**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


________________




**Form
      10-K**





R
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the fiscal year ended December 31, 2005****OR**ð
            **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)*





**(720)
      886-9656**


*(Registrant’s
      telephone number, including area code)*


________________




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




**Title
                of Each
                Class**
            
            **Name
                of Each Exchange on Which
                Registered**Common
                Shares, no par value
            
            American
                Stock Exchange
              Toronto
                Stock
                Exchange








**Securities
      registered pursuant to Section 12 of the Act: Common Shares, no par
      value**




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 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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
      one):




Large accelerated filer £
            Accelerated
                filer £
            Non-accelerated
                filer R





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, 2005, the approximate aggregate market value of voting stock held
      by
      non-affiliates of the registrant was $31,424,977 million (based upon the
      closing price for shares of the registrant’s common shares as reported by the
      American Stock Exchange on that date).




As
      of
      March 24, 2006, the registrant had 121,396,859 common shares, no par value
      per
      share, outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Portions
      of our Definitive Proxy Statement to be filed with the Securities and Exchange
      Commission pursuant to Regulation 14A in connection with the 2006 Annual Meeting
      of Shareholders are incorporated by reference to Part III of this Annual Report
      on Form 10-K.











-
          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 Canada (“Cdn GAAP”). Differences between accounting
      principles generally accepted in the U.S. (“U.S. GAAP”) and those applied in
      Canada, as applicable to Apollo Gold Corporation, are discussed in Note 20
      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,” 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, lead and
      zinc.




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 contains 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 expenditure, and
      exploration and development efforts. Words such as “anticipates,” “expects,”
“intends,” and similar expressions identify forward-looking statements. These
      statements include comments regarding:




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          3
          -





·  Company's
      future focus on Black Fox;




·  the
      establishment and estimates of mineral reserves and resources;




·  production;




·  production
      commencement dates;




·  total
      production costs;




·  cash
      operating costs;




·  total
      cash costs;




·  grade;




·  processing
      capacity;




·  potential
      mine life;




·  feasibility
      studies;




·  publication
        of reserves and an NI 43-101 report and any results therefrom;


·  development
      costs;




·  expenditures;




·  exploration;




·  permits;




·  expansion
      plans;




·  plans
        for Black Fox and Huizopa;


·  closure
      costs;




·  remediation
        costs for Montana Tunnels;
  ·  sale
        of
        and continued milling at Montana Tunnels;
  ·  WARN
        Act
        notice and timing of layoff;


·  development
      drilling and its potential results;




·  surveys
      of claims;




·  recovery
      rates;




·  geological
      prospects;




·  impact
      of
      governmental laws;




·  nonpayment
      of dividends and use of earnings from operations;




·  delivery
      of metals;




·  hedging
      contracts;




·  cash
      flows;




·  future
      financing;




·  liquidity;




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




·  estimated
      environmental liabilities;




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          4
          -







·  factors
      impacting our results of operations;




·  application
      of Sarbanes Oxley 404 reporting requirements and our ability to meet those
      reporting requirements; 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;




·  significant
      increases or decreases in gold prices;




·  changes
      in interest and currency exchange rates;




·  timing
      and amount of production;




·  unanticipated
      grade changes;




·  unanticipated
      recovery or production problems;




·  changes
      in mining and milling costs;




·  operational
      problems at our mining property;




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




·  determination
      of reserves;




·  changes
      in project parameters;




·  costs
      and
      timing of development of new reserves;




·  results
      of current and future exploration activities;




·  results
      of pending and future feasibility studies;




·  joint
      venture relationships;




·ability
      to sell our mining property or its assets;




·  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


-
          5
          -




·  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. We undertake no obligation to update forward-looking
      statements.




**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 governing 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 Definitions****indicated
                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.**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.


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          6
          -





**measured
                mineral resource**
            The
                term “measured mineral resource” refers to a 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. The 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 or fossilized organic material 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, can other relevant factors that demonstrate, at the time
                of
                reporting, that economic extraction can be justified.**proven
                mineral reserve****1**
            The
                term “proven mineral reserve” refers to the economically mineable part of
                a measured mineral resource demonstrated by at least a preliminary
                feasibility study.**qualified
                person****2**
            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 project or report and is a member in good
                standing of a self-regulating
                organization.


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          7
          -





**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
                material****3******
            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.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.
              **2**Industry
                Guide 7 does not require designation of a qualified person.
              **3**This
                category is substantially equivalent to the combined categories of
                measured and indicated mineral resources specified in NI
                43-101.


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          8
          -





**Additional
                Definitions****breccia**
            rock
                consisting of angular fragments of other rocks held together by mineral
                cement or a fine-grained matrix**call**
            a
                financial instrument that provides the right, but not the obligation,
                to
                buy a specified number of ounces of gold at a specified
                price**clasts**
            fragments
                of a pre-existing rock or fossil embedded within another
                rock**concentrate**
            a
                processing product containing the valuable ore mineral from which
                most of
                the waste mineral has been eliminated**cretaceous**
            the
                third and latest of the periods in the Mesozoic era**cut-off
                grade**
            when
                determining economically viable mineral reserves, the lowest grade
                of
                mineralized material that qualifies as ore, i.e. that can be mined
                at a
                profit**diatreme**
            an
                upward sloping passage forced through sedimentary rock by volcanic
                activity**doré**
            unrefined
                gold bullion bars containing various impurities such as silver, copper
                and
                mercury, which will be further refined to near pure
                gold**fault**
            a
                rock fracture along which there has been displacement**feasibility
                study**
            a
                definitive engineering and economic study addressing the viability
                of a
                mineral deposit taking into consideration all associated technical
                factors, costs, revenues, and risks**fold**
            a
                curve or bend of a planar structure such as rock strata, bedding
                planes,
                foliation, or cleavage**footwall**
            a
                geologic or mining term meaning the rock below a fault or vein, or
                underlying a natural feature, or the mining floor**formation**
            a
                distinct layer of sedimentary rock of similar
                composition**geochemistry**
            the
                study of the distribution and amounts of the chemical elements in
                minerals, ores, rocks, solids, water, and the
                atmosphere**geophysicist**
            one
                who studies the earth; in particular the physics of the solid earth,
                the
                atmosphere and the earth’s magnetosphere**geotechnical**
            the
                study of ground stability**grade**
            quantity
                of metal per unit weight of host
                rock


**hanging
                wall**
            a
                geologic or mining term meaning the rock above a fault or vein, or
                overlying a natural feature (as opposed to a footwall)**heap
                leach**
            a
                mineral processing method involving the crushing and stacking of
                ore on an
                impermeable liner upon which solutions are sprayed to dissolve metals
                such
                as gold and copper; the solutions containing the metals are then
                collected
                and treated to recover the metals**heterolithic**
            having
                more than one, differing kinds of rock components**host
                rock**
            the
                rock containing a mineral or an ore body




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          9
          -


**hydrothermal**
            the
                products of the actions of heated water, such as a mineral deposit
                precipitated from a hot solution**induced
                polarization**
            a
                method of conducting geophysics and locating drilling
                targets**intercalated**
            said
                of layered material that exists or is introduced between layers of
                a
                different character**latitic
                composition**
            igneous
                rock composed largely of equal amounts of orthoclase and plagioclase
                feldspar minerals and less than 10% quartz**mafic**
            pertaining
                to or composed dominantly of the ferromagnesian rock-forming silicates;
                said of some igneous rocks and their constituent
                minerals**mapped
                or geological 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 localities**mineral**
            a
                naturally formed chemical element or compound having a definite chemical
                composition and, usually, a characteristic crystal form**mineralogy**
            the
                science of minerals**mineralization**
            a
                natural occurrence in rocks or soil of one or more metal yielding
                minerals**mining**
            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 projects**open
                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
                body


**ore**
            mineral
                bearing rock that can be mined and treated profitably under current
                or
                immediately foreseeable economic conditions**ore
                body**
            a
                mostly solid and fairly continuous mass of mineralization estimated
                to be
                economically mineable**outcrop**
            that
                part of a geologic formation or structure that appears at the surface
                of
                the earth**petrographic**
            the
                systematic classification and description of rocks, especially by
                microscopic examinations of thin sections**pluton**
            a
                body of igneous rock that has formed beneath the surface of the earth
                by
                consolidation from magma




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          10
          -


**put**
            a
                financial instrument that provides the right, but not the obligation,
                to
                sell a specified number of ounces of gold at a specified
                price**pyrite**
            common
                sulfide of iron**quartz**
            a
                mineral composed of silicon dioxide, SiO2 (silica)**quartz
                monzonite**
            a
                course-grained igneous rock made up principally of feldspar minerals
                and
                quartz**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 mine**recovery
                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 present**SAG**
            semi-autogenous
                grinding, a method of grinding rock into fine particles, in which
                the
                grinding media consists of steel balls**SEC
                Industry Guide 7**
            U.S.
                reporting guidelines that apply to registrants engaged or to be engaged
                in
                significant mining operations


**sedimentary
                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
                redeposited**shear**
            a
                form of strain resulting from stresses that cause or tend to cause
                contiguous parts of a body of rock to slide relatively to each other
                in a
                direction parallel to their plane of contact**skarn**
            a
                rock of complex mineral composition**stratigraphy**
            the
                branch of geology which studies the formation, composition, sequence
                and
                correlation of the stratified rock as parts of the earth’s
                crust**strike**
            the
                direction or trend that a structural surface, e.g. a bedding or fault
                plane, takes as it intersects the horizontal**strip**
            to
                remove overburden in order to expose ore**subangular**
            somewhat
                angular, free from sharp angles but not smoothly
                rounded




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          11
          -


**sulfide**
            a
                mineral including sulfur (S) and iron (Fe) as well as other elements;
                metallic sulfur-bearing mineral often associated with gold
                mineralization**variogram**
            graphical
                representation of the rate of change of grade with distance which
                is
                usedtodefine
                parameters for controlling sample layout and resource
                modeling**vein**
            a
                thin, sheet like crosscutting body of hydrothermal mineralization,
                principally quartz**volcaniclastics**
            volcanic
                rocks containing significant amounts of rock fragments that have
                been
                moved from their place of origin during volcanic
                activity**volcanic
                rock**
            originally
                molten rocks, generally fine grained, that have reached or nearly
                reachedtheearth’s
                surface before solidifying**wall
                rock**
            the
                rock adjacent to a vein








**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:




Au
            =
                gold
            m(2)
            =
                square meterg
            =
                gram
            m(3)
            =
                cubic meterAu
                g/t
            =
                grams of gold per tonne
            Mg
                or mg
            =
                milligramha
            =
                hectare
            mg/m(3)
            =
                milligrams per cubic meterkm
            =
                kilometer
            T
            =
                tonneskm(2)
            =
                square kilometers
            t
            =
                tonkg
            =
                kilogram
            Oz
            =
                troy ouncelb
            =
                pound
            Ppb
            =
                parts per billionm
            =
                meter
            Ma
            =
                million years





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




-
          12
          -




**PART
      I**




**ITEM
      1.** ***DESCRIPTION
      OF 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, processing, refining and the
      production of by-product metals, as well as related activities including
      exploration and development. The Company owns and operates the Montana Tunnels
      mine, an open pit mine and mill currently producing gold doré and lead-gold and
      zinc-gold concentrates from stockpiled, low grade ore. See Item 2
“Description of Properties” for further information. In
      March 2006, the Company adopted a plan to dispose of Montana Tunnels Mining,
      Inc., the company which operates the Montana Tunnels mine.




On
      November 18, 2005, Apollo sold Florida Canyon Mining, Inc., Standard Gold
      Mining, Inc. and Apollo Gold Exploration, Inc. (collectively, the “Nevada
      Assets”) to a wholly owned subsidiary of Jipangu, Inc., for $14 million.
      See Item 7 “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” for further information.




With
      the
      plan of disposal of the Montana Tunnels mine, Apollo's future focus is on its
      development property, the Black Fox project, which is located near the Township
      of Matheson in the Province of Ontario, Canada. Apollo also owns Mexican
      subsidiaries which own or have the right to acquire concessions at the Huizopa
      exploration project, located in the Sierra Madre gold belt in Chihuahua, Mexico.




**BACKGROUND**




**Apollo
      Gold Corporation**




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




-
          13
          -







**APOLLO
      GOLD GROUP**


**(as
      of March 24, 2006)** ****

















APOLLO
      GOLD CORPORATION: American Stock Exchange and Toronto Stock Exchange listed
      holding company which owns and operates the Black Fox development
      property.




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




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




MONTANA
      TUNNELS MINING, INC.: Owns and operates the Montana Tunnels mine and owns the
      Diamond Hill mine.




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




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 19 of the “Notes to the Consolidated Financial
      Statements” contained within this Annual Report on Form 10-K.


-
          14
          -





**Products**




The
      Montana Tunnels mine produces gold, zinc, silver, and lead in gold doré and
      lead-gold and zinc-gold concentrates. The metals produced are sold to custom
      smelters, refiners and metals traders. The percentage of sales contributed
      by
      each class of product is reflected in the following table.




**Year
                Ended**
              **December
                31,****Product
                Category**
            **2005**
            **2004**
            **2003**Gold
            46%
            37%
            55%Zinc
            34%
            34%
            29%Silver,
                lead and other metals
            20%
            29%
            16%




The
      table
      below summarizes Montana Tunnels’ metals production and average metals prices
      for the periods indicated.




**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Production
                Summary**Gold
                ounces
            
            
            44,099
            
            
            33,743
            
            
            44,124Silver
                ounces
            
            
            524,722
            
            
            970,751
            
            
            411,216Lead
                pounds
            
            
            10,428,061
            
            
            10,064,265
            
            
            10,843,184Zinc
                pounds
            
            
            22,380,136
            
            
            26,222,805
            
            
            21,792,452**Average
                metals prices**Gold
                - London Bullion Mkt. ($/ounce)
            
            $
            445
            
            $
            409
            
            $
            364Silver
                - London Bullion Mkt. ($/ounce)
            
            $
            7.31
            
            $
            6.66
            
            $
            4.88Lead
                - LME Cash ($/pound)
            
            $
            0.44
            
            $
            0.40
            
            $
            0.23Zinc
                - LME Cash ($/pound)
            
            $
            0.63
            
            $
            0.48
            
            $
            0.38





***Gold***




Montana
      Tunnels produced 44,099, 33,743, and 44,124 ounces of gold during the years
      ended December 31, 2005, 2004, and 2003, respectively.




The
      majority of our gold revenue is derived from the sale of gold contained within
      the lead-gold and zinc-gold concentrates. See
      Item
      2 “Description of Properties - Montana Tunnels Mine” for further information. The
      balance of the 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.




-
          15
          -







*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 History*




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.




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**
            
            **Average**1996
            
            $
            415
            
            $
            367
            
            $
            3881997
            
            
            362
            
            
            283
            
            
            3311998
            
            
            313
            
            
            273
            
            
            2941999
            
            
            326
            
            
            253
            
            
            2792000
            
            
            313
            
            
            264
            
            
            2792001
            
            
            293
            
            
            256
            
            
            2712002
            
            
            349
            
            
            278
            
            
            3102003
            
            
            416
            
            
            320
            
            
            3642004
            
            
            454
            
            
            375
            
            
            4092005
            
            
            537
            
            
            411
            
            
            445





Data
      Source: www.kitco.com




As
      of
      March 15, 2006, the high, low, and average afternoon fixing prices for gold
      per
      ounce on the London Bullion Market were $572, $525 and $553 per ounce,
      respectively.




***Zinc***




Production
      from the Montana Tunnels mine also includes the extraction, processing and
      sale
      of zinc and lead contained in sulfide concentrates. The mine produced
      approximately 22,400,000, 26,200,000 and 21,800,000 pounds of payable zinc
      in
      2005, 2004 and 2003, respectively.




Due
      to
      its corrosion resisting property, zinc is used primarily as the coating in
      galvanized steel. Galvanized steel is widely used in construction of
      infrastructure, housing and office buildings. In the automotive industry, zinc
      is used for galvanizing and die-casting and in the vulcanization of tires.
      Smaller quantities of various forms of zinc are used in the chemical and
      pharmaceutical industries, including fertilizers, food supplements and
      cosmetics, and in specialty electronic applications such as satellite
      receivers.







**Annual
      Global Supply/ Demand Balance for Zinc, 2001-2005**




**2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****(000
                tonnes)**Refined
                Consumption
            
            
            10,638
            
            
            10,470
            
            
            9,832
            
            
            9,388
            
            
            8,917Refined
                Production
            
            
            10,271
            
            
            10,170
            
            
            9,871
            
            
            9,712
            
            
            9,228Release
                of Inv. Stocks
            
            
            25
            
            
            12
            
            
            7
            
            
            3
            
            
            23Increase
                (Decrease) World Stock
            
            
            (342
            )
            
            (288
            )
            
            46
            
            
            327
            
            
            334LME
                Stocks-
                Total
            
            
            394
            
            
            629
            
            
            740
            
            
            651
            
            
            433-
                Weeks’ consumption
            
            
            1.9
            
            
            3.1
            
            
            3.9
            
            
            3.6
            
            
            2.5Reported
                Stocks-
                Total
            
            
            801
            
            
            1,020
            
            
            1,202
            
            
            1,095
            
            
            946-
                Weeks’ consumption
            
            
            3.9
            
            
            5.1
            
            
            6.4
            
            
            6.1
            
            
            5.5LME
                cash price-
                $/tonne
            
            
            1,380
            
            
            1,048
            
            
            828
            
            
            779
            
            
            886-
                cents/lb
            
            
            62.6
            
            
            47.5
            
            
            37.6
            
            
            35.3
            
            
            40.2





Data
      Source: Standard Bank Metals Report.




-
          16
          -


*Zinc
      Price History*




The
      following table sets forth for the periods indicated the London Metals Exchange
      high and low settlement prices of zinc in U.S. dollars per pound:




**Zinc****Year**
            **High**
            **Low**2001
            0.48
            0.332002
            0.42
            0.332003
            0.46
            0.342004
            0.56
            0.422005
            0.86
            0.532006*
            1.08
            0.87





*
      Through
      March 15, 2006




***Silver***




Montana
      Tunnels produced 524,722, 970,751 and 411,216 ounces of silver in the years
      ended December 31, 2005, 2004 and 2003, respectively. The silver production
      is
      derived from the gold doré as well as the lead and zinc concentrates.




Silver
      has traditionally served as a medium of exchange, much like gold. While silver
      continues to be used for currency, the current principal uses of silver are
      for
      industrial uses, primarily for electrical and electronic components,
      photography, jewelry and silverware. Silver’s strength, malleability, ductility,
      thermal and electrical conductivity, sensitivity to light and ability to endure
      extreme changes in temperature combine to make silver a widely used industrial
      metal. Specifically, it is used in photography, batteries, computer chips,
      electrical contacts, and high technology printing. Silver’s anti-bacterial
      properties also make it valuable for use in medicine and in water
      purification.




*Silver
      Price History*




The
      following table sets forth for the periods indicated the London Metals Exchange
      high and low settlement prices of silver in U.S. dollars per ounce.




**Silver****Year**
            **High**
            **Low**2001
            4.83
            4.032002
            5.13
            4.222003
            5.99
            4.352004
            8.29
            5.492005
            9.22
            6.392006*
            10.26
            8.83





*
      Through
      March 15, 2006




-
          17
          -


***Lead***




Production
      from Montana Tunnels also includes the extraction, processing and sale of lead
      contained in sulfide concentrates. Montana Tunnels produced approximately
      10,400,000, 10,100,000 and 10,800,000 pounds of payable lead in 2005, 2004
      and
      2003, respectively.




