UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


Form
10-K


(Mark
one)


R
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
fiscal year ended December 31, 2009


or


£
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from ____ to ____


Commission
File Number:  001-31593


Apollo
Gold Corporation


(Exact
name of registrant as specified in its charter)


Yukon
      Territory
            Not
      Applicable(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)


5655
S. Yosemite Street, Suite 200


Greenwood
Village, Colorado 80111-3220


(Address
of Principal Executive Offices Including Zip Code)


Registrant’s
telephone number, including area code:(720) 886-9656


Securities
registered pursuant to Section 12(b) of the Act:




Title of Each Class
              
              Name of Each Exchange on Which
      RegisteredCommon
      Shares, no par value
              
              NYSE
      AmexToronto
      Stock Exchange





Securities
registered pursuant to Section 12(g) of the Act:


None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.       Yes £No R




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.   Yes £No R




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes R     No
£




Indicate
by a check mark whether the registrant has submitted electronically and posted
on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such filed).  Yes £     No
R




Indicate
by a check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. R




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check
one):




Large
      accelerated filer  £
                  Accelerated
      filer RNon-accelerated
      filer £ (do not
      check if a smaller reporting company)
                  Smaller
      Reporting Company £




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).Yes £No R




As of
June 30, 2009, the aggregate market value of the registrant’s voting common
stock held by non-affiliates of the registrant was $95,828,992 based upon the
closing sale price of the common stock as reported by the NYSE Amexon that
date.




As of
March 15, 2010, the registrant had 273,080,927 common shares, no par value per
share, outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




Part III
of this Annual Report on Form 10-K is incorporated by reference from the
registrant’s definitive Proxy Statement for its 2010 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A no later than 120 days after
the close of the registrant’s fiscal year.





TABLE
OF CONTENTS




ITEM 1.
                BUSINESS
                
                12ITEM 1A.
                RISK FACTORS
                
                24ITEM 1B.
                UNRESOLVED STAFF COMMENTS
                
                38ITEM 2.
                PROPERTIES
                
                38ITEM 3.
                LEGAL PROCEEDINGS
                
                47ITEM 5.
                MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
      SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
                
                48ITEM 6.
                SELECTED FINANCIAL DATA
                
                50ITEM 7.
                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
                
                52ITEM 7A.
                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                
                73ITEM 8.
                FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA
                
                74ITEM 9.
                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE
                
                75ITEM 9A.
                CONTROLS AND PROCEDURES
                
                75ITEM 9B.
                OTHER INFORMATION
                
                76ITEMS 10, 11, 12, 13 AND 14
                
                77ITEM 15.
                EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                
                78SIGNATURES
                
                83INDEX TO CONSOLIDATED FINANCIAL
    STATEMENTS
                
                F-1INDEX TO EXHIBITS


-2-


REPORTING
CURRENCY, FINANCIAL AND OTHER INFORMATION




All
amounts in this Report are expressed in United States (“U.S.”) dollars. Unless
otherwise indicated Canadian currency is denoted as “Cdn$.”




Financial
information is presented in accordance with generally accepted accounting
principles (“GAAP”) in the U.S. (“U.S. GAAP”). Differences between accounting
principles generally accepted in Canada (“Cdn GAAP”) and those applied in the
U.S., as applicable to Apollo Gold Corporation, are discussed in Note 23 to the
Consolidated Financial Statements.




Information
in Part I and II of this report includes data expressed in various measurement
units and contains numerous technical terms used in the gold mining industry. To
assist readers in understanding this information, a conversion table and
glossary are provided below.




References
to “Apollo Gold,” “Apollo,” the “Company,” “we,” “our,” or “us” mean Apollo Gold
Corporation, its predecessors and consolidated subsidiaries, or any one or more
of them, as the context requires.




NON-GAAP
FINANCIAL MEASURES




In this
Annual Report on Form 10-K, we use the terms “cash operating costs,” “total cash
costs,” and “total production costs,” each of which are considered non-GAAP
financial measures as defined in the United States Securities and Exchange
Commission (the “SEC”) Regulation S-K Item 10 and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with GAAP. These terms are used by management to assess performance of
individual operations and to compare our performance to other gold
producers.




The term
“cash operating costs” is used on a per ounce of gold basis. Cash operating
costs per ounce is equivalent to direct operating cost as found on the
Consolidated Statements of Operations, less production royalty expenses and
mining taxes but includes by-product credits for payable silver.




The term
“total cash costs” is equivalent to cash operating costs plus production
royalties and mining taxes.




The term
“total production costs” is equivalent to total cash costs plus non-cash costs
including depreciation and amortization.




These
measures are not necessarily indicative of operating profit or cash flow from
operations as determined under GAAP and may not be comparable to similarly
titled measures of other companies. See Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations for a reconciliation
of these non-GAAP measures to our Statements of Operations.




STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION





This
Annual Report on Form 10-K and the documents incorporated by reference in this
report contain forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995, with respect to our financial condition, results
of operations, business prospects, plans, objectives, goals, strategies, future
events, capital expenditures, and exploration and development efforts.
Forward-looking statements can be identified by the use of words such as “may,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “intends,” “continue,” or the negative of such terms, or other
comparable terminology. These statements include comments
regarding:


-3-




·
            plans
      for the development of and production at the Black Fox project including,
      without limitation, estimates of future production at Black Fox, the
      determination to commence underground mining at Black Fox and the timing
      thereof, timing and issue of permits, including permits necessary to
      conduct phase II of open pit mining at Black Fox, whether the open pit
      will provide sufficient feed to the mill , the commissioning of the new
      conveyor, the recommissioning of the high pressure screen system and the
      expansion of the tailings dam water management system plans for the
      further development of the Black Fox
project;


·
            our
      ability to reschedule quarterly principal payments under the Black Fox
      project finance facility;


·
            our
      ability to meet our repayment obligations under the Black Fox project
      finance facility;


·
            plans
      for and our ability to finance exploration at our Huizopa, Grey Fox, and
      Pike River properties;


·
            the
      potential for an open pit minable area at
  Huizopa;


·
            our
      ability to repay the convertible debentures issued to RAB Special
      Situations (Master) Fund Limited (“RAB”) due August 23,
    2010;


·
            future
      financing of projects;


·
            liquidity
      to support operations and debt
repayment;


·
            the
      effect of regulatory compliance on the
Company;


·
            the
      establishment and estimates of mineral reserves and
    resources;


·
            daily
      production, mineral recovery rates and mill throughput
    rates;


·
            total
      production costs;


·
            cash
      operating costs;


·
            total
      cash costs;


·
            grade
      of ore mined and milled from Black Fox and cash flows
      therefrom;


·
            anticipated
      expenditures for development, exploration, and corporate
      overhead;


·
            expansion
      plans for existing properties;


·
            estimates
      of closure costs and reclamation
liabilities;


·
            our
      ability to obtain financing to fund our estimated expenditure and capital
      requirements;


·
            factors
      impacting our results of operations;
and


·
            the
      impact of adoption of new accounting
standards.





Although
we believe that our plans, intentions and expectations reflected in these
forward-looking statements are reasonable, we cannot be certain that these
plans, intentions or expectations will be achieved. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of the risk factors set forth below and other factors described in more
detail in this Annual Report on Form 10-K:




·
            unexpected
      changes in business and economic conditions, including the recent
      significant deterioration in global financial and capital
      markets;


·
            significant
      increases or decreases in gold
prices;


·
            changes
      in interest and currency exchange rates including the LIBOR
      rate;


·
            timing
      and amount of production;


·
            unanticipated
      grade of ore changes;


·
            unanticipated
      recovery or production problems;


·
            changes
      in operating costs;


·
            operational
      problems at our mining properties;


·
            metallurgy,
      processing, access, availability of materials, equipment, supplies and
      water;


·
            determination
      of reserves;


·
            costs
      and timing of development of new
reserves;


-4-




·
            results
      of current and future exploration and development
    activities;


·
            results
      of future feasibility studies;


·
            joint
      venture relationships;


·
            political
      or economic instability, either globally or in the countries in which we
      operate;


·
            local
      and community impacts and issues;


·
            timing
      of receipt of government approvals;


·
            accidents
      and labor disputes;


·
            environmental
      costs and risks;


·
            competitive
      factors, including competition for property
  acquisitions;


·
            availability
      of external financing at reasonable rates or at all;
  and


·
            the
      factors discussed in this Annual Report on Form 10-K under the heading
      “Risk Factors.”





Many of
these factors are beyond our ability to control or predict. These factors are
not intended to represent a complete list of the general or specific factors
that may affect us. We may note additional factors elsewhere in this Annual
Report on Form 10-K and in any documents incorporated by reference into this
Annual Report on Form 10-K. All subsequent written and oral forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by the cautionary statements. Except as required by
law, we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which it is made or to reflect
the occurrence of anticipated or unanticipated events or
circumstances.




GLOSSARY
OF TERMS




We report
our reserves on two separate standards to meet the requirements for reporting in
both Canada and the United States (“U.S.”). Canadian reporting requirements for
disclosure of mineral properties are governed by National Instrument 43-101 (“NI
43-101”). The definitions given in NI 43-101 are adopted from those given by the
Canadian Institute of Mining Metallurgy and Petroleum. U.S. reporting
requirements for disclosure of mineral properties are governed by SEC Industry
Guide 7. These reporting standards have similar goals in terms of conveying an
appropriate level of confidence in the disclosures being reported, but embody
differing approaches and definitions.





We
estimate and report our resources and reserves according to the definitions set
forth in NI 43-101 and modify and reconcile them as appropriate to conform to
SEC Industry Guide 7 for reporting in the U.S. The definitions for each
reporting standard are presented below with supplementary explanation and
descriptions of the parallels and differences.





NI
      43-101 Definitionsindicated
      mineral resource
              
              The
      term “indicated mineral resource” refers to that part of a mineral
      resource for which quantity, grade or quality, densities, shape and
      physical characteristics can be established with a level of confidence
      sufficient to allow the appropriate application of technical and economic
      parameters, to support mine planning and evaluation of the economic
      viability of the deposit. The estimate is based on detailed and reliable
      exploration and testing information gathered through appropriate
      techniques from locations such as outcrops, trenches, pits, workings and
      drill holes that are spaced closely enough for geological and grade
      continuity to be reasonably
assumed.


-5-





inferred
      mineral resource
              
              The
      term “inferred mineral resource” refers to that part of a mineral resource
      for which quantity and grade or quality can be estimated on the basis of
      geological evidence and limited sampling and reasonably assumed, but not
      verified, geological and grade continuity. The estimate is based on
      limited information and sampling gathered through appropriate techniques
      from locations such as outcrops, trenches, pits, workings and drill
      holes.measured
      mineral resource
              
              The
      term “measured mineral resource” refers to that part of a mineral resource
      for which quantity, grade or quality, densities, shape and physical
      characteristics are so well established that they can be estimated with
      confidence sufficient to allow the appropriate application of technical
      and economic parameters to support production planning and evaluation of
      the economic viability of the deposit. The estimate is based on detailed
      and reliable exploration, sampling and testing information gathered
      through appropriate techniques from locations such as outcrops, trenches,
      pits, workings and drill holes that are spaced closely enough to confirm
      both geological and grade continuity.mineral
      reserve
              
              The
      term “mineral reserve” refers to the economically mineable part of a
      measured or indicated mineral resource demonstrated by at least a
      preliminary feasibility study. This study must include adequate
      information on mining, processing, metallurgical, economic, and other
      relevant factors that demonstrate, at the time of reporting, that economic
      extraction can be justified. A mineral reserve includes diluting materials
      and allowances for losses that might occur when the material is
      mined.mineral
      resource
              
              The
      term “mineral resource” refers to a concentration or occurrence of
      natural, solid, inorganic material or natural solid fossilized organic
      material, including base and precious metals, coal and industrial metals
      in or on the Earth’s crust in such form and quantity and of such a grade
      or quality that it has reasonable prospects for economic extraction. The
      location, quantity, grade, geological characteristics and continuity of a
      mineral resource are known, estimated or interpreted from specific
      geological evidence and knowledge.probable
      mineral reserve
              
              The
      term “probable mineral reserve” refers to the economically mineable part
      of an indicated, and in some circumstances a measured mineral resource
      demonstrated by at least a preliminary feasibility study. This study must
      include adequate information on mining, processing, metallurgical,
      economic, and other relevant factors that demonstrate, at the time of
      reporting, that economic extraction can be justified.proven
      mineral reserve1
              
              The
      term “proven mineral reserve” refers to the economically mineable part of
      a measured mineral resource demonstrated by at least a preliminary
      feasibility study.




-6-





qualified
      person2
              
              The
      term “qualified person” refers to an individual who is an engineer or
      geoscientist with at least five years of experience in mineral
      exploration, mine development, production activities and project
      assessment, or any combination thereof, including experience relevant to
      the subject matter of the mineral project or technical report and is a
      member or licensee in good standing of a professional
      association.





SEC
Industry Guide 7 Definitions





exploration
      stage
              
              An
      “exploration stage” prospect is one which is not in either the development
      or production stage.development
      stage
              
              A
      “development stage” project is one which is undergoing preparation of an
      established commercially mineable deposit for its extraction but which is
      not yet in production. This stage occurs after completion of a feasibility
      study.mineralized
      material3
              
              The
      term “mineralized material” refers to material that is not included in the
      reserve as it does not meet all of the criteria for adequate demonstration
      for economic or legal extraction.probable
      reserve
              
              The
      term “probable reserve” refers to reserves for which quantity and grade
      and/or quality are computed from information similar to that used for
      proven (measured) reserves, but the sites for inspection, sampling, and
      measurement are farther apart or are otherwise less adequately spaced. The
      degree of assurance, although lower than that for proven reserves, is high
      enough to assume continuity between points of
  observation.production
      stage
              
              A
      “production stage” project is actively engaged in the process of
      extraction and beneficiation of mineral reserves to produce a marketable
      metal or mineral product.proven
      reserve
              
              The
      term “proven reserve” refers to reserves for which (a) quantity is
      computed from dimensions revealed in outcrops, trenches, workings or drill
      holes; grade and/or quality are computed from the results of detailed
      sampling and (b) the sites for inspection, sampling and measurement are
      spaced so closely and the geologic character is so well defined that size,
      shape, depth and mineral content of reserves are
      well-established.reserve
              
              The
      term “reserve” refers to that part of a mineral deposit which could be
      economically and legally extracted or produced at the time of the reserve
      determination. Reserves must be supported by a feasibility study done to
      bankable standards that demonstrates the economic extraction. (“Bankable
      standards” implies that the confidence attached to the costs and
      achievements developed in the study is sufficient for the project to be
      eligible for external debt financing.) A reserve includes adjustments to
      the in-situ tonnes and grade to include diluting materials and allowances
      for losses that might occur when the material is
  mined.





-7-







1For Industry Guide 7 purposes this study must include adequate
information on mining, processing, metallurgical, economic, and other relevant
factors that demonstrate, at the time of reporting, that economic extraction is
justified.


2Industry Guide 7 does not require designation of a qualified
person.


3This category is substantially equivalent to the combined categories of
measured and indicated mineral resources specified in NI 43-101.





Additional
Definitions





adularia
                
                a
      transparent or translucent variety of orthoclase (a monoclinic
      feldspar)alloy
                
                a
      homogeneous mixture or solid solution of two or more
  metalsbreccia
                
                rock
      consisting of angular fragments of other rocks held together by mineral
      cement or a fine-grained matrixcall
                
                a
      financial instrument that provides the right, but not the obligation, to
      buy a specified number of ounces of gold or silver or of pounds of lead or
      zinc at a specified pricedoré
                
                unrefined
      gold bullion bars containing various impurities such as silver, copper and
      mercury, which will be further refined to near pure
goldelectrum
                
                an
      alloy of silver and goldepithermal
                
                pertaining
      to mineral veins and ore deposits formed from warm waters at shallow
      depthfault
                
                a
      rock fracture along which there has been displacementfeasibility
      study
                
                a
      definitive engineering and economic study addressing the viability of a
      mineral deposit taking into consideration all associated technical
      factors, costs, revenues, and risksfold
                
                a
      curve or bend of a planar structure such as rock strata, bedding planes,
      foliation, or cleavageformation
                
                a
      distinct layer of sedimentary rock of similar
  compositiongeotechnical
                
                the
      study of ground stabilitygrade
                
                quantity
      of metal per unit weight of host rockhost
      rock
                
                the
      rock containing a mineral or an ore bodyhydrothermal
                
                the
      products of the actions of heated water, such as a mineral deposit
      precipitated from a hot solutioninduced
      polarization
                
                an
      exploration method which uses either the decay of an excitation voltage
      (time-domain method) or variations in the Earth's resistivity at two
      different but low frequencies (frequency-domain
  method).


-8-





Mafic
              
              pertaining
      to or composed dominantly of the ferromagnesian rock-forming silicates;
      said of some igneous rocks and their constituent
  mineralsmapping
      or geologic mapping
              
              the
      recording of geologic information such as the distribution and nature of
      rock units and the occurrence of structural features, mineral deposits,
      and fossil localitiesmetamorphism
              
              the
      process by which rocks are altered in composition, texture, or internal
      structure by extreme heat, pressure, and the introduction of new chemical
      substancesmetasediment
              
              a
      sediment or sedimentary rock that shows evidence of having been subjected
      to metamorphismmineral
              
              a
      naturally formed chemical element or compound having a definite chemical
      composition and, usually, a characteristic crystal formmineralization
              
              a
      natural occurrence in rocks or soil of one or more metal yielding
      mineralsmining
              
              the
      process of extraction and beneficiation of mineral reserves to produce a
      marketable metal or mineral product.  Exploration continues
      during the mining process and, in many cases, mineral reserves are
      expanded during the life of the mine operations as the exploration
      potential of the deposit is realized.National
      Instrument 43-101
              
              Canadian
      standards of disclosure for mineral projectsopen
      pit
              
              surface
      mining in which the ore is extracted from a pit or quarry, the geometry of
      the pit may vary with the characteristics of the ore
  bodyore
              
              mineral
      bearing rock that can be mined and treated profitably under current or
      immediately foreseeable economic conditionsore
      body
              
              a
      mostly solid and fairly continuous mass of mineralization estimated to be
      economically mineableoutcrop
              
              that
      part of a geologic formation or structure that appears at the surface of
      the earthpetrographic
              
              the
      systematic classification and description of rocks, especially by
      microscopic examinations of thin sectionsput
              
              a
      financial instrument that provides the right, but not the obligation, to
      sell a specified number of ounces of gold or of pounds of lead or zinc at
      a specified pricepyrite
              
              common
      sulfide of ironquartz
              
              a
      mineral composed of silicon dioxide, SiO2
  (silica)




-9-





reclamation
              
              the
      process by which lands disturbed as a result of mining activity are
      modified to support beneficial land use.Reclamation
      activity may include the removal of buildings, equipment, machinery and
      other physical remnants of mining, closure of tailings storage facilities,
      leach pads and other mine features, and contouring, covering and
      re-vegetation of waste rock and other disturbed areas.reclamation
      and closure costs
              
              the
      cost of reclamation plus other costs, including without limitation certain
      personnel costs, insurance, property holding costs such as taxes, rental
      and claim fees, and community programs associated with closing an
      operating minerecovery
      rate
              
              a
      term used in process metallurgy to indicate the proportion of valuable
      material physically recovered in the processing of ore, generally stated
      as a percentage of the material recovered compared to the total material
      originally presentSEC
      Industry Guide 7
              
              U.S.
      reporting guidelines that apply to registrants engaged or to be engaged in
      significant mining operationssedimentary
      rock
              
              rock
      formed at the earth’s surface from solid particles, whether mineral or
      organic, which have been moved from their position of origin and
      redepositedstockwork
              
              a
      complex system of structurally controlled or randomly oriented
      veinsstrike
              
              the
      direction or trend that a structural surface, e.g.  a bedding or
      fault plane, takes as it intersects the horizontalstrip
              
              to
      remove overburden in order to expose oresulfide
              
              a
      mineral including sulfur (S) and iron (Fe) as well as other elements;
      metallic sulfur-bearing mineral often associated with gold
      mineralizationvein
              
              a
      thin, sheet-like crosscutting body of hydrothermal mineralization,
      principally quartzvolcanic
      rock
              
              originally
      molten rocks, generally fine grained, that have reached or nearly reached
      the earth’s surface before
solidifying


-10-


CONVERSION
FACTORS AND ABBREVIATIONS




For ease
of reference, the following conversion factors are provided:




1
      acre
                  
                  =
      0.4047 hectare
                  
                  1
      mile
                  
                  =
      1.6093 kilometers1
      foot
                  
                  =
      0.3048 meter
                  
                  1
      troy ounce
                  
                  =
      31.1035 grams1
      gram per metric tonne
                  
                  =
      0.0292 troy ounce/short ton
                  
                  1
      square mile
                  
                  =
      2.59 square kilometers1
      short ton (2000 pounds)
                  
                  =
      0.9072 tonne
                  
                  1
      square kilometer
                  
                  =
      100 hectares1
      tonne
                  
                  =
      1,000 kg or 2,204.6 lbs
                  
                  1
      kilogram
                  
                  =
      2.204 pounds or 32.151 troy oz1
      hectare
                  
                  =
      10,000 square meters
                  
                  1
      hectare
                  
                  =
      2.471 acres





The
following abbreviations could be used herein:




Ag
                  
                  =
      silver
                  
                  m
                  
                  =
      meterAu
                  
                  =
      gold
                  
                  m(2)
                  
                  =
      square meterAu
      g/t
                  
                  =
      grams of gold per tonne
                  
                  m(3)
                  
                  =
      cubic meterg
                  
                  =
      gram
                  
                  Ma
                  
                  =
      million yearsha
                  
                  =
      hectare
                  
                  Oz
                  
                  =
      troy ouncekm
                  
                  =
      kilometer
                  
                  Pb
                  
                  =
      leadkm(2)
                  
                  =
      square kilometers
                  
                  t
                  
                  =
      tonnekg
                  
                  =
      kilogram
                  
                  T
                  
                  =
      tonlb
                  
                  =
      pound
                  
                  Zn
                  
                  =
      zinc





Note:  All
units in this report are stated in metric measurements unless otherwise
noted.


-11-


PART
I




ITEM 1.  BUSINESS




OVERVIEW
OF APOLLO GOLD




The
earliest predecessor to Apollo Gold Corporation was incorporated under the laws
of the Province of Ontario in 1936. In May 2003, it reincorporated under the
laws of the Yukon Territory. Apollo Gold Corporation maintains its registered
office at 204 Black Street, Suite 300, Whitehorse, Yukon Territory, Canada Y1A
2M9, and the telephone number at that office is (867) 668-5252. Apollo Gold
Corporation maintains its principal executive office at 5655 S. Yosemite Street,
Suite 200, Greenwood Village, Colorado 80111-3220, and the telephone number at
that office is (720) 886-9656. Our internet address is
http://www.apollogold.com. Information contained on our website is not a part of
this Annual Report on Form 10-K.




Apollo is
engaged in gold mining including extraction, and processing, as well as related
activities including exploration and development.




Apollo
owns Black Fox, an open pit and underground mine and mill located near Matheson
in the Province of Ontario, Canada (“Black Fox”). The Black Fox mine site is
situated seven miles east of Matheson and the mill complex is twelve miles west
of Matheson. Mining of ores from the open pit began in March 2009, milling
operations commenced in April 2009, and commercial gold production commenced in
late May 2009. Underground mining at Black Fox is expected to commence in the
second half of 2010. Apollo also owns the adjoining Grey Fox and Pike River
properties, which, together with the Black Fox property, give Apollo a total
land package of 17 square kilometers which extends over a 6.5 km strike of the
Destor-Porcupine Fault Zone.




Apollo
also owns Mexican subsidiaries which own concessions at the Huizopa exploration
project, located in the Sierra Madres in Chihuahua, Mexico. The Huizopa project
is subject to an 80% Apollo/20% Minas de Coronado joint venture
agreement.




The
Company was the operator of the Montana Tunnels mine, a 50% joint venture with
Elkhorn Tunnels, LLC (“Elkhorn”). The Montana Tunnels mine is an open pit mine
and mill which produced gold doré and lead-gold and zinc-gold concentrates. We
ceased production at Montana Tunnels in April 2009 and the mine was placed on
care and maintenance. On February 1, 2010, we sold our wholly owned subsidiary
Montana Tunnels Mining, Inc., which held our 50% interest in the Montana Tunnels
joint venture, to Elkhorn for consideration of certain promissory notes held by
Elkhorn with an outstanding balance of approximately $9.5 million.




See the
disclosure below and Item 2 “Description of Properties” for further information
about our properties.


-12-


BACKGROUND




Apollo
Gold Corporation




The
following chart illustrates Apollo’s operations and principal operating
subsidiaries and their jurisdictions of incorporation.  Apollo owns
100% of the voting securities of each subsidiary.




APOLLO GOLD CORPORATION AND ITS
SUBSIDIARIES


(as
of March 16, 2010)










APOLLO
GOLD CORPORATION:  NYSE Amex Equities exchange and Toronto Stock
Exchange listed holding company which owns and operates the Black Fox mine and
mill.




APOLLO
GOLD, INC.:  Holding company, employs executive officers and furnishes
corporate services to Apollo Gold Corporation and its subsidiaries.




MINE
DEVELOPMENT FINANCE INC.:  Provides intercompany loans and other
financial services to its affiliated companies.




MINERA
SOL DE ORO S.A. de C.V.:  Holds rights to the Huizopa exploration
property.




MINAS de
ARGONAUTAS, S. de R.L de C.V.:  Conducts exploration at the Huizopa
exploration property in Mexico.




Financial
Information




Segmented information is contained in
Note 22 of the “Notes to the Consolidated Financial Statements” contained within
this Annual Report on Form 10-K.


-13-




Products




The Black
Fox mine and mill produce gold doré.  The gold contained in the doré
is sold to the counter-parties of the Company’s gold forward sales
contracts.  100% of sales are represented by the sale of gold
doré.




The
table below summarizes the Company’s gold production and average gold prices for
the periods indicated.




Production
      Summary
                  
                  Year
      ended
                      December
      31,
                      2009
      (1)Gold
      ounces produced
                  
                  
                  52,152Gold
      ounces sold
                  
                  
                  46,016Average
      metals pricesGold
      – London Bullion Mkt.  ($/ounce)
                  
                  $
                  972





(1)
            Black
      Fox commenced gold production in late May
2009.





Gold




Black Fox
commenced commercial gold production in late May 2009, and produced 52,152
ounces of gold during the year ended December 31, 2009.




Gold
revenue is derived from the sale of refined gold in the form of doré
bars.  Because doré is an alloy consisting primarily of gold but also
containing silver and other metals, bars are sent to refiners to produce bullion
that meets the required market standard of 99.99% pure gold.  Under
the terms of our refining contracts, the bars are refined for a fee, and our
share of the refined gold and the separately recovered silver is paid to
us.




Gold
Uses




Gold has
two primary uses:  product fabrication and bullion
investment.  Fabricated gold has a variety of end uses, including
jewelry, electronics, dentistry, industrial and decorative uses, medals,
medallions and official coins.  Gold investors purchase gold bullion,
official coins and high-carat jewelry.




Gold
Supply




The
worldwide supply of gold consists of a combination of new production from mining
and existing stocks of bullion and fabricated gold held by governments,
financial institutions, industrial organizations and private
individuals.




Gold
Price Volatility




The price
of gold is volatile and is affected by numerous factors beyond our control such
as the sale or purchase of gold by various central banks and financial
institutions, inflation or deflation, fluctuation in the value of the US dollar
and foreign currencies, global and regional demand, and the political and
economic conditions of major gold-producing countries throughout the
world.


-14-




The
following table presents the high, low and average afternoon fixing prices for
gold per ounce on the London Bullion Market over the past ten
years:




Year
                
                High
                
                
                Low
                
                
                Average2000
                
                
                313
                
                
                
                264
                
                
                
                2792001
                
                
                293
                
                
                
                256
                
                
                
                2712002
                
                
                349
                
                
                
                278
                
                
                
                3102003
                
                
                416
                
                
                
                320
                
                
                
                3642004
                
                
                454
                
                
                
                375
                
                
                
                4092005
                
                
                537
                
                
                
                411
                
                
                
                4452006
                
                
                725
                
                
                
                525
                
                
                
                6042007
                
                
                841
                
                
                
                608
                
                
                
                6962008
                
                
                1,011
                
                
                
                713
                
                
                
                8722009
                
                
                1,213
                
                
                
                810
                
                
                
                9722010*
                
                
                1,153
                
                
                
                1,058
                
                
                
                1,107





* Through
February 28, 2010




Refining
Process




We have
an agreement with Johnson Matthey to refine gold doré produced at Black Fox to a
final finished product.  Johnson Matthey receives a fee for each ounce
of gold doré it refines.




Mineral
Reserves




Our
proven and probable mineral reserves are estimated in conformance with
definitions set out in National Instrument 43-101 (“NI 43-101”) and on a basis
consistent with the definition of proven and probable mineral reserves set forth
in SEC Industry Guide 7.  See our “Glossary of
Terms.”




Since we
report our mineral reserves to both NI 43-101 and SEC Industry Guide 7
standards, it is possible for our reserve estimates to vary between the
two.  Where such a variance occurs it will arise from the differing
requirements for reporting mineral reserves set forth by the different reporting
authorities to which we are subject.  No reconciliation between
NI 43-101 and SEC Industry Guide 7 is included for Black Fox as there
are no material differences.




On April
14, 2008, we filed a NI 43-101 Technical Report, which was prepared to a
bankable standard (“bankable feasibility study”).  A bankable
feasibility study is a comprehensive analysis of a project’s economics (+/- 15%
precision) used by the banking industry for financing purposes.  The
table below summarizes the Black Fox total mineral reserve.  The
mineral reserves shown in the table below were calculated based on a gold price
of $650 per ounce.





Black
Fox Probable Reserve Statement as of December 31, 2008




Mining Method
              
              Cutoff Grade
                  Au g/t
              
              
              Tonnes
                  (000)
              
              
              Grade
                Au g/t
              
              
              Contained
                  Au OuncesOpen
      Pit
              
              
              1.0
              
              
              
              4,350
              
              
              
              5.2
              
              
              
              730,000Underground
      (1)
              
              
              3.0
              
              
              
              2,110
              
              
              
              8.8
              
              
              
              600,000Total
      Probable Reserves
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,330,000


(1)Underground
reserves assume 95% mining recovery 17% planned dilution and 5% unplanned
dilution at 0 grams per tonne grade.


-15-





The
estimated reserves presented above were reduced by mining of 632,000 ore tonnes
from the Black Fox mine, including 425,000 tonnes at a grade of 3.7 grams per
tonne (“gpt”) producing 46,621 ounces of gold from the Black Fox mill, with
further 5,531 ounces of gold produced from toll processing in 2009.




There was
no updated estimation of mineral reserves for the year ended December 31, 2009.
This was due mainly to the Company undertaking in late 2009 a comprehensive mine
plan re-modeling with tighter constraints and review of the 2010 mine plan as
well as the life of mine plan to address the grade variability issue of a
certain type of Black Fox ore, which had resulted in an over-projection of grade
in part of the open pit ore. This lower grade negatively impacted 2009 gold
production, which was lower than expected. The revised mine plan is expected to
be completed by the end of the first quarter of 2010. Independent professional
mining consultants and our staff determined that the new mine plan requires
reconciliation of production against the plan forecasts over the rest of 2010.
This will be in conjunction with a continuous improvement effort, benefitted by
the mine operating in its first full year of production at a steady state of
2,000 tonnes of ore per day. Such assessment will provide more accurate
information regarding mining costs, cut-off grade, and other parameters in the
estimation of mineral reserves at the end 2010.




It is
expected that the average gold grade of the open pit portion of reserves will
decrease from the December 31, 2008 reserve estimate grade due to the
anticipated lowering of the average grade in the certain type of ore in the open
pit and the addition of more low grade tonnes than originally estimated.
However, the change in the overall tonnage and contained ounces of open pit
reserves will reflect the net effect of any negative adjustment and possible
increments from the anticipated underground exploration drilling for resource
and reserve additions. The comprehensive review included remodeling of the
underground portion of reserves and found less variance (i.e. more consistency)
against the 2008 feasibility study. The anticipated start-up of underground
mining during 2010 will also provide actual production data for reconciliation
purposes in the estimation of mineral reserves for the year ended December 31,
2010.




The
Company expects to report updated estimated mineral reserves for 2010 in the
first quarter of 2011, and on an annual basis thereafter.





Employee
Relations




As of
December 31, 2009, we had approximately 219 employees, including 9 employees at
our principal executive office in Greenwood Village, Colorado, 21 employees at
Montana Tunnels and 189 employees at Black Fox.




Competition




We
compete with major mining companies and other natural mineral resource companies
in the acquisition, exploration, financing and development of new mineral
prospects. Many of these companies are larger and better capitalized than we
are. There is significant competition for the limited number of gold acquisition
and exploration opportunities. Our competitive position depends upon our ability
to successfully and economically acquire, explore, and develop new and existing
mineral prospects. Factors that allow producers to remain competitive in the
market over the long term include the quality and size of their ore bodies,
costs of operation, and the acquisition and retention of qualified employees. We
also compete with other mining companies for skilled mining engineers, mine and
processing plant operators and mechanics, geologists, geophysicists and other
technical personnel. This could result in higher employee turnover and greater
labor costs.




-16-




Regulatory
Environment




Our
mining exploration, development and production activities are subject to
extensive regulation at the federal, provincial and local levels in the
countries in which we operate. These regulations relate to, among other things,
prospecting, development, mining, production, exports, taxes, labor standards,
occupational health, waste disposal, protection of the environment, mine safety,
hazardous substances and other matters. These laws are continually changing and,
in general, are becoming more restrictive. We have made, and expect to make in
the future, significant expenditures to comply with such laws and regulations.
Changes to current local, state or federal laws and regulations in the
jurisdictions where we operate could require additional capital expenditures and
result in an increase in our operating and/or reclamation costs. Although we are
unable to predict what additional legislation, if any, might be proposed or
enacted, additional regulatory requirements could impact the economics of our
projects.





For more
information regarding the regulations to which we are subject and the risks
associated therewith, see Item 1A “Risk Factors.”





Recent
Developments





Letter
of Intent with Linear Gold Corp.





General. On March 9,
2010, Apollo and Linear Gold Corp. (“Linear”) entered into a binding letter of
intent (the “Letter of Intent”) pursuant to which it is expected that (i) the
businesses of Apollo and Linear would be combined by way of a court-approved
plan of arrangement (the “Arrangement”) pursuant to the provisions of the Canada Business Corporations Act(“CBCA”) and (ii) Linear would subscribe for approximately 62,500,000
common shares (the “Purchased Shares”) of Apollo at a price of Cdn$0.40 per
common share for aggregate proceeds of Cdn$25.0 million (the “Private
Placement”).





Structure. As set
forth in the Letter of Intent, pursuant to the Arrangement:





·
            each
      outstanding Linear common share will be exchanged for 5.4742 Apollo common
      shares (the “Exchange Ratio”);


·
            each
      outstanding common share purchase warrant of Linear (the “Linear
      Warrants”) will be exchanged for common share purchase warrants of Apollo
      (the “Apollo Warrants”) on the basis of the Exchange Ratio and the
      exercise price of the Linear Warrants will be adjusted as provided for in
      the certificates representing the Linear
  Warrants;


·
            each
      outstanding option to purchase a Linear common share (the “Linear
      Options”) granted under Linear’s Stock Option Plan will be exchanged for
      options of Apollo (the “Apollo Options”) granted under Apollo’s Stock
      Option Plan on the basis of the Exchange Ratio and the exercise price of
      the Linear Options will be adjusted on the same basis as the exercise
      price of the Linear Warrants; provided that current employees of Linear
      holding Linear Options whose employment is terminated in connection with
      the Arrangement will have their Linear Options exchanged for Apollo
      Options which shall expire on the earlier of: (i) the current expiry date
      of the corresponding Linear Options; and (ii) the first anniversary of the
      date of completion of the Arrangement, regardless of whether such
      employees are otherwise “eligible persons” under the terms of the Apollo
      Stock Option Plan or applicable Toronto Stock Exchange (the “TSX”) rules;
      and


·
            each
      outstanding Apollo Option held by current directors of Apollo that will
      not continue to be directors of Apollo upon completion of the Arrangement
      would be amended to provide that such Apollo Options shall expire on the
      earlier of: (i) the current expiry date of such Apollo Options; and (ii)
      the first anniversary of the date of completion of the Arrangement,
      regardless whether such directors are “eligible persons” under the terms
      of the Apollo Stock Option Plan or applicable TSX
  rules.


-17-





Upon
consummation of the Arrangement, Linear would become a wholly owned subsidiary
of Apollo and the shareholders of Linear immediately prior to the Arrangement
are expected to own approximately 42.9% of the outstanding common stock of
Apollo (calculated on a fully-diluted basis).





Board of Directors and other
Matters.Upon
consummation of the Arrangement, the Letter of Intent contemplates
that:





·
            Apollo
      and Linear will agree on a new name for Apollo;
  and


·
            The
      Board of Directors of Apollo would consist of seven directors, which would
      be composed of (i) Wade Dawe (the current President and Chief Executive
      Officer of Linear), who would be nominated as the Chairman of the Board of
      Directors, (ii) four current Apollo board members or Apollo nominees,
      (iii) one Linear nominee and (iv) one nominee who shall be a technical
      person mutually agreed upon by Apollo and
  Linear.





Definitive Business
Combination Agreement. The Letter of Intent contemplates that Linear and
Apollo will enter into a definitive arrangement agreement (the “Definitive
Agreement”) governing the Arrangement on or before March 31, 2010 to implement
the Arrangement to provide for the business combination of Linear and
Apollo.





Support Agreements.
The Letter of Intent provides that it is a condition to Apollo proceeding with
the Arrangement that all directors and officers of Linear enter into support
agreements (the “Linear Support Agreements”) under which they agree to vote in
favor of the Arrangement all of the Linear common shares currently owned or
controlled by them, being an aggregate of 3,415,887 Linear common shares
representing, in aggregate, approximately 6.21% of the outstanding Linear common
shares (calculated on a fully-diluted basis). In addition, the Letter of Intent
provides that it is a condition to Linear proceeding with the Arrangement that
all directors and officers of Apollo enter into support agreements (the “Apollo
Support Agreements” and, together with the Linear Support Agreements, the
“Support Agreements”) under which they agree to vote in favor of the Arrangement
all of the Apollo common shares currently owned or controlled by them, being an
aggregate of 3,736,273 Apollo common shares representing, in aggregate,
approximately 1.0% of the outstanding Apollo common shares (calculated on a
fully-diluted basis).





The
Support Agreements will include the typical covenants, including, but not
limited to, covenants that the subject shareholders will:





·
            immediately
      cease and terminate existing discussions, if any, with respect to any
      potential business combination involving, Linear or Apollo, as the case
      may be, or any material part of their respective assets (in the case of
      Linear, a “Linear Proposal” or, in the case of Apollo, an “Apollo
      Proposal”) and will not make, solicit, assist, initiate, encourage or
      otherwise facilitate any inquiries, proposals or offers from any person
      (other than as contemplated by the Letter of Intent) relating to any
      Linear Proposal or Apollo Proposal, as the case may be, or participate in,
      any discussions or negotiations regarding any information with respect to
      any Linear Proposal or Apollo Proposal, as the case may
  be;


·
            not
      sell, transfer or encumber in any way any of the subject shareholder’s
      shares or securities convertible into such shares or restrict such
      shareholder’s right to vote any of its shares, other than pursuant to the
      Arrangement; and


-18-


·
            vote
      all the subject shareholder’s shares against any proposed action, other
      than in connection with the Arrangement in respect of any amalgamation,
      merger, sale of Linear’s or Apollo’s, as applicable, or their respective
      affiliates’ or associates’ assets, take-over bid, plan of arrangement,
      reorganization, recapitalization, shareholder rights plan, liquidation or
      winding-up of, reverse take-over or other business combination or similar
      transaction involving Linear or Apollo, as the case may be, or any of its
      subsidiaries; (a) which would reasonably be regarded as being directed
      towards or likely to prevent or delay the successful completion of the
      Arrangement or an alternative transaction, or (b) which would reasonably
      be expected to result in a material adverse effect with respect to Linear
      or Apollo, as the case may be.





In
addition, pursuant to the Letter of Intent, each of Linear and Apollo would
agree to use its reasonable best efforts to obtain similar support agreements
from significant institutional shareholders.





Conditions to Consummation
of Arrangement. The Letter of Intent provides that each party’s
obligation to proceed with the Arrangement is subject to customary conditions
precedent, including without limitation conditions relating to (i) material
accuracy of representations and warranties as of the effective date of the
Arrangement, (ii) material compliance with covenants, (iii) the absence of any
material adverse change, (iv) absence of certain actions, suits, proceedings or
objection or opposition before any governmental or regulatory authority, (v)
absence of material breaches under the Letter of Intent, (vi) approval of the
securityholders of Linear and Apollo of the transactions set forth in the Letter
of Intent for which their approval is required under applicable law, (vii)
approval Superior Court of Justice of Ontario (the “Court”) of the Arrangement,
(viii) obtaining all material consents, waivers, permissions and approvals
necessary to complete the Arrangement by or from relevant third parties and (ix)
holders of not more than 5% of each of the issued and outstanding Linear common
shares and Apollo common shares shall have exercised rights of dissent in
relation to the Arrangement.





Securityholder
Approval. The Arrangement will be subject to the approval of holders of
not less than 66 2/3% of the Linear common shares and of a majority of the
Apollo common shares held by disinterested shareholders voted at special
meetings of shareholders that will be called to approve the


Arrangement.





Non-Solicitation. The
Letter of Intent includes mutual agreements by each of Linear and Apollo to
immediately cease, and not to solicit or initiate discussions concerning, any
alternative transactions to the proposed Arrangement. However, each of Linear
and Apollo may take certain specified actions in response to an unsolicited
alternative transaction that the board of directors of such party deems to be a
“superior proposal” meeting the requirements set forth in the Letter of Intent.
The Letter of Intent also provides that each of Apollo and Linear have certain
other customary rights in respect of alternative transactions, including a right
to match competing offers in certain circumstances.





Break Fee. If either
Linear or Apollo terminates the Letter of Intent or the Definitive Agreement and
abandons the Arrangement prior to closing for any reason (other than as a result
of the failure of a condition to such party’s obligation to close contained in
the Letter of Intent or the Definitive Agreement not being satisfied, other than
a failure to obtain the required approval of such party’s shareholders (as
described above)), such terminating party shall pay to the other party an amount
equal to Cdn$4,000,000.





Covenants relating to
Operation of Business.Pursuant to the Letter of Intent, each party agrees that during the
period from the date of execution of the Letter of Intent and ending on the
earlier of the consummation of the Arrangement or the termination of the Letter
of Intent, except as required by law or as otherwise expressly permitted or
specifically contemplated by the Letter of Intent, it shall conduct its business
only in the usual and ordinary course of business and consistent with past
practice and it shall use all reasonable commercial efforts to maintain and
preserve its business, assets and advantageous business relationships. In
addition, during such period, each party agrees to restrictions with respect to,
among other things, (i) amending its constating documents, (ii) dividends,
distributions, issuances, redemptions, repurchases or reclassifications of its
capital stock, (iii) adopting a plan of liquidation or resolutions providing for
its liquidation, dissolution, merger, consolidation or reorganization, (iv)
sales, pledges or disposition of its assets, (v) capital expenditures, (vi)
asset acquisitions, (vii) business acquisitions, (viii) indebtedness, (ix)
material contract rights, (x) entry into or termination of hedges or other
financial instruments or transactions, (xi) employee and director compensation,
(xii) changes to employee plans and (xiii) maintenance of insurance
policies.


-19-




Other. The Letter of
Intent also provides that, among other things:





·
            Management
      terminations, buyouts and severance payments will be paid out to Linear
      management and staff on closing of the Arrangement in accordance with
      management contracts and common law amounts and are expected to total
      approximately Cdn$3,400,000;


·
            Prior
      to the completion of the Arrangement, Apollo shall purchase and maintain
      director and officer liability “run-off” insurance for the benefit of the
      former directors and officers of Linear for a period of not less than six
      (6) years following the completion of the Arrangement, with coverage of
      not less than Cdn$10,000,000, with respect to claims arising from facts or
      events that occurred on or before the closing of the Arrangement,
      including with respect to the
Arrangement;


·
            Apollo
      will pay the fees and expenses of Linear in connection with the Private
      Placement up to a maximum of Cdn$50,000;
and


·
            Customary
      representations and warranties from each of Apollo and
    Linear.





Termination of Letter of
Intent. The Letter of Intent may be terminated (i) by mutual written
consent of each of Apollo and Linear; (ii) by a party which accepts, recommends,
approves or enters into an agreement to implement a “superior proposal” (as
defined in the Letter of Intent) after having complied with the terms of the
Letter of Intent (provided that concurrently with any such termination, the
terminating party shall have paid the Cdn$4,000,000 break fee described above
following which the payor party shall have no further liabilities arising
hereunder other than for a breach of any section of the Letter of Intent); and
(iii) by either party if the Definitive Agreement is not executed by each of the
parties on or before 5:00 pm (Toronto time) on March 31, 2010 (provided that
concurrently with any such termination, the terminating party shall have paid
the Cdn$4,000,000 break fee described above following which the payor party
shall have no further liabilities arising hereunder other than for a breach of
any section of the Letter of Intent).





Subscription
Agreement with Linear in respect of Private Placement





Concurrently
with the execution of the Letter of Intent, Apollo and Linear entered into a
subscription agreement providing for the Private Placement (the “Subscription
Agreement”). Pursuant to the Letter of Intent and the Subscription Agreement,
the closing of the Private Placement is subject to customary conditions
precedent, including conditions relating to: (i) receipt of all necessary stock
exchange approvals, (ii) delivery by Apollo of customary corporate and
securities law opinions and title opinions, (iii) each of Macquarie Bank Limited
and RMB Australia Holdings Limited (which we sometimes refer to herein as the “
Project Facility Banks”) shall have entered into a support agreement, in form
and substance satisfactory to Linear, pursuant to which each Project Facility
Bank agrees, among other things, to support and vote in favor of the
Arrangement; and (iv) each of the Project Facility Banks shall have entered into
a lock-up agreement, in form and substance satisfactory to Linear, pursuant to
which each Bank agrees, among other things, not to, directly or indirectly,
exercise or offer, sell, contract to sell, lend, swap, or enter into any other
agreement to transfer the economic consequences of any of the common shares or
common share purchase warrants of Apollo held by them until December 31, 2010.
The closing of the Private Placement is expected to occur on or before March 19,
2010.


-20-





The
Subscription Agreement includes other covenants, representations and warranties
customary for transactions of this type. The Private Placement will be conducted
in reliance on the exemption from registration contained in Regulation S of the
U.S. Securities Act of 1933, as amended.


The
Arrangement is expected to close on or before July 2, 2010.


As part
of the Arrangement, the Apollo common shares expected to be issued to Linear in
the Private Placement will be cancelled without any payment. The Private
Placement will not be conditioned on the completion of the Arrangement. If the
Arrangement is not completed for any reason, Apollo has agreed to, upon the
request of Linear, file a registration statement with the United States
Securities and Exchange Commission to register the resale of the Apollo common
shares by Linear in the United States.




Black
Fox Financing Agreement





On
February 20, 2009, we entered into a $70.0 million project financing agreement
(which we sometimes refer to herein as the “Project Facility”) with the
Macquarie Bank Limited and RMB Australia Holdings Limited (which we sometimes
refer to herein as the “Project Facility Banks”) and RMB Resources Inc. (which
we sometimes refer to herein as the “Agent”), as agent for the Project Facility
Banks. By June 2, 2009, the Company had borrowed the total amount of the $70.0
million available under the Project Facility.





As a result of lower than planned gold
production, during the third quarter of 2009 a “review event” as defined in the
Project Facility was triggered. The occurrence of a review event allows the
Banks to review the Project Facility and determine if they wish to continue with
the Project Facility. In addition, we were unable to make (i) the first
scheduled repayment of $9.3 million due on September 30, 2009 under the Project
Facility (the “First Repayment”), (ii) the second scheduled repayment of $6.0
million due on December 31, 2009 (the “Second Repayment”) and (iii) the
requirement to fund the associated debt service reserve account (the “Funding
Obligation”) also due on September 30, 2009. Through three separate deferrals,
the last of which was granted on February 25, 2010, the Banks agreed to defer
the First Repayment, the Second Repayment and the Funding obligation until March
31, 2010.





In connection with the Letter of Intent
executed with Linear, on March 9, 2010, the Project Facility Banks executed and
delivered a consent letter (which we sometimes refer to herein as the “Consent
Letter”), which was agreed to and accepted by each of Apollo and Linear,
pursuant to which the Project Facility Banks and the Agent agreed, subject to
the terms and conditions contained in the Consent Letter:





·
            to
      consent to the Arrangement (the
“Consent”);





·
            prior
      to the earliest to occur of (i) the date on which the Agent determines,
      acting reasonably, that the Arrangement has been terminated or will not be
      completed, (ii) March 31, 2009, if the Definitive Agreements in respect of
      the Arrangement have not been executed by such date, or (iii) September
      30, 2010, not to make demand, accelerate payment or enforce any security
      or any other remedies upon an “event of default” or a “review event” under
      the Project Facility unless and until the occurrence of certain “override
      events” set forth in to the Consent Letter (which “override events” are
      primarily related to breaches of certain covenants and provisions of the
      Consent Letter and the Project Facility) (the “Standstill Provisions”);
      and


-21-




·
            to
      amend certain provisions of the Project Facility, including without
      limitation the following revised repayment
  schedule:





Repayment Date
                  
                  Repayment AmountThe
      earlier of two business days following completion of the Private Placement
      and March 19, 2010
                  
                  $
                  10,000,000The
      earlier of July 2, 2010 and the date that is two business days following
      the consummation of the Arrangement
                  
                  $
                  10,000,000The
      earlier of September 30, 2010 and the date on which the proceeds from any
      one or more equity raisings following the consummation of the Arrangement
      equals $10,000,000
                  
                  $
                  10,000,000December
      31, 2010
                  
                  $
                  5,000,000The
      remaining repayment dates between March 31, 2011 and March 31, 2013 to be
      agreed between Apollo and the Agent by no later than September 30, 2010 to
      reflect the “cashflow model” (as defined under the Project Facility) that
      is approved by the Agent. In the absence of agreement between Apollo and
      the Agent by September 30, 2010. “secured moneys” (as defined under the
      Project Facility) shall be due and payable on December 31,
      2010.
                  
