---

Consolidated Financial Statements
(Expressed in United States dollars)

YUKON-NEVADA GOLD CORP.

Years ended December 31, 2010, 2009
and 2008

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MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying consolidated financial statements of
Yukon-Nevada Gold Corp. (the Company) have been prepared by management in
accordance with accounting principles generally accepted in Canada and
reconciled to US generally accepted accounting principles, and within the
framework of the summary of significant accounting policies disclosed in the
notes to these consolidated financial statements.

A system of internal accounting control is maintained in order
to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with managements
authorization. This system includes established policies and procedures, the
selection and training of qualified personnel and an organization providing for
appropriate delegation of authority and segregation of responsibilities.

The Audit Committee of the Board of Directors meets
periodically with management and the Companys independent auditors to review
the scope and results of their annual audit and to review the consolidated
financial statements and related financial reporting matters prior to submitting
the consolidated financial statements to the Board of Directors for approval.
The Audit Committee is appointed by the Board of Directors and all of its
members are independent directors. The Audit Committee is responsible for
engaging or re-appointing the external auditors.

The consolidated financial statements have been audited by
external auditors, Deloitte & Touche LLP. Their report outlines the scope of
their examination and opinion on the consolidated financial statements.

|Robert Baldock        | Shaun Heinrichs      
|----------------------- | -----------------------
|                        |                        
|Robert Baldock          | Shaun Heinrichs        
|President and           | Chief Financial Officer
|Chief Executive Officer |                        

March 31, 2011

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|                          | Deloitte & Touche
      LLP
|------------------------- | ---------------------------
|28001055 Dunsmuir Street
|4 Bentall Centre         
|P.O. Box 49279           
|Vancouver BC V7X 1P4     
|Canada                   
|                         
|Tel: 604-669-4466        
|Fax: 604-685-0395        
|www.deloitte.ca          

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of Yukon-Nevada Gold
Corp.

We have audited the accompanying consolidated financial
statements of Yukon-Nevada Gold Corp. and subsidiaries (the Company), which
comprise the consolidated balance sheet as at December 31, 2010, and the
consolidated statements of operations and comprehensive loss, shareholders'
equity, and cash flows for the year ended December 31, 2010, and a summary of
significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles, and for such internal control
as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to
fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We conducted our audit in
accordance with Canadian generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances. An
audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Yukon-Nevada Gold
Corp. and subsidiaries as at December 31, 2010, and the results of their
operations and their cash flows for the year ended December 31, 2010 in
accordance with Canadian generally accepted accounting principles.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 in
the consolidated financial statements which indicates that the Company has
incurred net losses over the past several years and has a working capital
deficit in the amount of $38.6 million, and has an accumulated deficit of $251.0
million. These conditions, along with other matters as set forth in Note 1,
indicate the existence of material uncertainties that may cast significant doubt
about the Companys ability to continue as a going concern.

Other Matter

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Company's
internal control over financial reporting as of December 31, 2010, based on the
criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 31, 2011 expressed an adverse opinion on the Companys internal
control over financial reporting because of a material weakness.

The consolidated statement of financial position of
Yukon-Nevada Gold Corp. as at December 31, 2009 and the consolidated statement
of operations and comprehensive loss, consolidated statement of changes in
equity and consolidated statements of cash flows for the year then ended were
audited by another auditor who issued an unmodified opinion on those statements
on March 26, 2010.

(Signed) Deloitte & Touche LLP

Independent Registered Chartered Accountants Vancouver,
Canada March 31, 2011

1

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Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of Yukon-Nevada Gold
Corp.

We have audited the internal control over financial reporting
of Yukon-Nevada Gold Corp. and subsidiaries (the Company) as of December 31,
2010, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Managements Report on
Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our
audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a
process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar
functions, and effected by the company's board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud
may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company's financial
statements will not be prevented or detected and corrected on a timely basis.
The Companys controls over inventory were not designed or operating
effectively. Specifically i) the design and operation of the work-in-process
reconciliations to track movement of ounces through the refinery were not
performed on a timely basis and did not maintain an accurate record of ounces in
the refinery. This resulted in the loss of 2,700 gold ounces as disclosed in the
September 30, 2010 quarterly financial statements; and ii) additional
deficiencies were identified in the operation of controls around reconciliations
of finished gold. The combination of these deficiencies resulted in an
assessment of a material weakness in inventory as at December 31, 2010. This
material weakness was considered in determining the nature, timing, and extent
of audit tests applied in our audit of the consolidated financial statements as
of and for the year ended December 31, 2010 of the Company and this report does
not affect our report on such financial statements.

In our opinion, because of the effect of the material weakness
described above on the achievement of the objectives of the control criteria,
the Company has not maintained effective internal control over financial
reporting as of December 31, 2010, based on the criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2010 of the Company and our report dated March
31, 2011 expressed an unqualified opinion on those financial statements.

(Signed) Deloitte & Touche LLP

Independent Registered Chartered Accountants Vancouver,
Canada March 31, 2011

2

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|YUKON-NEVADA GOLD CORP.         
|--------------------------------
|Consolidated Balance Sheets     
|(In thousands of US dollars)    
|                                
|As at December 31, 2010 and 2009

|                                                  |   | 2010     |   |   | 2009     |  
|------------------------------------------------- | - | -------- | - | - | -------- | -
|                                                  |   |          |   |   |          |  
|Assets                                            |   |          |   |   |          |  
|Current assets:                                   |   |          |   |   |          |  
|Cash and cash
      equivalents                   | $ | 2,400    |   | $ | 185      |  
|Accounts receivable and prepaid
      expenses    |   | 4,505    |   |   | 4,549    |  
|Inventories
      (note 5)                        |   | 21,280   |   |   | 9,930    |  
|Future income taxes (note 16)                     |   | -        |   |   | 895      |  
|                                                  |   | 28,185   |   |   | 15,559   |  
|                                                  |   |          |   |   |          |  
|Restricted funds (note 6)                         |   | 32,248   |   |   | 29,175   |  
|Property, plant and equipment (note 7)            |   | 88,625   |   |   | 89,270   |  
|Mineral properties (note 8)                       |   | 67,926   |   |   | 60,526   |  
|Other assets (note
      10)                      |   | 828      |   |   | 911      |  
|                                                  |   |          |   |   |          |  
|                                                  | $ | 217,812  |   | $ | 195,441  |  
|                                                  |   |          |   |   |          |  
|Liabilities and Shareholders Equity              |   |          |   |   |          |  
|Current liabilities:                              |   |          |   |   |          |  
|Accounts payable and accrued
      liabilities    | $ | 48,949   |   | $ | 39,564   |  
|Current portion
      of long-term debt (note 14) |   | 8,926    |   |   | -        |  
|Forward contract (note 12)                        |   | 8,901    |   |   |          |  
|Deferred revenue                                  |   | -        |   |   | 4,838    |  
|                                                  |   | 66,776   |   |   | 44,402   |  
|Other long-term liabilities (note 15)             |   | 18       |   |   | 50       |  
|Asset retirement obligations (note 13)            |   | 39,550   |   |   | 35,907   |  
|Long-term debt (note 14)                          |   | 15,030   |   |   | -        |  
|Future income taxes (note 16)                     |   | 15,977   |   |   | 15,372   |  
|                                                  |   | 137,351  |   |   | 95,731   |  
|Shareholders' equity                              |   |          |   |   |          |  
|Share capital
      (note 17)                     |   | 247,470  |   |   | 227,075  |  
|Warrants (note 17)                                |   | 65,063   |   |   | 17,737   |  
|Contributed
      surplus                         |   | 16,614   |   |   | 10,489   |  
|Accumulated other comprehensive
      income      |   | 2,273    |   |   | 2,273    |  
|Deficit                                           |   | (250,959 | ) |   | (157,864 | )
|                                                  |   | 80,461   |   |   | 99,710   |  
|                                                  |   |          |   |   |          |  
|Going concern (note 1)                            |   |          |   |   |          |  
|Commitments and contingencies (note 22)           |   |          |   |   |          |  
|Subsequent event (note 24)                        |   |          |   |   |          |  
|                                                  |   |          |   |   |          |  
|                                                  | $ | 217,812  |   | $ | 195,441  |  

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

|Robert
      Baldock | Director | Graham C. Dickson | Director
|---------------------- | -------- | ------------------- | --------

3

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|YUKON-NEVADA GOLD CORP.                                                   
|--------------------------------------------------------------------------
|Consolidated Statements of Operations and Comprehensive
      Loss        
|(In thousands of US dollars, except for share and per
      share amounts)
|                                                                          
|Years ended December 31, 2010, 2009 and 2008                              

|                                                                        |   | 2010        |   |   | 2009        |   |   | 2008        |  
|----------------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                        |   |             |   |   |             |   |   |             |  
|Gold sales                                                              | $ | 71,370      |   | $ | 9,913       |   | $ | 48,981      |  
|Cost of gold sold                                                       |   | 83,378      |   |   | 26,049      |   |   | 58,742      |  
|Gross margin - mining operations                                        |   | (12,008     | ) |   | (16,136     | ) |   | (9,761      | )
|Temporary shutdown costs (note 9)                                       |   | -           |   |   | 10,550      |   |   | 13,115      |  
|Depreciation, depletion, and amortization                               |   | 5,428       |   |   | 6,271       |   |   | 9,279       |  
|Accretion of asset
      retirement obligation (note 13)                |   | 2,879       |   |   | 2,890       |   |   | 2,117       |  
|Loss from mine operations                                               |   | (20,315     | ) |   | (35,847     | ) |   | (34,272     | )
|Impairment of mineral properties and equipment (note 8)                 |   | 1,625       |   |   | 653         |   |   | 76,363      |  
|Exploration expenditure                                                 |   | 963         |   |   | -           |   |   | -           |  
|General and administration expenses                                     |   | 2,563       |   |   | 3,136       |   |   | 4,090       |  
|Stock-based compensation (note 17)                                      |   | 4,112       |   |   | 788         |   |   | 1,056       |  
|Loss from operations                                                    |   | (29,578     | ) |   | (40,424     | ) |   | (115,781    | )
|Other (loss) income:                                                    |   |             |   |   |             |   |   |             |  
|Interest and other income (loss)
      (note 4)                         |   | (14,122     | ) |   | (7          | ) |   | 4,635       |  
|Loss on forward
      sales arrangements                                |   | -           |   |   | -           |   |   | (1,904      | )
|Restructuring charges (note 9)                                          |   | -           |   |   | -           |   |   | (4,532      | )
|Foreign exchange
      (loss) gain                                      |   | (1,210      | ) |   | (2,125      | ) |   | 814         |  
|Interest and financing
      charge (notes 14 and 17)                   |   | (49,730     | ) |   | (248        | ) |   | (667        | )
|                                                                        |   | (65,062     | ) |   | (2,380      | ) |   | (1,654      | )
|Loss before income taxes                                                |   | (94,640     | ) |   | (42,804     | ) |   | (117,435    | )
|Income tax (expense) recovery (note 16)                                 |   |             |   |   |             |   |   |             |  
|Current                                                                 |   |             |   |   | -           |   |   | -           |  
|Future                                                                  |   | 1,545       |   |   | 144         |   |   | 12,075      |  
|                                                                        |   | 1,545       |   |   | 144         |   |   | 12,075      |  
|                                                                        |   |             |   |   |             |   |   |             |  
|Loss for the year                                                       |   | (93,095     | ) |   | (42,660     | ) |   | (105,360    | )
|                                                                        |   |             |   |   |             |   |   |             |  
|                                                                        |   |             |   |   |             |   |   |             |  
|Comprehensive loss for the year                                         | $ | (93,095     | ) | $ | (42,660     | ) | $ | (105,360    | )
|                                                                        |   |             |   |   |             |   |   |             |  
|Loss per share  basic and diluted                                      | $ | (0.14       | ) | $ | (0.13       | ) | $ | (0.57       | )
|Weighted average
      number of shares outstanding (basic and diluted) |   | 646,540,724 |   |   | 338,967,089 |   |   | 185,124,008 |  

See accompanying notes to consolidated financial statements.

4

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|YUKON-NEVADA GOLD CORP.                                           
|------------------------------------------------------------------
|Consolidated Statements of Shareholders Equity                   
|(In thousands of US dollars, except number of common
      shares)
|                                                                  
|Years ended December 31, 2010, 2009 and 2008                      