The
      primary use of lead is in motor vehicle batteries, but it is also used in cable
      sheathing, solder in printed wiring circuits, shot for ammunition and alloying.
      Lead in chemical form is used in alloys, glass and plastics.




**Annual
      Global Supply/ Demand Balance for Lead, 2001-2005**




**2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****(000
                tonnes)**Refined
                Consumption
            
            
            7,543
            
            
            7,068
            
            
            6,814
            
            
            6,656
            
            
            6,476Refined
                Production
            
            
            7,375
            
            
            6,857
            
            
            6,798
            
            
            6,690
            
            
            6,622Release
                of Stock
            
            
            50
            
            
            56
            
            
            60
            
            
            6
            
            
            41Increase
                (Decrease) Stock
            
            
            (118
            )
            
            (155
            )
            
            55
            
            
            40
            
            
            187LME
                Stocks - Total
            
            
            44
            
            
            40
            
            
            109
            
            
            184
            
            
            98-
                Weeks’ consumption
            
            
            0.3
            
            
            0.3
            
            
            0.8
            
            
            1.4
            
            
            0.8Reported
                Stocks - Total
            
            
            0325
            
            
            298
            
            
            393
            
            
            483
            
            
            436-
                Weeks’ consumption
            
            
            2.2
            
            
            2.2
            
            
            3.0
            
            
            3.8
            
            
            3.5LME
                cash price - $/tonne
            
            
            976
            
            
            887
            
            
            516
            
            
            453
            
            
            476-
                cents/lb
            
            
            44.3
            
            
            40.2
            
            
            23.4
            
            
            20.5
            
            
            21.6


---

Data
      Source: Standard Bank Metals Report.




*Lead
      Price History*




The
      following table sets forth for the periods indicated the London Metals Exchange
      high and low settlement prices for lead in U.S. dollars per pound.




**Lead****Year**
            **High**
            **Low**2001
            0.24
            0.202002
            0.24
            0.182003
            0.34
            0.192004
            0.45
            0.292005
            0.49
            0.412006*
            0.66
            0.50


---

*
      Through
      March 15, 2006




The
      price
      of silver, lead and zinc is affected by numerous factors that are beyond our
      control. See “Risk Factors.”




**Smelting
      and Refining Process**




We
      have
      an agreement with Johnson Matthey to refine gold doré to a final finished
      product. Johnson Matthey receives $0.50 for each ounce of gold doré it refines,
      in addition to receiving a fee of 0.5% of the payable metal for silver and
      0.1%
      of the payable metal for gold, with a minimum charge of $500 per
      delivery.




The
      lead
      and zinc concentrates are shipped by rail for smelting to Teck Cominco Metals
      Ltd. in Trail, British Columbia, Canada, approximately five hours from the
      Montana Tunnels mine. Our contract with Teck Cominco expires in March 2007. See
      Item
      2 “Description of Properties - Montana Tunnels Mine” for further
      information.




-
          18
          -


**2006
      Operating Outlook**




Following
      the sale in November 2005 to Jipangu Inc. of Apollo’s Nevada Assets, we have
      three remaining properties: the Montana Tunnels mine, the Black Fox project
      and
      the Huizopa project. Below is a summary of our expectations for these three
      properties in 2006.





**Montana
      Tunnels mine** .
      Open
      pit mining activity was suspended on October 21, 2005. Currently the mill
      continues to operate, processing low grade stockpiled ore and is expected
      to continue milling through the end of April 2006.  In March 2006, we
      adopted a plan to dispose of Montana Tunnels Mining, Inc., which owns the
      Montana Tunnels and Diamond Hill mines.





**Black
      Fox project** ,
      a
      development property. The Company's focus is on developing our Black Fox
      project. We expect to publish updated reserves in April 2006 and issue an NI
      43-101 report within 45 days of publishing the reserves. We expect that the
      NI 43-101 report will reflect an increase from the 2004 reserve numbers
      previously disclosed. We also expect to complete the feasibility study by the
      end of 2006. Estimated expenditures at Black Fox for 2006 are $3.1 million.
      Additionally, we will continue to evaluate financing opportunites in order
      to
      extend the drilling program at Black Fox given that the mineralization is still
      open along strike and at depth.





**Huizopa
      project** ,
      an
      exploration property. In 2006, we expect to continue mapping, trenching,
      sampling, and conducting geophysical studies on the property including the
      selection of several primary targets for drill sites and the commencement of
      a
      drilling program.  The costs of the project is expected to be approximately
      $2.3 million for the year 2006.


**Development
      and Exploration.**




During
      2005, we drilled at Black Fox 160 underground holes totaling 34,456 meters
      plus
      51 surface holes totaling 9,813 meters, bringing the total number of underground
      holes to 370 (75,521 meters) and surface holes to 449 (135,712 meters), giving
      a
      total number of holes of 819 (211,233 meters). Work continued throughout the
      year on progressing the permitting of a combined open pit and underground mine,
      with a 1,500 tonnes per day mill on site. The updated reserves are expected
      to
      be published in April 2006 followed by an NI 43-101 report. Completion of the
      feasibility study is currently scheduled for the end of 2006.




**Mineral
      Reserves**




Our
      proven and probable mineral reserves are estimated in conformance with
      definitions set out in 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.”




The
      estimates of our mineral reserves are prepared by Apollo based on information
      compiled and/or validated by Mr. Richard F. Nanna, our employee and Senior
      Vice
      President of Exploration. Mr. Nanna is a qualified professional geologist with
      32 years of experience and a registered Professional Geologist in the State
      of
      Washington. Mr. Nanna is considered a qualified person under NI 43-101.




-
          19
          -




Since
      we report our mineral reserves to both NI 43-101
      and SEC Industry Guide 7 standards, it is possible for our reserve figure to
      vary between the two. Where such a variance occurs it will arise from the
      differing requirements for reporting mineral reserves. For example, the NI
      43-101 has a minimum requirement that reserves be supported by a pre-feasibility
      study, whereas SEC Industry Guide 7 requires support from a full feasibility
      study done to bankable standards. The Black Fox project thus reports reserves
      under NI 43-101, but reports no reserves under SEC Industry Guide 7 as
      a final bankable feasibility study has not been completed. No reconciliation
      between NI 43-101 and SEC Industry Guide 7 is included for Montana
      Tunnels as there are no material differences.




The
      proven and probable mineral reserves as of December 31, 2005, for Montana
      Tunnels have been estimated at an economic cut-off grade based on a gold price
      of $425 per ounce, and at a three-year rolling average gold price of $406 per
      ounce.




The
      proven and probable mineral reserves estimates disclosed below for Black Fox
      were in an NI 43-101 report completed in March 2004 and were calculated
      based on a gold price of $375 per ounce. At the present time, we expect to
      update the reserves in April 2006 and issue an NI 43-101 report within 45
      days of publishing the reserves for Black Fox. We expect the NI 43-101 report
      to
      reflect an increase in reserves based on the extensive drilling programs
      conducted during 2004 and 2005. In addition, a feasibility study is underway,
      which we expect to complete by the end of 2006.




**Proven
      and Probable Reserves - Gold Ounces**




**Year
                Ended December 31,****Mines**
            
            **2005**
            
            **2004**
            
            **2003**Montana
                Tunnels (1)
            
            
            535,900
            
            
            643,800
            
            
            692,500Black
                Fox Project
            
            
            457,100
            
            
            457,100
            
            
            457,100**Apollo
                Gold - Total**
            
            
            **993,000**
            
            
            **1,100,900**
            
            
            **1,149,600**





(1)
      In March 2006 the Company adopted a plan to dispose
      of the Montana Tunnels mine.




Montana
      Tunnels Reserves




**Montana
      Tunnels Mine Reserve Statement at December 31, 2005(1)(2)**




**Pit
                (Imperial Summary)**
            
            **Classification**
            
            **Tons**
              **000’s**
            
            **Grade
                oz Au/t**
            
            **Ag
                oz**
              **Ag/t**
            
            **Pb
                %**
            
            **Zn
                %**
            
            **Ounces
                Au**
              **000’s**L8J5
                (L Pit)
            
            
            Proven
            
            
            10,089.2
            
            
            0.016
            
            
            0.173
            
            
            0.218
            
            
            0.591
            
            
            163.6M4A
                (M Pit)
            
            
            ProvenMill
                Stockpile
            
            
            Proven
            
            
            36.0
            
            
            0.009
            
            
            0.180
            
            
            0.080
            
            
            0.190
            
            
            0.3Subtotal
            
            
            Proven
            
            
            10,125.2
            
            
            0.016
            
            
            0.173
            
            
            0.217
            
            
            0.589
            
            
            163.9L8J5
                (L Pit)
            
            
            Probable
            
            
            217.4
            
            
            0.016
            
            
            0.175
            
            
            0.208
            
            
            0.508
            
            
            3.5M4A
                (M Pit)
            
            
            Probable
            
            
            22,898.0
            
            
            0.016
            
            
            0.230
            
            
            0.170
            
            
            0.600
            
            
            368.5Subtotal
            
            
            Probable
            
            
            23,115.4
            
            
            0.016
            
            
            0.230
            
            
            0.171
            
            
            0.600
            
            
            372.0Total
            
            
            Proven
                + Probable
            
            
            33,240.6
            
            
            0.016
            
            
            0.212
            
            
            0.185
            
            
            0.596
            
            
            535.9





(1)  Recovery
      rates are expected to be 80% for gold, 71% for silver, 85% for lead, and 84%
      for
      zinc.




(2)
        In March 2006 the Company adopted a plan to dispose
        of the Montana Tunnels mine.


**Black
        Fox Reserves**
  Pit
        optimization studies were completed using the following parameters for the
        deposit:
 
 ·
              Cut-off
                  grade- 1.27 Au g/tonne (or 0.037 oz
                  Au/t);
 ·
              Overburden
                  mining cost - $1.00 per tonne of
                  material;
 ·
              Rock
                  mining cost - $1.25 per tonne of
                  material
 ·
              Processing
                  cost - $9.00 per tonne ore;
 ·
              General
                  and administrative cost - $3.50 per tonne
                  ore;
 ·
              Plant
                  gold recovery - 96%;
 ·
              Assume
                  50% of existing underground workings backfilled with material having
                  a
                  density of 2.0;
 ·
              Pit
                  slopes - 48 degree overall in rock with ramp; 19 degree
                  overburden






**Black
      Fox Reserve Statement at December 31, 2005**




**Classification
                (Imperial Summary)**
            
            **Tons**
              **000’s**
            
            **Grade**
              **oz
                Au/t**
            
            **Ounces
                Au**
              **000’s**
            
            **Tons
                Waste**
              **000’s**
            
            **Strip**
              **Ratio**Proven
            
            
            2,418.0
            
            
            0.141
            
            
            341.6Probable
            
            
            837.4
            
            
            0.138
            
            
            115.5Total
                - Proven + Probable
            
            
            3,255.5
            
            
            0.140
            
            
            457.1
            
            
            60,734.5
            
            
            18.66





Waste
      includes 12.18 million tons of overburden.




-
          20
          -


**Employee
      Relations**




As
      of
      December 31, 2005, we had approximately 129 employees and contract employees,
      including 10 employees at our principal executive office in Greenwood Village,
      Colorado.  If we sell Montana Tunnels or cease milling, we expect to have
      approximately 30 employees and contract employees, including 6 employees at
      our
      principal executive office.




**Competition**




We
      compete with major mining companies and other natural mineral resource companies
      in the acquisition, exploration, financing and development of new 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 explore, acquire 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 orebodies,
      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 turnover and greater labor
      costs.




**Available
      Information**




We
      make
      available, free of charge, on or through our Internet website links to our
      Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
      on
      Form 8-K and amendments to those reports filed or furnished pursuant to Section
      13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after
      we
      electronically file such material with, or furnish it to, the SEC. Our Internet
      address is www.apollogold.com. Our Internet website and the information
      contained therein or connected thereto are not incorporated into this Annual
      Report on Form 10-K.




**RISK
      FACTORS**




**ITEM
      1A.**




*In
      addition to historic 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 Annual Report on Form
      10-K.
      The risks below address some of the factors that may affect our future operating
      results and financial performance.*




**We
      have identified a material weakness in our internal controls over financial
      reporting.**




We
      identified a material weakness for the year ended December 31, 2004. A
      material weakness is a significant deficiency, or combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. We lacked appropriate review of non-routine or complex accounting
      matters, related accounting entries, and appropriate documentation, disclosure
      and application of Canadian and U.S. GAAP, primarily due to a lack of sufficient
      personnel with a level of technical accounting expertise commensurate with
      our
      reporting requirements.




The
      following actions were taken in 2005 to remediate this material weakness. We
      established a Financial Disclosure Policy Committee to review all non-routine
      accounting matters and disclosure and application of Canadian and U.S. GAAP.
      We
      added additional technical accounting expertise to the accounting staff. We
      implemented formal policies addressing the internal controls over non-routine
      or
      complex accounting matters, accounting entries, appropriate documentation,
      and
      disclosures. However, in January 2006 a major restructuring and streamlining
      at
      the corporate office significantly changed the design and structure of the
      internal controls and procedures at the corporate level. As of this date
      management has not had sufficient time to evaluate these controls and therefore
      believes this material weakness still exists.




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          21
          -


Additionally,
      related to the reduction in staffing at the Montana Tunnels mine in mid October
      2005, our controls at that location are not operating as previously designed
      related to segregation of duties over procurement, inventory control and
      accounting duties. Corporate management has increased its involvement with
      day-to-day oversight and management of the Montana Tunnels mine, but as of
      this
      date, management has not had sufficient time to evaluate these controls and
      therefore believes the change in controls is significant enough to be reported
      as a material weakness. In an effort to address this material weakness, staffing
      requirements and other changes in control are being evaluated as the future
      operational requirements of the Montana Tunnels mine is being
      determined.




As
      a
      result of the issuance of the SEC's Release No 33-8644, "Revisions to Accelerated
      Filer Definition and Accelerated Deadlines for Filing Periodic Reports" the Company
      exited accelerated filer status for its year ended December 31, 2005. As a
      non- accelerated
      filer compliance with the internal control reporting requirements of Section 404
      of
      the Sarbanes-Oxley Act of 2002 have been deferred and we may be subject to
      the requirements in our Annual Report  on Form 10-K for fiscal year
      2006 and will be for fiscal year 2007.




**The
      market price of our common shares could experience volatility and could decline
      significantly.**




Our
      common shares are listed on the American Stock Exchange and the Toronto Stock
      Exchange. Our share price has declined significantly since 2004. 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
      short-term changes in gold prices or in our financial condition or results
      of
      operations as reflected in our quarterly earnings reports. 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.




**If
      we complete additional equity financings, then our existing shareholders may
      experience dilution.**




Any
      additional equity financing that we obtain would involve the sale of our common
      shares and/or sales of securities that are convertible or exercisable into
      our
      common shares, such as share purchase warrants or convertible notes. There
      is no
      assurance that we will be able to complete equity financings that are not
      dilutive to our existing shareholders.




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




As
      of
      March 24, 2006, approximately 30 million additional common shares are
      issuable on exercise of warrants, options or other rights to purchase common
      shares at prices ranging from $0.20 to $2.34. In addition, there are
      approximately 11.7 million common shares issuable upon the conversion of the
      $8,731,000 outstanding principal amount of our Series B Convertible Debentures
      at the option of the holder at a conversion price of $0.75 per share. During
      the
      term of the warrants, options 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 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 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 than those provided by the outstanding rights.




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          22
          -


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




Potential
      investors that are United States taxpayers should consider that we could be
      considered to be a “passive foreign investment company” (“PFIC”) for federal
      income tax purposes. Although we believe that we currently are not a PFIC and
      do
      not expect to become a PFIC in the near future, the tests for determining PFIC
      status are dependent upon a number of factors, some of which are beyond our
      control, and we can not assure you that we will not become a PFIC in the future.
      If we were deemed to be a PFIC, then a United States taxpayer who disposes
      or is
      deemed to dispose of our shares at a gain, or who received a so-called “excess
      distribution” on the shares, generally would be required to treat such gain or
      excess distribution as ordinary income and pay an interest charge on a portion
      of the gain or distribution unless the taxpayer makes a timely qualified
      electing fund election (a “QEF” election). A United States taxpayer who makes a
      QEF election generally must report on a current basis his or her share of any
      of
      our ordinary earnings and net capital gain for any taxable year in which we
      are
      a PFIC, whether or not we distribute those earnings. Special estate tax rules
      could be applicable to our shares if we are classified as a PFIC for income
      tax
      purposes.




**We
      have a history of losses and we expect to incur losses in the
      future.**




Since
      our
      inception through a merger in June 2002, we have incurred significant losses
      and
      we expect significant losses to continue for the foreseeable future. Our net
      losses were $22,208,000, $31,007,000 and $14,090,000 for the years ended
      December 31, 2005, 2004 and 2003, respectively. There can be no assurance that
      we will achieve or sustain profitability in the future.




**We
      have a limited operating history on which to evaluate our potential for future
      success.**




We
      were
      formed as a result of a merger in June 2002 and have only a limited operating
      history upon which you can evaluate our business and prospects. During this
      period, we have not generated sufficient revenues to cover our expenses and
      costs. If we are unsuccessful in addressing these risks and uncertainties,
      our
      business, results of operations and financial condition will be materially
      and
      adversely affected.




**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.




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          23
          -


**Our
      earnings may be affected by metals price volatility, specifically the volatility
      of gold and zinc prices.**




We
      derive
      all of our revenues from the sale of gold, silver, lead and zinc and our
      development and exploration activities are focused on gold. As a result, our
      earnings are directly related to the prices of these metals. Changes in the
      price of gold significantly affect our profitability. 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:




·  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.




The
      market prices for silver, zinc and lead are also volatile and are affected
      by
      numerous factors beyond our control, including global or regional consumptive
      patterns, speculative activities, and general global political and economic
      conditions.




All
      of
      the above factors are beyond our control and are impossible for us to predict.
      If the market prices for gold, silver, zinc or lead fall below our costs to
      produce them for a sustained period of time, we will experience additional
      losses and we could also be required by our reduced revenue to discontinue
      exploration, development and/or mining at one or more of our
      properties.




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          24
          -


**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.




Reserve
      estimates are calculated using assumptions regarding metals prices. 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. Any material reduction in our
      reserves may lead to increased net losses, reduced cash flow, asset write-downs
      and other adverse effects on our results of operations and financial condition.
      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.




Each
      of
      these factors also applies to future development properties and to any future
      recommencement of mining at Montana Tunnels. 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
      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.**




From
      time
      to time we will engage 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 about the development of Black Fox and
      other future projects 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.




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          25
          -


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 the Black
      Fox property will be profitable.




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




Mineral
      exploration, particularly for gold and silver, 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 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.




**We
      have experienced operational problems at our Montana Tunnels
      mine.**




All
      of
      our revenues are currently derived from our milling operations at the Montana
      Tunnels mine, which is a low-grade mine. Historically, the Montana Tunnels
      mine
      has been unprofitable. During 2004 we experienced problems related to the
      milling of low-grade ore at the Montana Tunnels mine, which negatively affected
      our revenues and earnings and throughout 2005 we experienced operational
      problems, particularly in the open pit, leading to the suspension of mining
      on
      October 21, 2005, for safety reasons due to increased wall activity in the
      open
      pit.  Since suspension of mining the Company has continued to produce gold
      doré,
      lead-gold and zinc-gold concentrates from milling low grade stockpiled
      ore.  The Montana Tunnels mine plans to continue milling this ore through
      the end of April 2006.  In March 2006, the Company adopted a plan to
      dispose of the Montana Tunnels mine.




