| Consolidated                Financial Statements (Expressed                in Canadian dollars) |
|-------------------------------------------------------------------------------------------------|
|                                                                                            |
| **YM                BIOSCIENCES INC.**(A                DEVELOPMENT STAGE COMPANY)              |
|                                                                                            |
| Years                ended June 30, 2006, 2005 and 2004                                         |

----

| KPMG              LLP                                 | Telephone | (416)              228-7000 |
|-------------------------------------------------------|-----------|-----------------------------|
| **Chartered              Accountants**                | Fax       | (416)              228-7123 |
| Young              Corporate Centre                   | Internet  | www.kpmg.ca                 |
| 4100              Young              Street Suite 200 |      |                        |
| Toronto              ON M2P              2H3          |      |                        |
| Canada                                                |      |                        |

**AUDITORS'      REPORT TO THE SHAREHOLDERS**

----

**YM      BIOSCIENCES INC.**

|                                                            |   |   |        |   |   |        |   |
|-----------------------------------------------------------------|--------|--------|-------------|--------|--------|-------------|--------|
|                                                            |   |   | **2006**    |   |   | **2005**    |   |
| Assets                                                          |   |   |        |   |   |        |   |
|                                                            |   |   |        |   |   |        |   |
| Current                assets:                                  |   |   |        |   |   |        |   |
| Cash                and cash equivalents (note 4)               |   | $      | 2,735,317   |   | $      | 686,373     |   |
| Short-term                deposits (note 4)                     |   |   | 85,606,117  |   |   | 29,882,472  |   |
| Marketable                securities (note 5)                   |   |   | -           |   |   | 4,834       |   |
| Accounts                receivable                              |   |   | 2,214,775   |   |   | 1,591,712   |   |
| Prepaid                expenses                                 |   |   | 318,338     |   |   | 159,661     |   |
|                                                            |   |   | 90,874,547  |   |   | 32,325,052  |   |
|                                                            |   |   |        |   |   |        |   |
| Capital                assets (note 6)                          |   |   | 304,985     |   |   | 226,698     |   |
|                                                            |   |   |        |   |   |        |   |
| Intangible                assets (note 7)                       |   |   | 8,868,528   |   |   | 5,648,141   |   |
|                                                            |   |   |        |   |   |        |   |
|                                                            |   | $      | 100,048,060 |   | $      | 38,199,891  |   |
|                                                            |   |   |        |   |   |        |   |
| Liabilities                and Shareholders' Equity             |   |   |        |   |   |        |   |
|                                                            |   |   |        |   |   |        |   |
| Current                liabilities:                             |   |   |        |   |   |        |   |
| Accounts                payable                                 |   | $      | 2,367,042   |   | $      | 2,995,457   |   |
| Accrued                liabilities                              |   |   | 1,350,923   |   |   | 830,158     |   |
| Deferred                revenue                                 |   |   | 738,297     |   |   | 206,770     |   |
|                                                            |   |   | 4,456,262   |   |   | 4,032,385   |   |
|                                                            |   |   |        |   |   |        |   |
| Long-term                portion of deferred revenue            |   |   | 844,275     |   |   | 327,387     |   |
|                                                            |   |   |        |   |   |        |   |
| Shareholders'                equity:                            |   |   |        |   |   |        |   |
| Share                capital (note 9)                           |   |   | 172,771,544 |   |   | 87,487,802  |   |
| Share                purchase warrants (note 10)                |   |   | 4,597,988   |   |   | 5,313,283   |   |
| Contributed                surplus (note 11)                    |   |   | 3,944,492   |   |   | 1,790,928   |   |
| Deficit                accumulated during the development stage |   |   | (86,566,501 | )      |   | (60,751,894 | )      |
|                                                            |   |   | 94,747,523  |   |   | 33,840,119  |   |
|                                                            |   |   |        |   |   |        |   |
| Basis                of presentation (note 1)                   |   |   |        |   |   |        |   |
| Commitments                (note 14)                            |   |   |        |   |   |        |   |
| Subsequent                event (note 18)                       |   |   |        |   |   |        |   |
|                                                            |   |   |        |   |   |        |   |
|                                                            |   | $      | 100,048,060 |   | $      | 38,199,891  |   |

| */s/              David              G.P. Allan*     |   | */s/ Tryon                Williams*               |
|------------------------------------------------------|--------|--------------------------------------------------------|
| David              G.P.              Allan, Director |   | Tryon                Williams,                Director |
|                                                 |   |                                                   |

----

**YM      BIOSCIENCES INC. **

|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------|--------|--------|--------------------------------|--------|--------|-------------|--------|--------|------------------------------------------------------------|--------|
|                                                                                                                                                                                                                            |   |   |                                         |   |   |                           |   |   |        |   |   | **From                inception on August 17, 1994**  |   |
|                                                                                                                                                                                                                            |   |   |  **Years                ended June 30** |   |   | **to                June 30,** |   |
|                                                                                                                                                                                                                       |   |   | **2006**                                     |   |   | **2005**                       |   |   | **2004**    |   |   | **2006**                                                   |   |
| Revenue                                                                                                                                                                                                                    |   | $      | 1,151,135                                    |   | $      | 748,020                        |   | $      | -           |   | $      | 1,899,155                                                  |   |
| Interest                income                                                                                                                                                                                             |   |   | 1,397,558                                    |   |   | 703,873                        |   |   | 347,187     |   |   | 4,889,849                                                  |   |
|                                                                                                                                                                                                                       |   |   | 2,548,693                                    |   |   | 1,451,893                      |   |   | 347,187     |   |   | 6,789,004                                                  |   |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Expenses:                                                                                                                                                                                                                  |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| General                and administrative                                                                                                                                                                                  |   |   | 7,951,470                                    |   |   | 6,314,357                      |   |   | 3,610,848   |   |   | 29,099,199                                                 |   |
| Licensing                and product development                                                                                                                                                                           |   |   | 20,188,577                                   |   |   | 10,981,950                     |   |   | 5,066,569   |   |   | 62,046,914                                                 |   |
|                                                                                                                                                                                                                       |   |   | 28,140,047                                   |   |   | 17,296,307                     |   |   | 8,677,417   |   |   | 91,146,113                                                 |   |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Loss                before the undernoted                                                                                                                                                                                  |   |   | (25,591,354                                  | )      |   | (15,844,414                    | )      |   | (8,330,230  | )      |   | (84,357,109                                                | )      |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Loss                on foreign exchange                                                                                                                                                                                    |   |   | (220,630                                     | )      |   | -                              |   |   | -           |   |   | (220,630                                                   | )      |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Gain                (loss) on marketable securities                                                                                                                                                                        |   |   | (2,623                                       | )      |   | -                              |   |   | 638,332     |   |   | (1,191,329                                                 | )      |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Unrealized                loss on marketable securities                                                                                                                                                                    |   |   | -                                            |   |   | (14,881                        | )      |   | -           |   |   | -                                                          |   |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Loss                before income taxes                                                                                                                                                                                    |   |   | (25,814,607                                  | )      |   | (15,859,295                    | )      |   | (7,691,898  | )      |   | (85,769,068                                                | )      |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Income                taxes                                                                                                                                                                                                |   |   | -                                            |   |   | -                              |   |   | -           |   |   | 7,300                                                      |   |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Loss                for the period                                                                                                                                                                                         |   |   | (25,814,607                                  | )      |   | (15,859,295                    | )      |   | (7,691,898  | )      |   | (85,776,368                                                | )      |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Deficit,                beginning of period                                                                                                                                                                                |   |   | (60,751,894                                  | )      |   | (44,319,267                    | )      |   | (36,470,665 | )      |   | -                                                          |   |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Cost                of purchasing shares for cancellation in excess of book Value (note                9)                                                                                                                  |   |   | -                                            |   |   | (573,332                       | )      |   | (156,704    | )      |   | (790,133                                                   | )      |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Deficit,                end of period                                                                                                                                                                                      |   | $      | (86,566,501                                  | )      | $      | (60,751,894                    | )      | $      | (44,319,267 | )      | $      | (86,566,501                                                | )      |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Basic                and diluted loss per common share                                                                                                                                                                     |   | $      | (0.59                                        | )      | $      | (0.47                          | )      | $      | (0.36       | )      |   |                                                       |   |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
|                                                                                                                                                                                                                       |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Weighted                  average number of common shares outstanding                                                                                                                                                      |   |   | 43,755,160                                   |   |   | 34,046,450                     |   |   | 21,353,479  |   |   |                                                       |   |
|                                                                                                                                                                                                                            |   |   |                                         |   |   |                           |   |   |        |   |   |                                                       |   |
| Excludes                      common shares held in escrow for contingent additional payment                      related to                      the acquisition of Delex Therapeutics Inc. (note                      3) |   |   | 2,380,953                                    |   |   | 2,777,778                      |   |   | -           |   |   |                                                       |   |