                  $
                  35,000,000





The Project Facility Banks’ agreement
to the Consent and the Standstill Provisions is subject to a number of
conditions, including without limitation (i) delivery of the Apollo Support
Agreement (as defined above)in connection with the Letter of Intent in a form
and substance satisfactory to the Agent, (ii) prior approval by the Project
Facility Banks of press releases and other public statements regarding the
Arrangement that refer to the Project Facility Banks, (iii) the Agent, acting
reasonably, approving the Definitive Agreements and such Definitive Agreements
being executed by no later than March 31, 2010, (iv) the Agent, acting
reasonably, being satisfied that the completion of the Arrangement will not
cause a breach or default under any “project documents” (as defined in the
Project Facility), (v) the Agent, acting reasonably, being satisfied that the
Arrangement will not have any material negative tax implications for Apollo,
Linear and each of their direct or indirect subsidiaries, (vi) the Agent being
satisfied, acting reasonably, that, immediately following completion of the
Arrangement and after making the payment of $10,000,000 contemplated by the
second row in the repayment schedule set forth above, Apollo having restricted
cash on hand of not less than Cdn$10,000,000, (vii) no amendment to the
Definitive Agreements, no representation in the Definitive Agreements being
untrue, no breach of any material covenant and no waiver of any material
condition precedent in the Definitive Agreements, and (viii) at completion of
the Arrangement, the Agent, acting reasonably, being satisfied regarding
indebtedness and encumbrances of Linear and its direct and indirect
subsidiaries.





Extension
of Maturity Date for February 2007 Convertible Debentures held by
RAB





On
February 23, 2007, the Company concluded a private placement pursuant to which
it sold $8,580,000 aggregate principal amount of convertible debentures due
February 23, 2009 (the “Convertible Debentures”). As originally issued, each
$1,000 principal amount of the Convertible Debentures was convertible at the
option of the holder into 2,000 of the Company’s common shares, at any time
until February 23, 2009. Additionally, each $1,000 principal amount of the
Convertible Debentures included 2,000 common share purchase warrants entitling
the holder thereof to purchase one of the Company’s common shares at an exercise
price of $0.50 per share, which such warrants originally expired on February 23,
2009 (the “Warrants”).


-22-




On
February 16, 2009, the Company and RAB Special Situations (Master) Fund Limited
(”RAB”), which owns $4,290,000 aggregate principal amount of Convertible
Debentures and 8,580,000 Warrants, entered into an agreement (the “First
Amending Agreement”) pursuant to which RAB agreed to extend the maturity date of
its Convertible Debentures to February 23, 2010 (the “RAB Convertible
Debentures”). In consideration for the foregoing, the Company (i) issued
2,000,000 common shares of the Company to RAB, (ii) extended the maturity date
of the Warrants issued to RAB to February 23, 2010 (the “RAB Warrants”) and
(iii) reduced the exercise price of the RAB Warrants from $0.50 to $0.25. The
Company filed a Form 8-K with the SEC on February 19, 2009 disclosing the terms
of the First Amending Agreement.





On
February 26, 2010, the Company and RAB entered into a third amending agreement
(the “Third Amending Agreement”) (which amended and restated in its entirety a
second amending agreement entered into on February 23, 2010) pursuant to which
RAB agreed to further extend the maturity date of the RAB Convertible Debentures
to August 23, 2010 and, in consideration therefor, the Company agreed to repay
the $772,200 of accrued interest through February 23, 2010 on the RAB
Convertible Debentures in cash and agreed to issue to RAB (i) 800,000 common
shares of the Company and (ii) 2,145,000 common share purchase warrants (the
“New Warrants”), which New Warrants entitle RAB to purchase one of the Company’s
common shares at an exercise price of $0.50 per share at any time before 5:00
p.m. (Toronto time) on February 23, 2011.





Purchase
of Duffy Promissory Note





On March
12, 2010, the Company, Calais Resources Colorado, Inc. (“Calais Colorado”),
Calais Resources, Inc. (“Calais Resources” and, together with Calais Colorado,
“Calais”) and Duane A. Duffy, Glenn E. Duffy, Luke Garvey and James Ober,
(collectively, the “Duffy Group”) entered into a purchase agreement (the
“Purchase Agreement”) pursuant to which the Company agreed, subject to the terms
and conditions contained in the Purchase Agreement, to issue 1,592,733 common
shares to the Duffy Group in exchange for the assignment of their rights, title
and interest in and to, among other things, a debt obligation owed by Calais
(the “Loan”) as more fully described below.





The Loan is evidenced by a promissory
note dated August 11, 2005, in the original principal amount of $807,650 (the
“Promissory Note”), and is secured by a deed of trust in favor of the Duffy
Group recorded against property owned by Calais located in Boulder County,
Colorado. The Duffy Group’ security interests in the property against which the
Promissory Note is secured are to be transferred to the Company as part of the
transaction. Pursuant to the terms of the Purchase Agreement, Calais agreed to
issue Calais Resources common shares to the Duffy Group in payment of $435,347
of the outstanding balance of principal and accrued interest and fees of the
Promissory Note (the “Calais Share Issuance”). Immediately following the Calais
Share Issuance, the outstanding balance of the Promissory Note (including
accrued interest thereon) will be $653,020.





The
Promissory Note matured on December 31, 2009 and was not repaid. On January 2,
2010, the Duffy Group called the Loan due and payable and provided notice to
Calais of the payment default on the Promissory Note. In accordance with the
terms of the Promissory Note, following an uncured default on the Promissory
Note, the Promissory Note bears interest at the rate of 24%. Pursuant to the
Purchase Agreement, the Company agreed to forebear from enforcing its right to
collect principal and interest outstanding under the Promissory Note until March
12, 2011 and reduce the interest rate on the Promissory Note during that period
to 8%. In addition to the foregoing provision, the Purchase Agreement includes
customary representations, warranties, covenants and indemnities for
transactions of this type.


-23-




Available
Information




We
maintain a link to investor information on our website, www.apollogold.com, where we
make available, free of charge, our filings with the SEC, including our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and all amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, or Exchange Act, as soon
as reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. We also make available on our website copies of the
charters of the audit, compensation, technical and nominating committees of our
board of directors, our code of business conduct and ethics and our corporate
governance principles. Shareholders may request a printed copy of these
governance materials or any exhibit to this report by writing to our Vice
President of Investor Relations, Apollo Gold Corporation, 5655 S. Yosemite
Street, Suite 200, Greenwood Village, CO 80111. You may also read and copy any
materials we file with the SEC at the SEC’s Public Reference Room, which is
located at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information
regarding the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.govthat contains the
documents we file with the SEC. Our website and the information contained on or
connected to our website are not incorporated by reference herein and our web
address is included as an inactive textual reference only.





ITEM 1A. RISK FACTORS





In
addition to historical information, the information in this Annual Report on
Form 10-K contains “forward-looking” statements about our future business and
performance. Our actual operating results and financial performance may be very
different from what we expect as of the date of this report. The risks below
address some of the factors that may affect our future operating results and
financial performance.





Failure
to complete the business combination with Linear could negatively impact our
stock price and our future business and financial results.





On March 9, 2010, we entered into a
binding letter of intent (which we sometimes refer to herein as the “Letter of
Intent”) with Linear pursuant to which (i) the businesses of Apollo Gold and
Linear would be combined upon the implementation of a plan of arrangement under
the provisions of the Canada Business Corporations Act (which we sometimes refer
to herein as the “Arrangement”) and (ii) Linear would purchase approximately
62,500,000 of our common shares at a price of Cdn$0.40 per common share in a
private placement for aggregate proceeds to us of Cdn$25.0 million (which we
sometimes refer to herein as the “Private Placement”).





The
Letter of Intent contains a number of important conditions that must be
satisfied before we can complete the proposed Arrangement, including, among
other things, (i) material accuracy of representations and warranties as of the
effective date of the Arrangement, (ii) material compliance with covenants,
(iii) the absence of any material adverse change, (iv) absence of certain
actions, suits, proceedings or objection or opposition before any governmental
or regulatory authority, (v) absence of material breaches under the Letter of
Intent, (vi) approval of the securityholders of Linear and Apollo of the
transactions set forth in the Letter of Intent for which their approval is
required under applicable law, (vii) approval Superior Court of Justice of
Ontario of the Arrangement, (viii) obtaining all material consents, waivers,
permissions and approvals necessary to complete the Arrangement by or from
relevant third parties and (ix) holders of not more than 5% of each of the
issued and outstanding Linear common shares and Apollo common shares shall have
exercised rights of dissent in relation to the Arrangement.


-24-




If the
proposed business combination with Linear is not completed for any reason, our
ongoing business and financial results may be adversely affected. For example,
the amended repayment schedule under the Project Facility with the Project
Facility Banks agreed to on March 9, 2010 requires us to pay $10,000,000 upon
the earlier to occur of July 2, 2010 and two business days following the
consummation of the Arrangement. If the Arrangement with Linear is not
consummated, we may not have sufficient cash-on-hand to meet this and the other
repayment obligations under the Project Facility or under the $4,290,000
principal amount of convertible debentures due August 23, 2010 owned by RAB. In
addition, if the proposed business combination with Linear is not completed, we
will be subject to a number of additional risks, including the
following:





·
            Under
      the terms of the Letter of Intent with Linear, in certain circumstances,
      if the Arrangement is not completed, we will be required to pay a
      Cdn$4,000,000 termination fee to Linear;
and


·
            The
      price of our common shares may decline to the extent that the current
      market price of our common shares reflect a market assumption that the
      proposed business combination will be completed and that the related
      benefits and synergies will be realized, or as a result of the market’s
      perceptions that the business combination was not consummated due to an
      adverse change in our business or financial
  condition.





In
addition, the pendency of the proposed business combination with Linear could
adversely affect our operations because:





·
            matters
      relating to proposed business combination with Linear (including
      integration planning) require substantial commitments of time and
      resources by our management and employees, whether or not the transaction
      is completed, which could otherwise have been devoted to other
      opportunities that may have been beneficial to
  us;


·
            our
      ability to attract new employees and consultants and retain our existing
      employees and consultants may be harmed by uncertainties associated with
      proposed business combination, and we may be required to incur substantial
      costs to recruit replacements for lost personnel or consultants;
      and


·
            shareholder
      lawsuits could be filed against us challenging the proposed business
      combination. If this occurs, even if the lawsuits are groundless and we
      ultimately prevail, we may incur substantial legal fees and expenses
      defending these lawsuits, and the proposed business combination may be
      prevented or delayed.





We cannot
guarantee when, or whether, the proposed business combination with Linear will
be completed, that there will not be a delay in the completion of the business
combination or that all or any of the anticipated benefits of this transaction
will be obtained. If this transaction is not completed or is delayed, we may
experience the risks discussed above which may adversely affect our business,
financial results and share price.





-25-




If
we are able to complete the proposed business combination with Linear, we may
fail to successfully integrate our businesses which could harm our business,
financial condition and operating results.


Business
combinations involve numerous risks, including liabilities that we may assume
from Linear, difficulties in assimilation of the operations and personnel of
Linear, the diversion of management’s attention from other business concerns,
risks of exploring properties or operating in locations in which we have no
direct prior experience, and the potential loss of key employees. Any of these
factors could adversely affect our business, liquidity, results of operations
and financial position.





If
we are able to complete the proposed business combination with Linear, our
shareholders will experience immediate dilution as a consequence of the issuance
of our shares as consideration in the transaction. The existence of a large
minority share position may reduce the influence that our current shareholders
have on the management of the combined company.





If the
proposed business combination with Linear is completed, the influence of our
current shareholders, in their capacity as shareholders of the combined company,
will be significantly reduced. If the proposed business combination is
completed, our current shareholders would hold, in the aggregate, approximately
52.2% of the issued and outstanding shares of the combined company and Linear’s
current shareholders would hold, in the aggregate, approximately 47.8% of the
combined company (based on the number of Apollo common shares and Linear common
shares outstanding as of the date hereof). Therefore, the former Linear
shareholders will have the ability to exercise influence over the election of
directors and other issues submitted to the shareholders of the combined
company.





A
“review event” has occurred under our Black Fox Project Facility and we have
been unable to make the first two originally scheduled repayments
thereunder.





As a
result of lower than planned gold production, during the third quarter of 2009 a
“review event” as defined in the Project Facility was triggered. The occurrence
of a review event allows the Banks to review the Project Facility and determine
if they wish to continue with the Project Facility. In addition, we were unable
to make (i) the first scheduled repayment of $9.3 million due on September 30,
2009 under the Project Facility (the “First Repayment”), (ii) the second
scheduled repayment of $6.0 million due on December 31, 2009 (the “Second
Repayment”) and (iii) the requirement to fund the associated debt service
reserve account (the “Funding Obligation”) also due on September 30, 2009.
Through three separate deferrals, the last of which was granted on February 25,
2010, the Banks agreed to defer the First Repayment, the Second Repayment and
the Funding obligation until March 31, 2010. Furthermore, on March 9, 2010, the
Project Facility Banks executed and delivered the Consent Letter pursuant to
which, subject to the terms and conditions contained in the Consent Letter, the
Project Facility Banks agreed prior to the earliest to occur of (i) the date on
which the Agent determines, acting reasonably, that the proposed business
combination with Linear has been terminated or will not be completed, (ii) March
31, 2009, if the definitive agreements in respect of the proposed business
combination with Linear have not been executed by such date, or (iii) September
30, 2010, to not make demand, accelerate payment or enforce any security or any
other remedies upon an “event of default” or a “review event” under the Project
Facility unless and until the occurrence of certain “override events” (the
“Standstill Agreement”) Pursuant to the Consent, the Project Facility Banks also
agreed to amend certain provisions of the Project Facility, including revising
the repayment schedule thereunder as described in more above under the heading
“Item 1 – Background – Recent Developments.”





However,
the Project Facility Banks’ Standstill Agreement is subject to a number of
conditions, including those set forth above under the heading “Item 1 –
Background – Recent Developments.” Consequently, there is no guarantee that we
will be able to satisfy these conditions to the Project Facility Banks’
Standstill Agreement. Any default under the Project Facility may result in the
Project Facility Banks foreclosing on our assets which could force us to seek
protection under applicable bankruptcy laws and, accordingly, would materially
impair the value of our common shares.





-26-


Our
substantial debt could adversely affect our financial condition; and our related
debt service obligations may adversely affect our cash flow and ability to
invest in and grow our businesses.




We now
have, and for the foreseeable future will continue to have, a significant amount
of indebtedness. As of December 31, 2009, we had an aggregate principal amount
of approximately $93.9 million in short- and long-term debt outstanding. Under
the revised repayment schedule relating to Project Facility that was agreed to
with the Project Facility Banks on March 9, 2010 we will be required to make
repayments totaling at least $35 million in 2010, with the remaining $35 million
to be repaid between March 31, 2011 and March 31, 2013 on dates to be agreed to
by Apollo and the Project Facility Banks. If we are unable to agree on a
repayment schedule with respect to this remaining $35 million, it will become
due and payable on December 31, 2010.





The
interest rate on this loan is floating based on the LIBOR rate plus 7 percent
per annum; accordingly, if the LIBOR rate is increased, interest expense will be
higher. The maturity date on this loan is March 31, 2013(subject to all amounts
becoming due and payable on December 31, 2010 if we are unable to agree to a
revised repayment schedule as noted above in this risk factor). We intend to
fulfill our debt service obligations from cash generated by our Black Fox
project, which is currently expected to be our only source of significant
revenues. Because we anticipate that a substantial portion of the cash generated
by our operations will be used to service this loan during its term, such funds
will not be available to use in future operations, or investing in our
businesses. The foregoing may adversely impact our ability to repay the
$4,290,000 principal amount of convertible debentures due August 23, 2010 owned
by RAB and conduct all of our planned exploration activities at our Grey Fox,
Pike River, and Huizopa properties or pursue other corporate
opportunities.





If
we do not generate sufficient cash flow from Black Fox operations in 2010 or by
raising additional equity or debt financing in the near term, then we may not be
able to meet our debt obligations.




As of
December 31, 2009, we had an aggregate principal amount of approximately $93.9
million in short- and long-term debt outstanding. Currently, we are not
generating positive cash flow. If we are unable to satisfy our debt service, we
may not be able to continue our operations. We may not generate sufficient cash
from operations to repay our debt obligations or satisfy any additional debt
obligations when they become due and may have to raise additional financing from
the sale of equity or debt securities, enter into commercial transactions or
otherwise restructure our debt obligations. There can be no assurance that any
such financing or restructuring will be available to us on commercially
acceptable terms, or at all, and our existing debt agreements prohibit us from
incurring additional indebtedness without the consent of the lenders thereunder.
If we are unable to restructure our obligations, we may be forced to seek
protection under applicable bankruptcy laws. Any restructuring or bankruptcy
would materially impair the value of our common shares.





Operational
problems may disrupt mining and milling operations at Black Fox.





Mining
and milling operations, including our Black Fox mine and mill, inherently
involve risks and hazards. Although we commenced mining of the Black Fox open
pit in March 2009, commenced milling in April 2009, and commenced commercial
production in late May 2009, future production at Black Fox could be prevented,
delayed or disrupted by, among other things:





·
            unanticipated
      changes in grade and tonnage of material to be mined and
      processed;


·
            unanticipated
      adverse geotechnical conditions;


·
            adverse
      weather conditions;


·
            incorrect
      data on which engineering assumptions are
made;


·
            availability
      and cost of labor and other supplies and
  equipment;


·
            availability
      of economic sources of power;


-27-





·
            adequacy
      of access to the site;


·
            unanticipated
      transportation costs;


·
            government
      regulations (including regulations relating to prices, royalties, duties,
      taxes, restrictions on production, quotas on exportation of minerals, as
      well as the costs of protection of the environment and agricultural
      lands);


·
            lower
      than expected ore grades;


·
            the
      physical or metallurgical characteristics of the ore are less amenable to
      mining or treatment than expected;


·
            delivery
      and installation of equipment necessary to continue operations as planned;
      or


·
            failure
      of our equipment, processes or facilities to operate properly or as
      expected.





Production
delays or stoppages will adversely affect our sales and operating results, and
could prevent us from meeting our debt repayment obligations under the project
facility agreement.





We
do not currently have and may not be able to raise sufficient funds to explore
our Grey Fox, Pike River, and Huizopa properties.




We do not
currently have sufficient funds to conduct all of our planned exploration
activities at our Grey Fox, Pike River, and Huizopa properties. The exploration
of these properties will require significant capital expenditures. Sources of
external financing may include bank and non-bank borrowings and future debt and
equity offerings. There can be no assurance that financing will be available on
acceptable terms, or at all. The failure to obtain financing would have a
material adverse effect on our growth strategy and our results of operations and
financial condition.





In
addition, in recent quarters, the U.S. stock market indexes have experienced
significant instability and the available debt financing has tightened. In light
of these developments, concerns by investors regarding the stability of the U.S.
and international financial systems could result in less favorable commercial
financing terms, including higher interest rates or costs and tighter operating
covenants, thereby preventing us from obtaining the financing required to
conduct all of our planned exploration activities at our Grey Fox, Pike River,
and Huizopa properties.




The
existence of outstanding rights to purchase common shares may impair our share
price and our ability to raise capital.





Approximately
118.1 million of our common shares are issuable on exercise of warrants, options
or other rights to purchase common shares at prices ranging from approximately
$0.15 to $2.24 and a weighted average price of $0.35. In addition, there are
8,580,000 common shares issuable upon the conversion of the $4,290,000
outstanding principal amount of convertible debentures due August 23, 2010 held
by RAB, which are convertible at the option of the holder at a conversion price
of $0.50 per share. During the term of the warrants, options, convertible
debentures and other rights, the holders are given an opportunity to profit from
a rise in the market price of our common shares with a resulting dilution in the
interest of the other shareholders. Our ability to obtain additional equity
financing during the period such rights are outstanding may be adversely
affected, and the existence of the rights may have an adverse effect on the
price of our common shares. The holders of the warrants, options, convertible
debentures and other rights can be expected to exercise them at a time when we
would, in all likelihood, be able to obtain any needed capital by a new offering
of securities on terms more favorable to us than those provided by the
outstanding rights.





-28-




Past
and future equity issuances could impair our share price.




If our
shareholders sell substantial amounts of our common shares, the market price of
our common shares could decrease. We have 273,080,927 common shares outstanding
as at March 15, 2010. In addition, we may sell additional common shares in
subsequent offerings and issue additional common shares to finance future
acquisitions or as compensation in financing transactions.





On March
9, 2010, Apollo and Linear entered into a binding letter of intent pursuant to
which it is expected that (i) the businesses of Apollo and Linear would be
combined by way of a court-approved plan of arrangement (the “Arrangement”)
pursuant to the provisions of the Canada Business Corporations Act(“CBCA”) and (ii) Linear would subscribe for approximately 62,500,000
Apollo common shares of Apollo at a price of Cdn$0.40 per common share for
aggregate proceeds of Cdn$25.0 million (the “Private Placement”). The Private
Placement is expected to be completed on or before March 19, 2010. As part of
the Arrangement, the Apollo common shares expected to be issued to Linear in the
Private Placement will be cancelled without payment upon the completion of the
Arrangement. If the proposed business combination is completed, we anticipate
that approximately 242,059,314 Apollo common shares would be issued
pursuant to the Arrangement and that our current shareholders would hold, in the
aggregate, approximately 52.2% of the issued and outstanding shares of the
combined company and Linear’s current shareholders would hold, in the aggregate,
approximately 47.8% of the combined company (based on the number of Apollo
common shares and Linear common shares outstanding as of the date
hereof).





We cannot
predict the size of future issuances of common shares or the effect, if any,
that future issuances and sales of common shares will have on the market price
of our common shares. Sales or issuances of large numbers of our common shares,
or the perception that such sales might occur, may adversely affect prevailing
market prices for our common shares. With any additional issuance of common
shares, investors will suffer dilution and we may experience dilution in our
earnings per share.





There
is no guarantee that we will be able to collect amounts due under the Calais
Promissory Notes.





On
February 1, 2010, Apollo Gold, Inc., our direct wholly owned subsidiary and the
sole shareholder of Montana Tunnels, entered into a purchase agreement pursuant
to which it sold all of the outstanding capital stock of Montana Tunnels to
Elkhorn in exchange for (i) promissory notes held by Elkhorn and certain
investors in Elkhorn or its affiliates from Calais with an outstanding balance
of approximately $7,700,000, (ii) Elkhorn’s and the Lenders’ rights with respect
to an additional amount of approximately $1,450,000 loaned to Calais, and (iii)
a promissory note held by Elkhorn and the Lenders from Calais with an
outstanding balance of approximately $380,000. Pursuant to the Elkhorn purchase
agreement, we agreed to forebear from enforcing our right to collect principal
and interest outstanding under these promissory notes until February 1,
2011.





On March
12, 2010, we entered into a purchase agreement with Calais and the Duffy Group
pursuant to which we agreed to issue 1,592,733 common shares to the Duffy Group
in exchange for the assignment of its rights, title and interest in and to,
among other things, a promissory note from Calais with an outstanding balance,
including accrued interest thereon, of $653,020. Pursuant to the Duffy Group
purchase agreement, we agreed to forebear from enforcing our right to collect
principal and interest outstanding under the promissory note until March 12,
2011.


-29-


Each of
the notes described above is past due and there is no guarantee that we will be
able to collect the principal and interest outstanding under these promissory
notes once the forbearance periods have expired. Additionally, if we decided to
pursue a collection of these notes, we may incur significant legal fees in
pursuing collection and in enforcing our rights and remedies under the security
agreements related thereto, including the costs associated with retaking
possession of the collateral property and, if necessary, selling, leasing,
transferring or otherwise disposing of such property. Moreover, we have no
assurance that Calais will take required actions to preserve the condition and
value of the collateral property or that, even if Calais takes all required
actions, the value of the property or the proceeds realizable from the sale
thereof, will, at the time such remedy is sought or obtained, be sufficient to
cover all unpaid amounts due under the promissory notes. Any such delay,
additional costs, loss or nonpayment could adversely affect our financial
results.





The
market price of our common shares has experienced volatility and could decline
significantly.





Our
common shares are listed on the NYSE Amex exchange and the Toronto Stock
Exchange. Our share price has declined significantly since 2004, and over the
last year the closing price of our common shares has fluctuated from a low of
$0.19 per share to a high of $0.59 per share. Securities of small-cap companies
have experienced substantial volatility in the past, often based on factors
unrelated to the financial performance or prospects of the companies involved.
These factors include macroeconomic developments in North America and globally
and market perceptions of the attractiveness of particular industries. Our share
price is also likely to be significantly affected by global economic issues, as
well as short-term changes in gold prices or in our financial condition or
liquidity. As a result of any of these factors, the market price of our common
shares at any given point in time might not accurately reflect our long-term
value. Securities class action litigation often has been brought against
companies following periods of volatility in the market price of their
securities. We could in the future be the target of similar litigation.
Securities litigation could result in substantial costs and damages and divert
management’s attention and resources.





We
have a history of losses.




With the
exception of the fiscal year ended December 31, 2008, during which we had a net
income of $1.2 million, we have incurred significant losses. Our net losses were
$61.7 million and $13.9 million for the years ended December 31, 2009 and 2007,
respectively. In addition, Black Fox is our only current source of revenue.
Further, we have significant obligations under loan agreements related to Black
Fox. Although commercial production commenced in late May 2009 at Black Fox,
there can be no assurance that we will achieve or sustain profitability in the
future.




Our
earnings may be affected by the volatility of gold prices.




We
historically have derived all of our revenues from the sale of gold, and our
development and exploration activities are focused on gold. As a result, our
future earnings are directly related to the price of gold. Since the beginning
of 2009, the London P.M. or afternoon fix gold spot price, as reported by the
Wall Street Journal, has fluctuated from a high of $1,213/oz to a low of $810/oz
and was $1,106/oz on March 12, 2010. Changes in the price of gold significantly
affect our profitability and the trading price of our common shares. Gold prices
historically have fluctuated widely, based on numerous industry factors
including:





·
            industrial
      and jewelry demand;


·
            central
      bank lending, sales and purchases of
gold;


·
            forward
      sales of gold by producers and
speculators;


·
            production
      and cost levels in major gold-producing regions;
  and


·
            rapid
      short-term changes in supply and demand because of speculative or hedging
      activities.





Gold
prices are also affected by macroeconomic factors,
including:


-30-





·
            confidence
      in the global monetary system;


·
            expectations
      of the future rate of inflation (if
any);


·
            the
      strength of, and confidence in, the U.S. dollar (the currency in which the
      price of gold is generally quoted) and other
  currencies;


·
            interest
      rates; and


·
            global
      or regional political or economic events, including but not limited to
      acts of terrorism.





The
current demand for, and supply of, gold also affects gold prices. The supply of
gold consists of a combination of new production from mining and existing shares
of bullion held by government central banks, public and private financial
institutions, industrial organizations and private individuals. As the amounts
produced by all producers in any single year constitute a small portion of the
total potential supply of gold, normal variations in current production do not
usually have a significant impact on the supply of gold or on its price.
Mobilization of gold held by central banks through lending and official sales
may have a significant adverse impact on the gold price.




All of
the above factors are beyond our control and are impossible for us to predict.
If the market prices for gold fall below our costs to produce gold for a
sustained period of time, that will make it more difficult to obtain financing
for our projects, we will experience additional losses and we could also be
required to discontinue exploration, development and/or mining at one or more of
our properties.





Hedging
activities have resulted in significant losses and may continue to result in
losses in the future.




As a part
of the project finance facility, we and the lenders have entered into a hedging
program covering both gold sales and part of our Canadian dollar operating
costs. Specifically, we have entered into a 250,420 ounce gold forward sales
program which is allocated across the four year term of the project facility
agreement. As of December 31, 2009, we have settled 50,099 ounces of gold in the
program. The weighted average price of the sales program is $876 per ounce of
gold. The foreign exchange hedge program is for the Canadian dollar equivalent
of $58.0 million, at an exchange rate of Cdn$1.21=US$1.00, over the four year
term of the project facility agreement. As of December 31, 2009, we have settled
Cdn$8.1 million of the program.




In the
future, we may enter into hedging contracts that may involve outright forward
sales contracts, spot-deferred sales contracts, the use of options which may
involve the sale of call options and the purchase of all these hedging
instruments. There can be no assurance that we will be able to successfully
hedge against price, currency and interest rate fluctuations. Further, there can
be no assurance that the use of hedging techniques will always be to our
benefit. Some hedging instruments may prevent us from realizing the benefit from
subsequent increases in market prices with respect to covered production. This
limitation would limit our revenues and profits. Hedging contracts are also
subject to the risk that the other party may be unable or unwilling to perform
its obligations under these contracts. It is our intention to deliver the
quantity of gold required by our forward sales on a going forward basis;
however, we may cash settle these forward sale obligations if it is beneficial
to us. Any significant nonperformance could have a material adverse effect on
our financial condition and results of operations.




-31-


Disruptions
in the supply of critical equipment and increases in prices of raw materials
could adversely impact our operations.


We are a
significant consumer of electricity, mining equipment, fuels and mining-related
raw materials, all of which we purchase from outside sources. Increases in
prices of electricity, equipment, fuel and raw materials could adversely affect
our operating expenses and profitability. Furthermore, failure to receive raw
materials in a timely manner from third party suppliers could impair our ability
to meet production schedules or our contractual commitments and thus adversely
impact our revenues. From time to time, we obtain critical mining equipment from
outside North America. Factors that can cause delays in the arrival of such
equipment include weather, political unrest in countries from which equipment is
sourced or through which it is delivered, terrorist attacks or related events in
such countries or in the U.S., and work stoppages by suppliers or shippers.
Prolonged disruptions in the supply of any of our equipment or other key raw
materials, implementing use of replacement equipment or new sources of supply,
or a continuing increase in the prices of raw materials and energy could have a
material adverse effect on our operating results, financial condition or cash
flows.





Our
investments in auction rate securities are subject to risks which may cause
losses and affect the liquidity of these investments.




We
acquired auction rate securities in 2007 with a face value of $1.5 million. The
securities were marketed by financial institutions with auction reset dates at
28 day intervals to provide short-term liquidity. All such auction rate
securities were rated AAA when purchased, pursuant to our investment policy.
Beginning in August 2007, a number of auctions failed and there is no assurance
that auctions for the auction rate securities in our investment portfolio, which
currently lack liquidity, will succeed. An auction failure means that the
parties wishing to sell their securities could not do so as a result of a lack
of buying demand. As at December 31, 2009, our auction rate securities held an
adjusted cost basis and fair value of $1.0 million based on liquidity
impairments to these securities. Uncertainties in the credit and capital markets
could lead to further downgrades of our auction rate securities holdings and
additional impairments. Furthermore, as a result of auction failures, our
ability to liquidate and fully recover the carrying value of our auction rate
securities in the near term may be limited or not exist.





Substantially
all of our assets are pledged to secure our indebtedness.




Substantially
all of the Black Fox assets are pledged to secure indebtedness outstanding under
the Project Facility. Since these assets represent substantially all of our
assets, we will not have access to additional secured lending with other
financial institutions, which will require us to raise additional funds through
unsecured debt and equity offerings, and covenants in our borrowing agreements
limit our ability to incur unsecured indebtedness. Default under our debt
obligations would entitle our lenders to foreclose on our assets.





Our
reserve estimates are potentially inaccurate.




We
estimate our reserves on our properties as either “proven reserves” or “probable
reserves.” Our ore reserve figures and costs are primarily estimates and are not
guarantees that we will recover the indicated quantities of these metals. We
estimate proven reserve quantities based on sampling and testing of sites
conducted by us and by independent companies hired by us. Probable reserves are
based on information similar to that used for proven reserves, but the sites for
sampling are less extensive, and the degree of certainty is less. Reserve
estimation is an interpretive process based upon available geological data and
statistical inferences and is inherently imprecise and may prove to be
unreliable.




Our
reserves are reduced as existing reserves are depleted through production.
Reserves may be reduced due to lower than anticipated volume and grade of
reserves mined and processed and recovery rates.


-32-


Reserve
estimates are calculated using assumptions regarding metals prices. Our reserves
at Black Fox were estimated using a gold price of $650/oz. These prices have
fluctuated widely in the past. Declines in the market price of metals, as well
as increased production costs, capital costs and reduced recovery rates, may
render reserves uneconomic to exploit, and lead to a reduction in reserves. Any
material reduction in our reserves may lead to lower earnings or higher losses,
reduced cash flow, asset write-downs and other adverse effects on our results of
operations and financial condition, including difficulty in obtaining financing
and a decrease in our stock price. Reserves should not be interpreted as
assurances of mine life or of the profitability of current or future operations.
No assurance can be given that the amount of metal estimated will be produced or
the indicated level of recovery of these metals will be realized.




We
may not achieve our production estimates.




We
prepare estimates of future production for our operations. We develop our
estimates based on, among other things, mining experience, reserve estimates,
assumptions regarding ground conditions and physical characteristics of ores
(such as hardness and presence or absence of certain metallurgical
characteristics) and estimated rates and costs of mining and processing. In the
past, our actual production from time to time has been lower than our production
estimates and this may be the case in the future. In particular, our estimate of
2009 gold production was lower than originally predicted as a direct result of
encountering lower grade ore than our reserve model predicted.




Each of
these factors also applies to future development properties not yet in
production. In the case of mines we may develop in the future, we do not have
the benefit of actual experience in our estimates, and there is a greater
likelihood that the actual results will vary from the estimates. In addition,
development and expansion projects are subject to financing contingencies,
unexpected construction and start-up problems and delays.




Our
future profitability depends in part on actual economic returns and actual costs
of developing mines, which may differ significantly from our estimates and
involve unexpected problems, costs and delays.




We are
engaged in the development of new ore bodies. Our ability to sustain or increase
our present level of production is dependent in part on the successful
exploration and development of new ore bodies and/or expansion of existing
mining operations. Decisions regarding future projects, including Grey Fox, Pike
River, and Huizopa, are subject to the successful completion of feasibility
studies, issuance of necessary governmental permits and receipt of adequate
financing.




Development
projects have no operating history upon which to base estimates of future cash
flow. Our estimates of proven and probable ore reserves and cash operating costs
are, to a large extent, based upon detailed geologic and engineering analysis.
We also conduct feasibility studies that derive estimates of capital and
operating costs based upon many factors.




It is
possible that actual costs and economic returns may differ materially from our
best estimates. It is not unusual in the mining industry for new mining
operations to experience unexpected problems during the start-up phase and to
require more capital than anticipated. There can be no assurance that Black Fox
or any future expansion at Black Fox will be profitable.





Our
operations may be adversely affected by risks and hazards associated with the
mining industry.




Our
business is subject to a number of risks and hazards including adverse
environmental effects, technical difficulties due to unusual or unexpected
geologic formations, and pit wall failures as well as the associated risks of
underground mining.


-33-




Such
risks could result in personal injury, environmental damage, damage to and
destruction of production facilities, delays in mining and liability. For some
of these risks, we maintain insurance to protect against these losses at levels
consistent with our historical experience and industry practice. However, we may
not be able to maintain current levels of insurance, particularly if there is a
significant increase in the cost of premiums. Insurance against environmental
risks is generally too expensive or not available for us and other companies in
our industry, and, therefore, we do not maintain environmental insurance. To the
extent we are subject to environmental liabilities, we would have to pay for
these liabilities. Moreover, in the event that we are unable to fully pay for
the cost of remediating an environmental problem, we might be required to
suspend or significantly curtail operations or enter into other interim
compliance measures.





Mineral
exploration in general, and gold exploration in particular, are speculative and
are frequently unsuccessful.




Mineral
exploration is highly speculative in nature, capital intensive, involves many
risks and frequently is nonproductive. There can be no assurance that our
mineral exploration efforts will be successful. If we discover a site with gold
or other mineralization, it will take a number of years from the initial phases
of drilling until production is possible, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish ore reserves through drilling, to determine metallurgical processes to
extract the metals from the ore and, in the case of new properties, to construct
mining and processing facilities. As a result of these and other uncertainties,
no assurance can be given that our exploration programs will result in the
expansion or replacement of existing ore reserves that are being depleted by
current production.





The
titles to some of our properties may be uncertain or defective.




While we
have no reason to believe that our rights to mine on any of our properties are
in doubt, title to mining properties are subject to potential claims by third
parties claiming an interest in them.




We
may lose rights to properties if we fail to meet payment requirements or
development or production schedules.




We derive
the rights to most of our mineral properties from unpatented mining claims,
leaseholds, joint ventures or purchase option agreements which require the
payment of maintenance fees, rents, purchase price installments, exploration
expenditures, or other fees. If we fail to make these payments when they are
due, our rights to the property may lapse. There can be no assurance that we
will always make payments by the requisite payment dates. In addition, some
contracts with respect to our mineral properties require development or
production schedules. There can be no assurance that we will be able to meet any
or all of the development or production schedules. Our ability to transfer or
sell our rights to some of our mineral properties requires government approvals
or third party consents, which may not be granted.




The
titles to some of our properties may be uncertain or defective.





If there
are title defects with respect to any of our properties, we might be required to
compensate other persons or perhaps reduce our interest in the affected
property. Also, in any such case, the investigation and resolution of title
issues would divert management's time from ongoing exploration and development
programs. Furthermore, if we lose our rights in and to any of our properties, we
could incur substantial and protracted losses.


-34-




We
face substantial governmental regulation.




Our Black
Fox mining operations and our Canadian and Mexican exploration activities are
subject to regulations promulgated by various Canadian and Mexican government
agencies governing the environment, agricultural zoning, prospecting,
development, production, exports, taxes, labor standards, occupational health,
waste disposal, toxic substances, mine safety and other matters. Currently, our
Canadian properties are subject to the jurisdiction of the federal laws of
Canada, the provincial laws of Ontario, as well as local laws where they are
located. In addition, our Mexican property is subject to Mexican federal laws as
well as local laws where it is located. Any changes in current regulations, the
adoption of new regulations or shifts in political conditions are beyond our
control of and may adversely affect our business.




Companies
such as ours that engage in exploration and development activities often
experience increased costs and delays in production and other schedules as a
result of the need to comply with applicable laws, regulations and permits.
Issuance of permits for our exploration and mining activities is subject to the
discretion of government authorities, and we may be unable to obtain or maintain
such permits. Permits required for future exploration or development may not be
obtainable on reasonable terms or on a timely basis. Existing and possible
future laws, regulations and permits governing operations and activities of
mining companies, or more stringent implementation thereof, could have a
material adverse impact on us and cause increases in our capital expenditures or
require abandonment or delays in the exploration or development of our
properties. Moreover, these laws and regulations may allow governmental
authorities and private parties to bring lawsuits based upon damages to property
and injury to persons resulting from the environmental, health and safety
impacts of the our past and current operations, or possibly even those actions
of parties from whom we acquired its mines or properties, and could lead to the
imposition of substantial fines, penalties or other civil or criminal sanctions.
It is difficult to strictly comply with all regulations imposed on us. We retain
competent and well trained individuals and consultants in jurisdictions in which
we do business, however, even with the application of considerable skill we may
inadvertently fail to comply with certain laws. Such events can lead to
financial restatements, fines, penalties, and other material negative impacts on
us.





The
Canadian mining industry is subject to federal and provincial environmental
protection legislation. This legislation imposes strict standards on the mining
industry in order to reduce or eliminate the effects of waste generated by
extraction and processing operations and subsequently emitted into the air or
water. Consequently, drilling, refining, extracting and milling are all subject
to the restrictions imposed by this legislation. In addition, the construction
and commercial operation of a mine typically entail compliance with applicable
environmental legislation and review processes, as well as the obtaining of
permits, particularly for the use of the land, permits for the use of water, and
similar authorizations from various government bodies. Canadian federal,
provincial, and local laws and regulations relating to the exploration for and
development, production and marketing of mineral production, as well as
environmental and safety matters have generally become more stringent in recent
years, often imposing greater liability on a larger number of potentially
responsible parties. Because the requirements imposed by such laws and
regulations are frequently changed, we are unable to predict the ultimate cost
of compliance with such requirements. There is no assurance that environmental
laws and regulations enacted in the future will not adversely affect our
financial condition and results of operations.




-35-




Our
Huizopa exploration project is subject to political and regulatory uncertainty
and our ownership of the Huizopa properties is subject to
litigation.


Our
Huizopa exploration project is located in the northern part of the Sierra Madres
in the State of Chihuahua, Mexico. There are numerous risks inherent in
conducting business in Mexico, including political and economic instability,
exposure to currency fluctuations, greater difficulties in accounts receivable
collection, difficulties in staffing and managing operations and potentially
adverse tax consequences. In addition, our ability to explore and develop our
Huizopa exploration project is subject to maintaining satisfactory relations
with the Ejido Huizopa, which is a group of local inhabitants who under Mexican
law are granted rights to conduct agricultural activities and control surface
access on the property. In 2006, we entered into an agreement with the Ejido
Huizopa pursuant to which we agreed to make annual payments to the Ejido Huizopa
in exchange for the right to use the land covering our mining concessions for
all activities necessary for the exploration, development and production of
potential ore deposits. There can be no assurances that the Ejido Huizopa will
continue to honor the agreement. If we are unable to successfully manage our
operations in Mexico or maintain satisfactory relations with the Ejido Huizopa,
our development of the Huizopa property could be hindered or terminated and, as
a result, our business and financial condition could be adversely
affected.





In
addition, on September 4, 2009, Joe Green and companies owned or controlled by
him, including a Mexican company named Minas de Coronado, S. de R.L. de C.V.,
with whom our Mexican subsidiary, Minera Sol de Oro, S.A. de C.V., has a joint
venture relationship at the Huizopa exploration project in the State of Sonora,
Mexico, filed a complaint against us alleging, among other things, that we
breached various agreements and failed to recognize Minas de Coronado’s right
joint venture interest in the Huizopa exploration project. Mr. Green is seeking
the return of the Huizopa exploration project properties to Mr. Green’s
companies. We believe that the claims in the complaint are without merit, and
intend to vigorously defend against those claims. See Item 3 “Legal Proceedings”
for more information.




We
are subject to environmental risks.




Environmental Liability.We
are subject to potential risks and liabilities associated with environmental
compliance and the disposal of waste rock and materials that could occur as a
result of our mineral exploration and production. In certain circumstances, the
potential liabilities can include liability for costs of remediation and clean
up of mines which we owned or operated in the past, but no longer own or
operate. To the extent that we are subject to environmental liabilities, the
payment of such liabilities or the costs that we may incur to remedy any
non-compliance with environmental laws would reduce funds otherwise available to
us and could have a material adverse effect on our financial condition or
results of operations. If we are unable to fully remedy an environmental
problem, we might be required to suspend operations or enter into interim
compliance measures pending completion of the required remedy. The potential
exposure may be significant and could have a material adverse effect on us. We
have not purchased insurance for environmental risks (including potential
liability for pollution or other hazards as a result of the disposal of waste
products occurring from exploration and production) because it is not generally
available at a reasonable price or at all.




Environmental Permits. All of
our exploration, development and production activities are subject to regulation
under one or more of the various state, federal and provincial environmental
laws and regulations in Canada and Mexico. Many of the regulations require us to
obtain permits for our activities. We must update and review our permits from
time to time, and are subject to environmental impact analyses and public review
processes prior to approval of the additional activities. It is possible that
future changes in applicable laws, regulations and permits or changes in their
enforcement or regulatory interpretation could have a significant impact on some
portion of our business, causing those activities to be economically reevaluated
at that time. Those risks include, but are not limited to, the risk that
regulatory authorities may increase bonding requirements beyond our financial
capabilities. The posting of bonds in accordance with regulatory determinations
is a condition to the right to operate under all material operating permits, and
therefore increases in bonding requirements could prevent our operations from
continuing even if we were in full compliance with all substantive environmental
laws.


-36-




We
face strong competition from other mining companies for the acquisition of new
properties.




Mines
have limited lives and as a result, we may seek to replace and expand our
reserves through the acquisition of new properties. In addition, there is a
limited supply of desirable mineral lands available in the United States, Canada
and Mexico and other areas where we would consider conducting exploration and/or
production activities. Because we face strong competition for new properties
from other mining companies, most of which have greater financial resources than
we do, we may be unable to acquire attractive new mining
properties.





We
are dependent on certain key personnel.




We are
currently dependent upon the ability and experience of R. David Russell, our
President and Chief Executive Officer; Richard F. Nanna, our Senior Vice
President-Exploration; and Melvyn Williams, our Chief Financial Officer and
Senior Vice President-Finance and Corporate Development. We believe that our
success depends on the continued service of our key officers and there can be no
assurance that we will be able to retain any or all of such officers. We
currently do not carry key person insurance on any of these individuals, and the
loss of one or more of them could have a material adverse effect on our
operations.





There
may be certain tax risks associated with investments in our
company.





U.S.
persons who are potential holders of our common shares, warrants or options to
purchase our common shares, or debentures convertible into our common shares,
which we sometimes refer to in this report as equity securities, should be aware
that we could constitute a “passive foreign investment company” (or a “PFIC”)
for U.S. federal income tax purposes. The tests for determining PFIC status for
a taxable year depend upon the relative values of certain categories of assets
and the relative amounts of certain kinds of income. The application of these
factors depends upon our financial results for the year, which is beyond our
ability to predict or control, and may be subject to legal and factual
uncertainties. While we do not believe that we were a PFIC in 2009 and do not
expect to be a PFIC in 2010, we cannot guarantee that we were not a PFIC in 2009
and we are unable to predict whether we will be a PFIC in 2010 or in later
years. We undertake no obligation to advise investors as to our PFIC status for
any year.





If we are
a PFIC for any year, any holder of our equity securities who is a U.S. person
for U.S. federal income tax purposes, which we sometimes refer to in this report
as a U.S. holder, and whose holding period for the equity securities includes
any portion of a year in which we are a PFIC generally would be subject to a
special adverse tax regime in respect of “excess distributions.” Excess
distributions would include certain distributions received with respect to our
common shares. Gain recognized by a U.S. holder on a sale or other transfer of
our equity securities also would be treated as an excess distribution. Under the
PFIC rules, excess distributions would be allocated ratably to a U.S. holder’s
holding period. For this purpose, the holding period of common shares acquired
through either an exercise of warrants or options or a conversion of debentures
includes the holder’s holding period in those warrants, options, or convertible
debentures.





The
portion of any excess distributions (including gains treated as excess
distributions) allocated to the current year would be includible as ordinary
income in the current year. In contrast, the portion of any excess distributions
allocated to prior years would be taxed at the highest marginal rate applicable
to ordinary income for each year (regardless of the taxpayer’s actual marginal
rate for that year and without reduction by any losses or loss carryforwards)
and would be subject to interest charges to reflect the value of the U.S.
federal income tax deferral.


-37-





Elections
may be available to mitigate the adverse tax rules that apply to PFICs (the
so-called “QEF” and “mark-to-market” elections), but these elections may
accelerate the recognition of taxable income and may result in the recognition
of ordinary income. The QEF and mark-to-market elections are not available to
U.S. holders with respect to warrants, options, or convertible debentures. We
have not decided whether we will provide the U.S. Holders of our common shares
with the annual information required to make a QEF election.





Additional
special adverse rules could apply to our equity securities if we are a PFIC and
have a non-U.S. subsidiary that is also a PFIC. Finally, special adverse rules
that impact certain estate planning goals could apply to our equity securities
if we are a PFIC.





You
could have difficulty or be unable to enforce certain civil liabilities on us,
certain of our directors and our experts.




We are a
Yukon Territory, Canada, corporation. While our chief executive officer is
located in the United States, many of our assets are located outside of the
United States. Additionally, a number of our directors are residents of Canada.
It might not be possible for investors in the United States to collect judgments
obtained in United States courts predicated on the civil liability provisions of
U.S. securities legislation. It could also be difficult for you to effect
service of process in connection with any action brought in the United States
upon such directors and experts. Execution by United States courts of any
judgment obtained against us, or any of the directors, executive officers or
experts identified in this report or documents incorporated by reference herein,
in United States courts would be limited to the assets, or the assets of such
persons or corporations, as the case might be, in the United States. The
enforceability in Canada of United States judgments or liabilities in original
actions in Canadian courts predicated solely upon the civil liability provisions
of the federal securities laws of the United States is doubtful.




ITEM 1B. UNRESOLVED STAFF
COMMENTS




None.




ITEM 2. PROPERTIES




Maps
of Operations and Properties




The maps
below show the locations of Black Fox and the Huizopa project in North America.
These properties are described in further detail below.


Figure 1
– Property locations in North America


-38-








-39-


Black
Fox




The Black
Fox property was formerly known as the Glimmer mine. In April 1996, Exall
Resources Ltd. (“Exall”) purchased 60% of the property from Hemlo Gold Inc., and
Glimmer Resource Inc. (“Glimmer”) held the remaining 40%.




In
September 2002, we purchased all of the real estate and related assets of the
mine, which ceased operations in May 2001, from Exall and Glimmer and renamed it
“Black Fox”. We paid Exall and Glimmer an aggregate purchase price consisting of
Cdn$3.0 million in cash and an aggregate of 2,080,000 of our common shares.
Pursuant to the terms of the acquisition, an additional Cdn$3 million was paid
to Exall and Glimmer on January 6, 2006.




From 1997
until 2001, the mine produced approximately 210,000 ounces of gold from
underground workings.




On July
28, 2008, we completed the acquisition from St Andrew Goldfields Ltd. (“St
Andrew”) of its Stock Mill and related equipment, infrastructure, property
rights, laboratory and tailings facilities, located near Timmins, Ontario for
Cdn$20.0 million.




Figure 3
– Black Fox mine and Black Fox mill locations along the Destor-Porcupine Fault
Zone in the Province of Ontario, Canada








Location




Black Fox
consists of two properties: a mine and a mill. The Black Fox mine is located
approximately seven miles east of Matheson, Ontario, Canada. The stock mill
complex purchased from St Andrew, which we renamed the Black Fox mill, is
located approximately 12 miles west of Matheson, which means that it is
approximately 19 miles west of the Black Fox mine site. Both properties are
easily accessible by provincial highway and power is supplied by Hydro
One.