**We
      do not currently have and may not be able to raise the funds necessary to
      explore and develop our Black Fox and Huizopa properties and our other
      properties.**




We
      do not
      currently have sufficient funds to complete all of our planned exploration
      activities at Black Fox and Huizopa or to develop a mine at Black Fox. The
      development of Black Fox, and exploration of Huizopa and our other properties
      will require significant capital expenditures. Sources of external financing
      may
      include bank and nonbank 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.




**Our
      Black Fox property is pledged to the holders of our 12% Series 2004-B
      Secured Convertible Debentures and we may not be able to obtain financing from
      an asset based lender.**




Our
      Black
      Fox property is pledged to the holders of our 12% Series 2004-B Secured
      Convertible Debentures as security for our obligations under these debentures.
      It may be difficult for us to raise additional external funds through banks,
      asset based lenders, or other types of lenders, which may require us to raise
      additional funds through future debt and equity offerings. In addition, the
      inability to pledge any additional significant assets may make it difficult
      or
      impossible to obtain financing on acceptable terms, or at all. The failure
      to
      obtain acceptable financing would have a material adverse effect on our growth
      strategy and our results of operations and financial condition.




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          26
          -


**Possible
      hedging activities could expose us to losses.**




In
      the
      future, we may enter into precious and/or base metals 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.
      In
      addition, our ability to hedge against zinc and lead price risk in a timely
      manner may be adversely affected by the smaller volume of transactions in both
      the zinc and lead markets. 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. Any
      significant nonperformance could have a material adverse effect on our financial
      condition and results of operations.




**We
      face substantial governmental regulation.**




*Safety* .
      Our
      U.S. mining operation is subject to inspection and regulation by the Mine Safety
      and Health Administration of the United States Department of Labor (“MSHA”)
      under the provisions of the Mine Safety and Health Act of 1977. The Occupational
      Safety and Health Administration (“OSHA”) also has jurisdiction over safety and
      health standards not covered by MSHA. Our policy is to comply with applicable
      directives and regulations of MSHA and OSHA. We have made and expect to make
      in
      the future, significant expenditures to comply with these laws and
      regulations.




*Current
      Environmental Laws and Regulations.* We must
      comply with environmental standards, laws and regulations that may result in
      increased costs and delays depending on the nature of the regulated activity
      and
      how stringently the regulations are implemented by the regulatory authority.
      The
      costs and delays associated with compliance with such laws and regulations
      could
      stop us from proceeding with the exploration of a project or the operation
      or
      future exploration of a mine. Laws and regulations involving the protection
      and
      remediation of the environment and the governmental policies for implementation
      of such laws and regulations are constantly changing and are generally becoming
      more restrictive. We have made, and expect to make in the future, significant
      expenditures to comply with such laws and regulations.




Some
      of
      our properties are located in historic mining districts with past production
      and
      abandoned mines. The major historical mine workings and processing facilities
      owned (wholly or partially) by us in Montana are being targeted by the Montana
      Department of Environmental Quality (“MDEQ”) for publicly funded cleanup, which
      reduces our exposure to financial liability. We are participating with the
      MDEQ
      under Voluntary Cleanup Plans on those sites. Our cleanup responsibilities
      have
      been completed at the Corbin Flats Facility and at the Gregory Mine site, both
      located in Jefferson County, Montana, under programs involving cooperative
      efforts with the MDEQ. MDEQ is also contemplating remediation of the Washington
      Mine site at public expense under the Surface Mining Control and Reclamation
      Act
      of 1977 (“SMCRA”). In February 2004, we consented to MDEQ’s entry onto the
      portion of the Washington Mine site owned by us to undertake publicly funded
      remediation under SMCRA. In March 2004, we entered into a definitive written
      settlement agreement with MDEQ and the Bureau of Land Management (“BLM”) under
      which MDEQ will conduct publicly funded remediation of the Wickes Smelter site
      under SMCRA and will grant us a site release in exchange for our donation of
      the
      portion of the site owned by us to BLM for use as a waste repository. However,
      there can be no assurance that we will continue to resolve disputed liability
      for historical mine and ore processing facility waste sites on such favorable
      terms in the future. We remain exposed to liability, or assertions of liability,
      that would require expenditure of legal defense costs, under joint and several
      liability statutes for cleanups of historical wastes that have not yet been
      completed.




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          27
          -


Environmental
      laws and regulations may also have an indirect impact on us, such as increased
      costs for electricity due to acid rain provisions of the Clean Air Act
      Amendments of 1990. Charges by refiners to which we sell our metallic
      concentrates and products have substantially increased over the past several
      years because of requirements that refiners meet revised environmental quality
      standards. We have no control over the refiners’ operations or their compliance
      with environmental laws and regulations.




*Potential
      Legislation.* Changes
      to the current laws and regulations governing the operations and activities
      of
      mining companies, including changes to the U.S. General Mining Law of 1872,
      and
      permitting, environmental, title, health and safety, labor and tax laws, are
      actively considered from time to time. We cannot predict which changes may
      be
      considered or adopted and changes in these laws and regulations could have
      a
      material adverse impact on our business. Expenses associated with the compliance
      with new laws or regulations could be material. Further, increased expenses
      could prevent or delay exploration or mine development projects and could
      therefore affect future levels of mineral production.




**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. 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, Mexico and the U.S. 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 bonding 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.




**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, some of which have greater financial resources
      than
      we do, we may be unable to acquire attractive new mining properties on terms
      that we consider acceptable.




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          28
          -


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




Certain
      of our United States mineral rights consist of “unpatented” mining claims
      created and maintained in accordance with the U.S. General Mining Law of 1872.
      Unpatented mining claims are unique U.S. property interests, and are generally
      considered to be subject to greater title risk than other real property
      interests because the validity of unpatented mining claims is often uncertain.
      This uncertainty arises, in part, out of the complex federal and state laws
      and
      regulations that supplement the General Mining Law. Also, unpatented mining
      claims and related rights, including rights to use the surface, are subject
      to
      possible challenges by third parties or contests by the federal government.
      The
      validity of an unpatented mining claim, in terms of both its location and its
      maintenance, is dependent on strict compliance with a complex body of federal
      and state statutory and decisional law. In addition, there are few public
      records that definitively control the issues of validity and ownership of
      unpatented mining claims.




In
      recent
      years, the U.S. Congress has considered a number of proposed amendments to
      the
      General Mining Law. Although no such legislation has been adopted to date,
      there
      can be no assurance that such legislation will not be adopted in the future.
      If
      ever adopted, such legislation could, among other things, impose royalties
      on
      gold production from unpatented mining claims located on federal lands or impose
      fees on production from patented mining claims. If such legislation is ever
      adopted, it could have an adverse impact on earnings from our operations, could
      reduce estimates of our reserves and could curtail our future exploration and
      development activity on federal lands or patented claims.




While
      we
      have no reason to believe that the existence and extent of 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, or 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.




**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.




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 remedying an environmental problem, we might be required to suspend
      or significantly curtail operations or enter into other interim compliance
      measures.




-
          29
          -


**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. Substantially all of our assets are
      located inside of Canada and our head office is located in the United States.
      Additionally, a number of our directors and the experts named in this Annual
      Report on Form 10-K are residents of Canada. Although we have appointed
      Lackowicz, Shier & Hoffman as our agents for service of process in the Yukon
      Territory, it might not be possible for investors to collect judgments obtained
      in Canadian courts predicated on the civil liability provisions of 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 named in this Annual
      Report on Form 10-K, 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.




-
          30
          -


**ITEM
      2.** ***DESCRIPTION
      OF PROPERTIES***




**Maps
      of Operations and Properties**




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





Figure
      1
      - Property locations in North America





-
          31
          -


**Montana
      Tunnels Mine**




The
      mine
      was originally owned, constructed and operated in 1987 by Pegasus Gold
      (“Pegasus”), a mining company incorporated in Canada. In 1998, Pegasus filed for
      bankruptcy and in 2002, Apollo purchased Montana Tunnels Mining, Inc., the
      owner
      and operator of the Montana Tunnels mine.




Figure
      2
      - Montana Tunnels mine location in Montana, U.S.








-
          32
          -


***Location***




The
      Montana Tunnels mine is an open pit, poly-metallic mine and mill located about
      five miles west of Jefferson City, Montana. The mine is located in the historic
      “Wickes-Corbin” mining district in Section 8 of Township 7 North, Range 4 West,
      Jefferson County. The mine’s elevations range from 5,200 to 6,300 feet with
      moderately mountainous topography that is cut by conveyers with steeper slopes.
      The mine is easily accessible by way of interstate highway and paved roads.
      The
      mine and mill receive power supply from Northwestern Energy from overland power
      lines.




***Production***




For
      the
      year ended December 31, 2005, a total of 44,682 ounces of gold, 544,613 ounces
      of silver, 10,428,061 lbs of lead and 22,380,136 lbs of zinc were produced.
      Most
      of this production was from modeled and unmodeled “fringe” ores mined from the
      open pit through mid October, 2005.




Mining
      was suspended mid October 2005 as a result of pit wall instability in September
      and early October 2005 along the upper East Wall of the open pit. The
      instability is the result of a complex interaction between relatively weak,
      altered Lowland Creek Volcanic (LCV) rock units, steeply dipping faults and
      joints, and occasional zones of relatively less altered and more competent
      sub-vertical rock zones. Toppling type displacement patterns were evident where
      the more resistant rock outcrops within weak, sheared LCV rock units on the
      upper East Wall. The pattern of displacements that occurred during September
      and
      October 2005 was consistent with previous slope performance when active mining
      unloads the toe of the slope.





The
      on-going slope deformations resulted in too steep a slope between the ramps
      and
      weakening of the rock mass, creating localized instabilities along the haul
      ramp
      that reduced ramp width and increased the frequency of rock falls. We therefore
      decided on October 22, 2005, for safety reasons, to cease mining and retain
      a
      third party consultant to review mine design criteria and determine scenarios
      under which mining the pit could safely resume.





The
      consultant focused on geotechnical issues associated with the East Wall area
      and
      upper access ramp location for the open pit, completing its work in late
      November. The consultant developed several alternative mine designs and plans
      for ramp relocation, unloading the upper benches and remediation. Each plan
      calls for additional unloading of up to 4.6 million tons from upper benches
      of
      the East Wall to mitigate rock fall hazards by reducing slope deformation and
      rock mass degradation in the weak rock units exposed along the upper East Wall.
      The plans also call for a new, wider haul ramp to reduce the potential for
      haul
      ramp instability along the East Wall. In addition, mining practices would be
      changed to increase the rate at which upper benches are unloaded during mining
      operations. The estimated cost of completing the East Wall remediation, waste
      material removal, ramp relocation and widening is approximately $12
      million.




Since
      the
      open pit mine operations were suspended, the mill has been producing gold doré
and lead-gold and zinc-gold concentrate from low grade ore stockpiles. On
      January 31, 2006, we gave a Workers Adjustment and Retraining Notification
      (“WARN”) Act Notice to all hourly and salaried Montana Tunnels Mining, Inc.
      employees. The WARN Act requires companies to give employees 60 days’ notice
      prior to a plant shutdown or mass layoff. We now expect to postpone a mass
      layoff until late April 2006 as we continue to mill low grade stockpiled ore.
      In
      March 2006 the Company adopted a plan to dispose of the Montana Tunnels mine.
      The following table sets forth annual production levels for gold, silver, lead
      and zinc at the Montana Tunnels mine since 2003.




**Montana
      Tunnels Mine Production History**




**Year
                Ended December 31,****Year**
            
            **Milled**
              **Tons**
              **000’s**
            
            **Au
                Oz Au/t**
            
            **Oz
                Au**
              **000’s**
            
            **Ag
                Oz Ag/t**
            
            **Oz
                Ag**
              **000’s**
            
            **Pb**
              **%**
            
            **Tons
                Pb**
              **000’s**
            
            **Zn**
              **%**
            
            **Tons
                Zn**
              **000’s**2005
            
            
            4,955
            
            
            0.0129
            
            
            44.6
            
            
            0.19
            
            
            544.6
            
            
            0.15
            
            
            5.2
            
            
            0.34
            
            
            11.62004
            
            
            5,394
            
            
            0.0096
            
            
            33.7
            
            
            0.32
            
            
            970.8
            
            
            0.14
            
            
            5.0
            
            
            0.37
            
            
            13.12003
            
            
            4,663
            
            
            0.0157
            
            
            44.1
            
            
            0.22
            
            
            411.2
            
            
            0.19
            
            
            5.4
            
            
            0.44
            
            
            10.9





**Year
                Ended December 31,****Payable
                Metal**
            
            **2005**
            
            **2004**
            
            **2003**Gold
                (oz)
            
            
            44,682
            
            
            33,743
            
            
            44,124Silver
                (oz)
            
            
            544,613
            
            
            970,751
            
            
            411,216Lead
                (lb)
            
            
            10,515,148
            
            
            10,064,265
            
            
            10,843,184Zinc
                (lb)
            
            
            23,255,833
            
            
            26,222,805
            
            
            21,792,452




**Year
                Ended December 31,****2005**
            
            
            **2004**
            
            
            **2003**Total
                Cost/ Ton Ore Processed
            
            $
            9.46
            
            $
            9.47
            
            $
            7.10Cash
                Operating Cost/Oz Gold
            
            $
            529.36
            
            $
            797.91
            
            $
            432.42Total
                Cash Cost/Oz Gold
            
            $
            562.96
            
            $
            838.54
            
            $
            456.96Total
                Production Cost/Oz Gold
            
            $
            617.77
            
            $
            913.43
            
            $
            595.66




In
      2006 the Montana Tunnels mine continues to produce
      metals by milling low grade ore stockpiles and plans to continue through the
      end
      of April 2006. Production at Montana Tunnels is not currently cash
      positive. The revenue generated does pay for the variable cost of production
      and
      contributes to the fixed costs of the mine. In March 2006, the Company adopted
      a
      plan to dispose of the Montana Tunnels mine.




The
      mine
      produced the following aggregate amounts of the listed metals from its
      inception in 1987 through December 31, 2005.






ProductionGold
            
            
            1,503,000
              ozsSilver
            
            
            27,678,000
              ozsLead
            
            
            354,000,000
              lbs.Zinc
            
            
            946,800,000
              lbs.




-
          33
          -





***Description
      of Land, Geology, Process and Equipment***




About
      half of Section 8 lands are our owned fee lands. Mining claims that cover the
      pit are listed in the table below.




**Claims
      Covering Montana Tunnels Mine**




**Patented
                Claims**
            
            **Mineral**
              **Survey**
            
            **Unpatented**
              **Claims**Geraldine
                C
            
            
            9184
            
            
            MF
                1P.Q.C
            
            
            9184
            
            
            F
                14Montana
            
            
            9184
            
            
            F
                15General
                Harris
            
            
            2038
            
            
            -Black
                Rock No. 2
            
            
            9184
            
            
            -Black
                Rock No. 3
            
            
            8940
            
            
            -D.E.D
            
            
            9184
            
            
            -Placer
            
            
            258
            
            
            -Anna
            
            
            8940
            
            
            -





We
      own or
      lease an aggregate of 5,088 acres in fee and patented lands at the Montana
      Tunnels mine. The property consists of 139 wholly or partially owned patented
      claims (2,413.42 acres), three patented leased claims (45.19 acres) which we
      hold pursuant to a mining lease expiring on March 19, 2014, and 2,629.44 acres
      of owned fee lands. All patented claims and fee lands have been surveyed. In
      addition, 213 unpatented claims are maintained (4,260 acres). We estimate that
      90% of the unpatented claims have been surveyed. A number of claims outside
      the
      contiguous mining claims and fee land are isolated.




None
      of
      the Montana Tunnels mine’s reserves are subject to royalties, but we do have
      three leased claims that contain mineralization, which will be subject to a
      4.5%
      net smelter return royalty if they are mined. The annual holding costs of the
      Montana Tunnels properties, exclusive of property taxes, total
      $52,582.




The
      Montana Tunnels deposit is hosted in the central part of the diatreme, an
      upward-sloping passage forced through sedimentary rock by volcanic activity.
      The
      diatreme is a heterolithic breccia, characterized by a sand-size fragmented
      matrix of quartz latitic composition surrounding subangular to well-rounded
      fragments of Cretaceous Elkhorn Mountains Volcanics, Tertiary Lowland Creek
      Volcanics, and clasts derived from the Cretaceous Butte Quartz Monzonite
      pluton.




There
      are
      two main zones of mineralization at Montana Tunnels: (i) a central, pipe-like
      core of contiguous mineralization, and (ii)discontinuous zones of mineralization
      peripheral to the core deposit, termed fringe mineralization. The core of the
      deposit in plan view is oblong in shape and ranges from about 200 feet to 1000
      feet in width, and from 1400 to 2000 feet in length, with a vertical extent
      of
      at least 2000 feet. The core zone strikes approximately N30 E and dips steeply
      (60 degrees to 80 degrees) to the northwest. Metallurgical projections are
      based
      on historical feed grade versus tails grade trends; mill throughput tonnage,
      ore
      properties relative to pit location and bench elevation; and ore blending
      requirements.




Prior
      to
      suspending mining in October 2005, open pit mining at Montana Tunnels was
      normally conducted 24 hours per day seven days per week. Mining was performed
      by
      two shovels, eight 150 ton and two 85 ton haul trucks in addition to ancillary
      equipment. While fully operational, mine production averaged approximately
      40,000 tons per day of ore and waste.




-
          34
          -




When
      in
      full production we use a primary and secondary crusher, in series, to generate
      a
      coarse ore stockpile ahead of the concentrator. The crusher has a capacity
      of
      16,500 tons per day. The grinding circuit consists of a SAG mill, ball mill
      and
      tertiary crusher (SABC circuit) followed by conventional differential flotation.
      A gravity circuit, in closed loop with the ball mill, recovers 12-15% of gold
      produced by the concentrator. The remainder of the mill’s production is in the
      form of concentrates: a zinc-gold concentrate and a lead-gold-silver
      concentrate. The dried concentrates are shipped, via rail, to a smelter. The
      original plant was constructed during 1986 and 1987, and is currently in good
      working order. In 2004, we increased mill capacity from 15,000 tons per day
      to
      16,500 tons per day with the addition of a primary crusher.




***Model
      Reconciliation***




During
      2005, in an effort to supply the mill with feed, larger ore zones of a lower
      grade were mined, most from outside of the modeled zones. The reconciliation
      to
      the model was skewed due to mining such large amounts of low grade ore outside
      the model to supply mill feed. In addition, the mill produces more gold than
      mine sampling can detect. Generally mined ounces of gold were as predicted
      but
      mined tons were higher and ore tons were lower.




The
      following table summarizes the reconciliation for the year ended December 31,
      2005.