----

**YM      BIOSCIENCES INC. **

|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |
|------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|-----------------------------------------|--------|-------------|--------------------------------|---------------------------------------------------------------------------|-------------|
|                                                                                                                         |   |     |        |                                    |   |        |                           | **From****inception                on****August                17, 1994** |        |
|                                                                                                                         |   |     |        | **Years                ended June 30,** |   |        | **to                June 30,** |                                                                      |
|                                                                                                                         |   | **2006** |        | **2005**                                |   | **2004**    |                           | **2006**                                                                  |        |
| Cash                provided by (used in):                                                                                   |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Operating                activities:                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Loss                for the period                                                                                           |   | $        | (25,814,607 | )                                       | $      | (15,859,295 | )                              | $                                                                         | (7,691,898  | ) | $ | (85,776,368 | ) |
| Items                not involving cash:                                                                                     |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Depreciation                of capital assets                                                                                |   |     | 61,017      |                                    |   | 11,717      |                           |                                                                      | 14,910      |   |   | 331,681 |   |
| Amortization                of intangible assets                                                                             |   |     | 1,269,158   |                                    |   | 137,760     |                           |                                                                      | -           |   |   | 1,406,918 |   |
| Unrealized                loss on marketable securities                                                                      |   |     | -           |                                    |   | 14,881      |                           |                                                                      | -           |   |   | 1,827,038 |   |
| Loss                (gain) on marketable securities                                                                          |   |     | 2,623       |                                    |   | -           |                           |                                                                      | (638,332    | ) |   | (635,709 | ) |
| Stock-based                compensation                                                                                      |   |     | 2,588,413   |                                    |   | 1,278,955   |                           |                                                                      | 500,375     |   |   | 4,436,563 |   |
| 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                                                  |   |     | (672,639    | )                                       |   | (367,916    | )                              |                                                                      | (295,651    | ) |   | (1,504,391 | ) |
|         Accounts                payable and accrued liabilities and deferred revenue |   |     | (1,599,032  | )                                       |   | 2,396,216   |                           |                                                                      | 841,128     |   |   | 2,058,895 |   |
|                                                                                                                         |   |     | (24,010,292 | )                                       |   | (12,194,932 | )                              |                                                                      | (7,269,468  | ) |   | (77,507,848 | ) |
|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Financing                activities:                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Repayment                of debentures                                                                                       |   |     | -           |                                    |   | (1,469,425  | )                              |                                                                      | -           |   |   | (1,469,425 | ) |
| Issuance                of common shares on exercise of options                                                              |   |     | 851,322     |                                    |   | 109,318     |                           |                                                                      | 1,544,375   |   |   | 2,505,014 |   |
|                        Issuance of common shares on exercise of warrants                            |   |     | 3,627,430   |                                    |   | 432,402     |                           |                                                                      | 222,348     |   |   | 4,282,180 |   |
| Redemption                of preferred shares                                                                                |   |     | -           |                                    |   | -           |                           |                                                                      | -           |   |   | (2,630,372 | ) |
| Purchase                of shares for cancellation                                                                           |   |     | -           |                                    |   | (779,909    | )                              |                                                                      | (230,379    | ) |   | (1,029,679 | ) |
| Net                proceeds from issuance of shares and warrants                                                             |   |     | 42,622,618  |                                    |   | 18,884,120  |                           |                                                                      | 17,047,001  |   |   | 123,276,729 |   |
|                                                                                                                         |   |     | 47,101,370  |                                    |   | 17,176,506  |                           |                                                                      | 18,583,345  |   |   | 124,934,447 |   |
|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Investing                activities:                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Short-term                deposits, net                                                                                      |   |     | (55,529,720 | )                                       |   | (14,988,521 | )                              |                                                                      | (14,893,951 | ) |   | (85,412,192 | ) |
| Proceeds                on sale of marketable securities                                                                     |   |     | 2,211       |                                    |   | -           |                           |                                                                      | 1,402,239   |   |   | 1,404,450 |   |
| Additions                to capital and intangible assets                                                                    |   |     | (54,791     | )                                       |   | (27,034     | )                              |                                                                      | (3,724      | ) |   | (450,153 | ) |
|                                                                                                                         |   |     | (55,582,300 | )                                       |   | (15,015,555 | )                              |                                                                      | (13,495,436 | ) |   | (84,457,895 | ) |
|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Decrease                in cash and cash equivalents                                                                         |   |     | (32,491,222 | )                                       |   | (10,033,981 | )                              |                                                                      | (2,181,559  | ) |   | (37,031,296 | ) |
|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Net                cash assumed on acquisition                                                                               |   |     | 34,540,166  |                                    |   | 5,226,447   |                           |                                                                      | -           |   |   | 39,766,613 |   |
|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Cash                    and cash                    equivalents, beginning of period                                         |   |     | 686,373     |                                    |   | 5,493,907   |                           |                                                                      | 7,675,466   |   |   | - |   |
|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Cash                    and cash                    equivalents, end of period                                               |   | $        | 2,735,317   |                                    | $      | 686,373     |                           | $                                                                         | 5,493,907   |   | $ | 2,735,317 |   |
|                                                                                                                         |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Non-cash                items:                                                                                               |   |     |        |                                    |   |        |                           |                                                                      |        |   |   |   |   |
| Issuance                of common shares on Delex                acquisition (note 3)                                   |   | $        | 1,464,284   |                                    | $      | 9,862,697   |                           | $                                                                         | -           |   | $ | 11,326,981 |   |
| Issuance                of common shares on Eximias                acquisition (note 3)                                 |   |     | 35,063,171  |                                    |   | -           |                           |                                                                      | -           |   |   | 35,063,171 |   |