-40-




Property,
plant and equipment at the mine consists of an administration office, change
house facilities, workshop facilities, core sheds and surface infrastructure for
the underground mine (pumps, heating, etc.), all of which are in good working
condition. Property, plant and equipment at the Black Fox mill consists of an
administrative office, electrical and mechanical shops, laboratory and a 2,000
tonnes per day mill for processing the Black Fox ores. All plant facilities and
equipment are in good working order. The mill operations were started in April
2009 and commercial production commenced in late May 2009. Within the mill
property, there is also a permitted tailings compound.




The Black
Fox mine sits astride the Destor-Porcupine Fault Zone (DPFZ), which is a deep
break in the Precambrian rocks of the Abitibi Greenstone Belt. This fault system
hosts many of the deposits in the Timmins area. The system regionally strikes
east-west and dips variably to the south. Black Fox lies on the southern limb of
a large scale fold on a flexure in the DPFZ Fault where the strike changes from
east-west to southeast. Folded and altered ultra mafic and mafic are the host
rocks for mineralization. Gold occurs as free gold in quartz veining and
stockworks in altered ultra mafics and in gold associated with pyrite in altered
tholeiitic basalts.




The Black
Fox mine consists of 4,529 acres of which: 1,063 acres are leasehold patents,
2,001 acres are owned by Apollo, 319 acres are leased by us, 820 acres where we
have surface rights only and 326 acres where we have mineral rights but no
surface rights. The 4,529 acres includes property known as Pike River and Grey
Fox, which are contiguous to the Black Fox mine property boundaries and stretch
two miles southeast of the Black Fox open pit mine.




The Black Fox mill property consists
of:




Leasehold
      – 15 parcels
                
                2,608
      acresPatented
      – 9 parcels
                
                1,068
      acresUnpatented
      – 21 parcels
                
                2,451
      acresTotal
      of all property
                
                6,127
      acres





None of
the currently defined reserves are subject to production royalties. However,
Apollo owns properties totaling 2,164 acres that are subject to net smelter
return royalties, ranging from 2.0% to 3.25%, if there is production in the
future from any reserves found on that property.




Exploration
and Development




From 2003
to 2007, we conducted a drilling program during which we completed a total of
504 surface diamond drill holes totaling 149,548 meters and 396 underground
holes totaling 78,644 meters. Apollo’s drilling supplemented the data from the
286 surface and 707 underground drill holes drilled by the previous owners. A
table of total drill holes is shown below.


-41-




Black
Fox Project Drill Hole Database




Company
              
              Period
              
              Location
              
              Number
              
              
              MetersNoranda
              
              1989-1994
              
              Surface
              
              
              143
              
              
              
              28,015Exall
              
              1995-1999
              
              Surface
              
              
              143
              
              
              
              21,520Exall
              
              1996-2001
              
              Underground
              
              
              707
              
              
              
              61,115Apollo
              
              2002-2006
              
              Surface
              
              
              454
              
              
              
              136,390Apollo
              
              2004-2006
              
              Underground
              
              
              371
              
              
              
              75,704Apollo
              
              2007
              
              Surface
              
              
              50
              
              
              
              13,158Apollo
              
              2007
              
              Underground
              
              
              25
              
              
              
              2,940Totals
              
              
              
              
              
              
              1,893
              
              
              
              338,842





In
addition to the above, 69 holes have been drilled in 2008 and 2009 on the Grey
Fox and Pike River properties for a total of 13,651 meters as more fully
described under Exploration Stage Properties.




Mineral
Reserves




On April
14, 2008, we filed a Canadian National Instrument, NI 43-101 Technical Report,
which was prepared to a bankable standard (“bankable feasibility study”). A
bankable feasibility study is a comprehensive analysis of a project’s economics
(+/- 15% precision) used by the banking industry for financing purposes. The
table below summarizes the Black Fox Total Mineral Reserve as of December 31,
2008. The mineral reserves shown in the table below were calculated based on a
gold price of $650 per ounce.





Black
Fox Probable Reserve Statement as of December 31, 2008




Mining
      Method
              
              Cutoff
      Grade
                  Au g/t
              
              
              Tonnes
                  (000)
              
              
              Grade
                Au g/t
              
              
              Contained
                  Au OuncesOpen
      Pit
              
              
              1.0
              
              
              
              4,350
              
              
              
              5.2
              
              
              
              730,000Underground
      (1)
              
              
              3.0
              
              
              
              2,110
              
              
              
              8.8
              
              
              
              600,000Total
      Probable Reserves
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,330,000


(1)Underground reserves
assume 95% mining recovery 17% planned dilution and 5% unplanned dilution both
at 0 grams per tonne grade.





The
reserve estimates were based on information from 1,893 drill holes totaling
338,842 meters. All assays over 170 grams of gold per tonne (5.5 oz of gold per
ton) were capped at this level, which represents 0.25% of the
assays.





The
estimated reserves presented above were reduced by mining of 632,000 ore tonnes
from the Black Fox mine, including 425,000 tonnes at a grade of 3.7 gpt
producing 46,621 ounces of gold from the Black Fox mill, with further 5,531
ounces of gold produced from toll processing in 2009.




There was
no updated estimation of mineral reserves for the year ended December 31, 2009.
This was due mainly to the Company undertaking in late 2009 a comprehensive mine
plan re-modeling with tighter constraints and review of the 2010 mine plan as
well as the life of mine plan to address the grade variability issue of a
certain type of Black Fox ore, which had resulted in an over-projection of grade
in part of the open pit ore. This lower grade negatively impacted 2009 gold
production, which was lower than expected. The revised mine plan is expected to
be completed by the end of the first quarter of 2010. Independent professional
mining consultants and our staff determined that the new mine plan requires
reconciliation of production against the plan forecasts over the rest of 2010.
This will be in conjunction with a continuous improvement effort, benefitted by
the mine operating in its first full year of production at a steady state of
2,000 tonnes of ore per day. Such assessment will provide more accurate
information regarding mining costs, cut-off grade, and other parameters in the
estimation of mineral reserves at the end 2010.


-42-




It is
expected that the average gold grade of the open pit portion of reserves will
decrease from the December 31, 2008 reserve estimate grade due to the
anticipated lowering of the average grade in the high grade portion of the open
pit and the addition of more low grade tonnes than originally estimated.
However, the change in the overall tonnage and contained ounces of open pit
reserves will reflect the net effect of any negative adjustment and possible
increments from the anticipated underground exploration drilling for resource
and reserve additions. The comprehensive review included remodeling of the
underground portion of reserves and found less variance (i.e. more consistency)
against the 2008 feasibility study. The anticipated start-up of the underground
during 2010 will also provide actual production data for reconciliation purposes
in the estimation of mineral reserves for the year ended December 31,
2010.




The
Company expects to report updated estimated mineral reserves for 2010 in the
first quarter of 2011, and on an annual basis thereafter.





Permits




We have
received all necessary permits and approvals required for mining activities of
phase I of the open pit. In particular, we have received Certified Closure Plan
Approval, an Amended Certificate of Approval for Industrial Sewage Works, and a
Permit to Take Water (Surface and Ground Water.) The open pit reserves are
divided into phase I and phase II and we expect to receive the permits necessary
to conduct phase II in the second quarter of 2010.




Process and
equipment - Mining
Operations





In
September 2008 a contract was awarded for the removal of approximately 2 million
cubic meters of glacial till material which overlaid phase 1 of the open pit.
This stripping contract commenced in October 2008 and by March 2009 progress was
sufficient to allow Apollo personnel and equipment to commence the mining of
open pit ore and waste. The stripping contract was completed in July
2009.





Open pit
mining of ore and waste at Black Fox is conducted 24 hours per day 7 days per
week. Mining is performed by two excavators, five CAT 777 85-tonne haul trucks,
two CAT D9T dozers, and three drills in addition to ancillary equipment. This
mining fleet averages approximately 23,000 tonnes per day (“tpd”) ore and waste.
The mining of ore is only done during daylight hours. Ore is crushed to -150 mm
at the mine site and is transported to the Black Fox mill by a fleet of contract
road trucks.




Process
and equipment – Milling Operation





In the
third quarter of 2008 an engineering, procurement and construction management
(“EPCM”) contract was awarded to GBM Ltd., for the expansion of the Black Fox
Mill to increase the throughput from 1,000 tpd up to 2,000 tpd. Commissioning of
the mill commenced in March 2009 with the mill commencing the processing of ores
during April 2009. The first gold bullion was poured and shipped to the refiner
in late May 2009. During the remainder of 2009 the mill throughput rate was
increased from the intial 1,500 tpd up to the design capacity of 2,000 tpd which
was achieved steadily during the last quarter of 2009.


-43-





Ore is
crushed to -150 mm at the mine site and is transported to the Black Fox mill by
a fleet of contract road trucks. The ore is stockpiled at the mill site and fed
via a conveyor system to the crushing circuit, with a crushing capacity of 160
tonnes per hour, where it is further reduced from -150mm through three stages of
crushing to -10mm. This crushed product is transferred to a 1,500 tonne fine ore
surge bin. The ore is then fed into a grinding circuit at a rate of 2,000 tonnes
per operating day through two stages of closed circuit ball milling. Soluble
gold is recovered by adsorption upon granular activated carbon in CIC, CIL, and
CIP trains at an efficiency of approximately 95%. Elution of adsorbed gold is
carried out via pressure Zadra in closed circuit with electro-winning
deposition. Gold plate is further refined by induction smelting and cast in
1,000 ounce moulds before shipment to the refiner. After extraction of the gold
the ores are discharged into the tailing impoundment area.





The Black
Fox Mill also hosts administrative offices, warehousing and storage facilities,
mechanical and electrical repair facilities, and a water treatment plant in
association with the mill process.





Production




For the
year ending December 31, 2009 the open pit produced 4,184,000 tonnes of waste
and 631,000 tonnes of ore for a total mined material of 4,815,000 tonnes and a
strip ratio of 6.64:1.





For the
year ended December 31, 2009 the mill processed 422,000 of ore at an average
grade of gold of 3.7 grams/t to produce 46,621 ounces of gold in dore bars.
Overall recovery of gold averaged 93%.





In
addition to the gold ore processed by the Black Fox mill, 109,000 tonnes of low
grade ore was shipped to and processed by the nearby Holt mill, owned by St
Andrew. The grade of ore processed was 1.67 grams per tonne with a recovery of
approximately 93% and gold production of 5,531 ounces.





Therefore
combined gold production from the Black Fox mill and the Holt mill was 52,152
ounces.





Bonding




Closure
plans for both the mine and mill sites prepared by AMEC Earth and Environmental,
a Division of AMEC Americas Limited, were submitted to and accepted by the
Ontario Ministry of Northern Development and Mines (“MNDM”) during 2008. Bonding
requirements for each site were set by the MNDN as follows (in
Cdn$);




Phase
      I of Black Fox mine
                      
                      $
                      7,428,830Black
      Fox mill complex
                      
                      
                      8,123,460Total
                      
                      $
                      15,552,290




We have
met these bonding requirements through letters of credit issued by TD Canada
Trust secured by a pledged deposit account of Cdn$14,321,130 and a deposit
directly with the MNDM of Cdn$1,231,160. The obligations to reimburse TD Canada
Trust for any drawing under the letter of credit are secured by Apollo’s
maintenance of an amount equal to the amount available for drawing the above
mentioned deposit account pledged to TD Canada Trust. The annual letter of
credit fee is 1% of the amount available for drawing. Interest is earned on the
deposit account at a rate established by TD Canada Trust from time to time. We
expect that there will be additional bonding requirements in connection with an
amended closure plan for phase II of the open pit, but we are unable to quantify
the amount at this time.


-44-




Montana
Tunnels Mine




The
Montana Tunnels mine was originally owned and operated by Pegasus Gold, a mining
company incorporated in Canada. Pegasus commenced operations at the Montana
Tunnels mine in 1987 and in 1998, Pegasus filed for bankruptcy. In 2002, we
purchased Montana Tunnels Mining, Inc. (“MTMI”), from the receiver in the
bankruptcy proceeding.




On July
28, 2006, Apollo entered into a joint venture (“JV Agreement”) with Elkhorn
Tunnels LLC (“Elkhorn”), in respect of the Montana Tunnels mine. The JV
Agreement called for Elkhorn to contribute $13 million in return for a 50%
interest in the Montana Tunnels mine. Apollo was the operator of the
mine.




On
February 1, 2010, we sold all of the capital stock of Montana Tunnels Mining,
Inc., which held our remaining 50% interest in the Montana Tunnels joint
venture, to Elkhorn for consideration of certain promissory notes held by
Elkhorn with an outstanding balance of approximately $9.5 million.




Exploration
Stage Properties




Grey
Fox




The Grey
Fox Project sits along the Destor Porcupine Fault Zone (“DPFZ”) in the Timmins
Mining District of Ontario and is located about 3.5 kilometers southeast of the
Black Fox mine. The initial drilling program of 16 core holes was completed in
2008 and was successful in intersecting gold mineralization in rocks similar to
the host rocks of the Black Fox ore deposit on the DPFZ and verified, in-filled
and expanded historic drilling results on the “Contact Zone,”. The Contact Zone
is a north-south structure in the DPFZ hanging wall. The 2008 drilling program
also hit very high grade gold mineralization in a silicified breccia within the
Contact Zone. This high grade “Calcite Zone” is unique, with a late stage
gold-calcite mineralizing event and may represent a shoot formed at a structural
intersection.





The 2009
drilling program commenced in August of 2009 and by the end of 2009, 53 holes
had been completed. Forty-seven of these holes were drilled on the Grey Fox
Property and six were drilled on the newly acquired Pike River Property.
Drilling results continue to show continuity in multiple shallow, mineralized
zones. All holes have been drilled with the objective of showing continuity to
the mineralization, and as a result thereof, an initial NI 43-101 compliant
estimate of measured and indicated resources is expected later in
2010.





Pike
River




During
2009, Apollo completed the acquisition of the Pike River property from Newmont
Canada Corporation (“Newmont”). The Pike River property is located in the
Township of Hislop, Ontario, Canada and is contiguous to the south-east boundary
of Apollo’s Black Fox mine and the north-west boundary of Apollo’s Grey Fox
property. This newly acquired property consists of the surface and mineral
rights to approximately 1,145 acres consisting of parcels 1735 LC, 1726 LC,
23687 SEC, 23777 SEC, 3852 SEC and 11125 SEC. With the acquisition of Pike
River, Apollo now controls a 17 square kilometer land package (Black Fox, Grey
Fox and Pike River).





The 2009
drilling program included the first six holes drilled on Pike River to test the
northern extension of mineralization from the adjoining Grey Fox property. This
mineralized target area is the northern extension of the fault contact between
metasediments and mafic volcanic rocks called the Contact Zone.


-45-





Huizopa




We own
Mexican subsidiaries which own 100% of the concessions at the Huizopa
exploration project. Pursuant to an agreement with the previous owner (the
“Previous Owner”) of one of those Mexican subsidiaries, we have a joint venture
arrangement with the Previous Owner in which we hold an 80% interest and the
Previous Owner holds a 20% free carry interest.




The
Huizopa project is located in the northern part of the Sierra Madres Mountains
in the state of Chihuahua, Mexico, near the border with the State of Sonora, and
encompasses a block of mining concession claims of approximately 170 sq.
km.




Sporadic
shallow underground mining, limited to a few high-grade zones was done in the
past but no mining has taken place at Huizopa since 1936. The geology is
characterized by a series of parallel, low sulfidation gold-silver, quartz veins
striking 340 degrees and dipping east, hosted by Tertiary-age volcanic rocks.
Silver to gold ratios in the veins and from the material on historic mine dumps
indicate the Huizopa area hosts an extensive gold-bearing hydrothermal
system.




We
established an extensive remote field camp at the project and refurbished an
existing airstrip. The camp is supplied by fixed wing aircraft and
helicopter.




Geologic
mapping suggests that the faults that host gold-silver mineralization may be
more numerous and more continuous than earlier field work indicated.
Petrographic examination revealed the presence of native gold, silver, and
electrum in many samples and widespread vein features indicative of repeated
boiling and explosive brecciation. Overall vein textures are consistent with
high-level exposures of epithermal quartz-adularia and/or fault breccia
veins.




Apollo
has entered into an agreement with the Ejido Huizopa (the “Ejido”). Pursuant to
the agreement, and in consideration for certain payments to the Ejido, we have a
right to use the Ejido lands covering our mining concessions in Huizopa for all
activities necessary for the exploration, development, and production of
potential ore deposits in our Huizopa project area. We can in the future apply
for a change of use of land without any additional obligations to the Ejido. In
addition, we may traverse adjoining and nearby Ejido land outside the boundaries
of the Huizopa mining concessions for the purpose of constructing, operating,
and maintaining improvements or facilities necessary for the Huizopa
project.




A
geophysical program was initiated on the property and used to select initial
drilling targets. A drilling contractor commenced helicopter supported core
drilling in 2008. On August 14, 2008 we announced the results of the core
drilling program on the Puma De Oro exploration target. Twenty-five core holes
were drilled on a north-trending zone targeted for drilling based on Apollo’s
geochemical sampling and geologic mapping. Anomalous gold and silver was found
in twenty of the holes with six of the twenty holes having significant gold and
silver values, including hole PDO 10 with 2.5 meters of 42.5 grams per
ton.




Drilling
at a second target, Lobo De Oro, approximately 2 kilometers east of the Puma De
Oro zone, tested a large induced polarization (“IP”) anomaly of 1 kilometer by 3
kilometers that is open in all directions. Three holes were drilled. Drill hole
LDO-1 intercepted 280 meters of anomalous silver mineralization ranging from 1
to 19 grams silver, and locally anomalous gold mineralization up to 0.6 grams
per tonne gold. Drill holes LDO-2 and LDO-3 intercepted similar grades of silver
up to 300 meters away from LDO-1. The silver and gold values, in combination
with the broad IP anomaly, could indicate the potential for both an open pit
minable target in the area as well as deeper underground targets, although
future drilling and test work would need to be performed to confirm any such
potential.


-46-





In May
2009, we completed an NI 43-101 Exploration Report for the Huizopa project which
describes the property and drill results in detail. This NI 43-101 does not
contain any resources and reserves.





ITEM 3. LEGAL
PROCEEDINGS




On
September 4, 2009, Joe Green and companies owned or controlled by him, including
a Mexican company named Minas de Coronado, S. de R.L. de C.V., with whom the
Company’s Mexican subsidiary, Minera Sol de Oro, S.A. de C.V., has a joint
venture relationship at the Huizopa exploration project in the State of Sonora,
Mexico, filed a complaint against us in the United States District Court for the
District of Nevada. In that complaint, Mr. Green alleges, among other things,
that we and Minera Sol de Oro have breached various agreements and alleged
fiduciary duties and have failed to recognize Minas de Coronado’s right to a
joint venture interest in the Huizopa exploration project, and asks the Court to
undo the parties’ 80/20 joint venture arrangement and compel the return of the
Huizopa exploration project properties to Mr. Green’s companies. We believe that
the claims in the complaint are without merit, and intend to vigorously defend
ourselves against those claims.




On
October 5, 2009, we filed a motion to dismiss the complaint and to compel
arbitration or, in the alternative, to stay proceedings pending the conclusion
of the arbitration. On March 2, 2010, the court held a hearing on that motion
and on March 9, 2010, the court granted our motion and dismissed the action. We
intend to proceed with the commencement of arbitration proceedings with respect
to this matter.




-47-




PART
II




ITEM 5. MARKET FOR
THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASE
OF EQUITY SECURITIES




Price
Range of Common Shares and Number of Holders




Our
common shares are listed on the NYSE Amex under the trading symbol “AGT” and on
the Toronto Stock Exchange under the trading symbol “APG.” As of March 15, 2010,
273,080,927 common shares were outstanding, and we had approximately 1,000
shareholders of record. On March 12, 2010, the closing price per share for our
common shares as reported by the NYSE Amex was $0.37 and as reported by the
Toronto Stock Exchange was Cdn$0.39.




The
following table sets forth, for the periods indicated, the reported high and low
market closing prices per share of our common shares:




NYSE
      Amex
                  (AGT)
              
              
              Toronto
                  Stock
      Exchange
                  (APG)High
              
              
              Low
              
              
              High
              
              
              Low($)
              
              
              (Cdn$)2009First
      Quarter
              
              $
              0.38
              
              
              $
              0.19
              
              
              $
              0.47
              
              
              $
              0.24Second
      Quarter
              
              
              0.49
              
              
              
              0.30
              
              
              
              0.55
              
              
              
              0.38Third
      Quarter
              
              
              0.52
              
              
              
              0.37
              
              
              
              0.56
              
              
              
              0.41Fourth
      Quarter
              
              
              0.59
              
              
              
              0.44
              
              
              
              0.61
              
              
              
              0.472008First
      Quarter
              
              $
              0.74
              
              
              $
              0.49
              
              
              $
              0.72
              
              
              $
              0.50Second
      Quarter
              
              
              0.70
              
              
              
              0.51
              
              
              
              0.71
              
              
              
              0.53Third
      Quarter
              
              
              0.54
              
              
              
              0.24
              
              
              
              0.51
              
              
              
              0.25Fourth
      Quarter
              
              
              0.25
              
              
              
              0.11
              
              
              
              0.30
              
              
              
              0.13





Dividend
Policy





We have
not declared or paid cash dividends on our common shares since our inception and
we expect for the foreseeable future to retain all of our earnings from
operations for use in expanding and developing our business.  Future
dividend decisions will consider our then current business results, cash
requirements and financial condition. Furthermore, the Black Fox project
facility agreement with the project finance banks party thereto currently
restricts our ability to pay dividends.




Performance
Graph and Table





The
following graph and table illustrates the cumulative total shareholder return on
the common shares for the fiscal years ended December 31, 2004 through 2009,
together with the total shareholder return of the S&P/TSX Composite Index,
and the S&P/TSX Global Gold Index for the same period. The graph and table
assumes an initial investment of $100 at December 31, 2004 and is based on the
trading prices of the common shares for the periods indicated. Because we did
not pay dividends on our common shares during the measurement period, the
calculation of the cumulative total shareholder return on the common shares does
not include dividends.


-48-











2004
                
                
                2005
                
                
                2006
                
                
                2007
                
                
                2008
                
                
                2009Apollo
      Gold CorporationDollar
      value
                
                $
                100
                
                
                $
                25
                
                
                $
                51
                
                
                $
                58
                
                
                $
                22
                
                
                $
                43Annualized
      return since base year
                
                
                
                
                
                
                (74.8
                )%
                
                
                (28.3
                )%
                
                
                (16.5
                )%
                
                
                (31.3
                )%
                
                
                (15.6
                )%Return
      over previous year
                
                
                
                
                
                
                (74.8
                )%
                
                
                103.8
                %
                
                
                13.2
                %
                
                
                (61.7
                )%
                
                
                91.3
                %S&P/TSX
      Composite indexDollar
      value
                
                $
                100
                
                
                $
                122
                
                
                $
                140
                
                
                $
                150
                
                
                $
                97
                
                
                $
                127Annualized
      return since base year
                
                
                
                
                
                
                21.9
                %
                
                
                18.2
                %
                
                
                14.4
                %
                
                
                (0.7
                )%
                
                
                4.9
                %Return
      over previous year
                
                
                
                
                
                
                21.9
                %
                
                
                14.5
                %
                
                
                7.2
                %
                
                
                (35.0
                )%
                
                
                30.7
                %S&P/TSX
      Global Gold IndexDollar
      value
                
                $
                100
                
                
                $
                121
                
                
                $
                157
                
                
                $
                150
                
                
                $
                151
                
                
                $
                161Annualized
      return since base year
                
                
                
                
                
                
                21.4
                %
                
                
                25.2
                %
                
                
                14.3
                %
                
                
                10.8
                %
                
                
                10.0
                %Return
      over previous year
                
                
                
                
                
                
                21.4
                %
                
                
                29.2
                %
                
                
                (4.7
                )%
                
                
                0.8
                %
                
                
                6.9
                %





Securities
Authorized for Issuance under Equity Compensation Plans




See “Part
III — ITEM 11. EXECUTIVE
COMPENSATION” for information relating to our equity compensation
plans.




NYSE Amex Corporate Governance
Requirements





Our common shares are listed on the
NYSE Amex equities exchange (“NYSE Amex”).  Section 110 of the NYSE Amex
company guide permits it to consider the laws, customs and practices of foreign
issuers in relaxing certain of its listing criteria, and to grant exemptions
from NYSE Amex listing criteria based on these considerations.  Any
listed company seeking relief under these provisions is required to provide
written certification from independent local counsel that the non-complying
practice is not prohibited by home country law.




-49-





One significant manner in which our
governance practices differ from those followed by U.S. domestic companies
pursuant to NYSE Amex standards concerns shareholder approval
requirements.  Section 713 of the NYSE Amex company guide requires a
listed company to obtain the approval of its shareholders for certain types of
securities issuances, including private placements that may result in the
issuance of common shares (or securities convertible into common shares) equal
to 20% or more of the presently outstanding shares for less than the greater of
book or market value of the shares.  In general, there is no such
requirement under Yukon law or under the rules of the Toronto Stock Exchange
unless the transaction results in a change of control or the issuance of common
shares (or securities convertible or exercisable into common shares) equal to
25% or more of the currently issued and outstanding shares of the listed
company.  Furthermore, under certain circumstances, the Toronto Stock
Exchange may, pursuant to Section 604(e) of the Toronto Stock Exchange company
guide, grant waivers to its shareholder approval requirements where the listed
company would suffer financial hardship in complying with such
requirements.  The conditions under which the Toronto Stock Exchange
grants such waivers from its shareholder approval requirements may depart from
similar NYSE Amex waivers or exemptions, if any.  We will seek a
waiver from the NYSE Amex’s shareholder approval requirements in circumstances
where the securities issuance does not trigger such a requirement under Yukon
law or under the rules of the Toronto Stock Exchange.





The
foregoing is consistent with the laws, customs and practices in
Canada.




Unregistered
Sales of Equity Securities




Our
unregistered sales of equity securities during the year ended December 31, 2009,
have previously been reported on Current Reports on Form 8-K dated February 24,
2009 and July 20, 2009.




Repurchase
of Securities




During
2009, neither the Company nor any affiliate of the Company repurchased common
shares of the Company registered under Section 12 of the Exchange
Act.




ITEM 6.  SELECTED FINANCIAL DATA




The
following table sets forth selected historical consolidated financial data for
Apollo Gold Corporation as of December 31, 2009, 2008, 2007, 2006, and 2005,
derived from our audited financial statements.  The data set forth
below should be read in conjunction with, and is qualified in its entirety by
reference to, our financial statements and notes thereto included elsewhere in
this Annual Report on Form 10-K and with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”




-50-




Summary
of Financial Condition


(In
thousands of U.S. dollars, except per share data)




U.S. GAAP
                
                Years Ended December 31,2009 (1)
                
                
                2008
                
                
                2007
                
                
                2006 (2)
                
                
                2005 (2)Statements
      of Operations DataRevenue
      from sale of minerals
                
                $
                47,008
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –Direct
      operating costs
                
                
                26,126
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Exploration
      and business development
                
                
                1,960
                
                
                
                5,517
                
                
                
                6,903
                
                
                
                4,206
                
                
                
                6,051Operating
      income (loss)
                
                
                6,700
                
                
                
                (9,313
                )
                
                
                (11,654
                )
                
                
                (10,151
                )
                
                
                (15,940
                )Loss
      from discontinued operations
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (2,012
                )
                
                
                (8,793
                )Net
      (loss) income
                
                
                (61,650
                )
                
                
                1,202
                
                
                
                (13,897
                )
                
                
                (12,163
                )
                
                
                (24,733
                )Net
      (loss) earnings per share, basic and dilutedContinuing
      operations
                
                
                (0.25
                )
                
                
                0.01
                
                
                
                (0.10
                )
                
                
                (0.08
                )
                
                
                (0.16
                )Discontinued
      operations
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (0.02
                )
                
                
                (0.09
                )Total
                
                $
                (0.25
                )
                
                
                0.01
                
                
                
                (0.10
                )
                
                
                (0.10
                )
                
                
                (0.24
                )





At December 31,Balance Sheet DataTotal
      assets
                  
                  $
                  159,261
                  
                  
                  $
                  87,001
                  
                  
                  $
                  29,119
                  
                  
                  $
                  19,042
                  
                  
                  $
                  39,331Long-term
      debt, including current portion
                  
                  
                  83,769
                  
                  
                  
                  28,448
                  
                  
                  
                  15,376
                  
                  
                  
                  9,664
                  
                  
                  
                  8,785Total
      shareholders’ (deficiency) equity
                  
                  
                  (12,429
                  )
                  
                  
                  42,354
                  
                  
                  
                  8,771
                  
                  
                  
                  6,940
                  
                  
                  
                  7,714







Canadian GAAP (2)
                
                Years Ended December 31,2009
      (1)
                
                
                2008
                
                
                2007
                
                
                2006
                
                
                2005Statements
      of Operations DataRevenue
      from sale of minerals
                
                $
                47,008
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –Direct
      operating costs
                
                
                26,126
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Exploration
      and business development
                
                
                1,960
                
                
                
                3,185
                
                
                
                2,430
                
                
                
                1,033
                
                
                
                918Operating
      income (loss)
                
                
                5,130
                
                
                
                (6,981
                )
                
                
                (7,181
                )
                
                
                (5,153
                )
                
                
                (9,254
                )Loss
      from continuing operations
                
                
                (50,098
                )
                
                
                (6,759
                )
                
                
                (8,451
                )
                
                
                (7,603
                )
                
                
                (11,487
                )(Loss)
      income from discontinued operations
                
                
                (5,353
                )
                
                
                8,355
                
                
                
                10,867
                
                
                
                (7,984
                )
                
                
                (10,721
                )Net
      (loss) income
                
                
                (55,451
                )
                
                
                1,596
                
                
                
                2,416
                
                
                
                (15,587
                )
                
                
                (22,208
                )Net
      income (loss) per share, basic and dilutedContinuing
      operations
                
                
                (0.20
                )
                
                
                (0.03
                )
                
                
                (0.06
                )
                
                
                (0.06
                )
                
                
                (0.11
                )Discontinued
      operations
                
                
                (0.03
                )
                
                
                0.04
                
                
                
                0.08
                
                
                
                (0.07
                )
                
                
                (0.11
                )Total
                
                $
                (0.23
                )
                
                $
                0.01
                
                
                $
                0.02
                
                
                $
                (0.13
                )
                
                $
                (0.22
                )





At December 31,Balance Sheet DataTotal
      assets
                  
                  $
                  197,033
                  
                  
                  $
                  131,630
                  
                  
                  $
                  75,073
                  
                  
                  $
                  51,804
                  
                  
                  $
                  62,545Long-term
      debt, including current portion
                  
                  
                  83,683
                  
                  
                  
                  28,330
                  
                  
                  
                  13,313
                  
                  
                  
                  8,900
                  
                  
                  
                  7,272Total
      shareholders’ equity
                  
                  
                  43,033
                  
                  
                  
                  73,755
                  
                  
                  
                  42,873
                  
                  
                  
                  28,243
                  
                  
                  
                  32,441




(1)     The
Black Fox mine began commercial production in late May 2009.


(2)     On
February 1, 2010, we sold our 100% interest in Montana Tunnels Mining, Inc
(“MTMI”).  MTMI was party to a 50% interest in the Montana Tunnels
joint venture.  The joint venture was established and effective at
December 31, 2006.  Prior to the establishment of the joint venture,
MTMI held a 100% interest in Montana Tunnels.  As such, for accounting
purposes under U.S. GAAP, Montana Tunnels is presented as a discontinued
operation for the years 2005 and 2006, and an equity investment for years 2007,
2008, and 2009.




-51-




Summary
Operational Statistics




Year Ended
                      December 31,
                      2009(1)Production
      SummaryGold
      ounces produced
                  
                  
                  52,152Gold
      ounces sold
                  
                  
                  46,016Total
      revenues ($millions)
                  
                  
                  47.0Costs
      Per OunceCash
      operating costs per ounce of gold
                  
                  $
                  567Total
      cash costs per ounce of gold
                  
                  $
                  567Total
      production costs per ounce of gold
                  
                  $
                  726





(1)
            Sales,
      costs and costs per ounce for the year ended December 31, 2009 in the
      table above include the period from the inception of commercial production
      at Black Fox in late May through December
31.





The cash
operating, total cash and total production costs are non-GAAP financial measures
and are used by management to assess performance of individual operations as
well as a comparison to other gold producers.




This
information differs from measures of performance determined in accordance with
Canadian and U.S. GAAP and should not be considered in isolation or a substitute
for measures of performance prepared in accordance with GAAP.  These
measures are not necessarily indicative of operating profit or cash flow from
operations as determined under GAAP and may not be comparable to similarly
titled measures of other companies.




See Item
7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” for a reconciliation of these non-GAAP measures to our Statements of
Operations.




ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




The
following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and related notes.  The
financial statements have been prepared in accordance with generally accepted
accounting principles in the U.S. (“U.S. GAAP”).  For a reconciliation
to generally accepted accounting principles in Canada (“Canadian GAAP”), see
Note 23 to the attached consolidated financial statements.  Unless
stated otherwise, all dollar amounts are reported in U.S. dollars.




In this
Annual Report on Form 10-K, the terms “cash operating cost”, “total cash cost”
and “total production cost” are non-GAAP financial measures and are used on a
per ounce of gold sold basis.  Cash operating cost is equivalent to
direct operating cost for the period as found on the Consolidated Statements of
Operations, less production royalties expenses and mining
taxes.  Total cash cost is equivalent to cash operating cost plus
production royalties and mining taxes.  Total production cost is
equivalent to total cash cost plus non-cash costs including depreciation and
amortization.




Certain
prior period figures have been reclassified to conform to the current period
presentation.




-52-




RECONCILIATION
OF CASH OPERATING AND TOTAL PRODUCTION COSTS PER OUNCE




BLACK
FOX


($ in thousands, except per ounce of gold data)
                
                Year ended
                    December 31, 2009 (1)Gold
      ounces sold
                
                
                46,016Direct
      operating costs
                
                $
                26,126Less:   
      Mining taxes, royalty expenses
                
                
                –By-product credits
                
                
                (40
                )Cash
      operating costs
                
                
                26,086Cash operating cost per ounce of gold
                
                $
                567Cash
      operating costs
                
                
                26,086Add:    Mining
      taxes, royalty expenses
                
                
                –Total
      cash costs
                
                
                26,086Total
      cash cost per ounce of gold
                
                $
                567Total
      cash costs
                
                
                26,086Add:   
      Depreciation & amortization
                
                
                6,940Add:    Accretion
      on accrued site closure costs
                
                
                369Total
      production costs
                
                
                33,395Total production cost per ounce of gold
                
                $
                726





(1)
            Sales,
      costs and costs per ounce for the year ended December 31, 2009 in the
      table above include the period from the inception of commercial production
      at Black Fox in late May through December
31.





We have
included cash operating cost, total cash cost and total production cost
information to provide investors with information about the cost structure of
our mining operations.  We use this information for the same purpose
and for monitoring the performance of our operations.  This
information differs from measures of performance determined in accordance with
U.S. and Canadian GAAP and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with U.S. and
Canadian GAAP.  These measures are not necessarily indicative of
operating profit or cash flow from operations as determined under GAAP and may
not be comparable to similarly titled measures of other companies.




BACKGROUND
AND RECENT DEVELOPMENTS




We are
principally engaged in gold mining including extraction, processing, and
refining, as well as related activities including exploration and development of
mineral deposits principally in North America.  We own Black Fox, an
open pit and underground mine and mill located in the Province of Ontario,
Canada (“Black Fox”).  The Black Fox mine site is situated seven miles
east of Matheson and the mill complex is twelve miles west of
Matheson.  Mining of ores from the open pit began in March 2009 and
milling operations commenced in April 2009.  Underground mining at
Black Fox is expected to commence in 2010.  We own two exploration
properties adjacent to Black Fox mine site known as Grey Fox and Pike
River.




We also
own Mexican subsidiaries which own an 80 percent interest in the Huizopa Project
joint venture, (20 percent Minas de Coronado, S. de R.L. de CV), an early stage
exploration project located in the Sierra Madres in Chihuahua,
Mexico.




-53-




During
the third quarter of 2009, the Company adopted a plan to dispose of Montana
Tunnels Mining, Inc. (“MTMI”), which includes the Montana Tunnels and Diamond
Hill mines.  The Montana Tunnels mine, a 50% joint venture (“Montana
Tunnels”) accounted for under the equity investment method, is an open pit mine
and mill that produced gold dore and lead-gold and zinc-gold concentrates,
located in the State of Montana.  Montana Tunnels was placed under
care and maintenance on April 30, 2009.  The Diamond Hill mine, also
located in the State of Montana, is currently under care and
maintenance.  On February 1, 2010, we completed the sale of all the
outstanding capital stock of MTMI, which held the 50% joint venture in the
Montana Tunnels mine, to the joint venture partner, Elkhorn Goldfields, Inc.
(“Elkhorn”), for consideration consisting of certain promissory notes held by
Elkhorn and certain investors in Elkhorn or its affiliates from Calais
Resources, Inc., Calais Resources Colorado, Inc. (together with Calais
Resources, Inc., “Calais”) and Aardvark Agencies, Inc. (“Aardvark”) with an
aggregate outstanding balance of approximately $9.5 million.




Corporate





Proposed
Business Combination with Linear Gold Corp. and Related Private
Placement




Letter of Intent -
General.  On March 9, 2010, Apollo and Linear Gold Corp.
(“Linear”) entered into a binding letter of intent (the “Letter of Intent”)
pursuant to which (i) the businesses of Apollo and Linear would be combined by
way of a court-approved plan of arrangement (the “Arrangement”) pursuant to the
provisions of the Canada Business Corporations Act (“CBCA”) and (ii) Linear
would purchase approximately 62,500,000 common shares (the “Purchased Shares”)
of Apollo at a price of Cdn$0.40 per common share for gross proceeds of Cdn$25.0
million (the “Private Placement”).




Pursuant to the
Arrangement:




·
            each
      outstanding Linear common share will be exchanged for 5.4742 Apollo common
      shares (the “Exchange Ratio”);




·
            each
      outstanding common share purchase warrant of Linear (the “Linear
      Warrants”) will be exchanged for common share purchase warrants of Apollo
      (the “Apollo Warrants”) on the basis of the Exchange Ratio and the
      exercise price of the Linear Warrants will be adjusted as provided for in
      the certificates representing the Linear
  Warrants;




·
            each
      outstanding option to purchase a Linear common share (the “Linear
      Options”) granted under Linear’s Stock Option Plan will be exchanged for
      options of Apollo (the “Apollo Options”) granted under Apollo’s Stock
      Option Plan on the basis of the Exchange Ratio and the exercise price of
      the Linear Options will be adjusted on the same basis as the exercise
      price of the Linear Warrants.




Upon consummation of the Arrangement,
the transaction is expected to be accounted for as an acquisition of a business
with Apollo being the acquirer.  The shareholders of Linear
immediately prior to the Arrangement are expected to own approximately 47.8% of
the outstanding common stock of Apollo on a non-diluted basis and approximately
42.9% on a fully-diluted basis.




Board of Directors and other
Matters.Upon consummation of the Arrangement, the Letter of
Intent contemplates that:




·
            Apollo
      and Linear will agree on a new name for Apollo;
  and




·
            The
      Board of Directors of Apollo would consist of seven directors, which would
      be composed of (i) Wade Dawe (the current Chief Executive Officer of
      Linear), who would be nominated as the Chairman of the Board of Directors,
      (ii) four current Apollo board members or Apollo nominees, (iii) one
      Linear nominee and (iv) one nominee who shall be a technical person
      mutually agreed upon by Apollo and
Linear.




-54-




Definitive Business Combination
Agreement.  The Letter of Intent contemplates that Linear and
Apollo will enter into a definitive arrangement agreement (the “Definitive
Agreement”) governing the Arrangement on or before March 31, 2010 to implement
the Arrangement to provide for the business combination of Linear and
Apollo.




Conditions to Consummation of
Arrangement.  The Letter of Intent provides that each party’s
obligation to proceed with the Arrangement is subject to customary conditions
precedent, including without limitation conditions relating to (i) material
accuracy of representations and warranties as of the effective date of the
Arrangement, (ii) material compliance with covenants, (iii) the absence of any
material adverse change, (iv) absence of certain actions, suits, proceedings or
objection or opposition before any governmental or regulatory authority, (v)
absence of material breaches under the Letter of Intent, (vi) approval of the
securityholders of Linear and Apollo of the transactions set forth in the Letter
of Intent for which their approval is required under applicable law, (vii)
approval Superior Court of Justice of Ontario (the “Court”) of the Arrangement,
(viii) obtaining all material consents, waivers, permissions and approvals
necessary to complete the Arrangement by or from relevant third parties and (ix)
holders of not more than 5% of each of the issued and outstanding Linear common
shares and Apollo common shares shall have exercised rights of dissent in
relation to the Arrangement.




Securityholder
Approval.  The Arrangement will be subject to the approval of
holders of not less than 66 2/3% of the Linear common shares and of a majority
of the Apollo common shares held by disinterested shareholders voted at special
meetings of shareholders that will be called to approve the
Arrangement.




Break Fee.  If
either Linear or Apollo terminates the Letter of Intent or the Definitive
Agreement and abandons the Arrangement prior to closing for any reason (other
than as a result of the failure of a condition to such party’s obligation to
close contained in the Letter of Intent or the Definitive Agreement not being
satisfied), such terminating party shall pay to the other party an amount equal
to Cdn$4.0 million.




Termination of Letter of
Intent.  The Letter of Intent may be terminated (i) by mutual
written consent of each of Apollo and Linear; (ii) by a party which accepts,
recommends, approves or enters into an agreement to implement a “superior
proposal” (as defined in the Letter of Intent) after having complied with the
terms of the Letter of Intent; and (iii) by either party if the Definitive
Agreement is not executed by all each of the parties on or before 5:00 pm
(Toronto time) on March 31, 2010 (provided that concurrently with any such
termination, the terminating party shall have paid the Cdn$4.0 million break fee
described above following which the payor party shall have no further
liabilities arising hereunder other than for a breach of any section of the
Letter of Intent).




Linear
Private Placement




Concurrently with the execution of the
Letter of Intent, Apollo and Linear entered into a subscription agreement (the
“Subscription Agreement”) providing for a Private Placement whereby Linear is
expected to purchase 62,500,000 common shares of Apollo at a price of Cdn$0.40
per common share for gross proceeds of Cdn$25.0 million.  Pursuant to
the Letter of Intent and the Subscription Agreement, the closing of the Private
Placement will be subject to customary conditions precedent, plus conditions
relating to:  (i) the two banks (the “Banks”) associated with the
$70.0 million project financing agreement (see “Black Fox Financing Agreement”
below) entering into a support agreement pursuant to which each of the Banks
agree, among other things, to support and vote in favor of the Arrangement; and
(ii) each of the Banks shall entering into a lock-up
agreement,  pursuant to which each of the Banks agrees, among other
things, not to, directly or indirectly, exercise or offer, sell, contract to
sell, lend, swap, or enter into any other agreement to transfer the economic
consequences of any of the Apollo common shares or common share purchase
warrants of Apollo held by them before December 31, 2010.




-55-




The closing of the Private Placement is
expected to occur on or before March 19, 2010.  As part of the
Arrangement, the Apollo common shares expected to be issued to Linear in this
Private Placement will be cancelled without any payment upon completion of the
Arrangement.





Black
Fox Financing Agreement





On
February 20, 2009, we entered into a $70.0 million project financing agreement
(“Project Facility”) with Macquarie Bank Ltd. (“Macquarie Bank”) and RMB
Australia Holdings Limited (“RMB”) (together as the “Banks”) as joint arrangers
and underwriters.  By June 2, 2009, the Company had borrowed the total
amount of the $70.0 million available under the Project Facility.  On
February 23, 2009, the Company used $15.0 million of the proceeds from the
Project Facility to repay the $15.0 million bridge facility entered into on
December 10, 2008 (the “Bridge Facility”) and has utilized the remaining $55.0
million to complete the development of Black Fox and to provide for certain
agreed corporate expenditures.





The
Project Facility was subject to an arrangement fee of $3.47 million  ,
which was paid upon the initial drawdown under the Project Facility, and a
commitment fee equal to 1% per annum calculated on a daily basis on the average
monthly balance of the undrawn commitment, which is payable in arrears on March
31, 2009 and June 30, 2009.  Amounts borrowed under the Project
Facility bear interest at LIBOR plus 7% per annum and interest is payable
quarterly commencing March 31, 2009.




In
connection with the Project Facility, we issued 34,836,111 warrants to the Banks
(11,637,775 to RMB and 23,198,336 to Macquarie Bank) as consideration for
financing services provided in connection with the Project
Facility.  Each warrant entitles the holder to purchase one of our
common shares pursuant to the terms and conditions of the
warrant.  The warrants expire on February 20, 2013 and have an
exercise price of Cdn$0.252 per share, subject to customary anti-dilution
adjustments.  We have agreed to use our best efforts to register the
resale of the shares issuable upon exercise of the warrants with the SEC
promptly following the execution of the Project Facility.  The
warrants are in addition to the 42,614,254 warrants issued to the Banks in
connection with the Bridge Facility.




Borrowings under the Project Facility
are secured by a first lien on substantially all of our assets, including the
Black Fox project, and the stock of our subsidiaries.




The Project Facility contains various
financial and operational covenants that impose limitations on
us.  These include, among other things, limitations and covenants
regarding:  (i) the conduct of the Black Fox project and use of
related assets; (ii) the completion of the Black Fox project; (iii) the use of
our funds; (iv) compliance with applicable laws and permits; (v) mining rights
at the Black Fox project; (vi) our corporate budget; (vii) provision of
information; (viii) maintenance of accounting records; (ix) maintenance of
corporate existence; (x) compliance with certain material agreements; (xi)
capital maintenance requirements; (xii) payment of indebtedness and taxes;
(xiii) amendments to existing agreements relating to the Black Fox project or
entry into any such agreements; (xiv) amendments to governing documents; (xv)
disposition of or encumbrance of certain assets; (xvi) engaging in other lines
of business; (xvii) incurrence of indebtedness; (xviii) related party
transactions; (xix) creation of new subsidiaries; (xx) dividends and other
distributions; (xxi) maintenance of the property securing the Project Facility;
(xxii) insurance; (xxiii) subordination of intercompany claims; (xxiv)
tradability of the warrant shares under Canadian securities laws; (xxv)
registration of the warrant shares under United States securities laws; (xxvi)
maintenance of listing status on the TSX and status as a reporting issuer under
Canadian securities laws; (xxvii) maintenance of certain financial coverage
ratios and minimum project reserves; (xxviii) satisfaction of a minimum tangible
net worth test; and (xxix) maintenance of the hedging arrangements described
below; and (xxx) the operation of the Black Fox project in compliance with an
agreed cash flow budgeting and operational model.




-56-




As at December 31, 2009, we were in
compliance with the various financial covenants of the Project
Facility.  However, as a result of lower than planned gold production,
during the third quarter of 2009 a “review event” as defined in the Project
Facility was triggered.  The occurrence of a review event allows the
Banks to review the Project Facility and determine if they wish to continue with
the Project Facility.  On September 28, 2009, the Banks agreed to
defer (i) the first scheduled repayment of $9.3 million  due on September
30, 2009 under the Project Facility (the “First Repayment”) and (ii) the
requirement to fund the associated debt service reserve account (the “Funding
Obligation”) also due on September 30, 2009, which, in accordance with the terms
of the Project Facility, requires a reserve amount equal to, at all times after
initial funding, the greater of $5.0 million  or the aggregate repayment
amount due on the next repayment date.  On December 30, 2009 and
February 28, 2010, the Banks agreed to further defer the First Repayment and
the Funding Obligation, and to defer the second scheduled repayment of $6.0
million due on December 31, 2009, in each case, until the earlier to
occur of (i) the completion of the Bank’s technical review process of the
Black Fox mine or (ii) March 31, 2010.





On March 9, 2010, the Banks
executed  a consent letter (the “Consent Letter”), which was agreed to
and accepted by each of Apollo and Linear Gold Corp. (“Linear”), pursuant to
which the Banks agreed, subject to the terms and conditions contained in the
Consent Letter:




·
            to
      consent to the Arrangement (the
“Consent”);




·
            prior
      to the earliest to occur of (i) the date on which the Banks determine that
      the Arrangement has been terminated or will not be completed, (ii) March
      31, 2010, if the Definitive Agreements in respect of the Arrangement have
      not been executed by such date, or (iii) September 30, 2010, not to make
      demand, accelerate payment or enforce any security or any other remedies
      upon an “event of default” or a “review event” under the Project Facility
      unless and until the occurrence of certain “override events” set forth in
      the Consent Letter (which “override events” are primarily related to
      breaches of certain covenants and provisions of the Consent Letter and the
      Project Facility) (the “Standstill Provisions”);
  and




·
            to
      amend certain provisions of the Project Facility, including without
      limitation the following revised repayment
  schedule:





Repayment
      Date
                      
                      Repayment AmountThe
      earlier of two business days following completion of the Private Placement
      and March 19, 2010
                      
                      $
                      10,000,000The
      earlier of July 2, 2010 and the date that is two business days following
      the consummation of the Arrangement
                      
                      $
                      10,000,000The
      earlier of September 30, 2010 and the date on which the proceeds from any
      one or more equity raisings following the consummation of the Arrangement
      equals $10,000,000
                      
                      $
                      10,000,000December
      31, 2010
                      
                      $
                      5,000,000The
      remaining repayment dates between March 31, 2011 and March 31, 2013 to be
      agreed between Apollo and the Banks by no later than September 30, 2010 to
      reflect the “cashflow model” (as defined under the Project Facility) that
      is approved by the Banks.  In the absence of agreement between
      Apollo and the Banks by September 30, 2010, amounts outstanding under the
      Project Facility shall be due and payable on December 31,
      2010.
                      
                      $
                      35,000,000




-57-




The Banks’ agreement to the Consent and
the Standstill Provisions is subject to a number of conditions, including
without limitation (i) the Banks approving the Definitive Agreements and such
Definitive Agreements being executed by no later than March 31, 2010, (ii) the
Banks being satisfied that the completion of the Arrangement will not cause a
breach or default under any “project documents” (as defined in the Project
Facility), (iii) the Banks being satisfied that the Arrangement will not have
any material negative tax implications for Apollo, Linear and each of their
direct or indirect subsidiaries, (iv) the Banks being satisfied that,
immediately following completion of the Arrangement and after making the payment
of $10.0 million as set forth in the repayment schedule set forth above, Apollo
having restricted cash on hand of not less than Cdn$10.0 million, and (v) at
completion of the Arrangement, the Banks being satisfied regarding indebtedness
and encumbrances of Linear and its direct and indirect
subsidiaries.