**Summary
      of Operational Statistics for the Year Ended December 31,
      2005**




**Entity**
            
            **Tons**
              **000’s**
            
            **Au
                opt**
            
            **Ag**
              **opt**
            
            **Pb**
              **%**
            
            **Zn**
              **%**
            
            **Au**
              **Ozs.**
            
            **Ag
                Ozs.**
            
            **Pb**
              **tons**
            
            **Zn**
              **tons**Model
            
            
            2,933.8
            
            
            0.0173
            
            
            0.19
            
            
            0.19
            
            
            0.47
            
            
            50,749
            
            
            558,750
            
            
            5,569
            
            
            13,647Mine
            
            
            4,124.0
            
            
            0.0130
            
            
            0.21
            
            
            0.20
            
            
            0.46
            
            
            53,410
            
            
            860,237
            
            
            8,224
            
            
            18,825Mill
            
            
            4,010.9
            
            
            0.0140
            
            
            0.19
            
            
            0.17
            
            
            0.37
            
            
            55,064
            
            
            747,847
            
            
            6,833
            
            
            14,788





Note:
      The
      above comparison is for production through mid-October 2005.


-
          35
          -





***Mineral
      Reserves***




The
      table
      below shows the mineral reserves at Montana Tunnels.





**Montana
      Tunnels Mine Reserve Statement at December 31, 2005(1)(2)**


**Pit
                  (Imperial Summary)**
              
              **Classification**
              
              **Tons**
                **000’s**
              
              **Grade
                  oz Au/t**
              
              **Ag
                  oz**
                **Ag/t**
              
              **Pb
                  %**
              
              **Zn
                  %**
              
              **Ounces
                  Au**
                **000’s**L8J5
                  (L Pit)
              
              
              Proven
              
              
              10,089.2
              
              
              0.016
              
              
              0.173
              
              
              0.218
              
              
              0.591
              
              
              163.6M4A
                  (M Pit)
              
              
              ProvenMill
                  Stockpile
              
              
              Proven
              
              
              36.0
              
              
              0.009
              
              
              0.180
              
              
              0.080
              
              
              0.190
              
              
              0.3Subtotal
              
              
              Proven
              
              
              10,125.2
              
              
              0.016
              
              
              0.173
              
              
              0.217
              
              
              0.589
              
              
              163.9L8J5
                  (L Pit)
              
              
              Probable
              
              
              217.4
              
              
              0.016
              
              
              0.175
              
              
              0.208
              
              
              0.508
              
              
              3.5M4A
                  (M Pit)
              
              
              Probable
              
              
              22,898.0
              
              
              0.016
              
              
              0.230
              
              
              0.170
              
              
              0.600
              
              
              368.5Subtotal
              
              
              Probable
              
              
              23,115.4
              
              
              0.016
              
              
              0.230
              
              
              0.171
              
              
              0.600
              
              
              372.0Total
              
              
              Proven
                  + Probable
              
              
              33,240.6
              
              
              0.016
              
              
              0.212
              
              
              0.185
              
              
              0.596
              
              
              535.9





(1)  Recovery
      rates are expected to be 80% for gold, 71% for silver, 85% for lead, and 84%
      for
      zinc.


(2)
      In March 2006 the Company adopted a plan to dispose
      of the Montana Tunnels mine.




***Environmental***




The
      permitted plan of operations allows mining of ore reserves from the L-Pit mine
      design. Unstable pit walls in the ramp sector on the east side of the mine
      closed down the open pit in October 2005, however, milling operations have
      continued processing stockpiled low grade ore. A pit wall layback and pit ramp
      reconstruction in the east sector of the open pit was subsequently developed
      using extensive geotechnical analysis to ensure stability and safety for ongoing
      mining operations. A permit revision for the pit wall layback and associated
      changes was approved by the Department of Environmental Quality in December
      2005.




A
      major
      mine plan amendment (M-Pit) continues to progress through an Environmental
      Impact Statement permitting process. Approval for the M-Pit mine by the Montana
      Department of Environmental Quality and Bureau of Land Management will provide
      approximately 28 million tons of additional ore for processing.




The
      bonding requirements for the Montana Tunnels mine are met by the following
      bond
      instruments:




**Year
                Ended****December
                31,****Type
                of Bonding**
            
            **2005**
            
            **2004**Partially
                secured surety bond issued by CNA pursuant to the Term Bonding Agreement
                described immediately below
            
            $
            14,987,688
            
            $
            14,987,688Cash
                bond posted directly with the State of Montana
            
            
            128,697
            
            
            128,697Real
                estate bond posted directly with State of Montana
            
            
            1,264,893
            
            
            772,570Total
                Obligated Bonding Requirement Met
            
            $
            16,381,278
            
            $
            15,888,955




National
      Fire Insurance Company of Hartford, a unit of Continental Casualty Company
      (“CNA”), provides $14,987,688 of the total reclamation bonding for the Montana
      Tunnels mine plan of operations at a deferred bond premium cost of $14 per
      $1,000 of bonding under a Term Bonding Agreement dated August 1,
      2002.




-
          36
          -


Bonding
      requirements are subject to adjustment by the State of Montana for various
      reasons from time to time. As noted above, the bonding requirement for the
      Montana Tunnels mine increased from $15,888,955 to $16,381,278 during 2005
      as
      the result of a minor revision to the operating permit and a bond inflation
      adjustment.




**Black
      Fox Project**




Figure
      3
      - Black Fox project location along Destor-Porcupine Fault Zone in Province
      of
      Ontario, Canada







-
          37
          -


**Location**




The
      Black
      Fox project is located approximately five miles east of the township of Matheson
      and 40 miles east of Timmins, Ontario, Canada. Lake Abitibi is six miles
      northwest of the project site. The property encompasses over 1,983 acres within
      the Hislop and Beatty Townships. Access and surface rights are owned solely
      by
      Apollo. The property is easily accessible by interstate highway and power is
      supplied by Hydro One.




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
      Glimmer Mine from Exall and Glimmer. The mine, which ceased operations in May
      2001, was renamed Black Fox. Apollo paid Exall and Glimmer an aggregate purchase
      price consisting of Cdn$3 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 payable to Exall and Glimmer. See subsequent event Note 21 of the
      “Notes to the Consolidated Financial Statements”.




Black
      Fox
      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.




From
      1997
      until 2001, the mine produced approximately 210,000 ounces of gold. In early
      2003, we commenced a drilling program consisting of shallow holes to test the
      mine’s open pit potential. During 2003, 297 surface core holes were completed
      with depths varying from 200 to 500 meters. As a result of this drilling, proven
      and probable open pit gold reserves at Black Fox of 457,000 ounces were
      identified and we published such reserve estimates in an NI 43-101 report in
      March 2004.




We
      are in
      the process of updating our reserves, and expect to report new reserve
      estimates, which we expect to include underground reserves, in April 2006 and
      issue an NI 43-101 report within 45 days of publishing the new
      reserves.




Property,
      plant and equipment at the mine consists of an administration office, change
      house facilities, core sheds and surface infrastructure for the mine (pumps,
      heating, etc.), all of which are in good working condition, with an aggregate
      value of $1.0 million.




None
      of
      the currently defined reserves are subject to production royalties. However,
      the
      Ewen property (155 acres), purchased in 2003, is subject to a 3% net smelter
      return royalty if in the future any reserves are found on that
      property.




***Mineral
      Reserves***




The
      reserves reported in an NI 43-101 report in March 2004 of 457,000 ounces of
      gold were estimated based upon the 2003 exploration program and included a
      pre-feasibility study of developing an open pit mine on the Black Fox property.
      This study did not consider underground mining as an option. We report no
      reserves at Black Fox under SEC Industry Guide 7, which requires a final
      bankable feasibility study.






-
          38
          -




**Black
      Fox Reserve Statement at December 31, 2005**




**Classification
                (Imperial Summary)**
            
            **Tons**
              **000’s**
            
            **Grade**
              **oz
                Au/t**
            
            **Ounces
                Au**
              **000’s**
            
            **Tons
                Waste**
              **000’s**
            
            **Strip**
              **Ratio**Proven
            
            
            2,418.0
            
            
            0.141
            
            
            341.6Probable
            
            
            837.4
            
            
            0.138
            
            
            115.5Total
                - Proven + Probable
            
            
            3,255.5
            
            
            0.140
            
            
            457.1
            
            
            60,734.5
            
            
            18.66





Waste
      includes 12.18 million tons of overburden.




See
      the proven and probable mineral reserve table in
      Item 1 of this Annual Report on Form 10-K.




***Exploration
      and Development 2004***




In
      February 2004, a new drilling program commenced which first required the
      existing ramp system to be extended down to the 235 meter level and the
      construction of a 913 meter drift so as to allow drilling of the orebody from
      underground. During 2004, 210 underground holes totaling 41,065 meters were
      drilled.




Also
      in
      2004, an additional 105 surface holes were completed, totaling another 43,284
      meters. Our objectives for drilling these surface holes were to better define
      the open pit reserves; extend our resources along strike; extend resources
      in
      the eastern and western extensions of the main structure, bracketing or
      undercutting known gold-bearing zones; and explore known geophysical
      targets.




In
      April
      2004, through surface exploration drilling we discovered a new orebody in the
      footwall of the DPFZ. The discovery hole was based on the extension of an
      induced polarization anomaly. There are two components to the mineralization,
      the quartz breccia veins and the massive sulfide mineralization (Pb, Zn, Ag).
      These appear to be two mineralizing events sharing the same “plumbing system.”




***Exploration
      and Development 2005***




During
      2005 the surface and underground drilling programs continued with a total of
      51
      surface holes and 160 underground holes being completed. As of December 31,
      2005, Apollo had completed a total of 449 surface diamond drill holes, totaling
      over 135,711 meters as well as 370 underground holes totaling 75,520.7 meters
      giving a to-date total for both of 211,232.6 meters as shown in the table
      below.




-
          39
          -


**Drilling
      at Year Ended December 31, 2005**




Drilling
            
            ***Holes
                Completed***
            
            ***Meters***Surface
                2005
            
            
            51
            
            
            9,813.6UG
                2005
            
            
            160
            
            
            34,455.8Total
                All 2005 Drilling
            
            
            211
            
            
            44,269.4Total
                Surface To Date
            
            
            449
            
            
            135,711.9Total
                UG To Date
            
            
            370
            
            
            75,520.7Grand
                Total All Drilling
            
            
            819
            
            
            211,232.6







Apollo’s
      drilling supplemented the data from the 284 surface and 720 underground drill
      holes drilled by the previous owners. A table of total drill holes is shown
      below.




**Black
      Fox Project Drill Hole Database**




**Company**
            
            **Period**
            
            **Location**
            
            **Number**
            
            **Meters**Noranda
            
            
            1989-1994
            
            
            Surface
            
            
            142
            
            
            27,930Exall
            
            
            1995-1999
            
            
            Surface
            
            
            142
            
            
            21,295Exall
            
            
            1996-2001
            
            
            Underground
            
            
            720
            
            
            62,827Apollo
            
            
            2002-2003
            
            
            Surface
            
            
            297
            
            
            82,622Apollo
            
            
            2004
            
            
            Surface
            
            
            105
            
            
            43,280Apollo
            
            
            2004
            
            
            Underground
            
            
            210
            
            
            41,065Apollo
            
            
            2005
            
            
            Surface
            
            
            51
            
            
            9,813Apollo
            
            
            2005
            
            
            Underground
            
            
            160
            
            
            34,456Totals
            
            
            
            
            
            
            
            
            1,823
            
            
            323,288





In
      2005,
      we began the permitting process for the project, which we anticipate will take
      approximately two years based on a plan for a combined open pit and underground
      mine with a 1,500 tonnes per day on-site mill. The estimated cost of the mine
      and mill is approximately $80 million.




***Bonding***




We
      met
      our bonding requirements, established by the Province of Ontario, for the Black
      Fox project through the following bonding instrument:




**Year
                Ended December 31,****Type
                of Bonding**
            
            **2005**
            
            **2004**Letter
                of Credit issued by TD Canada Trust secured by pledged deposit
                account
            
            
            Cdn$644,650
            
            
            Cdn$489,200Total
                Bonding Requirement met
            
            
            Cdn$644,650
            
            
            Cdn$489,200




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 in a 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.




-
          40
          -


**Exploration
      Stage Properties**




***Huizopa***




We
      own
      Mexican subsidiaries which own or have the right to acquire concessions at
      the
      Huizopa exploration project. Pursuant to an agreement with the previous owner
      of
      one of those Mexican subsidiaries (the “Previous Owner”), if we exercise our
      right to acquire those concessions at the Huizopa project on which we currently
      hold an option, one of our Mexican subsidiaries and a Mexican company owned
      by
      the Previous Owner will enter into a joint venture agreement governing
      activities at the Huizopa project going forward, pursuant to which we can elect
      to ultimately retain up to an 80% interest in the Huizopa project. If our
      Mexican subsidiary chooses not to go forward with the Huizopa project, it is
      obligated to transfer a controlling interest in the subsidiary that holds the
      option back to the Previous Owner, and to transfer 91% of the concessions it
      owns at the Huizopa project back to the Previous Owner.




The
      Huizopa project is located in the northern part of the Sierra Madre Gold Belt
      in
      the state of Chihuahua, Mexico, near the border with the State of Sonora, and
      encompasses a block of mining concession claims of approximately 22 sq. km.
      Huizopa is located about 17 km southwest of the Dolores project and
      approximately 33 km to the northeast of the Mulatos project. Mulatos and Dolores
      are both multi-million ounce gold-silver deposits owned by other companies
      that
      are currently in development. 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 property is very remote and will be accessed initially
      by helicopter. During 2004, we acquired new claims that completely surround
      the
      old Huizopa land position and, as a result, have expanded our land position
      to a
      total of 128 sq. km.




The
      geology is characterized by a series of parallel, low sulfidation gold-silver,
      quartz veins 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. Two major parallel quartz
      vein systems with north trending structures contain many single vein outcrops
      7
      to 10 meters thick suggesting a series of stacked veins. Strike lengths are
      over
      2.0 km on the property with untested down dip potential. The stratigraphy of
      the
      Huizopa area has two sections of relatively mafic lava flows with intercalated
      volcaniclastics. The dominant strike azimuths of faults are 340o and 160o with
      dips ranging from vertical to 33o. Most of these structures, including the major
      faults with associated thick gouge or breccia zones, dip eastward. These east
      dipping faults are the faults associated with quartz veins, brecciation, and
      mineralization.




Initial
      favorable geochemical sampling and field studies by the Previous Owner in
      December 2003 were confirmed by us when we reviewed the data and conducted
      a
      field evaluation between February and March 2004.




Mapping
      of the mining concession began in June 2004 and continued throughout 2005.
      The
      results were compiled and transferred to our new topography maps and air photos
      as well as the Mexican government’s Chabacan topographical sheet which has been
      enlarged from 1:50,000 scale to 1:10,000. Geologic mapping suggests that the
      faults that host gold-silver mineralization may be more numerous and more
      continuous than earlier field work indicated. Petrographical 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.




Throughout
      2006, we expect to continue mapping, trenching, sampling and conducting
      geophysical studies on the property, including the selection of several primary
      targets for drill sites and the commencement of a drilling program.  The
      cost of the project is expected to be approximately $2.3 million for the
      year 2006.




-
          41
          -


**Diamond
      Hill**




The
      Diamond Hill mine, which has been on care and maintenance since 2000, is owned
      by Montana Tunnels Mining, Inc. The mine is an underground gold mine and is
      located approximately 28 miles southeast of Helena, Montana, in Broadwater
      County and on the east flank of the Elkhorn Mountains, within the Hassel Mining
      District. The Diamond Hill mine was in production from 1996 to 2000, during
      which time, 775,000 tons of ore were mined at an average grade of 0.233 ounces
      of gold per ton. In March 2006, the Company adopted a plan to dispose of Montana
      Tunnels Mining, Inc., which owns the Diamond Hill mine.




The
      Diamond Hill mine covers over 2,590 acres of patented and unpatented claims.
      We
      have 100% ownership of the main patented claims that contain the current
      deposits, subject to a 0.5 to 1% net smelter return and a 10% net profits
      royalty. We also have 50% ownership of four additional patented claims, which
      are peripheral to the main land package. As of December 31, 2005, we hold 103
      unpatented claims and lease 19 unpatented claims. The current mine permit covers
      270 acres with most of the disturbance within a 27 acre area.




The
      Diamond Hill orebodies and mine workings are in solid unfractured rock and
      accordingly are amenable to low cost sublevel open stoping methods. Ore was
      transported to the Montana Tunnels mill facility by truck where it was processed
      in a separate circuit designed for Diamond Hill ore. Most of the gold was
      recovered into a high grade pyrite concentrate and sold to Japanese
      smelters.




The
      deposit is classed as a skarn hosted sulfide deposit where the predominant
      ore
      mineralogy is gold associated with pyrite and lesser other metal sulfides.
      The
      bonding requirements for Diamond Hill, totaling approximately $623,000, are
      incorporated as part of the bonding at Montana Tunnels.




**ITEM
      3.** ***LEGAL
      PROCEEDINGS***




We
      are
      not currently subject to any material pending legal proceedings. We are,
      however, engaged in routine litigation incidental to our business. No material
      legal proceedings, involving us or our business are pending, or, to our
      knowledge, contemplated, by any governmental authority. We are not aware of
      any
      material events of noncompliance with environmental laws and
      regulations.




**ITEM
      4.** ***SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS***




No
      matters were submitted to a vote of security holders during the fourth quarter
      of 2005.




-
          42
          -


**PART
      II** **-
      OTHER INFORMATION**




**ITEM
      5.** ***MARKET
      FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES***




Our
      common shares are listed on the American Stock Exchange under the trading symbol
      “AGT” and on the Toronto Stock Exchange under the trading symbol “APG.” As of
      March 24, 2006, 121,396,859 common shares were outstanding, and we
      had 1,750 shareholders of record. On March 24, 2006, the closing price per
      share for our common shares as reported by the American Stock Exchange was
      $0.62
      and as reported by the Toronto Stock Exchange was Cdn$0.69.




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






**American
                Stock**
              **Exchange**
            
            **Toronto
                Stock**
              **Exchange****High**
            
            **Low**
            
            **High**
            
            **Low****($)**
            
            **(Cdn$)****2005**First
                Quarter
            
            $
            0.81
            
            $
            0.45
            
            $
            0.96
            
            $
            0.54Second
                Quarter
            
            
            0.47
            
            
            0.26
            
            
            0.56
            
            
            0.30Third
                Quarter
            
            
            0.38
            
            
            0.22
            
            
            0.44
            
            
            0.27Fourth
                Quarter
            
            
            0.32
            
            
            0.16
            
            
            0.37
            
            
            0.18**2004**First
                Quarter
            
            
            2.61
            
            
            1.80
            
            
            3.30
            
            
            2.40Second
                Quarter
            
            
            2.11
            
            
            1.25
            
            
            2.76
            
            
            1.72Third
                Quarter
            
            
            1.41
            
            
            0.54
            
            
            1.85
            
            
            0.67Fourth
                Quarter
            
            
            1.05
            
            
            0.60
            
            
            1.25
            
            
            0.72





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.