----

**YM        BIOSCIENCES INC. **

----

| **1.** | **Basis                  of presentation:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | The                  consolidated financial statements presented 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. Since inception, the Company has concentrated on licensing                  and                  product development. It has had no net earnings, minimal revenue                  and                  negative operating cash flows, and has financed its activities                  through the                  issuance of shares and warrants. The Company's ability to continue                  as a                  going concern is dependent on obtaining additional investment capital                  and                  the achievement of profitable operations. There can be no assurance                  that                  the Company will be successful in increasing revenue or raising                  additional                  investment capital to generate sufficient cash flows to continue                  as a                  going concern. These consolidated financial statements do not reflect                  the                  adjustments that might be necessary to the carrying amount of reported                  assets, liabilities 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 detailed in note 4 of the consolidated financial statements,                  management believes that the Company has sufficient cash resources                  to fund                  its future operations beyond the next                  year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

----

**YM        BIOSCIENCES INC. **

----

| **2.** |  **Significant                    accounting policies:**                                                                                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                              |
|   | The                    accompanying consolidated financial statements are prepared in                    accordance                    with generally accepted accounting principles ("GAAP") in Canada.                    Significant accounting policies are summarized below: |
|   |                                                                                                                                                                                                                                                                              |
|   | (a)                                                                                                                                                                                                                                                                               | Basis                    of consolidation: |
|   |                                                                                                                                                                                                                                                                              |   |
|   |                                                                                                                                                                                                                                                                              | The                    consolidated financial statements include the assets and liabilities                    and                    results of operations of all subsidiaries and Variable Interest                    Entities                    where the company is the Primary Beneficiary, after elimination                    of                    inter-company transactions and balances. |
|   |                                                                                                                                                                                                                                                                              |   |
|   |                                                                                                                                                                                                                                                                              | During                    the year ended June 30, 2006, the amalgamation of Delex was completed                    and                    its assets, obligations and operations were assumed by the Company.                    CIMYM                    Inc. (Ontario) and CIMYM Inc. (Barbados) were amalgamated to                    form CIMYM                    BioSciences Inc., an 80% owned joint venture for which the Company                    is the                    primary beneficiary. YM BioSciences U.S.A. Inc. and YM BioSciences                    U.S.                    Operations Inc. were incorporated and are wholly owned subsidiaries                    of the                    Company. YM Biosciences U.S.A. Inc. holds 100% of the shares                    of                    Eximias. |
|   |                                                                                                                                                                                                                                                                              |   |
|   |                                                                                                                                                                                                                                                                              | During                    the year ended June 30, 2004, the Company increased its ownership                    in CBQYM                    Inc. from 80% to 100% for nominal consideration. The Company                    completed the                    dissolution of CBQYM Inc. in 2005. There were no accounting consequences                    of this dissolution. |
|   |                                                                                                                                                                                                                                                                              |   |
|   | (b)                                                                                                                                                                                                                                                                               | Consolidation                    of variable interest entity: |
|   |                                                                                                                                                                                                                                                                              |   |
|   |                                                                                                                                                                                                                                                                              | The                    Company consolidates all variable interest entities of which                    it is the                    primary beneficiary in accordance with The Canadian Institute                    of Chartered                    Accountants ("CICA") Accounting Guideline 15 ("AcG 15"), Consolidation                    of                    Variable Interest Entities ("VIEs"). VIEs are entities in which                    equity                    investors do not have controlling financial interest or the equity                    at risk                    is not sufficient to permit the entity to finance its activities                    without                    additional subordinated financial support by other                    parties. |
|   |                                                                                                                                                                                                                                                                              |   |
|   |                                                                                                                                                                                                                                                                              | The                    Company fully consolidates a joint venture in which it is considered                    the                    primary beneficiary. The Company has a variable interest in this                    joint                    venture. The Company's variable interest will absorb a majority                    of the                    joint venture's expected losses and                    revenue. |

----

**YM        BIOSCIENCES INC. **

----

| **2.** | **Significant                accounting policies (continued):** |
|--------|-----------------------------------------------------------------|
|   |                                                            |
|   | (c)                                                             | Revenue                  recognition: |
|   |                                                            |   |
|   |                                                            | Revenue                  is deemed to be realized and earned when persuasive evidence of                  an                  arrangement exists, delivery has occurred or services have been                  rendered,                  the Company's price to the customer is fixed or determinable, and                  collectibility is reasonably assured. |
|   |                                                            |   |
|   |                                                            | Contingent                  revenue attributable to the achievement of regulatory or developmental                  milestones is recognized only on the achievement of the applicable                  milestone. Non-refundable, up-front fees for access to the Company's                  proprietary technology in connection with certain research and                  development                  collaborations are deferred and recognized as revenue on a systematic                  basis over the term of the related collaboration. |
|   |                                                            |   |
|   | (d)                                                             | Cash                  and cash equivalents: |
|   |                                                            |   |
|   |                                                            | Cash                  and cash equivalents are recorded at cost. Cash equivalents consist                  of                  highly liquid deposit certificates held to maturity, with terms                  extending                  up to 90 days from the date of acquisition. |
|   |                                                            |   |
|   | (e)                                                             | Short-term                  deposits: |
|   |                                                            |   |
|   |                                                            | Short-term                  deposits are recorded at cost plus accrued interest and consist                  of highly                  liquid deposit certificates held to maturity, with terms extending                  beyond                  90 days from the date of acquisition. |
|   |                                                            |   |
|   | (f)                                                             | Marketable                  securities: |
|   |                                                            |   |
|   |                                                            | Marketable                  securities are recorded at the lower of cost and market value.                  Market                  values of shares and warrants held are determined based on their                  quoted                  market prices. Losses arising from changes in the market value                  are                  included in net earnings or loss for the                  year. |

----

**YM        BIOSCIENCES INC. **

----

| **2.** | **Significant                    accounting policies (continued):** |
|--------|---------------------------------------------------------------------|
|   |                                                                |
|   | (g)                                                                 | Capital                      assets: |
|   |                                                                |   |
|   |                                                                | Capital                      assets are stated at cost less accumulated depreciation. Depreciation                      is                      provided to amortize the cost of capital assets over their                      estimated                      useful lives using the straight-line method over the following                      periods: |