Subject
in certain cases to applicable notice provisions and cure periods, events of
default under the Project Facility include, without limitation: (i) failure to
make payments when due; (ii) certain misrepresentations under the Project
Facility and certain other documents; (iii) breach of financial covenants in the
Project Facility; (iv) breach of other covenants in the Project Facility and
certain other documents; (v) loss of certain mineral rights; (vi) compulsory
acquisition or expropriation of certain secured property by a government agency;
(vii) certain cross-defaults on other indebtedness of our company; (viii) entry
of certain judgments against us that are not paid or satisfied; (ix) enforcement
of encumbrances against our material assets (or any such encumbrance becomes
capable of being enforced); (x) events of liquidation, receivership or
insolvency of our company; (xi) maintenance of listing status on the TSX or NYSE
Amex and status as a reporting issuer under Canadian securities laws; or (xii)
occurrence of any event which has or is reasonably likely to have a material
adverse effect on our assets, business or operations, our ability to perform
under the Project Facility and other transaction documents, the rights of the
Banks or the enforceability of a transaction document.  The Project
Facility provides that in the event of default, the Banks may declare that the
debts and monetary liabilities of our company are immediately due and payable
and/or cancel the credit facility and foreclose on our assets.





As a part
of the Project Facility, we and the Banks have entered into a hedging program
covering both gold sales and part of our Canadian dollar operating costs.
Specifically, we have entered into a 250,420 ounce gold forward sales program
which has been allocated across the four year term of the Project Facility. The
weighted average price of the sales program is $876 per ounce of
gold.  The foreign exchange hedge program was for the Canadian dollar
equivalent of $58.0 million, at an average exchange rate of US$1.00 = Cdn$1.21,
over the four year term of the Project Facility.  As at December 31,
2009, there were 200,331 ounces of gold remaining on the program, and $49.9
million (Cdn$60.4 million) remaining on the foreign exchange hedge
program.





Extension
of maturity date for February 2007 convertible debentures held by
RAB





On
February 23, 2007, we concluded a private placement pursuant to which we sold
$8.6 million   aggregate principal amount of convertible
debentures due February 23, 2009.  Each $1,000 principal amount of the
February 2007 convertible debentures was convertible at the option of the holder
into 2,000 of our common shares, at any time until February 23,
2009.  Additionally, each $1,000 principal amount of the February 2007
convertible debentures included 2,000 common share purchase warrants, entitling
the holder to purchase one of our common shares at an exercise price of $0.50
per share, with such accompanying warrants expiring February 23,
2009.




-58-




RAB owns
$4.29 million principal amount of February 2007 convertible debentures (on which
$0.8 million of interest was accrued and unpaid on the maturity date of February
23, 2009) and 8,580,000 accompanying warrants.  We and RAB agreed to
extend the original maturity date of the February 2007 convertible debentures
owned by RAB to February 23, 2010.  Furthermore, RAB agreed that we
shall have the option to repay the $0.8 million of accrued interest on RAB’s
February 2007 convertible debentures in either our common shares or
cash.  We elected to pay the accrued interest in common shares and
issued 2,444,765 shares to RAB calculated by dividing the accrued interest owed
by the volume weighted average market price of our common shares as quoted on
the Toronto Stock Exchange during the five trading days ending February 23,
2009.  In consideration for the foregoing, we agreed to (i) issue
2,000,000 common shares to RAB, (ii) extend the expiration date of the
accompanying warrants issued to RAB to March 5, 2010 and (iii) reduce the
exercise price of the accompanying warrants issued to RAB from $0.50 to
$0.25.  The terms and conditions of the $3.1 million aggregate
principal amount of February 2007 convertible debentures and accompanying
warrants not owned by RAB were not amended and we repaid the principal amount
and accrued interest thereon to the holders thereof in cash on February 23,
2009.





In
December 2008, we retained Haywood Securities Inc., (“Haywood”), to provide
financial and advisory services, including in connection with the repayment or
restructuring of the February 2007 convertible debentures.  In
consideration for those services, we agreed to issue 1,000,000 of our common
shares to Haywood by February 28, 2009.  In addition, the Black Fox
Project Facility constitutes an “alternative transaction” under the terms of our
agreement with Haywood, which required us to pay certain compensation to
Haywood.  Specifically, we were obligated to compensate Haywood by
issuing to it 2,172,840 common shares and 2,567,901 common share purchase
warrants exercisable for a two year period at an exercise price of Cdn$0.256 per
share.





On
February 26, 2010 we reached an agreement with RAB, the holder of the February
2007 convertible debentures with principal amount of $4.3 million, to extend the
maturity date of the convertible debentures to August 23, 2010.  Under
the terms of the convertible debentures, $0.8 million of accrued and unpaid
interest was due as of February 23, 2010, which was paid in cash by the Company
on March 3, 2010.  In consideration for the extension of the maturity
date of the convertible debentures, the Company has agreed to issue to RAB, as
soon as practicable following receipt of all required regulatory approvals, (i)
800,000 additional common shares of the Company and (ii) 2,145,000 common share
purchase warrants (the “RAB Warrants”) whereby one RAB Warrant entitles the
holder to purchase one common share at an exercise price of $0.50 per share,
expiring February 23, 2011.





Private
Placement of Common Shares and Flow-through Common Shares





On July
15, 2009, we completed a private placement of 12,221,640 common shares at
Cdn$0.45 per share and 13,889,390 flow-through common shares at Cdn$0.54 per
share for net proceeds of $10.7 million (Cdn$12.0 million) after cash issuance
costs of $0.9 million.  We intend to use the proceeds from the sale of
the flow-through common shares to fund exploration expenses at our Black Fox
mine and our Grey Fox and Pike River properties.  Further, we used the
proceeds from the sale of the common shares for working capital and general
corporate purposes.  In connection with the private placement the
Company issued 1,566,662 compensation warrants to purchase common shares of the
Company at an exercise price of Cdn$0.45 per share that expire on July 15,
2011.




-59-




Black
Fox





During 2009, we mined 4,814,000 tonnes
of material of which 631,000 tonnes was gold ore.  The Black Fox mill
processed 422,000 tonnes of ore (1,730 tonnes per day), at a grade of 3.70 grams
of gold per tonne, achieving a recovery rate of 93%, for total gold production
of 46,621 ounces.  We custom milled an additional 109,000 tonnes of
lower grade ore, at a grade of 1.67 grams of gold per tonne at a recovery rate
of 93% for additional gold production of 5,531 gold
ounces.  Therefore, total gold produced was 52,152 ounces during
2009.  Gold ounces sold during 2009 were 46,016 ounces.  All
gold sold was against the forward sales contracts at a realized price of $875
per ounce.  The total cash cost per ounce of gold for the year was
$567.




The above production of gold was lower
than originally predicted from our reserve model as a direct result of the grade
of certain types of ore mined being lower than expected.  This lower
than planned production triggered a “review event” as defined in the Project
Facility.  Apollo and the Bank consultants have been reviewing the
issue of grade variability in certain types of Black Fox ore which produced this
over-projection.





Capital expenditures for the years
ended December 31, 2009 and 2008 were $55.6 million and $45.1 million,
respectively.  Expenditures during the year ended December 31, 2009
included (i) $32.0 million towards the cost of upgrading the Black Fox mill to
increase its capacity and throughput rate, (ii) $5.0 million for the enhancement
of the tailings facility at the mill site, (iii) $4.0 million for the
construction of water holding ponds at the mine, (iv) $13.6 million for
additional capitalized pre-production expenditures including contract
pre-stripping of the open pit, and (v) $1.0 million relating to the purchase of
the Pike River exploration property that lies between the Black Fox mine and the
Grey Fox exploration property.





Grey Fox and Pike River
Exploration Properties





In 2009 we acquired the Pike River
property from Newmont Canada Corporation, a subsidiary of Newmont Mining
Corporation.  The Pike River property is contiguous to the south-east
boundary of our Black Fox mine and the north-west boundary of our Grey Fox
property.  During 2009 we conducted a 53 hole exploration program,
mainly on Grey Fox, and all holes but one intersected gold
mineralization.





Huizopa
Project




On July
7, 2009, we filed a Canadian National Instrument 43-101 for the Huizopa
project.  This 43-101 more fully describes the property and the
drilling results from our 2008 drilling program, but does not contain any
resources or reserves.





Montana
Tunnels





On
February 1, 2010, we completed the sale of all the outstanding capital stock of
MTMI, which held our 50% joint venture interest in the Montana Tunnels mine,
to  Elkhorn Goldfields, Inc. (“Elkhorn”), for consideration consisting
of certain promissory notes held by Elkhorn and certain investors in Elkhorn or
its affiliates from Calais Resources, Inc., Calais Resources Colorado, Inc.
(together with Calais Resources, Inc., “Calais”) and Aardvark Agencies, Inc.
(“Aardvark”) with an aggregate outstanding balance of approximately $9.5
million.





During
the four-month period ended April 30, 2009, the mill processed 1,429,600 tons of
ore, which had been stockpiled as of December 31, 2008.  The Montana
Tunnels mine ceased milling operations on April 30, 2009 and we placed the mine
and mill on care and maintenance at that time.  Payable production in
the four-month period ended April 30, 2009 was 9,690 ounces of gold, 151,000
ounces of silver, 3,320,000 pounds of lead and 8,455,000 pounds of
zinc.  Apollo accounted for its 50% interest in the Montana Tunnels
joint venture as an equity method investment.




-60-




BUSINESS
STRATEGY AND DEVELOPMENT




2010
Forecasted Highlights:




We have
two primary properties:  the Black Fox mine and mill, which includes
two exploration properties adjacent to the mine known as Grey Fox and Pike
River, and the Huizopa project.  Below is a summary of our
expectations for these properties in 2010.




Black Fox– During 2010, we
expect to commence development of the Black Fox underground mine in the second
quarter and to commence ore production at the beginning of the third
quarter.  Our plan is to reach underground production of 750 tonnes
per day by the end of the year.  The mill is expected to process ore
at 2,000 tonnes per day with a mixture of both open pit and underground
ores.  We expect to produce 100,000 ounces of gold in
2010.





Grey Fox and Pike River Property
Exploration –During 2010, we expect to be able to issue a NI 43-101
compliant Exploration report containing an initial resource along approximately
500-meter strike length of the Contact Zone fault.  A drill plan will be
compiled to extend the resource along strike and down dip.  This program
proposes 20,000 meters of core drilling and will be instigated as capital is
available.  This program would extend drilling north from the Grey Fox
property onto the Pike River property.  Exploration by mapping and
geochemical sampling of surface outcrops is expected to be
accomplished.





Huizopa Project –During 2010,
we plan to construct an eight-kilometer dirt access road suitable to bring a
truck-mounted core drill rig onto the Huizopa property.  We plan to move
our exploration camp south-west from its present location to a more suitable
area.  We plan to compile a drill program and proceed with further
exploration core drilling on the property.  All activity will depend on
capital available.





APOLLO
GOLD CORPORATION




Results
of Operations Year Ended December 31, 2009 Compared to Year Ended December 31,
2008




In late May 2009, Black Fox, the
Company’s only producing property, entered commercial
production.  Therefore, there was little or no comparable activity to
report for the year ended December 31, 2008 for revenue from the sale of gold,
direct operating costs, depreciation and amortization, and accretion expense –
accrued site closure costs.





Revenue
from the Sale of Gold.





Revenues
for the year ended December 31, 2009, all of which came from Black Fox, were
$47.0 million, compared to no revenues for the year ended December 31,
2008.  The average spot price recorded for gold for the year ended
December 31, 2009 was $1,022 per ounce.  Gold ounces sold for the year
ended December 31, 2009 was 46,016 ounces.  All gold sales were
delivered against our gold forward sales contracts and therefore cash received
was at a realized price of $875 per ounce.  The difference between the
average spot price per ounce of gold and the forward sales contract price is
recorded as a realized loss on derivative instruments.




-61-




Operating
Expenses.




Direct Operating
Costs.  For the year ended December 31, 2009, direct operating
costs, which include mining costs, processing costs, and refining charges, were
$26.1 million, compared to nil for the year ended December 31,
2008.




Depreciation and
Amortization.  Depreciation and amortization expenses were $7.0
million for the year ended December 31, 2009, compared to $0.1 million for the
year ended December 31, 2008.




General and Administrative
Expenses.  General and administrative expenses for the year
ended December 31, 2009 were $4.9 million compared to $3.7 million for the year
ended December 31, 2008.  The increase of $1.2 million is due to
higher corporate personnel charges, higher audit and compliance charges, and
increased legal expenses.




Accretion Expense – Accrued Site
Closure Costs.  Accretion expense for accrued site closure
costs was $0.4 million for the year ended December 31, 2009, compared to nil for
the year ended December 31, 2008.




Exploration and Business
Development.  Expenses related to exploration and development
of our properties, totaled $2.0 million and $5.5 million for the years ended
December 31, 2009 and 2008, respectively.  $2.3 million of the $3.5
million decrease is due to development costs at Black Fox.  These
costs had been expensed as incurred prior to April 24, 2008.  However,
with the establishment of reserves via the filing of a Canadian National
Instrument 43-101 Technical Report prepared to U.S. Standards on April 14, 2008,
and with the approval of the Company’s Board of Directors to proceed with the
development of Black Fox on April 24, 2008, development costs at Black Fox
incurred subsequent to April 24, 2008 were capitalized.  Development
ceased in late May 2009, with the commencement of gold production, and as such,
no development costs were incurred in the year ended December 31,
2009.  In 2009, we spent $1.2 million for exploration expenses at our
Grey Fox and Pike River properties, primarily for the 2009 drilling program,
compared with $0.5 million in 2008.  At our Huizopa property, we spent
$0.8 million in 2009 compared with $2.7 million for the 2008 drilling
program.




Total Operating
Expenses.  As a result of these expense components, our total
operating expenses for the year ended December 31, 2009 increased $31.0 million
to $40.3 million from $9.3 million for the year ended December 31,
2008.  Most of this increase in costs is due to the commencement of
commercial production at Black Fox.




Other
Income (Expense).




Interest Income, Interest Expense
and Debt Transaction Costs.  We realized interest income of
$0.2 million for both of the years ended December 31, 2009 and
2008.  We incurred interest expense of $8.0 million during 2009 and
$4.9 million during 2008.  The increase in interest expense is
primarily the result of the Black Fox project financing originated in February
2009.Debt transaction
costs of $1.2 million were recorded in 2009 also largely due to the Black Fox
project financing.




Loss on modification of debentures
and onthe fair value
change on equity-linked financial instruments.  In 2009, we
incurred a loss of $2.0 million on the extension of the February 2007
convertible debentures owned by RAB.  Also in 2009, we recorded a loss
of $10.7 million on the valuation of certain warrants to purchase our common
shares denominated in a foreign currency (the Canadian dollar) due to these
warrants being treated as derivative instruments rather than equity instruments
for accounting purposes.




-62-




Realized and Unrealized Losses on
Derivative Instruments.For the year ended December 31, 2009,
we realized losses of $7.2 million from gold, silver, lead and zinc derivative
instruments, which were offset by realized gains from Canadian dollar purchase
contracts of $0.8 million, for a total realized loss of $6.4
million.  Also during 2009, we recorded $44.2 million in unrealized
losses for the fair value of gold derivative instruments, which were offset
by unrealized gains from Canadian dollar purchase contracts of $6.8 million, for
a total unrealized loss of $37.4 million.  For the year ended December
31, 2008, we realized gains of $5.5 million from gold, silver, lead and zinc
derivative instruments and recorded $1.5 million in unrealized losses for the
fair value of gold, silver, lead and zinc derivative instruments maturing in
2009.




Foreign ExchangeGain (Loss)and Other. The foreign
exchange gain and other for 2009 was $0.4 million while foreign exchange loss
and other for 2008 was $1.3 million.  For 2008, we recorded $0.9
million for foreign exchange losses and $0.4 million for an other than temporary
impairment for auction rate securities.




Net
Loss (Income) for the Year.




As a
result of the foregoing, we recorded a net loss of $61.7 million, or $0.25 per
share for the year ended December 31, 2009, as compared to net income of $1.2
million, or $0.01 per share, for the year ended December 31, 2008.




Results
of Operations Year Ended December 31, 2008 Compared to Year Ended December 31,
2007




In late May 2009, Black Fox, the
Company’s only producing property, entered commercial
production.  Therefore, for the years ended December 31, 2008 and 2007
there was little or no activity to report for revenue from the sale of gold,
direct operating costs, depreciation and amortization, and accretion expense –
accrued site closure costs.





Operating
Expenses.




Depreciation and
Amortization.  Depreciation and amortization expenses were $0.1
million for both the years ended December 31, 2008 and 2007.




General and Administrative
Expenses.  General and administrative expenses for the year
ended December 31, 2008 were $3.7 million compared to $4.6 million for the year
ended December 31, 2007.  The decrease of $0.9 million is due to lower
legal expenses in 2008.




Exploration and Business
Development.  Expenses related to exploration and development
of our properties, totaled $5.5 million and $6.9 million for the years ended
December 31, 2008 and 2007, respectively.  A decrease in development
costs of $2.3 million at Black Fox was offset by an increase of $0.9 million
related largely to increased exploration activity at the Huizopa
property.  At Black Fox, development costs had been expensed as
incurred prior to April 24, 2008.  However, with the establishment of
reserves in conjunction with the filing of a Canadian National Instrument 43-101
Technical Report prepared to U.S. Standards on April 14, 2008, and with the
approval of the Company’s Board of Directors to proceed with the development of
Black Fox on April 24, 2008, development costs at Black Fox incurred subsequent
to April 24, 2008 were capitalized, leading to the noted decrease in period
costs.




Total Operating
Expenses.  As a result of these expense components, our total
operating expenses for the year ended December 31, 2008 decreased 20% to $9.3
million from $11.7 million for the year ended December 31, 2007.  Most
of this decrease is due to the decrease in development costs at Black Fox in
2008.




-63-




Other
Income (Expense).




Interest Income, Interest Expense
and Financing Costs.  We realized interest income of $0.2
million for the year ended December 31, 2008 compared to interest income of $0.5
million for the year ended December 31, 2007 due to lower interest rates
realized during 2008. We incurred interest expense of $4.9 million during
2008 and $9.4 million during 2007.  The decrease in interest expense
is primarily the result of retiring the Series 2004-B convertible debentures in
December 2007.Debt
transaction costs of $0.7 million were recorded in 2007 in conjunction with the
convertible debentures issued February 2007.




Realized and Unrealized Gains on
Derivative Instruments.For the year
ended December 31, 2008, we realized gains of $5.5 million from gold, silver,
lead and zinc derivative instruments and recorded $1.6 million in unrealized
losses for the fair value of gold, silver, lead and zinc derivative
instruments.  For the year ended December 31, 2007, we realized gains
of $0.4 million from lead and zinc derivative instruments and recorded $2.1
million in unrealized gains for the fair value of lead and zinc derivative
instruments maturing in 2008.




Foreign Exchange Lossand
Other.  Foreign exchange loss and other was $1.3 million and
$0.2 million for the years ended December 31, 2008 and 2007,
respectively.  For 2008, we recorded $0.9 million for foreign exchange
losses from cash balances not held in United States dollars and $0.4 million for
an other than temporary impairment for auction rate
securities.  During 2007, we recorded $0.2 million in foreign exchange
losses.




Net
Income (Loss) for the Year.




For the
year ended December 31, 2008, we recorded net income of $1.2 million, or $0.01
per share, as compared to a net loss of $13.9 million, or $0.10 per share, for
the year ended December 31, 2007.




Summary
of Quarterly Results




2009 Quarter Ended In
                
                
                2008 Quarter Ended InDec
                
                
                Sept
                
                
                June
                
                
                March
                
                
                Dec
                
                
                Sept
                
                
                June
                
                
                March($
      in thousands, except per share and total cash cost per ounce
      data)Revenue
      from the sale of  gold
                
                $
                23,168
                
                
                $
                19,131
                
                
                $
                4,709
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –Operating
      income (loss)
                
                
                4,522
                
                
                
                3,162
                
                
                
                185
                
                
                
                (1,169
                )
                
                
                (1,506
                )
                
                
                (1,606
                )
                
                
                (3,295
                )
                
                
                (2,906
                )Net
      (loss) income
                
                
                (9,172
                )
                
                
                (16,912
                )
                
                
                (7,141
                )
                
                
                (28,425
                )
                
                
                (487
                )
                
                
                1,342
                
                
                
                (1,913
                )
                
                
                2,260Net
      (loss) income per share, basic and diluted
                
                
                (0.03
                )
                
                
                (0.07
                )
                
                
                (0.03
                )
                
                
                (0.13
                )
                
                
                0.00
                
                
                
                0.01
                
                
                
                (0.01
                )
                
                
                0.01Gold
      sales in ounces
                
                
                21,125
                
                
                
                19,848
                
                
                
                5,043
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Total
      cash cost per ounce of gold
                
                $
                600
                
                
                $
                575
                
                
                $
                403
                
                
                
                n/a
                
                
                
                n/a
                
                
                
                n/a
                
                
                
                n/a
                
                
                
                n/a





Financial
Condition, Liquidity and Capital Resources




To date,
we have funded our operations primarily through issuances of debt and equity
securities and cash generated by Black Fox and the Montana Tunnels joint
venture.  At both December 31, 2009 and 2008, we had no cash balances
other than the restricted cash balances of $6.7 million and $13.8 million,
respectively.  For the year ended December 31, 2009, cash inflows from
operating and financing activities of $3.4 million and $55.1 million,
respectively, were offset by cash outflows from investing activities of $58.0
million.  Additionally, there was a $0.5 million reduction in cash due
to the effect of exchange rate changes on cash.




-64-




During
the year ended December 31, 2009, net cash used in investing activities totaled
$58.0 million including capital expenditures for property, plant and equipment
of $55.6 million and an increase in restricted cash and restricted certificates
of deposit of $2.4 million.  The capital expenditures of $55.6 million
were related to the further development of the Black Fox mine and mill.
Including (i) $32.0 million towards the cost of upgrading the Black Fox mill to
increase its capacity and throughput rate, (ii) $5.0 million for the enhancement
of the tailings facility at the mill site, (iii) $4.0 million for the
construction of water holding ponds at the mine, (iv) $13.6 million for
additional capitalized pre-production expenditures including contract
pre-stripping of the open pit, and (v) $1.0 million relating to the purchase of
the Pike River exploration property that lies between the Black Fox mine and the
Grey Fox exploration property.




During
the year ended December 31, 2009, cash provided by financing activities totaled
$55.1 million including (i) net proceeds of $10.7 million from the private
placement of common shares and warrants, plus flow-through shares completed on
July 15, 2009, (ii) net proceeds of $66.5 million  from the Project
Facility loan entered into with the Banks on February 20, 2009, and (iii) cash
inflows from the exercise of 7.6 million common share purchase warrants at an
average exercise price of $0.19 per common share for proceeds of $1.4
million.  These financing inflows were offset by the repayment of debt
of $23.6 million.




As of
December 31, 2009, the Company has a working capital deficiency of $37.6
million, an accumulated deficit of $260.8 million and a shareholders’ deficiency
of $12.4 million.  As at December 31, 2009, the Company held no cash
and cash equivalents and had current debt repayment obligations of $39.5 million
consisting of (1) the current portion of the project financing facility of $29.1
million, $15.3 million of which was originally due in 2009, (2) the outstanding
principal and interest due on the Series 2007-A convertible debentures of $5.1
million (Note 10(b)), and (3) $5.3 million for capital leases and other current
debt.  As of December 31, 2009, we had no significant capital
commitments associated with further capital projects at the Black Fox mine or
mill.




We
estimate that with our December 31, 2009 restricted cash balance of $6.7
million, the projected cash flows from our Black Fox project, the Cdn$25.0
million Private Placement, which is expected to be completed on or before March
19, 2010, the successful completion of the Arrangement by June 30, 2010, the
rescheduled Project Facility repayments for 2010 and assuming the successful
rescheduling of the quarterly installment payments of the Project Facility for
the period 2011 to 2013, we expect to have sufficient funds to (i) meet our
current 2010 Project Facility debt obligations of $35.0 million, (ii) fund
planned further development (both underground and open pit) of Black Fox, (iii)
fund our exploration program of approximately $5.0 million, (iv) fund corporate
expenditures and (v) fund expenditures on the Linear projects.




Management
has performed a mineral property impairment test to assess whether there are
facts and circumstances that indicate potential impairment of the Black Fox mine
and mill.  Management has considered the expected future gold prices,
cost structures, the reserves, resources and status of Black Fox and financial
plans and concluded that there was no impairment of Black Fox as of December 31,
2009.  However, the ongoing challenging conditions in the financial
markets, the commodity markets, and the related uncertainty about the future
business environment make an assessment of the mid-to-long term performance by
using estimates and assumptions extremely difficult.  The possible
continuation of the global liquidity crisis, the commodity market volatility and
its wider implications for the operating environment of the Company’s mining
operation could result in an impairment of mineral properties in the
future.




-65-




Table
of Contractual Obligations




Payments Due by PeriodContractual Obligations
                    (as of December 31, 2009)
                
                Total
                
                
                Less
                    Than
                    1 Year
                
                
                1-3
                    Years
                
                
                3-5
                    Years
                
                
                More
                    than
                    5 Years(Thousands)Bank
      indebtedness, accounts payable and accrued liabilities
                
                $
                9,246
                
                
                $
                9,246
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –Long-term
      debt
                
                
                93,895
                
                
                
                39,466
                
                
                
                42,764
                
                
                
                11,665
                
                
                
                –Operating
      lease obligations
                
                
                442
                
                
                
                165
                
                
                
                258
                
                
                
                19
                
                
                
                –Other
      long-term liabilities reflected on the balance sheet (1)
                
                
                15,962
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                15,962





(1)
            Other
      long-term liabilities represent asset retirement obligations (accrued site
      closure costs).  Asset retirement obligations include several
      estimates about future reclamation costs, mining schedules, timing of the
      performance of reclamation work and the quantity of ore reserves which in
      turn determine the ultimate closure date, which in turn impacts the
      discounted amounts of future asset retirement liabilities.  The
      discounted value of these projected cash flows is recorded as “Accrued
      site closure costs” of $5.3 million as shown on the balance sheet as of
      December 31, 2009.  The amount shown above is undiscounted to
      show full expected cash requirements to Apollo.  As of December
      31, 2009, restricted certificates of deposit of $14.8 million have been
      placed in trust as security relating to the asset retirement
      obligations.





Off
Balance Sheet Arrangements




We have
no off balance sheet arrangements as of December 31, 2009.




Environmental
Compliance




Our
current and future exploration and development activities, as well as our future
mining and processing operations, are subject to various federal, state and
local laws and regulations in the countries in which we conduct our
activities.  These laws and regulations govern the protection of the
environment, prospecting, development, production, taxes, labor standards,
occupational health, mine safety, toxic substances and other
matters.  We expect to be able to comply with those laws and do not
believe that compliance will have a material adverse effect on our competitive
position.  We intend to obtain all licenses and permits required by
all applicable regulatory agencies in connection with our mining operations and
exploration activities.  We intend to maintain standards of
environmental compliance consistent with regulatory requirements.




Our
current environmental liabilities are at Black Fox.  As of December
31, 2009, we have accrued $5.3 million related to reclamation, an increase of
$3.9 million from December 31, 2008.  These liabilities are covered by
restricted certificates of deposit of $14.8 million at December 31,
2009.  We have accrued the present value of management’s estimate of
the future liability as of December 31, 2009.




CRITICAL
ACCOUNTING POLICIES




The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.




Our
management routinely makes judgments and estimates about the effect of matters
that are inherently uncertain.  As the number of variables and
assumptions affecting the future resolution of the uncertainties increase, these
judgments become even more subjective and complex.  We have identified
certain accounting policies that we believe are most important to the portrayal
of our current financial condition and results of operations.  Our
significant accounting policies are disclosed in Note 3 to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.




-66-




Transition
to United States Generally Accepted Accounting Principles





During the year ended December 31,
2009, the Company completed its plan to transition from accounting principles
generally accepted in Canada (“Canadian GAAP”) to accounting principles
generally accepted in the United States (“US GAAP”), as allowable under both
Canada and US securities laws.  The transition is retroactive and
effective for the three years ended December 31, 2009, with
initial  presentation of the consolidated financial statements
prepared in accordance with US GAAP to be filed with this Annual Report on Form
10-K for the fiscal year ending December 31, 2009.





Note 23
of the consolidated financial statements highlights those adjustments and
additional disclosures that would be required in order to present the financial
statements in accordance with Canadian GAAP at December 31, 2009 and 2008 and
for the years ended December 31, 2009, 2008 and 2007.





Revenue
Recognition




Revenue
from the sale of gold is recognized when the following conditions are
met:  persuasive evidence of an arrangement exists; delivery has
occurred in accordance with the terms of the arrangement; the price is fixed or
determinable and collectability is reasonably assured.  Revenue for
gold bullion is recognized at the time of delivery and transfer of title to
counter-parties.




Stock
Incentive Plans





The
Company accounts for stock options using the fair value based method of
accounting for all stock-based awards.  The Company uses the
Black-Scholes option pricing model to estimate fair value and records
stock-based compensation in operations over the vesting periods of the
awards.  If and when the stock options are ultimately exercised, the
applicable amounts of additional paid in capital are transferred to common
stock.




Stripping
Costs




The cost
of removing overburden and waste materials to access the ore body at an open pit
mine prior to the production phase are referred to as “pre-stripping
costs”.  Pre-stripping costs are capitalized during the development
phase of an open pit mine.  The production phase of an open pit mine
commences when saleable materials are produced.  Stripping costs
incurred during the production phase of a mine are included in the cost of
inventory produced during the period in which the stripping costs were
incurred.  Capitalized pre-stripping costs are amortized using the
units-of-production method, whereby the denominator is the estimated recoverable
ounces of gold in the associated open pit.




Reclamation
and Closure Costs





The
Company recognizes liabilities for statutory, contractual or legal obligations
associated with the retirement of property, plant and equipment, when those
obligations result from the acquisition, construction, development or normal
operation of the assets.  Initially, a liability for an asset
retirement obligation is recognized at its fair value in the period in which it
is incurred.  Upon initial recognition of the liability, the
corresponding asset retirement cost is added to the carrying amount of that
asset and the cost is amortized as an expense over the economic life of the
related asset.  Following the initial recognition of the asset
retirement obligation, the carrying amount of the liability is increased for the
passage of time and adjusted for changes to the amount or timing of the
underlying cash flows needed to settle the obligation.




-67-




The present value of the reclamation
liabilities may be subject to change based on management’s current estimates,
changes in remediation technology or changes to the applicable laws and
regulations by regulatory authorities, which affect the ultimate cost of
remediation and reclamation.




Income
taxes





The
Company accounts for income taxes whereby future income tax assets and
liabilities are computed based on differences between the carrying amount of
assets and liabilities on the balance sheet and their corresponding tax values
using the enacted or substantially enacted income tax rates at each balance
sheet date.  Future income tax assets also result from unused loss
carryforwards and other deductions.  The valuation of future income
tax assets is reviewed annually and adjusted, if necessary, by use of a
valuation allowance to reflect the estimated realizable
amount.  Although the Company has tax loss carryforwards (see Note 15
to the consolidated financial statements), there is uncertainty as to
utilization prior to their expiry.  Accordingly, the future income tax
asset amounts have been fully offset by a valuation allowance.





The
Company’s operations involve dealing with uncertainties and judgments in the
application of complex tax regulations in multiple jurisdictions. The final
taxes paid are dependent upon many factors, including negotiations with taxing
authorities in various jurisdictions and resolution of disputes arising from
federal, state, and international tax audits. The Company recognizes potential
liabilities and records tax liabilities for anticipated tax audit issues in the
U.S. and other tax jurisdictions based on its estimate of whether, and the
extent to which, additional taxes will be due.  The Company adjusts
these reserves in light of changing facts and circumstances; however, due to the
complexity of some of these uncertainties, the ultimate resolution may result in
a payment that is materially different from the Company’s current estimate of
the tax liabilities. If the Company’s estimate of tax liabilities proves to be
less than the ultimate assessment, an additional charge to expense would result.
If payment of these amounts ultimately proves to be less than the recorded
amounts, the reversal of the liabilities would result in tax benefits being
recognized in the period when the Company determines the liabilities are no
longer necessary. The Company recognizes interest and penalties, if any, related
to unrecognized tax benefits in income tax expense.





Depreciation
and Depletion




Depreciation
is based on the estimated useful lives of the assets and is computed using
straight-line and unit-of-production methods.  Depletion is computed
using the unit-of-production method.  The units-of-production method
under U.S. GAAP is based on proven and probable ore reserves.  As
discussed above, our estimates of proven and probable ore reserves may change,
possibly in the near term, resulting in changes to depreciation, depletion and
amortization.




Impairment
of Long-Lived Assets




We review
the net carrying value of all facilities, including idle facilities, on a
periodic basis.  We estimate the net realizable value of each property
based on the estimated undiscounted future cash flows that will be generated
from operations at each property, the estimated salvage value of the surface
plant and equipment and the value associated with property
interests.  These estimates of undiscounted future cash flows are
dependent upon the estimates of metal to be recovered from proven and probable
ore reserves and mineral resources expected to be converted into mineral
reserves (see discussion above), future production cost estimates and future
metals price estimates over the estimated remaining mine life.  If
undiscounted cash flows are less than the carrying value of a property, an
impairment loss is recognized based upon the estimated expected future cash
flows from the property discounted at an interest rate commensurate with the
risk involved.




-68-




Environmental
Matters




When it
is probable that costs associated with environmental remediation obligations
will be incurred and they are reasonably estimable, we accrue such costs at the
most likely estimate.  Accruals for estimated losses from
environmental remediation obligations generally are recognized no later than
completion of the remedial feasibility study for such facility and are charged
to provisions for closed operations and environmental matters.  We
periodically review our accrued liabilities for such remediation costs as
evidence becomes available indicating that our remediation liability has
potentially changed.  Costs of future expenditures for environmental
remediation are not discounted to their present value unless subject to a
contractually obligated fixed payment schedule.  Such costs are based
on our current estimate of amounts that are expected to be incurred when the
remediation work is performed within current laws and
regulations.  Recoveries of environmental remediation costs from other
parties are recorded as assets when their receipt is deemed
probable.




Adoption
of Recently Issued Accounting Pronouncements




In June
2009, the Financial Accounting Standards Board (“FASB”) established the FASB
Accounting Standards Codification (“ASC”) as the single source of authoritative
GAAP to be applied by nongovernmental entities.  The ASC is a new
structure which took existing accounting pronouncements and organized them by
accounting topic.  Relevant authoritative literature issued by the
Securities and Exchange Commission (“SEC”) and select SEC staff interpretations
and administrative literature was also included in the ASC. All other accounting
guidance not included in the ASC is non-authoritative.  The ASC was
effective for the Company’s interim quarterly period beginning July 1,
2009.  The adoption of the ASC did not have an impact on the Company’s
consolidated financial position, results of operations or cash
flows.





In
September 2006, the ASC guidance for fair value measurements and disclosure was
updated to define fair value, establish a framework for measuring fair value,
and expand disclosures about fair value measurements.  This guidance
does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting
pronouncements.  The provisions of the updated guidance were adopted
January 1, 2008.  In February 2008, the FASB staff issued an update to
the guidance which delayed the effective date for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. The Company adopted the updated
guidance for the Company’s nonfinancial assets and liabilities measured at fair
value on a nonrecurring basis on January 1, 2009.





All of
the Company’s financial assets and liabilities are measured at fair value using
Level 1 inputs with the exception of (1) derivative contracts which use Level 2
inputs and (2) auction rate securities which use Level 3 inputs (See Note
7).  The adoption of updated guidance did not have a material impact
on the Company’s financial position, results of operations or cash
flows.





In
October 2008, the guidance was further updated to provide guidance on how the
fair value of a financial asset is to be determined when the market for that
financial asset is inactive.  The guidance states that determining
fair value in an inactive market depends on the facts and circumstances,
requires the use of significant judgment and, in some cases, observable inputs
may require significant adjustment based on unobservable data. Regardless of the
valuation technique used, an entity must include appropriate risk adjustments
that market participants would make for nonperformance and liquidity risks when
determining fair value of an asset in an inactive market.  The
guidance was effective upon issuance.  The Company has incorporated
the principles of updated guidance in determining the fair value of financial
assets when the market for those assets is not active, specifically its auction
rate securities.




-69-




In April
2009, the guidance was further updated to provide additional guidance on
determining fair value when the volume and level of activity for the asset or
liability have significantly decreased and identifying circumstances that
indicate when a transaction is not orderly.  The provisions of this
updated guidance were adopted April 1, 2009.  The adoption of the
guidance did not have an impact on the Company’s fair value
measurements.





The ASC
guidance for fair value measurements and disclosure establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3
measurements).  The three levels of the fair value hierarchy are
described below:





Level1
              Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities;





Level2
              Quoted
      prices in markets that are not active, or inputs that are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability;





Level3
              Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (supported by little or no
      market activity).





The
Company’s derivative instruments (see Note 5) and auction rate securities (see
Note 7) represent those financial assets and liabilities measured at fair value
by level within the fair value hierarchy.  As required by the
guidance, assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value
measurement.





Our
derivative instruments are valued using market prices.  Our
derivatives trade in liquid markets, and as such, market prices can generally be
verified and do not involve significant management judgment.  Such
instruments are classified within Level 2 of the fair value
hierarchy.





Our
auction rate securities are reviewed for fair value on at least a quarterly
basis.  The auction rate securities are traded in markets that are not
active, trade infrequently and have little price transparency.  We
estimated the fair values based on weighted average risk calculations using
probabilistic cash flow assumptions.  The auction rate securities are
classified within Level 3 of the fair value hierarchy.





In
December 2007, the ASC guidance for business combinations was updated to provide
new guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any noncontrolling interest in the acquiree.
The updated guidance also provides disclosure requirements to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination.  The provisions of the updated guidance were
adopted January 1, 2009.  The adoption had no impact on the Company’s
financial position, results of operations, or cash flows.





In
December 2007, the ASC guidance for noncontrolling interests was updated to
establish accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is
deconsolidated.  The guidance also establishes disclosure requirements
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners.  The provisions of the
updated guidance were adopted January 1, 2009.  The adoption had no
impact on the Company’s financial position, results of operations, or cash
flows.




-70-




In March
2008, the ASC guidance for derivatives and hedging was updated for enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and the related hedged items are accounted for, and how
derivative instruments and the related hedged items affect an entity’s financial
position, financial performance and cash flows.  The provisions of the
updated guidance were adopted January 1, 2009.  The adoption had no
impact on the Company’s financial position, results of operations, or cash
flows.




In May
2008, the ASC guidance for convertible debt instruments was
updated.  The guidance was updated to specify that issuers of
convertible debt instruments that may be settled in cash upon conversion
(including partial cash settlement) should separately account for the liability
and equity components in a manner that will reflect the entity’s nonconvertible
debt borrowing rate when interest cost is recognized in subsequent
periods.  As the Company has had no convertible debt instruments that
could be settled in cash upon conversion, whether in full or partially, the
adoption of the adopted guidance had no impact on the Company’s financial
position, results of operations, or cash flows.




In June
2008, the ASC guidance for share-based payment transactions was
updated.  The guidance was updated to address whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method described in ASC
guidance for earning per share disclosures.  The provisions of the
updated guidance were adopted January 1, 2009.  The adoption of the
guidance had no impact on the Company’s financial position, results of
operations, cash flows, or earnings per share data.




In June
2008, the ASC guidance for derivatives and hedging when accounting for contracts
in an entity’s own equity was updated to clarify the determination of whether an
instrument (or embedded feature) is indexed to an entity’s own stock which would
qualify as a scope exception from hedge accounting.  The provisions of
the updated guidance were adopted January 1, 2009.




Under the
guidance, an equity-linked financial instrument (or embedded feature) would not
be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional
currency.  As of December 31, 2009 and January 1, 2009, the Company
had 103.0 million and 64.7 million outstanding warrants to purchase common
shares of the Company, respectively, that were either (a) denominated in a
currency (Canadian dollars) other than its functional currency (US dollars) or
(b) subject to a potential strike-price adjustment (the warrants issued November
8, 2006 currently exercisable at $0.176).  As such, these warrants are
not considered to be indexed to the Company’s own stock, which precludes the
warrants from meeting the scope exception under the guidance.  The
warrants therefore are accounted for separately as derivative instruments,
rather than as equity instruments.  Accordingly, the Company assessed
the fair value of these warrants as of January 1, 2009 and recorded a reduction
in additional paid-in capital of $6.94 million, an increase in opening retained
deficit of $1.53 million and an $8.47 million increase in
liabilities.  As of December 31, 2009, the Company has assessed the
fair value of these warrants and recorded cumulative adjustments as follows: a
reduction in additional paid-in capital of $15.1 million, an increase in
retained deficit of $12.1 million and a $27.2 million increase in
liabilities.




These
warrants were fair valued at January 1 and December 31, 2009 using an option
pricing model with the following assumptions:  no dividends are paid,
weighted average volatilities of the Company’s share price of 81% and 78%,
weighted average expected lives of the warrants of 3.2 and 2.6 years, and
weighted average annual risk-free rates of 1.4% and 1.8%,
respectively.




-71-




In
April 2009, the ASC guidance for interim disclosures about fair value of
financial instruments was updated to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements.  The guidance was also
updated to require those disclosures in summarized financial information at
interim reporting periods. The provisions of the updated guidance were adopted
April 1, 2009.  The adoption had no impact on the Company’s financial
position, results of operations, or cash flows.





In August
2009, the ASC guidance for fair value measurements and disclosure was updated to
further define fair value of liabilities.  This update provides
clarification for circumstances in which: (i) a quoted price in an active market
for the identical liability is not available, (ii) the liability has a
restriction that prevents its transfer, and (iii) the identical liability is
traded as an asset in an active market in which no adjustments to the quoted
price of an asset are required.  The updated guidance is effective for
the Company’s interim reporting period beginning October 1, 2009.  The
provisions of the updated guidance were adopted October 1, 2009.  The
adoption had no impact on the Company’s financial position, results of
operations, or cash flows.





Recently
Issued Accounting Pronouncements




In June
2009, the ASC guidance for consolidation accounting was updated to require an
entity to perform a qualitative analysis to determine whether the enterprise’s
variable interest gives it a controlling financial interest in a variable
interest entity (“VIE”).  This analysis identifies a primary
beneficiary of a VIE as the entity that has both of the following
characteristics: i) the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance and ii) the obligation to
absorb losses or receive benefits from the entity that could potentially be
significant to the VIE.  The updated guidance also requires ongoing
reassessments of the primary beneficiary of a VIE.  The provisions of
the updated guidance are effective for the Company’s fiscal year beginning
January 1, 2010.  We do not expect the adoption of this guidance to
have an impact on our consolidated financial position, results of operations or
cash flows.





RELATED
PARTY TRANSACTIONS




The
Company had the following related party transactions for the three years ended
December 31, 2009, 2008, and 2007, respectively.




2009
              
              
              2008
              
              
              2007(Thousands)Legal
      fees paid a law firm, a partner of the firm is a director of the
      Company
              
              $
              428
              
              
              $
              512
              
              
              $
              381Consulting
      services paid to a relative of an officer and director of the
      Company
              
              
              12
              
              
              
              16
              
              
              
              9





These
transactions are in the normal course of business and are measured at the
exchange amount which is the consideration established and agreed to by the
related parties.  In addition, the Company had the following related
party transactions:




·
            Acquisition of Black Fox Mill
      Complex from St Andrew Goldfields Ltd.On July 28, 2008,
      we completed the acquisition from St Andrew Goldfields Ltd., at the time a
      beneficial owner of more than ten percent (10%) of our common shares, (“St
      Andrew”), of a mill and related equipment, infrastructure, property
      rights, laboratory and tailings facilities, located near Timmins,
      Ontario.  This transaction is not a related party transaction
      for accounting purposes.




-72-




·
            July 2008 Public Unit
      Offering.  On July 24, 2008, we completed an offering of
      40,806,500 units for gross proceeds of Cdn$20,215,750 and
      US$185,625.  The net proceeds of the offering were approximately
      Cdn$18,740,000, Cdn$14,500,000 of which were used to fund Apollo Gold’s
      acquisition of St Andrews’ mill complex in Timmins, Ontario, with the
      remainder used for the development of the our Black Fox project and for
      general working capital.  St Andrew, which at that time was a
      beneficial owner of more than ten percent (10%) of our common shares,
      purchased 2,400,000 units in the offering.  In addition, the
      following officers and directors of Apollo participated in the
      offering:  David W. Peat (25,000 units); Robert W. Babensee
      (20,000 units); Charles E. Stott (10,000 units); R. David Russell (100,000
      units); Melvyn Williams (100,000 units) and Brent E. Timmons (40,000
      units).




·
            Also,
      a director of the Company participated in the private placement of
      flow-
      through shares that we completed in October 2007 and purchased 54,545
      flow-through shares in connection with the
  offering.




ITEM 7A.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK




Our
exposure to market risk includes, but is not limited to, the following
risks:  changes in interest rates on our debt and investment
portfolio, changes in foreign currency exchange rates, commodity price
fluctuations and equity price risk.




Interest
Rate Risk




As of
December 31, 2009, the Company had $70.0 million principal outstanding on the
Project Facility.  The terms of the Project facility include interest
on the outstanding principal amount accruing at a rate equal to LIBOR plus 7%
per annum (currently the LIBOR rate is the one-month rate but the LIBOR rate
used may be monthly, quarterly or such other period as may be agreed to by the
Banks and us).  We estimate that given the expected outstanding debt
during 2010, a one percent change in interest rates would affect our annual
interest expense by $0.5 million.




We
typically invest our excess cash in high quality short-term debt
instruments.  The rates received on such investments fluctuate with
changes in economic conditions.  As a result, our investment income
may fall short of expectations during periods of lower interest
rates.  We estimate that given the cash balances expected during 2010,
a one percent change in interest rates would not materially impact our annual
interest income.  We may in the future actively manage our exposure to
interest rate risk.




Foreign
Currency Exchange Rate Risk




While the
majority of our transactions are denominated in U.S. dollars, certain purchases
of labor, operating supplies and capital assets are denominated in Canadian
dollars and Mexican pesos.  The appreciation of non-US dollar
currencies against the US dollar increases the costs of goods and services
purchased in non-US dollar terms, which can adversely impact our net income and
cash flows.  Conversely, depreciation of non-US dollar currencies
against the US dollar usually decreases the costs of goods and services
purchased in US dollar terms.  We have entered into the forward
purchase of Canadian dollars at an exchange rate with the US dollar of
Cdn$1.21=US$1.00 for the Canadian dollar equivalent of $58.0 million
over a four year period commencing April 2009 to help manage this exchange risk
exposure. As of December 31, 2009, we have settled $8.1 million (Cdn$9.8
million) of the forward purchase.




-73-




The value
of cash and cash equivalent investments denominated in foreign currencies also
fluctuates with changes in currency exchange rates.  Appreciation of
non-US dollar currencies results in a foreign currency gain on such investments
and a decrease in non-US dollar currencies results in a loss.





Commodity
Price Risk




The
profitability of the Company’s operations is dependent upon the market price of
gold. Gold prices fluctuate widely and are affected by numerous factors beyond
the control of the Company.  The level of interest rates, the rate of
inflation, the world supply of gold and the stability of exchange rates can all
cause significant fluctuations in gold prices.  Such external economic
factors are in turn influenced by changes in international investment patterns,
monetary systems and political developments.  The price of gold has
fluctuated widely in recent years, and future price declines could cause some
projects to become uneconomic, thereby having a material adverse effect on the
Company’s business and financial condition.  We have entered into
derivative contracts to protect the selling price for gold.  These
contracts cover 250,420 ounces at an average price of $876 per ounce over a four
year period and commenced May 2009.  We may in the future more
actively manage our exposure through additional commodity price risk management
programs.




Furthermore,
reserve calculations and life-of-mine plans using significantly lower gold
prices could result in material write-downs of the Company’s investment in
mining properties and increased amortization.




In
addition to adversely affecting the Company's reserve estimates and its
financial condition, declining gold prices could require a reassessment of the
feasibility of a particular project.  Such a reassessment may be the
result of a management decision or may be required under financing arrangements
related to a particular project.  Even if the project is ultimately
determined to be economically viable, the need to conduct such a reassessment
may cause delays in the implementation of the project.





Equity
Price Risk




We have
in the past and may in the future seek to acquire additional funding by sale of
common shares.  Movements in the price of our common shares have been
volatile in the past and may be volatile in the future.  As a result,
there is a risk that we may not be able to sell new common shares at an
acceptable price should the need for new equity funding arise, and new issuances
may be dilutive to shareholders.




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The
following Consolidated Financial Statements of Apollo Gold Corporation, Report
of Independent Registered Chartered Accountants, and Comments by Independent
Registered Chartered Accountants on Canada-United States of America Reporting
Differences are filed as part of this Item 8 and are included as financial
statement schedules in this Annual Report on Form 10-K.




-74-




PageReports of Independent Registered Chartered
      Accountants
            
            F-2Consolidated Balance Sheets as of December 31, 2009 and
      2008
            
            F-4Consolidated Statements of Operations and Comprehensive (Loss)
      Income for the Years Ended December 31, 2009, 2008, and
      2007
            
            F-5Consolidated Statements of Shareholders’ (Deficiency) Equity
      for the Years Ended December 31, 2009, 2008, and
    2007
            
            F-6Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2009, 2008, and 2007
            
            F-7Notes to the Consolidated Financial
      Statements
            
            F-8





ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE




There
have been no disagreements with Deloitte & Touche LLP, our independent
registered chartered accountants, regarding any matter of accounting principles
or practices or financial statement disclosure.




ITEM 9A.  CONTROLS AND
PROCEDURES





Disclosure
Controls and Procedures




We
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, or Exchange Act) as of December 31,
2009.  This evaluation was conducted under the supervision and with
the participation of management, including our Chief Executive Officer and Chief
Financial Officer.  Based upon this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of December 31,
2009, our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by us in reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the rules and forms of the
SEC.  We also concluded that our disclosure controls and procedures
are effective to provide reasonable assurance that information required to be
disclosed in the reports filed or submitted under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.