**ITEM
      6.** ***SELECTED
      FINANCIAL DATA***




The
      following table sets forth selected historical consolidated financial data
      for
      Apollo Gold Corporation (formerly Pursuit) as of December 31, 2005, 2004, 2003,
      2002 and 2001, derived from our audited financial statements. The financial
      information for the year ended December 31, 2002 differs significantly from
      the
      financial information for prior years as a result of the June 2002 acquisition
      of Nevoro. Financial information for 2001 and prior years is the historical
      financial information of Pursuit. On June 25, 2002, Pursuit acquired Nevoro
      and
      its wholly-owned subsidiary Apollo Gold, Inc.; accordingly, the statement of
      operations of the Company for the year ended December 31, 2002, includes the
      results of Pursuit for the year ended December 31, 2002, and Nevoro for the
      period from June 25, 2002 through December 31, 2002. Subsequent to June 25,
      2002, substantially all of the gold mining and exploration business conducted
      by
      the Company consists of the gold mining and exploration operations of Apollo.
      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 Form 10-K and with “Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.”




-
          43
          -







**Summary
      of Financial Condition**




**Years
                Ended December 31,**
              **($
                U.S. dollars in thousands, except share data)****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****Statements
                of Operations Data -**
              **Cdn
                GAAP**Revenue
                on sales of minerals
            
            $
            43,254
            
            $
            38,254
            
            $
            30,858
            
            $
            -
            
            $
            -Direct
                Operating Costs
            
            
            48,357
            
            
            52,473
            
            
            34,184
            
            
            12,159
            
            
            -Depreciation and Amortization
            
            
            2,551
            
            
            2,640
            
            
            6,135
            
            
            -
            
            
            -Exploration
                and Development
            
            
            918
            
            
            1,051
            
            
            2,117
            
            
            451
            
            
            94Operating
                Loss
            
            
            (17,638
            )
            
            (26,592
            )
            
            (17,105
            )
            
            (15,811
            )
            
            (533
            )Loss
                from Continuing Operations
            
            
            (15,961
            )
            
            (27,295
            )
            
            (15,790
            )
            
            (15,585
            )
            
            (454
            )(Loss)
                Income from Discontinued Operations
            
            
            (6,247
            )
            
            (3,712
            )
            
            1,700
            
            
            405
            
            
            -Net
                Loss
            
            
            (22,208
            )
            
            (31,007
            )
            
            (14,090
            )
            
            (15,180
            )
            
            (454
            )Net
                Income (Loss) per share, basic and dilutedContinuing
                Operations
            
            
            (0.16
            )
            
            (0.34
            )
            
            (0.29
            )
            
            (0.81
            )
            
            (0.54
            )Discontinued
                Operations
            
            
            (0.06
            )
            
            (0.05
            )
            
            0.03
            
            
            0.02
            
            
            -Total
            
            $
            (0.22
            )
            $
            (0.39
            )
            $
            (0.26
            )
            $
            (0.79
            )
            $
            (0.54
            )Weighted
                Average number of shares outstanding
            
            
            101,811,291
            
            
            78,716,042
            
            
            54,536,679
            
            
            19,297,668
            
            
            834,124**Balance
                Sheet Data - Cdn GAAP**Total
                Assets
            
            $
            62,545
            
            $
            97,635
            
            $
            96,577
            
            $
            66,361
            
            $
            112Total
                Shareholders’ Equity
            
            
            32,441
            
            
            47,221
            
            
            57,857
            
            
            29,685
            
            
            (28
            )




**Summary
      of Financial Condition**




**Years
                Ended December 31,**
              **($
                U.S. dollars in thousands, except share data)****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****Statements
                of Operations Data -**
              **U.S. GAAP**Revenue
                on sales of minerals
            
            $
            43,254
            
            $
            38,254
            
            $
            30,858
            
            $
            -
            
            $
            -Direct Operating Costs
            
            
            48,357
            
            
            52,473
            
            
            34,184
            
            
            12,159
            
            
            -Depreciation
                and Amortization
            
            
            1,963
            
            
            1,945
            
            
            6,222
            
            
            -
            
            
            -Exploration
                and Development
            
            
            6,051
            
            
            11,456
            
            
            5,760
            
            
            451
            
            
            94Operating
                Loss
            
            
            (22,183
            )
            
            (36,302
            )
            
            (22,574
            )
            
            (23,871
            )
            
            (587
            )Loss
                from Continuing Operations
            
            
            (19,826
            )
            
            (38,792
            )
            
            (21,021
            )
            
            (44,320
            )
            
            (508
            )Income
                (Loss) from Discontinued Operations
            
            
            (4,907
            )
            
            308
            
            
            (1,395
            )
            
            (1,860
            )
            
            -Net
                Loss
            
            
            (24,733
            )
            
            (38,484
            )
            
            (22,416
            )
            
            (46,180
            )
            
            (508
            )Net
                Income (Loss) per share, basic and dilutedContinuing
                Operations
            
            
            (0.19
            )
            
            (0.49
            )
            
            (0.38
            )
            
            (2.30
            )
            
            (0.61
            )Discontinued
                Operations
            
            
            (0.05
            )
            
            -
            
            
            (0.03
            )
            
            (0.09
            )
            
            -Total
            
            $
            (0.24
            )
            $
            (0.49
            )
            $
            (0.41
            )
            $
            (2.39
            )
            $
            (0.61
            )Weighted
                Average number of shares outstanding
            
            
            101,811,291
            
            
            78,716,042
            
            
            54,536,679
            
            
            19,297,668
            
            
            834,124**Balance
                Sheet Data - U.S. GAAP**Total
                Assets
            
            $
            39,331
            
            $
            77,749
            
            $
            87,391
            
            $
            60,905
            
            $
            58Total
                Shareholders’ Equity
            
            
            7,714
            
            
            25,014
            
            
            43,311
            
            
            21,726
            
            
            (82
            )





-
          44
          -


**Summary
      Operational Statistics**




**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Production
                Summary**Gold
                ounces
            
            
            44,099
            
            
            33,743
            
            
            44,124Silver
                ounces
            
            
            524,722
            
            
            970,751
            
            
            411,216Lead
                pounds
            
            
            10,428,061
            
            
            10,064,265
            
            
            10,843,184Zinc
                pounds
            
            
            22,380,136
            
            
            26,222,805
            
            
            21,792,452**Cash
                Cost Per Ounce**Cash
                Operating Cost/oz
            
            $
            529.36
            
            $
            797.91
            
            $
            432.42Total
                Cash Cost/oz
            
            $
            562.96
            
            $
            838.54
            
            $
            456.96Total
                Production Cost/oz
            
            $
            617.77
            
            $
            913.43
            
            $
            595.66





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 Canada (“Canadian GAAP”). For a reconciliation to generally
      accepted accounting principles in the U.S. (“U.S. GAAP”), see Note 20 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 but includes
      by-product credits for payable silver, lead and zinc production. 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.




The
      Montana Tunnels’ results of operations have been restated for all periods
      presented as at and for the year ended December 31, 2004 and earlier to
      reflect a change in accounting policy with respect to stripping costs (see
      Critical Accounting Policies below).




Additionally,
      certain of the comparative figures have been reclassified to conform with the
      2005 presentation. In particular, the results of operations of the Florida
      Canyon Mine and the Standard Mine for all periods presented have been classified
      as discontinued operations (see Note 4 to our Consolidated Financial Statements)
      and therefore the table below reflects Montana Tunnels statistics
      only.




-
          45
          -


**RECONCILIATION
      OF CASH OPERATING AND TOTAL PRODUCTION COSTS PER OUNCE**




**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003****($
                in thousands, except per ounce data)**Gold
                Ounces Sold
            
            
            44,099
            
            
            33,743
            
            
            44,124Direct
                Operating Costs
            
            $
            48,357
            
            $
            52,473
            
            $
            34,184Less:
                Mining and Property Taxes
            
            
            1,482
            
            
            1,371
            
            
            1,083By-Product
                Credits
            
            
            23,531
            
            
            24,178
            
            
            14,021Cash
                Operating Cost
            
            
            23,344
            
            
            26,924
            
            
            19,080Cash
                Operating Cost per Ounce
            
            
            529
            
            
            798
            
            
            432Cash
                Operating Cost
            
            
            23,344
            
            
            26,924
            
            
            19,080Add:
                Mining and Property Taxes
            
            
            1,482
            
            
            1,371
            
            
            1,083Total
                Cash Cost
            
            
            24,826
            
            
            28,295
            
            
            20,163Total
                Cash Cost per Ounce
            
            
            563
            
            
            838
            
            
            457Total
                Cash Cost
            
            
            24,826
            
            
            28,295
            
            
            20,163Add:
                Depreciation & Amortization
            
            
            2,417
            
            
            2,527
            
            
            6,120Total
                Production Cost
            
            
            27,243
            
            
            30,822
            
            
            26,283Total
                Production Cost per Ounce
            
            
            618
            
            
            913
            
            
            596




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 Canadian and U.S. GAAP
      and
      should not be considered in isolation or as a substitute for measures of
      performance prepared in accordance with Canadian and U.S. 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 the exploration, development and mining of gold. We
      own
      and operate the Montana Tunnels mine, an open pit mine and mill, located near
      Helena, Montana, currently processing ore from stockpiled material and producing
      gold doré and lead-gold and zinc-gold concentrates. We have a development
      property, the Black Fox project, which is located near the township of Matheson
      in the Province of Ontario, Canada. We also own Mexican subsidiaries which
      own
      or have the right to acquire concessions of the Huizopa exploration property
      located in the Sierra Madre gold belt in Chihuahua, Mexico. We also own the
      Diamond Hill mine, currently under care and maintenance, also located in the
      state of Montana. In March 2006, the Company adopted a plan to dispose of
      Montana Tunnels Mining, Inc., which owns the Montana Tunnels and Diamond
      Hill mines.




On
      November 18, 2005, we sold our Nevada Assets to Jipangu Inc. (“Jipangu”), a
      Delaware corporation and wholly owned subsidiary of Jipangu International Inc.,
      a Japanese corporation, for $14.0 million. The Nevada Assets consisted of the
      Florida Canyon Mine, the Standard Mine, and four exploration properties. The
      Florida Canyon Mine is an open pit heap leach operation located in the State
      of
      Nevada; the Standard Mine is an open pit heap leach operation situated 8
      kilometers south of the Florida Canyon Mine, which shares common facilities
      such
      as warehousing, administration and the gold recovery plant with the Florida
      Canyon Mine; and the four exploration properties are located near the Florida
      Canyon Mine.




-
          46
          -


Upon
      closing of the sale of the Nevada Assets on November 18, 2005, $11.0 million
      of
      the $14.0 million was deposited as substitute collateral for the Apollo $8.73
      million 12% Series 2004-B secured convertible debentures, which were previously
      secured by the Nevada Assets. In January 2006, after meeting certain conditions,
      Apollo replaced the $11.0 million cash collateral with its Black Fox property
      as
      security for the convertible debentures, which resulted in additional funds
      being available to the Company.




In
      addition, we entered into a subscription agreement with Jipangu for a $3.5
      million private placement pursuant to which Jipangu purchased 11,650,000 equity
      units priced at Cdn$0.35 per unit with each unit consisting of one of our common
      shares and 0.17167 of a warrant, with each whole warrant exercisable for two
      years at Cdn$0.39 for one of our common shares. The private placement closed
      on
      January 26, 2006 .




In
      2005,
      gold production of 44,099 ounces was lower than expected and total cash costs
      of
      $563 per ounce were higher than expected, primarily due to the operational
      problems at the Montana Tunnels mine throughout the year. Open pit mining
      activity was suspended on October 21, 2005, for safety reasons due to
      increased wall activity on the eastern side of the open pit. With help from
      third party outside geotechnical consultants, we evaluated a number of different
      remediation options aimed at pit wall stabilization for the remaining life
      of
      the mine. Management reviewed the alternatives and believes the best alternative
      would require the removal of approximately 4.6 million tons of material,
      unloading the pit walls and stabilizing the ramp system. We estimated that
      this
      remediation effort would require approximately $12 million. Since the open
      pit
      mine operations were suspended, the mill has been processing ore from stockpiled
      material and producing gold doré and lead-gold and zinc-gold
      concentrates. Although the mine is not cash positive, the revenue generated
      does pay for the variable cost of production and contributes to the fixed costs
      of the mine. On January 31, 2006, we gave a Workers Adjustment and
      Retraining Notification (“WARN”) Act Notice to all hourly and salaried Montana
      Tunnels, Inc. employees. The WARN Act requires companies to give employees
      60
      days’ notice prior to a plant shutdown or mass layoff. We now expect to postpone
      a mass layoff until late April 2006 as we continue to mill low grade stockpiled
      ore. In
      March
      2006 the Company adopted a plan to dispose of the Montana Tunnels
      mine.




In
      2005
      and prior periods, we deferred or accrued stripping costs incurred during
      production, as appropriate, and charged these costs to operations on the basis
      of the estimated average stripping ratio for Montana Tunnels. Commencing in
      the
      second quarter of 2005, we changed our accounting policy with respect to
      stripping costs to be consistent with the consensus reached by the Emerging
      Issues Task Force (“EITF”), on the basis that the consensus results in a more
      reliable, relevant and consistent application of GAAP. This change has been
      applied retrospectively by restating prior periods.




During
      2005, at Black Fox, 160 underground holes totaling 34,456 meters plus 51 surface
      holes totaling 9,813 meters were drilled, bringing the total number of
      underground holes to 370 (75,521 meters) and surface holes to 449 (135,712
      meters) giving a total number of 819 holes (211,233 meters). Throughout 2005,
      we
      continued to work on obtaining permitting for a combined open pit and
      underground mine and an on site mill with a capacity of 1,500 tonnes per day.
      We
      expect to publish updated reserve estimates in April 2006 and a Canadian
      National Instrument 43-101 (“NI 43-101) within 45 days of publishing the
      updated reserves. In addition, we expect to complete the feasibility study
      by
      the end of 2006.




-
          47
          -


**BUSINESS
      STRATEGY AND DEVELOPMENT**




**2006
      Forecasted Highlights:**




Following
      the sale of the Nevada Assets, we have three remaining properties: the Montana
      Tunnels mine, the Black Fox project and the Huizopa project. Below is a summary
      of our expectations for these three properties in 2006.




**Montana
      Tunnels mine** - Open
      pit mining activity was suspended on October 21, 2005. Currently the mill
      continues to operate, processing low grade stockpiled ore and is expected
      to continue milling through the end of April 2006.  In March 2006 we
      adopted a plan to dispose of Montana Tunnels Mining, Inc., which owns the
      Montana Tunnels and Diamond Hill mines.




**Black
      Fox project** - The
      Company's focus is on developing our Black Fox project. We expect to publish
      updated reserves in April 2006 and issue an NI 43-101 report within 45 days
      of publishing the reserves, showing both open pit and underground reserves.
      We
      expect that the NI 43-101 report will reflect an increase from the 2004 reserves
      previously reported. We also expect to complete a feasibility study by the
      end
      of 2006. Estimated expenditures at Black Fox for 2006 are $3.1 million.
      Additionally, we will continue to evaluate financing opportunities in order
      to
      extend the drilling program at Black Fox given that the mineralization is still
      open along strike and at depth.





**Huizopa
      project** - During
      2006, our focus at Huizopa will be to advance the exploration phase of the
      project. Specifically, we expect to continue mapping, trenching, sampling and
      conducting geophysical studies on the property including the selection of
      several primary targets for drill sites and the commencement of a drilling
      program. The cost of the project is expected to be approximately $2.3
      million for the year 2006.




**APOLLO
      GOLD CORPORATION**




***Results
      of Operations Year Ended December 31, 2005 Compared to Year Ended December
      31,
      2004***




**Revenue
      from the Sale of Minerals from Continuing Operations (Montana
      Tunnels).**





Revenues
      from continuing operations for the year ended December 31, 2005 increased 13.1%
      to $43.3 million from $38.3 million for the year ended December 31, 2004,
      primarily due to higher gold production at Montana Tunnels and higher metals
      prices.




Revenues
      from gold for the year ended December 31, 2005 increased 40.1% to $19.7 million
      from $14.1 million for the year ended December 31, 2004. The average price
      received for gold for the years ended December 31, 2005 and 2004 was $447 and
      $417 per ounce, respectively.




Revenues
      from silver, zinc and lead for the year ended December 31, 2005 decreased 2.7%
      to $23.5 million from $24.2 million during 2004.




For
      the
      year ended December 31, 2005, 46% of our revenue was derived from sales of
      gold
      and 54% from sales of silver, zinc and lead, compared to 37% from sales of
      gold
      and 63% from sales of silver, zinc and lead for 2004.




-
          48
          -


Gold
      production increased 30.7% to 44,099 ounces for the year ended December 31,
      2005
      from 33,743 ounces in 2004. Most of this production was derived from modeled
      and
      unmodeled “fringe” ores mined from the open pit through October 2005. As a
      result of pit wall instability, open pit mining operations were suspended mid
      October 2005 and subsequent metal production was from processing lower grade
      stockpiled ore. See
      Item
      2 “Description of Properties - Montana Tunnels Mine” for further
      information.




**Operating
      Expenses.**




*Direct
      Operating Costs.* Direct
      operating costs for the year ended December 31, 2005 decreased 7.8% to $48.4
      million from $52.5 million for the year ended December 31, 2004, primarily
      due
      to moving 62% more tons of waste and ore in 2004 than in 2005. These amounts
      include mining and processing costs, as well as smelting and refining charges.
      Total cash cost per ounce for the year ended December 31, 2005 decreased 36.9%
      to $563 from $838 for the year ended December 31, 2004. Although the total
      cash
      cost per ounce was lower than in 2004, it was higher than expected due to
      remediation expenses related to pit wall instability throughout the year, which
      eventually led to the suspension of mining in the open pit in mid October 2005.
      Additionally, higher fuel, energy and commodity prices contributed to the higher
      than expected costs, with fuel prices peaking at $2.56 per gallon during
      2005.




*Depreciation
      and Amortization.* Depreciation and amortization expenses remained at $2.6 million for the year
      ended December 31, 2005, the same as in 2004.




*General
      and Administrative Expenses.* General
      and administrative expenses for the year ended December 31, 2005 increased
      6.9%
      to $7.6 million from $7.1 million for the year ended December 31, 2004,
      primarily due to increased legal and accounting expenses incurred in connection
      with our financing transactions, exchange listing fees, the cost of our
      Sarbanes-Oxley efforts for the year, as well as the accrual for the costs
      related to the severance paid to the four departed executive officers and to
      the
      amended agreements of the three remaining officers.




*Stock-based
      Compensation.* In the
      year ended December 31, 2005, we also incurred stock-based compensation of
      $597,000 resulting from the issuance of stock options to our employees. This
      compares to $767,000 in 2004.




*Accretion
      Expense.* In the
      year ended December 31, 2005, we accrued accretion expense of $0.9 million,
      relating to accrued site closure costs at our Montana Tunnels mine as compared
      to $0.8 million in 2004.




*Exploration
      and Business Development.* The cost
      of exploration, consisting of drilling and related expenses, totaled $0.9
      million and $1.1 million for the years ended December 31, 2005 and 2004,
      respectively. Costs incurred at Black Fox for drilling and development were
      capitalized under Canadian GAAP.




*Total
      Operating Expenses.* As a
      result of these expense components, our operating expenses for the year ended
      December 31, 2005 decreased 6.1% to $60.9 million from $64.8 million for the
      year ended December 31, 2004, primarily due to a decrease in costs during the
      fourth quarter 2005 as a result of suspending open pit mining at Montana Tunnels
      in October 2005. The decrease in operating expenses were partially offset by
      increased general and administrative expenses.




*Interest
      Income and Interest Expense.* We
      realized interest income of $397,000 during the year ended December 31, 2005
      compared with $313,000 for the year ended December 31, 2004. We incurred
      interest expense of $2,533,000 during 2005 and $252,000 during 2004. The
      increase in interest expense is due to accretion on the convertible debentures,
      which were issued in November of 2004.