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

|   | (h)    | Intangible                  assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | Intangible                  assets consist of acquired technologies and workforce and are amortized                  on                  a straight-line basis over their estimated useful lives of seven                  and two                  years, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (i)    | Impairment                  of long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | The                  Company reviews the carrying value of intangible assets with finite                  lives                  and capital assets for existence of facts or changes in circumstances                  that                  might indicate a condition of impairment. An impairment loss would                  be                  recognized when estimates of undiscounted future cash flows expected                  to                  result from the use of an asset and its eventual disposition are                  less than                  the carrying amount. No impairment relating to long-lived assets                  has been                  identified by the Company for the three years ended June 30,                  2006. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (j)    | Development                  costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | To                  date, all development costs incurred have been expensed. Development                  costs                  include costs associated with product development activities, including                  salaries of scientific and technical staff and payments to third                  parties                  for development activities. Development costs that meet specific                  stringent                  criteria related to technical, market and financial feasibility                  are                  capitalized. To date, none of the development costs has met such                  criteria.                                                                                                                          |

----

**YM        BIOSCIENCES INC. **

----

| **2.** | **Significant                  accounting policies (continued):** |
|--------|-------------------------------------------------------------------|
|   |                                                              |
|   | (k)                                                               | Government                  assistance: |
|   |                                                              |   |
|   |                                                              | Government                  assistance, including investment tax credits received relating                  to                  development costs, is reflected as a reduction of the development                  costs                  when there is reasonable assurance that the assistance will be                  received. |
|   |                                                              |   |
|   | (l)                                                               | Income                  taxes: |
|   |                                                              |   |
|   |                                                              | The                  Company uses the asset and liability method of accounting for income                  taxes. Under the asset and liability method, future tax assets                  and                  liabilities are recognized for the future tax consequences attributable                  to                  differences between the financial statement carrying amounts of                  existing                  assets and liabilities and their respective tax bases. Future tax                  assets                  and liabilities are measured using enacted or substantively enacted                  tax                  rates expected to apply to taxable income in the years in which                  those                  temporary differences are expected to be recovered or settled.                  The effect                  on future tax assets and liabilities of a change in tax rates is                  recognized in income in the year that includes the date of enactment                  or                  substantive enactment. |
|   |                                                              |   |
|   |                                                              | In                  assessing the realizability of future income tax assets, management                  considers whether it is more likely than not that some portion                  or all of                  the future income tax assets will be realized. The ultimate realization                  of                  future income tax assets is dependent upon the generation of future                  taxable income during the period in which the temporary differences                  are                  deductible. Management considers the scheduled reversals of future                  income                  tax liabilities, the character of the future income tax asset and                  tax                  planning strategies in making this assessment. To the extent that                  management believes that the realization of future income tax assets                  does                  not meet the more-likely-than-not realization criteria, a valuation                  allowance is recorded against the future income tax                  assets. |

----

**YM        BIOSCIENCES INC. **

----

| **2.** |  **Significant                accounting policies (continued):** |
|--------|-----------------------------------------------------------------------|
|   |                                                                  |
|   | (m)                                                                   | Stock-based                  compensation: |
|   |                                                                  |   |
|   |                                                                  | The                  Company has a stock option plan for directors, officers, employees                  and                  service providers. All stock options issued under the plan have                  an                  exercise price equal to the fair market value of the underlying                  shares on                  the date of the grant. The Company applies the fair value-based                  method to                  all options granted to service providers and to employee stock                  options                  granted on or after July 1, 2002. Under the fair value-based method,                  compensation cost is measured at the fair value of the award at                  the date                  of grant using the Black-Scholes option pricing model. Forfeitures                  are                  accounted for on an estimated basis based on historical trends.                  Compensation cost is expensed over the service period for non-employee                  awards and over the vesting period for employee awards. The settlement                  method was used to account for employee stock options granted before                  July 1, 2002. Under the settlement method, no compensation cost was                  recognized at the date of grant or recognized over the vesting                  period. Any                  consideration paid by employees on the exercise of stock options                  or                  purchase of stock is credited to share capital. |
|   |                                                                  |   |
|   | (n)                                                                   | Basic                  and diluted loss per common share: |
|   |                                                                  |   |
|   |                                                                  | Basic                  loss per common share is computed by dividing loss for the period                  by the                  weighted average number of common shares outstanding during the                  reporting                  period. Diluted loss per common share is computed similarly to                  basic loss                  per common share, except that the weighted average number of shares                  outstanding is increased to include additional shares from the                  assumed                  exercise of stock options and warrants and the conversion of the                  senior                  convertible notes payable, if dilutive. The number of additional                  shares is                  calculated by assuming that outstanding stock options and warrants                  were                  exercised and that proceeds from such exercises were used to acquire                  shares of common stock at the average market price during the reporting                  period. These common equivalent shares are not included in the                  calculation                  of the weighted average number of shares outstanding for diluted                  loss per                  common share when the effect would be anti-dilutive. |
|   |                                                                  |   |
|   | (o)                                                                   | Use                  of estimates: |
|   |                                                                  |   |
|   |                                                                  | The                  preparation of financial statements requires management to make                  estimates                  and assumptions that affect the reported amounts of assets and                  liabilities                  and disclosure of contingent assets and liabilities at the date                  of the                  financial statements and the reported amounts of revenue and expenses                  during the year. Actual results could differ from those                  estimates. |

----

**YM        BIOSCIENCES INC. **

----

| **2.** |  **Significant                accounting policies (continued):** |
|--------|-----------------------------------------------------------------------|
|   |                                                                  |
|   | (p)                                                                   | New                  accounting pronouncements: |
|   |                                                                  |   |
|   |                                                                  | In                  January 2005, CICA issued Section 3855, Financial Instruments -                  Recognition and Measurement, Section 1530, Comprehensive Income,                  and                  Section 3865, Hedges. The new standards will be effective for interim                  and                  annual financial statements relating to fiscal years beginning                  on or after                  October 1, 2006, specifically July 1, 2007, for the Company. Earlier                  adoption is permitted. The new standards will require presentation                  of a                  separate statement of comprehensive income under specific circumstances.                  Derivative financial instruments will be recorded in the balance                  sheet at                  fair value and the changes in fair value of derivatives designated                  as cash                  flow hedges will be reported in comprehensive income. The Company                  is                  assessing the impact of the new                  standards. |

----

**YM          BIOSCIENCES INC. **

----

**3.    **
**Acquisitions:**

|                                                                             |   |   |       |
|----------------------------------------------------------------------------------|--------|--------|------------|
| Assets                    acquired:                                              |   |   |       |   |
| Cash                                                                             |   | $      | 38,037,072 |   |
| Short-term                    deposits                                           |   |   | 193,925    |   |
| Capital                    assets                                                |   |   | 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):**

|                                                                                                  |   |                               |       |              |   |                          |   |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------------|------------|-------------------|--------|-------------------------------|--------|
|                                                                                                  |   | **As                  reported,**  |       | **Additional**    |   | **June                  30,** |   |
|                                                                                                  |   | **June                  30, 2005** |       | **consideration** |   | **2006**                      |   |
| 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 |   |
|     Capital                  assets                                               |   |                               | 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.    **
**Marketable        securities:**