|                                      |  |                 |         |  | Common shares  |         |  |             |        |  |               |        |  |             |       |  |                     |          |   |          |       
|------------------------------------- |  | --------------- | ------- |  | -------------- | ------- |  | ----------- | ------ |  | ------------- | ------ |  | ----------- | ----- |  | ------------------- | -------- | - | -------- | ------
|                                      |  |                 |         |  |                |         |  |             |        |  |               |        |  |             |       |  | Accumulated         |          |   |          |       
|                                      |  |                 |         |  |                |         |  | Amount      |        |  | Warrants      |        |  |             |       |  | other               |          |   |          |       
|                                      |  |                 |         |  |                |         |  | (revised    |        |  | (revised      |        |  | Contributed |       |  | comprehensive       |          |   |          |       
|                                      |  | note
      17   |         |  | Shares (000's) |         |  | note
    3) |        |  | note
      3) |        |  | surplus     |       |  | income
      (loss) |          |   | Deficit  |       
|Balance at January 1, 2008            |  |                 |         |  | 175,133        |         |  | 188,366     |        |  | 16,957        |        |  | 8,092       |       |  | 2,273               |          |   | (9,844   | )     
|Issued on private placement           |  | (b)(vii)        |         |  | 79,800         |         |  | 1,470       |        |  | 1,829         |        |  | -           |       |  | -                   |          |   | -        |       
|Flow through share issue              |  | (b)(viii)       |         |  | 10,050         |         |  | 19,901      |        |  | -             |        |  | -           |       |  | -                   |          |   | -        |       
|Exercise of options                   |  |                 |         |  | 267            |         |  | 356         |        |  | -             |        |  | (147        | )     |  | -                   |          |   | -        |       
|Share issue costs                     |  | (b)(vii)        |         |  | 7,400          |         |  | (606        | )      |  | 169           |        |  | (307        | )     |  | -                   |          |   | -        |       
|Flow through share renunciation       |  |                 |         |  | -              |         |  | (2,709      | )      |  | -             |        |  | -           |       |  | -                   |          |   | -        |       
|Stockbased compensation               |  | (d)             |         |  | -              |         |  | -           |        |  | -             |        |  | 1,056       |       |  | -                   |          |   | -        |       
|Loss for the year                     |  |                 |         |  | -              |         |  | -           |        |  | -             |        |  | -           |       |  | -                   |          |   | (105,360 | )     
|Other                                 |  |                 |         |  | 5              |         |  | -           |        |  | 152           |        |  | -           |       |  | -                   |          |   | -        |       
|Balance at December 31, 2008          |  |                 |         |  | 272,655        |         |  | 206,778     |        |  | 19,107        |        |  | 8,694       |       |  | 2,273               |          |   | (115,204 | )     
|Issued on private placement           |  | (b)(iii)-(vi)   |         |  | 90,383         |         |  | 3,686       |        |  | 2,854         |        |  | -           |       |  | -                   |          |   | -        |       
|Share issue costs                     |  | (b)(v)/(vi)     |         |  | 1,805          |         |  | 111         |        |  | 34            |        |  | (80         | )     |  | -                   |          |   | -        |       
|Exercise of warrants                  |  |                 |         |  | 225,883        |         |  | 21,881      |        |  | (3,603        | )      |  | -           |       |  | -                   |          |   | -        |       
|Expiry of warrants                    |  |                 |         |  | -              |         |  | -           |        |  | (655          | )      |  | 655         |       |  | -                   |          |   | -        |       
|Exercise of options                   |  |                 |         |  | 120            |         |  | 30          |        |  | -             |        |  | (13         | )     |  | -                   |          |   | -        |       
|Flow through share renunciation       |  |                 |         |  | -              |         |  | (5,411      | )      |  | -             |        |  | -           |       |  | -                   |          |   | -        |       
|Stockbased compensation               |  | (d)             |         |  | -              |         |  | -           |        |  | -             |        |  | 1,233       |       |  | -                   |          |   | -        |       
|Loss
      for the year               |  |                 |         |  | -              |         |  | -           |        |  | -             |        |  | -           |       |  | -                   |          |   | (42,660  | )     
|Balance at December 31, 2009          |  |                 |         |  | 590,846        |         |  | 227,075     |        |  | 17,737        |        |  | 10,489      |       |  | 2,273               |          |   | (157,864 | )     
|Issued on private placement           |  | (b)(ii) (c)     |         |  | 22,727         |         |  | 4,807       |        |  | -             |        |  | -           |       |  | -                   |          |   | -        |       
|Flow through share issue              |  | (b)(i)          |         |  | 34,559         |         |  | 9,248       |        |  | -             |        |  | -           |       |  | -                   |          |   | -        |       
|Share issue costs                     |  | (b)(i)          |         |  | -              |         |  | (739        | )      |  | 128           |        |  | -           |       |  | -                   |          |   | -        |       
|Exercise of warrants                  |  | (c)             |         |  | 30,627         |         |  | 4,092       |        |  | (1,021        | )      |  | -           |       |  | -                   |          |   | -        |       
|Expiry of warrants                    |  | (c)             |         |  | -              |         |  | -           |        |  | (1,172        | )      |  | 1,172       |       |  | -                   |          |   | -        |       
|Exercise of options                   |  | (d)             |         |  | 2,398          |         |  | 776         |        |  | -             |        |  | (286        | )     |  | -                   |          |   | -        |       
|Forfeiture of unvested options        |  |                 |         |  | -              |         |  | -           |        |  | -             |        |  | (83         | )     |  | -                   |          |   | -        |       
|Issuance of inducement
      warrants |  | c(i)            |         |  | -              |         |  | -           |        |  | 43,632        |        |  | -           |       |  | -                   |          |   | -        |       
|Equity portion of debt                |  | c(ii)           |         |  | -              |         |  | -           |        |  | 5,759         |        |  | -           |       |  | -                   |          |   | -        |       
|Shares issued for services            |  |                 |         |  | 4,505          |         |  | 1,207       |        |  | -             |        |  | -           |       |  | -                   |          |   | -        |       
|Stockbased compensation               |  | (d)             |         |  | -              |         |  | -           |        |  | -             |        |  | 5,322       |       |  | -                   |          |   | -        |       
|Loss for the year                     |  |                 |         |  | -              |         |  | -           |        |  | -             |        |  | -           |       |  | -                   |          |   | (93,095  | )     
|Other                                 |  | note
      4(i) |         |  | 2,005          |         |  | 1,004       |        |  | -             |        |  | -           |       |  | -                   |          |   | -        |       
|Balance at December 31, 2010          |  |                 | 687,667 |  |                | 247,470 |  |             | 65,063 |  |               | 16,614 |  |             | 2,273 |  |                     | (250,959 | ) | $        | 80,461

See accompanying notes to consolidated financial statements.

5

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|YUKON-NEVADA GOLD CORP.                     
|--------------------------------------------
|Consolidated Statements of Cash Flows       
|(In thousands of US dollars)                
|                                            
|Years ended December 31, 2010, 2009 and 2008

|                                                           |   | 2010    |   |   | 2009    |   |   | 2008     |  
|---------------------------------------------------------- | - | ------- | - | - | ------- | - | - | -------- | -
|Cash provided by (used
      in):                          |   |         |   |   |         |   |   |          |  
|                                                           |   |         |   |   |         |   |   |          |  
|Operations                                                 |   |         |   |   |         |   |   |          |  
|Net loss
      for the year                                | $ | (93,095 | ) | $ | (42,660 | ) | $ | (105,360 | )
|Reclamation payments                                       |   | -       |   |   | -       |   |   | 195      |  
|Items not
      affecting cash:                            |   |         |   |   |         |   |   |          |  
|Depreciation, depletion, and
      amortization            |   | 5,428   |   |   | 6,271   |   |   | 9,279    |  
|Accretion of asset retirement obligation                   |   | 2,879   |   |   | 2,890   |   |   | 2,117    |  
|Impairment of mineral properties and
      equipment       |   | 1,625   |   |   | 653     |   |   | 76,363   |  
|Stock-based compensation                                   |   | 5,322   |   |   | 1,027   |   |   | 1,056    |  
|Dilution loss on joint venture                             |   | -       |   |   | 45      |   |   | -        |  
|Gain on disposal of asset                                  |   | -       |   |   | 199     |   |   | (2,450   | )
|Unrealized (gain) loss on forward sales                    |   | -       |   |   | -       |   |   | (952     | )
|loss or gain on disposal of marketable securities          |   | (339    | ) |   | -       |   |   | -        |  
|Loss on settlement of deferred revenue                     |   | 3,071   |   |   | -       |   |   | -        |  
|Interest charges for deferred revenue                      |   | 1,300   |   |   | -       |   |   | -        |  
|Future income tax (recovery) expense                       |   | (1,545  | ) |   | (144    | ) |   | (12,075  | )
|Unrealized foreign exchange (gain)loss                     |   | 1,386   |   |   | 1,978   |   |   | (1,668   | )
|Warrants issued for debt financing                         |   | 43,632  |   |   | -       |   |   | 152      |  
|Expenses settled in shares                                 |   | 2,211   |   |   | -       |   |   | -        |  
|Accretion on long term debt                                |   | 3,681   |   |   | -       |   |   | -        |  
|Loss on derivatives                                        |   | 7,163   |   |   | -       |   |   | -        |  
|Change in non cash working capital (note
      18)         |   | 355     |   |   | 10,352  |   |   | 14,931   |  
|Cash used by operating activities                          |   | (16,926 | ) |   | (19,389 | ) |   | (18,412  | )
|                                                           |   |         |   |   |         |   |   |          |  
|Investing                                                  |   |         |   |   |         |   |   |          |  
|Restricted
      funds                                     |   | (2,812  | ) |   | (328    | ) |   | 7,476    |  
|Short-term investments                                     |   | -       |   |   | -       |   |   | 173      |  
|Mineral
      property expenditures                        |   | (8,276  | ) |   | (3,477  | ) |   | (29,104  | )
|Property, plant and equipment expenditures                 |   | (5,204  | ) |   | (2,629  | ) |   | (25,703  | )
|Purchase of
      marketable securities                    |   | (308    | ) |   | -       |   |   | -        |  
|Proceeds from sale of marketable securities                |   | 648     |   |   | -       |   |   | -        |  
|Proceeds from sale of assets                               |   | -       |   |   | 112     |   |   | 4,480    |  
|Cash used by
      investing activities                    |   | (15,952 | ) |   | (6,322  | ) |   | (42,678  | )
|                                                           |   |         |   |   |         |   |   |          |  
|Financing                                                  |   |         |   |   |         |   |   |          |  
|Notes payable and capital leases                           |   | (33     | ) |   | (45     | ) |   | (1,323   | )
|Common
      shares issued for cash                        |   | 14,055  |   |   | 6,540   |   |   | 23,201   |  
|Proceeds from issuance of debt                             |   | 24,800  |   |   | -       |   |   | -        |  
|Settlement
      of deferred revenue                       |   | (9,559  | ) |   | -       |   |   | -        |  
|Repayment of debt                                          |   | (4,034  | ) |   | -       |   |   | -        |  
|Proceeds
      from forward prepaid contract (note 12)     |   | 7,004   |   |   | -       |   |   | -        |  
|Share issue costs                                          |   | (611    | ) |   | -       |   |   | (995     | )
|Common shares issued upon exercise of shareholder warrants |   | 3,071   |   |   | 18,278  |   |   | -        |  
|Common shares
      issued upon exercise of stock options  |   | 490     |   |   | 17      |   |   | 209      |  
|Cash provided by financing
      activities                |   | 35,183  |   |   | 24,790  |   |   | 21,092   |  
|                                                           |   |         |   |   |         |   |   |          |  
|Effect of exchange rate changes on cash                    |   | (90     | ) |   | -       |   |   | -        |  
|Increase (decrease) in
      cash and cash equivalents     |   | 2,215   |   |   | (921    | ) |   | (39,998  | )
|                                                           |   |         |   |   |         |   |   |          |  
|Cash and cash equivalents, beginning of
      year         |   | 185     |   |   | 1,106   |   |   | 41,104   |  
|Cash and cash equivalents, end of year                     | $ | 2,400   |   | $ | 185     |   | $ | 1,106    |  

Supplemental cash flow information (note 18)

See accompanying notes to consolidated financial statements.

6

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

|1. | Going Concern:
|-- | --------------

Yukon-Nevada Gold Corp.s (the Company)
business is gold mining and related activities, including exploration,
development, extraction, processing and reclamation. Gold has been produced in
Nevada, USA (Jerritt Canyon) and gold exploration activities are being carried
out in Nevada, USA (Jerritt Canyon) and the Yukon Territory, Canada (Ketza River
and Silver Valley).

For properties other than the producing
mine at Jerritt Canyon, the Company is in the process of mineral exploration and
has yet to determine whether these properties contain reserves that are
economically recoverable. The recoverability of the amount shown for these
mineral properties is dependent upon the existence of economically recoverable
reserves, confirmation of the Company's ownership interest in the mining claims,
the ability of the Company to obtain necessary financing to complete the
development, and upon future profitable production or proceeds from the
disposition of the mineral properties.

During 2008 the Company determined that
due to operational issues and a stop order issued by the Nevada Division of
Environmental Protection (NDEP) the Jerritt Canyon mine was not economically
viable and the mine was temporarily shut down. As a result of the shutdown an
impairment charge of $76.4 million was recorded against the Jerritt Canyon
assets (note 9).

The Company addressed the operational
and environmental issues during the shutdown period and operations at the mine
recommenced in 2009. The Company has made a loss in the current year and at
December 31, 2010 the Company had a working capital deficiency of $38.6 million
and a $16.9 million outflow of cash from operations.

These consolidated financial statements
have been prepared on the basis that the Company will continue as a going
concern. The conditions described in the preceding paragraphs may cast
substantial doubt about the Companys ability to continue as a
going concern. The Companys ability to continue as a going concern and recover
its investment in property, plant, and equipment and mineral properties is
dependent on its ability to attain profitable operations under prevailing market
prices or obtain additional financing in order to meet its planned business
objectives. However, there can be no assurance that the Company will be able to
obtain additional financial resources, achieve profitability or positive cash
flows. If the Company is unable to generate positive cash flows or obtain
adequate financing, the Company will need to further curtail operations and
exploration activities. Failure to continue as a going concern would require
that the Company's assets and liabilities be restated on a liquidation basis
which could differ significantly from the going concern basis.

During the year ended December 31,
2010, management raised $45.8 million through issuance of equity and debt
demonstrating the Companys success with raising financing for future
operations. On February 4, 2011 the Company announced that it proposes to raise
additional working capital by offering an incentive for the early exercise (the
"Transaction") of eight series of unlisted outstanding share purchase warrants
of the Company (the "Warrants"), with the intention of raising an additional
$59.3 million. Management further successfully closed a private placement in
March 2011 for gross proceeds of $7.1 million from the issuance of 8,334,882
flow-through shares. (note 24).