-
          49
          -


*Foreign
      Exchange (Loss/Gain).* We
      realized foreign exchange losses of $35,000 and $770,000 during the years ended
      2005 and 2004, respectively, from cash balances not held in United States
      dollars. This decrease is a result of having lower cash balances in Canadian
      dollars in 2005 than in 2004.




**Loss
      from Continuing Operations.**




Loss
      from
      continuing operations for the year ended December 31, 2005 decreased 41.5%
      to
      $16.0 million from $27.3 million in 2004. The main factors contributing to
      the
      loss were the lower than expected revenues as a result of the mining problems
      related to the wall instability and the higher costs of commodities such as
      fuel, energy and tires. The decreased loss in 2005 compared to 2004 was due
      to
      the high cost of mining in 2004 as a result of moving 34 million tons of waste
      and ore compared to 21 million tons in 2005.




**Loss
      from Discontinued Operations.**




On
      November 18, 2005, the Company sold its Nevada Assets to Jipangu. The Nevada
      Assets were therefore classified as discontinued operations. We incurred a
      loss
      from these discontinued operations of $6.2 million for the year ended December
      31, 2005 as compared to a loss of $3.7 million for 2004.




**Net
      Loss for the Year.**




Based
      on
      these factors, we incurred a net loss of $22.2 million, or $0.22 per share,
      for
      the year ended December 31, 2005, as compared to a loss of $31.0 million, or
      $0.39 per share, for the year ended December 31, 2004.




**Results
      of Operations**




***Year
      Ended December 31, 2004 Compared to Year Ended December 31,
      2003***




**Revenue
      from the Sale of Minerals from Continuing Operations. (Montana
      Tunnels)**





Revenues
      from continuing operations for the year ended December 31, 2004 increased 24.0%
      to $38.3 million from $30.9 million for the year ended December 31, 2003,
      primarily due to higher metal prices offset by lower production due to lower
      milling grades at Montana Tunnels.




Revenues
      for gold for the year ended December 31, 2004 decreased **** 16.4%
      to
      $14.1 million from $16.8 million in 2003. The average price received for gold
      for the years ended December 31, 2004 and 2003 was $417 and $382 per ounce,
      respectively. The increase revenue from higher metal prices was offset by lower
      ounces of gold being sold in 2004.




Gold
      production for the year ended December 31, 2004 decreased 23.5% to 33,743 ounces
      from 44,124 ounces for the year ended December 31, 2003, primarily due to lower
      milling grades at Montana Tunnels, which reduced our gold and total metal
      production.




Revenues
      for silver, zinc and lead for the year ended December 31, 2004 increased 72.4%
      to $24.2 million from $14.0 million in 2003.




For
      the
      year ended December 31, 2004, approximately 37% of our revenue was derived
      from
      sales of gold and 63% was derived from sales of silver, zinc and lead, compared
      to 55% derived from sales of gold and 45% derived from sales of silver, zinc
      and
      lead for the year ended December 31, 2003.




-
          50
          -


**Operating
      Expenses.**




*Direct
      Operating Costs.* Direct
      operating costs for the year ended December 31, 2004 increased 53.5% to $52.5
      million from $34.2 million for the year ended December 31, 2003. These amounts
      include mining and processing costs, as well as smelting and refining charges.
      The higher direct operating costs in 2004 reflect higher fuel and commodity
      prices and a full operational year at Montana Tunnels.




*Depreciation
      and Amortization.* Depreciation
      and amortization expenses for the year ended December 31, 2004 decreased 57.0%
      to $2.6 million from $6.1 million for 2003, primarily due to amortization of
      stripping costs.




*General
      and Administrative Expenses.* General
      and administrative expenses for the year ended December 31, 2004 increased
      52.5%
      to $7.1 million from $4.7 million in 2003, primarily due to an increase in
      legal
      and accounting expenses, incurred in connection with our financing transactions,
      exchange listing fees and costs related to Sarbanes-Oxley
      compliance.




*Stock-based
      Compensation.* For the
      year ended December 31, 2004, stock-based compensation increased 104.0% to
      $767,000 from $376,000 for the year ended December 31, 2003, primarily due
      to an
      increase in the number of stock options granted to our employees.




*Accretion
      Expense.* Accrued
      accretion expense for the year ended December 31, 2004 increased 64.0% to
      $820,000 from $500,000, primarily due to accrued site closure costs at our
      Montana Tunnels mine. This expense represents our estimation of the fair value
      of the increase in our site closure and reclamation costs, which we updated
      in
      the last quarter of 2004.




*Exploration
      and Business Development.* Exploration and development, consisting of drilling and related expenses, for
      the year ended December 31, 2004 decreased 50.4% to $1.1 million from $2.1
      million for the year ended December 31, 2003.




*Total
      Operating Expenses.* As a
      result of these expense components, our operating expenses for the year ended
      December 31, 2004 increased 35.2% to $64.8 million from $48.0 million for the
      year ended December 31, 2003.




*Interest
      Income and Interest Expense.* We
      realized interest income of $313,000 during the year ended December 31, 2004.
      We
      incurred interest expense of $252,000 in 2004, primarily for equipment leases
      and a bridge loan. We realized interest income in 2003 of $213,000 and interest
      expense of $205,000.




*Foreign
      Exchange (Loss/Gain).* We
      realized foreign exchange losses of $0.8 million in 2004, but a gain of $1.3
      million in 2003, from cash balances not held in United States
      dollars.




**Loss
      from Continuing Operations.**




Loss
      from
      continuing operations for the year ended December 31, 2004 increased 72.9%
      to
      $27.3 million from $15.8 million for the year ended December 31, 2003, mainly
      as
      a result of the higher stripping ratio at Montana Tunnels combined with the
      higher costs of fuel, tires and other related commodities.




**Loss
      from Discontinued Operations.**




Revenues
      from the Florida Canyon mine for the year ended December 31, 2004 decreased
      26.4% to $26.5 million from $36.0 million for the year ended December 31, 2003.
      Gold production at the Florida Canyon mine for the year ended December 31,
      2004
      decreased 28.2% to 73,082 ounces from 101,811 ounces for the year ended December
      31, 2003, primarily due to the curtailment of mining activities in August 2004.
      Discontinued operations incurred a loss of $3.7 million for the year ended
      December 31, 2004 as compared to income of $1.7 million for the year ended
      December 31, 2003.




-
          51
          -




Based
      on
      these factors, we incurred a net loss of $31.0 million, or $0.39 per share,
      for
      the year ended December 31, 2004, as compared to a net loss of $14.1 million,
      or
      $0.26 per share, for the year ended December 31, 2003.




**Summary
      of Quarterly Results (Unaudited)**




**2005
                Quarter Ended In**
            
            **2004
                Quarter Ended In****Dec(1)**
            
            **Sept(2)**
            
            **June(3)**
            
            **March(4)**
            
            **Dec(5)**
            
            **Sept(6)**
            
            **June(7)**
            
            **March****($
                in thousands, except per share and total cash cost per ounce
                data)**Revenue
                from the sale of
              minerals
                from continuing
              operations
            
            $
            6,990
            
            $
            13,351
            
            $
            10,581
            
            $
            12,332
            
            $
            12,712
            
            $
            7,393
            
            $
            6,525
            
            $
            11,624Operating
                loss
            
            
            (5,999
            )
            
            (2,935
            )
            
            (4,538
            )
            
            (4,166
            )
            
            (4,266
            )
            
            (8,377
            )
            
            (9,317
            )
            
            (4,632
            )Loss
                from continuing
              operations
                for the period
            
            
            (3,955
            )
            
            (3,614
            )
            
            (4,961
            )
            
            (3,431
            )
            
            (4,550
            )
            
            (8,476
            )
            
            (9,553
            )
            
            (4,716
            )Loss
                from continuing
              operations
                per share, basic
              and
                diluted
            
            
            (0.04
            )
            
            (0.04
            )
            
            (0.05
            )
            
            (0.04
            )
            
            (0.06
            )
            
            (0.11
            )
            
            (0.12
            )
            
            (0.06
            )Gold
                production in ounces -
              Montana
                Tunnels
            
            
            5,026
            
            
            14,104
            
            
            12,324
            
            
            12,645
            
            
            12,090
            
            
            4,967
            
            
            5,903
            
            
            10,783Total
                cash cost per ounce -
              Montana
                Tunnels
            
            $
            762
            
            $
            513
            
            $
            590
            
            $
            472
            
            $
            446
            
            $
            1,465
            
            $
            1,548
            
            $
            604







(1)  Open
      pit
      mining suspended in mid October. Continued milling low grade ore
      stockpiles.


(2)  Milled
      tonnage was reduced due to ramp problems and a mill two-week shutdown in
      July.


(3)  Production
      delays due to periodic ramp closures caused by excessive rainfall.


(4)  Severe
      weather and unusually low water level in the tailings dam caused lower than
      expected tonnage throughput.


(5)  Milling
      throughput at Montana Tunnels was 17,500 tons per day.


(6)  Montana
      Tunnels mine continued to operate in the transition zone between mineralization
      and the actual ore reserve.


(7)  Milling
      capacity increased to 15,000 tons per day.





**Financial
      Condition and Liquidity**




To
      date,
      we have funded our operations primarily through issuances of debt and equity
      securities, the sale of the Nevada Assets and sale of surplus assets. At
      December 31, 2005, we had cash of $0.1 million, compared to cash and short-term
      investments of $6.9 million at December 31, 2004. The decrease in cash from
      December 31, 2004 is primarily the result of operating cash outflows of $11.3
      million and investing activities of $1.4 million. The cash outflows were
      offset in part by proceeds of $5.9 million from sales of our common shares.
      At
      March 1, 2006, we had cash and short-term investments of $7.5 million, which
      includes the $11.0 million released in January 2006 from the restricted cash
      account held at December 31, 2005 as collateral security for the convertible
      debenture and the $3.5 million private placement by Jipangu in January 2006,
      less the payments of $2.6 million made to the lien holders of Black Fox as
      per
      Note 15(d) of the attached "Notes to Consolidated Financial
      Statements".




In
      2005,
      cash provided by investing activities totaled $1.4 million. Proceeds from
      the sale of the Nevada Assets were $14.0 million, proceeds from the sale of
      spare property, plant and equipment added a further $4.5 million and
      discontinued operations an additional $1.0 million. Capital expenditures were
      $5.5 million, of which $5.3 million were for the further development of the
      Black Fox project. In addition, $12.7 million was held as restricted
      cash, $1.7 million of which was for the Montana Tunnels reclamation liability
      and the balance of $11.0 million as cash collateral security for the $8.8
      million convertible debentures. Restricted cash of $11.0 million was released
      January 2006. For further details, see Note 21 of the “Notes to the Consolidated
      Financial Statements”.




-
          52
          -




During
      the year ended December 31, 2005, financing activities provided $3.2 million
      in
      cash, from (a) completing in January 2005 the second tranche of a registered
      offering of 4,199,998 units with an issue price of $0.75 for proceeds of $2.8
      million, net of expenses of $0.3 million and fair value of broker’s compensation
      warrants of $0.2 million and (b) completing in June, 2005, the sale to Jipangu
      of 10,000,000 common shares at $0.32 per share, proceeds from which amounted
      to
      $3.2 million, net of expenses of $32,000. During 2005, $0.8 million in equipment
      leases were paid off and discontinued operations accounted for a further cash
      outflow of $2.0 million mainly in the form of payment of equipment leases prior
      to the sale of the Nevada Assets to Jipangu.




Our
      current funds are not sufficient to fund our projected 2006 expenditures of
      $3.1 million at Black Fox and $2.3 million for exploration at Huizopa, as
      well as the Montana Tunnels mine. In March 2006, the Company adopted a plan
      to
      sell Montana
      Tunnels Mining, Inc., which owns the Montana Tunnels and Diamond Hill mines,
      the
      proceeds from which, together with our cash on hand, would provide us withsufficient liquidity to complete all planned activities
      for 2006. If
      we do
      not sell Montana Tunnels Mining, Inc., we expect toseek alternative
      financing solutions, which may include entering
      into a joint venture with respect to the mine, selling debt or equity
      securities, or sellingthe Montana Tunnels assets.  Sales
      of
      debt or equity securitiesmay include Canadian flow-through financing to
      further fund a portion of our Black Fox exploration activities.




Our
      ability to raise capital is highly dependent upon the commercial viability
      of
      our projects and the associated prices of the metals we produce. Because of
      the
      significant impact that changes in the prices of gold and silver have on
      our financial condition, declines in these metals prices may negatively impact
      short-term liquidity and our ability to raise additional funding for long-term
      projects. In the event that cash balances decline to a level that cannot support
      our operations, our management will defer certain planned capital expenditures
      and exploration activities as needed to conserve cash for operations. There
      can
      be no assurance that we will be successful in generating adequate funding for
      planned capital expenditures, environmental remediation and reclamation
      expenditures and for exploration expenditures.




-
          53
          -







**Table
      of Contractual Obligations**




**Payment
                Due by Period****Contractual
                Obligations**
              **(as
                of December 31, 2005)**
            
            **Total**
            
            **Less**
              **Than**
              **1 Year**
            
            **1-3**
              **Years**
            
            **3-5**
              **Years**
            
            **More
                than**
              **5
                Years****(Thousands)**Long-term
                debt (convertible debenture)
            
            $
            8,756
            
            $
            -
            
            $
            8,756
            
            $
            -
            
            $
            -Interest
                on long-term debt (convertible debenture)
            
            
            2,073
            
            
            1,058
            
            
            1,015
            
            
            -
            
            
            -Capital
                lease obligations
            
            
            171
            
            
            92
            
            
            79
            
            
            -
            
            
            -Operating
                lease obligations
            
            
            316
            
            
            193
            
            
            123
            
            
            -
            
            
            -Purchase
                obligations
            
            
            62
            
            
            21
            
            
            41
            
            
            -
            
            
            -Notes
                payable
            
            
            671
            
            
            596
            
            
            75
            
            
            -
            
            
            -Other
                long-term liabilities reflected on the balance sheet (1)
            
            
            18,291
            
            
            -
            
            
            -
            
            
            -
            
            
            18,291


(1)
              Other
                  long-term liabilities represent asset retirement obligations. 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 $12.6 million on the
                  balance sheet of as of December 31, 2005. The amount shown above
                  is
                  undiscounted to show full expected cash requirements. As of December
                  31,
                  2005, restricted cash of $5.5 million has been placed in trust
                  as security
                  relating to the asset retirement
                  obligation.


**Off
      Balance Sheet Arrangements**




We
      have a
      contingent liability at our Black Fox property in the form of a pre-production
      royalty payment. This payment is Cdn$3.0 million (approximately $2.6 million)
      and it is part of the original purchase price of the property. This payment
      was
      made in January 2006 to release the existing lien in connection with pledging
      the Company’s Black Fox property to the convertible debenture
      holders.




**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.




As
      of
      December 31, 2005, we have accrued $12.6 million related to reclamation,
      severance and other closure requirements at Montana Tunnels, an increase of
      $0.9
      million from December 31, 2004. This liability is covered by a combination
      of
      surety bonds, restricted cash and property totaling $17.0 million at December
      31, 2005. We have accrued what management believes is the present value of
      our
      best estimate of the liability as of December 31, 2005; however, it is possible
      that our obligation may change in the near or long term depending on a number
      of
      factors.




**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.




-
          54
          -


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.




**Revenue
      Recognition**




Sales
      of
      metals products sold directly to smelters are recorded when title and risk
      of
      loss transfer to the smelter at current spot metals prices. We must estimate
      the
      price at which our metals will be sold in reporting our profitability and cash
      flow. Recorded values are adjusted monthly until final settlement. Sales of
      metal in products tolled, rather than sold to smelters, are recorded at
      contractual amounts when title and risk of loss transfer to the
      buyer.




**Stripping
      Costs**




On
      March
      30, 2005, the Financial Accounting Standard Board (“FASB”) ratified the
      consensus of the Emerging Issues Task Force (“EITF”) Issue 04-06 that stripping
      costs incurred during the production phase of a mine are variable production
      costs that should be included in the costs of the inventory produced during
      the
      period that the stripping costs are incurred.




In
      2004
      and prior periods, Apollo deferred or accrued stripping costs incurred during
      production, as appropriate, and charged these costs to operations on the basis
      of the estimated average stripping ratio for Montana Tunnels. Commencing in
      the
      second quarter of 2005, Apollo changed its accounting policy under Canadian
      GAAP
      and U.S. GAAP with respect to stripping costs to be consistent with the
      consensus reached by the EITF, on the basis that the consensus results in a
      more
      reliable, relevant and consistent application of GAAP. This change has been
      applied retrospectively by restating prior periods. The effect of this change
      was to increase the deficit at January 1, 2003 by $12,129,000 and to increase
      the net loss for the years ended December 31, 2004 and 2003 by $12,818,000
      ($0.16 per share) and $11,904,000 ($0.22 per share), respectively.




**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 Canadian GAAP
      is
      based on proven and probable ore reserves and a portion of resources expected
      to
      be converted to reserves based on past results. As discussed above, our
      estimates of proven and probable ore reserves and resources 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.




-
          55
          -


**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.




**RELATED
      PARTY TRANSACTIONS**




The
      Company had the following related party transactions for the three years ended
      December 31, 2005, 2004 and 2003, respectively.




**2005**
            
            **2004**
            
            **2003****(Thousands)**Legal
                fees paid to two law firms, a partner of each firm is a director
                of the
                Company
            
            $
            335
            
            $
            549
            
            $
            795Consulting
                services paid to a relative of an officer and director of the
                Company
            
            
            18
            
            
            6
            
            
            64





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.




**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 investment portfolio, changes in foreign
      currency exchange rates and commodity price fluctuations.




**Interest
      Rate Risk**




We
      currently have minimal debt and thus no material interest rate exposure related
      to debt. When appropriate, we invest excess cash in short-term debt instruments
      of the U.S. and Canadian governments and their agencies on a fixed interest
      rate
      basis. Over time, the rates received on such investments may 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 2006, a one percent change in interest
      rates would result in a $100,000 change in interest income. We may in the future
      actively manage our exposure to interest rate risk.




-
          56
          -


**Foreign
      Currency Exchange Rate Risk**




The
      price
      of gold is denominated in U.S. dollars and the majority of our revenues and
      expenses are denominated in U.S. dollars. To the extent there are fluctuations
      in local currency exchange rates against the dollar, the devaluation of a local
      currency is generally economically neutral or beneficial to the operation
      because local salaries and supplies will decrease against the U.S. dollar
      revenue stream.




**Commodity
      Price Risk**




We
      are
      engaged in gold mining and related activities, including exploration,
      extraction, processing and reclamation. Gold is our primary product and, as
      a
      result, changes in the price of gold could significantly affect our results
      of
      operations and cash flows. We have in the past purchased puts/calls and we
      may
      in the future more actively manage our exposure through hedging
      programs.