Changes
in Internal Control over Financial Reporting




There was
no change in the Company’s internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Rule 13a-15 under
the Exchange Act that occurred during the last fiscal quarter of 2009 that has
materially affected, or that is reasonably likely to materially affect, the
Company’s internal control over financial reporting.





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is a process designed by, or under the supervision of, the Company’s
principal executive and principal financial officers 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.




-75-




The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009.  In
making this assessment, the Company’s management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated
Framework.  Based upon its assessment, management concluded
that, as of December 31, 2009, the Company’s internal control over
financial reporting was effective.





The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009, has been audited by Deloitte & Touche LLP, the Company’s
independent registered chartered accountants, who also audited the Company’s
consolidated financial statements for the year ended December 31, 2009. 
The attestation report on the Company’s internal control over financial
reporting is  included in Item 8 of this annual report on
Form 10-K.




Inherent Limitations on Effectiveness
of Controls





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  All internal control systems, no
matter how well designed, have inherent limitations.  Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and
presentation.  Additionally, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





ITEM 9B.  OTHER
INFORMATION





None.




-76-




PART
III




In
accordance with General Instruction G(3), the information required by Part III
is hereby incorporated by reference from our proxy statement for our 2010 annual
shareholders’ meeting to be filed pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K.




ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2010 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




ITEM
11.  EXECUTIVE
COMPENSATION




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2010 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




ITEM
12.  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2010 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




ITEM
13.  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2010 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




ITEM
14.  PRINCIPAL
ACCOUNTANT FEES AND SERVICES




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2010 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




-77-




PART
IV




ITEM 15.  EXHIBITS, FINANCIAL STATEMENT
SCHEDULES




Financial
Statements and Financial Statement Schedules




Our
consolidated financial statements are listed on the “Index to Financial
Statements” on Page F-1 to this report.




Exhibits
  Exhibit
                      No.
                    
                    Exhibit
      Name3.1
                    
                    Certificate
      of Continuance of Apollo Gold Corporation filed May 28, 2003, filed with
      the SEC on June 23, 2003 as Exhibit 3.12 to the Registration Statement on
      Form 10 (File No. 001-31593).3.2
                    
                    By-Laws
      of Apollo Gold Corporation, as amended to date, filed with the SEC on June
      23, 2003 as Exhibit 3.13 to the Registration Statement on Form 10 (File
      No. 001-31593).4.1
                    
                    Sample
      Certificate of Common Shares of Apollo Gold Corporation, filed with the
      SEC on June 23, 2003 as Exhibit 4.1 to the Registration Statement on Form
      10 (File No. 001-31593).4.2
                    
                    Shareholder
      Rights Plan Agreement, dated January 17, 2007, by and between Apollo Gold
      Corporation and CIBC Mellon Trust Company, filed with the SEC on January
      19, 2007 as Exhibit 4.1 to the Current Report on Form
  8-K4.3
                    
                    Form
      of Purchase Agreement, dated October 30, 2006, by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on November 1, 2006
      as Exhibit 4.4 to the Current Report on Form 8-K.4.4
                    
                    Form
      of Subscription Agreement, dated February 23, 2007, by and among Apollo
      Gold Corporation and certain investors, filed with the SEC on February 26,
      2007 as Exhibit 4.1 to the Current Report on Form 8-K.4.5
                    
                    Form
      of Convertible Debenture, dated February 23, 2007, by and among Apollo
      Gold Corporation and certain investors, filed with the SEC on February 26,
      2007 as Exhibit 4.2 to the Current Report on Form 8-K.Form
      of Subscription Agreement dated February 23, 2007, by and among Apollo
      Gold Corporation and certain investors, filed with the SEC on February 26,
      2007 as Exhibit 4.1 to the Current Report on Form 8-K.4.6
                    
                    First
      Amending Agreement, dated February 16, 2009, by and between Apollo Gold
      Corporation and RAB Special Situations (Master) Fund Limited, filed with
      the SEC on February 19, 2009 as Exhibit 10.1 to the Current Report on Form
      8-K.4.7
                    
                    Second
      Amending Agreement, dated February 23, 2010, by and between Apollo Gold
      Corporation and RAB Special Situations (Master) Fund Limited, filed with
      the SEC on March 1, 2010 as Exhibit 10.1 to the Current Report on Form
      8-K.4.8
                    
                    Third
      Amending Agreement, dated February 26, 2010, by and between Apollo Gold
      Corporation and RAB Special Situations (Master) Fund Limited, filed with
      the SEC on March 1, 2010 as Exhibit 10.2 to the Current Report on Form
      8-K.4.9
                    
                    Form
      of Warrant, dated February 26, 2010, by and between Apollo Gold
      Corporation and RAB Special Situations (Master) Fund Limited, filed with
      the SEC on March 1, 2010 as Exhibit 10.3 to the Current Report on Form
      8-K.4.10
                    
                    Form
      of Registration Rights Agreement, dated February 23, 2007, by and among
      Apollo Gold Corporation and certain investors, filed with the SEC on
      February 26, 2007 as Exhibit 4.5 to the Current Report on Form
      8-K.
  -78-
  Exhibit
                        No.
                      
                      Exhibit
      Name4.11
                      
                      Form
      of Subscription Agreement, dated October 31, 2007, by and among Apollo
      Gold Corporation and certain investors, filed with the SEC on November 1,
      2007 as Exhibit 4.2 to the Current Report on Form 8-K.4.12
                      
                      Form
      of Registration Rights Agreement, dated October 31, 2007, by and among
      Apollo Gold Corporation and certain investors, filed with the SEC on
      November 1, 2007 as Exhibit 4.3 to the Current Report on Form
      8-K.4.13
                      
                      Warrant
      Indenture, dated as of July 9, 2008, between CIBC Mellon Trust Company and
      Apollo Gold
                        Corporation,
      filed with the SEC on July 10, 2008 as Exhibit 4.1 to the Current Report
      on Form 8-K.4.14
                      
                      Certificate
      of Agent’s Compensation Option to Purchase Units of Apollo Gold
      Corporation issued to Haywood Securities Inc., filed with the SEC on July
      25, 2008 as Exhibit 10.1 to the Current Report on Form
  8-K.4.15
                      
                      Certificate
      of Agent’s Compensation Option to Purchase Units of Apollo Gold
      Corporation issued to Blackmont Capital Inc., filed with the SEC on July
      25, 2008 as Exhibit 10.2 to the Current Report on Form
  8-K.4.16
                      
                      Form
      of Agents’ Warrant to Purchase Common Shares of Apollo Gold Corporation,
      filed with the SEC on July 25, 2008 as Exhibit 10.3 to the Current Report
      on Form 8-K.4.17
                      
                      Form
      of Subscription Agreement for Flow-Through Shares by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on August 26, 2008
      as Exhibit 4.2 to the Current Report on Form 8-K.4.18
                      
                      Form
      of Registration Rights Agreement for Flow-Through Shares by and among
      Apollo Gold Corporation and certain investors, filed with the SEC on
      August 26, 2008 as Exhibit 4.3 to the Current Report on Form
      8-K.4.19
                      
                      Form
      of Warrant Certificate issued by Apollo Gold Corporation to RMB Australia
      Holdings Limited and Macquarie Bank Limited, filed with the SEC on
      December 16, 2008 as Exhibit 10.2 to the Current Report on Form
      8-K.4.20
                      
                      Form
      of Warrant Certificate issued by Apollo Gold Corporation to RMB Australia
      Holdings Limited and Macquarie Bank Limited, filed with the SEC on
      February 24, 2009 as Exhibit 10.2 to the Current Report on Form
      8-K.4.21
                      
                      Form
      of Subscription Agreement for Flow-Through Shares by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on December 31, 2008
      as Exhibit 4.1 to the Current Report on Form 8-K.4.22
                      
                      Form
      of Registration Rights Agreement for Flow-Through Shares by and among
      Apollo Gold Corporation and certain investors, filed with the SEC on
      December 31, 2008 as Exhibit 4.2 to the Current Report on Form
      8-K.4.23
                      
                      Form
      of Warrant Certificate issued by Apollo Gold Corporation to Haywood
      Securities Inc., filed with the SEC on December 31, 2008 as Exhibit 10.1
      to the Current Report on Form 8-K.4.24
                      
                      Form
      of Warrant Certificate issued by Apollo Gold Corporation to Haywood
      Securities Inc., filed with the SEC on February 24, 2009 as Exhibit 10.3
      to the Current Report on Form 8-K.4.25
                      
                      Form
      of Compensation Option Certificate to Common Shares of Apollo Gold
      Corporation issued to Haywood Securities Inc., filed with the SEC on July
      20, 2009 as Exhibit 4.1 to the Current Report on Form
  8-K.4.26
                      
                      Form
      of Compensation Option Certificate to Common Shares of Apollo Gold
      Corporation issued to Blackmont Capital Inc., filed with the SEC on July
      20, 2009 as Exhibit 4.2 to the Current Report on Form
  8-K.4.27
                      
                      Form
      of Subscription Agreement for Common Shares by and among Apollo Gold
      Corporation and certain U.S. investors, filed with the SEC on July 20,
      2009 as Exhibit 4.3 to the Current Report on Form
  8-K.
  -79-
  Exhibit
                      No.
                    
                    Exhibit
      Name4.28
                    
                    Form
      of Subscription Agreement for Common Shares by and among Apollo Gold
      Corporation and certain non-U.S. investors, filed with the SEC on July 20,
      2009 as Exhibit 4.4 to the Current Report on Form 8-K.4.29
                    
                    Form
      of Subscription Agreement for Flow-Through Shares by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on July 20, 2009 as
      Exhibit 4.5 to the Current Report on Form 8-K.4.30
                    
                    Form
      of Registration Rights Agreement by and among Apollo Gold Corporation and
      certain investors, filed with the SEC on July 20, 2009 as Exhibit 4.6 to
      the Current Report on Form 8-K.10.1
                    
                    Amended
      and Restated Employment Agreement, dated May, 2003, by and between Apollo
      Gold Corporation and R. David Russell, filed with the SEC on June 23, 2003
      as Exhibit 10.1 to the Registration Statement on Form 10 (File No.
      001-31593).10.2
                    
                    Amended
      and Restated Employment Agreement, dated May, 2003, by and between Apollo
      Gold Corporation and Richard F. Nanna, filed with the SEC on June 23, 2003
      as Exhibit 10.2 to the Registration Statement on Form 10 (File No.
      001-31593).10.3
                    
                    Employment
      Agreement by and between Apollo Gold Corporation and Melvyn Williams,
      effective as of February 16, 2004, as amended, filed with the SEC on
      September 24, 2004 as Exhibit 10.3 to the Current Report on Form
      8-K.10.4
                    
                    Form
      of Amendment No. 1, dated January 23, 2006, to Amended and Restated
      Employment Agreement, by and between Apollo Gold Corporation and each of
      R. David Russell, Melvyn Williams and Richard F. Nanna, filed with the SEC
      on January 27, 2006 as Exhibit 10.2 to the Current Report on Form
      8-K.10.5
                    
                    Employment
      Agreement by and between Apollo Gold Corporation and Montana Tunnels
      Mining, Inc. and Timothy G. Smith, effective as of February 15, 2004,
      filed with the SEC on March 25, 2008 as Exhibit 10.25 to the Annual Report
      on Form 10-K.10.6
                    
                    Employment
      Agreement by and between Apollo Gold Corporation and Brent E. Timmons,
      effective as of April 1, 2007, filed with the SEC on March 25, 2008 as
      Exhibit 10.26 to the Annual Report on Form 10-K.10.7
                    
                    Apollo
      Gold Corporation Stock Option Incentive Plan, as amended and restated May
      7, 2009, filed with the SEC on April 9, 2009 as Schedule B to Apollo Gold
      Corporation’s Proxy Statement on Schedule 14A.10.8
                    
                    Apollo
      Gold, Inc. and Affiliated Companies Company Retirement Plan (Employee
      Savings Plan), filed with the SEC on June 23, 2003 as Exhibit 10.12 to the
      Registration Statement on Form 10 (File No. 001-31593).10.9
                    
                    Form
      of Indemnification Agreement by and between Apollo Gold Corporation and
      Richard F. Nanna, filed with the SEC on September 24, 2004 as Exhibit 10.1
      to the Current Report on Form 8-K.10.10
                    
                    Form
      of Indemnification Agreement by and among Apollo Gold, Inc.; Apollo Gold
      Exploration, Inc.; Apollo Gold Finance Inc.; and Donald W. Vagstad, filed
      with the SEC on September 24, 2004 as Exhibit 10.2 to the Current Report
      on Form 8-K.10.11
                    
                    Form
      of Amended and Restated Indemnification Agreement dated November 18, 2005,
      by and among Apollo Gold, Inc.; Apollo Gold Finance, Inc.; Montana Tunnels
      Mining, Inc. and each of R. David Russell, Melvyn Williams, David K.
      Young, Donald O. Miller, James T. O’Neil, Jr., G. Michael Hobart, W.S.
      Vaughan, and Charles Stott, filed with the SEC on March 31, 2006 as
      Exhibit 10.20 to the Annual Report on Form 10-K.10.12
                    
                    Asset
      Purchase Agreement, dated June 6, 2008, by and among Apollo Gold
      Corporation and St Andrew Goldfields Ltd. and Fogler, Rubinoff LLP, as
      escrow agent, filed with the SEC on June 11, 2008 as Exhibit 10.1 to the
      Current Report on Form
8-K.
  -80-
 
 Exhibit
                      No.
                    
                    Exhibit
      Name10.13
                    
                    First
      Amending Agreement to the Asset Purchase Agreement, dated June 30, 2008,
      by and among Apollo Gold Corporation and St Andrew Goldfields Ltd. and
      Fogler, Rubinoff LLP, as trustee, filed with the SEC on July 1, 2008 as
      Exhibit 10.1 to the Current Report on Form 8-K.10.14
                    
                    Acknowledgment,
      Consent and Undertaking, dated July 23, 2008, provided by Apollo Gold
      Corporation to St Andrew Goldfields Ltd. amending the Asset Pursuant
      Agreement among Apollo Gold Corporation, St Andrew Goldfields Ltd. and
      Fogler, Rubinoff LLP, filed with the SEC on July 24, 2008 as Exhibit 10.2
      to the Current Report on Form 8-K.10.15
                    
                    Facility
      Agreement, dated December 10, 2008, by and among Apollo Gold Corporation,
      RMB Australia Holdings Limited, RMB Resources Inc. and Macquarie Bank
      Limited, filed with the SEC on December 16, 2008 as Exhibit 10.1 to the
      Current Report on Form 8-K.10.16
                    
                    General
      Security Agreement dated December 10, 2008, by and between Apollo Gold
      Corporation and RMB Resources Inc., filed with the SEC on December 16,
      2008 as Exhibit 10.3 to the Current Report on Form 8-K.10.17
                    
                    Priority
      Agreement, dated December 10, 2008, by and among Apollo Gold Corporation,
      RMB Australia Holdings Limited, RMB Resources Inc. and Macquarie Bank
      Limited, filed with the SEC on December 16, 2008 as Exhibit 10.4 to the
      Current Report on Form 8-K.10.18
                    
                    Facility
      Agreement dated February 20, 2009, by and among Apollo Gold Corporation,
      RMB Australia Holdings Limited, RMB Resources Inc. and Macquarie Bank
      Limited, filed with the SEC on February 24, 2009 as Exhibit 10.1 to the
      Current Report on Form 8-K.10.19
                    
                    Engagement
      Letter by and between Apollo Gold Corporation and Haywood Securities Inc.,
      filed with the SEC on February 24, 2009 as Exhibit 10.4 to the Current
      Report on Form 8-K.10.20
                    
                    Amendment
      No. 2 to Amended and Restated Employment Agreement, dated March 20, 2009,
      between Apollo Gold Corporation and R. David Russell, filed with the SEC
      on March 25, 2009 as Exhibit 10.1 to the Current Report on Form
      8-K.10.21
                    
                    Amendment
      No. 2 to Amended and Restated Employment Agreement, dated March 20, 2009,
      between Apollo Gold Corporation and Melvyn Williams, filed with the SEC on
      March 25, 2009 as Exhibit 10.2 to the Current Report on Form
      8-K.10.22
                    
                    Amendment
      No. 3 to Amended and Restated Employment Agreement, dated March 20, 2009,
      between Apollo Gold Corporation and Richard F. Nanna, filed with the SEC
      on March 25, 2009 as Exhibit 10.3 to the Current Report on Form
      8-K.10.23
                    
                    Purchase
      and Sale Agreement, dated March 12, 2009, by and between Apollo Gold
      Corporation and Newmont Canada Corporation, filed with the SEC on
      September 15, 2009 as Exhibit 10.1 to the Current Report on Form
      8-K.10.24
                    
                    Royalty
      Agreement, dated March 25, 2009, by and between Apollo Gold Corporation
      and Newmont Canada Corporation, filed with the SEC on September 15, 2009
      as Exhibit 10.2 to the Current Report on Form 8-K.10.25
                    
                    Agreement,
      dated September 28, 2009, by and among Apollo Gold Corporation, RMB
      Australia Holdings Limited, Macquarie Bank Limited and RMB Resources Inc.,
      filed with the SEC on October 2, 2009 as Exhibit 10.1 to the Current
      Report on Form 8-K.10.26
                    
                    Agreement,
      dated December 30, 2009, by and among Apollo Gold Corporation, RMB
      Australia Holdings Limited, Macquarie Bank Limited and RMB Resources Inc.,
      filed with the SEC on January 6, 2010 as Exhibit 10.1 to the Current
      Report on Form
8-K.
  -81-
  Exhibit
                      No.
                    
                    Exhibit
      Name10.27
                    
                    Purchase
      Agreement, dated February 1, 2010, by and among Apollo Gold, Inc., Elkhorn
      Goldfields, LLC, Calais Resources, Inc. and Calais resources Colorado,
      Inc., filed with the SEC on February 3, 2010 as Exhibit 10.1 to the
      Current Report on Form 8-K.10.28
                    
                    Promissory
      Note, dated February 1, 2010, by Calais Resources, Inc. and Calais
      Resources Colorado, Inc. in favor of Apollo Gold Corporation, filed with
      the SEC on February 3, 2010 as Exhibit 10.1 to the Current Report on Form
      8-K.10.29
                    
                    Employee
      Leasing Agreement, dated February 1, 2010, between Montana Tunnels Mining,
      Inc. and Apollo Gold Corporation, filed with the SEC on February 3, 2010
      as Exhibit 10.1 to the Current Report on Form 8-K.10.30
                    
                    Agreement,
      dated February 25, 2010, by and among Apollo Gold Corporation, RMB
      Australia Holdings Limited, Macquarie Bank Limited and RMB Resources Inc.,
      filed with the SEC on March 1, 2010 as Exhibit 10.4 to the Current Report
      on Form 8-K.10.31
                    
                    Letter
      of Intent dated, March 9, 2010, between Apollo Gold Corporation and Linear
      Gold Corp., filed with the SEC on March 9, 2010 as Exhibit 10.1 to the
      Current Report on Form 8-K.10.32
                    
                    Subscription
      Agreement, dated March 9, 2010, between Apollo Gold Corporation and Linear
      Gold Corp., filed with the SEC on March 9, 2010 as Exhibit 10.2 to the
      Current Report on Form 8-K.10.33
                    
                    Consent
      Letter, dated March 9, 2010, among Apollo Gold Corporation, Linear Gold
      Corp., RMB Resources Inc., RMB Australia Holdings Limited and Macquarie
      Bank Limited, filed with the SEC on March 9, 2010 as Exhibit 10.3 to the
      Current Report on Form 8-K.10.34
                    
                    Purchase
      Agreement, dated March 12, 2010, among Apollo Gold Corporation, Apollo
      Gold Corporation, Calais Resources, Inc. and Calais Resources Colorado,
      Inc. and Duane A. Duffy, Glenn E. Duffy, Luke Garvey and James Ober.
      *21.1
                    
                    List
      of subsidiaries of Apollo Gold Corporation.*23.1
                    
                    Consent
      of Deloitte & Touche LLP.*31.1
                    
                    Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act.*31.2
                    
                    Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act.*32.1
                    
                    Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley
Act.*
 
 *  Filed
herewith.




-82-




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed March 16, 2010 on
its behalf by the undersigned, thereunto duly authorized.




APOLLO
      GOLD CORPORATIONBy:
                /s/
      R. David RussellR.
      David RussellPresident
      and Chief Executive
Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant, in the capacities
and on the dates indicated.




Signature
            
            Title
            
            Date/s/
      R. David
      Russell
            
            President
      and Chief Executive Officer, and
            
            March
      16, 2010R.
      David Russell
            
            Director
      (Principal Executive Officer)/s/
      Charles E.
      Stott
            
            Chairman
      of the Board of Directors
            
            March
      16, 2010Charles
      E. Stott/s/
      G. Michael
      Hobart
            
            Director
            
            March
      16, 2010G.
      Michael Hobart/s/
      Robert W.
      Babensee
            
            Director
            
            March
      16, 2010Robert
      W. Babensee/s/
      W. S.
      Vaughan
            
            Director
            
            March
      16, 2010W.
      S. Vaughan/s/
      Marvin K.
      Kaiser
            
            Director
            
            March
      16, 2010Marvin
      K. Kaiser/s/
      David W.
      Peat
            
            Director
            
            March
      16, 2010David
      W. Peat/s/
      Melvyn
      Williams
            
            Chief
      Financial Officer and Senior Vice
            
            March
      16, 2010Melvyn
      Williams
            
            President
      – Finance and Corporate Development(Principal
      Financial and Accounting Officer)




-83-





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





Reports of Independent Registered Chartered
      Accountants
                  
                  F-2Consolidated Balance Sheets as of December 31, 2009 and
      2008
                  
                  F-4Consolidated Statements of Operations and Comprehensive (Loss)
      Income for the Years Ended December 31, 2009, 2008, and
      2007
                  
                  F-5Consolidated Statements of Shareholders’
      (Deficiency) Equity for the Years Ended December 31, 2009,
      2008, and 2007
                  
                  F-6Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2009, 2008, and 2007
                  
                  F-7Notes to the Consolidated Financial
      Statements
                  
                  F-8




F-1




REPORT OF INDEPENDENT REGISTERED CHARTERED
ACCOUNTANTS





To the
Board of Directors and Shareholders of Apollo Gold Corporation





We have
audited the consolidated balance sheets of Apollo Gold Corporation and
subsidiaries (the “Company”) as at December 31, 2009 and 2008 and the
consolidated statements of operations and comprehensive (loss) income,
shareholders’ (deficiency) equity, and cash flows for each of the three years in
the period ended December 31, 2009.  These financial statements are
the responsibility of the Company’s management.  Our responsibility is
to express an opinion on these financial statements based on our
audits.




We
conducted our audits 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 plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.




In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of Apollo Gold Corporation and subsidiaries as
at December 31, 2009 and 2008 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009 in
accordance with accounting principles generally accepted in the United States of
America.




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, 2009, 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 16, 2010 expressed an unqualified
opinion on the Company’s internal control over financial reporting.




/s/Deloitte & Touche
      LLP


Independent
Registered Chartered Accountants


Vancouver,
Canada


March 16,
2010





COMMENTS
BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS ON


CANADA-UNITED
STATES OF AMERICA REPORTING DIFFERENCES





The
standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph (following the opinion
paragraph) when there are changes in accounting principles that have a material
effect on the comparability of the Company’s financial statements, such as the
changes described in Note 3 to the consolidated financial
statements.  In addition the standards of the Public Company
Accounting Oversight Board (United States) require the addition of an
explanatory paragraph when the financial statements are affected by conditions
and events that raise substantial doubt about the Company’s ability to continue
as a going concern, such as those described in Note 1 to the consolidated
financial statements.  Although we conducted our audits in accordance
with both Canadian generally accepted auditing standards and the standards of
the Public Company Accounting Oversight Board (United States) our report to the
Board of Directors and Shareholders, dated March 16, 2010, is expressed in
accordance with Canadian reporting standards which do not require a reference to
such changes in accounting principles or permit a reference to such conditions
and events in the auditors’ report when these matters are properly accounted for
and adequately disclosed in the financial statements.





/s/Deloitte & Touche
      LLP


Independent
Registered Chartered Accountants


Vancouver,
Canada


March 16,
2010




F-2




REPORT
OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS





To the
Board of Directors and Shareholders of Apollo Gold Corporation





We have
audited the internal control over financial reporting of Apollo Gold Corporation
and subsidiaries (the “Company”) as of December 31, 2009, 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 the accompanying 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.





In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, 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 at and for the year ended
December 31, 2009 of the Company and our report dated March 16, 2010 expressed
an unqualified opinion on those financial statements and included a separate
report titled Comments by Independent Registered Chartered Accountants on
Canada-United States of America Reporting Differences referring to changes in
accounting principles and conditions and events that raise substantial doubt
about the Company’s ability to continue as a going concern.




/s/ Deloitte & Touche
      LLP


Independent
Registered Chartered Accountants


Vancouver,
Canada


March 16,
2010




F-3




APOLLO GOLD CORPORATION


CONSOLIDATED BALANCE SHEETS





December
      31,2009
              
              
              2008(In
      thousands ofU.S.
      Dollars)ASSETSCURRENTRestricted
      cash (Note 4)
              
              $
              6,731
              
              
              $
              13,827Accounts
      receivable and other
              
              
              1,690
              
              
              
              1,249Prepaids
              
              
              394
              
              
              
              435Derivative
      instruments (Note 5)
              
              
              1,961
              
              
              
              552Inventories
      (Note 6)
              
              
              8,189
              
              
              
              –Total
      current assets
              
              
              18,965
              
              
              
              16,063Derivative
      instruments (Note 5)
              
              
              4,844
              
              
              
              –Long-term
      investments (Note 7)
              
              
              1,036
              
              
              
              1,081Property,
      plant and equipment (Note 8)
              
              
              116,171
              
              
              
              59,043Investment
      in Montana Tunnels joint venture (Note 9)
              
              
              3,440
              
              
              
              6,890Restricted
      certificates of deposit (Note 4)
              
              
              14,805
              
              
              
              3,821Other
      long-term assets
              
              
              –
              
              
              
              103TOTAL
      ASSETS
              
              $
              159,261
              
              
              $
              87,001LIABILITIESCURRENTBank
      indebtedness
              
              $
              328
              
              
              $
              742Accounts
      payable
              
              
              6,789
              
              
              
              12,607Accrued
      liabilities
              
              
              2,129
              
              
              
              640Derivative
      instruments (Note 5)
              
              
              12,571
              
              
              
              –Current
      portion of long-term debt (Note 10)
              
              
              34,860
              
              
              
              22,909Total
      current liabilities
              
              
              56,677
              
              
              
              36,898Accrued
      long-term liabilities
              
              
              483
              
              
              
              316Derivative
      instruments (Note 5)
              
              
              31,654
              
              
              
              –Long-term
      debt (Note 10)
              
              
              48,909
              
              
              
              5,539Equity-linked
      financial instruments (Note 3(s))
              
              
              27,318
              
              
              
              –Accrued
      site closure costs (Note 11)
              
              
              5,345
              
              
              
              1,398Future
      income tax liability (Note 15)
              
              
              1,304
              
              
              
              496TOTAL
      LIABILITIES
              
              
              171,690
              
              
              
              44,647Commitments
      and contingencies (Note 18)SHAREHOLDERS’
      (DEFICIENCY) EQUITYCommon
      stock - Nil par value, unlimited shares authorized; 264,200,927 and
      222,860,257 shares issued and outstanding, respectively (Note
      12)
              
              
              202,769
              
              
              
              189,451Note
      warrants (Note 10(b))
              
              
              –
              
              
              
              2,234Additional
      paid-in capital
              
              
              45,555
              
              
              
              48,241Accumulated
      deficit
              
              
              (260,753
              )
              
              
              (197,572
              )TOTAL
      SHAREHOLDERS’ (DEFICIENCY) EQUITY
              
              
              (12,429
              )
              
              
              42,354TOTAL
      LIABILITIES AND SHAREHOLDERS’ (DEFICIENCY) EQUITY
              
              $
              159,261
              
              
              $
              87,001





APPROVED
      ON BEHALF OF THE BOARD/s/Charles E.
      StottCharles
      E. Stott, Director/s/David W.
      PeatDavid
      W. Peat, Director





The accompanying notes are an integral
part of these consolidated financial statements.




F-4




APOLLO GOLD CORPORATION


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
INCOME





Year
      Ended December 31,2009
              
              
              2008
              
              
              2007(U.S.
      dollars and shares in thousands,
                except
      per share amounts)Revenue
      from sale of gold
              
              $
              47,008
              
              
              $
              –
              
              
              $
              –Operating
      expensesDirect
      operating costs
              
              
              26,126
              
              
              
              –
              
              
              
              –Depreciation
      and amortization
              
              
              6,978
              
              
              
              100
              
              
              
              104General
      and administrative expenses
              
              
              4,875
              
              
              
              3,696
              
              
              
              4,647Accretion
      expense – accrued site closure costs
              
              
              369
              
              
              
              –
              
              
              
              –Exploration,
      business development and other
              
              
              1,960
              
              
              
              5,517
              
              
              
              6,90340,308
              
              
              
              9,313
              
              
              
              11,654Operating
      income (loss)
              
              
              6,700
              
              
              
              (9,313
              )
              
              
              (11,654
              )Other
      income (expenses)Interest
      income
              
              
              195
              
              
              
              238
              
              
              
              482Interest
      expense (Note 14)
              
              
              (8,045
              )
              
              
              (4,868
              )
              
              
              (9,439
              )Debt
      transaction costs (Note 10(a)(iii))
              
              
              (1,249
              )
              
              
              (190
              )
              
              
              (693
              )Loss
      on modification of debentures (Note 10(b))
              
              
              (1,969
              )
              
              
              –
              
              
              
              –Fair
      value change on equity-linked financial  instruments (Note
      3(s))
              
              
              (10,720
              )
              
              
              –
              
              
              
              –Realized
      (loss) gain on investments – derivative instruments
              
              
              (6,355
              )
              
              
              5,507
              
              
              
              395Unrealized
      (loss) gain on investments – derivative instruments
              
              
              (37,420
              )
              
              
              (1,549
              )
              
              
              2,101Foreign
      exchange gain (loss) and other
              
              
              376
              
              
              
              (1,329
              )
              
              
              (157
              )(65,187
              )
              
              
              (2,191
              )
              
              
              (7,311
              )Loss
      before income taxes and equity (loss) earnings in Montana Tunnels joint
      venture
              
              
              (58,487
              )
              
              
              (11,504
              )
              
              
              (18,965
              )Income
      taxes (Note 15)
              
              
              73
              
              
              
              2,380
              
              
              
              –Equity
      (loss) earnings in Montana Tunnels joint venture (Note 9)
              
              
              (3,236
              )
              
              
              10,326
              
              
              
              5,068Net
      (loss) income and comprehensive (loss) income
              
              $
              (61,650
              )
              
              $
              1,202
              
              
              $
              (13,897
              )Basic
      and diluted net (loss) income per share:
              
              $
              (0.25
              )
              
              $
              0.01
              
              
              $
              (0.10
              )Basic
      weighted-average number of shares outstanding
              
              
              245,404
              
              
              
              185,059
              
              
              
              145,645Diluted
      weighted-average number of shares outstanding (Note 16)
              
              
              245,404
              
              
              
              212,139
              
              
              
              145,645





The accompanying notes are an integral
part of these consolidated financial statements.




F-5




APOLLO GOLD CORPORATION


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIENCY)
EQUITY





Number of
                    Shares
                
                
                Common
                    Stock
                
                
                Note
                    Warrants
                
                
                Additional
                    Paid-In
                    Capital
                
                
                Accumulated
                    Deficit
                
                
                Total(U.S.
      dollars and shares in thousands)Balance,
      December 31, 2006
                
                
                142,281
                
                
                $
                158,790
                
                
                $
                1,062
                
                
                $
                31,964
                
                
                $
                (184,877
                )
                
                $
                6,939Shares
      issued for services
                
                
                120
                
                
                
                52
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                52Shares
      issued for Huizopa settlement (Note 12(c)(i))
                
                
                1,000
                
                
                
                540
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                540Shares
      issued for Black Fox mineral rights (Note 12(c)(ii))
                
                
                1,058
                
                
                
                527
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                527Flow-through
      shares issued for cash and related compensation warrants (Note
      12(c)(iii))
                
                
                7,455
                
                
                
                3,224
                
                
                
                –
                
                
                
                58
                
                
                
                –
                
                
                
                3,282Note
      warrants (Note 10(b))
                
                
                –
                
                
                
                –
                
                
                
                2,292
                
                
                
                –
                
                
                
                –
                
                
                
                2,292Debenture
      compensation warrants (Note 10(b))
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                467
                
                
                
                –
                
                
                
                467Note
      warrants exercised
                
                
                3,934
                
                
                
                2,506
                
                
                
                (1,062
                )
                
                
                129
                
                
                
                –
                
                
                
                1,573Conversion
      of debentures (Note 10(b))
                
                
                400
                
                
                
                151
                
                
                
                –
                
                
                
                4,074
                
                
                
                –
                
                
                
                4,225Redemption
      of debentures
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                1,809
                
                
                
                –
                
                
                
                1,809Stock-based
      compensation
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                962
                
                
                
                –
                
                
                
                962Net
      loss and comprehensive loss
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (13,897
                )
                
                
                (13,897
                )Balance,
      December 31, 2007
                
                
                156,248
                
                
                
                165,790
                
                
                
                2,292
                
                
                
                39,463
                
                
                
                (198,774
                )
                
                
                8,771Shares
      issued for services (Note 12(b)(i))
                
                
                650
                
                
                
                351
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                351Units
      issued for cash and related compensation warrants (Note
      12(b)(ii))
                
                
                40,806
                
                
                
                14,885
                
                
                
                –
                
                
                
                3,247
                
                
                
                –
                
                
                
                18,132Flow-through
      shares issued for cash and related compensation warrants (Note
      12(b)(iii))
                
                
                20,000
                
                
                
                6,143
                
                
                
                –
                
                
                
                104
                
                
                
                –
                
                
                
                6,247Warrants
      issued for services (Note 12(b)(iv))
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                2,907
                
                
                
                –
                
                
                
                2,907Warrants
      exercised
                
                
                3,272
                
                
                
                1,463
                
                
                
                (58
                )
                
                
                (1
                )
                
                
                –
                
                
                
                1,404Conversion
      of debentures (Note 10(b))
                
                
                1,884
                
                
                
                819
                
                
                
                –
                
                
                
                1,686
                
                
                
                –
                
                
                
                2,505Stock-based
      compensation
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                835
                
                
                
                –
                
                
                
                835Net
      income and comprehensive income
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                1,202
                
                
                
                1,202Balance,
      December 31, 2008
                
                
                222,860
                
                
                
                189,451
                
                
                
                2,234
                
                
                
                48,241
                
                
                
                (197,572
                )
                
                
                42,354Cumulative
      effect of change in accounting principle (Note 3(s))
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (6,939
                )
                
                
                (1,531
                )
                
                
                (8,470
                )Shares
      issued for services (Note 12(a)(ii and iii))
                
                
                5,173
                
                
                
                1,553
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                1,553Shares
      issued in settlement of interest (Note 10(b) and Note
      12(a)(iii))
                
                
                2,445
                
                
                
                772
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                772Warrants
      issued for services (Note 10(a) and Note 12(a)(ii and
iii))
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                961
                
                
                
                –
                
                
                
                961Warrants
      exercised (Note 12(a)(i))
                
                
                7,612
                
                
                
                1,416
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                1,416Shares
      issued for cash and related compensation warrants (Note
      12(a)(iv))
                
                
                26,111
                
                
                
                9,577
                
                
                
                –
                
                
                
                294
                
                
                
                –
                
                
                
                9,871Expiration
      of note warrants
                
                
                –
                
                
                
                –
                
                
                
                (2,234
                )
                
                
                2,234
                
                
                
                –
                
                
                
                –Stock-based
      compensation
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                764
                
                
                
                –
                
                
                
                764Net
      loss and comprehensive loss
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (61,650
                )
                
                
                (61,650
                )Balance,
      December 31, 2009
                
                
                264,201
                
                
                $
                202,769
                
                
                $
                –
                
                
                $
                45,555
                
                
                $
                (260,753
                )
                
                $
                (12,429
                )





The
accompanying notes are an integral part of these consolidated financial
statements.




F-6




APOLLO GOLD CORPORATION




CONSOLIDATED STATEMENTS OF CASH FLOWS





Year Ended December 31,2009
              
              
              2008
              
              
              2007(In
      thousands of U.S. dollars)Operating
      ActivitiesNet
      (loss) income for the year
              
              $
              (61,650
              )
              
              $
              1,202
              
              
              $
              (13,897
              )Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              6,978
              
              
              
              100
              
              
              
              104Amortization
      of deferred financing costs
              
              
              87
              
              
              
              160
              
              
              
              105Financing
      costs
              
              
              –
              
              
              
              –
              
              
              
              174Stock-based
      compensation
              
              
              764
              
              
              
              835
              
              
              
              962Shares
      issued for services and settlement of claims (Note 12(a)(ii & iii) and
      (c)(i))
              
              
              4,020
              
              
              
              –
              
              
              
              592Accretion
      expense – accrued site closure costs
              
              
              369
              
              
              
              –
              
              
              
              –Accretion
      expense – amortization of debt discount
              
              
              2,719
              
              
              
              –
              
              
              
              –Accretion
      expense – convertible debentures
              
              
              1,433
              
              
              
              4,382
              
              
              
              9,075Interest
      paid on convertible debentures
              
              
              (567
              )
              
              
              (1,016
              )
              
              
              (1,016
              )Net
      change in value of derivative instruments
              
              
              37,972
              
              
              
              1,549
              
              
              
              (2,101
              )Net
      change in value of equity-linked financial instruments
              
              
              10,720
              
              
              
              –
              
              
              
              –Foreign
      exchange loss and other
              
              
              (1,138
              )
              
              
              1,283
              
              
              
              572Deferred
      income taxes
              
              
              (73
              )
              
              
              (2,380
              )
              
              
              –Net
      change in non-cash operating working capital items (Note
    20)
              
              
              (1,611
              )
              
              
              (1,634
              )
              
              
              1,750Equity
      investment in Montana Tunnels joint venture
              
              
              3,236
              
              
              
              (10,326
              )
              
              
              (5,068
              )Earnings
      distribution from Montana Tunnels joint venture
              
              
              132
              
              
              
              8,555
              
              
              
              3,040Net
      cash provided by (used in) operating activities
              
              
              3,391
              
              
              
              2,710
              
              
              
              (5,708
              )Investing
      ActivitiesProperty,
      plant and equipment expenditures
              
              
              (55,591
              )
              
              
              (29,826
              )
              
              
              (2,568
              )Purchase
      of long-term investments
              
              
              –
              
              
              
              –
              
              
              
              (1,500
              )Restricted
      cash, restricted certificates of deposit, and other long-term
      assets
              
              
              (2,395
              )
              
              
              (12,054
              )
              
              
              (3,459
              )Net
      cash used in investing activities
              
              
              (57,986
              )
              
              
              (41,880
              )
              
              
              (7,527
              )Financing
      ActivitiesProceeds
      on issuance of shares and warrants
              
              
              10,739
              
              
              
              26,263
              
              
              
              3,954Proceeds
      from exercise of warrants and options
              
              
              1,416
              
              
              
              1,404
              
              
              
              1,573Proceeds
      on issuance of convertible debentures and note warrants
              
              
              –
              
              
              
              –
              
              
              
              8,062Proceeds
      from issuance of long-term debt
              
              
              66,534
              
              
              
              21,105
              
              
              
              8,000Repayment
      of convertible debentures
              
              
              –
              
              
              
              –
              
              
              
              (8,731
              )Repayments
      of long-term debt
              
              
              (23,643
              )
              
              
              (9,694
              )
              
              
              (1,864
              )Net
      cash provided by financing activities
              
              
              55,046
              
              
              
              39,078
              
              
              
              10,994Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (451
              )
              
              
              (1,242
              )
              
              
              (143
              )Net
      decrease in cash and cash equivalents
              
              
              –
              
              
              
              (1,334
              )
              
              
              (2,384
              )Cash
      and cash equivalents, beginning of year
              
              
              –
              
              
              
              1,334
              
              
              
              3,718Cash
      and cash equivalents, end of year (Note 20)
              
              $
              –
              
              
              $
              –
              
              
              $
              1,334Supplemental
      cash flow informationInterest
      paid
              
              $
              5,555
              
              
              $
              1,504
              
              
              $
              1,035Income
      taxes paid
              
              $
              35
              
              
              $
              95
              
              
              $
              –





See Note
20 for additional supplemental cash flow information.





The
accompanying notes are an integral part of these consolidated financial
statements.




F-7




APOLLO GOLD CORPORATION




Notes
to the Consolidated Financial Statements


Years
ended December 31, 2009, 2008 and 2007


(Stated in U.S. dollars; tabular amounts in thousands except share
and per share data)




1.
            CONTINUING
      OPERATIONS




These
consolidated financial statements are prepared on the basis of a going concern
which assumes that Apollo Gold Corporation (“Apollo” or the “Company”) will
realize its assets and discharge its liabilities in the normal course of
business for the foreseeable future.  To date the Company has funded
its operations through issuance of debt and equity securities and cash generated
by the Black Fox mine and the Montana Tunnels joint venture (Note
9).  The Company’s ability to continue as a going concern is dependent
on its ability to continue to issue debt and/or equity securities, and/or
continue to generate cash flow from the Black Fox mine.




As of December 31, 2009, the Company
has a working capital deficiency of $37.7 million, an accumulated deficit of
$260.8 million and a shareholders’ deficiency of $12.4 million.  As at
December 31, 2009, the Company held no cash and cash equivalents and had current
debt repayment obligations of $39.5 million consisting of (1) the current
portion of the project financing facility of $29.1 million, $15.3 million of
which was originally due in 2009 (See Note 10(a)), (2) the outstanding principal
and interest due on the Series 2007-A convertible debentures of $5.1 million
(Note 10(b)), and (3) $5.3 million for capital leases and other current
debt.  As a result, there is substantial doubt that the Company will
continue as a going concern.





On March
9, 2010, the Company signed a binding letter of intent (“LOI”) with Linear Gold
Corporation (“Linear”) pursuant to which (i) the businesses of Apollo and Linear
would be combined by way of a court-approved plan of arrangement (the
“Arrangement”) pursuant to the provisions of the Canada Business Corporations
Act (“CBCA”) and (ii) Linear would purchase approximately 62,500,000 common
shares of Apollo at a price of Cdn$0.40 per common share for aggregate proceeds
of Cdn$25.0 million  (the “Private Placement”).  The Private
Placement is expected to be completed on or before March 19, 2010.




In
addition, on March 9, 2010, the Company and the two banks (the “Banks”)
associated with the $70.0 million project financing facility (the “Project
Facility”) (See Note 10(a)) agreed to amend the Project Facility with a revised
repayment schedule for 2010, as more fully described in Note 24 Subsequent
Events, amounting to $35.0 million, which would result in a balance owing to the
Banks at December 31, 2010 of $35.0 million.  The Company is still in
discussion with the Banks regarding the rescheduling of the quarterly
repayments, covering the period March 2011 to March 2013, for the balance of the
debt.




If the
Company is unable to generate sufficient cash flow from Black Fox, unable to
reschedule the quarterly installment payments under the Project Facility,
complete the Arrangement and/or secure additional financing, it may be unable to
continue as a going concern and material adjustments would be required to the
carrying value of assets and liabilities and balance sheet
classifications.




2.
            NATURE
      OF OPERATIONS




Apollo is
engaged in gold mining including extraction, processing, refining and the
production of other byproduct metals, as well as related activities including
the exploration and development of potential mining properties and acquisition
of mining claims.  Apollo owns Black Fox, an open pit mine and mill
located near Matheson in the Province of Ontario, Canada (“Black
Fox”).  Mining of ores at Black Fox began in March 2009, milling
operations commenced in April 2009, and commercial production commenced in late
May 2009.  Exploration properties adjacent to the Black Fox mine
include the Grey Fox and Pike River properties.




During
2009, the Company was the operator of the Montana Tunnels mine, which was a 50%
joint venture with Elkhorn Tunnels, LLC (“Elkhorn”).  The Montana
Tunnels mine is an open pit mine and mill located in the State of Montana that
produces gold doreand lead-gold and zinc-gold concentrates.  The
Montana Tunnels mine ceased mining operations in December 2008 and was placed on
care and maintenance in April 2009.  On February 1, 2010, the Company
sold its 100% interest in Montana Tunnels Mining, Inc. (“MTMI”), which held the
Company’s remaining 50% interest in the Montana Tunnels joint venture to
Elkhorn, for consideration of certain promissory notes held by Elkhorn and
certain investors in Elkhorn or its affiliates with an aggregate outstanding
balance of approximately $9.5 million (Note 9).




Apollo
also owns Mexican subsidiaries which own concessions at the Huizopa exploration
project (the “Huizopa Project”), located in the Sierra Madres in Chihuahua,
Mexico.  The Huizopa Project is subject to an 80% Apollo/20% Minas de
Coronado joint venture agreement.  Currently the Company funds 100% of
exploration activity for the Huizopa Project.




F-8




APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




3.
            SIGNIFICANT
      ACCOUNTING POLICIES




The
consolidated financial statements of Apollo are prepared by management in
accordance with United States generally accepted accounting principles (“U.S.
GAAP”) and except as described in Note 23, conform in all material respects with
Canadian generally accepted accounting principles (“Canadian
GAAP”).  The principal accounting policies followed by the Company,
which have been consistently applied, are summarized as follows:




(a)
            Principles
      of consolidation




The
financial statements of entities which are controlled by the Company through
voting equity interests, referred to as subsidiaries, are
consolidated.  All intercompany balances and transactions are
eliminated upon consolidation.  Variable Interest Entities (“VIEs”),
which include, but are not limited to, special purpose entities, trusts,
partnerships, and other legal structures, are entities in which control is
achieved through means other than voting rights.  VIEs are subject to
consolidation by the primary beneficiary who will absorb the majority of the
entities’ expected losses and/or expected residual returns.  The
Company did not hold any VIEs as of December 31, 2009 and 2008.




The
Company’s 50% interest in the joint venture at the Montana Tunnels mine, which
is subject to joint control, is accounted for using the equity method, whereby
the Company’s share of the investees’ earnings and losses is included in
operations and its investments therein are adjusted by a similar
amount.




(b)
            Measurement
      uncertainties




The
preparation of financial statements in conformity with US GAAP requires the
Company’s management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period.  Significant estimates used herein include those relating to
gold and other metal prices, recoverable proven and probable reserves, available
operating capital, depreciation and depletion, realized value of inventory,
valuation of warrants, derivative instruments, stock-based compensation,
required reclamation costs, and contingencies and commitments.  These
estimates each affect management’s evaluation of asset impairment and the
recorded balances of property, plant and equipment, reclamation and site closure
costs and the future tax asset valuation allowance.  It is reasonably
possible that actual results could differ in the near term from those and other
estimates used in preparing these financial statements and such differences
could be material.




(c)
            Foreign
      currency transactions and
translation




The
Company’s functional currency is the US dollar.  Transactions
denominated in Canadian dollars have been translated into U.S. dollars at the
approximate rate of exchange prevailing at the time of the
transaction.  The carrying value of monetary assets and liabilities
denominated in foreign currencies have been translated into U.S. dollars at the
year-end exchange rate.  Non-monetary assets and liabilities are
translated at the rates of exchange prevailing when the assets were acquired or
the liabilities were assumed.  Exchange gains and losses are included
in operating results.




F-9




APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)


(d)
            Cash
      and cash equivalents




Cash and
cash equivalents are comprised of cash and term deposits.  The
original maturity dates of term deposits are not in excess of 90
days.  Because of the short maturity of these investments, the
carrying amounts approximate their fair value.  As of December 31,
2009 and 2008, the Company had no cash or cash equivalents.




(e)
            Financial
      Instruments




The
Company classifies all financial instruments as either held-to-maturity,
available-for-sale, held-for-trading, loans and receivables, or other financial
liabilities.  Financial assets held to maturity, loans and receivables
and financial liabilities other than those held for trading, are measured at
amortized cost.  Available-for-sale instruments are measured at fair
value with unrealized gains and losses recognized in other comprehensive
income.  Instruments classified as held for trading are measured at
fair value with unrealized gains and losses recognized in the statement of
operations.  Debt transaction costs are allocated to the related debt
and amortized over the life of the loan using the effective interest
method.  Equity transaction costs are recorded in equity.




The Company has designated its cash and
cash equivalents and derivative instruments as held for trading, which are both
measured at fair value.  Accounts receivable and other are classified
as loans and receivables, which are measured at amortized
cost.  Long-term investments which is comprised of auction rate
securities held by the Company (Note 7), restricted cash, and restricted
certificates of deposit are classified as available for sale, and are measured
at fair value.  Accounts payable and accrued liabilities, convertible
debentures, and notes payable and other current debt are classified as other
liabilities, which are measured at amortized cost.




(f)
            Long-term
      investments




The
Company accounts for its investments in auction rate securities as
available-for-sale securities (see Note 7).




(g)
            Inventories




Doré
inventory is stated at the lower of weighted-average production cost and net
realizable value.  Production costs for doré inventory includes direct
production costs and attributable overhead and depreciation incurred to bring
the material to its current point in the processing cycle.  Stockpiled
ore inventory represents ore that has been mined and is available for further
processing.  Work-in-process inventories, including stockpiled ore and
in-circuit gold inventory, are valued at the lower of weighted-average
production cost and net realizable value.  Materials and supplies are
valued at the lower of average direct cost of acquisition and net realizable
value.




General
and administrative costs for corporate offices are not included in any
inventories.  Net realizable value represents that value that can be
realized upon sale of the inventory in question, less a reasonable allowance for
further processing and sales costs, where applicable.




(h)
            Property,
      plant and equipment




Mine
development costs are capitalized after proven and probable reserves have been
identified.  Amortization is calculated using the units-of-production
method over the expected life of the mine based on the estimated recoverable
gold equivalent ounces or value of metals over proven and probable
reserves.





