,309,458, from $1,278,955 for the year ended June 30, 2005 to
      $2,588,413 for the year-ended June 30, 2006 and the inclusion of Eximias
      operating expenses for two months.





**Fiscal
      Year Ended June 30, 2005 Compared To Fiscal Year Ended June 30, 2004**





Revenue
      from out-licensing came from the July 2004 agreement signed with Tarcanta Inc.
      (a subsidiary of Cancervax Corporation) with respect to products relating to
      HER-1 and TGFa and from a January 2005 agreement with Shin Poong Pharmaceutical
      Co., Ltd. to which the Corporation licensed the commercial rights for
      tesmilifene for the South Korean market. Interest income in fiscal 2005 was
      higher than the previous year due mainly to higher average cash balances in
      fiscal 2005 as a result of financing activities.





Licensing
      and product development expenses increased from 2004 due to the progression
      of
      the tesmilifene Phase III clinical trial, increased out-licensing activity,
      and
      the inclusion of DELEX results for two months. Costs related to the Phase III
      clinical trial in patients with metastatic and recurrent breast cancer totaled
      about $7,250,000 in 2005, an increase of approximately $4,000,000 over 2004.
      Other costs related to tesmilifene increased by approximately $1,400,000 in
      2005
      over the prior year. DELEX was acquired on May 2, 2005 and the costs incurred
      since that date to June 30, 2005 of approximately $550,000 have been included;
      they relate to the development of the AeroLEFTM technology for treatment of pain.
      The increased activity associated with out-licensing represented an increase
      in
      expenses over 2004 of approximately $400,000.





General
      and administrative expenses increased in 2005 over 2004 due to higher
      stock-based compensation expense ($1,685,240 versus $510,375 last year),
      increased investor-related expenses (approximately $670,000 over last year)
      and
      the cost of obtaining and maintaining a listing on AMEX (approximately
      $600,000). The Corporation’s stock began trading on AMEX on October 1,
      2004.





**SUMMARY
      OF QUARTERLY RESULTS**





**AS
                PREVIOUSLY REPORTED****Revenue**
            
            
            **Net
                Loss****(1)**
            **)**
            
            **Basic
                and diluted loss**
              **per
                Common Share****(1)**
            **)**June
                30, 2006
            
            $
            1,072,000
            
            $
            8,581,990
            
            $
            0.16March
                31, 2006
            
            $
            684,456
            
            $
            5,772,479
            
            $
            0.13December
                31, 2005
            
            $
            549,230
            
            $
            5,536,292
            
            $
            0.14September
                30, 2005
            
            $
            243,007
            
            $
            5,923,846
            
            $
            0.15June
                30, 2005
            
            $
            258,787
            
            $
            6,482,670
            
            $
            0.18March
                31, 2005
            
            $
            203,108
            
            $
            4,277,762
            
            $
            0.12December
                31, 2004
            
            $
            521,524
            
            $
            2,830,164
            
            $
            0.08September
                30, 2004
            
            $
            468,474
            
            $
            2,268,699
            
            $
            0.08





(1) Canadian GAAP requires the Company to expense the fair value of stock options
      awarded to employees beginning in July 1, 2004 and to apply this policy
      retroactively. Accordingly, the net loss and loss per share
      above have been restated. See “Critical Accounting Policies and Estimates -
      Stock-based compensation.”


3




**Fourth
      Quarter - Three Month Period Ended June 30, 2006 Compared To The Three-Month
      Period Ended June 30, 2005.**





Out-licensing
      revenue for the quarter ended June 30, 2006 was $184,524 compared to $51,693
      in
      the same quarter in the prior year. Interest income was $887,476 for the quarter
      compared to $207,094 due to the larger investment in short-term deposits and
      higher cash balances resulting from the share issuance in February 2006 and
      the
      Eximias Acquisition in May 2006.