**6.    **Capital          assets:****

|                                     |   |     |    |             |   |        |   |
|------------------------------------------|--------|----------|---------|------------------|--------|-------------|--------|
|                                     |   |     |    | **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. **

----

**6.    **Capital          assets (continued):****

|                                     |   |     |    |             |   |        |   |
|------------------------------------------|--------|----------|---------|------------------|--------|-------------|--------|
|                                     |   |     |    | **Accumulated**  |   | **Netbook** |   |
| **June                  30, 2005**       |   | **Cost** |    | **depreciation** |   | **value**   |   |
| Computer                  equipment      |   | $        | 149,649 |             | $      | 127,737     |   | $ | 21,912 |   |
| Furniture                  and equipment |   |     | 284,449 |             |   | 79,663      |   |   | 204,786 |   |
| Leasehold                  improvements  |   |     | 45,250  |             |   | 45,250      |   |   | - |   |
|                                     |   |     |    |             |   |        |   |   |   |   |
|                                     |   | $        | 479,348 |             | $      | 252,650     |   | $ | 226,698 |   |

**7.    **
**Intangible        assets:**

|                                   |   |     |       |             |   |        |   |
|----------------------------------------|--------|----------|------------|------------------|--------|-------------|--------|
|                                   |   |     |       | **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 |   |

|                                     |   |     |      |             |   |        |   |
|------------------------------------------|--------|----------|-----------|------------------|--------|-------------|--------|
|                                     |   |     |      | **Accumulated**  |   | **Netbook** |   |
| **June                    30, 2005**     |   | **Cost** |      | **amortization** |   | **value**   |   |
| Acquired                    technologies |   | $        | 5,785,901 |             | $      | 137,760     |   | $ | 5,648,141 |   |

----

**YM        BIOSCIENCES INC. **

----

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

|                                                                                                      |   |     |       |                                      |   |                          |   |                              |       |
|-----------------------------------------------------------------------------------------------------------|--------|----------|------------|-------------------------------------------|--------|-------------------------------|--------|-----------------------------------|------------|
|                                                                                                      |   |     |       |                                      |   |                          |   | **From**                          |       |
|                                                                                                      |   |     |       |                                      |   |                          |   | **inception                  on** |       |
|                                                                                                      |   |     |       |                                      |   |                          |   | **August                  17,**   |       |
|                                                                                                      |   |     |       |                                      |   |                          |   | **1994                  to**      |       |
|                                                                                                      |   |     |       | **Years                  ended June 30,** |   | **June                  30,** |   |
|                                                                                                      |   | **2006** |       | **2005**                                  |   | **2004**                      |   | **2006**                          |       |
| Revenue                                                                                                   |   | $        | 858,210    |                                      | $      | 661,866                       |   | $                                 | -          |   | $ | 1,520,076 |   |
|                                                                                                      |   |     |       |                                      |   |                          |   |                              |       |   |   |   |   |
| Expenses:                                                                                                 |   |     |       |                                      |   |                          |   |                              |       |   |   |   |   |
|     General                      and                      administrative expenses     |   |     | 3,252,091  |                                      |   | 2,188,580                     |   |                              | 2,413,500  |   |   | 16,254,485 |   |
|     Licensing                      and                      product development costs |   |     | 1,444,277  |                                      |   | 706,344                       |   |                              | 946,453    |   |   | 20,907,058 |   |
|                                                                                                      |   |     | 4,696,368  |                                      |   | 2,894,924                     |   |                              | 3,359,953  |   |   | 37,161,543 |   |
|                                                                                                      |   |     |       |                                      |   |                          |   |                              |       |   |   |   |   |
| Loss                  for the period                                                                      |   | $        | (3,838,158 | )                                         | $      | (2,233,058                    | )      | $                                 | (3,359,953 | ) | $ | (35,641,467 | ) |

**9.    **
**Share        capital:**

----

**YM        BIOSCIENCES INC. **

----

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

|                                                                                                                     |   |                           |       |       |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|------------|------------|--------|
|                                                                                                                     |   | **Number                  of** |       |       |   |
|                                                                                                                     |   | **shares**                     |       | **Amount** |   |
| Common                  shares:                                                                                          |   |                           |       |       |   |   |   |
|     Issued                  on incorporation, August 17, 1994                                        |   |                           | 7          |       | $      | 1 |   |
|     Issued                  to founding shareholders during fiscal 1996                              |   |                           | 4,204,250  |       |   | 224,457 |   |
|     Issued                  on private placement, August 1996                                        |   |                           | 125,009    |       |   | 10,000 |   |
|     Issued                  on exercise of special warrants, June 1997                               |   |                           | 4,484,613  |       |   | 13,167,901 |   |
|     Issued                  on private placement, August 1997                                        |   |                           | 272,250    |       |   | 1,139,366 |   |
|     Issued                  on private placement, March/April 2000                                   |   |                           | 3,813,840  |       |   | 15,366,701 |   |
|     Issued                  on exercise of stock options, May 2000                                   |   |                           | 23,125     |       |   | 75,156 |   |
|     Issued                  pursuant to licensing agreement,** **November                  2000 |   |                           | 50,000     |       |   | 450,000 |   |
|     Issued                  pursuant to a licensing agreement, October 2001                          |   |                           | 25,000     |       |   | 225,000 |   |
|     Conversion                  of                  preferred shares, June 12, 2003                  |   |                           | 4,462,800  |       |   | 14,080,858 |   |
|     Shares                  purchased for cancellation                                               |   |                           | (19,000    | )          |   | (10,336 | ) |
|                                                                                                                     |   |                           |       |       |   |   |   |
|     Balance,                  June                  30, 2003                                         |   |                           | 17,441,894 |       |   | 44,729,104 |   |
|     Shares                  repurchased for cancellation                                             |   |                           | (169,900   | )          |   | (73,675 | ) |
|     Issued                  on the exercise of special warrants, February 2004                       |   |                           | 10,895,658 |       |   | 13,321,181 |   |
|     Issued                  on exercise of stock options                                             |   |                           | 23,000     |       |   | 44,375 |   |
|     Issued                  on exercise of warrants                                                  |   |                           | 118,939    |       |   | 320,929 |   |
|     Issued                  on exercise of compensation options                                      |   |                           | 375,000    |       |   | 1,500,000 |   |
|                                                                                                                     |   |                           |       |       |   |   |   |
|     Balance,                  June                  30, 2004                                         |   |                           | 28,684,591 |       |   | 59,841,914 |   |
|     Shares                  repurchased for cancellation                                             |   |                           | (300,500   | )          |   | (206,577 | ) |
|     Issued                  on exercise of special warrants, September 30, 2004                      |   |                           | 6,601,588  |       |   | 17,390,826 |   |
|     Issued                  on exercise of options                                                   |   |                           | 61,110     |       |   | 166,540 |   |
|     Issued                  on exercise of warrants                                                  |   |                           | 124,801    |       |   | 432,402 |   |
|     Issued                  on acquisition of Delex, May 2, 2005                                     |   |                           | 3,412,698  |       |   | 9,862,697 |   |
|                                                                                                                     |   |                           |       |       |   |   |   |
|     Balance,                  June                  30, 2005                                         |   |                           | 38,584,288 |       |   | 87,487,802 |   |
|     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 |   |