Buildings
and equipment are recorded at acquisition cost and amortized on a
units-of-production basis over the remaining proven and probable reserves of the
mine.  Equipment that is mobile is amortized on a straight-line basis
over the estimated useful life of the equipment of five to ten years, not to
exceed the related estimated mine lives.  Repair and maintenance costs
are expensed as incurred.




F-10




APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)


Financing
and acquisition costs including interest and fees are capitalized to the extent
that expenditures are incurred for the acquisition of assets and mineralized
properties and related development activities.  Capitalization ceases
when saleable minerals are produced from the ore body of an asset or
property.




In the
normal course of business, the Company has entered into certain leasing
arrangements whose conditions meet the criteria for the leases to be classified
as capital leases.  For capital leases, the Company records an asset
and an obligation at an amount equal to the present value at the beginning of
the lease term of minimum lease payments over the lease term.  In the
case of capital leasing arrangements, there is transfer of ownership of the
leased assets to the Company at the end of the lease term and therefore the
assets are amortized on a basis consistent with other owned
assets.  The Company has also entered into certain leasing
arrangements whose conditions meet the criteria for the leases to be classified
as operating leases.  For operating leases, lease expense is
recognized on a straight-line basis over the life of the lease.




(i)
            Mineral
      rights




Mineral
rights include the cost of obtaining unpatented and patented mining claims and
the cost of acquisition of properties.  Significant payments related
to the acquisition of land and mineral rights are capitalized.  If a
mineable ore body is discovered, such costs are amortized when saleable minerals
are produced from the ore body using the units-of-production method based on
proven and probable reserves.  If no mineable ore body is discovered
or such rights are otherwise determined to have no value, such costs are
expensed in the period in which it is determined the property has no future
economic value.




(j)
            Stripping
      costs




The cost
of removing overburden and waste materials to access the ore body at an open pit
mine prior to the production phase are referred to as “pre-stripping
costs”.  Pre-stripping costs are capitalized during the development
phase of an open pit mine.  The production phase of an open pit mine
commences when saleable materials are produced.  Stripping costs
incurred during the production phase of a mine are included in the cost of
inventory produced during the period in which the stripping costs were
incurred.  Capitalized pre-stripping costs are amortized using the
units-of-production method, whereby the denominator is the estimated recoverable
ounces of gold in the associated open pit.




(k)
            Exploration
      expenditures




Exploration
expenditures are expensed as incurred during the reporting period.




(l)
            Property
      evaluations




The
Company evaluates the carrying amounts of its mining properties and related
buildings, plant and equipment at least annually or when events or changes in
circumstances indicate that the carrying amount may not be
recoverable.  Annually, or if the Company has reason to believe that
an impairment may exist, estimated future undiscounted cash flows are prepared
using estimated recoverable ounces of gold (considering current proven and
probable reserves and mineral resources expected to be converted into mineral
reserves) along with estimated future metals prices and estimated operating and
capital costs.  The inclusion of mineral resources is based on various
factors, including but not limited to the existence and nature of known
mineralization, location of the property, results of recent drilling and
analysis to demonstrate the mineral resources are commercially
recoverable.  If the future undiscounted cash flows are less than the
carrying value of the assets, the assets will be written down to fair value,
determined using discounted cash flows, and the write-off charged to earnings in
the current period.




F-11




APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)


(m)
            Derivative
      instruments




Historically,
Apollo’s policy has been to provide shareholders with leverage to changes in the
gold price by selling gold production at market prices.  However, in
conjunction with obtaining financing for the Black Fox mine, the Company has
entered into derivative contracts to protect the selling price for certain
anticipated gold production (see Note 5).




The
Company has not applied hedge accounting to these transactions.  As a
result, the Company accounts for these contracts as investments and records the
changes in unrealized gains and losses in the statement of income each
period.  These changes can be very significant, and will vary greatly
along with fluctuations in the gold market.  These fluctuations are
out of the Company’s control.  Variations in the fair value of these
derivatives affect whether they are recorded as current or long-term assets, or
current or long-term liabilities at each balance sheet date.




(n)
            Reclamation
      and closure costs




The
Company recognizes liabilities for statutory, contractual or legal obligations
associated with the retirement of property, plant and equipment, when those
obligations result from the acquisition, construction, development or normal
operation of the assets.  Initially, a liability for an asset
retirement obligation is recognized at its fair value in the period in which it
is incurred.  Upon initial recognition of the liability, the
corresponding asset retirement cost is added to the carrying amount of that
asset and the cost is amortized as an expense over the economic life of the
related asset.  Following the initial recognition of the asset
retirement obligation, the carrying amount of the liability is increased for the
passage of time and adjusted for changes to the amount or timing of the
underlying cash flows needed to settle the obligation.




The
present value of the reclamation liabilities may be subject to change based on
management’s current estimates, changes in remediation technology or changes to
the applicable laws and regulations by regulatory authorities, which affect the
ultimate cost of remediation and reclamation.




(o)
            Revenue
      recognition




Revenue
from the sale of gold is recognized when the following conditions are
met:  persuasive evidence of an arrangement exists; delivery has
occurred in accordance with the terms of the arrangement; the price is fixed or
determinable and collectability is reasonably assured.  Revenue for
gold bullion is recognized at the time of delivery and transfer of title to
counter-parties.




(p)
            Stock
      incentive plans




The
Company accounts for stock options using the fair value based method of
accounting for all stock-based awards.  The Company uses the
Black-Scholes option pricing model to estimate fair value and records
stock-based compensation in operations over the vesting periods of the
awards.  If and when the stock options are ultimately exercised, the
applicable amounts of additional contributed surplus are transferred to share
capital.  Upon exercise of stock options, new shares are
issued.  The Company does not expect to repurchase shares in 2010 for
purposes of settling stock option exercises.




(q)
            Income
      taxes




The
Company accounts for income taxes whereby future income tax assets and
liabilities are computed based on differences between the carrying amount of
assets and liabilities on the balance sheet and their corresponding tax values
using the substantively enacted income tax rates at each balance sheet
date.  Future income tax assets also result from unused loss
carryforwards and other deductions.  The valuation of future income
tax assets is reviewed annually and adjusted, if necessary, by use of a
valuation allowance to reflect the estimated realizable
amount.  Although the Company has tax loss carryforwards (see Note
15), there is uncertainty as to utilization prior to their
expiry.  Accordingly, the future income tax asset amounts have been
fully offset by a valuation allowance.




F-12




APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)


The
Company’s operations involve dealing with uncertainties and judgments in the
application of complex tax regulations in multiple jurisdictions. The final
taxes paid are dependent upon many factors, including negotiations with taxing
authorities in various jurisdictions and resolution of disputes arising from
federal, state, and international tax audits. The Company recognizes potential
liabilities and records tax liabilities for anticipated tax audit issues in the
U.S. and other tax jurisdictions based on its estimate of whether, and the
extent to which, additional taxes will be due.  The Company adjusts
these reserves in light of changing facts and circumstances; however, due to the
complexity of some of these uncertainties, the ultimate resolution may result in
a payment that is materially different from the Company’s current estimate of
the tax liabilities. If the Company’s estimate of tax liabilities proves to be
less than the ultimate assessment, an additional charge to expense would result.
If payment of these amounts ultimately proves to be less than the recorded
amounts, the reversal of the liabilities would result in tax benefits being
recognized in the period when the Company determines the liabilities are no
longer necessary. The Company recognizes interest and penalties, if any, related
to unrecognized tax benefits in income tax expense.





Under
Canadian income tax legislation, a company is permitted to issue flow-through
shares whereby the Company agrees to incur qualifying expenditures and renounce
the related income tax deductions to the investors.  The proceeds from
issuance of these shares are allocated between the offering of shares and the
sale of tax benefits.  The allocation is made based on the difference
between the quoted price of the existing shares and the amount the investor pays
for the shares.  A liability is recognized for this
difference.  The liability is reversed when tax benefits are renounced
and a deferred tax liability is recognized at that time.  Income tax
expense is the difference between the amount of a deferred tax liability and the
liability recognized on issuance.  Also, notwithstanding whether there
is a specific requirement to segregate the funds, the flow-through funds which
are unexpended at the consolidated balance sheet dates are considered to be
restricted and are not considered to be cash or cash equivalents (see Note
4(c))




(r)
            Income
      (loss) per share




The basic
income (loss) per share is computed by dividing the net income (loss) by the
weighted average number of common shares outstanding during the
year.  The fully diluted income (loss) per share reflects the
potential dilution of common share equivalents, such as outstanding stock
options, share purchase warrants and convertible debentures, in the weighted
average number of common shares outstanding during the year, if
dilutive.  For this purpose, the “treasury stock method” and “if
converted method”, as applicable, are used for the assumed proceeds upon the
exercise of stock options, warrants and convertible debentures that are used to
purchase common shares at the average market price of the common share during
the year.




(s)
            Equity-linked
      financial instruments




In June
2008, the ASC guidance for derivatives and hedging when accounting for contracts
in an entity’s own equity was updated to clarify the determination of whether an
instrument (or embedded feature) is indexed to an entity’s own stock which would
qualify as a scope exception from hedge accounting.  The provisions of
the updated guidance were adopted January 1, 2009.




F-13




APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)


Under the
guidance, an equity-linked financial instrument (or embedded feature) would not
be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional
currency.  As of December 31, 2009 and January 1, 2009, the Company
had 103.0 million and 64.7 million outstanding warrants to purchase common
shares of the Company, respectively, that were either (a) denominated in a
currency (Canadian dollars) other than its functional currency (US dollars) or
(b) subject to a potential strike-price adjustment (the warrants issued November
8, 2006 which were exercisable at $0.176 as of January 1, 2009).  As
such, these warrants are not considered to be indexed to the Company’s own
stock, which precludes the warrants from meeting the scope exception under the
guidance.  The warrants thereby are accounted for separately as
derivative instruments, rather than as equity
instruments.  Accordingly, the Company assessed the fair value of
these warrants as of January 1, 2009 and recorded a reduction in additional
paid-in capital of $6.9 million, an increase in opening retained deficit of $1.5
million and an $8.4 million increase in liabilities.  During the year
ended December 31, 2009, the Company issued additional Canadian
dollar-denominated warrants; these warrants were valued at $8.13 million upon
issuance and were recognized as liabilities.  As of December 31, 2009,
the Company has assessed the fair value of the outstanding warrants subject to
this accounting guidance and recorded a loss of $10.7 million on the fair value
change of the warrants.




These
warrants were fair valued at January 1 and December 31, 2009 using an option
pricing model with the following assumptions:  no dividends are paid,
weighted average volatilities of the Company’s share price of 81% and 78%,
weighted average expected lives of the warrants of 3.2 and 2.6 years, and
weighted average annual risk-free rates of 1.4% and 1.8%,
respectively.




(t)
            Adoption
      of recently issued accounting
pronouncements




In June
2009, the Financial Accounting Standards Board (“FASB”) established the FASB
Accounting Standards Codification (“ASC”) as the single source of authoritative
GAAP to be applied by nongovernmental entities.  The ASC is a new
structure which took existing accounting pronouncements and organized them by
accounting topic.  Relevant authoritative literature issued by the
Securities and Exchange Commission (“SEC”) and select SEC staff interpretations
and administrative literature was also included in the ASC. All other accounting
guidance not included in the ASC is non-authoritative.  The ASC was
effective for the Company’s interim quarterly period beginning July 1,
2009.  The adoption of the ASC did not have an impact on the Company’s
consolidated financial position, results of operations or cash
flows.





In
September 2006, the ASC guidance for fair value measurements and disclosure was
updated to define fair value, establish a framework for measuring fair value,
and expand disclosures about fair value measurements.  This guidance
does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting
pronouncements.  The provisions of the updated guidance were adopted
January 1, 2008.  In February 2008, the FASB staff issued an update to
the guidance which delayed the effective date for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. The Company adopted the updated
guidance for the Company’s nonfinancial assets and liabilities measured at fair
value on a nonrecurring basis on January 1, 2009.





All of
the Company’s financial assets and liabilities are measured at fair value using
Level 1 inputs with the exception of (1) derivative contracts which use Level 2
inputs and (2) auction rate securities which use Level 3 inputs (See Note
7).  The adoption of updated guidance did not have a material impact
on the Company’s financial position, results of operations or cash
flows.





In
October 2008, the guidance was further updated to provide guidance on how the
fair value of a financial asset is to be determined when the market for that
financial asset is inactive.  The guidance states that determining
fair value in an inactive market depends on the facts and circumstances,
requires the use of significant judgment and, in some cases, observable inputs
may require significant adjustment based on unobservable data. Regardless of the
valuation technique used, an entity must include appropriate risk adjustments
that market participants would make for nonperformance and liquidity risks when
determining fair value of an asset in an inactive market.  The
guidance was effective upon issuance.  The Company has incorporated
the principles of updated guidance in determining the fair value of financial
assets when the market for those assets is not active, specifically its auction
rate securities.




F-14




APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)


In April
2009, the guidance was further updated to provide additional guidance on
determining fair value when the volume and level of activity for the asset or
liability have significantly decreased and identifying circumstances that
indicate when a transaction is not orderly.  The provisions of this
updated guidance were adopted April 1, 2009.  The adoption of the
guidance did not have an impact on the Company’s fair value
measurements.





The ASC
guidance for fair value measurements and disclosure establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3
measurements).  The three levels of the fair value hierarchy are
described below:





Level1
              Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities;





Level2
              Quoted
      prices in markets that are not active, or inputs that are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability;





Level3
              Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (supported by little or no
      market activity).





The
Company’s derivative instruments (see Note 5), equity-linked financial
instruments (see Note 3(s)), and auction rate securities (see Note 7)
represent those financial assets and liabilities measured at fair value by level
within the fair value hierarchy.  As required by the guidance, assets
and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement.  The
Company’s derivative instruments are valued using market
prices.  These derivatives trade in liquid markets, and as such,
market prices can generally be verified and do not involve significant
management judgment.  Such instruments are classified within Level 2
of the fair value hierarchy.





The
Company’s auction rate securities are reviewed for fair value on at least a
quarterly basis.  The auction rate securities are traded in markets
that are not active, trade infrequently and have little price
transparency.  The Company has estimated the fair values based on
weighted average risk calculations using probabilistic cash flow
assumptions.  The auction rate securities are classified within Level
3 of the fair value hierarchy.





In
December 2007, the ASC guidance for business combinations was updated to provide
new guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any noncontrolling interest in the acquiree.
The updated guidance also provides disclosure requirements to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination.  The provisions of the updated guidance were
adopted January 1, 2009.  The adoption had no impact on the Company’s
financial position, results of operations, or cash flows.




F-15




APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)\


In
December 2007, the ASC guidance for noncontrolling interests was updated to
establish accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is
deconsolidated.  The guidance also establishes disclosure requirements
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners.  The provisions of the
updated guidance were adopted January 1, 2009.  The adoption had no
impact on the Company’s financial position, results of operations, or cash
flows.





In March
2008, the ASC guidance for derivatives and hedging was updated for enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and the related hedged items are accounted for, and how
derivative instruments and the related hedged items affect an entity’s financial
position, financial performance and cash flows.  The provisions of the
updated guidance were adopted January 1, 2009.  The adoption had no
impact on the Company’s financial position, results of operations, or cash
flows.





In May
2008, the ASC guidance for convertible debt instruments was
updated.  The guidance was updated to specify that issuers of
convertible debt instruments that may be settled in cash upon conversion
(including partial cash settlement) should separately account for the liability
and equity components in a manner that will reflect the entity’s nonconvertible
debt borrowing rate when interest cost is recognized in subsequent
periods.  As the Company has had no convertible debt instruments that
could be settled in cash upon conversion, whether in full or partially, the
adoption of the adopted guidance had no impact on the Company’s financial
position, results of operations, or cash flows.





In June
2008, the ASC guidance for share-based payment transactions was
updated.  The guidance was updated to address whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method described in ASC
guidance for earning per share disclosures.  The provisions of the
updated guidance were adopted January 1, 2009.  The adoption of the
guidance had no impact on the Company’s financial position, results of
operations, cash flows, or earnings per share data.





In June
2008, the ASC guidance for derivatives and hedging when accounting for contracts
in an entity’s own equity was updated to clarify the determination of whether an
instrument (or embedded feature) is indexed to an entity’s own stock which would
qualify as a scope exception from hedge accounting.  The provisions of
the updated guidance were adopted January 1, 2009.  Refer to Note
3(s).





In April
2009, the ASC guidance for interim disclosures about fair value of financial
instruments was updated to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements.  The guidance was also updated to
require those disclosures in summarized financial information at interim
reporting periods. The provisions of the updated guidance were adopted April 1,
2009.  The adoption had no impact on the Company’s financial position,
results of operations, or cash flows.





In August
2009, the ASC guidance for fair value measurements and disclosure was updated to
further define fair value of liabilities. This update provides clarification for
circumstances in which: (i) a quoted price in an active market for the identical
liability is not available, (ii) the liability has a restriction that prevents
its transfer, and (iii) the identical liability is traded as an asset in an
active market in which no adjustments to the quoted price of an asset are
required. The updated guidance is effective for the Company’s interim reporting
period beginning October 1, 2009.  The provisions of the updated
guidance were adopted October 1, 2009.  The adoption had no impact on
the Company’s financial position, results of operations, or cash
flows.




F-16




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)





(u)
            Recently
      issued accounting pronouncements




In June
2009, the ASC guidance for consolidation accounting was updated to require an
entity to perform a qualitative analysis to determine whether the enterprise’s
variable interest gives it a controlling financial interest in a variable
interest entity (“VIE”).  This analysis identifies a primary
beneficiary of a VIE as the entity that has both of the following
characteristics: i) the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance and ii) the obligation to
absorb losses or receive benefits from the entity that could potentially be
significant to the VIE.  The updated guidance also requires ongoing
reassessments of the primary beneficiary of a VIE.  The provisions of
the updated guidance are effective for the Company’s fiscal year beginning
January 1, 2010.  The Company does not expect the adoption of this
guidance to have an impact on consolidated financial position, results of
operations or cash flows.




4.
            RESTRICTED
      CASH AND RESTRICTED CERTIFICATES OF
DEPOSIT




As at
December 31 restricted cash and restricted certificates of deposit are as
follows:




2009
              
              
              2008Restricted
      cash, currentDebt
      covenants (a)
              
              $
              –
              
              
              $
              10,000Project
      Facility (b)
              
              
              2,108
              
              
              
              –Unexpended
      flow-through funds (c)
              
              
              4,623
              
              
              
              3,827$
              6,731
              
              
              $
              13,827Restricted
      certificates of deposit, non-currentSite
      closure obligations – Black Fox (d)
              
              $
              14,805
              
              
              $
              3,821





(a)
            Debt
      covenants




The
Restricted cash – Debt covenants represents $9.0 million cash on deposit
designated as partial security for the Bridge Facility (Note 10(d)) and $1.0
million cash on deposit designated as partial security for the Credit Facility
(Note 10(c)).  As of December 31, 2008, the $9.0 million deposit could
only be used for the development of Black Fox once the Company had satisfied
certain conditions set out in the Bridge Facility agreement.  In
February 2009, the Company satisfied the conditions and withdrew the balance of
the Bridge Facility of $9.0 million.




(b)
            Project
      Facility




The
Restricted cash – Project Facility represents $2.1 million cash on deposit held
in a restricted account.  The balance may be used to settle
operational expenses at both Black Fox and the corporate office, but requires
approval from the Banks prior to use.  The balance has been classified
as a current asset as it was utilized in the first quarter of 2010 to settle
such operational expenses.  The Project Facility is described in
detail at Note 10(a).





(c)
            Proceeds
      from flow-through share offering




Notwithstanding
whether there is a specific requirement to segregate the funds, the funds
received through the offering of flow-through shares (Note 12(a)(iv)) which are
unexpended at the consolidated balance sheet dates are considered to be
restricted and are not considered to be cash or cash equivalents.





(d)
            Site
      closure obligation – Black Fox




The
bonding requirements for the closure obligations for the Black Fox mine and mill
sites have been agreed with the Ontario Ministry of Northern Development and
Mines (“MNDM”).  The restricted certificates of deposits represent
$14.8 million (Cdn$15.6 million) and $3.8 million (Cdn$4.6 million) pledged to
the MNDM as of December 31, 2009 and 2008, respectively.


F-17


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




5.
            DERIVATIVE
      INSTRUMENTS




Fair
value of derivative instruments consists of:




December 31, 2009
                
                
                December 31, 2008Cost
                    Basis
                
                
                Unrealized
                    Gain (Loss)
                
                
                Fair
                    Value
                
                
                Cost
                    Basis
                
                
                Unrealized
                    Gain (Loss)
                
                
                Fair
                    ValueAssetsCanadian
      dollar purchase contracts
                
                $
                –
                
                
                $
                6,805
                
                
                $
                6,805
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –Gold,
      silver and lead contracts
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                552
                
                
                
                552Less:  Current
      portion
                
                
                –
                
                
                
                (1,961
                )
                
                
                (1,961
                )
                
                
                –
                
                
                
                (552
                )
                
                
                (552
                )Long-term
      portion
                
                $
                –
                
                
                $
                4,844
                
                
                $
                4,844
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –LiabilitiesGold
      forward sales contracts
                
                $
                –
                
                
                $
                (44,225
                )
                
                $
                (44,225
                )
                
                $
                –
                
                
                $
                –
                
                
                $
                –Less:  Current
      portion
                
                
                –
                
                
                
                12,571
                
                
                
                12,571
                
                
                
                –
                
                
                
                –
                
                
                
                –Long-term
      portion
                
                $
                –
                
                
                $
                (31,654
                )
                
                $
                (31,654
                )
                
                $
                –
                
                
                $
                –
                
                
                $
                –


On
February 20, 2009, the Company entered into a $70.0 million Project Facility
with two banks relating to Black Fox (Note 10(a)).  As required by the
terms of the Project Facility, the Company entered into a derivative program
covering a portion of the Company’s forecasted gold sales and forecasted
Canadian dollar operating costs, with the Banks acting as
counterparties.





The
original derivative program included gold forward sales of 250,430 ounces,
representing approximately 60% of the Company’s forecasted sales beginning in
May 2009 and continuing over the four year term of the Project
Facility.  The weighted average price of the sales program is $876 per
ounce of gold.  During the year ended December 31, 2009, the Company
realized a $7.0 million loss on the settlement of gold futures contracts
covering 50,099 ounces of gold.





The
original foreign exchange derivative program was for the Canadian dollar
equivalent of $58 million representing approximately 30% of the Company’s
forecasted Canadian dollar operating costs beginning in May 2009 and continuing
over the four year term of the Project Facility.  The weighted average
price of the sales program is Cdn$1.21 per $1.  During the year ended
December 31, 2009, the Company realized gains of $0.8 million for the settlement
of the Canadian dollar equivalent of $8.1 million foreign exchange
contracts.





Settlements
of the remaining gold forward sales contracts and Canadian dollar foreign
exchange contracts as of December 31, 2009 are as follows (table not in
thousands):


F-18


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)





Gold Forward Sales Contracts
              
              
              Canadian Dollar Foreign Exchange ContractsYear of Settlement
              
              Gold Ounces
              
              
              Average Contract
                  Price Per Ounce
              
              
              Pay US Dollars
                  (Millions)
              
              
              Exchange Rate
                  (Cdn$/USD)
              
              
              Purchase
                  Canadian Dollars
                  (Millions)2010
              
              
              57,646
              
              
              $
              876
              
              
              $
              13.4
              
              
              $
              1.21
              
              
              $
              16.32011
              
              
              54,704
              
              
              $
              876
              
              
              $
              16.1
              
              
              $
              1.21
              
              
              $
              19.52012
              
              
              73,458
              
              
              $
              876
              
              
              $
              16.3
              
              
              $
              1.21
              
              
              $
              19.72013
              
              
              14,523
              
              
              $
              876
              
              
              $
              4.1
              
              
              $
              1.21
              
              
              $
              4.9200,331
              
              
              
              
              
              
              $
              49.9
              
              
              
              
              
              
              $
              60.4





The
Company did not apply hedge accounting to these transactions.  As a
result, the Company accounts for these derivative instruments as investments and
records the changes in unrealized gains and losses in the consolidated statement
of operations each period.  The fair value of these derivatives is
recorded as an asset or liability at each balance sheet date as
follows:




Asset Derivatives
                                            
                                            
                                            Liability DerivativesDecember 31, 2009
                                            
                                            
                                            December 31, 2008
                                            
                                            
                                            December 31, 2009
                                            
                                            
                                            December 31, 2008Balance
                                                Sheet
                                                Location
                                            
                                            
                                            Fair
                                                Value
                                            
                                            
                                            Balance
                                                Sheet
                                                Location
                                            
                                            
                                            Fair
                                                Value
                                            
                                            
                                            Balance
                                                Sheet
                                                Location
                                            
                                            
                                            Fair
                                                Value
                                            
                                            
                                            Balance
                                                Sheet
                                                Location
                                            
                                            
                                            Fair
                                                ValueDerivatives
      not designated as hedging instruments under ASC 815-20Gold
      forward contracts
                                            
                                            n/a
                                            
                                            
                                            $
                                            –
                                            
                                            
                                            Derivative
                                              instruments
                                            
                                            
                                            $
                                            54
                                            
                                            
                                            Derivative
                                              instruments
                                            
                                            
                                            $
                                            44,225
                                            
                                            
                                            n/a
                                            
                                            
                                            $
                                            –Silver
      forward contracts
                                            
                                            n/a
                                            
                                            
                                            
                                            –
                                            
                                            
                                            Derivative
                                              instruments
                                            
                                            
                                            
                                            139
                                            
                                            
                                            n/a
                                            
                                            
                                            
                                            –
                                            
                                            
                                            n/a
                                            
                                            
                                            
                                            –Lead
      forward contracts
                                            
                                            n/a
                                            
                                            
                                            
                                            –
                                            
                                            
                                            Derivative
                                              instruments
                                            
                                            
                                            
                                            359
                                            
                                            
                                            n/a
                                            
                                            
                                            
                                            –
                                            
                                            
                                            n/a
                                            
                                            
                                            
                                            –Canadian
      currency forward contracts
                                            
                                            Derivativeinstruments
                                            
                                            
                                            
                                            6,805
                                            
                                            
                                            n/a
                                            
                                            
                                            
                                            –
                                            
                                            
                                            n/a
                                            
                                            
                                            
                                            –
                                            
                                            
                                            n/a
                                            
                                            
                                            
                                            –Total
      derivatives
                                            
                                            
                                            
                                            
                                            
                                            $
                                            6,805
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            552
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            44,225
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            –





Gold,
silver and lead contracts outstanding as of December 31, 2008 were related to
the Montana Tunnels operations.  These contracts matured and were
settled during the first quarter of 2009.




6.
            INVENTORIES




Inventories
consist of:




2009
              
              
              2008Doré
      inventory
              
              $
              3,186
              
              
              $
              –In-circuit
      gold inventory
              
              
              1,561
              
              
              
              –Stockpiled
      ore inventory
              
              
              2,633
              
              
              
              –Materials
      and supplies
              
              
              809
              
              
              
              –$
              8,189
              
              
              $
              –




7.
            INVESTMENTS




The
Company acquired auction rate securities (“ARS”) in 2007, which are recorded in
long-term investments, with a face value of $1.5 million.  During the
years ended December 31, 2009 and 2008, there were no purchases, sales, or
settlements of these ARS.  The ARS mature in 2033.  The
Company has recorded an other than temporary impairment on its ARS, within
foreign exchange loss and other in the consolidated statement of operations of
$0.05, $0.39 and $0.03 million for the years ended December 31, 2009, 2008 and
2007, respectively, and as such, no amounts have been recorded in other
comprehensive income.  The adjusted cost basis and fair value of ARS
at both December 31, 2009 and 2008 was $1.0 and $1.1 million,
respectively. The ARS are pledged as collateral for a $0.9 million margin
loan.


F-19


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




The
Company’s ARS investments are valued using a probability-weighted discounted
cash flow valuation.  The Company’s valuation of the ARS investments
considers possible cash flows and probabilities forecasted under certain
potential scenarios.  Each scenario’s cash flow is multiplied by the
probability of that scenario occurring.  The major inputs included in
the valuation are: (i) maximum contractual ARS interest rate, (ii) probability
of passing auction/early redemption at each auction, (iii) probability of
failing auction at each auction, (iv) probability of default at each auction,
(v) severity of default, and (vi) discount rate.  Changes in these
assumptions to reasonably possible alternative assumptions would not
significantly affect the Company’s results.




The
following table summarizes the effect of changes in fair value on the Company’s
carrying value of ARS:




Value
      of ARS upon acquisition
                  
                  $
                  1,500Other
      than temporary impairment
                  
                  
                  (33
                  )Balance,
      December 31, 2007
                  
                  
                  1,467Other
      than temporary impairment
                  
                  
                  (386
                  )Balance,
      December 31, 2008
                  
                  
                  1,081Other
      than temporary impairment
                  
                  
                  (45
                  )Balance,
      December 31, 2009
                  
                  $
                  1,036




8.
            PROPERTY,
      PLANT AND EQUIPMENT




The
components of property, plant and equipment at December 31 are as
follows:




2009
              
              
              2008Cost
              
              
              Accumulated
                  Depreciation
              
              
              Net Book
                  Value
              
              
              Cost
              
              
              Accumulated
                  Depreciation
              
              
              Net Book
                  ValueMine
      assetsBuilding,
      plant and equipment
              
              $
              79,345
              
              
              $
              5,137
              
              
              $
              74,208
              
              
              $
              30,737
              
              
              $
              770
              
              
              $
              29,967Mining
      properties and development costs
              
              
              35,606
              
              
              
              1,961
              
              
              
              33,645
              
              
              
              21,043
              
              
              
              –
              
              
              
              21,043114,951
              
              
              
              7,098
              
              
              
              107,853
              
              
              
              51,780
              
              
              
              770
              
              
              
              51,010Mineral
      rights
              
              
              8,715
              
              
              
              397
              
              
              
              8,318
              
              
              
              8,033
              
              
              
              –
              
              
              
              8,033Total
      property, plant and equipment
              
              $
              123,666
              
              
              $
              7,495
              
              
              $
              116,171
              
              
              $
              59,813
              
              
              $
              770
              
              
              $
              59,043Leased
      assets included above in Building, plant and equipment
              
              $
              16,139
              
              
              $
              615
              
              
              $
              15,524
              
              
              $
              1,581
              
              
              $
              70
              
              
              $
              1,511





9.
            MONTANA
      TUNNELS JOINT VENTURE




During
2009, the Company was party to a joint venture agreement with Elkhorn Tunnels,
LLC (“Elkhorn”) in respect to the Montana Tunnels mine.  While both
the Company and Elkhorn carried a 50% interest in the joint venture, the Company
was designated as the operator of the mine under the agreement.  The
Montana Tunnels mine is an open pit mine and mill producing gold doré and
lead-gold and zinc-gold concentrates.  The joint venture ceased mining
at Montana Tunnels on December 5, 2008 and completed milling of stockpiled ore
at the end of April 2009; the mine was at that time placed on care and
maintenance.  During the third quarter of 2009, the Company entered
into an agreement to sell its 50% interest in the Montana Tunnels mine to
Elkhorn.


F-20


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




On
February 1, 2010, the Company sold its 100% interest in MTMI, which held the
Company’s remaining 50% interest in the Montana Tunnels joint venture to
Elkhorn, for consideration of certain promissory notes held by Elkhorn and
certain investors in Elkhorn or its affiliates with an aggregate outstanding
balance of approximately $9.5 million (the “Elkhorn Notes”).  Based on
a valuation performed on the property securing the Elkhorn Notes using Level 3
inputs (See Note 3(t)) an impairment of $0.3 million was recorded for the
Montana Tunnels equity interest as of December 31, 2009.




Apollo
accounted for its 50% interest in the Montana Tunnels joint venture using the
equity method, whereby the Company's share of the investees' earnings and losses
is included in operations and its investments therein are adjusted by a similar
amount.




Summarized
financial information for the Montana Tunnels joint venture is as follows,
including a reconciliation of the Company’s equity investment in the
venture:




December 31,
                  2009
              
              
              December 31,
                  2008Cash
      and cash equivalents
              
              $
              256
              
              
              $
              24Other
      non-cash current assets
              
              
              1,808
              
              
              
              12,432Current
      assets
              
              
              2,064
              
              
              
              12,456Property,
      plant and equipment
              
              
              10,264
              
              
              
              12,076Restricted
      certificates of deposit
              
              
              16,374
              
              
              
              16,418Total
      assets
              
              
              28,702
              
              
              
              40,950Current
      liabilities
              
              
              2,044
              
              
              
              7,648Accrued
      site closure costs
              
              
              19,778
              
              
              
              18,330Other
      long-term liabilities
              
              
              –
              
              
              
              1,192Total
      liabilities
              
              
              21,822
              
              
              
              27,170Total
      equity
              
              
              6,880
              
              
              
              13,780Less:
      Elkhorn equity interest in Montana Tunnels
              
              
              (3,440
              )
              
              
              (6,890
              )Apollo
      equity investment in Montana Tunnels
              
              $
              3,440
              
              
              $
              6,890





Summarized
results of the operations of the Montana Tunnels joint venture is as follows,
including a reconciliation of the Company’s equity earnings in the
venture:


F-21


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




Year ended
                  December 31,
                  2009
              
              
              Year ended
                  December 31,
                  2008
              
              
              Year ended
                  December 31,
                  2007Revenue
      from sale of minerals
              
              $
              20,422
              
              
              $
              92,774
              
              
              $
              76,948Direct
      operating costs
              
              
              23,576
              
              
              
              67,664
              
              
              
              62,246Depreciation
      and amortization
              
              
              1,282
              
              
              
              2,540
              
              
              
              2,098Impairment
              
              
              558
              
              
              
              –
              
              
              
              –Accretion
      expense – accrued site closure costs
              
              
              1,448
              
              
              
              1,436
              
              
              
              1,01426,864
              
              
              
              71,640
              
              
              
              65,358Operating
      (loss) income
              
              
              (6,442
              )
              
              
              21,134
              
              
              
              11,590Interest
      income
              
              
              78
              
              
              
              286
              
              
              
              438Interest
      expense
              
              
              (108
              )
              
              
              (768
              )
              
              
              (1,892
              )Net
      (loss) income
              
              $
              (6,472
              )
              
              $
              20,652
              
              
              $
              10,136Less:
      Elkhorn equity share of net (loss) income
              
              
              (3,236
              )
              
              
              10,326
              
              
              
              5,068Apollo
      equity (loss) income in Montana Tunnels
              
              $
              (3,236
              )
              
              
              10,326
              
              
              
              5,068





10.
            LONG-TERM
      DEBT




Long-term
debt consists of the following:




December 31,
                  2009
              
              
              December 31,
                  2008Black
      Fox Project Facility (a)
              
              $
              62,514
              
              
              $
              –Convertible
      debentures (b)
              
              
              4,926
              
              
              
              8,045Credit
      facility (c)
              
              
              –
              
              
              
              2,762Bridge
      facility (d)
              
              
              –
              
              
              
              15,087Capital
      leases (e)
              
              
              15,320
              
              
              
              1,447Notes
      payable and other (f)
              
              
              1,009
              
              
              
              1,107Total
      debt
              
              
              83,769
              
              
              
              28,448Less:
      current portion of long-term debt
              
              
              (34,860
              )
              
              
              (22,909
              )Total
      long-term debt
              
              $
              48,909
              
              
              $
              5,539


F-22


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




As of
December 31, 2009, long-term debt is repayable as follows:




Black Fox
                    Project
                    Facility
                    (1)
                
                
                Convertible
                    Debentures
                    (2)
                
                
                Capital
                    leases
                
                
                Notes
                    payable
                    and
                    other
                
                
                Total2010
                
                $
                29,100
                
                
                $
                5,062
                
                
                $
                4,295
                
                
                $
                1,009
                
                
                $
                39,4662011
                
                
                10,200
                
                
                
                –
                
                
                
                4,355
                
                
                
                –
                
                
                
                14,5552012
                
                
                24,500
                
                
                
                –
                
                
                
                3,709
                
                
                
                –
                
                
                
                28,2092013
                
                
                6,200
                
                
                
                –
                
                
                
                3,557
                
                
                
                –
                
                
                
                9,7572014
                
                
                –
                
                
                
                –
                
                
                
                1,908
                
                
                
                –
                
                
                
                1,908Total
      payments due under long-term debt
                
                
                70,000
                
                
                
                5,062
                
                
                
                17,824
                
                
                
                1,009
                
                
                
                93,895Less:
      imputed interest
                
                
                –
                
                
                
                (136
                )
                
                
                (2,504
                )
                
                
                –
                
                
                
                (2,640
                )Less:
      unamortized debt discount
                
                
                (7,486
                )
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (7,486
                )Total
      debt
                
                
                62,514
                
                
                
                4,926
                
                
                
                15,320
                
                
                
                1,009
                
                
                
                83,769Less:
      current portion of long-term debt
                
                
                (25,628
                )
                
                
                (4,926
                )
                
                
                (3,297
                )
                
                
                (1,009
                )
                
                
                (34,860
                )Total
      long-term debt
                
                $
                36,886
                
                
                $
                –
                
                
                $
                12,023
                
                
                $
                –
                
                
                $
                48,909





(1)
            On
      March 9, 2010, the repayment schedule for the Black Fox Project Facility
      was revised (see Note 24(d)).


(2)
            On February 26, 2010, the
      maturity date of the convertible debentures was extended to August 23,
      2010 (see Note 24(b)).





(a)
            Black
      Fox Project Facility




(i)           Financing
agreement




On
February 20, 2009, the Company entered into a $70.0 million project financing
agreement (the “Project Facility”) with two banks (the “Banks”) relating to
Black Fox.  By June 2, 2009, the Company had borrowed the total amount
of the $70.0 million available under the Project Facility.  On
February 23, 2009, the Company used $15.0 million of the proceeds from the
Project Facility to repay the $15.0 million bridge facility entered into on
December 10, 2008 (the “Bridge Facility”) and has utilized the remaining $55.0
million to complete the development of Black Fox and to provide for certain
agreed corporate expenditures.





The terms
of the Project Facility include:  (i) a commitment by the Banks to
lend to the Company up to $70.0 million available for drawdown between February
20, 2009 and June 30, 2009; (ii) interest on the outstanding principal amount
accruing at a rate equal to the London interbank offered rate (“LIBOR”) plus 7%
per annum and payable in monthly installments commencing March 31, 2009
(currently the LIBOR rate is the one-month rate but the LIBOR rate used may be
monthly, quarterly or such other period as may be agreed to by the Banks and the
Company); (iii) scheduled repayment of the principal amount in unequal quarterly
amounts originally scheduled to commence September 30, 2009 (see paragraph below
for discussion regarding rescheduling of quarterly payments) with the final
repayment no later than March 31, 2013; and (iv) an arrangement fee of $3.5
million, which was paid by the Company to the Banks in cash on February 23,
2009.  The average monthly LIBOR rate charged to the Company during
the year ended December 31, 2009 was 0.3%.


F-23


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)





Borrowings under the Project Facility
are secured by substantially all of the Company’s assets, including the Black
Fox Project, and the common stock of its subsidiaries.  The Project
Facility contains various financial and operational covenants that impose
limitations on the Company which include, among other requirements, the
following:  maintenance of certain financial coverage ratios and
minimum project ore reserves, satisfaction of a minimum tangible net worth test,
and the operation of Black Fox in compliance with an agreed cash flow budgeting
and operational model.  In addition, the Black Fox Project is subject
to a completion test that must be satisfied by March 31, 2010.  As at
December 31, 2009, the Company was in compliance with the various financial
covenants of the Project Facility.  However, as a result of lower than
planned gold production, during the third quarter of 2009 a “review event” as
defined in the Project Facility was triggered.  The occurrence of a
review event allows the Banks to review the Project Facility and determine if
they wish to continue with the Project Facility.  On September 28,
2009, the Banks agreed to defer (i) the first scheduled repayment of $9,300,000
due on September 30, 2009 under the Project Facility (the “First Repayment”) and
(ii) the requirement to fund the associated debt service reserve account (the
“Funding Obligation”) also due on September 30, 2009, which, in accordance with
the terms of the Project Facility, requires a reserve amount equal to, at all
times after initial funding, the greater of $5,000,000 or the aggregate
repayment amount due on the next repayment date.  On December 30,
2009, the Banks agreed to further defer the First Repayment and the Funding
Obligation, and to defer the second scheduled repayment of $6,000,000 due on
December 31, 2009, in each case, until the earlier to occur of (i) the
completion of the Bank’s technical review process of the Black Fox mine or
(ii) March 31, 2010.  These deferrals will enable the Banks and the
Company to complete an ongoing technical review of the Black Fox project with
the objective of rescheduling the quarterly repayment installments under the
Project Facility.





In
consideration for providing the financing, the Banks were issued an aggregate of
34,836,111 warrants (“Banks’ Compensation Warrants”) at an exercise price of
$0.201 (Cdn$0.252) per share (subject to anti-dilution adjustments) that expire
on February 20, 2013.  The Banks’ Compensation Warrants are in
addition to the 42,614,254 common share purchase warrants issued to the Banks in
connection with the Bridge Facility (see Note 10(d)).  The Banks’
Compensation Warrants were assigned a fair value of $7.4 million on issuance,
using an option pricing model with the following assumptions:  no
dividends are paid, a volatility of the Company’s share price of 81%, an
expected life of the warrants of four years, and an annual risk-free rate of
1.9%.





The
Company recorded a $10.9 million discount on the Project Facility, comprised of
the $3.5 million arrangement fee and the $7.4 million fair value of the Banks’
Compensation Warrants, which discount will be accreted over the life of the loan
using an effective interest rate of 7.1% and charged to interest
expense.  The accreted interest from the date of loan origination
through May 24, 2009 (the date on which Black Fox entered commercial production)
was capitalized to Black Fox.  Additionally, the Company recorded $0.6
million of debt transactions costs that are treated similarly to the discount on
the Project Facility.





On March
9, 2010, the Project Facility was amended to revise the repayment schedule and
certain other terms (see Note 24(d)).





(ii)           Derivative
program in connection with the Project Facility




As a part
of the Project Facility, the Company and the Banks have entered into a
derivative program covering a portion of both the Company’s gold sales and its
Canadian dollar operating costs over the four year term of the Project Facility
(Note 5).





(iii)       
  Additional debt transaction costs resulting from the Project
Facility




Under the
terms of a previously existing engagement letter between the Company and a
certain financial advisory services firm (the “Firm”) pursuant to which the Firm
agreed to provide financial advisory services to the Company, the Project
Facility constituted an “alternative transaction” that required the Company to
compensate the Firm by issuing to it 2,172,840 common shares and 2,567,901
common share purchase warrants exercisable for a two year period at an exercise
price of $0.205 (Cdn$0.256).  In addition, the Company was required to
compensate the Firm for related financial advisory services by issuing to it
1,000,000 common shares of the Company.  The Company recorded debt
transaction costs of $1.2 million comprised of $0.8 million for the common
shares issued to the Firm and $0.4 million for the warrants issued to the
Firm.  The warrants were assigned a fair value of $0.4 million on
issuance, using an option pricing model with the following
assumptions:  no dividends are paid, a volatility of the Company’s
share price of 80%, an expected life of the warrants of two years, and an annual
risk-free rate of 1.2%


F-24


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




(b)
            Convertible
      debentures




On
February 23, 2007, the Company completed a private placement of $8.6 million
aggregate principal amount of Series 2007-A convertible debentures (“2007
Debentures”).  Each $1,000 of principal amount of 2007 Debentures
included 2,000 common share purchase warrants (“2007 Debenture
Warrants”).  The 2007 Debentures carried a maturity date of February
23, 2009 and bore interest at a rate of 12% per annum during the first year and
18% per annum during the second year, payable annually beginning on February 23,
2008.  During 2008 and 2007,  $0.7 million and $0.2 million
principal amount of 2007 Debentures, respectively, were converted under normal
terms.  There were no 2007 Debentures converted under normal terms in
2009.  See below for a discussion of the February 2009 repayment of a
portion of the 2007 Debentures and the restructuring of the terms of the
remaining 2007 Debentures.




The 2007
Debentures were convertible, at the option of the holder, at any time prior to
maturity into common shares of the Company at a price of $0.50 per common
share.  The Company has the option to force conversion of the 2007
Debentures under certain circumstances.  The 2007 Debenture Warrants
bore an exercise price of $0.50 per common share and had a term of two years
from the date of grant.




On the
date of issuance of the 2007 Debentures, the gross proceeds of $8.6 million were
allocated to the relative fair values of the Debentures ($3.2 million), the
beneficial conversion feature represented by the holder’s option to convert the
principal balance into common shares immediately upon issuance ($2.7 million),
and the 2007 Debenture Warrants ($2.7 million).  The $3.2 million fair
value of the 2007 Debentures was classified as a liability, the $2.7 million
allocated to the 2007 Debenture Warrants was classified as separate components
within shareholders’ equity, and the $2.7 million allocated to the beneficial
conversion feature was recognized as an expense immediately.




Over
their two-year term, the 2007 Debentures were accreted to their face value
through a periodic charge to accretion expense with a corresponding credit to
the liability component.  The accretion expense is based on the
effective interest method.  The Company recorded accretion expense
related to the 2007 Debentures of $1.4 million, $4.4 million, and $6.4 million
for the years ended December 31, 2009, 2008, and 2007, respectively; these
amounts are included in interest expense.




In
addition to the 2007 Debenture Warrants, the agents were granted 1,201,200
compensation warrants with substantially the same terms and conditions as the
2007 Debenture Warrants.




The Company incurred transaction costs
of $1.3 million (including the fair value of the agents’ compensation warrants
of $0.5 million).  These costs were allocated to 2007 Debenture
issuance costs of $0.9 million and to equity issuance costs of $0.4 million,
based on their relative fair values of the debt and equity
components.  2007 Debenture issuance costs were recognized over the
term of the debentures, while equity issuance costs were classified within
equity.




The fair
values of the beneficial conversion feature, the 2007 Debenture Warrants, and
the compensation warrants were determined using the Black-Scholes option pricing
model assuming no expected dividends, a volatility of the Company’s share price
of 70%, an interest rate of 4.1%, and an expected life of two
years.




On
February 19, 2009, the Company reached an agreement with the largest holder (the
“Large Holder”) of its Series 2007-A convertible debentures (the “2007
Debentures”) to extend the maturity date of the $4.3 million principal amount of
the 2007 Debentures held by the Large Holder from February 23, 2009 to February
23, 2010 (the “Extended Debentures”).


F-25


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)





The Large
Holder owned $4.3 million principal amount of the 2007 Debentures as of December
31, 2008 and February 23, 2009 (on which $0.8 million of interest was accrued as
of February 23, 2009) and 8,580,000 of warrants issued in connection with the
2007 Debentures (the “2007 Debenture Warrants).  The Company and the
Large Holder also agreed that the Company shall have the option to repay on
February 23, 2009 the $0.8 million of accrued interest on the Large Holder’s
2007 Debentures in either common shares of the Company or cash.  On
February 23, 2009, the Company repaid the $0.8 million of accrued interest on
the large Holder’s 2007 Debentures by issuing 2,444,765 common shares of the
Company.  In consideration for the foregoing, the Company agreed to
(i) issue 2,000,000 common shares of the Company to the Large Holder on February
23, 2009 (the “Large Holder Shares”), (ii) extend the expiration date of the
8,580,000 2007 Debenture Warrants issued to the Large Holder to March 5, 2010
(the “Large Holder Warrants”) and (iii) reduce the exercise price of the Large
Holder Warrants from $0.50 to $0.25.





The terms
and conditions of the $3.1 million aggregate principal amount of 2007 Debentures
and 2007 Debenture Warrants not owned by the Large Holder were not amended and
remained unchanged and principal and $0.6 million interest were repaid in cash
on February 23, 2009.





The
Company recorded a loss on modification of convertible debentures of $2.0
million comprised of $0.6 million for the Large Holder Shares, $1.3 million for
the Large Holder Warrants and $0.1 million for administrative
costs.  The Large Holder Warrants were assigned a fair value of $1.3
million, using an option pricing model with the following
assumptions:  no dividends are paid, a volatility of the Company’s
share price of 97%, an expected life of the warrants of one year, and an annual
risk-free rate of 1.2%.





The
Extended Debentures bear interest at a rate of 18% per annum and are convertible
into common shares of the Company at $0.50 per common share.  The 2007
Debentures are convertible, at the option of the holder, at any time prior to
maturity into common shares of the Company at a price of $0.50 per common
share.





The
Extended Debentures are classified as a compound financial instrument for
accounting purposes.





On the
date of extension of the Extended Debentures, the $4.3 million principal was
allocated to the relative fair values of the Debentures ($3.7 million) and the
beneficial conversion feature represented by the holder’s option to convert the
principal balance into common shares ($0.6 million).  The $3.7 million
fair value of the Extended Debentures is classified as a liability, while the
$0.6 million allocated to the beneficial conversion feature was recognized as an
expense immediately.





Over
their one-year term, the Extended Debentures are accreted to their face value
through a periodic charge to accretion expense with a corresponding credit to
the liability component.  The accretion expense is based on an
effective interest rate of 16.9%.  For the year ended December 31,
2009, the Company recorded accretion expense of $0.6 million related to the
Extended Debentures, which is included in interest expense.





On
February 26, 2010, the maturity date of the Extended Debentures was extended to
August 23, 2010 (see Note 24(b)).





(c)
            Credit
      Facility and related derivative
contracts




On July
1, 2008, the Company entered into a $5.15 million extension of an existing
credit facility (the “Credit Facility Extension”).  The Credit
Facility Extension, which was fully drawn on July 1, 2008, matured on June 30,
2009 and bore interest at LIBOR plus 2.0%, and was repayable in three quarterly
payments beginning December 31, 2008.  The Credit Facility was settled
in full on June 30, 2009.


F-26


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)





As a
requirement of the Credit Facility Extension, the Company entered into certain
option contracts to buy and sell gold, silver, lead and zinc.  The
option contracts were in the form of a no premium collar (buy a put, sell a
call) at the following prices:





Amount
                              
                              Put
                              
                              CallGold
                              
                              5,973
      ounces
                              
                              $800
      per ounce
                              
                              $1,075
      per ounceSilver
                              
                              50,238
      ounces
                              
                              $16.25
      per ounce
                              
                              $18.80
      per ounceLead
                              
                              2,262,000
      lbs
                              
                              $0.775
      per lb
                              
                              $0.835
      per lbZinc
                              
                              6,138,000
      lbs
                              
                              $0.80
      per lb
                              
                              $0.943
      per
lb




The Company did not apply hedge
accounting to this transaction.  As a result, the Company accounts for
these derivative instruments as investments and records the changes in
unrealized gains and losses in the statement of income each
period.  The fair value of these derivatives is recorded as a current
asset or current liability at each balance sheet date (see Note 5).