7

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

|2. | Significant accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The financial statements of the Company have been
      prepared by management in accordance with Canadian generally accepted
      accounting principles (GAAP). Material measurement differences between
      Canadian GAAP and U.S. GAAP are disclosed in Note 23. The financial
      statements have, in managements opinion, been properly prepared within
      reasonable limits of materiality and within the framework of the
      accounting policies summarized below:
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| | Ketza
      River Holdings Ltd. (Yukon)            |  | 100%  | 
| | -------------------------------------------------- |  | ----- | 
| | YGC Resources Arizona Inc. (Arizona)               |  | 100%  | 
| | Queenstake Resources Ltd. (British
      Columbia) |  | 100%  | 
| | Queenstake Resources U.S.A. Inc. (Delaware)        |  | 100%  | 
| | Castle Exploration Inc. (Colorado)                 |  | 100%  | 
| | YS Mining Company
      - Joint Venture (Yukon)    |  | 41.7% | 

| | (b) | Cash and cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Cash and cash equivalents include cash and short-term
      investments that are readily convertible to cash and have a maturity date
      within 90 days of the purchase date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (c) | Inventories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Stockpiles represent ore that has been mined or purchased
      and is available for future processing. Stockpiles are measured by
      estimating the number of tons added and removed from the stockpile, the
      number of contained ounces (based on assay data) and the estimated
      metallurgical recovery rates (based on expected processing method).
      Stockpile ore tonnages are verified by periodic surveys. Costs are
      allocated to stockpiles based on relative values of material stockpiled
      and processed using normalised mining costs incurred up to the point of
      stockpiling the ore. These costs include direct labor, mine-site overhead
      expenses, and depreciation and depletion on Jerritt Canyon mine equipment
      and mineral properties.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Work-in-process inventories are valued at the lower of
      average production cost and net realizable value, after a reasonable
      allowance for further processing and sales costs. Production costs include
      the cost of raw materials, direct labor, mine-site overhead expenses and
      depreciation and depletion of property, plant and equipment and mineral
      properties. Purchased ore is recorded at cost based on the contracted
      purchase price, net of an allowance for the Companys processing charged
      to a third party.                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Finished goods inventories are valued at the lower of
      average production cost and net realizable value. Net realizable value is
      after a reasonable allowance for sales costs. Materials and supplies
      inventories are valued at the lower of average cost and net realizable
      value, net of a provision for obsolescence with respect to identified
  inventory items.                                                                                                                                                                                                                                                                                                                                                                                                          

8

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (f) | Property, plant and equipment:                                                                                                                                                                                                                                                                           
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                          
| |     | Property, plant and equipment is recorded at cost and
      depreciated on a straight-line basis over the estimated useful lives of
      the assets. Property, plant and equipment used in exploration is
      depreciated and included in mineral properties. Depreciation rates are as
      follows:

| | Buildings                      |  | 20 years                                       | 
| | ------------------------------ |  | ---------------------------------------------- | 
| | Computer hardware and software |  | 3 years                                        | 
| | Equipment and facilities       |  | 5 - 20 years                                   | 
| | Furniture and fixtures         |  | 7 years                                        | 
| | Leasehold improvements         |  | straight-line over the term of
      the lease | 
| | Vehicles                       |  | 3 - 7
      years                              | 

| | (g) | Mineral properties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The acquisition cost of a mineral property and related
      exploration expenditures net of any option payments or income tax credits
      received are deferred until the property is placed into production, is
      sold or abandoned or determined to be impaired. These deferred
      expenditures are amortized on a units-of-production basis over the
      estimated useful life of the property based on proven and probable
      reserves following commencement of production or written off if the
      property is abandoned or sold or determined to be impaired.                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (h) | Long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The Company monitors the recoverability of long-lived
      assets based on factors such as current market value, future asset
      utilization, business climate and future undiscounted cash flows expected
      to result from the use of the related assets. The Company records an
      impairment loss in the period it is determined that the carrying amount of
      the asset may not be recoverable. The impairment loss is calculated as the
      amount by which the carrying amount of the asset exceeds its fair
      value.                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (i) | Asset retirement obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The fair value of an asset retirement obligation is
      recorded in the period in which it is incurred. When the liability is
      initially recorded, the cost is capitalized by increasing the carrying
      amount of the related long-lived asset. Over time, the liability is
      adjusted to reflect the passage of time (accretion expense) and for
      changes in estimated future cash flows. Accretion expense is charged to
      the statement of operations, while adjustments related to changes in
      estimated cash flows are recorded as increases or decreases in the
      carrying value of the asset. The capitalized cost is amortized over the
      useful life of the related asset. Upon settlement of the liability, a gain
      or loss is recorded if the actual costs incurred are different from the
      liability recorded.                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (j) | Stock based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The Company has established a stock-based compensation
      plan as described in note 17(d). The Company measures stock-based
      compensation at fair value and recognizes costs over the vesting period.
      The Company uses the Black-Scholes option pricing model to determine the
      fair value of each stock option on the date of the grant. The value of the stock options
      issued to directors, employees and service providers is expensed as
      stock-based compensation and is credited to contributed surplus. The value
      of the stock options issued to agents in exchange for brokerage services
      is netted against share capital as share issuance costs and credited to
      contributed surplus. Upon exercise, the proceeds of the options are
      credited to capital stock at the option price and the fair value of the
      options, as previously recorded, is reclassified from contributed surplus
  to capital stock.

9

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (k) | Revenue recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | Revenue is recognized when there is persuasive evidence
      that a metal sale contract exists, legal title and risk has passed and the
      sales price and timing of payment have been agreed upon with the purchaser
      and collection is reasonably assured. Sales revenue is recognized at the
      fair value of consideration received. The sales price is fixed at the date
      of delivery based on the terms of the contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (l) | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The Company recognizes income tax assets and liabilities
      using the asset and liability method of accounting for income taxes. Under
      this method, current income taxes are recognized for the estimated taxes
      payable for the current year. Future income tax assets and liabilities are
      recognized for loss carryforwards and temporary differences between the
      tax and accounting bases of assets and liabilities and are measured using
      enacted or substantively enacted tax rates that are expected to apply when
      the related assets are realized or the liabilities are settled. A
      valuation allowance is provided against future income tax assets to the
      extent that realization is not considered to be more likely than
    not.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (m) | Flow-through shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The Company has financed a portion of its exploration
      expenditures through the issuance of flow-through shares. Under the terms
      of these share issues, the tax attributes of the related expenditures are
      renounced to subscribers. The Company recognizes a future income tax
      liability, with an offset to share capital, when it renounces these
      expenditures to shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (n) | Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | When the Company issues units that are comprised of a
      combination of common shares and warrants, the value is assigned to common
      shares and warrants based on their relative fair values. The fair value of
      the common shares is determined by the closing price on the date of the
      transaction and the fair value of the warrants is determined based on a
      Black-Scholes option pricing model.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (o) | Use of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The preparation of financial statements in conformity
      with generally accepted accounting principles requires management to make
      estimates and judgments that affect the reported amounts of assets and
      liabilities at the date of the financial statements and revenues and
      expenses for the period. By their nature, these estimates and judgments
      are subject to measurement uncertainty and the effect on the financial
      statements of changes in such estimates in future periods could be
      significant. Significant estimates and judgments include but are not
      limited to those relating to the assessment of the Companys ability to
      continue as a going concern, mineral properties including amount of
      expenditures to be capitalized, estimates required to determine whether
      impairment of long lived assets is required, asset retirement obligations,
      the useful lives and depreciation of property, plant and equipment,
      inventory, the valuation of stock options, share
purchase warrants and agent's options issued, and the recognition
      of income tax assets and liabilities. Actual results may differ from those
  estimates and judgments.

10

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (p) | Loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Basic loss per share is computed by dividing the amount
      of loss for the period by the weighted average number of common shares
      outstanding during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Diluted loss per share is calculated using the treasury
      stock method. Under the treasury stock method, the weighted average number
      of shares outstanding used in the calculation of diluted loss per share
      assumes that the deemed proceeds received from the exercise of stock
      options, agents' options and share purchase warrants that are "in the
      money" would be used to repurchase common shares of the Company at the
      average market price during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Existing stock options (note 17(d)) and share purchase
      warrants (note 17(c)) have not been included in the computation of diluted
      loss per share as to do so would be anti-dilutive. Accordingly, basic and
      diluted losses per share amounts are the same.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (q) | Investment in joint venture:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The Company conducts a portion of its exploration
      business through the joint venture YS Mining Company. The joint venture is
      bound by a contractual agreement which establishes the joint control for
      each of the venturers. The Company records its proportionate share of the
      joint ventures assets, liabilities, revenues and operating
costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (r) | Financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Financial assets and financial liabilities, including
      derivatives, are measured at fair value on initial recognition and
      recorded on the balance sheet. Measurement in subsequent periods depends
      on whether the financial instrument has been classified as
      held-for-trading, available-for-sale, held-to-maturity, loans and
      receivables or other financial liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Financial assets and liabilities held-for-trading are
      measured at fair value with changes in those fair values recognized in the
      statement of operations. Financial assets and financial liabilities
      considered held-to- maturity, loans and receivables, and other financial
      liabilities are measured at amortized cost using the effective interest
      method of amortization. Available-for-sale financial assets are measured
      at fair value with unrealized gains and losses recognized in the
      accumulated other comprehensive income until realized or a loss in value
      is determine to be other than temporary. Investments in equity instruments
      classified as available-for-sale that do not have a quoted market price in
      an active market are measured at cost. Derivative instruments, including
      embedded derivatives, are recorded on the balance sheet at fair value.
      Changes in the fair values of derivative instruments are recognized in the
      statement of operations with the exception of derivatives designated as
      effective cash flow hedges. The Company has no such designated
    hedges.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Transaction costs related to financial instruments are
      expensed when they are incurred, unless they are directly attributable to
      the acquisition or construction of mineral properties, plant and
      equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

11

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (s) | Other comprehensive income/loss:                                                                                                                                                                                                                                                                                          
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                           
| |     | Comprehensive income/loss represents changes in
      shareholders equity during a period arising from transactions and other
      events and circumstances from non-owner sources and other comprehensive
      income includes unrealized gains and losses on financial assets classified
      as available-for-sale.
| |     |                                                                                                                                                                                                                                                                                                                           
| | (t) | Foreign currency translation:                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                           
| |     | The Company uses the U.S. dollar as its functional and
      reporting currency. Therefore accounts denominated in currencies other
      than the U.S. dollar have been translated as follows:                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                           

|3. | Recent accounting pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | a)  Business combinations,
      consolidated financial statements and non-controlling interests:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In January 2009, the CICA issued sections 1582, 1601 and
      1602 to replace the former CICA 1581, Business Combinations and CICA 1600,
      Consolidated Financial Statements and establish a new section for
      accounting for a non-controlling interest in a subsidiary. CICA 1582 is
      effective for business combinations for which the acquisition date is on
      or after the beginning of the first annual reporting period beginning on
      or after January 1, 2011. CICA 3251 Equity has been amended as a result of
      issuing CICA 1602. Amendments apply to those entities that have adopted
      CICA 1602. CICA 1601 and CICA 1602 apply to interim and annual
      consolidated financial statements relating to years beginning on or after
      January 1, 2011.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | b) Financial Instrumentsrecognition and measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In June 2009, the CICA amended Section 3855  Financial
      Instruments  Recognition and Measurement to clarify the application of
      the effective interest method after a debt instrument has been impaired
      and when an embedded prepayment option is separated from its host contract
      at initial recognition for accounting purposes. The amendments are
      applicable for the fiscal year beginning January 1, 2011.                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | c) Comprehensive revaluation of assets
      and liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In August 2009, the CICA amended Section 1625,
      Comprehensive revaluation of assets and liabilities. This section has been
      amended as a result of issuing Business Combinations, Section 1582,
      Consolidated Financial Statements, Section 1601, and Non-controlling
      interests, Section 1602, in January 2009. The amendments apply
      prospectively to comprehensive revaluations of assets and liabilities
      occurring in fiscal years beginning on or after January 1, 2011. Earlier
      adoption is permitted as of the beginning of a fiscal year. If the Company
      adopts this section for a fiscal year beginning before January 1, 2011, it
      also adopts Section 1582.                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | d) Multiple deliverable revenue
      arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In December 2009, the CICA issued EIC-175  Multiple
      Deliverable revenue arrangements. EIC-175 addresses the accounting by a
      vendor for arrangements under which it will perform multiple revenue
      generating activities and how to determine whether an
arrangement contains multiple deliverables. EIC-175 is applicable to revenue
arrangements entered into or materially modified after January 1, 2011.                                                                                                                                                                                                                                                                                                                                                                          

12

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

With the changeover in accounting
standards (note 3e) the changes will not be applicable to the Company as the
Company did not elect to early adopt any of the above accounting pronouncements.

e) International Financial Reporting
Standards (IFRS)

In February 2008, the AcSB announced
that effective January 1, 2011, International Financial Reporting Standards (IFRS), will replace
existing Canadian GAAP for publicly listed companies. The transition from
Canadian GAAP to IFRS will be applicable for the Company for the first quarter
of 2011 when the Company will be required to prepare both current and
comparative financial information using IFRS.

|4. | Interest income and other income (loss)                       
|-- | --------------------------------------------------------------
|   |                                                               
|   | Interest income and other income (loss) is comprised
      of:

| |                                                     |   | 2010    |   |   | 2009 |   |   | 2008  | 
| | --------------------------------------------------- | - | ------- | - | - | ---- | - | - | ----- | 
| |                                                     |   |         |   |   |      |   |   |       | 
| | Provisions for and settlement of lawsuits
      (i) | $ | (4,612  | ) | $ | -    |   | $ | -     | 
| | Settlement of deferred revenue (ii)                 |   | (3,071  | ) |   | -    |   |   | -     | 
| | Loss on derivatives (iii)/(iv)                      |   | (7,163  | ) |   | -    |   |   | -     | 
| | Gain on sale of marketable securities               |   | 339     |   |   | -    |   |   | -     | 
| | Gain on disposal of assets                          |   | -       |   |   | -    |   |   | 2,572 | 
| | Interest income                                     |   | 134     |   |   | -    |   |   | 1,724 | 
| | Other                                               |   | 251     |   |   | (7   | ) |   | 339   | 
| |                                                     | $ | (14,122 | ) | $ | (7   | ) | $ | 4,635 | 

| | (i)  | In the third quarter of 2010, the Company settled the
      dispute between its wholly owned subsidiary, Queenstake Resources U.S.A.
      Inc. ("Queenstake") and Golden Eagle International Inc. ("Golden Eagle"),
      arising out of Queenstake's termination in 2009 of Golden Eagle's
      arrangement to restart operations at the Jerritt Canyon mine. In full
      settlement, Queenstake paid Golden Eagle a total of $3.5 million and
      delivered 2 million shares (valued at $1.0 million) to Golden Eagle during
      the fourth quarter of 2010. The parties have agreed to terms of settlement
      and have filed a stipulation to dismiss the case, without any admission of
      liability by any party. The dismissal includes the dismissal with
      prejudice of counterclaims and third party complaints filed by Golden
      Eagle against Queenstake, the Company, and François Marland, who currently
      serves as a Director of the Company. The parties have agreed to each bear
      their own attorney fees and costs. Of the $4.5 million settlement, $1.1
      million relating to operating costs was accrued in prior periods and $3.4
      million expensed in the current period.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | The Company has also accrued additional amounts in the
      third quarter related to the settlement of the class action initiated by
      certain employees who were laid off in August 2008. Based on a review of
      the potential costs to settle the claim, an additional $0.4 million was
      accrued for possible medical costs and $0.8 million recorded in
      contingency and legal costs for the plaintiffs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (ii) | In 2009, the Company received advance payment of $4.8
      million for three contracts for 6,508 ounces gold at an average price of
      $743 per ounce to be delivered at a series of future dates. It had been
      the Companys intention to deliver gold ounces to settle the contracts,
      however, pursuant to the terms of the debt issued (note 14), the
      commitment was settled in cash in August 2010. The price of the settlement
      was $1,215 per ounce resulting in a loss to the Company of $3.1
    million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