Licensing
      and product development expenses increased by $1,378,136 for the fourth quarter
      ended June 30, 2006 compared to the same period last year due to the increase
      in
      costs associated with the development of the AeroLEFTM technology for treatment
      of pain which was acquired in May 2005. Costs related to the tesmilifene Phase
      III clinical trial in patients with metastatic and recurrent breast cancer
      for
      the three months ended June 30, 2006 totaled approximately $1,956,000,
      approximately $929,500 less than the comparable period last year because all
      patients have been recruited and treated and are now in follow-up.





General
      and administrative expenses for the quarter were $3,393,123 up by $1,082,414
      from $2,310,709 for the same quarter in the prior year. This is primarily due
      to
      an increase in stock compensation of $630,801 for the quarter ended June 30,
      2006 compared to the same period last year and the inclusion of 2 months in
      operating expenses from Eximias.





**LIQUIDITY
      AND CAPITAL RESOURCES**





Since
      inception, the Company has financed the evaluation, licensing and further
      development of its licensed products as well as the evaluation of prospective
      products principally through equity issuances. Since the Company does not have
      net earnings from its operations, the Company's long-term liquidity depends
      on
      its ability to out-license its products or to access the capital markets, and
      both of these will depend substantially on results of the product development
      programs.





The
      financial statements have been prepared on a going-concern basis which assumes
      that the Company will continue in operation for the foreseeable future and
      accordingly will be able to realize its assets and discharge its liabilities
      in
      the normal course of operations. The Company’s ability to continue as a going
      concern has always been dependent on obtaining additional investment capital
      and
      the achievement of profitable operations. There can be no assurance that the
      Company will be successful in increasing revenue or raising additional
      investment capital to generate sufficient cash flows to continue as a going
      concern. The financial statements do not reflect the adjustments that might
      be
      necessary to the carrying amount of reported assets, liabilities and revenue
      and
      expenses and the balance sheet classification used if the Company were unable
      to
      continue operation in accordance with this assumption.





With
      consideration of the restricted and unrestricted cash and short-term deposits,
      management believes that the cash and short-term deposits at June 30, 2006
      are
      sufficient to support the Company’s activities beyond the next 12
      months.





The
      Company's cash requirements will be affected by the progress of its clinical
      trials, the development of its regulatory submissions (alone or together with
      partners), the achievement of commercialization agreements, the costs associated
      with obtaining and protecting the patents for the licensed products, and the
      availability of funding for part of the process from investors and prospective
      commercialization partners.





On
      September 30, 2004, the Company completed a bought deal public offering of
      6,601,588 units at a price of $3.15 per unit for total gross proceeds of
      $20,795,002 (net cash proceeds of $18,972,307). Each unit consisted of one
      common share and one-half of one common share purchase warrant. Each whole
      purchase warrant entitles the holder thereof to purchase one additional common
      share of the Company at a price of $3.75 at any time up to September 30, 2007.
      As part of the compensation for their services, the Company issued warrants
      to
      the underwriters entitling the holders to purchase 462,211 units at the offering
      price for a period of 36 months, ending September 30, 2007.





4




On
      September 29, 2004 the Company's registration statement on Form 20-F was
      declared effective by the Securities and Exchange Commission thereby registering
      the Company's common shares in the United States. The Company now files under
      the Multi-Jurisdictional Disclosure System (MJDS). The Company's common shares
      began trading on the American Stock Exchange on October 1, 2004. On November
      2,
      2004 the Company filed a continuous registration statement on Form F-1 to
      register the sale, from time to time, by certain U.S. shareholders of certain
      securities issued to U.S. purchasers in connection with the December 2003 and
      September 2004 financings. On October 24, 2005 the Company filed a Form F-3
      to
      update and replace the Form F-1.





As
      a consequence of the May 2005 share acquisition of DELEX, the Company acquired
      $10.4 million in net assets that included cash, net of DELEX debentures paid
      at
      closing, of $3.8 million and additional working capital of $0.6
      million.