On October 23, 2008, the Company closed
a portion of its outstanding derivative contracts early for proceeds of $2.01
million and repaid principal of $1.95 million on the Credit Facility
Extension.  As of December 31, 2008, Apollo owed $2.76 million under
the Credit Facility Extension. This transaction did not affect any other terms
of the Credit Facility Extension.  As of December 31, 2008, Apollo had
the following outstanding put and call contracts, which are in the form of a no
premium collar (buy a put, sell a call) at the following prices:





Amount
                          
                          Put
                          
                          CallGold
                          
                          2,931
      ounces
                          
                          $800
      per ounce
                          
                          $1,075
      per ounceSilver
                          
                          24,786
      ounces
                          
                          $16.25
      per ounce
                          
                          $18.80
      per ounceLead
                          
                          1,117,428
      lbs
                          
                          $0.775
      per lb
                          
                          $0.835
      per
lb





These
contracts matured in three equal amounts at the end of January, February and
March 2009.  The contracts matured for combined net proceeds of $0.4
million.




(d)
            Bridge
      Facility




On
December 10, 2008, the Company entered into a $15 million bridge financing
facility (the “Bridge Facility”) relating to the development of the Black Fox
mine.





The Bridge Facility matured on June 30,
2009.  The Bridge Facility was subject to an arrangement fee of 5% and
bore interest at LIBOR plus 10% per annum, equal to approximately 12% per annum
as of the date of the arrangement. In addition, the counter-parties received
42,614,254 warrants, each warrant entitling the holder to purchase one common
share at a price of Cdn$0.221 per common share and exercisable for a four year
period (see Note 12(b)(iv)).




On
February 23, 2009, the Company utilized a portion of its proceeds from the
Project Facility (Note 10(a)) to settle the full amount outstanding under the
Bridge Facility.  The obligation was settled in full via a cash
payment of $15.3 million.




(e)
            Capital
      leases




Minimum
lease payments under capital leases at December 31, 2009 are detailed in the
table above. present value of net minimum payments for capital leases at
December 31, 2009 was $15.3 million.


F-27


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




(f)
            Notes
      payable and other debt




The notes
payable are secured by certain machinery and equipment and bear interest at
various effective interest rates between 6.2% and 16.4% (2008 – 5.7% and
16.4%).




11.
            ACCRUED
      SITE CLOSURE COSTS




The
Company’s operations are subject to reclamation and closure
requirements.  Although the ultimate amount of site restoration costs
is uncertain, on a regular basis, the Company monitors these costs and together
with third party engineers prepares internal estimates to evaluate its bonding
requirements.  The estimates prepared by management are then
reconciled with legal and regulatory requirements.




At
December 31, 2009, the accrued site closure liabilities amounted to $5.3 million
(2008 – $1.4 million).  The liabilities are covered by restricted
certificates of deposits valued at $14.8 million.




In view
of the uncertainties concerning future removal and site restoration costs, as
well as the applicable laws and regulations, the ultimate costs to the Company
could differ materially from the amounts estimated by
management.  Future changes, if any, due to their nature and
unpredictability, could have a material impact and would be reflected
prospectively, as a change in accounting estimate.




The
following table summarizes the effect to the Company’s accrued site closure
costs:




Balance,
      December 31, 2007
                
                $
                447Accretion
                
                
                23Acquisition
      of Black Fox mill
                
                
                1,210Additions,
      changes in estimates and other
                
                
                (282
                )Balance,
      December 31, 2008
                
                
                1,398Additions,
      changes in estimates and other
                
                
                3,578Accretion
                
                
                369Balance,
      December 31, 2009
                
                $
                5,345





As of
December 31, 2009, the total, undiscounted amount of the estimated future
obligations associated with the retirement of the Company’s properties is
estimated to be $16.0 million.  The $5.3 million (2008 – $1.4 million)
fair value of these obligations was determined using a credit adjusted risk-free
discount rate of 13.0% and expected payment of obligations over twelve
years.




12.
            SHAREHOLDERS’
      EQUITY




(a)
            Shares
      issued in 2009




(i)           For
the year ended December 31, 2009, there were 7,612,035 shares issued upon
exercise of warrants for proceeds of $1.4 million.  The warrants
exercised had an average exercise price of $0.186 per common share.




(ii)           On
February 20, 2009, the Company issued to a Firm (see Note 10(a)(iii)) 3,172,840
common shares of the Company and 2,567,901 common share purchase warrants
exercisable for a two year period at an exercise price of $0.204 (Cdn$0.256) for
services rendered.  The common share purchase warrants were assigned a
fair value on issuance of $0.4 million, using an option pricing model with the
following assumptions: no dividends are paid, volatility of the Company’s share
price of 80%, and expected life of the warrants of 2 years, and an annual
risk-free rate of 1.22%.  As the common share purchase warrants carry
a strike price in Canadian dollars, they are not considered to be indexed to the
Company’s stock, and are therefore accounted for as derivative instruments (Note
3(s)).  The fair value of the compensation warrants is assessed at
each period end.  As of December 31, 2009, the fair value of the
outstanding warrants was a liability of $0.4 million.


F-28


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




(iii)              On
February 23, 2009, the Company issued 2,444,765 common shares of the Company for
payment of the $0.8 million of accrued interest on the Large Holder’s 2007
Debentures (see Note 10(b)).  In addition, the Company issued
2,000,000 common shares of the Company in consideration for extending the 2007
Debentures and extended the expiration date of 8,580,000 warrants from February
23, 2009 to March 5, 2010 and reduced the exercise price of these warrants from
$0.50 to $0.25.




(iv)           On
July 15, 2009, the Company completed a private placement of 12,221,640 common
shares at Cdn$0.45 per share and 13,889,390 flow-through common shares at
Cdn$0.54 per share for net proceeds of $10.7 million (Cdn$12.0 million) after
cash issuance costs of $0.9 million.  The Company intends to use the
proceeds from the sale of the flow-through common shares to fund exploration
expenses at its Black Fox mine and its Grey Fox property.  Further,
the Company intends to use the proceeds from the sale of the common shares for
working capital and general corporate purposes.




In connection with the private
placement the Company issued 1,566,662 compensation warrants to purchase common
shares of the Company at an exercise price of Cdn$0.45 per share that expire on
July 15, 2011.  The compensation warrants were assigned a fair value
on issuance of $0.3 million, using an option pricing model with the following
assumptions: no dividends are paid, a volatility of the Company’s share price of
80%, an expected life of the warrants of two years, and an annual risk-free rate
of 1.2%.  As the compensation warrants carry a strike price in
Canadian dollars, they are not considered to be indexed to the Company’s stock,
and are therefore accounted for as derivative instruments (Note
3(s)).  The fair value of the compensation warrants is assessed at
each period end.  As of December 31, 2009, the fair value of the
warrants was a liability of $0.3 million.




(b)
            Shares
      issued in 2008




(i)           On
July 1, 2008, the Company issued 650,000 common shares of the Company valued at
$0.4 million, or $0.54 per common share in connection with the $5.15 million
Credit Facility Extension.  See Note 10(c).




(ii)           On
July 24, 2008, the Company issued 40,806,500 equity units at a price of Cdn$0.50
per unit (US$0.495 per unit for purchasers residing in the United States), for
total gross proceeds of $20.0 million (Cdn$20.2 million).  Net
proceeds to the Company, after agency fees and other expenses, were
approximately $18.1 million (Cdn$18.6 million).  Each unit is
comprised of one common share and one-half of one common share purchase warrant,
with each whole warrant (the “Unit Warrants”) exercisable into one common share
at a price of Cdn$0.65 per share for 36 months, expiring on July 24,
2011.  The Unit Warrants were assigned a fair value of $2.7 million,
using an option pricing model with the following assumptions:  no
dividends are paid, a volatility of the Company’s share price of 74%, an
expected life of the warrants of three years, and an annual risk-free rate of
3.4%.




The net
proceeds of the offering were used to fund the Company’s acquisition of the
Black Fox mill, the development of the Black Fox mine and for working capital
and general corporate purposes.


F-29


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




The
agents received the following compensation in consideration for their services:
(1) a cash fee equal to Cdn$1.3 million or 6.5% of the gross proceeds of the
offering; and (2) a non-transferable option to acquire up to 2,448,390 units
(the “Agents’ Units”) at a price per unit of Cdn$0.60, which number of units is
equal to 6% of the total number of units sold in the offering (the “Agents’
Compensation Option”).  The Agents’ Compensation Option is exercisable
through July 24, 2012.  Each Agents’ Unit will be comprised of one
common share and one-half of one common share purchase warrant (“Agents’
Warrant”), each whole Agents’ Warrant included in the Agents’ Unit entitling the
Agent holding such warrant to purchase one common share of the Company at an
exercise price of $0.53 (Cdn$0.78) through July 24, 2012.  The Agents’
Units were fair valued at $0.4 million, using an option pricing model with the
following assumptions:  no dividends are paid, a volatility of the
Company’s share price of 74%, an expected life of the warrants of four years,
and an annual risk-free rate of 3.4%.




(iii)           On
August 21, 2008, the Company completed an offering of 17,000,000 flow-through
common shares of the Company at Cdn$0.50 per common share for net proceeds of
$7.5 million (Cdn$7.8 million) and fair value of broker compensation warrants of
$0.1 million.  In connection with this offering, 1,020,000 broker
compensation warrants were issued to the agent.  Each broker
compensation warrant is exercisable at $0.41 (Cdn$0.50) per common share of the
Company and expires on February 21, 2010.  The broker compensation
warrants were fair valued using an option pricing model with the following
assumptions:  no dividends are paid, a volatility of the Company’s
share price of 58%, an expected life of the warrants of 1.5 years, and an annual
risk-free rate of 2.8%.




(iv)           On
December 10, 2008, the Company issued 42,614,254 compensation warrants in
connection with the $15.0 million Bridge Facility (Note 10(d)).  Each
compensation warrant is exercisable at $0.181 (Cdn$0.221) per common share of
the Company and expires on December 10, 2012.  These compensation
warrants were fair valued at $2.9 million, using an option pricing model with
the following assumptions:  no dividends are paid, a volatility of the
Company’s share price of 79%, an expected life of the warrants of 4.0 years, and
an annual risk-free rate of 2.0%.




(v)           On
December 10, 2008, the exercise price of 7,499,999 warrants issued in connection
with a unit offering completed on November 8, 2006 (the “2006 Unit Warrants”)
was reduced to $0.176 from $0.50 as a result of the certain anti-dilution
provisions of those warrants.  The issuance of the compensation
warrants described in the above paragraph (iv) at Cdn$0.221 per warrant
constituted a “Dilutive Issuance” under the terms of the 2006 Unit Warrants and
therefore the exercise price of the 2006 Unit Warrants were reduced to $0.176
based on the December 10, 2008 noon exchange rate of $0.7964 reported by the
Bank of Canada.




(vi)           On
December 31, 2008, the Company completed an offering of 3,000,000 flow-through
common shares of the Company at $0.25 (Cdn$0.30) per common share for net
proceeds of $0.7 million (Cdn$0.8 million) and fair value of broker compensation
warrants of $0.02 million.  In connection with this offering, 255,000
broker compensation warrants were issued to the agent.  Each broker
compensation warrant is exercisable at $0.25 (Cdn$0.30) per common share of the
Company and expires on December 31, 2010.  The broker compensation
warrants were fair valued using an option pricing model with the following
assumptions:  no dividends are paid, a volatility of the Company’s
share price of 82%, an expected life of the warrants of 2.0 years, and an annual
risk-free rate of 1.1%.




(vii)           During
2008, there were (i) 3,271,834 shares issued upon exercise of warrants for
proceeds of $1.4 million and (ii) 1,883,800 shares issued upon conversion of
$0.9 million face value of February 2007 Series-A convertible
debentures.




(c)
            Shares
      issued in 2007




(i)           On
February 28, 2007, the Company issued 1,000,000 common shares of the Company at
$0.54 per share in connection with the settlement of certain claims in relation
to the Huizopa property.




(ii)           On
September 4, 2007, the Company issued 1,057,692 common shares of the Company at
$0.50 per share in connection with acquiring rights to certain mineral claims at
the Black Fox property.




F-30


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




(iii)           On
October 31, 2007, the Company completed an offering of 7,454,545 flow-through
shares of the Company at Cdn$0.55 per common share for net proceeds of $4.0
million (Cdn$3.8 million) and fair value of broker compensation warrants of
$58,000.  In connection with this offering, 372,727 share purchase
warrants were issued to the agent.  Each share purchase warrant is
exercisable at Cdn$0.55 per common share of the Company and expires on April 30,
2009.  The share purchase warrants were fair valued using an option
pricing model with the following assumptions:  no dividends are paid,
a volatility of the Company’s share price of 72%, an expected life of the
warrants of 1.5 years, and an annual risk-free rate of 4.2%.




(d)
            Warrants




A summary
of information concerning outstanding warrants is as follows:




Number of
                    Warrants and
                    Shares Issuable
                    upon ExerciseBalance,
      December 31, 2006
                
                
                23,072,986Warrants
      issued
                
                
                18,733,927Warrants
      exercised
                
                
                (3,933,600
                )Warrants
      expired
                
                
                (6,515,998
                )Balance,
      December 31, 2007
                
                
                31,357,315Warrants
      issued
                
                
                64,297,754Warrants
      exercised
                
                
                (3,261,334
                )Warrants
      expired
                
                
                (1,116,361
                )Balance,
      December 31, 2008
                
                
                91,277,374Warrants
      issued
                
                
                38,970,674Warrants
      exercised
                
                
                (7,612,035
                )Warrants
      expired
                
                
                (11,042,835
                )Balance,
      December 31, 2009
                
                
                111,593,178





The
following summarizes outstanding warrants to purchase common shares of the
Company as at December 31, 2009:




Date Issued
                  
                  Number of Warrants and of
                      Shares Issuable uponExercise
                  
                  
                  Exercise Price
                  
                  Expiry DateExercisable in US$February
      23, 2007
                  
                  
                  8,580,000
                  
                  
                  
                  0.25
                  
                  March
      5, 2010(1)Exercisable in Cdn$August
      21, 2008
                  
                  
                  1,020,000
                  
                  
                  
                  0.50
                  
                  February
      21, 2010(2)December
      31, 2008
                  
                  
                  255,000
                  
                  
                  
                  0.30
                  
                  December
      31, 2010February
      20, 2009
                  
                  
                  2,317,901
                  
                  
                  
                  0.256
                  
                  February
      20, 2011July
      15, 2009
                  
                  
                  1,566,662
                  
                  
                  
                  0.24
                  
                  July
      15, 2011July
      24, 2008
                  
                  
                  20,403,250
                  
                  
                  
                  0.65
                  
                  July
      24, 2011December
      10, 2008
                  
                  
                  42,614,254
                  
                  
                  
                  0.221
                  
                  December
      10, 2012February
      20, 2009
                  
                  
                  34,836,111
                  
                  
                  
                  0.252
                  
                  February
      20, 2013103,013,178111,593,178





(1)These
warrants were exercised prior to expiration.


(2)On
February 21, 2010,all of
these warrants expired.


F-31


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




In
addition, 2,448,390 Agents’ Units are outstanding which were issued on July 24,
2008.  Each Agents’ Unit is exercisable at Cdn$0.60 for four years
into one common share of the Company and one-half of one Agents’ Warrant, with
each whole Agents’ Warrant exercisable into one common share of the Company at
Cdn$0.78.  The Agent’s Units and Agents’ Warrants expire on July 24,
2012.




(e)
            Options




A summary
of information concerning outstanding stock options is as follows:




Fixed Stock Options
              
              
              Performance-based
                  Stock OptionsNumber of
                  Common
                  Shares
              
              
              Weighted
                  Average
                  Exercise
                  Price
              
              
              Number of
                  Common
                  Shares
              
              
              Weighted
                  Average
                  Exercise
                  PriceBalances,
      December 31, 2006
              
              
              3,052,900
              
              
              
              1.06
              
              
              
              1,230,852
              
              
              
              0.80Options
      granted
              
              
              3,291,939
              
              
              
              0.57
              
              
              
              –
              
              
              
              –Options
      forfeited
              
              
              (117,336
              )
              
              
              0.72
              
              
              
              –
              
              
              
              –Options
      expired
              
              
              –
              
              
              
              –
              
              
              
              (1,230,852
              )
              
              
              0.80Balances,
      December 31, 2007
              
              
              6,227,503
              
              
              
              0.81
              
              
              
              –
              
              
              
              –Options
      granted
              
              
              2,228,738
              
              
              
              0.66
              
              
              
              –
              
              
              
              –Options
      forfeited
              
              
              (174,932
              )
              
              
              0.61
              
              
              
              –
              
              
              
              –Balances,
      December 31, 2008
              
              
              8,281,309
              
              
              
              0.77
              
              
              
              –
              
              
              
              –Options
      granted
              
              
              3,731,807
              
              
              
              0.34
              
              
              
              –
              
              
              
              –Options
      forfeited
              
              
              (418,745
              )
              
              
              0.52
              
              
              
              –
              
              
              
              –Balances,
      December 31, 2009
              
              
              11,594,371
              
              
              $
              0.64
              
              
              
              –
              
              
              $
              –





(i)           Fixed
stock option plan




The
Company has a fixed stock option plan that provides for the granting of options
to directors, officers, employees and service providers of the Company at a
price based on the trading price of the Common Shares one trading day preceding
the date of grant.  Options vest over two years and have a 10-year
contractual term, unless otherwise determined by the Company’s Board of
Directors.  The fixed stock option plan was amended in May 2009 in
order to increase the maximum number of fixed stock options the Company is
authorized to issue from 12,139,686 to 23,261,129, and modify certain terms of
the plan to ensure compliance with Internal Revenue Service
regulations.  As at December 31, 2009 an aggregate of 11,666,758 fixed
stock options were available for future grants of awards under the
plan.


F-32


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




The
following table summarizes information concerning outstanding and exercisable
fixed stock options at December 31, 2009:




Options Outstanding
                  
                  
                  Options ExercisableNumber
                      Outstanding
                  
                  Expiry Date
                  
                  Weighted
                      Average
                      Exercise
                      Price per
                      Share
                  
                  
                  Weighted
                      average
                      Remaining
                      Contractual Life
                      (inyears)
                  
                  
                  Number
                      Exercisable
                  
                  
                  Weighted
                      Average
                      Exercise
                      Price per
                      Share100,000
                  
                  September
      1, 2011
                  
                  $
                  0.46
                  
                  
                  
                  1.7
                  
                  
                  
                  100,000
                  
                  
                  $
                  0.46675,100
                  
                  February
      18, 2013
                  
                  
                  2.24
                  
                  
                  
                  3.1
                  
                  
                  
                  675,100
                  
                  
                  
                  2.24260,000
                  
                  March
      10, 2014
                  
                  
                  2.05
                  
                  
                  
                  4.2
                  
                  
                  
                  260,000
                  
                  
                  
                  2.0525,000
                  
                  May
      19, 2014
                  
                  
                  1.44
                  
                  
                  
                  4.4
                  
                  
                  
                  25,000
                  
                  
                  
                  1.4420,200
                  
                  August
      10, 2014
                  
                  
                  0.95
                  
                  
                  
                  4.6
                  
                  
                  
                  20,200
                  
                  
                  
                  0.951,158,250
                  
                  March  10,
      2015
                  
                  
                  0.65
                  
                  
                  
                  5.2
                  
                  
                  
                  1,158,250
                  
                  
                  
                  0.65100,000
                  
                  August
      4, 2015
                  
                  
                  0.27
                  
                  
                  
                  5.6
                  
                  
                  
                  100,000
                  
                  
                  
                  0.27300,000
                  
                  December
      12, 2015
                  
                  
                  0.20
                  
                  
                  
                  6.0
                  
                  
                  
                  300,000
                  
                  
                  
                  0.20125,000
                  
                  March
      28, 2016
                  
                  
                  0.65
                  
                  
                  
                  6.2
                  
                  
                  
                  125,000
                  
                  
                  
                  0.65200,000
                  
                  May
      23, 2016
                  
                  
                  0.53
                  
                  
                  
                  6.4
                  
                  
                  
                  200,000
                  
                  
                  
                  0.53108,000
                  
                  August
      10, 2016
                  
                  
                  0.48
                  
                  
                  
                  6.6
                  
                  
                  
                  108,000
                  
                  
                  
                  0.4820,000
                  
                  November
      9, 2016
                  
                  
                  0.32
                  
                  
                  
                  6.9
                  
                  
                  
                  20,000
                  
                  
                  
                  0.322,810,064
                  
                  February
      6, 2017
                  
                  
                  0.57
                  
                  
                  
                  7.1
                  
                  
                  
                  2,810,064
                  
                  
                  
                  0.5721,250
                  
                  May
      23, 2017
                  
                  
                  0.46
                  
                  
                  
                  7.6
                  
                  
                  
                  21,250
                  
                  
                  
                  0.461,973,950
                  
                  March
      27, 2018
                  
                  
                  0.66
                  
                  
                  
                  8.2
                  
                  
                  
                  986,975
                  
                  
                  
                  0.6621,250
                  
                  August
      12, 2018
                  
                  
                  0.37
                  
                  
                  
                  8.6
                  
                  
                  
                  10,625
                  
                  
                  
                  0.3730,000
                  
                  November
      11, 2018
                  
                  
                  0.15
                  
                  
                  
                  8.9
                  
                  
                  
                  15,000
                  
                  
                  
                  0.153,183,067
                  
                  March
      31, 2019
                  
                  
                  0.32
                  
                  
                  
                  9.3
                  
                  
                  
                  –
                  
                  
                  
                  –297,740
                  
                  May
      6, 2019
                  
                  
                  0.45
                  
                  
                  
                  9.4
                  
                  
                  
                  –
                  
                  
                  
                  –165,500
                  
                  August
      11, 2019
                  
                  
                  0.44
                  
                  
                  
                  9.6
                  
                  
                  
                  –
                  
                  
                  
                  –11,594,371
                  
                  
                  
                  $
                  0.64
                  
                  
                  
                  7.4
                  
                  
                  
                  6,935,464
                  
                  
                  $
                  0.79





The
aggregate intrinsic value of options outstanding is $13,400 and the aggregate
intrinsic value of options currently exercisable is $9,000.  There
were no options exercised during the years ended December 31, 2009, 2008 and
2007.




Stock
compensation expense is recognized on a straight-line basis over the vesting
period.  Expense recognized for the years ended December 31, 2009,
2008 and 2007 was $0.8 million, $0.8 million, and $1.0 million,
respectively.  The weighted average grant-date fair value of stock
options for 2009, 2008, and 2007 was $0.23, $0.40, and $0.37,
respectively.  As at December 31, 2009 there was $0.4 million of total
unrecognized compensation cost related to unvested options, which will be
amortized over their remaining vesting period of 1.6 years.




(f)
            Stock-based
      compensation




The fair
value of each option granted is estimated at the time of grant using the
Black-Scholes option-pricing model with weighted average assumptions for grants
as follows:




2009
              
              
              2008
              
              
              2007Risk-free
      interest rate
              
              
              1.9
              %
              
              
              2.9
              %
              
              
              4.0
              %Dividend
      yield
              
              
              0
              %
              
              
              0
              %
              
              
              0
              %Volatility
              
              
              77
              %
              
              
              67
              %
              
              
              71
              %Expected
      life in years
              
              
              6
              
              
              
              6
              
              
              
              6





The
Black-Scholes option-pricing model requires the input of subjective assumptions,
including expected term of the option award and stock price
volatility.  The expected term of options granted is derived from
historical data on employee exercise and post-vesting employment termination
behavior.  Expected volatility is based on the historic volatility of
the Company’s stock.  These assumptions involve inherent uncertainties
and the application of management judgment.  In addition, the Company
is required to estimate the expected forfeiture rate and only recognize expense
for those options expected to vest.




13.
            EMPLOYEE
      BENEFIT PLAN




The
Company maintains a defined contribution 401(k) plan for all U.S.
employees.  Employee benefits under the plan are limited by federal
regulations.  All U.S. employees are eligible to participate on their
date of hire.  The Company currently matches 50% of the first 6%
invested beginning three months after hire date.  The vesting schedule
is typically two years.


F-33


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




The
amounts charged to earnings for the Company’s defined contribution plan were
$0.03 million for each of the years ended December 31, 2009, 2008 and
2007.




14.
            INTEREST
      EXPENSE




For the
years ended December 31, interest expense consists of:




2009
              
              
              2008
              
              
              2007Accretion
      on convertible debentures
              
              $
              1,433
              
              
              $
              4,382
              
              
              $
              6,375Recognition
      of conversion option upon issuance of convertible debentures (Note
      10(b))
              
              
              –
              
              
              
              –
              
              
              
              2,700Amortization
      of debt discount
              
              
              2,719
              
              
              
              –
              
              
              
              –Amortization
      of deferred financing costs
              
              
              87
              
              
              
              160
              
              
              
              105Capital
      leases and other
              
              
              3,806
              
              
              
              326
              
              
              
              259$
              8,045
              
              
              $
              4,868
              
              
              $
              9,439





15.
            INCOME
      TAXES




The Company recorded a tax benefit of
$0.1 million and $2.4 million for the years ended December 31, 2009 and 2008,
respectively, for the issuance of flow-through shares, but recorded no other
recovery for income taxes as the net loss carry forwards are fully offset by a
valuation allowance.  The Company did not record a tax provision or
benefit  for the year ended December 31, 2007, due to the availability
of net operating loss carryforwards and the uncertainty of their future
realization.





The
provision for income taxes reported differs from the amounts computed by
applying the cumulative Canadian federal and provincial income tax rates to the
loss before tax provision due to the following:




2009
              
              
              2008
              
              
              2007Statutory
      tax rate
              
              
              30.72
              %
              
              
              30.67
              %
              
              
              33.12
              %Provision
      for (recovery of) income taxes computed at standard rates
              
              $
              (18,961
              )
              
              $
              (361
              )
              
              $
              (4,603
              )Differences
      due to foreign tax rates
              
              
              (330
              )
              
              1,026
              
              
              38Prior
      year over/under accrual
              
              (3,372
              )
              
              3,737
              
              
              (524
              )Change
      in valuation allowance
              
              
              29,340
              
              
              (14,155
              )
              
              6,199Permanent
      differences and other
              
              (6,750
              )
              
              7,373
              
              
              (1,110
              )$
              (73
              )
              
              $
              (2,380
              )
              
              $
              –





The tax
effects of temporary differences that would give rise to significant portions of
the future tax liabilities at December 31, were as follows:




2009
              
              
              2008Future
      income tax assetsNet
      operating losses carried forward
              
              $
              47,982
              
              
              $
              46,536Deductible
      temporary differences and other
              
              
              24,641
              
              
              
              2,607Exploration
      and development expenses
              
              
              4,723
              
              
              
              (1,248
              )Property,
      plant and equipment
              
              
              (694
              )
              
              
              169Accrued
      site closure costs
              
              
              4,986
              
              
              
              4,246Issuance
      of flow-through shares
              
              
              (869
              )
              
              
              (73
              )80,769
              
              
              
              52,237Less:
      Valuation allowance
              
              
              (82,073
              )
              
              
              (52,733
              )Net
      future income tax liabilities: Accumulated cost base differences on
      assets
              
              $
              (1,304
              )
              
              $
              (496
              )




Utilization
of the net operating losses carried forward and the foreign exploration and
development expenses are subject to limitations.  The Company has
placed a full valuation allowance on its excess tax assets due to a lack of past
taxable profits.  It does not believe significant income tax
obligations will occur in the near future.  At December 31, 2009, the
Company has the following unused tax losses available for tax carryforward
purposes:




Country
                    
                    Amount
                    
                    
                    ExpiryCanada
                    
                    $
                    27,300
                    
                    
                    
                    2010-2029United
      States
                    
                    
                    107,512
                    
                    
                    
                    2018-2029


F-34


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




The
Company recognizes benefits from uncertain tax positions only if it is more
likely than not that those the tax positions will be sustained on examination by
the taxing authorities, based on the technical merits of the
position.  The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate
resolution.  The Company has historically not recognized any
liabilities for uncertain tax positions




Under
current conditions and expectations, the Company does not foresee any
significant changes in unrecognized tax benefits that would have a material
impact on the Company’s financial statements.  In addition, any future
changes in the unrecognized tax benefit will have no impact on the effective tax
rate due to the existence of a full valuation allowance.




Gross
unrecognized tax benefits as of December 31, 2009 were zero, and there were no
additions to gross unrecognized tax benefits for tax positions of the current or
prior years during the year ended December 31, 2009.  There were also
no reductions to gross unrecognized tax benefits due to settlements with tax
authorities or due to statute of limitations during the years ended December 31,
2009, 2008, and 2007.  There were also no reductions to gross
unrecognized tax benefits due to settlements with tax authorities or due to
statute of limitations during the years ended December 31, 2009, 2008 and
2007.




The
Company and one or more of its subsidiaries file income tax returns in the
Canada, United States, and the state of Colorado.  The Company is
generally not subject to examinations that could create a tax liability for tax
years before 2002 by the Canada Revenue Agency.  The U.S. Federal tax
return has a three year statute of limitations.  The Colorado state
income tax return has a four year statute of limitations.  The U.S.
return for tax years ending on or after December 31, 2005 and the Colorado
return for years ending on or after December 31, 2004 are subject to examination
by the relevant taxing authority.




The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses.  There were no
such amounts accrued as of December 31, 2009 and 2008.  Management is
currently unaware of any issues under review that could result in significant
payments, accruals or material deviations from its position. These amounts will
be disclosed should they arise.




16.
            EARNINGS
      (LOSS) PER SHARE




Basic
earnings (loss) per share (“EPS”) is calculated by dividing net income available
to common shareholders by the weighted average number of common shares
outstanding during the period.  Diluted EPS is calculated to reflect
the dilutive effect of exercising outstanding warrants and stock options and of
conversion of convertible debentures by applying the treasury stock
method.




Earnings
used in determining EPS are presented below for the years ended December
31.




2009
              
              
              2008
              
              
              2007Net
      (loss) income
              
              $
              (61,650
              )
              
              $
              1,202
              
              
              $
              (13,897
              )Weighted
      average number of shares, basic
              
              
              245,404,476
              
              
              
              185,058,717
              
              
              
              145,645,178Dilutive
      securities:Options
              
              
              –
              
              
              
              249,457
              
              
              
              –Warrants
              
              
              –
              
              
              
              26,831,056
              
              
              
              –Weighted
      average number of shares, diluted
              
              
              245,404,476
              
              
              
              212,139,230
              
              
              
              145,645,178Basic
      and diluted earnings (loss) per share
              
              $
              (0.25
              )
              
              $
              0.01
              
              
              $
              (0.10
              )Options
      and warrants outstanding but not included in computation of diluted
      weighted average number of shares (“OWNI”) because the strike prices
      exceeded the average price of the common shares
              
              
              31,811,694
              
              
              
              51,121,570
              
              
              
              34,886,993Average
      exercise price of OWNI
              
              $
              0.62
              
              
              $
              0.59
              
              
              $
              0.61Shares
      issuable for convertible debentures excluded from calculation of EPS
      because their effect would have been anti-dilutive
              
              
              8,580,000
              
              
              
              14,876,200
              
              
              
              16,760,000Average
      conversion price of anti-dilutive convertible securities
              
              $
              0.50
              
              
              $
              0.50
              
              
              $
              0.50


F-35


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements – (Continued) (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




Due to
net losses for the years ended December 31, 2009 and 2007, an additional
44.4 million and 0.8 million warrants and stock options, respectively, were
excluded from the EPS computation because their effect would have been
anti-dilutive.




17.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS AND RISK
  MANAGEMENT




The
Company examines the various financial instrument risks to which it is exposed
and assesses the impact and likelihood of those risks. These risks may include
market risk, credit risk, liquidity risk, currency risk, interest rate risk and
commodity risk.  Where material, these risks are reviewed and
monitored by the Board of Directors.




(a)
            Capital
      risk management




The Company manages its capital to
ensure that it will be able to continue as a going concern while maximizing the
return to shareholders through the optimization of its debt and equity balance.
The Company’s overall strategy remains unchanged from 2008.





The capital structure of the Company
consists of current and long-term debt, notes payable and other debt,
convertible debentures and equity attributable to common shareholders,
comprising of issued common stock, note warrants, additional paid-in-capital,
and deficit.





(b)
            The
      estimated fair values of the Company’s financial instruments were as
      follows:




December
      31,2009
              
              
              2008Carrying
                  Amount
              
              
              Fair
                  Value
              
              
              Carrying
                  Amount
              
              
              Fair
                  ValueDerivative
      instruments - Assets
              
              $
              6,805
              
              
              $
              6,805
              
              
              $
              552
              
              
              $
              552Restricted
      cash
              
              
              6,731
              
              
              
              6,731
              
              
              
              13,827
              
              
              
              13,827Accounts
      receivable and other
              
              
              1,690
              
              
              
              1,690
              
              
              
              1,249
              
              
              
              1,249Long-term
      investments
              
              
              1,036
              
              
              
              1,121
              
              
              
              1,081
              
              
              
              1,081Accounts
      payable
              
              
              6,789
              
              
              
              6,789
              
              
              
              12,607
              
              
              
              12,607Accrued
      liabilities
              
              
              2,129
              
              
              
              2,129
              
              
              
              640
              
              
              
              640Derivative
      instruments - Liabilities
              
              
              44,225
              
              
              
              44,225
              
              
              
              –
              
              
              
              –Long-term
      debtCurrent
      portion of long-term debt
              
              
              34,860
              
              
              
              38,361
              
              
              
              22,909
              
              
              
              23,096Non-current
      portion of long-term debt
              
              
              48,909
              
              
              
              52,922
              
              
              
              5,539
              
              
              
              5,792Equity-linked
      financial instruments
              
              
              27,318
              
              
              
              27,318
              
              
              
              –
              
              
              
              –





(c)
            Market
      risk




Gold
prices are affected by various forces including global supply and demand,
interest rates, exchange rates, inflation or deflation and the political and
economic conditions of major gold producing countries.  The
profitability of the Company is directly related to the market price of
gold.


F-36


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




Due to
the nature of the precious metals market, the Company is not dependent on a
significant customer to provide a market for its refined gold.  For
the year ended December 31, 2009, the sensitivity of the Company’s net income to
a 10% change in gold prices would have impacted net income by $20.0 million for
a 10% increase or decrease in the price of gold.  Due to the Company’s
gold derivative program (see Note 5), for the year ended December 31, 2009, a
10% change in gold prices would have had no impact on cash flows because all
gold sales were delivered into the forward sales derivative
contracts.




(d)
            Credit
      risk




Credit risk on financial instruments
arises from the potential for counterparties to default on their obligations to
the Company.  The Company’s credit risk is limited to cash and cash
equivalents, trade receivables, restricted cash, restricted certificates of
deposit, derivative instruments and auction rate securities in the ordinary
course of business.  Cash and cash equivalents, restricted cash,
restricted certificates of deposit, derivative instruments and auction rate
securities are placed with high-credit quality financial
institutions.  The Company sells its metal production exclusively to
large international organizations with strong credit ratings.  The
balance of trade receivables owed to the Company in the ordinary course of
business is not significant.  The carrying value of accounts
receivable approximates fair value due to the relatively short periods to
maturity on these instruments.  Therefore, the Company is not exposed
to significant credit risk.  Overall, the Company’s credit risk has
not changed significantly from 2008.





The Company assesses quarterly whether
there has been an impairment of the financial assets of the
Company.  Other than disclosed in Note 7 related to ARS, the Company
has not recorded an impairment on any of the financial assets of the Company
during the year ended December 31, 2009.  Apollo continues to maintain
a portion of its investments in ARS, which are floating rate securities that are
marketed by financial institutions with auction reset dates at 28 day intervals
to provide short-term liquidity.  All ARS were rated Aaa when
purchased, pursuant to Apollo’s investment policy at the
time.  Auction rate securities are no longer permitted to be purchased
under the Company’s current investment policy.  Beginning in August
2007, a number of auctions began to fail and the Company is currently holding
ARS with a par value of $1.5 million which currently lack
liquidity.  All of Apollo’s ARS have continued to make regular
interest payments.  Apollo’s ARS were downgraded to Aa during the
second quarter of 2008.  If uncertainties in the credit and capital
markets persist or Apollo’s ARS experience further downgrades, the Company may
incur additional impairments, which may continue to be judged other than
temporary.  Apollo believes that the current illiquidity of its ARS
will not have a material impact on Apollo’s financial condition.





The Company’s maximum exposure to
credit risk is represented by the carrying amount on the balance sheet of cash
and cash equivalents, trade receivables, restricted cash, restricted
certificates of deposit, derivative instruments and auction rate
securities.  There are no material financial assets that the Company
considers to be past due.





(e)
            Liquidity
      risk




Liquidity risk is the risk that the
Company will not meet its financial obligations as they become
due.  The Company has a planning and budgeting process to monitor
operating cash requirements including amounts projected for the existing capital
expenditure program and plans for expansion, which are adjusted as input
variables change.  These variables include, but are not limited to,
available bank lines, mineral production from existing operations, commodity
prices, taxes and the availability of capital markets.  As these
variables change, the Company may be required to conduct equity issues or obtain
debt financing.





Trade payables and accrued liabilities
are paid in the normal course of business generally according to their terms,
which are typically due thirty days or less.  The Company ensures that
there are sufficient committed loan facilities to meet its short-term business
requirements, taking into account its anticipated cash flows from operations and
its holdings of cash and cash equivalents.  As at December 31, 2009,
the Company is in compliance with its debt covenants.  See Note 10(a)
for a discussion of the occurrence of a “review event,” the deferral of the $9.3
million and $6.0 million quarterly repayments due September 30 and December 31,
2009, respectively, and the possibility of restructuring the installment
payments associated with the Project Facility.


F-37


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




As at
December 31, 2009, the Company held no cash and cash equivalents
and  had current debt repayment obligations of $39.5 million
consisting of (1) the current portion of the project financing facility of $29.1
million, $15.3 million of which was originally due in 2009 (See Note 10(a)), (2)
the  outstanding principal and interest due on the Series 2007-A
convertible debentures of $5.1 million (Note 10(b)), and (3) $5.3 million for
capital leases and other current debt.





In the normal course of business, the
Company enters into contracts that give rise to commitments for future minimum
payments.  The following table summarizes the remaining contractual
maturities of the Company’s financial liabilities:


Payments Due by Period
                  As of December 31, 2009
                
                
                As of
                    December 31,
                    2008Within
                    1 Year
                
                
                1-3
                    Years
                
                
                3-5
                    Years
                
                
                Over
                  5 Years
                
                
                Total
                
                
                TotalBank
      indebtedness, accounts payable and accrued liabilities
                
                $
                9,246
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –
                
                
                $
                9,246
                
                
                $
                13,989Long-term
      debt (Note 10)
                
                
                39,466
                
                
                
                42,764
                
                
                
                11,665
                
                
                
                –
                
                
                
                93,895
                
                
                
                29,176Operating
      lease obligations
                
                
                165
                
                
                
                258
                
                
                
                19
                
                
                
                –
                
                
                
                442
                
                
                
                486Capital
      expenditures
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                17,094$
                48,877
                
                
                $
                43,022
                
                
                $
                11,684
                
                
                $
                –
                
                
                $
                103,583
                
                
                $
                60,745





(f)
            Currency
      risk




Financial instruments that impact the
Company’s net income or other comprehensive income due to currency fluctuations
include:  Canadian dollar restricted cash, restricted certificates of
deposit, accounts receivable, and accounts payable.  For the year
ended December 31, 2009, the sensitivity of the Company’s net income due to
changes in the exchange rate between the Canadian dollar and the United States
dollar would have impacted net income by $0.5 million, respectively, for a 10%
increase or decrease in the Canadian dollar.





(g)
            Interest
      rate risk




The Company is exposed to interest rate
risk on its outstanding borrowings and short-term investments.  As of
December 31, 2009, the Company’s significant outstanding borrowings consist of
$70.0 million of the Project Facility (Note 10(a)) and the Extended Debentures
which have an aggregate $4.3 million face value (Note 10(b)).  Amounts
outstanding under the Project Facility accrue interest at a floating rate based
on LIBOR plus 7.0% and the Extended Debentures have a stated rate of
18%.  The average monthly LIBOR rates charged to the Company on the
Project Facility during the year ended December 31, 2009 was
0.3%.  The Company monitors its exposure to interest rates and has not
entered into any derivative contracts to manage this risk.  The
weighted average interest rates paid by the Company on its outstanding
borrowings during the year ended December 31, 2009 was 7.3%.





For the year ended December 31, 2009, a
100 basis point increase or decrease in interest rates would have impacted net
income by $0.5 million on the amount of interest expense recorded during those
periods.


F-38


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




(h)
            Commodity
      price risk




The Company’s principal business
includes the sale of gold.  Revenues, earnings and cash flows from the
sale of gold are sensitive to changes in market prices, over which the Company
has little or no control.  The Company has the ability to address its
price-related exposures through the limited use of options and future and
forward contracts.




On February 20, 2009, in order to meet
certain loan criteria of the Project Facility, the Company entered into certain
forward sales contracts.  See Note 5 for details.




(i)
            Fair
      value estimation




The fair value of financial instruments
that are not traded in an active market (such as derivative instruments) is
determined using a Black-Scholes model based on assumptions that are supported
by observable current market conditions, with the exception of auction rate
securities (see Note 7).




The carrying value less impairment
provision, if necessary, of restricted cash, restricted certificates of deposit,
long-term investments, trade receivables and payables, and notes payable and
other debt approximate their fair values.  In addition, as the
interest rate on the Company’s credit facility is floating and has no unusual
rights or terms, the carrying value approximates its fair value.





18.
            COMMITMENTS
      AND CONTINGENCIES




(a)
            Royalties




Certain
of the Company’s mineral properties are subject to royalty obligations based on
minerals produced from the properties.  The Black Fox project current
reserves are not subject to royalty obligations.  Royalty obligations
for the Huizopa, Grey Fox, and Pike River properties may arise upon mine
production.




(b)
            Environmental




The
Company’s mining and exploration activities are subject to various federal,
provincial and state laws and regulations governing the protection of the
environment.  These laws and regulations are continually changing and
generally becoming more restrictive.  The Company conducts its
operations so as to protect public health and the environment and believes its
operations are materially in compliance with all applicable laws and
regulations.  The Company has made, and expects to make in the future,
expenditures to comply with such laws and regulations.




(c)
            Litigation
      and claims




The
Company is from time to time involved in various claims, legal proceedings and
complaints arising in the ordinary course of business.  The Company
does not believe that adverse decisions in any pending or threatened proceedings
related to any matter, or any amount which it may be required to pay by reason
thereof, will have a material effect on the financial conditions or future
results of operations of the Company.




(d)
            Indemnification
      obligations




The
Company is subject to certain indemnification obligations relating to the sale
of certain legacy assets in Nevada.  At this time, the Company is
unable to predict what cost there will be related to such indemnification
obligations.


F-39


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




19.
            LEASE
      COMMITMENTS




Minimum
lease payments under non-cancelable operating leases at December 31, 2009 were
as follows:





Operating
                    Leases2010
                
                $
                1652011
                
                
                1622012
                
                
                962013
                
                
                162014
                
                
                3$
                442





Rent
expense under non-cancelable operating leases was $2.1 million, $0.1 million and
$0.1 million for 2009, 2008, and 2007, respectively.  The current
portion of the capital lease obligations is included in current portion of debt
and the long-term portion is included in long-term portion of debt in the
consolidated balance sheets.




Minimum
lease payments under capital leases at December 31, 2009 are detailed at Note
10(e).  The present value of net minimum payments for capital leases
at December 31, 2009 was $15.3 million.




20.
            SUPPLEMENTAL
      CASH FLOW INFORMATION




(a)
            Net
      changes in non-cash operating working capital items for the years ended
      December 31 are:




2009
              
              
              2008
              
              
              2007(Increase)
      decrease in:Accounts
      receivable and other
              
              $
              (546
              )
              
              $
              (1,112
              )
              
              $
              (253
              )Prepaids
              
              
              826
              
              
              
              354
              
              
              
              474Inventories
              
              
              (8,189
              )
              
              
              –
              
              
              
              –Increase
      (decrease) in:Accounts
      payable
              
              
              4,642
              
              
              
              310
              
              
              
              343Accrued
      liabilities
              
              
              1,656
              
              
              
              (1,186
              )
              
              
              1,186$
              (1,611
              )
              
              $
              (1,634
              )
              
              $
              1,750





(b)
            Components
      of cash and cash equivalents as of the years ended December 31
      are:




2009
              
              
              2008
              
              
              2007Cash
              
              $
              –
              
              
              $
              –
              
              
              $
              –Cash
      equivalents
              
              
              –
              
              
              
              –
              
              
              
              1,334$
              –
              
              
              $
              –
              
              
              $
              1,334





Cash equivalents consist of term
deposits with original maturity dates not in excess of 90 days.


F-40


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


(Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)




(c)
            Non-cash
      transactions for the years ended December 31
  are:




2009
              
              
              2008
              
              
              2007Increase
      in property, plant and equipment due to assets acquired via issuance of
      trade and notes payable
              
              $
              14,709
              
              
              $
              11,941
              
              
              $
              325Increase
      in prepaid assets due to financing a portion of the Company’s insurance
      program via the issuance of notes payable
              
              
              785
              
              
              
              416
              
              
              
              653Increase
      in contributed surplus for the issuance of warrants to the Banks in
      connection with the Project Facility (Note 10(a)) and a corresponding
      decrease in debt for the debt discount
              
              
              7,395
              
              
              
              -
              
              
              
              -Increase
      in property, plant and equipment for capitalized expenses at Black Fox due
      to increase in equity related to issuance of shares in connection with the
      Bridge Facility (Note 10(c))
              
              
              -
              
              
              
              2,907
              
              
              
              -Increase
      in property, plant and equipment due to assets acquired via issuance of
      shares (see Note 12(c)(ii))
              
              
              -
              
              
              
              -
              
              
              
              527Increases
      in financial statement components related to the acquisition of the Black
      Fox mill in 2008:Equity
      due to the issuance of common shares for services rendered related to
      acquisition financing costs
              
              
              -
              
              
              
              351
              
              
              
              -Accrued
      site closure costs due to the assumption of a related reclamation
      liability
              
              
              -
              
              
              
              1,210
              
              
              
              -Increase
      in future income tax liability
              
              
              -
              
              
              
              447
              
              
              
              -





21.
            RELATED
      PARTY TRANSACTIONS




The
Company had the following related party transactions during each of the years in
the three-year period ended December 31, 2009:




2009
              
              
              2008
              
              
              2007Legal
      fees paid to one law firm, a partner of the firm is a director of the
      Company
              
              $
              428
              
              
              $
              512
              
              
              $
              381Consulting
      services paid to a relative of an officer and director of the
      Company
              
              
              12
              
              
              
              16
              
              
              
              9





These
transactions are in the normal course of business and are measured at the
exchange amount which is the consideration established and agreed to by the
related parties.  During 2008, six officers and directors of the
Company participated in the July 2008 Unit Offering (Note 12(b)(ii)) and
purchased 315,000 Units comprised of 315,000 common shares of the Company and
157,500 warrants to purchase common shares of the Company.  During
2007, a director of the Company participated in the October 2007 flow-through
share offering and purchased 54,545 flow-through shares in connection with the
offering (Note 12(c)(iii)).




22.
            SEGMENTED
      INFORMATION




Apollo
operates the Black Fox mine and mill in Canada.  The financial
information for Montana Tunnels assets and liabilities as of December 31, 2009
and 2008 and the results of operations for the years ended December 31, 2009,
2008 and 2007 are reported under the equity investment  method as a
result of the joint venture agreement (see Note 9) and is presented within
Corporate and other.  In the year ended December 31, 2009, two
customers accounted for 100% of revenues.  These customers are the
counter-parties to the Company’s gold forward sales contracts (Note
5).  One customer accounted for approximately 67% of revenues, while
the other customer accounted for approximately 33% of revenues.