13

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (iii) | As part of the $25.0 million debt issued in the third
      quarter of 2010, $6.8 million of the proceeds was allocated to a gold
      embedded derivative arising from the loan repayments being indexed to the
      gold spot price. This was revalued at December 31, 2010 and resulted in a
      loss of $5.3 million due to the rising gold price (note 14).
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                     
| | (iv)  | A gold forward contract was entered into in November 2010
      which is being accounted for as a derivative. The fair value of the
      derivative was $8.9 million resulting in a loss of $1.9 million being
      recorded in income (note 12).                                                                                                                 

|5. | Inventories:
|-- | ------------

| |                        |   | 2010   |  |   | 2009  | 
| | ---------------------- | - | ------ |  | - | ----- | 
| |                        |   |        |  |   |       | 
| | Finished goods         | $ | 1,597  |  | $ | 1,316 | 
| | Stockpiled ore         |   | 6,839  |  |   | -     | 
| | Purchased ore          |   | 1,682  |  |   | 5,340 | 
| | Work in progress       |   | 8,122  |  |   | 558   | 
| | Materials and supplies |   | 3,040  |  |   | 2,716 | 
| |                        | $ | 21,280 |  | $ | 9,930 | 

All of the Companys inventories on
hand are located at the Jerritt Canyon mine in Nevada, USA. Included in cost of
gold sold and depreciation, depletion and amortization expense on the statement
of loss are total inventory related costs of $6.3 million (2009  $0.6 million,
2008  $3.4 million) and $0.5 million (2009  $0.3 million, 2008  $1.4
million), respectively. As at December 31, 2010, there is a net realizable value
adjustment (expense) of $0.5 million (December 31, 2009 - $0.4 million).

|6. | Restricted funds:
|-- | -----------------

| |                                                            |   | 2010   |  |   | 2009   | 
| | ---------------------------------------------------------- | - | ------ |  | - | ------ | 
| | Chartis commutation account (a)                            | $ | 25,665 |  | $ | 25,580 | 
| | Chartis money market account (a)                           |   | 2,623  |  |   | -      | 
| | Cash restricted for future exploration in
      Canada (b) |   | -      |  |   | -      | 
| | Water use license letter of credit (c)                     |   | 3,104  |  |   | 2,940  | 
| | Workmens' compensation self-insurance                      |   | 431    |  |   | 431    | 
| | Cash pledged as
      security for letters of credit       |   | 425    |  |   | 224    | 
| |                                                            | $ | 32,248 |  | $ | 29,175 | 

| | (a) | The Company purchased from American Insurance Group
      (AIG), now known as Chartis, an environmental risk transfer program (the
      ERTP) (note 10). As part of the ERTP, $25.7 million is held on deposit
      in an interest-bearing account with Chartis (the Commutation Account). The
      Commutation Account principal plus interest earned on the principal is
      used to fund Jerritt Canyon mines ongoing reclamation and mine closure
      obligations. During 2010, the Company earned $0.1 million in interest from
      the commutation account (2009 - $0.4 million).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | In the fourth quarter of 2010 the Company was required to
      provide further surety to the NDEP and the US Forestry Service to fund the
      ongoing reclamation and mine closure obligations. To meet this
      additional surety requirement, the Company deposited $2.6 million
      into two money market accounts with Chartis to back two new surety
    instruments issued to these two agencies.                                                                                                                                                                                     

14

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (b) | During 2010, the Company raised funds by way of a private
      placement of flow-through shares. Under the conditions of this private
      placement, the funds must be spent in 2010 and 2011 on Canadian
      Exploration Expenditures (CEE) on properties located in Canada. A total of
      $3.3 million of cash is required to fund future exploration under the
      terms of the flow through share subscription agreements however only there
      was $nil million available due to use of cash on non-flow through
      expenditures at December 31, 2010. The Company is obligated to fund the
      remaining expenditures by December 31, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (c) | The Yukon Territorial Government has letters of credit
      with the Company which were put in place to secure payment of potential
      reclamation work relating to the Ketza River project. During the third
      quarter of 2010 an additional $0.2 million was placed into term deposits
      to secure an additional letter of credit issued to the Yukon Territorial
      Government.                                                                                                                                                                                                                                                                  

|7. | Property, plant and equipment:         
|-- | ---------------------------------------
|   |                                        
|   | Property, plant and equipment
comprise:

| |                             |   | 2010    |  |   | 2009         | 
| | --------------------------- | - | ------- |  | - | ------------ | 
| |                             |   |         |  |   | Accumulated  | 
| |                             |   | Cost    |  |   | amortization | 
| | Jerritt Canyon mine, USA    | $ | 110,911 |  | $ | 22,819       | 
| | Ketza River project, Canada |   | 1,650   |  |   | 1,309        | 
| | Corporate and other, Canada |   | 382     |  |   | 190          | 
| |                             | $ | 112,943 |  | $ | 24,318       | 

The continuity of property, plant and
equipment is as follows:

| |                            |   | 2010    |   |   | 2009         |  
| | -------------------------- | - | ------- | - | - | ------------ | -
| |                            |   |         |   |   | Accumulated  |  
| |                            |   | Cost    |   |   | amortization |  
| | Opening, January 1         | $ | 107,566 |   | $ | 18,296       |  
| | Additions                  |   | 5,461   |   |   | n/a          |  
| | Depreciation               |   | n/a     |   |   | 6,106        |  
| | Disposals                  |   | (84     | ) |   | (84          | )
| | Write-downs                |   | -       |   |   | -            |  
| | Reclass                    |   | -       |   |   | -            |  
| | Other                      |   | -       |   |   | -            |  
| | Closing, December
      31 | $ | 112,943 |   | $ | 24,318       |  

In 2009 the Company recorded a $0.7
million impairment charge on property, plant and equipment. These impairment
charges related to certain discontinued projects.

15

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

|8. | Mineral properties:
|-- | -------------------

| |                                              |   |        |  |   | Additions   |   |   |        | 
| | -------------------------------------------- | - | ------ |  | - | ----------- | - | - | ------ | 
| |                                              |   | 2010   |  |   | (disposals) |   |   | 2009   | 
| |                                              |   |        |  |   |             |   |   |        | 
| | Ketza River project, Canada (b)              | $ | 66,222 |  | $ | 8,129       |   | $ | 58,093 | 
| | Silver Valley project, Canada (b)            |   | 1,697  |  |   | 189         |   |   | 1,508  | 
| | Arizona project, USA (c)                     |   | -      |  |   | (591        | ) |   | 591    | 
| | Yukon-Shaanxi project, Canada (d)            |   | -      |  |   | (327        | ) |   | 327    | 
| | Other Yukon and BC projects, Canada (e), (f) |   | 7      |  |   | -           |   |   | 7      | 
| |                                              | $ | 67,926 |  | $ | 7,400       |   | $ | 60,526 | 

| | (a) | Jerritt Canyon, Nevada:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Company has a 100% interest in the Jerritt Canyon
      property which consists of two gold producing mines, the SSX-Steer complex
      and the Smith mine. The carrying value of Jerritt Canyon is nil at
      December 31, 2009 and 2010 due to a $69.4 million impairment charge on
      Jerritt Canyon mineral properties recorded in 2008 (note 9). At December
      31, 2010, an increase to the asset retirement obligation at Jerritt Canyon
      of $0.6 million was recorded. Due to the continuing losses at Jerritt
      Canyon, the corresponding increase to the mineral property was impaired to
      nil.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (b) | Yukon properties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (c) | Silver Bar, Arizona:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Company has a 100% interest in 55 claims in Pinal
      County, Arizona. Management determined that the carrying value of the
      property was impaired during the year and recorded an impairment expense
      of $0.6 million to reduce the carrying value to nil.                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (d) | Mount Nansen, Yukon:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Company, had an option agreement to acquire 298
      claims in the Mount Nansen area of the Yukon. In 2010 management assessed
      that there were no future plans to develop this property and did not renew
      the option agreement, therefore an impairment expense of $0.4 million was
      recognized in the year to reduce the carrying value to nil.                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (e) | Greenwood properties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Company owns a 75% interest in 31 claims in the
      Greenwood Mining District in south east British Columbia which are subject
      to a 2% net smelter returns royalty. The remaining 25% interest in this
      gold property is owned by Intrepid Minerals Corporation. This property was
      written down to a nominal amount in 2005.                                                                                                                                                                                                                                                                                 

| | f) | Other Yukon Base Metals
properties:
| | -- | -----------------------------------

16

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (i)   | Money property:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | The Company has a 100% interest in 46 claims on this
      gold, silver and copper property located in south central Yukon. The
      Company entered into an option agreement with Yukon Zinc Corporation
      (Yukon Zinc) in August 2005 which allows Yukon Zinc to acquire a 25%
      interest in the property by making cash payments to the Company of
      C$40,000 over a five year period and incurring C$150,000 of exploration
      expenditures over that period. Upon exercise of the initial option, Yukon
      Zinc will have an additional option to acquire an additional 26% interest
      in the property by paying the Company C$25,000 in cash or shares upon
      giving notice of its intent to pursue the additional option and
      undertaking an additional C$500,000 of exploration expenditures over two
      years from date of election of the additional option.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (ii)  | Wolf property:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | The Company has a 34.42% joint venture interest in 18
      claims in this zinc, lead and silver property in south central Yukon. Atna
      Resources Ltd. owns the remaining 65.58% interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (iii) | Bay property:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |       | The Company staked 36 claims near Watson Lake, Yukon
      Territory during 2006. These claims are adjacent to claims held by an
      unrelated third party. The focus of this property, based on preliminary
      historical geological work, will be silver.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

These properties have nominal carrying
values.

|9. | Temporary Suspension of Jerritt Canyon
      Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | On August 8, 2008 the Company announced the suspension of
      underground mining activity at the Jerritt Canyon property, with a
      suspension of the milling operations occurring the following week. The
      mill was shut down temporarily with plans to recommence processing
      available stockpiles in 2009 and continue to pursue toll milling
      opportunities and financing to continue mining activities. The mill
      resumed operations on March 29, 2009 and continued operations until May
      30, 2009, when it was shut down again due to delays in ductwork required
      in the construction of the new mercury emission control system. The
      operations recommenced again on October 20, 2009 after the Company came to
      an agreement with the NDEP in the form of a Consent Decree. Expenses
      incurred during the shut downs were recorded either as capital or, if they
      were determined to be maintenance or support expenses, as temporary shut
      down costs. Temporary shut down costs were $10.6 million and $13.1 million
      for the years ended December 31, 2009 and 2008, respectively.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | As a result of the shutdown the Company recorded an
      impairment charge against the Jerritt Canyon assets totaling $76.4 million
      of which $69.4 million was allocated to mineral properties (note 8), $2.2
      million to property, plant and equipment and $4.7 million to the increase
      in asset retirement obligation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Furthermore the shutdown resulted in a workforce
      reduction of 394 employees. A related restructuring charge of $4.5 million
      arose from severance and vacation payments. As of December 31, 2010 the
      Company had paid $2.6 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

17

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

|10. | Other assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Other assets consist of insurance policies associated
      with the Companys ERTP (note 6(a)):                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|11. | Related party transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | During the year, the Company was charged a total of $0.4
      million (2009 - $0.2 million, 2008 - $0.2 million) in legal fees by a law
      firm in which the corporate secretary of the Company is a partner. The
      amount owing at December 31, 2010 is $0.1 million (2009  $0.2 million). A
      portion of these fees are included in share issue costs with the remainder
      included under general and administrative expenses.                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | During 2010, the Company was charged a total C$1.0
      million by a Company owned by a director of the Company, for the
      management of the Yukon properties. The director ceased being a director
      of the Company in May, 2010.                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The Company was charged $0.4 million (2009 - $nil) by a
      Company related by common directors and officers for shared services
      during 2010. As of December 31, 2010, $0.1 million (2009 - $nil) was owed
      to this company.                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The transactions with related parties were in the normal
      course of operations and were measured at the exchange value which
      represented the amount of consideration established and agreed to by the
      parties.                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|12. | Forward Contract:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | On November 25, 2010, the Company entered into a gold
      sales contract which specifies that 6,255 troy ounces of refined gold will
      be sold to the Purchaser by May 30, 2011. In return, the Company received
      an upfront payment of $7.0 million cash.                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The terms of the agreement specify that 2,085 oz must be
      deposited into an escrow account on January 31, 2011, March 31, 2011 and
      May 30, 2011. However, at the option of the Purchaser, the Company may be
      requested to settle the liability through a cash payment of USD $8,500,000
      rather than through physical delivery of the gold. The forward contract has
been assessed to be a derivative liability and is recorded at fair value at each
reporting date. As at December 31, 2010 a loss of $1.9 million has been recorded
in net earnings.

18

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

|13. | Asset retirement
obligations:
|--- | -----------------------------

| |                                       |   | 2010   |   |   | 2009   |  
| | ------------------------------------- | - | ------ | - | - | ------ | -
| |                                       |   |        |   |   |        |  
| | Balance, beginning of year            | $ | 35,907 |   | $ | 32,688 |  
| | Accretion expense                     |   | 2,879  |   |   | 2,890  |  
| | Foreign exchange                      |   | 180    |   |   | 402    |  
| | Reclamation spending                  |   | (44    | ) |   | (73    | )
| | Revisions in estimates of liabilities |   | 628    |   |   | -      |  
| |                                       |   |        |   |   |        |  
| |                                       | $ | 39,550 |   | $ | 35,907 |  

The Companys asset retirement
obligations consist of reclamation and closure costs for both active mines and
exploration activities. The present value of obligations relating to active
mines is currently estimated at $36.2 million (2009 - $32.9 million) reflecting
payments for approximately the next 19 years. The present value of obligations
relating to exploration activity in the Yukon properties are currently estimated
at $3.4 million (2009 - $3.0 million) reflecting payments for approximately the
next 10 years. Significant reclamation and closure activities include land and
water rehabilitation, demolition of buildings and mine facilities, ongoing care
and maintenance and other costs.