On
      August 26, 2005 the Company received regulatory approval for the Phase II
      clinical trial of AeroLEFTM. Achieving this milestone triggered the release of
      396,825 escrowed shares valued at $1,464,284. As a result of this additional
      consideration paid and an increase of acquisition cost $98,000, the allocation
      to the assets acquired as at May 2, 2005 has been adjusted to allocate the
      additional $1,562,284 to “Acquired Technologies”. The total consideration paid
      as at March 31, 2006 has been increased from $10,305,988 to $11,868,272, net
      of
      acquisition costs of $541,291.





On
      February 16, 2006, pursuant to a prospectus filed with the Ontario Securities
      Commission, the Company issued 9,436,471 shares at a price of US$4.25 for total
      gross proceeds of US$40,105,000. Net proceeds after costs amounted to
      approximately C$42,623,000. The Company intends to use the net proceeds to
      fund
      drug development activities not related to Cuba or for general corporate
      purposes not related to the Cuban licensed products and technologies. As at
      June
      30, 2006, the remaining restricted proceeds were approximately $30,483,250
      and
      unrestricted cash and short-term deposits totaled approximately
      $57,858,184.





On
      May 9, 2006, as a consequence of the acquisition of Eximias, the Company
      acquired $38.9 million in net assets that included $38 million of cash and
      negative working capital of $2,138,769.  The total purchase price
      approximated $38.6 million of which $3.5 million was paid in cash and the
      balance from the issuance of approximately 5.6 million common shares of the
      Company to Eximias’ shareholders. The net impact to the Company is the
      acquisition of approximately $34.5 million in cash and an experienced workforce
      in exchange for approximately 5.6 million common shares.





As
      at June 30, 2006 the Company had cash and cash equivalents and short-term
      deposits totaling $88,341,434 and payables and accrued liabilities totaling
      $3,717,963 compared to $30,568,845 and $3,825,615 respectively at June 30,
      2005.





**SUBSEQUENT
      EVENT**





On
      July 25, 2006 the Company entered into a License, Development, Manufacturing
      and
      Supply Agreement concerning Nimotuzumab. The Company continues to be involved
      in
      the development of this product and is not required to fund any development
      in
      the licensed territory. Pursuant to the terms of the agreement, the Company
      received a license fee of US$14,500,000. The agreement also entitles the Company
      to receive milestone payments on the occurrence of events specified in the
      terms
      of the contract and royalties on the commercialized sale of the developed
      product. The license fee will be deferred and recognized over the term of the
      related development collaboration. Management has not yet determined the
      expected period of collaboration.





**COMMITMENTS
      AND OFF-BALANCE SHEET ARRANGEMENTS**





The
      Company has certain arrangements with its subsidiaries as described in notes
      2,
      9 and 17 of the consolidated financial statements for the fiscal years ended
      June 31, 2006, June 30, 2005 and June 30, 2004. The Company has expensed 100%
      of
      the cost of operations and cash flows of these entities.





5




In
      addition, the Company is party to certain licensing agreements that require
      the
      Company to pay a proportion of any fees that the Company may receive from
      sublicensees. As of June 30, 2006 the amounts of such fees are not known.





In
      March 2004 the Company began a Phase III clinical trial with tesmilifene in
      metastatic and recurrent breast cancer. On March 10, 2004, the Company entered
      into a clinical research services agreement with a contract research
      organization ("CRO") to conduct the trial and they contracted with others to
      perform services and to recruit and treat patients. The contract is payable
      over
      the term of the trial and payments due are dependent on the number of patients
      recruited, number of countries involved, the length of time over which the
      clinical trial is conducted and the time for completion. The Company is liable
      for certain payments of clinical services costs, data management costs and
      pass
      through costs. All patients have been recruited, treated, and are now in
      follow-up.





In
      the fall of 2004 the Company began a pharmacokinetic clinical trial evaluating
      tesmilifene with doxorubicin involving 30 patients at two sites. In December
      2004, the Company entered into a contract with a CRO in the amount of £194,527
      ($400,000). Either party may cancel the contract with 30 days’ notice. If the
      Company cancels, it would pay for the cost to date plus a penalty equal to
      10%
      of the remainder of the contract price. As at June 30, 2006, all patients have
      been treated and evaluated and the Company is awaiting the final report on
      the
      result of the trial.