F-41


APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  Amounts
      as at December 31, 2009 are as
follows:
  Black
                    Fox
                
                
                Corporate
                    and
      Other
                
                
                TotalCurrent
      assets
                
                $
                14,020
                
                
                $
                4,945
                
                
                $
                18,965Derivative
      instruments – long-term
                
                
                –
                
                
                
                4,844
                
                
                
                4,844Property,
      plant, and equipment
                
                
                113,167
                
                
                
                3,004
                
                
                
                116,171Investment
      in Montana Tunnels joint venture
                
                
                –
                
                
                
                3,440
                
                
                
                3,440Other
      long-term assets
                
                
                14,798
                
                
                
                1,043
                
                
                
                15,841Total
      assets
                
                $
                141,985
                
                
                $
                17,276
                
                
                $
                159,261Current
      liabilities
                
                $
                36,153
                
                
                $
                20,524
                
                
                $
                56,677Derivative
      instruments
                
                
                –
                
                
                
                31,654
                
                
                
                31,654Equity-linked
      financial instruments
                
                
                –
                
                
                
                27,318
                
                
                
                27,318Accrued
      site closure costs
                
                
                5,345
                
                
                
                –
                
                
                
                5,345Debt
      and other long-term liabilities
                
                
                50,213
                
                
                
                483
                
                
                
                50,696Total
      liabilities
                
                $
                91,711
                
                
                $
                79,979
                
                
                $
                171,690
  Amounts
as at December 31, 2008 are as follows:
  Black
                    Fox
                
                
                Corporate
                    and
      Other
                
                
                TotalCurrent
      assets
                
                $
                10,758
                
                
                $
                5,305
                
                
                $
                16,063Property,
      plant, and equipment
                
                
                56,000
                
                
                
                3,043
                
                
                
                59,043Investment
      in Montana Tunnels joint venture
                
                
                –
                
                
                
                6,890
                
                
                
                6,890Other
      long-term assets
                
                
                3,924
                
                
                
                1,081
                
                
                
                5,005Total
      assets
                
                $
                70,682
                
                
                $
                16,319
                
                
                $
                87,001Current
      liabilities
                
                $
                27,664
                
                
                $
                9,234
                
                
                $
                36,898Accrued
      site closure costs
                
                
                1,398
                
                
                
                –
                
                
                
                1,398Debt
      and other long-term liabilities
                
                
                1,463
                
                
                
                4,888
                
                
                
                6,351Total
      liabilities
                
                $
                30,525
                
                
                $
                14,122
                
                
                $
                44,647
  F-42
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
     Year Ended December 31, 2009Black
                      Fox
                  
                  
                  Corporate
                      and
      Other
                  
                  
                  TotalRevenue
      from sale of gold
                  
                  $
                  47,008
                  
                  
                  $
                  –
                  
                  
                  $
                  47,008Direct
      operating costs
                  
                  
                  26,126
                  
                  
                  
                  –
                  
                  
                  
                  26,126Depreciation
      and amortization
                  
                  
                  6,940
                  
                  
                  
                  38
                  
                  
                  
                  6,978General
      and administrative expenses
                  
                  
                  –
                  
                  
                  
                  4,875
                  
                  
                  
                  4,875Accrued
      site closure costs – accretion expense
                  
                  
                  369
                  
                  
                  
                  –
                  
                  
                  
                  369Exploration,
      business development and other
                  
                  
                  1,185
                  
                  
                  
                  775
                  
                  
                  
                  1,96034,620
                  
                  
                  
                  5,688
                  
                  
                  
                  40,308Operating
      income (loss)
                  
                  
                  12,388
                  
                  
                  
                  (5,688
                  )
                  
                  
                  6,700Interest
      income
                  
                  
                  –
                  
                  
                  
                  195
                  
                  
                  
                  195Interest
      expense
                  
                  
                  (6,484
                  )
                  
                  
                  (1,561
                  )
                  
                  
                  (8,045
                  )Debt
      transaction costs
                  
                  
                  –
                  
                  
                  
                  (1,249
                  )
                  
                  
                  (1,249
                  )Loss
      on modification of debentures
                  
                  
                  –
                  
                  
                  
                  (1,969
                  )
                  
                  
                  (1,969
                  )Fair
      value change on equity-linked financial instruments
                  
                  
                  –
                  
                  
                  
                  (10,720
                  )
                  
                  
                  (10,720
                  )Realized
      loss on investments – derivative instruments
                  
                  
                  –
                  
                  
                  
                  (6,355
                  )
                  
                  
                  (6,355
                  )Unrealized
      loss on investments – derivative instruments
                  
                  
                  –
                  
                  
                  
                  (37,420
                  )
                  
                  
                  (37,420
                  )Foreign
      exchange gain and other
                  
                  
                  –
                  
                  
                  
                  376
                  
                  
                  
                  376Income
      (loss) before income taxes and equity earnings in Montana Tunnels joint
      venture
                  
                  $
                  5,904
                  
                  
                  $
                  (64,391
                  )
                  
                  $
                  (58,487
                  )Investing
      activitiesProperty,
      plant and equipment expenditures
                  
                  $
                  55,591
                  
                  
                  $
                  –
                  
                  
                  $
                  55,591
  Year Ended December 31, 2008Black
                      Fox
                  
                  
                  Corporate
                      and
      Other
                  
                  
                  TotalRevenue
      from sale of gold
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –Depreciation
      and amortization
                  
                  
                  –
                  
                  
                  
                  100
                  
                  
                  
                  100General
      and administrative expenses
                  
                  
                  –
                  
                  
                  
                  3,696
                  
                  
                  
                  3,696Exploration,
      business development and other
                  
                  
                  2,798
                  
                  
                  
                  2,719
                  
                  
                  
                  5,5172,798
                  
                  
                  
                  6,515
                  
                  
                  
                  9,313Operating
      loss
                  
                  
                  (2,798
                  )
                  
                  
                  (6,515
                  )
                  
                  
                  (9,313
                  )Interest
      income
                  
                  
                  –
                  
                  
                  
                  238
                  
                  
                  
                  238Interest
      expense
                  
                  
                  –
                  
                  
                  
                  (4,868
                  )
                  
                  
                  (4,868
                  )Debt
      transaction costs
                  
                  
                  –
                  
                  
                  
                  (190
                  )
                  
                  
                  (190
                  )Realized
      gain on investments – derivative instruments
                  
                  
                  –
                  
                  
                  
                  5,507
                  
                  
                  
                  5,507Unrealized
      loss on investments – derivative instruments
                  
                  
                  –
                  
                  
                  
                  (1,549
                  )
                  
                  
                  (1,549
                  )Foreign
      exchange loss and other
                  
                  
                  –
                  
                  
                  
                  (1,329
                  )
                  
                  
                  (1,329
                  )Loss
      before income taxes and equity earnings in Montana Tunnels joint
      venture
                  
                  $
                  (2,798
                  )
                  
                  $
                  (8,706
                  )
                  
                  $
                  (11,504
                  )Investing
      activitiesProperty,
      plant and equipment expenditures
                  
                  $
                  45,070
                  
                  
                  $
                  42
                  
                  
                  $
                  45,112
  F-43
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  Year Ended December 31, 2007Black
                      Fox
                  
                  
                  Corporate
                      and
      Other
                  
                  
                  TotalRevenue
      from sale of gold
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –Depreciation
      and amortization
                  
                  
                  –
                  
                  
                  
                  104
                  
                  
                  
                  104General
      and administrative expenses
                  
                  
                  –
                  
                  
                  
                  4,647
                  
                  
                  
                  4,647Exploration,
      business development and other
                  
                  
                  4,512
                  
                  
                  
                  2,391
                  
                  
                  
                  6,9034,512
                  
                  
                  
                  7,142
                  
                  
                  
                  11,654Operating
      loss
                  
                  
                  (4,512
                  )
                  
                  
                  (7,142
                  )
                  
                  
                  (11,654
                  )Interest
      income
                  
                  
                  –
                  
                  
                  
                  482
                  
                  
                  
                  482Interest
      expense
                  
                  
                  –
                  
                  
                  
                  (9,439
                  )
                  
                  
                  (9,439
                  )Debt
      transaction costs
                  
                  
                  –
                  
                  
                  
                  (693
                  )
                  
                  
                  (693
                  )Realized
      gain on investments – derivative instruments
                  
                  
                  –
                  
                  
                  
                  395
                  
                  
                  
                  395Unrealized
      gain on investments – derivative instruments
                  
                  
                  –
                  
                  
                  
                  2,101
                  
                  
                  
                  2,101Foreign
      exchange loss and other
                  
                  
                  –
                  
                  
                  
                  (157
                  )
                  
                  
                  (157
                  )Loss
      before income taxes and equity earnings in Montana Tunnels joint
      venture
                  
                  $
                  (4,512
                  )
                  
                  $
                  (14,453
                  )
                  
                  $
                  (18,965
                  )Investing
      activitiesProperty,
      plant and equipment expenditures
                  
                  $
                  1,144
                  
                  
                  $
                  1,951
                  
                  
                  $
                  3,051
 
 23.
              DIFFERENCES
      BETWEEN U.S. AND CANADIAN GAAP
  The
Company prepares its consolidated financial statements in accordance with U.S.
GAAP.  The following adjustments and/or additional disclosures would
be required in order to present the financial statements in accordance with
Canadian GAAP at December 31, 2009 and 2008 and for the years ended December 31,
2009, 2008 and 2007.
  Material
variances between financial statement items under U.S. GAAP and the amounts
determined under Canadian GAAP are as follows:
  2009
                            
                            
                            2008Total
      assets in accordance with U.S GAAP
                            
                            $
                            159,261
                            
                            
                            $
                            87,001Bank
      indebtedness (e)
                            
                            
                            (328
                            )
                            
                            
                            (742
                            )Montana
      Tunnels joint venture (b)
                            
                            
                            10,911
                            
                            
                            
                            16,254Black
      Fox development costs(c)
                            
                            
                            27,674
                            
                            
                            
                            29,183Convertible
      debentures (d)
                            
                            
                            (485
                            )
                            
                            
                            (66
                            )Total
      assets in accordance with Canadian GAAP
                            
                            $
                            197,033
                            
                            
                            $
                            131,630Total
      liabilities in accordance with U.S. GAAP
                            
                            $
                            171,690
                            
                            
                            $
                            44,647Bank
      indebtedness (e)
                            
                            
                            (328
                            )
                            
                            
                            (742
                            )Montana
      Tunnels joint venture (b)
                            
                            
                            10,911
                            
                            
                            
                            14,137Convertible
      debentures (d)
                            
                            
                            (86
                            )
                            
                            
                            (118
                            )Income
      taxes related to flow-through share issuance (e)
                            
                            
                            (869
                            )
                            
                            
                            (49
                            )Equity-linked
      financial instruments (g)
                            
                            
                            (27,318
                            )
                            
                            
                            –Total
      liabilities in accordance with Canadian GAAP
                            
                            $
                            154,000
                            
                            
                            $
                            57,875
  F-44
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  Total
      shareholders’ (deficiency) equity in accordance with U.S.
    GAAP
                  
                  $
                  (12,429
                  )
                  
                  $
                  42,354Financing
      costs (a)
                  
                  
                  (485
                  )
                  
                  
                  –Montana
      Tunnels joint venture (b)
                  
                  
                  –
                  
                  
                  
                  2,117Black
      Fox development costs (c)
                  
                  
                  27,674
                  
                  
                  
                  29,159Convertible
      debentures (d)
                  
                  
                  86
                  
                  
                  
                  52Income
      taxes related to flow-through share issuance (e)
                  
                  
                  869
                  
                  
                  
                  73Equity-linked
      financial instruments (g)
                  
                  
                  27,318
                  
                  
                  
                  –Total
      shareholders’ equity in accordance with Canadian GAAP
                  
                  $
                  43,033
                  
                  
                  $
                  73,755Total
      shareholders’ equity and liabilities in accordance with Canadian
      GAAP
                  
                  $
                  197,033
                  
                  
                  $
                  131,630
 
 Under Canadian GAAP, the components of
shareholders’ equity would be as follows:
 
 2009
                  
                  
                  2008Share
      capital
                  
                  $
                  202,925
                  
                  
                  $
                  188,927Equity
      component of convertible debentures
                  
                  
                  584
                  
                  
                  
                  1,987Note
      warrants
                  
                  
                  –
                  
                  
                  
                  2,234Contributed
      surplus
                  
                  
                  36,051
                  
                  
                  
                  21,683Deficit
                  
                  
                  (196,527
                  )
                  
                  
                  (141,076
                  )Total
      shareholders’ equity in accordance with Canadian GAAP
                  
                  $
                  43,033
                  
                  
                  $
                  73,755
 
 Under
Canadian GAAP, the net (loss) income and net (loss) income per share would be
adjusted as follows:
 Year ended December 31,2009
                
                
                2008
                
                
                2007Net
      (loss) income for the year, based on U.S. GAAP
                
                $
                (61,650
                )
                
                $
                1,202
                
                
                $
                (13,897
                )Financing
      costs (a)
                
                
                (485
                )
                
                
                160
                
                
                
                105Montana
      Tunnels joint venture (b)
                
                
                3,236
                
                
                
                (10,326
                )
                
                
                (5,068
                )Black
      Fox development costs (c)
                
                
                (1,485
                )
                
                
                2,332
                
                
                
                4,473Convertible
      debentures (d)
                
                
                (550
                )
                
                
                396
                
                
                
                4,542Income
      taxes (e)
                
                
                116
                
                
                
                (523
                )
                
                
                1,394Equity-linked
      financial instruments (g)
                
                
                10,720
                
                
                
                –
                
                
                
                –Loss
      from continuing operations for the year based on Canadian
    GAAP
                
                
                (50,098
                )
                
                
                (6,759
                )
                
                
                (8,451
                )(Loss)
      income from discontinued operations for the year based on Canadian GAAP
      (b)
                
                
                (5,353
                )
                
                
                8,355
                
                
                
                10,867Net
      (loss) income for the year based on Canadian GAAP
                
                $
                (55,451
                )
                
                $
                1,596
                
                
                $
                2,416Comprehensive
      (loss) income
                
                $
                (55,451
                )
                
                $
                1,596
                
                
                $
                2,416Basic
      and diluted (loss) earnings per share in accordance with Canadian
      GAAP:Continuing
      operations
                
                $
                (0.20
                )
                
                $
                (0.03
                )
                
                $
                (0.06
                )Discontinued
      operations
                
                
                (0.03
                )
                
                
                0.04
                
                
                
                0.08Net
      (loss) earnings per share, basic and diluted – Canadian
    GAAP
                
                $
                (0.23
                )
                
                $
                0.01
                
                
                $
                0.02
  F-45
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  Under
Canadian GAAP, the consolidated statements of cash flows would be adjusted as
follows:
  Year ended December 31,2009
                
                
                2008
                
                
                2007Cash
      provided by (used in) operating activities based on U.S.
    GAAP
                
                $
                3,391
                
                
                $
                2,710
                
                
                $
                (5,708
                )Montana
      Tunnels joint venture (b)
                
                
                1,214
                
                
                
                2,101
                
                
                
                8,745Black
      Fox development costs (c)
                
                
                –
                
                
                
                2,332
                
                
                
                4,473Cash
      provided by operating activities based on Canadian GAAP
                
                
                4,605
                
                
                
                7,143
                
                
                
                7,510Cash
      (used in) provided by investing activities based on U.S.
    GAAP
                
                
                (57,986
                )
                
                
                (41,880
                )
                
                
                (7,527
                )Montana
      Tunnels joint venture (b)
                
                
                (13
                )
                
                
                (2,504
                )
                
                
                (10,032
                )Black
      Fox development costs (c)
                
                
                –
                
                
                
                (2,332
                )
                
                
                (4,473
                )Restricted
      cash for Canadian flow-through expenditures (e)
                
                
                1,210
                
                
                
                (127
                )
                
                
                2,354Cash
      (used in) provided by investing activities based on Canadian
      GAAP
                
                
                (56,789
                )
                
                
                (46,843
                )
                
                
                (19,678
                )Cash
      provided by financing activities based on U.S. GAAP
                
                
                55,046
                
                
                
                39,078
                
                
                
                10,994Montana
      Tunnels joint venture (b)
                
                
                (1,201
                )
                
                
                403
                
                
                
                1,287Cash
      provided by financing activities based on Canadian GAAP
                
                
                53,845
                
                
                
                39,481
                
                
                
                12,281Effect
      of exchange rate changes on cash
                
                
                (451
                )
                
                
                (1,242
                )
                
                
                (143
                )Net
      cash (outflow) inflow in accordance with Canadian GAAP
                
                
                1,210
                
                
                
                (1,461
                )
                
                
                (30
                )Cash,
      beginning of year in accordance with Canadian GAAP
                
                
                3,085
                
                
                
                4,546
                
                
                
                4,576Cash,
      end of year in accordance with Canadian GAAP
                
                $
                4,295
                
                
                $
                3,085
                
                
                $
                4,546
 
 (a)
              Financing
      costs
  Under
U.S. GAAP, debt financing costs are capitalized and amortized over the term of
the related debt.
  Under
Canadian GAAP, as of January 1, 2007, the Company expenses debt financing costs
when they are incurred.  Prior to January 1, 2007, under Canadian
GAAP, debt financing costs were capitalized and amortized over the term of the
related debt.  As a result, the Company recorded an adjustment under
Canadian GAAP to increase opening deficit by $0.3 million and reduce the opening
balance of deferred financing costs by $0.3 million.
  Also, as
of December 31, 2008, the Company recorded $2.6 million for financing costs in
connection with the Bridge Facility which were capitalized as development
expenses for the Black Fox Project under U.S. GAAP.  Under Canadian
GAAP, these costs are recorded as deferred financing costs and are depreciated
on a units-of-production basis.  There is no difference in total
assets between U.S. and Canadian GAAP with respect to this transaction; and
therefore, it has not been included as a Canadian GAAP adjusting
item.
  (b)
              Montana
      Tunnels joint venture
  (i)           Joint
venture
  Under
U.S. GAAP, the Company has accounted for its 50% interest in the Montana Tunnels
joint venture (“Montana Tunnels”) using the equity method whereby the Company's
share of the investees' earnings and losses is included in operations and its
investments therein are adjusted by a similar amount.
  Under
Canadian GAAP, the Company would account for its joint venture interest in
Montana Tunnels using the proportionate consolidation method whereby the
Company's proportionate share of each line item of Montana Tunnels assets,
liabilities, revenues and expenses is included in the corresponding line item of
the Company's financial statements.  Further, due to the Company’s
sale of its interest in Montana Tunnels on February 1, 2010, Montana Tunnels is
presented as a discontinued operation under Canadian GAAP.
  F-46
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  The
carrying value of Montana Tunnels is lower under U.S. GAAP than under Canadian
GAAP following a 2002 impairment of the property, plant and equipment (when
Montana Tunnels was a 100% owned subsidiary of the Company) and as a result the
gain on transfer of the Company's interest in Montana Tunnels into the joint
venture under U.S. GAAP is higher.  Under U.S. GAAP the gain on
transfer of the Company's interest in Montana Tunnels into the joint venture was
included in the net loss for the year ended December 31, 2006; whereas under
Canadian GAAP it was deferred and is recognized as an adjustment to net income
using the units-of-production method over the expected life of mine based on the
recoverable gold equivalent ounces.
  The
Company’s interest in the Montana Tunnels joint venture was sold on February 1,
2010 (Note 9).
  (ii)           Impairment
of property, plant and equipment
  In 2002,
under U.S. GAAP, write-downs were determined using current proven and probable
reserves.  Accordingly, for U.S. GAAP purposes, an impairment of
property, plant and equipment and an adjustment to the related depreciation was
been recorded.
  Under
Canadian GAAP, write-downs for impairment of property, plant and equipment are
determined using current proven and probable reserves and mineral resources
expected to be converted into mineral reserves, and as such, no impairment was
recorded for Canadian GAAP purposes.
  However,
upon the sale of the Montana Tunnels joint venture on February 1, 2010 (See Note
9) further write-downs were recorded as of December 31, 2009 for both U.S. and
Canadian GAAP purposes.  The write-down for U.S. GAAP was $0.3 million
while the write-down for Canadian GAAP was $1.1 million.
  (iii)           Stripping
costs
  Under
U.S. GAAP, the cost of removing overburden and waste materials to access the ore
body at an open pit mine prior to the production phase are referred to as
“pre-stripping costs”.  Pre-stripping costs are capitalized during the
development of an open pit mine.  The production phase of an open pit
mine commences when saleable materials are produced.  Stripping costs
incurred during the production phase of a mine are included in the cost of
inventory produced during the period in which the stripping costs were
incurred.  Capitalized pre-stripping costs are amortized using the
units-of-production method, whereby the denominator is the estimated recoverable
ounces of gold in the associated open pit.
  Under
Canadian GAAP, stripping costs that represent a betterment to the mineral
property are capitalized and amortized using the units-of-production method over
the expected life of the mine based on the estimated recoverable gold equivalent
ounces.
  (c)
              Development
      of Black Fox
  On April
14, 2008, the Company filed a Canadian National Instrument 43-101 prepared to
U.S. standards and on April 24, 2008, the Company’s Board of Directors approved
a plan authorizing management to proceed with development of Black
Fox.  Therefore, effective April 24, 2008, under U.S. GAAP, mining
development costs at the Black Fox Project are
capitalized.  Development costs incurred prior to April 24, 2008 were
expensed as incurred under U.S. GAAP.
  Under
Canadian GAAP, mining development costs at Black Fox Project have been
capitalized from inception.  Accordingly, for Canadian GAAP purposes,
a cumulative increase in property, plant and equipment of $29.2 million has been
recorded as at December 31, 2009 and additional depreciation expense of $1.6
million has been recorded for the year then ended.
  F-47
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  (d)
              Convertible
      debentures
  Under
U.S. GAAP, the 2007 Debentures were recorded as compound financial instruments
including detachable note warrants (Note 10(b)).  On issuance, under
Canadian GAAP, the detachable note warrants are similarly treated as an equity
instrument with the remainder of the convertible debentures treated as a
liability.  However, under Canadian GAAP, the beneficial conversion
features determined using the effective conversion prices based on the proceeds
allocated to the convertible debentures is allocated to contributed
surplus.  Canadian GAAP does not require the recognition of any
beneficial conversion feature.
  (e)
              Flow-through
      common shares
  Under
Canadian income tax legislation, a company is permitted to issue flow-through
shares whereby the Company agrees to incur qualifying expenditures and renounce
the related income tax deductions to the investors.  Under U.S. GAAP,
the proceeds from issuance of these shares are allocated between the offering of
shares and the sale of tax benefits.  The allocation is made based on
the difference between the quoted price of the existing shares and the amount
the investor pays for the shares.  A liability is recognized for this
difference.  The liability is reversed when tax benefits are renounced
and a deferred tax liability is recognized at that time.  Income tax
expense is the difference between the amount of a deferred tax liability and the
liability recognized on issuance.
  Under
Canadian GAAP, the Company has accounted for the issue of flow-through shares
using the deferral method in accordance with Canadian GAAP.  At the
time of issue, the funds received are recorded as share capital.
  Also,
notwithstanding whether there is a specific requirement to segregate the funds,
the flow-through funds which are unexpended at the consolidated balance sheet
dates are considered to be restricted and are not considered to be cash or cash
equivalents under U.S. GAAP.  They are not considered restricted under
Canadian GAAP.  As at December 31, 2009, unexpended flow-through funds
were $4.6 million (December 31, 2008 – $3.8 million).
  (f)
              Income
      taxes
  While tax
accounting rules are essentially the same under both U.S. and Canadian GAAP, tax
account differences can arise from differing treatment of various assets and
liabilities.  For example, certain mine developments cost are
capitalized under Canadian GAAP and expensed under U.S. GAAP, as explained
in (c) above.  An analysis of these differences indicates that there
are larger potential tax benefits under U.S. GAAP than under Canadian GAAP
but a valuation allowance has been applied to all amounts as of
December 31, 2009.
  F-48
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  (g)
              Equity-linked
      financial instruments not indexed to the Company’s own
    stock
  Under
U.S. GAAP, effective January 1, 2009, an equity-linked financial instrument
would not be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional
currency.  As of December 31, 2009 and January 1, 2009, the Company
had 103.0 million and 64.7 million outstanding warrants to purchase common
shares of the Company, respectively, that were either (a) denominated in a
currency (Canadian dollars) other than its functional currency (US dollars) or
(b) subject to a potential strike-price adjustment (the warrants issued November
8, 2006 were exercisable at $0.176 as of January 1, 2009) (see Note
3(s)).  As such, these warrants are not considered to be indexed to
the Company’s own stock, and are thereby required to be accounted for separately
as derivative instruments, rather than as equity instruments.
  Under
Canadian GAAP, these warrants are accounted for as equity instruments, with
their fair value upon issuance recognized as additional paid-in
capital.
  (h)
              Changes
      to accounting pronouncements
  Effective
January 1, 2009, the Company adopted CICA Handbook Section 3064, Goodwill and Intangible
Assets, which replaces CICA Handbook Section 3062, and establishes
revised standards for recognition, measurement, presentation and disclosure of
goodwill and intangible assets.  Concurrent with the adoption of this
standard, Emerging Issues Committee (“EIC”) 27, Revenues and Expenditures in the
Pre-operating Period is no longer applicable.  The adoption of
Section 3064 did not have a material impact on the Company’s consolidated
financial position and results of operations for the year ended December 31,
2009.
 
 Effective
January 1, 2009, the Company adopted CICA Handbook Sections 1582, Business Combinations,
(“Section 1582”), 1601, Consolidated Financial
Statements, (“Section 1601”) and 1602, Non-controlling Interests,
(“Section 1602”) which replaces CICA Handbook Sections 1581, Business Combinations, and
1600, Consolidated Financial
Statements.  Section 1582 was applicable for the Company’s
business combinations with acquisition dates on or after January 1,
2009.  Section 1601 together with Section 1602 establishes standards
for the preparation of consolidated financial statements.  Section
1601 was applicable for the Company’s interim and annual consolidated financial
statements for its fiscal year beginning January 1, 2009.  The
adoption of these three standards did not have a material impact on the
Company’s consolidated financial position and results of operations for the year
ended December 31, 2009.
 
 On
January 20, 2009, the CICA issued EIC 173, Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities, which clarifies that an
entity’s own credit risk and the credit risk of the counterparty should be taken
into account in determining the fair value of financial assets and liabilities,
including derivative instruments.  EIC 173 is to be applied
retrospectively without restatement of prior periods in interim and annual
financial statements for periods ending on or after the date of issuance of EIC
173.  The Company adopted this recommendation January 1,
2009.  The adoption of this standard had a significant impact on the
fair value of the gold forward sales at December 31, 2009.  Without
the inclusion of the Company’s own credit risk the fair value of the gold hedge
liability would have been $109.2 million compared to $96.0 million at December
31, 2009.
  F-49
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  (i)
              Accounting
      policies implemented during the year ended December 31,
    2009
  On March
27, 2009, the Emerging Issues Committee of the CICA approved abstract EIC-174 –
Mining Exploration
Costs and withdrew EIC-126 – Accounting by Mining Enterprises for
Exploration Costs. The publication of EIC-174 covers all guidance in
EIC-126 and provides additional guidance for mining exploration enterprises in
circumstances where a test for impairment is required.  The adoption
of this abstract did not have any impact on the Company’s consolidated financial
statements.
  In August
2009, the CICA issued certain amendments to Section 3251 – Equity.  The
amendments apply to entities that have adopted Section 1602 – Non-controlling
interests.  The amendments require separate presentation on the
statements of operations and comprehensive income of income attributable to
owners of the Company and those attributable to non-controlling interests. The
amendments also require that non-controlling interests be presented separately
as a component of equity.  The adoption of this standard has had no
impact on the financial statements for the year ended December 31,
2009.
  F-50
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  (j)
              Comparative
      financial statements
  During
the fourth quarter of 2009, the Company commenced reporting under U.S. GAAP. As
a result of this conversion the following 2008 and 2007 Canadian GAAP
comparative financial statements have been restated under U.S.
GAAP.
 December 31, 2008COMPARATIVE CONSOLIDATED BALANCE SHEETS
                
                As Restated,
                    U.S.
                  GAAP
                
                
                As
                    Previously
                    Reported,
                  Canadian
                    GAAP (1)(In
      thousands ofU.S.
      Dollars)ASSETSCURRENTCash
      and cash equivalents
                
                $
                –
                
                
                $
                3,085Restricted
      cash
                
                
                13,827
                
                
                
                10,000Accounts
      receivable and other
                
                
                1,249
                
                
                
                1,974Prepaids
                
                
                435
                
                
                
                435Derivative
      instruments
                
                
                552
                
                
                
                552Current
      assets of discontinued operations
                
                
                –
                
                
                
                5,437Total
      current assets
                
                
                16,063
                
                
                
                21,483Long-term
      investments
                
                
                1,081
                
                
                
                1,081Property,
      plant and equipment
                
                
                59,043
                
                
                
                88,226Investment
      in Montana Tunnels joint venture
                
                
                6,890
                
                
                
                –Restricted
      certificates of deposit
                
                
                3,821
                
                
                
                3,821Other
      long-term assets
                
                
                103
                
                
                
                103Non-current
      assets of discontinued operations
                
                
                –
                
                
                
                16,916TOTAL
      ASSETS
                
                $
                87,001
                
                
                $
                131,630LIABILITIESCURRENTBank
      indebtedness
                
                $
                742
                
                
                $
                –Accounts
      payable
                
                
                12,607
                
                
                
                12,607Accrued
      liabilities
                
                
                640
                
                
                
                640Current
      portion of long-term debt
                
                
                22,909
                
                
                
                22,791Current
      liabilities of discontinued operations
                
                
                –
                
                
                
                4,376Total
      current liabilities
                
                
                36,898
                
                
                
                40,414Accrued
      long-term liabilities
                
                
                316
                
                
                
                316Long-term
      debt
                
                
                5,539
                
                
                
                5,539Accrued
      site closure costs
                
                
                1,398
                
                
                
                1,398Future
      income tax liability
                
                
                496
                
                
                
                447Non-current
      liabilities of discontinued operations
                
                
                –
                
                
                
                9,761TOTAL
      LIABILITIES
                
                
                44,647
                
                
                
                57,875SHAREHOLDERS’
      (DEFICIENCY) EQUITYCommon
      stock
                
                
                189,451
                
                
                
                188,927Equity
      component of convertible debentures
                
                
                –
                
                
                
                1,987Note
      warrants
                
                
                2,234
                
                
                
                2,234Additional
      paid-in capital
                
                
                48,241
                
                
                
                21,683Accumulated
      deficit
                
                
                (197,572
                )
                
                
                (141,076
                )TOTAL
      SHAREHOLDERS’ (DEFICIENCY) EQUITY
                
                
                42,354
                
                
                
                73,755TOTAL
      LIABILITIES AND SHAREHOLDERS’ (DEFICIENCY) EQUITY
                
                $
                87,001
                
                
                $
                131,630
 
 (1)
              As
      previously reported on the Company’s Form 8-K filed with the SEC on
      February 25, 2010 and in Canada on February 27, 2010.  Note that
      these figures differ from those disclosed on the Company’s Form 10-K filed
      with the SEC on March 27, 2009.  The 8-K was filed to present
      Montana Tunnels as a discontinued operation under Canadian GAAP (see Note
      9).
  F-51
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  COMPARATIVE CONSOLIDATED STATEMENTS OF
                    OPERATIONS AND COMPREHENSIVE INCOME
                  
                  Year Ended
                      December 31, 2008
                  
                  
                  Year Ended
                      December 31, 2007As Restated,
                      U.S.
                      GAAP
                  
                  
                  As Previously
                      Reported,
                      Canadian
                      GAAP (1)
                  
                  
                  As Restated,
                      U.S.
                      GAAP
                  
                  
                  As Previously
                      Reported,
                      Canadian
                      GAAP (1)(U.S. dollars and shares in thousands, except per share amounts)Operating
      expensesDepreciation
      and amortization
                  
                  $
                  100
                  
                  
                  $
                  100
                  
                  
                  $
                  104
                  
                  
                  $
                  104General
      and administrative expenses
                  
                  
                  3,696
                  
                  
                  
                  3,696
                  
                  
                  
                  4,647
                  
                  
                  
                  4,647Exploration,
      business development and other
                  
                  
                  5,517
                  
                  
                  
                  3,185
                  
                  
                  
                  6,903
                  
                  
                  
                  2,430Operating
      loss
                  
                  
                  9,313
                  
                  
                  
                  6,981
                  
                  
                  
                  11,654
                  
                  
                  
                  7,181Other
      income (expenses)Interest
      income
                  
                  
                  238
                  
                  
                  
                  238
                  
                  
                  
                  482
                  
                  
                  
                  482Interest
      expense
                  
                  
                  (4,868
                  )
                  
                  
                  (4,312
                  )
                  
                  
                  (9,439
                  )
                  
                  
                  (4,792
                  )Debt
      transaction costs
                  
                  
                  (190
                  )
                  
                  
                  (190
                  )
                  
                  
                  (693
                  )
                  
                  
                  (693
                  )Realized
      gain on investments – derivative instruments
                  
                  
                  5,507
                  
                  
                  
                  5,507
                  
                  
                  
                  395
                  
                  
                  
                  395Unrealized
      (loss) gain on investments – derivative instruments
                  
                  
                  (1,549
                  )
                  
                  
                  (1,549
                  )
                  
                  
                  2,101
                  
                  
                  
                  2,101Foreign
      exchange loss and other
                  
                  
                  (1,329
                  )
                  
                  
                  (1,329
                  )
                  
                  
                  (157
                  )
                  
                  
                  (157
                  )(2,191
                  )
                  
                  
                  (1,635
                  )
                  
                  
                  (7,311
                  )
                  
                  
                  (2,664
                  )Loss
      from continuing operations before income taxes and equity earnings in
      Montana Tunnels joint venture
                  
                  
                  (11,504
                  )
                  
                  
                  (8,616
                  )
                  
                  
                  (18,965
                  )
                  
                  
                  (9,845
                  )Income
      taxes
                  
                  
                  2,380
                  
                  
                  
                  1,857
                  
                  
                  
                  –
                  
                  
                  
                  1,394Equity
      earnings in Montana Tunnels joint venture
                  
                  
                  10,326
                  
                  
                  
                  –
                  
                  
                  
                  5,068
                  
                  
                  
                  –Income
      (loss) from continuing operations
                  
                  
                  1,202
                  
                  
                  
                  (6,759
                  )
                  
                  
                  (13,897
                  )
                  
                  
                  (8,451
                  )Income
      from discontinued operations
                  
                  
                  –
                  
                  
                  
                  8,355
                  
                  
                  
                  –
                  
                  
                  
                  10,867Net
      income (loss) and comprehensive income (loss)
                  
                  $
                  1,202
                  
                  
                  $
                  1,596
                  
                  
                  $
                  (13,897
                  )
                  
                  $
                  2,416Basic
      and diluted net (loss) income per share:Continuing
      operations
                  
                  $
                  0.01
                  
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.10
                  )
                  
                  $
                  (0.06
                  )Discontinued
      operations
                  
                  
                  –
                  
                  
                  
                  0.04
                  
                  
                  
                  –
                  
                  
                  
                  0.08Net
      (loss) earnings per share, basic and diluted
                  
                  $
                  0.01
                  
                  
                  $
                  0.01
                  
                  
                  $
                  (0.10
                  )
                  
                  $
                  0.02Basic
      weighted-average number of shares outstanding
                  
                  
                  185,059
                  
                  
                  
                  185,059
                  
                  
                  
                  145,645
                  
                  
                  
                  145,645Diluted
      weighted-average number of shares outstanding
                  
                  
                  212,139
                  
                  
                  
                  212,139
                  
                  
                  
                  145,645
                  
                  
                  
                  146,428
 
 (1)
              As
      previously reported on the Company’s Form 8-K filed with the SEC on
      February 25, 2010 and in Canada on February 27, 2010.  Note that
      these figures differ from those disclosed on the Company’s Form 10-K filed
      with the SEC on March 27, 2009.  The 8-K was filed to present
      Montana Tunnels as a discontinued operation under Canadian GAAP (see Note
      9).
  F-52
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  Year Ended
                    December 31, 2008
                
                
                Year Ended
                    December 31, 2007COMPARATIVE CONSOLIDATED
                  STATEMENTS OF CASH FLOWS
                
                As
                    Restated,
                    U.S.
                  GAAP
                
                
                As
                    Previously
                    Reported,
                  Canadian
                    GAAP (1)
                
                
                As
                    Restated,
                    U.S.
                  GAAP
                
                
                As
                    Previously
                    Reported,
                  Canadian
                    GAAP (1)(In thousands of U.S. dollars)Operating
      ActivitiesNet
      income (loss) for the year
                
                $
                1,202
                
                
                $
                1,596
                
                
                $
                (13,897
                )
                
                $
                2,416(Income)
      loss from discontinued operations for the year
                
                
                –
                
                
                
                (8,355
                )
                
                
                –
                
                
                
                (10,867
                )Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                100
                
                
                
                100
                
                
                
                104
                
                
                
                104Amortization
      of deferred financing costs
                
                
                160
                
                
                
                –
                
                
                
                105
                
                
                
                –Financing
      costs
                
                
                –
                
                
                
                –
                
                
                
                174
                
                
                
                174Stock-based
      compensation
                
                
                835
                
                
                
                835
                
                
                
                962
                
                
                
                962Shares
      issued for services and settlement of claims
                
                
                –
                
                
                
                –
                
                
                
                592
                
                
                
                592Accretion
      expense – convertible debentures
                
                
                4,382
                
                
                
                3,986
                
                
                
                9,075
                
                
                
                4,533Interest
      paid on convertible debentures
                
                
                (1,016
                )
                
                
                (1,016
                )
                
                
                (1,016
                )
                
                
                (1,016
                )Net
      change in value of derivative instruments
                
                
                1,549
                
                
                
                1,549
                
                
                
                (2,101
                )
                
                
                (2,101
                )Foreign
      exchange loss and other
                
                
                1,283
                
                
                
                1,283
                
                
                
                572
                
                
                
                572Income
      taxes
                
                
                (2,380
                )
                
                
                (1,857
                )
                
                
                –
                
                
                
                (1,394
                )Net
      change in non-cash operating working capital items
                
                
                (1,634
                )
                
                
                (1,634
                )
                
                
                1,750
                
                
                
                1,750Equity
      investment in Montana Tunnels joint venture
                
                
                (1,771
                )
                
                
                –
                
                
                
                (2,028
                )
                
                
                –Discontinued
      operations
                
                
                –
                
                
                
                10,656
                
                
                
                –
                
                
                
                11,785Net
      cash provided by (used in) operating activities
                
                
                2,710
                
                
                
                7,143
                
                
                
                (5,708
                )
                
                
                7,510Investing
      ActivitiesProperty,
      plant and equipment expenditures
                
                
                (29,826
                )
                
                
                (32,158
                )
                
                
                (2,568
                )
                
                
                (7,041
                )Purchase
      of long-term investments
                
                
                –
                
                
                
                –
                
                
                
                (1,500
                )
                
                
                (1,500
                )Restricted
      cash, restricted certificates of deposit, and other long-term
      assets
                
                
                (12,054
                )
                
                
                (12,181
                )
                
                
                (3,459
                )
                
                
                (1,105
                )Discontinued
      operations
                
                
                –
                
                
                
                (2,504
                )
                
                
                –
                
                
                
                (10,032
                )Net
      cash used in investing activities
                
                
                (41,880
                )
                
                
                (46,843
                )
                
                
                (7,527
                )
                
                
                (19,678
                )Financing
      ActivitiesProceeds
      on issuance of shares and warrants
                
                
                26,263
                
                
                
                26,263
                
                
                
                3,954
                
                
                
                3,954Proceeds
      from exercise of warrants and options
                
                
                1,404
                
                
                
                1,404
                
                
                
                1,573
                
                
                
                1,573Proceeds
      on issuance of convertible debentures and note warrants,
    net
                
                
                –
                
                
                
                –
                
                
                
                8,062
                
                
                
                8,062Proceeds
      from issuance of long-term debt
                
                
                21,105
                
                
                
                21,105
                
                
                
                8,000
                
                
                
                8,000Repayment
      of convertible debentures
                
                
                –
                
                
                
                –
                
                
                
                (8,731
                )
                
                
                (8,731
                )Repayments
      of long-term debt
                
                
                (9,694
                )
                
                
                (9,694
                )
                
                
                (1,864
                )
                
                
                (1,864
                )Discontinued
      operations
                
                
                –
                
                
                
                403
                
                
                
                –
                
                
                
                1,287Net
      cash provided by financing activities
                
                
                39,078
                
                
                
                39,481
                
                
                
                10,994
                
                
                
                12,281Effect
      of exchange rate changes on cash and cash equivalents
                
                
                (1,242
                )
                
                
                (1,242
                )
                
                
                (143
                )
                
                
                (143
                )Net
      decrease in cash and cash equivalents
                
                
                (1,334
                )
                
                
                (1,461
                )
                
                
                (2,384
                )
                
                
                (30
                )Cash
      and cash equivalents, beginning of year
                
                
                1,334
                
                
                
                4,546
                
                
                
                3,718
                
                
                
                4,576Cash
      and cash equivalents, end of year
                
                $
                –
                
                
                $
                3,085
                
                
                $
                1,334
                
                
                $
                4,546
 
 (1)
              As
      previously reported on the Company’s Form 8-K filed with the SECon
      February 25, 2010 and in Canada on February 27, 2010.  Note that
      these figures differ from those disclosed on the Company’s Form 10-K filed
      with the SEC on March 27, 2009.  The 8-K was filed to present
      Montana Tunnels as a discontinued operation under Canadian GAAP (see Note
      9).
 F-53
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  24.
              SUBSEQUENT
      EVENTS
  (a)
              Sale
      of Montana Tunnels and Purchase of Promissory
  Note
  On
February 1, 2010, the Company completed the sale of its 100% interest in MTMI,
which held the Company’s remaining 50% interest in the Montana Tunnels joint
venture to Elkhorn, for consideration of certain promissory notes held by
Elkhorn and certain investors in Elkhorn or its affiliates with an aggregate
outstanding balance of approximately $9.5 million.  Based on a
valuation performed on the property securing the Elkhorn Notes using Level 3
inputs (See Note 3(t)), an impairment of $0.3 million was recorded for the
Montana Tunnels equity interest as of December 31, 2009.
  On March
12, 2010, the Company entered into a purchase agreement with a certain party
(the “Noteholder”) pursuant to which the Company agreed to issue 1,592,733
common shares for consideration of a promissory note held by the Noteholder with
an aggregate balance of $0.7 million.  Principal and interest on the
promissory note are due March 12, 2011 and the promissory note bears interest of
8%.
 (b)
              Restructuring
      of Series 2007-A Convertible
Debentures
  On
February 26, 2010 the Company reached an agreement with RAB, the holder of the
February 2007 convertible debentures with principal amount of $4.3
million  (See Note 10(b)), to extend the maturity date of the
convertible debentures to August 23, 2010.  Under the terms of the
convertible debentures, $0.8 million of accrued and unpaid interest was due as
of February 23, 2010, which was paid in cash by the Company on March 3,
2010.  In consideration for the extension of the maturity date of the
convertible debentures, the Company has agreed to issue to RAB, as soon as
practicable following receipt of all required regulatory approvals, (i) 800,000
additional common shares of the Company (the “RAB Shares”) and (ii) 2,145,000
common share purchase warrants (the “RAB Warrants”) whereby one RAB Warrant
entitles the holder to purchase one common share at an exercise price of $0.50
per share, expiring February 23, 2011.
 
 (c)
              Proposed
      Business Combination with Linear Gold Corp and Related Private
      Placement
  Letter of
Intent.
  General.  On March
9, 2010, Apollo and Linear Gold Corp. (“Linear”) entered into a binding letter
of intent (the “Letter of Intent”) pursuant to which (i) the businesses of
Apollo and Linear would be combined by way of a court-approved plan of
arrangement (the “Arrangement”) pursuant to the provisions of the Canada
Business Corporations Act (“CBCA”) and (ii) Linear would purchase approximately
62,500,000 common shares (the “Purchased Shares”) of Apollo at a price of
Cdn$0.40 per common share for gross proceeds of Cdn$25.0 million (the “Private
Placement”).
  Pursuant to the
Arrangement:
  ·
              each
      outstanding Linear common share will be exchanged for 5.4742 Apollo common
      shares (the “Exchange Ratio”);
  ·
              each
      outstanding common share purchase warrant of Linear (the “Linear
      Warrants”) will be exchanged for common share purchase warrants of Apollo
      (the “Apollo Warrants”) on the basis of the Exchange Ratio and the
      exercise price of the Linear Warrants will be adjusted as provided for in
      the certificates representing the Linear
  Warrants;
  ·
              each
      outstanding option to purchase a Linear common share (the “Linear
      Options”) granted under Linear’s Stock Option Plan will be exchanged for
      options of Apollo (the “Apollo Options”) granted under Apollo’s Stock
      Option Plan on the basis of the Exchange Ratio and the exercise price of
      the Linear Options will be adjusted on the same basis as the exercise
      price of the Linear Warrants.
  Upon consummation of the Arrangement,
the transaction is expected to be accounted for as an acquisition of a business
with Apollo being the acquirer.  The shareholders of Linear
immediately prior to the Arrangement are expected to own approximately 47.8% of
the outstanding common stock of Apollo on a non-diluted basis and approximately
42.9% on a fully-diluted basis.
  F-54
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  Board of Directors and other
Matters.Upon consummation of the Arrangement, the Letter of
Intent contemplates that:
  ·
              Apollo
      and Linear will agree on a new name for Apollo;
  and
  ·
              The
      Board of Directors of Apollo would consist of seven directors, which would
      be composed of (i) Wade Dawe (the current Chief Executive Officer of
      Linear), who would be nominated as the Chairman of the Board of Directors,
      (ii) four current Apollo board members or Apollo nominees, (iii) one
      Linear nominee and (iv) one nominee who shall be a technical person
      mutually agreed upon by Apollo and
Linear.
  Definitive Business Combination
Agreement.  The Letter of Intent contemplates that Linear and
Apollo will enter into a definitive arrangement agreement (the “Definitive
Agreement”) governing the Arrangement on or before March 31, 2010 to implement
the Arrangement to provide for the business combination of Linear and
Apollo.
  Securityholder
Approval.  The Arrangement will be subject to the approval of
holders of not less than 66 2/3% of the Linear common shares and of a majority
of the Apollo common shares held by disinterested shareholders voted at special
meetings of shareholders that will be called to approve the
Arrangement.
  Break Fee.  If
either Linear or Apollo terminates the Letter of Intent or the Definitive
Agreement and abandons the Arrangement prior to closing for any reason (other
than as a result of the failure of a condition to such party’s obligation to
close contained in the Letter of Intent or the Definitive Agreement not being
satisfied), such terminating party shall pay to the other party an amount equal
to Cdn$4.0 million.
  Termination of Letter of
Intent.  The Letter of Intent may be terminated (i) by mutual
written consent of each of Apollo and Linear; (ii) by a party which accepts,
recommends, approves or enters into an agreement to implement a “superior
proposal” (as defined in the Letter of Intent) after having complied with the
terms of the Letter of Intent; and (iii) by either party if the Definitive
Agreement is not executed by all each of the parties on or before 5:00 pm
(Toronto time) on March 31, 2010 (provided that concurrently with any such
termination, the terminating party shall have paid the Cdn$4.0 million break fee
described above following which the payor party shall have no further
liabilities arising hereunder other than for a breach of any section of the
Letter of Intent).
  Linear Private
Placement
  Concurrently with the execution of the
Letter of Intent, Apollo and Linear entered into a subscription agreement (the
“Subscription Agreement”) providing for a Private Placement whereby Linear would
purchase 62,500,000 common shares of Apollo at a price of Cdn$0.40 per common
share for gross proceeds of Cdn$25.0 million.  Pursuant to the Letter
of Intent and the Subscription Agreement, the closing of the Private Placement
will be subject to customary conditions precedent, plus conditions relating
to:  (i) each of Macquarie Bank Limited and RMB Australia Holdings
Limited (collectively, the “Banks”) entering into a support agreement pursuant
to which each of the Banks agree, among other things, to support and vote in
favor of the Arrangement; and (ii) each of the Banks shall entering into a
lock-up agreement,  pursuant to which each of the Banks agree, among
other things, not to, directly or indirectly, exercise or offer, sell, contract
to sell, lend, swap, or enter into any other agreement to transfer the economic
consequences of any of the Apollo common shares or common share purchase
warrants of Apollo held by them before December 31, 2010.
  F-55
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  The closing of the Private Placement is
expected to occurr on or before March 19, 2010.  As part of the
Arrangement, the Apollo common shares expected to be issued to Linear in this
Private Placement will be cancelled without any payment upon completion of the
Arrangement.
  (d)
              Consent
      and Amendment to the Project
Facility
  On March 9, 2010, the Banks (See Note
10(a)) executed  a consent letter (the “Consent Letter”), which was
agreed to and accepted by each of Apollo and Linear, pursuant to which the Banks
agreed, subject to the terms and conditions contained in the Consent
Letter:
  ·
              to
      consent to the Arrangement (the
“Consent”);
  ·
              prior
      to the earliest to occur of (i) the date on which the Banks determine that
      the Arrangement has been terminated or will not be completed, (ii) March
      31, 2010, if the Definitive Agreements in respect of the Arrangement have
      not been executed by such date, or (iii) September 30, 2010, not to make
      demand, accelerate payment or enforce any security or any other remedies
      upon an “event of default” or a “review event” under the Project Facility
      unless and until the occurrence of certain “override events” set forth in
      the Consent Letter (which “override events” are primarily related to
      breaches of certain covenants and provisions of the Consent Letter and the
      Project Facility) (the “Standstill Provisions”);
  and
  ·
              to
      amend certain provisions of the Project Facility, including without
      limitation the following revised repayment
  schedule:
 
 Repayment Date
                      
                      Repayment AmountThe
      earlier of two business days following completion of the Private Placement
      and March 19, 2010
                      
                      $
                      10,000,000The
      earlier of July 2, 2010 and the date that is two business days following
      the consummation of the Arrangement
                      
                      $
                      10,000,000The
      earlier of September 30, 2010 and the date on which the proceeds from any
      one or more equity raisings following the consummation of the Arrangement
      equals $10,000,000
                      
                      $
                      10,000,000December
      31, 2010
                      
                      $
                      5,000,000The
      remaining repayment dates between March 31, 2011 and March 31, 2013 to be
      agreed between Apollo and the Banks by no later than September 30, 2010 to
      reflect the “cashflow model” (as defined under the Project Facility) that
      is approved by the Banks.  In the absence of agreement between
      Apollo and the Banks by September 30, 2010, amounts outstanding under the
      Project Facility shall be due and payable on December 31,
      2010.
                      
                      $
                      35,000,000
  F-56
  APOLLO
GOLD CORPORATION
  Notes to the Consolidated Financial
Statements –
(Continued)
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
  The Banks’ agreement to the Consent and
the Standstill Provisions is subject to a number of conditions, including
without limitation (i) the Banks approving the Definitive Agreements and such
Definitive Agreements being executed by no later than March 31, 2010, (ii) the
Banks being satisfied that the completion of the Arrangement will not cause a
breach or default under any “project documents” (as defined in the Project
Facility), (iii) the Banks being satisfied that the Arrangement will not have
any material negative tax implications for Apollo, Linear and each of their
direct or indirect subsidiaries, (iv) the Banks being satisfied that,
immediately following completion of the Arrangement and after making the payment
of $10.0 million as set forth in the repayment schedule set forth above, Apollo
having restricted cash on hand of not less than Cdn$10.0 million, and (v) at
completion of the Arrangement, the Banks being satisfied regarding indebtedness
and encumbrances of Linear and its direct and indirect
subsidiaries.
  F-57
  INDEX TO EXHIBITS
  Exhibit
                  No.
              
              Exhibit Name10.34
              
              Purchase
      Agreement, dated March 12, 2010, among Apollo Gold Corporation, Apollo
      Gold Corporation, Calais Resources, Inc. and Calais Resources Colorado,
      Inc. and Duane A. Duffy, Glenn E. Duffy, Luke Garvey and James
      Ober.21.1
              
              List
      of subsidiaries of the Registrant23.1
              
              Consent
      of Deloitte & Touche LLP31.1
              
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act31.2
              
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act32.1
              
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act