----

**YM        BIOSCIENCES INC. **

----

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

----

**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       |   | $ | - |   |
| Issued                  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 |   |

----

**YM        BIOSCIENCES INC. **

----

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

|                                 |   |            |      |                              |   |
|--------------------------------------|--------|-----------------|-----------|-----------------------------------|--------|
|                                 |   |            |      | **Weighted**                      |   |
|                                 |   |            |      | **average**                       |   |
|                                 |   |            |      | **remaining**                     |   |
| **Range                  of**        |   | **Number**      |      | **contractual**                   |   |
| **exercise                  prices** |   | **outstanding** |      | **life                  (years)** |   |
| $1.75                                |   |            | 612,346   |                              |   | 2.46 |   |
| $2.50                                |   |            | 5,129,919 |                              |   | 2.46 |   |
| $3.15                                |   |            | 90,000    |                              |   | 1.50 |   |
| $3.35                                |   |            | 361,690   |                              |   | 1.25 |   |
| $3.75                                |   |            | 2,811,322 |                              |   | 1.25 |   |
| $4.42                                |   |            | 17,500    |                              |   | 2.50 |   |

**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 |   |

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

----

**YM        BIOSCIENCES INC. **

----

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

|                                                            |   |     |                               |     |   |                               |   |
|-----------------------------------------------------------------|--------|----------|------------------------------------|----------|--------|------------------------------------|--------|
| **Issue                  date**                                 |   | **2006** |                               | **2005** |   | **2004**                           |   |
| Number                  of options issued                       |   |     | 2,268,000                          |     |   | 860,487                            |   |   | 825,620 |   |
| Risk-free                  interest rate                        |   |     | 4.0%                  - 4.6        | %        |   | 3.0%                  - 4.3        | %      |   | 3.2%                  - 4.4 | % |
| Volatility                  factor                              |   |     | 55%                  - 120         | %        |   | 120                                | %      |   | 80%                  - 120 | % |
| Contractual                  life of options                    |   |     | 1                  - 10 years      |     |   | 1/8                  - 10 years    |   |   | 5                  - 10 years |   |
| Vesting                  period (months)                        |   |     | immediately                  to 24 |     |   | immediately                  to 24 |   |   | 12                  - 40 |   |
| Weighted                  average fair value of options granted |   | $        | 2.00                               |     | $      | 1.96                               |   | $ | 1.17 |   |
| Fair                  value of options                          |   | $        | 4,542,930                          |     | $      | 1,685,240                          |   | $ | 510,375 |   |

|                                            |   |       |      |         |   |       |   |
|-------------------------------------------------|--------|------------|-----------|--------------|--------|------------|--------|
|                                            |   | **2006**   |      | **2005**     |   | **2004**   |   |
|                                            |   |       |      | **Weighted** |   |       |   | **Weighted** |   |   |   | **Weighted** |   |
|                                            |   |       |      | **average**  |   |       |   | **average** |   |   |   | **average** |   |
|                                            |   |       |      | **exercise** |   |       |   | **exercise** |   |   |   | **exercise** |   |
|                                            |   | **Number** |      | **price**    |   | **Number** |   | **price** |   | **Number** |   | **price** |   |
| Outstanding,                  beginning of year |   |       | 3,169,330 |         | $      | 2.92       |   |   | 2,523,252 |   | $ | 2.80 |   |   | 1,727,132 |   | $ | 3.34 |   |
| Granted                                         |   |       | 2,268,000 |         |   | 4.69       |   |   | 860,487 |   |   | 3.11 |   |   | 825,620 |   |   | 2.64 |   |
| Cancelled/forfeited                             |   |       | (256,465  | )            |   | 3.71       |   |   | (153,299 | ) |   | 3.05 |   |   | (6,500 | ) |   | 2.94 |   |
| Exercised                                       |   |       | (401,076  | )            |   | 2.21       |   |   | (61,110 | ) |   | 1.79 |   |   | (23,000 | ) |   | 1.93 |   |
|                                            |   |       |      |         |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding,                  end of year       |   |       | 4,779,789 |         |   | 3.78       |   |   | 3,169,330 |   |   | 2.92 |   |   | 2,523,252 |   |   | 2.80 |   |
|                                            |   |       |      |         |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable,                  end of year       |   |       | 3,058,820 |         | $      | 3.39       |   |   | 2,165,673 |   | $ | 3.09 |   |   | 1,604,151 |   | $ | 3.40 |   |

----

**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                  price** |   | **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 |   |

|                                |   |                                     |      |                                     |   |
|-------------------------------------|--------|------------------------------------------|-----------|------------------------------------------|--------|
|                                |   | **Options                  outstanding** |      | **Options                  exercisable** |   |
|                                |   |                                     |      | **Weighted**                             |   |   |   |   |   |   |   |
|                                |   |                                     |      | **average**                              |   | **Weighted** |   |   |   | **Weighted** |   |
|                                |   |                                     |      | **remaining**                            |   | **average** |   |   |   | **average** |   |
| **Range                  of**       |   | **Number**                               |      | **contractual**                          |   | **exercise** |   | **Number** |   | **exercise** |   |
| **exercise                  price** |   | **outstanding**                          |      | **life                  (years)**        |   | **price** |   | **exercisable** |   | **price** |   |
| $1.75                               |   |                                     | 1,032,810 |                                     |   | 8.0 |   | $ | 1.75 |   |   | 668,662 |   | $ | 1.75 |   |
| $2.00                               |   |                                     | 60,000    |                                     |   | 7.8 |   |   | 2.00 |   |   | 39,000 |   |   | 2.00 |   |
| $2.10                               |   |                                     | 50,000    |                                     |   | 8.8 |   |   | 2.10 |   |   | 33,333 |   |   | 2.10 |   |
| $2.50                               |   |                                     | 136,000   |                                     |   | 6.5 |   |   | 2.50 |   |   | 95,450 |   |   | 2.50 |   |
| $2.75                               |   |                                     | 35,000    |                                     |   | 9.4 |   |   | 2.75 |   |   | 11,667 |   |   | 2.75 |   |
| $3.15                               |   |                                     | 806,938   |                                     |   | 9.8 |   |   | 3.15 |   |   | 268,979 |   |   | 3.15 |   |
| $3.25                               |   |                                     | 366,250   |                                     |   | 2.2 |   |   | 3.25 |   |   | 366,250 |   |   | 3.25 |   |
| $4.00                               |   |                                     | 12,500    |                                     |   | 2.4 |   |   | 4.00 |   |   | 12,500 |   |   | 4.00 |   |
| $4.50                               |   |                                     | 669,832   |                                     |   | 2.5 |   |   | 4.50 |   |   | 669,832 |   |   | 4.50 |   |
|                                |   |                                     |      |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| $1.75                  - $4.50      |   |                                     | 3,169,330 |                                     |   | 7.0 |   |   | 2.92 |   |   | 2,165,673 |   |   | 3.09 |   |