The undiscounted value of this
liability is $63.3 million (2009 - $58.0 million). An inflation rate assumption
of 2% has been used. An accretion expense component of $2.9 million (2009 - $2.9
million, 2008 - $2.1 million) has been charged to operations to reflect an
increase in the carrying amount of the asset retirement obligation which has
been determined using credit adjusted risk free rates of 8.0% -14.0% . Revisions
of estimates in 2010 used a credit adjusted risk free rate of 9.2% .

|14. | Long-term debt
|--- | --------------

In August 2010 The Company issued $25
million in Senior Secured Notes (the "Notes") and 25,000,000 common share
purchase warrants (the "Warrants"), raising gross proceeds of $24.8 million.
Each Warrant entitles the holder thereof to purchase one common share of the
Company at a price of C$0.40 per share for a period of three years following
closing.

The Notes have a maturity date of
December 31, 2012 and are secured by a charge over all the assets of the
Company's wholly owned subsidiaries, Queenstake Resources Ltd. ("QRL") and
Queenstake Resources U.S.A. Inc. ("Queenstake US") as well as a share pledge
over all shares in QRL and Queenstake US. The Notes are being repaid through
monthly cash installments based on a notional amount of approximately 284,114
shares of SPDR GLD Gold Shares (an exchange listed fund trading on the NYSE and
other global exchanges). The Company has guaranteed a minimum rate of return of
5% per annum on the aggregate principal amount over the term of the Notes. In
connection with the closing, a finder's fee in the amount of 4% of the gross
proceeds raised was payable in shares of the Company.

Of the total proceeds of $24.8 million,
$5.7 million was allocated on initial recognition to the warrants. The 25
million warrants fair value was calculated using the Black-Scholes model
assuming a risk-free interest rate of 1.91% per annum, an expected life term of
3 years, and expected volatility of approximately 86% and no dividends. A
further $6.8 million was allocated to the gold embedded derivative arising from
the loan repayments being indexed to the gold spot price.
This resulted in an initial liability being recorded of $12.3 million
representing the Companys residual debt. The carrying amount of the liability
is accreted to the face value of the notes over the term of the notes. Accretion
included in interest expense totaled $3.7 million for the period, based on an
effective interest rate of 78%.

19

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

At December 31, 2010, the fair value of
the derivative liability was determined to be $11.0 million (2009 - $nil). The
Company has included the resulting change in the fair value as an expense to net
earnings.

At inception:Loan proceeds net of transaction costs
    $
    24,800Less value
      attributable to warrants
    
    (5,759
    )Carrying value of loan at August 13, 2010
    
    19,041Interest accretion
    
    3,681Movement on fair value of embedded gold derivative
    
    5,268Less payments made
    
    (4,034
    )Carrying value of
      loan at December 31, 2010
    $
    23,956Current debt
    
    8,926Long term debt
    
    15,030$
    23,956


|15. | Other long-term
liabilities:
|--- | ----------------------------

| |                                         |   | 2010 |   |   | 2009 |  
| | --------------------------------------- | - | ---- | - | - | ---- | -
| | Capital leases                          | $ | 50   |   | $ | 80   |  
| | Current portion of
      capital leases |   | (32  | ) |   | (30  | )
| |                                         | $ | 18   |   | $ | 50   |  

The Company has two capital lease
obligations with respect to mine equipment in use at Jerritt Canyon. The lease
obligations bear interest at rates between 8 and 9 percent. The current portion
is included in accounts payable and accrued liabilities.

|16. | Income taxes:
|--- | -------------

The Company has income tax loss carry
forwards of approximately $ 136.1 million (2009 - $58.1 million) from both the
Canadian and the US tax jurisdictions. Under a change of control provision under
Section 382: Change-of-Ownership Trigger of the IRS code, restrictions are in
place on the US tax jurisdiction's pre-2009 loss carryforwards due to more than
50 per cent, on a fully diluted basis, of the Company's share ownership changing
with the 2008 private placement.

20

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The loss carry forwards if unused,
expire as follows:

| | 2011
      - 2020 | $ | 4,965   | 
| | ----------------- | - | ------- | 
| | 2021              |   | 278     | 
| | 2022              |   | 165     | 
| | 2023              |   | 1,217   | 
| | 2024              |   | 2,213   | 
| | 2025              |   | 3,361   | 
| | 2026              |   | 4,016   | 
| | 2027              |   | 2,395   | 
| | 2028              |   | 47,407  | 
| | 2029              |   | 42,150  | 
| | 2030              |   | 27,903  | 
| |                   | $ | 136,070 | 

The components of future income taxes
are as follows:

| |                                                                             |   | 2010    |   |   | 2009    |  
| | --------------------------------------------------------------------------- | - | ------- | - | - | ------- | -
| |                                                                             |   |         |   |   |         |  
| | Future income tax assets, current                                           |   |         |   |   |         |  
| | Non-capital loss carry forwards                                             | $ | -       |   | $ | 895     |  
| |                                                                             |   |         |   |   |         |  
| | Future income tax assets, non-current                                       |   |         |   |   |         |  
| | Asset retirement
      obligation                                           |   | 13,336  |   |   | 910     |  
| | Non-capital loss carry forwards                                             |   | 49,999  |   |   | 19,833  |  
| | Share issue
      costs                                                     |   | 806     |   |   | 714     |  
| | Unrealized foreign exchange                                                 |   | 1,023   |   |   | 90      |  
| | Mineral property and property plant and equipment book less tax basis       |   | 18,240  |   |   | 36,838  |  
| | Other                                                                       |   | 10,752  |   |   | 2,796   |  
| |                                                                             |   | 94,156  |   |   | 61,181  |  
| | Valuation allowance                                                         |   | (73,906 | ) |   | (39,339 | )
| |                                                                             |   | 20,250  |   |   | 21,842  |  
| |                                                                             |   |         |   |   |         |  
| | Future income tax liabilities, non-current                                  |   |         |   |   |         |  
| | Mineral property and
      property plant and equipment book less tax basis |   | (36,227 | ) |   | (37,214 | )
| |                                                                             |   | (36,227 | ) |   | (37,214 | )
| | Net future income
      tax liability, non-current                          | $ | (15,977 | ) | $ | (15,372 | )

The Company has recorded a valuation
allowance against certain of its future income tax assets as management does not
believe it is more likely than not that sufficient taxable income will be
generated during the carry forward period to realize all the future tax assets.

During 2009 the Company renounced
C$20.1 million of Cumulative Canadian Exploration Expenses (CEE) to
flow-through shareholders. There was no renunciation of CEE in 2010.

21

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The following table reconciles income
taxes calculated at statutory rates with the income tax expense in these
financial statements:

| |                                                    |   | 2010    |   |   | 2009    |   |   | 2008     |  
| | -------------------------------------------------- | - | ------- | - | - | ------- | - | - | -------- | -
| |                                                    |   |         |   |   |         |   |   |          |  
| | Net loss before taxes                              | $ | (94,640 | ) | $ | (42,804 | ) | $ | (117,435 | )
| | Federal statutory
      tax rate                   |   | 28.50%  |   |   | 34.86%  |   |   | 35.46%   |  
| | Tax based on statutory income tax rate             |   | (26,972 | ) |   | (14,921 | ) |   | (41,642  | )
| | Non-deductible expenses                            |   | 14,759  |   |   | 2       |   |   | 121      |  
| | Non-deductible stock-based compensation            |   | 1,172   |   |   | 226     |   |   | 311      |  
| | Loss (gain) not recognized for tax purposes        |   | -       |   |   | 2,160   |   |   | 1,230    |  
| | Change in valuation allowance                      |   | 26,364  |   |   | 2,981   |   |   | 28,393   |  
| | Future and foreign tax rate differential and other |   | (3,750  | ) |   | (4,616  | ) |   | (488     | )
| | Unrecognized tax assets                            |   | (13,118 | ) |   | 14,024  |   |   | -        |  
| | Income tax
      (recovery) expense                | $ | (1,545  | ) | $ | (144    | ) | $ | (12,075  | )

|17. | Share capital:
|--- | --------------
|    |               
|    | (a)           
|    |               
|    | (b)           
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               
|    |               

22

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (vi)   | On February 27, 2009 the Company closed two non-brokered
      private placements as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |        | 10.0 million units ("Unit 1") were issued at a price of
      C$0.05 per Unit 1 for proceeds of $0.4 million. Each Unit 1 consisted of
      one common share and two series of common share purchase warrants. The
      first warrant (the "Series A Warrant") can be exercised to purchase one
      additional common share at a price of C$0.07 per share within 12 months of
      closing of the private placement and the second warrant (the "Series B
      Warrant") can be exercised to purchase one additional common share at a
      price of C$0.09 per share within 18 months of closing of the private
      placement. In addition, 1.0 million units were issued as a finder's fee in
      connection with the private placement which consists of one common share
      and one Series A warrant.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |        | 17.3 million units ("Unit 2") were issued at a price of
      C$0.06 per Unit 2 for proceeds of $0.8 million. In addition, 0.4 million
      Unit 2 units were issued as a finder's fee in connection with the private
      placement. Each Unit 2 consists of one common share and one common share
      purchase warrant (the "Warrant"). The Warrant can be exercised to purchase
      one additional common share at a price of C$0.08 within 24 months of
      closing of the private placement.                                                                                                                                                                                                                                                                                                               
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (vii)  | On December 19, 2008, the Company closed a non-brokered
      private placement for a total of 79.8 million units (the "Units") for
      proceeds of $3.3 million. In addition, 7.4 million units were issued as a
      finder's fee in connection with the private placement. Each Unit consisted
      of one common share and two series of common share purchase warrants. The
      first warrant (the "Series A Warrant") can be exercised to purchase one
      additional common share at a price of C$0.07 per share within 12 months of
      closing of the private placement and the second warrant (the "Series B
      Warrant") can be exercised to purchase one additional common share at a
      price of C$0.09 per share within 18 months of closing of the private
      placement.              
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (viii) | On May 2, 2008, the Company closed a non-brokered private
      placement of 10.1 million flow-through shares at a price of C$2.00 per
      share for proceeds of $19.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | (c) | Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Where the warrants are issued as part of a unit comprised
      of common shares and warrants, the value is assigned to common shares and
      warrants based on their relative fair values. The fair value of the common
      shares is determined by the closing price on the date of the transaction
      and the fair value of the warrants is determined based on a Black-Scholes
      pricing model. Where the warrant is issued and not attached to a common
      share, they are valued using the Black-Scholes pricing
  model.

23

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The following warrants were
outstanding as of December 31, 2010:

In thousandsWarrantsExercise
    
    
    December
    
    
    Warrants
    
    
    exercised/
    
    
    December
    
    
    CarryingExpiry date
    
    Note
      17
    
    
    price
      (C$)
    
    
    31,
      2009
    
    
    issued
    
    
    expired
    
    
    31,
      2010
    
    
    valueApril 12, 2010
    
    
    
    
    5.50
    
    
    2,851
    
    
    
    
    
    (2,851
    )
    
    -
    
    
    -June 20,2012
    
    
    
    
    3.00
    
    
    21,426
    
    
    
    
    
    
    
    
    21,426
    
    
    15,282June 17, 2010
    
    (b)(vii)
    
    
    0.09
    
    
    2,000
    
    
    
    
    
    (2,000
    )
    
    -
    
    
    -February 25, 2011
    
    (b)(vi)
    
    
    0.08
    
    
    400
    
    
    
    
    
    -
    
    
    400
    
    
    8February 24, 2010
    
    (b)(vi)
    
    
    0.07
    
    
    11,000
    
    
    
    
    
    (11,000
    )
    
    -
    
    
    -August 24, 2010
    
    (b)(vi)
    
    
    0.09
    
    
    10,000
    
    
    
    
    
    (10,000
    )
    
    -
    
    
    -April 24, 2011
    
    (b)(v)
    
    
    0.08
    
    
    6,800
    
    
    
    
    
    (3,067
    )
    
    3,733
    
    
    82February 7, 2012
    
    (b)(iv)
    
    
    0.13
    
    
    8,830
    
    
    
    
    
    (1,730
    )
    
    7,100
    
    
    269February 28, 2012
    
    (b)(iv)
    
    
    0.13
    
    
    1,670
    
    
    
    
    
    (170
    )
    
    1,500
    
    
    56June 1, 2011
    
    (b)(iii)
    
    
    0.13
    
    
    10,000
    
    
    
    
    
    -
    
    
    10,000
    
    
    451January 12, 2012
    
    (c)(i)
    
    
    0.32
    
    
    
    
    
    170,400
    
    
    (2,600
    )
    
    167,800
    
    
    38,135January 12, 2012
    
    (c)(i)
    
    
    0.13
    
    
    
    
    
    10,000
    
    
    -
    
    
    10,000
    
    
    2,513January 12, 2012
    
    (c)(i)
    
    
    0.26
    
    
    
    
    
    10,250
    
    
    -
    
    
    10,250
    
    
    2,391May 12, 2012
    
    (b)(i)
    
    
    0.28
    
    
    
    
    
    700
    
    
    (60
    )
    
    640
    
    
    117August 13, 2013
    
    (c)(ii)
    
    
    0.40
    
    
    
    
    
    25,000
    
    
    
    
    
    25,000
    
    
    5,75974,977
    
    
    216,350
    
    
    (33,478
    )
    
    257,849
    
    
    65,063


| | (i)  | On January 12, 2010, the Companys shareholders approved
      the issuance of up to 190.7 million inducement warrants for the early
      exercise of 200.9 million existing warrants that expired on December 17,
      2009, June 17, 2010, February 6, 2012 and February 12, 2010. In the first
      quarter of 2010 $43.6 million was expensed related to the issue of these
      warrants.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                   
| | (ii) | On August 13, 2010, the Company completed a $25 million
      financing agreement, part of which included the issuance of 25 million
      detachable warrants to the debt holder (note 14).                                                                                                                                                                                                      