**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 in this Form
      10-K.




**Page**Report
                of Independent Registered Chartered Accountants
            
            
            F-2Comments
                by Independent Registered Chartered Accountants on Canada-United
                States of
              America
                Reporting Differences
            
            
            F-3Consolidated
                Balance Sheets as of December 31, 2005 and 2004
            
            
            F-4Consolidated
                Statements of Operations for the Years Ended December 31, 2005,
                2004,
              and
                2003
            
            
            F-5Consolidated
                Statements of Shareholders’ Equity for the Years Ended December 31, 2005,
              2004, and
                2003
            
            
            F-6Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2005, 2004,
                and
                2003
            
            
            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**




Apollo
      maintains disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in the reports that we file or submit
      under
      the Exchange Act is recorded, processed, summarized and reported within the
      time
      periods specified in the SEC’s rules and forms, and that such information is
      accumulated and communicated to Apollo’s management, including its Chief
      Executive Officer and Chief Financial Officer, as appropriate, to allow timely
      decisions regarding required financial disclosure.




-
          57
          -


As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision of our management, including the Chief Executive Officer and
      Chief Financial Officer, of the effectiveness of the design and operation of
      our
      disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b)
      under
      the Exchange Act. Based upon, and as of the date of this evaluation, the Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures were not effective, because of the material weaknesses
      discussed below. In light of the material weaknesses described below, we
      performed additional analysis and other post-closing procedures to ensure our
      consolidated financial statements were prepared in accordance with generally
      accepted accounting principles. Accordingly, management believes that the
      financial statements included in this report fairly present in all material
      respects our financial condition, results of operations and cash flows for
      the
      periods presented.




We
      identified a material weakness for the year ended December 31, 2004. A
      material weakness is a significant deficiency, or combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. We lacked appropriate review of non-routine or complex accounting
      matters, related accounting entries, and appropriate documentation, disclosure
      and application of Canadian and U.S. GAAP, primarily due to a lack of sufficient
      personnel with a level of technical accounting expertise commensurate with
      our
      reporting requirements.




The
      following actions were taken in 2005 to remediate this material weakness. We
      established a Financial Disclosure Policy Committee to review all non-routine
      accounting matters and disclosure and application of Canadian and U.S. GAAP.
      We
      added additional technical accounting expertise to the accounting staff. We
      implemented formal policies addressing the internal controls over non-routine
      or
      complex accounting matters, accounting entries, appropriate documentation,
      and
      disclosures. However, in January 2006 a major restructuring and streamlining
      at
      the corporate office significantly changed the design and structure of the
      internal controls and procedures at the corporate level. As of this date our
      management has not had sufficient time to evaluate these controls and therefore
      believes this material weakness still exists.




**Changes
      in Internal Control**




Related
      to the reduction in staffing at the Montana Tunnels mine in mid October 2005,
      our controls at that location are not operating as previously designed related
      to segregation of duties over procurement, inventory control and accounting
      duties. Corporate management has increased its involvement with day-to-day
      oversight and management of the Montana Tunnels mine, but as of this date,
      management has not had sufficient time to evaluate these controls and therefore
      believe the change in controls is significant enough to be reported as a
      material weakness. In an effort to address this material weakness, staffing
      requirements and other changes in control are being evaluated as the future
      operational requirements of the Montana Tunnels mine is being
      determined.




We
      intend
      to continue to monitor our internal controls, and if further improvements or
      enhancements are identified, we will take steps to implement such improvements
      or enhancements. As a result of the changes disclosed above, there were changes
      in our internal control over financial reporting, which have materially
      affected, or are reasonably likely to materially affect, such internal
      controls.




**Sarbanes-Oxley
      Act Section 404 Internal Control Reporting Requirements**




As
      a
      result of the issuance of the SEC's Release No 33-8644, "Revisions to Accelerated
      Filer Definition and Accelerated Deadlines for Filing Periodic Reports" the Company
      exited accelerated filer status for its year ended December 31, 2005. As a non-accelerated
      filer,compliance with the internal control reporting requirements of Section 404
      of
      the Sarbanes-Oxley Act of 2002 have been deferred and we may be subject to
      the requirements in our Annual Report on Form 10-K for fiscal year 2006 and
      will
      be for fiscal year 2007.




**ITEM
        9B.** ***OTHER
        INFORMATION***
 
 None.




-
          58
          -





**PART
      III**






**ITEM
      10.** ***DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT***




Information
      regarding directors of Apollo is incorporated by reference to the section
      entitled “Proposal #1 - Election of Directors” in our definitive proxy statement
      to be filed with the Securities and Exchange Commission pursuant to Regulation
      14A in connection with the 2006 annual meeting of shareholders (the “Proxy
      Statement”). Reference is made to the information set forth under the section
      entitled “Executive Officers” in the Proxy Statement which information is
      incorporated by reference in this Annual Report on Form 10-K.




**ITEM
      11.** ***EXECUTIVE
      COMPENSATION***




Reference
      is made to the information set forth under the section entitled “Compensation
      Table for Named Executive Officers” in the Proxy Statement, which information is
      incorporated by reference in this Annual Report on Form 10-K.




**ITEM
      12.** ***SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT***




Reference
      is made to the information set forth under the section entitled “Beneficial
      Ownership Table” in the Proxy Statement, which information is incorporated by
      reference in this Annual Report on Form 10-K.




**ITEM
      13.** ***CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS***




Reference
      is made to the information contained under the section entitled “Interests of
      Insiders and Others in Material Transactions” contained in the Proxy Statement,
      which information is incorporated by reference in this Annual Report on Form
      10-K.




**ITEM
      14.** ***PRINCIPAL
      ACCOUNTANT FEES AND SERVICES***




Reference
      is made to the information contained under the section entitled “Report of the
      Audit and Finance Committee” contained in the Proxy Statement, which information
      is incorporated by reference in this Annual Report on Form 10-K.




-
          60
          -


PART
      IV




**ITEM
      15.** ***EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K***




(a)  Documents
      filed as part of this Annual Report on Form 10-K or incorporated by
      reference:




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




(2)  Financial
      Statement Schedules (omitted because they are either not required, are not
      applicable, or the required information is disclosed in the Notes to the
      Consolidated Financial Statements or related notes).




(3)  The
      following exhibits are filed with this Annual Report on Form 10-K or
      incorporated by reference.


-
          61
          -


**Exhibit**
                **No.**
              
              **Exhibit
                  Name**
 1.1
              
              Underwriting
                  Agreement between Apollo Gold Corporation and Regent Mercantile
                  Bancorp,
                  Inc., filed with the SEC on October 25, 2004, as Exhibit 1.1 to the
                  Current Report on Form 8-K.3.1
              
              Certificate
                  of Continuance 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 the Registrant, 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 the Registrant, 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
              
              Compensation
                  Warrant to Purchase Common Shares of Apollo Gold Corporation issued
                  by
                  Apollo Gold Corporation to Regent Mercantile Bancorp Inc. on October
                  19,
                  2004, filed with the SEC on October 25, 2004, as Exhibit 4.2 to the
                  Current Report on Form 8-K.4.3
              
              Compensation
                  Option to Purchase Compensation Warrants of Apollo Gold Corporation
                  issued
                  by Apollo Gold Corporation to Regent Mercantile Bancorp Inc., dated
                  November 4, 2004, filed with the SEC on November 9, 2004, as
                  Exhibit 4.6 to the Current Report on Form 8-K.4.4
              
              Form
                  Amendment to Warrants to Purchase Common Shares dated November
                  4, 2004,
                  filed with the SEC on January 13, 2006 as Exhibit 4.1 to the Current
                  Report on Form 8-K.4.5
              
              Subscription
                  Agreement by and among Apollo Gold Corporation and certain investors,
                  dated December 31, 2004, filed with the SEC on January 5, 2005
                  as
                  Exhibit 4.1 to the Current Report on Form 8-K.4.6
              
              Form
                  of Registration Rights Agreement by and among Apollo Gold Corporation
                  and
                  certain investors, dated December 31, 2004, filed with the SEC
                  on January
                  5, 2005 as Exhibit 4.2 to the Current Report on Form
                  8-K.4.7
              
              Subscription
                  Details Dated June 30, 2005, by and between Apollo Gold Corporation
                  and
                  BMO Nesbitt Burns Inc., filed with the SEC on August 9, 2005 as
                  Exhibit
                  4.3 to the Quarterly Report on Form 10-Q.4.8
              
              Subscription
                  for Shares dated June 1, 2005, by and between Apollo Gold Corporation
                  and
                  Jipangu Inc. filed with the SEC on August 9, 2005 as Exhibit 4.1
                  to the
                  Quarterly Report on Form 10-Q.4.9
              
              Amendment
                  No. 1 to Registration Rights Agreement dated June 1, 2005, by and
                  between
                  Apollo Gold Corporation and Jipangu Inc. dated January 25, 2006,
                  amending
                  the Registration Rights Agreement dated June 1, 2005, filed with
                  the SEC
                  on August 9, 2005 as Exhibit 4.2 to the Quarterly Report on Form
                  10-Q,
                  filed with the SEC on January 26, 2006 as Exhibit 4.1 to the Current
                  Report on Form 8-K.4.10
              
              Side
                  Letter by Jipangu Inc. dated January 18, 2006 and accepted by Apollo
                  Gold
                  Corporation on January 25, 2006 with an effective date of January
                  18,
                  2006, amending the Apollo Gold Subscription Agreement for Units
                  dated
                  October 17, 2005, filed with the SEC on October 28, 2005 as Exhibit
                  4.1 to
                  the Current Report on Form 8-K, filed with the SEC on January 26,
                  2006 as
                  Exhibit 4.2 to the Current Report on Form 8-K.4.11
              
              Amendment
                  No. 1 to Registration Rights Agreement dated October 17, 2005,
                  by and
                  between Apollo Gold Corporation and Jipangu Inc. dated January
                  25, 2006,
                  amending the Registration Rights Agreement dated October 17, 2005,
                  filed
                  with the SEC on October 28, 2005 as Exhibit 4.2 to the Current
                  Report on
                  Form 8-K, filed with the SEC on January 26, 2006 as Exhibit 4.3
                  to the
                  Current Report on Form 8-K.
 -
              62
              -
  **Exhibit**
                  **No.**
                
                **Exhibit
                    Name**
 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, Vice-President, 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 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 to Amended and Restated Employment Agreement,
                  dated
                  January 23, 2006, 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
              
              Form
                  of Severance Agreement and Release, dated February 18, 2006, by
                  and
                  between Apollo Gold Corporation and each of Donald W. Vagstad,
                  Donald O.
                  Miller, David K. Young and James T. O’Neil, filed with the SEC on January
                  27, 2006 as Exhibit 10.1 to the Current Report on Form
                  8-K.10.6
              
              Agency
                  Agreement between Apollo Gold Corporation and Regent Mercantile
                  Bancorp
                  Inc., dated November 4, 2004, filed with the SEC on November 9,
                  2004 as
                  Exhibit 1.1 to the Current Report on Form 8-K.10.7
              
              Trust
                  Indenture by and among Apollo Gold Corporation; Apollo Gold, Inc.;
                  and The
                  Canada Trust Company, dated November 4, 2004, filed with the SEC
                  on
                  November 9, 2004 as Exhibit 4.2 to the Current Report Form
                  8-K.10.8
              
              General
                  Security Agreement by Apollo Gold Corporation as Debtor in favor
                  of The
                  Canada Trust Company, dated as of January 4, 2006, filed with the
                  SEC on
                  January 13, 2006 as Exhibit 10.1 to the Current Report on Form
                  8-K.10.9
              
              First
                  Supplemental Indenture to the Trust Indenture dated December 13,
                  2004, by
                  and among Apollo Gold Corporation, Apollo Gold, Inc., and The Canada
                  Trust
                  Company, filed with the SEC on January 13, 2006 as Exhibit 10.3 to
                  the Current Report on Form 8-K.10.10
              
              Letter
                  from Apollo Gold Corporation to the Debentureholders of the Series
                  2004-B
                  Convertible Secured Debentures, dated December 19, 2005, filed
                  with the
                  SEC on January 13, 2006 as Exhibit 10.4 to the Current Report on
                  Form
                  8-K.10.11
              
              Stock
                  Purchase Agreement among Jipangu Inc., Jipangu International Inc.,
                  Apollo
                  Gold, Inc. and Apollo Gold Corporation made as of October 17, 2005,
                  filed
                  with the SEC on October 28, 2005 as Exhibit 10.1 to the Current
                  Report on
                  Form 8-K.10.12
              
              Promissory
                  Note by Apollo Gold Corporation as Maker and Jipangu Inc. as Holder,
                  dated
                  October 17, 2005, filed with the SEC on October 28, 2005 as Exhibit
                  10.2
                  to the Current Report on Form 8-K.10.13
              
              Apollo
                  Gold Corporation Plan of Arrangement Stock Option Incentive Plan,
                  filed
                  with the SEC on June 23, 2003, as Exhibit 10.7 to the Registration
                  Statement on Form 10 (File No. 001-31593).10.14
              
              Apollo
                  Gold Corporation Stock Option Incentive Plan, filed with the SEC
                  on June
                  23, 2003, as Exhibit 10.8 to the Registration Statement on Form 10
                  (File No. 001-31593).
 10.15
                
                Form
                    of Stock Option Agreement used for Apollo Gold Corporation Stock
                    Option
                    Incentive Plan, filed with the SEC on June 23, 2003, as Exhibit 10.9
                    to the Registration Statement on Form 10 (File No.
                    001-31593).
  -
              63
              -
 **Exhibit**
                  **No.**
                
                **Exhibit
                    Name**
  10.16
              
              Term
                  Bonding Agreement dated August 1, 2002 among National Fire Insurance
                  Company of Hartford, Apollo Gold Corporation, Apollo Gold, Inc.
                  and
                  Montana Tunnels Mining, Inc., filed with the SEC on June 23, 2003,
                  as
                  Exhibit 10.11 to the Registration Statement on Form 10 (File No.
                  001-31593).10.17
              
              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).10.18
              
              Form
                  of Indemnification Agreement, dated various dates, between Apollo
                  Gold
                  Corporation and each of R. David Russell, Melvyn Williams, Richard
                  F.
                  Nanna, David K. Young, James T. O’Neil, Jr., Donald O. Miller, G. Michael
                  Hobart, W.S. Vaughan, Charles E. Stott, G.W. Thompson, Robert A.
                  Watts,
                  Gerald J. Schissler, Timothy M. Janke, Becky Corigliano, R. Lee
                  Chapman,
                  and Wade W. Bristol, filed with the SEC on September 24, 2004 as
                  Exhibit
                  10.1 to the Current Report on Form 8-K.10.19
              
              Form
                  of Indemnification Agreement, dated various dates, by and among
                  Apollo
                  Gold, Inc.; Apollo Gold Exploration, Inc.; Apollo Gold Finance
                  Inc.;
                  Florida Canyon Mining, Inc.; Standard Gold Mining, Inc. and each
                  of Donald
                  W. Vagstad, Wade W. Bristol, R. Lee Chapman, Becky Corigliano,
                  Timothy M.
                  Janke, Gerald J. Schissler, G.W.Thompson, and Robert A. Watts,
                  filed with
                  the SEC on September 24, 2004 as Exhibit 10.2 to the Current Report
                  on
                  Form 8-K.10.20
              
              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.*21.1
              
              List
                  of subsidiaries of the Registrant.*23.1
              
              Consent
                  of Deloitte & Touche LLP*23.2
              
              Consent
                  of Mine Development Associates*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.




65




**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 31, 2006
      on
      its behalf by the undersigned, thereunto duly authorized.




APOLLO
              GOLD
              CORPORATIONBy:
            /s/ R.
              DAVID
              RUSSELLR.
              David Russell*President
              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 Director (Principal Executive
                Officer)
            March
                31, 2006R.
                David Russell/s/
                CHARLES E. STOTT
            Chairman
                of the Board of Directors
            March
                31, 2006Charles
                E. Stott/s/
                G. MICHAEL HOBART
            Director
            March
                31, 2006G.
                Michael Hobart/s/
                ROBERT W. BABENSEE
            Director
            March
                31, 2006Robert
                W. Babensee/s/
                W.S. VAUGHAN
            Director
            March
                31, 2006W.S.
                Vaughan/s/
                RICHARD P. GRAFF
            Director
            March
                31, 2006Richard
                P. Graff/s/
                MELVYN WILLIAMS
            Chief
                Financial Officer and Senior Vice President - Finance and Corporate
                Development (Principal Financial and Accounting Officer)
            March
                31, 2006Melvyn
                Williams


66


**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





Report
                of Independent Registered Chartered Accountants
            
            
            F-2Comments
                by Independent Registered Chartered Accountants on Canada-United
                States of
                America
              Reporting
                Differences
            
            
            F-3Consolidated
                Balance Sheets as of December 31, 2005 and 2004
            
            
            F-4Consolidated
                Statements of Operations for the Years Ended December 31, 2005, 2004,
                and
                2003
            
            
            F-5Consolidated
                Statements of Shareholders’ Equity for the Years Ended December 31, 2005,
                2004,
              and
                2003
            
            
            F-6Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2005, 2004,
                and
                2003
            
            
            F-7Notes
                to the Consolidated Financial Statements
            
            
            F-8





F-1


**REPORT
      OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS**




To
      the
      Shareholders of


Apollo
      Gold Corporation





We
      have
      audited the consolidated balance sheets of Apollo Gold Corporation (the
“Company”) as at December 31, 2005 and 2004, and the consolidated statements of
      operations, shareholders’ equity, and cash flows for each of the years in the
      three year period ended December 31, 2005. 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). These standards require that we plan and perform the audit
      to
      obtain reasonable assurance about 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 the Company as at December 31, 2005 and
      2004, and the results of its operations and its cash flows for each of the
      years
      in the three year period ended December 31, 2005 in accordance with Canadian
      generally accepted accounting principles.




The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audits included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion.




/s/ ***Deloitte
              & Touche LLP***Independent
              Registered Chartered AccountantsVancouver,
              British
              Columbia, CanadaMarch 30, 2006




F-2


**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 when the financial statements
      are affected by conditions and events that cast substantial doubt on 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 shareholders dated March 30, 2006 is expressed in
      accordance with Canadian reporting standards which do not permit a reference
      to
      such conditions and events in the report of the independent registered chartered
      accountants when these are adequately disclosed in the consolidated financial
      statements.




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 consolidated financial statements,
      such as the change described in Note 3 (h) to the consolidated financial
      statements. Our report to the shareholders, dated March 30, 2006, is expressed
      in accordance with Canadian reporting standards which do not require a reference
      to such changes in accounting principles in the report of the independent
      registered chartered accountants when the change is properly accounted for
      and
      adequately disclosed in the consolidated financial statements.