----

**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                  price** |   | **outstanding**                          |      | **life                  (years)**        |   | **price** |   | **exercisable** |   | **price** |   |
| $1.50                               |   |                                     | 25,000    |                                     |   | 0.2 |   | $ | 1.50 |   |   | 25,000 |   | $ | 1.50 |   |
| $1.75                               |   |                                     | 1,080,620 |                                     |   | 8.0 |   |   | 1.75 |   |   | 316,698 |   |   | 1.75 |   |
| $2.00                               |   |                                     | 60,000    |                                     |   | 8.8 |   |   | 2.00 |   |   | 21,000 |   |   | 2.00 |   |
| $2.10                               |   |                                     | 50,000    |                                     |   | 9.8 |   |   | 2.10 |   |   | 16,667 |   |   | 2.10 |   |
| $2.50                               |   |                                     | 167,500   |                                     |   | 7.7 |   |   | 2.50 |   |   | 74,050 |   |   | 2.50 |   |
| $3.25                               |   |                                     | 425,300   |                                     |   | 3.0 |   |   | 3.25 |   |   | 425,300 |   |   | 3.25 |   |
| $4.00                               |   |                                     | 12,500    |                                     |   | 3.4 |   |   | 4.00 |   |   | 12,500 |   |   | 4.00 |   |
| $4.50                               |   |                                     | 702,332   |                                     |   | 5.5 |   |   | 4.50 |   |   | 712,936 |   |   | 4.50 |   |
|                                |   |                                     |      |                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| $1.50                  - $4.50      |   |                                     | 2,523,252 |                                     |   | 6.4 |   |   | 2.80 |   |   | 1,604,151 |   |   | 3.40 |   |

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

----

**YM        BIOSCIENCES INC. **

----

**13.    **
**Out-licensing        agreements (continued):**

----

**YM        BIOSCIENCES INC. **

----

**14.    **
**Commitments:**

|   |   |   |    |
|--------|--------|--------|---------|
| 2007   |   | $      | 500,057 |   |
| 2008   |   |   | 261,035 |   |
| 2009   |   |   | 235,125 |   |
|   |   |   |    |   |
|   |   | $      | 996,217 |   |

----

**YM        BIOSCIENCES INC. **

----

**15.    **
**Income        taxes:**

|                                                                                                                                    |   |     |       |     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
|                                                                                                                                    |   | **2006** |       | **2005** |   |
| Future                  tax assets:                                                                                                     |   |     |       |     |   |   |   |
|     Capital                  assets                                                                                 |   | $        | 7,273,000  |     | $      | 50,000 |   |
|     Financing                  costs                                                                                |   |     | 844,000    |     |   | - |   |
|     Deferred                  revenue                                                                               |   |     | 522,000    |     |   | - |   |
|     Capital                  loss carryforward                                                                      |   |     | 197,000    |     |   | 148,000 |   |
|     Eligible                  capital expenditures                                                                  |   |     | 47,000     |     |   | 46,000 |   |
|     Marketable                  securities                                                                          |   |     | -          |     |   | 60,000 |   |
|     Non-capital                  losses - United States                                                             |   |     | 26,319,000 |     |   | - |   |
|     Non-capital                  losses - Barbados                                                                  |   |     | -          |     |   | 468,000 |   |
|     Non-capital                  losses - Canada                                                                    |   |     | 16,308,000 |     |   | 12,182,000 |   |
|     Scientific                      research and experimental development expenses and                      credits |   |     | 8,020,000  |     |   | 3,984,000 |   |
|                                                                                                                                    |   |     | 59,530,000 |     |   | 16,938,000 |   |
|                                                                                                                                    |   |     |       |     |   |   |   |
| Future                  tax liabilities:                                                                                                |   |     |       |     |   |   |   |
|     Acquired                  technologies                                                                          |   |     | (2,041,000 | )        |   | (1,977,000 | ) |
|                                                                                                                                    |   |     | 57,489,000 |     |   | 14,961,000 |   |
|                                                                                                                                    |   |     |       |     |   |   |   |
| Less                  valuation allowance                                                                                               |   |     | 57,489,000 |     |   | 14,961,000 |   |
|                                                                                                                                    |   |     |       |     |   |   |   |
| Net                  future tax asset                                                                                                   |   | $        | -          |     | $      | - |   |

----

**YM        BIOSCIENCES INC. **

----

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

|   |   |       |       |                               |   |
|--------|--------|------------|------------|------------------------------------|--------|
|   |   | **Canada** |       | **United                  States** |   |
| 2007   |   | $          | 753,000    |                               | $      | - |   |
| 2008   |   |       | 3,201,000  |                               |   | - |   |
| 2009   |   |       | 3,785,000  |                               |   | - |   |
| 2010   |   |       | 3,994,000  |                               |   | - |   |
| 2014   |   |       | 7,336,000  |                               |   | - |   |
| 2015   |   |       | 16,510,000 |                               |   | - |   |
| 2017   |   |       | -          |                               |   | 1,000 |   |
| 2018   |   |       | -          |                               |   | 31,000 |   |
| 2019   |   |       | -          |                               |   | 92,000 |   |
| 2020   |   |       | -          |                               |   | 2,851,000 |   |
| 2021   |   |       | -          |                               |   | 5,046,000 |   |
| 2022   |   |       | -          |                               |   | 3,333,000 |   |
| 2023   |   |       | -          |                               |   | 3,446,000 |   |
| 2024   |   |       | -          |                               |   | 4,282,000 |   |
| 2025   |   |       | -          |                               |   | 40,158,000 |   |
| 2026   |   |       | 13,533,000 |                               |   | 4,216,000 |   |
|   |   |       |       |                               |   |   |   |
|   |   | $          | 49,112,000 |                               | $      | 63,456,000 |   |

----

**YM        BIOSCIENCES INC. **

----

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

|   |   |       |      |                               |   |
|--------|--------|------------|-----------|------------------------------------|--------|
|   |   | **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   |                               |   | 124,000 |   |
| 2016   |   |       | -         |                               |   | 83,000 |   |
| 2017   |   |       | -         |                               |   | 214,000 |   |
| 2018   |   |       | -         |                               |   | 194,000 |   |
| 2019   |   |       | -         |                               |   | 218,000 |   |
| 2020   |   |       | -         |                               |   | 367,000 |   |
| 2026   |   |       | 1,104,000 |                               |   | - |   |
|   |   |       |      |                               |   |   |   |
|   |   | $          | 2,774,000 |                               | $      | 1,211,000 |   |

|                                                                                 |   |     |       |     |   |       |   |
|--------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|------------|--------|
|                                                                                 |   | **2006** |       | **2005** |   | **2004**   |   |
| Gross                  development expenses                                          |   | $        | 20,388,577 |     | $      | 11,567,191 |   | $ | 5,495,898 |   |
| OITC                  refunds                                                        |   |     | (200,000   | )        |   | (585,241   | )      |   | (429,329 | ) |
|                                                                                 |   |     |       |     |   |       |   |   |   |   |
| Licensing                      and                      product development expenses |   | $        | 20,188,577 |     | $      | 10,981,950 |   | $ | 5,066,569 |   |