The following are shareholder warrants
outstanding as of December 31, 2009:

| |                   |   |                  |  |  | In thousands   |  |  |          | 
| | ----------------- | - | ---------------- |  |  | -------------- |  |  | -------- | 
| |                   |   |                  |  |  |                |  |  |          | 
| |                   |   | Exercise         |  |  | December       |  |  | Warrants | 
| | Expiry date       |   | price
      (C$) |  |  | 31,
      2008 |  |  | issued   | 
| | January 16, 2009  | $ | 1.80             |  |  | 1,000          |  |  | -        | 
| | April 12, 2010    |   | 5.50             |  |  | 2,851          |  |  | -        | 
| | June 20,2012      |   | 3.00             |  |  | 21,426         |  |  | -        | 
| | December 17, 2009 |   | 0.07             |  |  | 87,200         |  |  | -        | 
| | June 17, 2010     |   | 0.09             |  |  | 87,200         |  |  | -        | 
| | February 25, 2011 |   | 0.08             |  |  | -              |  |  | 17,733   | 
| | February 24, 2010 |   | 0.07             |  |  | -              |  |  | 11,000   | 
| | August 24, 2010   |   | 0.09             |  |  | -              |  |  | 10,000   | 
| | April 24, 2011    |   | 0.08             |  |  | -              |  |  | 12,400   | 
| | February 7, 2012  |   | 0.125            |  |  | -              |  |  | 18,830   | 
| | February 28, 2012 |   | 0.125            |  |  | -              |  |  | 22,220   | 
| | June 1, 2011      |   | 0.125            |  |  | -              |  |  | 10,000   | 
| |                   |   |                  |  |  | 199,677        |  |  | 102,183  | 

24

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The fair value of the warrants was
determined using the following assumptions:

WeightedRisk-free
    
    
    Dividend
    
    
    averageIssue date
    
    Expiry
      date
    
    
    interest rate
    
    
    yield
    
    
    expected life
    
    
    VolatilityJune 20, 2007
    
    April 12, 2010
    
    
    4.25%
    
    
    -
    
    
    2.8
    
    
    79%June 20, 2007
    
    June 20, 2012
    
    
    4.25%
    
    
    -
    
    
    5.0
    
    
    79%June 20, 2007
    
    June 20, 2012
    
    
    3.24%
    
    
    -
    
    
    4.0
    
    
    96%December 17, 2008
    
    June 17, 2010
    
    
    1.79%
    
    
    -
    
    
    1.5
    
    
    161%February 24, 2009
    
    February 24, 2010
    
    
    1.39%
    
    
    -
    
    
    1.0
    
    
    213%February 24, 2009
    
    August 24, 2010
    
    
    1.39%
    
    
    -
    
    
    1.5
    
    
    177%February 25, 2009
    
    February 25, 2011
    
    
    1.39%
    
    
    -
    
    
    2.0
    
    
    156%April 24, 2009
    
    April 24, 2011
    
    
    1.10%
    
    
    -
    
    
    2.0
    
    
    163%August 7, 2009
    
    February 7, 2012
    
    
    1.33%
    
    
    -
    
    
    2.5
    
    
    154%August 28, 2009
    
    February 28, 2012
    
    
    1.39%
    
    
    -
    
    
    2.5
    
    
    177%December 1, 2009
    
    June 1, 2011
    
    
    1.31%
    
    
    -
    
    
    1.5
    
    
    100%January 12, 2010
    
    January 12, 2012
    
    
    1.41%
    
    
    -
    
    
    2.0
    
    
    177%January 12, 2010
    
    January 12, 2012
    
    
    1.41%
    
    
    -
    
    
    2.0
    
    
    177%January 12, 2010
    
    January 12, 2012
    
    
    1.41%
    
    
    -
    
    
    2.0
    
    
    177%May 12, 2010
    
    May 12, 2012
    
    
    1.21%
    
    
    -
    
    
    2.0
    
    
    168%August 13, 2010
    
    August
      13, 2013
    
    
    1.91%
    
    
    -
    
    
    3.0
    
    
    86%


| | (d) | Stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The Company has a stock option plan (the Plan) in place
      under which the Board of Directors may grant options to acquire common
      shares of the Company to directors, employees and service providers. Under
      the terms of the Plan, the number of securities issuable to insiders, at
      any time under old security based agreements, cannot exceed 10% of the
      issued and outstanding securities. The options vest over a variable period
      of time up to 3 years dependent upon the individuals role and any
      specified performance criteria.
      Under the fair value method, the total
        fair value of the stock based compensation recognized was $5.3 million in
        2010 (2009 - $1.2 million, 2008 - $1.1 million) at a weighted average fair
        value of C$0.21 per stock option (2009 - C$0.15). Of this amount, $1.2
        million (2009 - $0.2 million, 2008 - $1.1 million) is included in cost of
        goods sold. In 2010 there were no costs recorded to mineral properties
        (2009 - $0.2 million, 2008 - $nil).

25

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The fair value of the options at the
date of grant has been estimated using the Black-Scholes option pricing model
using the following assumptions:

WeightedRisk-free
    
    
    Dividend
    
    
    averageGrant date
    
    interest rate
    
    
    yield
    
    
    expected life
    
    
    VolatilityJanuary 26,2006
    
    3.00%
    
    
    -
    
    
    5
    
    
    97%March 28, 2006
    
    3.00%
    
    
    -
    
    
    5
    
    
    90%November 10, 2006
    
    4.50%
    
    
    -
    
    
    5
    
    
    84%December 12, 2006
    
    4.13%
    
    
    -
    
    
    5
    
    
    85%January 5, 2007
    
    4.14%
    
    
    -
    
    
    5
    
    
    84%April 3, 2007
    
    4.24%
    
    
    -
    
    
    5
    
    
    81%June 25, 2007
    
    4.25%
    
    
    -
    
    
    5
    
    
    79%July 5, 2007
    
    4.72%
    
    
    -
    
    
    5
    
    
    78%August 10, 2007
    
    4.53%
    
    
    -
    
    
    5
    
    
    78%September 14, 2007
    
    4.14%
    
    
    -
    
    
    2
    
    
    78%November 13, 2007
    
    3.91%
    
    
    -
    
    
    5
    
    
    77%February 22, 2008
    
    3.22%
    
    
    -
    
    
    2
    
    
    70%March 28, 2008
    
    3.35%
    
    
    -
    
    
    5
    
    
    98%June 19, 2008
    
    3.24%
    
    
    -
    
    
    5
    
    
    96%July 17, 2009
    
    2.44%
    
    
    -
    
    
    5
    
    
    139%September 29, 2009
    
    2.33%
    
    
    -
    
    
    5
    
    
    139%January 1, 2010
    
    2.12%
    
    
    -
    
    
    5
    
    
    138%March 12, 2010
    
    2.26%
    
    
    -
    
    
    5
    
    
    136%July 12, 2010
    
    2.20%
    
    
    -
    
    
    5
    
    
    126%July 15, 2010
    
    2.20%
    
    
    -
    
    
    5
    
    
    126%October 5, 2010
    
    1.79%
    
    
    -
    
    
    5
    
    
    127%October 13, 2010
    
    1.79%
    
    
    -
    
    
    5
    
    
    127%


Continuity of stock options
outstanding for the years ended December 31, 2010, 2009 and 2008 is as
follows:

Options
    
    
    Weighted averageoutstanding
    
    
    exercise price(000's)
    
    
    (C$/option)At January 1, 2008
    
    11,534
    
    
    1.90Granted
    
    1,050
    
    
    1.37Exercised
    
    (3,715
    )
    
    2.21At December 31, 2008
    
    8,869
    
    
    1.71Granted
    
    21,585
    
    
    0.15Exercised
    
    (120
    )
    
    0.15Expired
    
    (4,297
    )
    
    1.41At December 31, 2009
    
    26,037
    
    
    0.40Granted
    
    37,615
    
    
    0.33Exercised
    
    (2,398
    )
    
    0.21Expired
    
    (700
    )
    
    0.60Forfeited
    
    (7,117
    )
    
    0.33At
      December 31, 2010
    
    53,437
    
    
    0.37


26

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The following information pertains to
the options outstanding at December 31, 2010 are as follows:

Outstanding
    
    
    
    
    
    
    
    
    VestedWeighted
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    Weightedaverage
    
    
    average
    
    
    
    
    
    average
    
    
    averageOptions
    
    
    exercise
    
    
    remaining
    
    
    Options
    
    
    exercise
    
    
    remainingExercise Price
    
    outstanding
    
    
    price
    
    
    contractual
    
    
    exercisable
    
    
    price
    
    
    contractual(C$)
    
    (000's)
    
    
    (C$/option)
    
    
    life
      (years)
    
    
    (000's)
    
    
    (C$/option)
    
    
    life
      (years)0.15-0.31
    
    22,078
    
    
    0.18
    
    
    3.8
    
    
    10,203
    
    
    0.20
    
    
    4.00.32-0.82
    
    28,540
    
    
    0.35
    
    
    4.3
    
    
    10,459
    
    
    0.39
    
    
    4.60.83-1.60
    
    275
    
    
    1.45
    
    
    1.7
    
    
    275
    
    
    1.45
    
    
    1.71.61-1.75
    
    1,719
    
    
    1.73
    
    
    1.6
    
    
    1,719
    
    
    1.73
    
    
    1.61.76-5.70
    
    825
    
    
    2.72
    
    
    1.0
    
    
    825
    
    
    2.72
    
    
    1.053,437
    
    
    0.37
    
    
    4.0
    
    
    23,481
    
    
    0.50
    
    
    3.9


|18. | Supplemental
information:
|--- | -------------------------

| | (a) | Cash flow information
| | --- | ---------------------

(i) Non-cash transactions:

| |                                                         |   | 2010  |  |   | 2009 |  |   | 2008 | 
| | ------------------------------------------------------- | - | ----- |  | - | ---- |  | - | ---- | 
| |                                                         |   |       |  |   |      |  |   |      | 
| | Shares issued for provision of services                 | $ | 1,207 |  | $ | -    |  | $ | -    | 
| | Shares issued for settlement of litigation              |   | 1,004 |  |   | -    |  |   | -    | 
| | Stock-based compensation included in mineral properties |   | 83    |  |   | 202  |  |   | -    | 

(ii) Operating activities included the
following cash payments:

| |               |   | 2010 |  |   | 2009 |  |   | 2008 | 
| | ------------- | - | ---- |  | - | ---- |  | - | ---- | 
| | Interest paid | $ | 234  |  | $ | 168  |  | $ | 257  | 

(iii) Net change in non-cash working
capital:

| |                                          |   | 2010    |   |   | 2009   |   |   | 2008    |  
| | ---------------------------------------- | - | ------- | - | - | ------ | - | - | ------- | -
| |                                          |   |         |   |   |        |   |   |         |  
| | Accounts receivable and prepaid expenses | $ | 132     |   | $ | (2,366 | ) | $ | 5,334   |  
| | Inventories                              |   | (10,862 | ) |   | 13,901 |   |   | 12,793  |  
| | Accounts payable and accrued liabilities |   | 11,085  |   |   | 2,236  |   |   | 7,394   |  
| | Deferred revenue                         |   | -       |   |   | 4,838  |   |   | -       |  
| | Payable on ore purchase                  |   | -       |   |   | (8,257 | ) |   | (10,590 | )
| |                                          | $ | 355     |   | $ | 10,352 |   | $ | 14,931  |  

27

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (b) | Interest in joint venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The Company conducts a portion of its business through a
      joint venture under which the venturers are bound by contractual
      arrangements establishing joint control. In 2009 the companys ownership
      in the joint venture decreased from 50% to 37.5%. In 2010 the Company made
      an equity contribution of $1m which resulted in an increase in its
      ownership percentage from 37.5% to 41.7%. Despite the lower equity holding
      in the joint venture the Company continues to have 50% representation on
      the board of directors, and the interest is therefore accounted for as a
      joint venture. Should the composition of the board change to align with
      the current ownership structure the accounting treatment would follow the
      equity method to reflect the reduced control.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The Company records its proportionate share of assets,
      liabilities, revenues, operating expenses and other income (expense) of
      the joint ventures. The following condensed statements of earnings and
      balance sheets for the year ended December 31, 2010 and 2009 detail the
      amounts relating to the Companys interest in a joint venture that has
      been proportionately consolidated.                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                                       |   | 2010  |  |   | 2009  | 
| | ------------------------------------- | - | ----- |  | - | ----- | 
| | Ownership percentage                  |   | 41.7% |  |   | 37.5% | 
| |                                       |   |       |  |   |       | 
| | Proportionate share of other income   | $ | 419   |  | $ | -     | 
| | Proportionate
      share of expenses |   | 597   |  |   | 165   | 
| | Proportionate share of assets         |   |       |  |   |       | 
| | Cash                                  | $ | 2,439 |  | $ | 89    | 
| | Property plant
      and equipment    |   | 10    |  |   | 18    | 
| | Accounts receivable                   |   | 1     |  |   | 910   | 
| | Mineral properties                    |   | -     |  |   | 327   | 
| |                                       | $ | 2,450 |  | $ | 1,344 | 
| | Proportionate share of liabilities    | $ | 216   |  | $ | 4     | 

|19. | Segmented information:                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                
|    | All of the Companys operations are related to the gold
      mining industry. As of the end of December 31, 2010 the Company had one
      gold mine (Jerritt Canyon) located in Nevada, USA. The Company has
      exploration properties in Canada and the USA. A single customer comprised
      greater than 99% of all revenues recorded in the year and were generated
      by the USA operations only.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Assets and liabilities held by geographic location are as
      follows:                                                                                                                                                                                                                                                                                                                                       

| |             |   | 2010    |  |   | 2009    | 
| | ----------- | - | ------- |  | - | ------- | 
| | Assets      |   |         |  |   |         | 
| | Canada      | $ | 76,478  |  | $ | 66,771  | 
| | USA         |   | 141,334 |  |   | 128,670 | 
| |             |   | 217,812 |  |   | 195,441 | 
| | Liabilities |   |         |  |   |         | 
| | Canada      |   | 55,969  |  |   | 31,637  | 
| | USA         |   | 81,382  |  |   | 64,094  | 
| |             | $ | 137,351 |  | $ | 95,731  | 

28

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

|20. | Capital Management:                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                    
|    | The Company manages its common shares, stock options,
      warrants and debt, net of cash and cash equivalents as capital. At
      December 31, 2010 the Company held the following as
  capital:

| |                                      |   | 2010    |  |   | 2009   | 
| | ------------------------------------ | - | ------- |  | - | ------ | 
| | Equity                               | $ | 80,461  |  | $ | 99,710 | 
| | Debt                                 |   | 32,857  |  |   | -      | 
| |                                      |   | 113,318 |  |   | 99,710 | 
| | Less cash and cash
      equivalents |   | 2,400   |  |   | 185    | 
| |                                      | $ | 110,918 |  | $ | 99,525 | 

The Companys objectives in managing
capital are to safeguard its ability to continue as a going concern to provide
returns for shareholders and benefits for other stakeholders. To meet this
objective the Company will attempt to ensure it has sufficient cash resources to
pursue the exploration and development of its mineral properties and fund
potential acquisitions and maintain necessary personnel, supplies and equipment
at its Jerritt Canyon operations.