The
      Company has also planned a similar pharmacokinetic clinical trial evaluating
      tesmilifene with taxotere. In June 2005 the Company entered into a contract
      with
      a CRO in the amount of £344,000 ($707,000). Either party may cancel the contract
      with 30 days’ notice. If the Company cancels, it would pay for the cost to date
      plus a penalty equal to 10% of the remainder of the contract price. Recruitment
      has begun and the trial is ongoing.





In
      September 2005 the Company inlicensed certain technologies and committed to
      financial consideration of up to $700,000 depending upon the outcome of certain
      clinical results. This commitment consists of a combination of an initial fee
      and contingent milestone payments. The Company has also committed to royalty
      payments based on net sales revenue related to this license. At September 30,
      2005 the initial fee of $100,000 of the commitment was settled through the
      issuance of 26,316 common shares of the Company valued at $3.80 per share and
      was recognized as a product development expense.





In
      October 2005 the Company entered into a clinical trial management services
      contract relating to a clinical trial involving 120 patients at an expected
      cost
      of approximately $622,000. Either party may cancel the contract with 30 days
      notice. If the Company cancels, it would pay for cost to date plus a penalty
      equal to 5% of the remainder of the contract price.





In
      addition, the Company has entered into contracts for pre-clinical and other
      studies totaling approximately $4,894,487 of which approximately $1,846,587
      had
      been paid or accrued to June 30, 2006.





The
      Company plans to continue the clinical development of tesmilifene, nimotuzumab
      and AeroLEFTM. There are also ongoing activities directed at licensing commercial
      rights for these products.





**TREND
      INFORMATION**





It
      is important to note that historical patterns of expenditures cannot be taken
      as
      an indication of future expenditures. The amount and timing of expenditures
      and
      therefore liquidity and capital resources vary substantially from period to
      period depending on the pre-clinical and clinical studies being undertaken
      at
      any one time and the availability of funding from investors and prospective
      commercial partners.





Other
      than as discussed above, the Company is not aware of any material trends related
      to the Company's business of product development, patents and licensing.




6


**RISKS
      AND UNCERTAINTIES**





Prospective
      purchasers should give careful consideration to the risk factors contained
      under
“Risk Factors” in the Prospectus dated February 12, 2004. These risk factors
      include: (i) the Company being in an early stage of development; (ii) the
      Company’s lack of revenue and history of losses; (iii) risks of pre-clinical and
      clinical testing; (iv) the inability of the Company to obtain, protect and
      use
      patents and other proprietary rights; (v) the Company’s dependence on
      collaborative partners; (vi) the uncertain ability of the Company to keep
      abreast of rapid technological change; (vii) the inability of the Company to
      succeed against competition; (viii) the Company’s lack of manufacturing
      experience; (ix) the Company’s reliance on key personnel; (x) product liability
      and the Company’s ability to maintain insurance; (xi) the Company’s possible
      inability to maintain licenses; (xii) the Company’s reliance on licensors;
      (xiii) governmental regulation including risks associated with obtaining
      regulatory approval for drug products; (xiv) risks associated with doing
      business in certain countries; (xv) the need for future capital and the
      uncertainty of additional funding; (xvi) possible volatility of the share price;
      and (xvii) international taxation.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosures of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amount of revenue and expenses during
      the reporting period. Significant accounting policies and methods used in
      preparation of the financial statements are described in note 2 to the
      Consolidated Financial Statements. Significant policies and estimates affect:
      revenue recognition; intangible assets; research and development costs; the
      consolidation of variable interest entities; stock-based compensation; and
      the
      income tax valuation allowance.