----

**YM          BIOSCIENCES INC. **

----

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

----

**YM        BIOSCIENCES INC. **

----

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

|                                                                                                                                                                          |   |     |        |     |   |        |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------|--------|-------------|--------|
|                                                                                                                                                                          |   | **2006** |        | **2005** |   | **2004**    |   |
| Loss                          for the                          year based on Canadian GAAP                                                                                    |   | $        | (25,814,607 | )        | $      | (15,859,295 | )      | $ | (7,691,898 | ) |
| Unrealized                    gain (loss) on marketable securities (i)                                                                                                        |   |     | -           |     |   | (49,776     | )      |   | 49,776 |   |
| Reversal                    of stock-based compensation expense for employee awards                    (ii)                                                                   |   |     | -           |     |   | 1,278,955   |   |   | 480,524 |   |
| Reversal                    of capitalization of acquired technologies (iii)                                                                                                  |   |     | (1,562,284  | )        |   | (5,785,901  | )      |   | - |   |
| Amortization                    of acquired technologies (iii)                                                                                                                |   |     | 1,025,220   |     |   | 137,760     |   |   | - |   |
| Loss                    for the year and comprehensive loss based on United States                    GAAP                                                                    |   | $        | (26,351,671 | )        | $      | (20,278,257 | )      | $ | (7,161,598 | ) |
| Basic                    and diluted loss per share (iv)                                                                                                                      |   | $        | (0.60       | )        | $      | (0.60       | )      | $ | (0.34 | ) |
| Weighted                    average number of common shares outstanding                                                                                                       |   |     | 43,755,160  |     |   | 34,046,450  |   |   | 21,353,479 |   |
| Excludes                    common shares held in escrow for contingent additional payment                    related to                    the acquisition of Delex (note 3) |   |     | 2,380,953   |     |   | 2,777,778   |   |   | - |   |

----

**YM        BIOSCIENCES INC. **

----

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

----

**YM        BIOSCIENCES INC. **

----

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

** **

----

**YM        BIOSCIENCES INC. **

----

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

|                                                                          |   |                               |        |                            |   |           |   |      |      |
|-------------------------------------------------------------------------------|--------|------------------------------------|-------------|---------------------------------|--------|----------------|--------|-----------|-----------|
|                                                                          |   |                               |        | **Deficit**                     |   |           |   |      |      |
|                                                                          |   |                               |        | **accumulated**                 |   |           |   |      |      |
|                                                                          |   |                               |        | **during                  the** |   | **Additional** |   |      |      |
|                                                                          |   | **Warrants                  and**  |        | **development**                 |   | **paid-in**    |   |      |      |
|                                                                          |   | **share                  capital** |        | **stage**                       |   | **capital**    |   | **Total** |      |
| Total                  shareholders' equity under U.S. GAAP, June 30, 2004    |   | $                                  | 63,469,153  |                            | $      | (43,730,112    | )      | $         | 29,816    |   | $ | 19,768,857 |   |
| Special                  warrants issue                                       |   |                               | 18,972,307  |                            |   | -              |   |      | -         |   |   | 18,972,307 |   |
| Issued                  on options                                            |   |                               | 166,540     |                            |   | -              |   |      | -         |   |   | 166,540 |   |
| Issued                  on warrants                                           |   |                               | 536,965     |                            |   | -              |   |      | -         |   |   | 536,965 |   |
| Shares                  purchased for cancellation                            |   |                               | (206,577    | )                               |   | (573,332       | )      |      | -         |   |   | (779,909 | ) |
| Issued                  on acquisition of Delex                               |   |                               | 9,862,697   |                            |   | -              |   |      | -         |   |   | 9,862,697 |   |
| Loss                  for the year                                            |   |                               | -           |                            |   | (20,278,257    | )      |      | -         |   |   | (20,278,257 | ) |
|                                                                          |   |                               |        |                            |   |           |   |      |      |   |   |   |   |
| Total                  shareholders' equity under U.S. GAAP, June 30, 2005    |   |                               | 92,801,085  |                            |   | (64,581,701    | )      |      | 29,816    |   |   | 28,249,200 |   |
| Issued                  on options                                            |   |                               | 1,286,170   |                            |   | -              |   |      | (398,727  | ) |   | 887,443 |   |
| Issued                  on warrants                                           |   |                               | 3,682,205   |                            |   | -              |   |      | -         |   |   | 3,682,205 |   |
| 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                           |   |                               | 35,413,170  |                            |   | -              |   |      | -         |   |   | 35,413,170 |   |
| 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    |   |                               | 177,369,532 |                            |   | (90,933,372    | )      |      | 2,183,380 |   |   | 88,619,540 |   |
|                                                                          |   |                               |        |                            |   |           |   |      |      |   |   |   |   |
| 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 |   |                               | -           |                            |   | (1,162,980     | )      |      | -         |   |   | (1,162,980 | ) |
|                                                                          |   |                               |        |                            |   |           |   |      |      |   |   |   |   |
| Total                  shareholders' equity under Cdn. GAAP, June 30, 2006    |   | $                                  | 177,369,532 |                            | $      | (86,566,501    | )      | $         | 3,944,492 |   | $ | 94,747,523 |   |

----

**YM        BIOSCIENCES INC. **

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

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

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**YM        BIOSCIENCES INC. **

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**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 |   |

|                       |   |                                      |    |                                 |   |                                   |   |
|----------------------------|--------|-------------------------------------------|---------|--------------------------------------|--------|----------------------------------------|--------|
|                       |   |                                      |    |                                 |   | **From                  inception on** |   |
|                       |   | **Years                  ended June 30,** |    | **August                  17, 1994** |   |
| **2006**                   |   | **2005**                                  |    | **2004**                             |   | **to                  June 30, 2006**  |   |
| $                  133,779 |   | $                                         | 585,241 |                                 | $      | 429,329                                |   | $ | 2,512,693 |   |

----

**YM        BIOSCIENCES INC. **

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

|                                                                                 |   |     |        |     |   |        |   |
|--------------------------------------------------------------------------------------|--------|----------|-------------|----------|--------|-------------|--------|
|                                                                                 |   | **2006** |        | **2005** |   | **2004**    |   |
| Pro                  forma revenue                                                   |   | $        | 4,180,287   |     | $      | 2,973,452   |   | $ | 915,496 |   |
| Pro                  forma loss                                                      |   |     | (35,778,180 | )        |   | (32,485,406 | )      |   | (18,851,263 | ) |
| Pro                      forma                      basic and diluted loss per share |   |     | (0.74       | )        |   | (0.82       | )      |   | (0.71 | ) |

**17.   **
**Financial        instruments:**

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**YM        BIOSCIENCES INC. **

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**18.   **
**Subsequent        event:**