To support these objectives the Company
manages its capital structure and makes adjustments to it in light of changes in
economic conditions and risk characteristics of underlying assets. To maintain
or adjust its capital structure, the Company may attempt to issue new shares,
issue new debt, acquire or dispose of assets or adjust the amount of cash and
cash equivalents. In order to maximize the exploration and development efforts,
the Company does not pay out dividends.

The Companys investment policy is to
invest its cash in highly liquid short-term interest-bearing investments with
maturities 90 days or less from the original date of acquisition, selected with
regards to the expected timing of expenditures from continuing operations.
During 2010, the Company raised additional funds of $31.8 million through
issuance of debt, $24.8 million of which has been secured over the Jerritt
Canyon assets.

At December 31, 2010, there was no
externally imposed capital requirement to which the Company is subject, which
the Company has not complied with.

|21. | Financial Instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | (a) Categories of financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Companys financial instruments consist of cash and
      cash equivalents, receivables, restricted funds, accounts payable, accrued
      liabilities, borrowings and derivatives.                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Cash and cash equivalents, restricted funds, the embedded
      gold derivative and the gold forward derivative are designated as held for
      trading and therefore carried at fair value, with the unrealized gain or
      loss recorded in income. Interest income and expense are both recorded in
      income. The fair value of the embedded derivative and the gold forward
      derivative are made by reference to the gold spot price at period
    end.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Accounts receivables are classified as loans and
      receivables with accounts payable, accrued liabilities and borrowings
      classified as other liabilities and are held at amortized cost using the
      effective interest rate method of amortization. The fair values of
      accounts receivables, accounts payable and accrued liabilities approximate
      carrying value because of the short term nature of these
    instruments.                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The fair value of borrowings was determined using
      discounted cash flows at prevailing market rates and the fair value is
      approximately equal to the carrying value of the
debt.                                                                                                                                                                                                                                                                            

29

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

Financial instruments that are measured
at fair value are grouped into a hierarchy based on the degree to which the fair
value is observable:

| |  | Level 1  | quoted prices in active markets for identical
      assets or liabilities;                                                                                                                      
| |  | --------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 2  | inputs other than quoted prices included in
      Level 1 that are observable for the asset or liability, either directly
      (i.e.: as prices) or indirectly (i.e.: derived from prices); and
| |  | Level 3  | inputs for the asset or liability that are not
      based on observable market data.                                                                                                           

An assessment of the companys
financial instruments carried at fair value is set out below:

| |                                     |   | Level 1 |  |   | Level 2 |  |   | Level 3 |  |   | Total  | 
| | ----------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------ | 
| | Financial Assets                    |   |         |  |   |         |  |   |         |  |   |        | 
| | Cash and cash equivalents           | $ | 2,400   |  | $ | -       |  | $ | -       |  | $ | 2,400  | 
| | Restricted funds                    |   | 32,248  |  |   | -       |  |   | -       |  |   | 32,248 | 
| | Accounts receivable                 |   | 1,043   |  |   | -       |  |   | -       |  |   | 1,043  | 
| |                                     | $ | 35,691  |  | $ | -       |  | $ | -       |  | $ | 35,691 | 
| | Financial Liabilities               |   |         |  |   |         |  |   |         |  |   |        | 
| | Long term and short
      term debt | $ | -       |  | $ | -       |  | $ | 10,995  |  | $ | 10,995 | 
| | Forward contract derivative         |   | -       |  |   | 8,901   |  |   | -       |  |   | 8,901  | 
| |                                     | $ | -       |  | $ | 8,901   |  | $ | 10,995  |  | $ | 19,896 | 

The fair value measurement using the
level 3 input was as follows:

| |                                  |  | Debt   | 
| | -------------------------------- |  | ------ | 
| | Balance being of the year        |  | -      | 
| | Issuance                         |  | 6,763  | 
| | Net (gains)/losses               |  | 4,232  | 
| | Balance at end of
      the year |  | 10,995 | 

The fair value of the derivative
instruments is determined using a present value technique based on a combination
of forward gold curve prices as at December 31, 2010 and unobservable inputs.
The effective interest rate applied to the underlying debt host is 78% based on
repayments indexed to the gold price and a guaranteed return to the holder of 5%
per annum on the principal amount.

b) Financial Risk Management

The Company is exposed to the certain
risks through its use of financial instruments, including market risk (currency
risk, interest rate risk and commodity price risk), credit risk, and liquidity
risk.

The Companys manages its exposure to
risk through the identification and analysis of risks faced by the Company, setting appropriate risk
limits and controls, and monitoring those risks and adherence to the limits and
controls that are established. Risk management is carried out by senior
management under the approval of the Board of Directors. Risk management
practices are reviewed regularly by senior management and the Audit Committee to reflect changes in market
conditions and the Companys activities.

Market risk:

Market risk is the risk or uncertainty
arising from possible market price movements and their impact on the future
performance of the business. The market price movements that could adversely
affect the value of the Companys financial assets,
liabilities and expected future cash flows include foreign currency risk,
interest rate risk and commodity price risk.

30

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (i) | Currency risk:                                                                                                                                                                                                                                                                     
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                    
| |     | The Company is exposed to foreign currency risk due to
      fluctuations in the value of the Canadian dollar. Foreign currency risk
      arises from purchase transactions as well as financial assets and
      liabilities denominated in Canadian dollars.                    
| |     |                                                                                                                                                                                                                                                                                    
| |     | The Company manages this risk by maintaining funds in
      Canadian dollars to support the cash requirements of those operations. The
      Company does not use any foreign exchange contracts to hedge these
      currency risks.                                              
| |     |                                                                                                                                                                                                                                                                                    
| |     | The Company is exposed to currency risk through its cash
      and cash equivalents, marketable securities, accounts receivable,
      restricted funds and accounts payable and accrued liabilities denominated
      in Canadian dollars as follows, based on notional
  amounts.

| | In thousands of CAD                            |  | 2010   |  |  | 2009   | 
| | ---------------------------------------------- |  | ------ |  |  | ------ | 
| | Cash and cash equivalents                      |  | 2,425  |  |  | 398    | 
| | Accounts receivable                            |  | 1,617  |  |  | 1,901  | 
| | Restricted funds                               |  | 6,170  |  |  | 3,324  | 
| | Accounts payable
      and accrued liabilities |  | 14,413 |  |  | 13,022 | 

| |       | Based on the above net exposures as at December 31, 2010,
      a 10% appreciation or depreciation in the Canadian dollar against the US
      dollar, assuming all other variables remain constant, would result in a
      $0.4 million increase or decrease, respectively, in operating results and
      shareholder equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (ii)  | Interest rate risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       | Interest rate risk is the risk that the future cash flows
      of a financial instrument will fluctuate because of changes in market
      interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       | The Companys cash and cash equivalents contain highly
      liquid investments that earn interest at market rates. The Company manages
      its interest rate risk by maximizing the interest earned on excess funds
      while maintaining the liquidity necessary to fund daily operations.
      Fluctuations in market interest rates do not have a significant impact on
      the Companys results from operations due to the short term to maturity of
      the investments held.                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (iii) | Commodity price risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       | The profitability of the Company is directly related to
      the market price of gold because revenues are derived primarily from gold
      mining. Gold prices are affected by numerous factors beyond the Companys
      control, including central bank sales, producer hedging activities, the
      relative exchange rate of the US dollar with other major currencies,
      global and regional demand and political and economic conditions.
      Worldwide gold production levels also affect gold prices, and the price of
      gold is occasionally subject to rapid short-term changes due to
      speculative activities. The Company has not hedged any of its own gold
      production. The Company has entered into two loan arrangements. As
      repayment of these obligations is referenced to the gold spot price,
      increases in the price of gold will increase the cost of
  payment.

Credit risk:

Credit risk is the risk of financial
loss to the Company if a customer or counterparty to a financial instrument
fails to meet its contractual obligations.

31

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (i)  | Cash and cash equivalents and restricted funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | The Company manages its credit risk on cash and cash
      equivalent balances and marketable securities by maintaining balances with
      Tier 1 Canadian banks with a Standard & Poors rating of AA.
      Short-term investments (included in cash and cash equivalents as well as
      marketable securities) are composed of financial instruments issued by
      Canadian banks and companies with high investment-grade ratings. These
      investments mature at various dates over the current operating period. As
      at December 31, 2010 $0.01 million of cash and cash equivalents were held
      as short-term deposits.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | The Company also maintains funds of $28.4 million
      included in restricted funds (note 6) with a third party insurer with a
      Standard & Poors rating of A+ to fund future reclamation costs at
      Jerritt Canyon. The Company maintains title to these funds should the third
      party be in default of their obligations or enters into bankruptcy
    protection.                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (ii) | Accounts receivable and prepaid expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | Significant deposits and receivables are either held by
      or due from government agencies and principally relate to goods and
      services input tax credits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | The Company minimizes credit risk by reviewing the credit
      risk of the counterparty to the arrangement and has determined that there
      were no receivables which were considered impaired or otherwise
      uncollectible.                                                                                                                                                                                                                                                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | The ageing of receivables at the reporting date was as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                     |  | Less
      than 3 |  |  | 4 to 12 |  |  | 1 to 2
      years |  |  | Greater
      than | 
| | ------------------- |  | ----------------- |  |  | ------- |  |  | ------------------ |  |  | ------------------ | 
| |                     |  | months            |  |  | months  |  |  |                    |  |  | 2
      years      | 
| | Accounts receivable |  | 161               |  |  | 274     |  |  | 608                |  |  | -                  | 

Liquidity risk:

Liquidity risk is the risk that the
Company will not be able to meet its financial obligations as they fall due. The
Company manages liquidity risk through forecasting its cash flows from
operations and anticipating investing and financing activities. Senior
management is actively involved in the review and approval of planned
expenditures and typically ensures that it has sufficient cash on demand to meet
expected operating expenses for 60 days.

At December 31, 2010 the cash balance
of the Company, excluding the YSMC joint venture, was an overdraft of $0.1
million due to the timing of cash receipts and disbursements at December 31,
2010.

32

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The following are the contractual
maturities of the undiscounted cash flows of financial liabilities at December
31, 2010:

| |                                         |  | Less
      than 3 |  |  | 4 to 12 |  |  | 1 to 2
      years |  |  | Greater
      than | 
| | --------------------------------------- |  | ----------------- |  |  | ------- |  |  | ------------------ |  |  | ------------------ | 
| |                                         |  | months            |  |  | months  |  |  |                    |  |  | 2
      years      | 
| | Account payable and accrued liabilities |  | 48,949            |  |  | -       |  |  | -                  |  |  | -                  | 
| | Long term debt                          |  | 4,264             |  |  | 12,840  |  |  | 17,273             |  |  | 1,451              | 
| | Capital lease obligations               |  | 8                 |  |  | 24      |  |  | 18                 |  |  | -                  | 

|22. | Commitments and
contingencies:
|--- | ------------------------------

| | (i)  | On April 22, 2009, the Company received a notice of
      complaint from the U.S. Department of Justice representing the
      Environmental Protection Agency (EPA) alleging the Company had violated
      specific provisions of the Resource Conservation and Recovery Act relating
      to the generation, storage, handling, and disposal of hazardous wastes at
      the Jerritt Canyon facility. The Company has responded to the allegations
      and has held discussions with the EPA on the matter in order to determine
      the nature of the violations, with further discussions upcoming in the
      second quarter. The EPA is continuing to monitor the Companys ongoing compliance program and no further
      actions have been taken to date. The final outcome and the extent of any
    liability is not yet determinable.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (ii) | Queenstake has been named as a defendant in a class
      action lawsuit initiated by certain employees who were laid off in August
      2008. The action is for an alleged violation of the Federal Worker
      Adjustment and Retraining Notification (WARN) Act, Employment Retirement
      Income Security Act, and State Labor Laws and to foreclose on labor liens
      not yet filed.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | Queenstake intends to satisfy all outstanding legal
      obligations caused by the shut down in August 2008 early in 2011. When the
      mine closed the Company took steps to pay out these obligations from
      available cash at the time, which was half of the amount required under
      the Federal WARN Act. The Company has provided for what it believes to be
      the amount that remains due under the Federal WARN Act, Employment
      Retirement Income Security Act, and State Labor Law obligations. The
      Company and Queenstake will defend the class action from any and all
      unjustified claims where they believe there is no obligation. The class
      action lawsuit has not been certified by the
courts.                                                                                                    

| | (b) | Lease Commitments:                                                                                     
| | --- | -------------------------------------------------------------------------------------------------------
| |     |                                                                                                        
| |     | The Company is committed under various operating leases
      to the following annual minimum payments:

| | 2011 | $ | 171 | 
| | ---- | - | --- | 
| | 2012 |   | 139 | 
| | 2013 |   | 121 | 
| | 2014 |   | 110 | 
| | 2015 |   | 82  | 
| |      | $ | 623 | 

33

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

|23. | Reconciliation between Canadian and United States
      Generally Accepted Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | These consolidated financial statements have been
      prepared in accordance with Canadian GAAP. Material measurement
      differences in the accounting principles, practices and methods used in
      preparing these consolidated financial statements from principles,
      practices and methods accepted by United States of America generally
      accepted accounting principles (US GAAP) are described and quantified
      below. On July 1, 2009, the Financial Accounting Standards Board (FASB)
      ratified the Accounting Standards Codification (ASC) as the sole source
      of authoritative non-governmental US GAAP. The ASC has not intended to
      change US GAAP, but rather reorganized existing guidance by accounting
      topic to allowed easier identification of accounting standards. New
      accounting pronouncements issued by the FASB are called Accounting
      Standards Updates (ASU). The Company has updated references to US GAAP
      to reflect the ASC.