*Revenue
      recognition*


Revenue
      from licensing agreements is recognized when persuasive evidence of an
      arrangement exists, delivery has occurred or services have been rendered, the
      amount is determinable and collectibility is reasonably assured. Contingent
      revenue attributable to the achievement of milestones is recognized only on
      the
      achievement of the milestone. Non-refundable up-front fees for access to the
      Company’s proprietary technology are deferred and recognized on a systematic
      basis over the estimated term of the related collaboration.





*Intangible
      assets*


The
      Company’s identifiable intangible assets consist of patents and in-process
      research and development technologies acquired on the acquisition of DELEX
      in
      May 2005 and workforce acquired on the acquisition of Eximias in May 2006.
      The
      intangible assets are amortized on a straight-line basis over the estimated
      useful life of seven years for technologies acquired and of two years for
      workforce from the date of acquisition. The carrying values of the intangible
      assets are reviewed annually to determine if there has been impairment in their
      value.





*Research
      and development costs*


The
      Company does not engage in scientific research but does incur significant
      product development costs. Only development costs that meet strict criteria
      related to technical, marketing and financial feasibility would be capitalized
      under Canadian GAAP. To date, no costs have met such criteria and, accordingly,
      all development costs have been expensed as they have been incurred.





*Variable
      interest entities*


The
      Company has majority interests in joint ventures that are funded entirely by
      the
      Company. These joint ventures are classified as variable interest entities
      since
      the Company maintains a controlling financial interest. The Company has recorded
      100% of the results of operations and cash flows of these entities since their
      inception.





*Stock-based
      compensation*


In
      fiscal 2005, the Company adopted the fair value-based method of accounting
      for
      stock-based compensation and retroactively applied this method to all employee
      stock options granted on or after July




7




1,
      2002, and restated prior periods. The Company expenses all stock based payments
      using the fair value method and uses the Black-Scholes Option Pricing Model
      in
      estimating the fair value. Under the fair value method and the option pricing
      model used to determine fair value, estimates are made as to the volatility
      of
      the Company’s shares and the expected life of the options. Such estimates affect
      the fair value determined by the option pricing model.





*Income
      tax valuation allowance*


The
      Company and its joint ventures have a net tax benefit resulting from non-capital
      losses carried forward, and pools of scientific research and experimental
      development expenditures and investment tax credit. In view of the history
      of
      net losses incurred, management is of the opinion that it is not more likely
      than not that these tax assets will be realized in the foreseeable future and
      hence, a full valuation allowance has been recorded against these future tax
      assets. Accordingly, no future tax assets are recorded on the balance sheets.





**DISCLOSURE
      CONTROLS AND PROCEDURES**





As
      required by Canadian securities laws, management, including our Chief Executive
      Officer and Chief Financial Officer, have evaluated the effectiveness of the
      design and operation of our disclosure controls and procedures as of June 30,
      2006. Based on this evaluation, our Chief Executive Officer and Chief Financial
      Officer have concluded that our disclosure controls and procedures, as defined
      in Multilateral Instrument 52-109-Certification of Disclosure in Issuer's Annual
      and Interim Filings, are effective to ensure that information required to be
      disclosed in reports filed or submitted by us under Canadian securities laws
      is
      recorded, processed, summarized and reported within the time periods specified
      in those rules.





**OTHER
      MD&A REQUIREMENTS**





Outstanding
      Share Data as at June 30, 2006:





**Number**Common
                shares
            
            $
            172,771,544
            
            
            55,781,523Warrants
            
            $
            4,597,988
            
            
            9,022,777




Note
      1:  If
      all warrants were to be exercised, 9,022,777 shares would be issued for an
      aggregate consideration of $25,934,022.


Note
      2:  In
      addition to the 55,781,523 shares outstanding, 2,380,953 shares are held in
      escrow to be released contingent upon the completion of certain milestones.
      They
      are valued and accounted for when they are released from escrow.





Additional
      information relating to the Company, including the Company’s Annual Information
      Form, is available on SEDAR at www.sedar.com .








Dated:
      September 21, 2006




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