34

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The impact of US GAAP differences on
the consolidated statement of operations is as follows:

| |                                                                                                          |  |      |  |   | For the year ended December 31 |  
| | -------------------------------------------------------------------------------------------------------- |  | ---- |  | - | ------------------------------ | -
| | In
      thousands                                                                                       |  |      |  |   | 2010                           |  
| |                                                                                                          |  |      |  |   |                                |  
| | Net loss under Canadian GAAP                                                                             |  |      |  | $ | (93,095                        | )
| | Recognition of losses on liabilties related to warrants
      denominated in foreign currencies          |  | (v)  |  |   | (100,413                       | )
| | Write-off of exploration mineral property
      costs                                                    |  | (i)  |  |   | (8,118                         | )
| | Recognition of future income tax asset due to write-off of
      exploration mineral property costs      |  | (i)  |  |   |                                |  
| | Premium received on flow-through shares                                                                  |  | (ii) |  |   | -                              |  
| | Reduction in impairment due to write-off of exploration
      mineral property costs prior to impairment |  | (i)  |  |   | 997                            |  
| | Depreciation capitalized to mineral properties                                                           |  | (i)  |  |   | (279                           | )
| |                                                                                                          |  |      |  |   |                                |  
| | Net loss under US GAAP                                                                                   |  |      |  | $ | (200,908                       | )
| |                                                                                                          |  |      |  |   |                                |  
| | Comprehensive income under US GAAP                                                                       |  |      |  | $ | (200,908                       | )
| |                                                                                                          |  |      |  |   |                                |  
| | Loss per share under US GAAP - basic and diluted                                                         |  |      |  | $ | (0.31                          | )

The impact of US GAAP differences on
the consolidated balance sheet is as follows:

| |                                                            |  |             |  |   | As at December 31 |  
| | ---------------------------------------------------------- |  | ----------- |  | - | ----------------- | -
| | In
      thousands                                         |  |             |  |   | 2010              |  
| |                                                            |  |             |  |   |                   |  
| |                                                            |  |             |  |   |                   |  
| | Assets under Canadian GAAP                                 |  |             |  | $ | 217,812           |  
| | Opening adjustment to mineral property costs               |  | (i)         |  |   | (54,803           | )
| | Write-off of exploration mineral property costs            |  | (i)         |  |   | (7,400            | )
| | Assets under US
      GAAP                                 |  |             |  | $ | 155,609           |  
| | Liabilities under Canadian GAAP                            |  |             |  | $ | 137,351           |  
| | Opening adjustments                                        |  | (ii), (iii) |  |   | (4,341            | )
| | Premium received on flow through shares                    |  | (ii)        |  |   | 1,177             |  
| | Premium on flow-through shares expensed on renunciation    |  | (ii)        |  |   | -                 |  
| | Reversal of future income tax liability
      arising from |  |             |  |   |                   |  
| | renunciation under Canadian GAAP                           |  | (ii)        |  |   | -                 |  
| | Warrants denominated in foreign currencies                 |  | (v)         |  |   | 140,728           |  
| | Liabilities
      under US GAAP                            |  |             |  | $ | 274,915           |  

35

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| |                                                                                                          |  |      |  |   | December 31 |  
| | -------------------------------------------------------------------------------------------------------- |  | ---- |  | - | ----------- | -
| | In
      thousands                                                                                       |  |      |  |   | 2010        |  
| |                                                                                                          |  |      |  |   |             |  
| | Shareholders equity under Canadian
      GAAP                                                           |  |      |  | $ | 80,461      |  
| | Opening adjustments                                                                                      |  |      |  |   |             |  
| | Exploration costs and premium on
      flow-through shares                                               |  |      |  |   | (50,462     | )
| | Write-off of exploration mineral property costs                                                          |  | (i)  |  |   | (8,397      | )
| | Reduction in impairment due to write-off of
      exploration mineral property costs prior to impairment |  | (i)  |  |   | 997         |  
| | Premium received on flow through shares                                                                  |  | (ii) |  |   | (1,177      | )
| | Premium on flow-through shares expensed on
      renunciation                                            |  | (ii) |  |   | -           |  
| | Reversal of future income tax liability arising from
      renunciation                                  |  | (ii) |  |   | -           |  
| | Reduction in foreign denominated warrants                                                                |  | (v)  |  |   | (47,327     | )
| | Increase in share capital due to foreign denominated
      warrants                                      |  | (v)  |  |   | 8,184       |  
| | Decrease in paid in capital due to expiry
      of foreign denominated warrants                          |  | (v)  |  |   | (1,172      | )
| | Recognition of
      losses on liabilties related to warrants denominated in foreign currencies          |  | (v)  |  |   | (100,413    | )
| |                                                                                                          |  |      |  |   |             |  
| | Shareholders
      equity under US GAAP                                                                 |  |      |  | $ | (119,306    | )

The components of Shareholders
equity/(deficit) under US GAAP would be as follows:

| |                                        |  |     |  |   | December 31 |  
| | -------------------------------------- |  | --- |  | - | ----------- | -
| | In
      thousands                     |  |     |  |   | 2010        |  
| |                                        |  |     |  |   |             |  
| | Share capital                          |  | (v) |  | $ | 281,199     |  
| | Accumulated paid in capital            |  | (v) |  | $ | 15,149      |  
| | Contributed surplus                    |  |     |  |   | 16,614      |  
| | Accumulated other comprehensive income |  |     |  |   | 2,264       |  
| | Deficit                                |  |     |  |   | (434,532    | )
| |                                        |  |     |  |   |             |  
| | Total Shareholders Deficit            |  |     |  | $ | (119,306    | )

36

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

The impact of US GAAP differences on
the consolidated statement of cash flows are as follows:

For the year ended December 31In
      thousands
    
    
    
    
    2010
    
    
    2009
    
    
    2008Cash used in operating activities under
      Canadian GAAP
    
    
    
    $
    (16,926
    )
    $
    (19,389
    )
    $
    (18,412
    )Write-off of exploration mineral property costs
    
    (i)
    
    
    (8,118
    )
    
    (13,286
    )
    
    (19,865
    )Premium received on flow-through shares
    
    (ii)
    
    
    1,177
    
    
    -
    
    
    6,667Cash used in
      operating activities under US GAAP
    
    
    
    $
    (23,867
    )
    $
    (32,675
    )
    $
    (31,610
    )Cash used in investing activities under
      Canadian GAAP
    
    
    
    $
    15,952
    
    $
    (6,322
    )
    $
    (42,628
    )Write-off of
      exploration mineral property costs
    
    (i)
    
    
    8,118
    
    
    13,286
    
    
    19,865Cash provided by (used in) investing activities under US
      GAAP
    
    
    
    $
    24,070
    
    $
    6,964
    
    $
    (22,763
    )Cash provided by financing activities under Canadian
      GAAP
    
    
    
    $
    35,183
    
    $
    24,790
    
    $
    21,092Premium received on flow-through shares
    
    (ii)
    
    
    (1,177
    )
    
    -
    
    
    (6,667
    )Cash provided
      by financing activities under US GAAP
    
    
    
    $
    34,006
    
    $
    24,790
    
    $
    14,425


Under US GAAP there would be no
subtotal to the cash flow from operations in the consolidated statement of cash
flows.

Notes to the Reconciliation between
Canadian and US GAAP

| | (i) | Mineral properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Under Canadian GAAP, resource property acquisition costs
      and exploration costs may be deferred and amortized to the extent they
      meet certain criteria. Capitalized costs under Canadian GAAP are amortized
      on a unit-of-production basis based on proven and probable
  reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Under US GAAP, exploration costs must be expensed as
      incurred unless the resource properties have proven and probable reserves
      at which time costs incurred to bring the mine into production are
      capitalized as development costs. Drilling and related costs in
      delineating an ore body and converting mineral resources to mineral
      reserves are expensed as exploration costs under US GAAP. Capitalized
      costs are then amortized on a unit-of-production basis based on proven and
      probable reserves rather than over the proven and probable reserves of the
      mine and the applicable portion of resources expected to ultimately be
      mined. This additional depletion and exploration expense is recognized in
      the statement of operations under US GAAP. For the purposes of the
      consolidated statements of cash flows, the exploration costs are
      classified as cash used in investing activities under Canadian GAAP and
      cash used in operating activities under US GAAP.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | As amounts capitalized may vary between Canadian GAAP and
      US GAAP, depreciation may also vary.
      Option payments are capitalized under US
  GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

37

---

|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (ii)  | Flow-through shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       | Under Canadian income tax legislation, the Company is
      permitted to issue shares whereby the Company agrees to incur Canadian
      exploration expenditures (as defined in the Income Tax Act, Canada) and
      renounce the related income tax deductions to investors. Under Canadian
      GAAP, the full amount of funds received from flow-through share issuances
      are initially recorded as share capital. Upon renouncing the expenditures,
      the amount of deferred tax liability on the expenditures is deducted from
      share capital. Under US GAAP, the premium paid for the flow-through shares
      in excess of market value is credited to liabilities and included in
      income when the related tax benefits are renounced by the
  Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (iii) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       | Under Canadian GAAP, future tax assets and liabilities
      are recorded at substantially enacted tax rates. Under US GAAP, deferred
      tax assets and liabilities are recorded at enacted tax rates. In 2009 and
      2010, there was no difference between enacted and substantially enacted
      rates. As a result, the application of US GAAP in accounting for income
      taxes did not result in any material measurement differences from Canadian
      GAAP for future tax assets or liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       | Due to the treatment of exploration costs under US GAAP
      described in note 23 (i) above, there would be a larger tax benefit
      arising under US GAAP when compared to Canadian GAAP. With respect to the
      Canadian operations, any future tax assets arising are fully offset by a
      valuation allowance as it is not more likely than not that the future tax
      assets would be realized. For the US operations, a valuation allowance has
      been taken against all future income tax assets in excess of liabilities,
      therefore the asset arising under US GAAP was not recognized in 2010 and
      2009 and the balance from 2008 has been adjusted accordingly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (iv)  | Accounting for uncertainty in income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       | The Company recognizes uncertain tax positions that are
      more-likely-than-not (50% or greater) of being sustained on audit, based
      on the technical merits of the position. With the adoption of this
      standard, the Company has performed a comprehensive review of all material
      tax positions in accordance with recognition and measurement standards
      established by FIN 48 (now known as ASC 740).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       | Based on this review, the provisions of FIN 48 did not
      have a material impact on the Companys annual consolidated financial
      statements. The Company has elected to apply the provisions of FIN 48 in
      assessing their uncertain tax positions under Canadian GAAP as well,
      removing any differences that would arise with US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (v)   | Reclassification of warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       | In June 2009, FASB released guidance on the accounting
      treatment for certain equity instruments with elements of foreign currency
      risk. Warrants with an exercise price that is different from the entitys
      functional currency cannot be classified as equity. This is applicable for
      years beginning after December 15, 2009 and has been treated as a change
      in accounting principle through prospective application. As the Companys
      functional currency is the US dollar, the issued and outstanding warrants
      that have an exercise price that is denominated in Canadian dollars are
      treated as derivative instruments and recorded as liabilities under US
      GAAP instead of equity and changes in fair value will be calculated at
      each reporting period. Any gain or loss arising from this revaluation will
      be recorded in the statement of operations. During 2010, 30,626,000
      warrants were exercised and 2,851,000 expired. Upon exercise the fair
      value of the warrants of $9.2 million was reclassified to common shares, which resulted in a
      reduction in the liabilities of $4.6 million and a loss of $4.6 million
      recognized in income in the period. For the year ended December 31, 2010,
      the Company has assessed the fair value of the warrants and recorded an
      increase in the liability of $95.8 million with an offsetting adjustment
    to the mark-to-market for the year.

38

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

| | (vi)   | Adoption of New Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |        | In June 2009, FASB issued further guidance on accounting
      of transfers of financial assets. This guidance improves the relevance,
      representational faithfulness, and comparability of the information that a
      reporting entity provides in its financial statements about a transfer of
      financial assets; the effects of a transfer on its financial position,
      financial performance, and cash flows; and a transferors continuing
      involvement, if any, in transferred financial assets. The Board undertook
      this project to address (1) practices that have developed that are not
      consistent with the original intent and key requirements of that guidance
      and (2) concerns of financial statement users that many of the financial
      assets (and related obligations) that have been derecognized should
      continue to be reported in the financial statements of transferors. This
      guidance must be applied for the Company on January 1, 2010. The adoption
      of this accounting policy did not have a material impact on the
      Company.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |        | In June 2009, FASB issued guidance which improves
      financial reporting by enterprises involved with variable interest
      entities. The Board undertook this project to address (1) the effects on
      certain provisions of as a result of the elimination of the qualifying
      special-purpose entity concept in FASB Statement No. 166, Accounting for
      Transfers of Financial Assets, and (2) constituent concerns about the
      application of certain key provisions, including those in which the
      accounting and disclosures under the Interpretation do not always provide
      timely and useful information about an enterprises involvement in a
      variable interest entity. The adoption of this accounting policy did not
      have a material impact on the Company.                                                                                                                                                                                                                                                                                                       
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (vii)  | New Accounting Pronouncements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |        | With the transition to International Financial Reporting
      Standards beginning January 1, 2011, new accounting pronouncements
      effective after January 1, 2011 will not be applicable to the
    Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (viii) | Incorporated joint venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |        | Under Canadian GAAP incorporated joint ventures are
      proportionately consolidated. Under US GAAP the investment of a joint
      venture is equity accounted for where there incorporated joint venture is
      not controlled by the Company or consolidated where control exists. The
      Company owns 41.7% of the Yukon-Shaanxi Mining Corp. an incorporated joint
      venture and accordingly should equity account for this investment for US
      GAAP. The impact is to reclassify the earnings of the joint venture to the
      Equity loss in the income statements and include the net investment as an
      equity investment on the balance sheet. However, as permitted by the
      Securities Exchange Commission regulation for the preparation of Item 17,
      financial statement for the Company has not quantified the difference in
      classification and display related to the joint
venture.                                                                                                                                                                                  

39

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|YUKON-NEVADA GOLD CORP.                                                  
|-------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                               
|(Tabular amounts in thousands of US dollars unless
      otherwise noted)
|                                                                         
|Years ended December 31, 2010, 2009 and 2008                             
|                                                                         

|24. | Subsequent events:
|--- | ------------------
|    |                   
|    | a)                
|    |                   
|    | b)                

40

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