/s/ ***Deloitte
                & Touche LLP***Independent
                Registered Chartered AccountantsVancouver,
                British
                Columbia, CanadaMarch 30, 2006




F-3


**APOLLO
      GOLD CORPORATION**




**CONSOLIDATED
      BALANCE SHEETS**


**December
                31,****2005**
            
            **2004****(Restated
                -**
              **Note
                3(h))****ASSETS**
            
            **(In
                thousands of**CURRENT
            
            **U.S.
                Dollars)**Cash
                and cash equivalents (Note 1)
            
            $
            127
            
            $
            6,886Accounts
                receivable
            
            
            2,638
            
            
            2,963Prepaids
            
            
            400
            
            
            109Inventories
                (Note 5)
            
            
            1,708
            
            
            2,192Current
                assets related to discontinued operations (Note 4)
            
            
            -
            
            
            10,510Total
                current assets
            
            
            4,873
            
            
            22,660Property,
                plant and equipment (Note 6)
            
            
            40,045
            
            
            37,599Restricted
                certificates of deposit (Note 7)
            
            
            17,043
            
            
            4,371Deferred
                financing costs (Note 9)
            
            
            584
            
            
            901Non-current
                assets related to discontinued operations (Note 4)
            
            
            -
            
            
            32,104TOTAL
                ASSETS
            
            $
            62,545
            
            $
            97,635**LIABILITIES**CURRENTAccounts
                payable
            
            $
            7,185
            
            $
            6,007Accrued
                liabilities
            
            
            1,841
            
            
            1,795Notes
                payable (Note 8)
            
            
            596
            
            
            789Property
                and mining taxes payable
            
            
            1,172
            
            
            1,070Current
                liabilities related to discontinued operations (Note 4)
            
            
            -
            
            
            8,224Total
                current liabilities
            
            
            10,794
            
            
            17,885Notes
                payable (Note 8)
            
            
            75
            
            
            423Convertible
                debenture (Note 9)
            
            
            6,601
            
            
            5,538Accrued
                site closure costs (Note 11)
            
            
            12,634
            
            
            11,753Non-current
                liabilities related to discontinued operations (Note 4)
            
            
            -
            
            
            14,815TOTAL
                LIABILITIES
            
            
            30,104
            
            
            50,414Continuing
                operations (Note 1)Commitments
                and contingencies (Note 15)**SHAREHOLDERS’
                EQUITY**Share
                capital (Note 12)
            
            
            148,295
            
            
            141,795Issuable
                common shares
            
            
            231
            
            
            231Equity
                component of convertible debentures (Note 9)
            
            
            1,809
            
            
            1,815Note
                warrants (Note 9)
            
            
            781
            
            
            781Contributed
                surplus (Note 12)
            
            
            10,561
            
            
            9,627Deficit
            
            
            (129,236
            )
            
            (107,028
            )TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            32,441
            
            
            47,221TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            62,545
            
            $
            97,635




APPROVED
                ON BEHALF
                OF THE BOARD/s/ Charles
                E. StottCharles
                E. Stott, Director
 /s/ Richard
                P. GraffRichard
                P. Graff, Director


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




F-4


**APOLLO
      GOLD CORPORATION**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003****(Restated
                -**
              **Note
                3(h))**
            
            **(Restated
                -**
              **Note
                3(h))****(In
                thousands of U.S. dollars, except**
              **for
                share and per share amounts)**REVENUERevenue
                from sale of minerals
            
            $
            43,254
            
            $
            38,254
            
            $
            30,858OPERATING
                EXPENSESDirect
                operating costs
            
            
            48,357
            
            
            52,473
            
            
            34,184Depreciation
                and amortization
            
            
            2,551
            
            
            2,640
            
            
            6,135General
                and administrative expenses
            
            
            7,588
            
            
            7,095
            
            
            4,651Stock-based
                compensation
            
            
            597
            
            
            767
            
            
            376Accretion
                expense - accrued site closures costs
            
            
            881
            
            
            820
            
            
            500Exploration
                and business development
            
            
            918
            
            
            1,051
            
            
            2,11760,892
            
            
            64,846
            
            
            47,963OPERATING
                LOSS
            
            
            (17,638
            )
            
            (26,592
            )
            
            (17,105
            )OTHER
                INCOME (EXPENSES)Interest
                income
            
            
            397
            
            
            313
            
            
            213Interest
                expense
            
            
            (2,533
            )
            
            (252
            )
            
            (205
            )Gain
                on sale of property, plant and equipment
            
            
            3,848
            
            
            6
            
            
            76Foreign
                exchange (loss) gain and other
            
            
            (35
            )
            
            (770
            )
            
            1,231LOSS
                FROM CONTINUING OPERATIONS FOR THE
              YEAR
            
            
            (15,961
            )
            
            (27,295
            )
            
            (15,790
            )(LOSS)
                INCOME FROM DISCONTINUED
              OPERATIONS
                FOR THE YEAR (Note 4)
            
            
            (6,247
            )
            
            (3,712
            )
            
            1,700NET
                LOSS FOR THE YEAR
            
            $
            (22,208
            )
            $
            (31,007
            )
            $
            (14,090
            )BASIC
                AND DILUTED NET LOSS PER SHARE FROM:Continuing
                operations
            
            $
            (0.16
            )
            $
            (0.34
            )
            $
            (0.29
            )Discontinued
                operations
            
            
            (0.06
            )
            
            (0.05
            )
            
            0.03$
            (0.22
            )
            $
            (0.39
            )
            $
            (0.26
            )BASIC
                AND DILUTED WEIGHTED-AVERAGE
              NUMBER
                OF SHARES OUTSTANDING
            
            
            101,811,291
            
            
            78,716,042
            
            
            54,536,679







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




F-5


**APOLLO
      GOLD CORPORATION**




**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY**




**Share
                  Capital****Number**
                **of
                  Shares**
              
              
              **Amount**
              
              
              **Issuable**Common**Shares**
              
              
              **Equity
                    Component ofConvertible
                    Debentures**
              
              
              **SpecialWarrants
                    and Note Warrant**
              
              
              **Contributed**
                **Surplus**
              
              
              **Deficit**
              
              
              **Total****(In
                  thousands of U.S. dollars, except for number of
                  shares)**Balance,
                  December 31,2002
              
              40,190,874
              
              $
              72,206
              
              $
              231
              
              $
              -
              
              $
              6,305
              
              $
              7,023
              
              $
              (56,080
              )
              $
              29,685Shares
                  issued for cash(Note
                  12(c))
              
              24,432,300
              
              
              37,314
              
              
              -
              
              
              -
              
              
              -
              
              
              388
              
              
              -
              
              
              37,702Conversion
                  of specialwarrants
              
              6,000,000
              
              
              6,305
              
              
              -
              
              
              -
              
              
              (6,305
              )
              
              -
              
              
              -
              
              
              -Warrants
                  exercised
              
              2,381,500
              
              
              3,810
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,810Options
                  exercised
              
              158,616
              
              
              127
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              127Nevoro
                  acquisition,senior
                  executive sharecompensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              376
              
              
              -
              
              
              376Shares
                  issued to supplier
              
              50,000
              
              
              113
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              113Shares
                  issued for land
              
              61,500
              
              
              134
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              134Fiscal
                  2002 stock-basedcompensation
                  issued in2003
              
              265,000
              
              
              615
              
              
              -
              
              
              -
              
              
              -
              
              
              (615
              )
              
              -
              
              
              -Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (14,090
              )
              
              (14,090
              )Balance,
                  December 31, 2003,as
                  previously reported
              
              73,539,790
              
              
              120,624
              
              
              231
              
              
              -
              
              
              -
              
              
              7,172
              
              
              (70,170
              )
              
              57,857Cumulative
                  effect ofchange
                  in accountingpolicy(Note 3(n))
              
              -
              
              
              257
              
              
              -
              
              
              -
              
              
              -
              
              
              5,594
              
              
              (5,851
              )
              
              -Adjusted
                  balance,December
                  31, 2003
              
              73,539,790
              
              
              120,881
              
              
              231
              
              
              -
              
              
              -
              
              
              12,766
              
              
              (76,021
              )
              
              57,857Units
                  issued for cash(Note
                  12(b)(ii))
              
              8,299,999
              
              
              4,873
              
              
              -
              
              
              -
              
              
              -
              
              
              622
              
              
              -
              
              
              5,495Conversion
                  of specialwarrants
                  (Note 12(b)(i))
              
              2,326,666
              
              
              1,449
              
              
              -
              
              
              -
              
              
              -
              
              
              50
              
              
              -
              
              
              1,499Flow-through
                  commonshares
                  (Note 12(b)(iii))
              
              714,285
              
              
              515
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              515Warrants
                  exercised
              
              5,399,848
              
              
              12,695
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,083
              )
              
              -
              
              
              8,612Options
                  exercised
              
              399,054
              
              
              966
              
              
              -
              
              
              -
              
              
              -
              
              
              (647
              )
              
              -
              
              
              319Shares
                  reacquired andcancelled
              
              (20,500
              )
              
              (48
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (48
              )Shares
                  issued forHuizopa
                  interest (Note 12 (b)(v))
              
              48,978
              
              
              88
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              88Shares
                  issued for 2003stock-basedcompensation
              
              265,000
              
              
              376
              
              
              -
              
              
              -
              
              
              -
              
              
              (376
              )
              
              -
              
              
              -Bridge
                  loancompensation
                  warrants
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              275
              
              
              -
              
              
              275Equity
                  component ofconvertible
                  debentures
              
              -
              
              
              -
              
              
              -
              
              
              1,815
              
              
              -
              
              
              63
              
              
              -
              
              
              1,878Note
                  warrant
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              781
              
              
              27
              
              
              -
              
              
              808Debenturecompensation
                  warrants
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              163
              
              
              -
              
              
              163Stock-basedcompensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              767
              
              
              -
              
              
              767Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (31,007
              )
              
              (31,007
              )Balance,
                  December 31, 2004
              
              90,973,120
              
              
              141,795
              
              
              231
              
              
              1,815
              
              
              781
              
              
              9,627
              
              
              (107,028
              )
              
              47,221


Units
                  issued for cash(Note
                  12(a)(i))
              
              4,199,998
              
              
              2,587
              
              
              -
              
              
              -
              
              
              -
              
              
              194
              
              
              -
              
              
              2,781Shares
                  issued for increase in Huizopa interest(Note 12(a)(ii))
              
              1,000,000
              
              
              410
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              410Shares
                  issued for cash (Note 12(a)(iii))
              
              10,000,000
              
              
              3,183
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,183Conversion
                  of convertibledebentures
              
              33,333
              
              
              23
              
              
              -
              
              
              (6
              )
              
              -
              
              
              -
              
              
              -
              
              
              17Engagement
                  fee shares and warrants (Note 12(a)(iv))
              
              350,000
              
              
              100
              
              
              -
              
              
              -
              
              
              -
              
              
              143
              
              
              -
              
              
              243Completion
                  fee shares (Note 12(a)(v))
              
              900,000
              
              
              197
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              197Stock-based
                  compensation
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              597
              
              
              -
              
              
              597Net
                  loss
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (22,208
              )
              
              (22,208
              )Balance,
                  December 31, 2005
              
              107,456,451
              
              $
              148,295
              
              $
              231
              
              $
              1,809
              
              $
              781
              
              $
              10,561
              
              $
              (129,236
              )
              $
              32,441










**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,****2005**
              
              **2004**
              
              **2003****(Restated
                  -**
                **Note
                  3(h))**
              
              **(Restated
                  -**
                **Note
                  3(h))****(In
                  thousands of U.S. dollars)**OPERATING
                  ACTIVITIESLoss
                  from continuing operations for the year
              
              $
              (15,961
              )
              $
              (27,295
              )
              $
              (15,790
              )Items
                  not affecting cash:Depreciation
                  and amortization
              
              
              2,551
              
              
              2,640
              
              
              6,135Amortization
                  of deferred financing costs
              
              
              319
              
              
              53
              
              
              -Stock-based
                  compensation
              
              
              597
              
              
              767
              
              
              376Accretion
                  expense - accrued site closure costs
              
              
              881
              
              
              820
              
              
              500Accretion
                  expense - convertible debenture, net of interest paid
              
              
              1,085
              
              
              (92
              )
              
              -Gain
                  on sale of property, plant and equipment
              
              
              (3,848
              )
              
              (6
              )
              
              (76
              )Reclamation
                  and closure costs and other
              
              
              372
              
              
              6
              
              
              (180
              )Bridge
                  loan compensation warrants
              
              
              -
              
              
              275
              
              
              -Net
                  change in non-cash operating working capital items (Note
                  17)
              
              
              1,845
              
              
              3,423
              
              
              (1,094
              )Discontinued
                  operations
              
              
              848
              
              
              (1,299
              )
              
              6,999Net
                  cash used in operating activities
              
              
              (11,311
              )
              
              (20,708
              )
              
              (
                  3,130
              )INVESTING
                  ACTIVITIESProperty,
                  plant and equipment expenditures
              
              
              (5,487
              )
              
              (13,018
              )
              
              (8,518
              )Short-term
                  investments
              
              
              -
              
              
              5,855
              
              
              (5,855
              )Proceeds
                  from disposal of property, plant and equipment
              
              
              4,526
              
              
              -
              
              
              339Restricted
                  certificate of deposit and other assets
              
              
              (12,671
              )
              
              (1,286
              )
              
              (1,320
              )Proceeds
                  from disposition of discontinued operations
              
              
              14,000
              
              
              -
              
              
              -Discontinued
                  operations
              
              
              1,022
              
              
              (9,587
              )
              
              (3,260
              )Net
                  cash provided by (used in) investing activities
              
              
              1,390
              
              
              (18,036
              )
              
              (18,614
              )FINANCING
                  ACTIVITIESProceeds
                  on issuance of shares
              
              
              5,944
              
              
              6,994
              
              
              37,702Proceeds
                  from exercise of warrants and options
              
              
              -
              
              
              8,931
              
              
              3,937Proceeds
                  from bridge loan
              
              
              -
              
              
              3,000
              
              
              -Repayment
                  of bridge loan
              
              
              -
              
              
              (3,000
              )
              
              -Acquisition
                  and cancellation of shares
              
              
              -
              
              
              (48
              )
              
              -Issuance
                  of flow-through common shares
              
              
              -
              
              
              515
              
              
              -Proceeds
                  on issuance of convertible debentures, net
              
              
              -
              
              
              7,525
              
              
              -Proceeds
                  from notes payable
              
              
              -
              
              
              -
              
              
              1,259Payments
                  of notes payable
              
              
              (752
              )
              
              (1,478
              )
              
              (1,293
              )Discontinued
                  operations
              
              
              (2,030
              )
              
              (2,641
              )
              
              (2,435
              )Net
                  cash provided by financing activities
              
              
              3,162
              
              
              19,798
              
              
              39,170NET
                  (DECREASE) INCREASE IN CASH
              
              
              (6,759
              )
              
              (18,946
              )
              
              17,426CASH
                  AND CASH EQUIVALENTS, BEGINNING OF YEAR
              
              
              6,886
              
              
              25,832
              
              
              8,406CASH
                  AND CASH EQUIVALENTS, END OF YEAR
              
              $
              127
              
              $
              6,886
              
              $
              25,832SUPPLEMENTAL
                  CASH FLOW INFORMATIONInterest
                  paid
              
              $
              1,204
              
              $
              560
              
              $
              544Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -





During
      the year ended December 31, 2005 the Company issued 1,000,000 shares to Argonaut
      Mines LLC (“Argonaut”) in connection with the increase of the Huizopa interest
      in Mexico. Share capital and property, plant and equipment both increased by
      $410 as a result of this transaction. Also, holders of the convertible
      debentures converted $25 face value for common shares. The convertible debenture
      decreased by $17, share capital increased by $23 and equity component of
      convertible debentures decreased by $6 as a result of this conversion.
      Additionally, the Company issued 1,250,000 shares and 1,250,000 warrants as
      broker compensation related to the disposition of the discontinued operations,
      resulting in an increase in share capital of $297 and contributed surplus of
      $143 and selling expenses of $440.




During
      the years ended December 31, 2005, 2004 and 2003, property, plant and equipment
      totaling $211, $19 and $1,500, respectively, was acquired under capital lease
      obligations.




During
      the year ended December 31, 2004, the Company issued 48,978 shares to meet
      the
      earn-in requirements of the Huizopa joint venture agreement. Share capital
      and
      property, plant and equipment both increased by $88 as a result of this
      transaction. Property, plant and equipment totaling $340 was acquired under
      a
      capital lease arrangement.




During
      the year ended December 31, 2003, the Company issued 61,500 shares to acquire
      certain parcels of land located in Nevada. Share capital and property, plant
      and
      equipment both increased by $134 as a result of this transaction.





**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, 2005, 2004 and 2003**




**(stated
      in United States dollars; tabular amounts in thousands)**




**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, the sale of the
      Nevada assets plus the sale of other surplus assets. The Company’s ability to
      continue as a going concern is dependent on its ability to generate
      cash flow from the sale of Montana Tunnels and/or continue to issue debt
      and equity securities.




At
        the
        Montana Tunnels mine open pit mining was suspended on October 21, 2005.
        Currently the mill continues to operate, processing low grade stockpiled
        ore and
        is expected to continue milling through the end of April 2006. In March
        2006, the Company adopted a plan to dispose of Montana Tunnels Mining
        Inc., which owns the Montana Tunnels and Diamond Hill mines.


The
      Company estimates that with its year
      end
      cash balance, plus the $11.0 million released in January 2006 from the
      restricted cash account held at December 31, 2005 as collateral security for
      the
      convertible debenture and the $3.5 million private placement by Jipangu Inc.
      (“Jipangu”) in January 2006, it will not have sufficient funds to finance the
      current work programs at the Black Fox Project and the Huizopa exploration
      project (the "Huizopa Project"), as well as corporate overhead. Therefore,
      the
      Company is exploring financing opportunities to further develop and construct
      the Black Fox Project and continue our exploration program at the Huizopa
      Project. In addition, Apollo may raise funds from the sale of debt or
      equity securities which may include Canadian flow-through financing to further
      fund a portion of its Canadian exploration activities. The
      availability, amount, terms and timing of this financing are not certain at
      this
      time.




If
        the
        Company is unable to sell the Montana Tunnels mine or secure additional
        financing and therefore be unable to continue as a going concern, then material
        adjustments would be required to the carrying value of assets and liabilities
        and balance sheet classifications used.




**2.**  **NATURE
      OF OPERATIONS**




Apollo
      is
      engaged in gold mining including extraction, processing refining and the
      production of other co-product metals, as well as related activities including
      exploration and development. The Company currently owns and operates the Montana
      Tunnels mine, an open pit mine and mill, producing gold doré and lead-gold
      and
      zinc-gold concentrates, located in the State of Montana. Mining in the open
      pit
      was suspended in mid October due to pit wall instability. Since the open pit
      mine operations were suspended, the mill has been processing lead-gold and
      concentrates from low grade ore stockpiles. The Company also owns the Diamond
      Hill Mine, currently under care and maintenance, also located in the State
      of
      Montana. In March 2006 the Company held out the Montana Tunnels mine for sale,
      which includes the Diamond Hill mine.




Apollo
      has a development property, the Black Fox Project, which is located near the
      Township of Matheson in the Province of Ontario, Canada. Apollo also owns
      Mexican subsidiaries which own or have the right to acquire concessions at
      the
      Huizopa Project, located in the Sierra Madre gold belt in Chihuahua,
      Mexico.




F-8
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**




**3.**  **SIGNIFICANT
      ACCOUNTING POLICIES**




The
      consolidated financial statements of Apollo are prepared by management in
      accordance with Canadian generally accepted accounting principles (“Canadian
      GAAP”) and except as described in Note 20, conform in all material respects with
      accounting principles generally accepted in the United States (“U.S. 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
      structure, as defined by the Accounting Standards Board in Accounting Guideline
      (“AcG”) 15, “Consolidation of Variable Interest Entities” (“AcG-15”), are
      entities in which equity investors do not have the characteristics of a
“controlling financial interest” or there is not sufficient equity at risk for
      the entity to finance its activities without additional subordinated financial
      support.  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 Variable Interest
      Entities as at December 31, 2005.




***(b)***  Measurement
      uncertainties




The
      preparation of financial statements in conformity with Canadian 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.
      Significant estimates used herein include those relating to gold and other
      metal
      prices, recoverable proven and probable reserves, available resources, available
      operating capital and required reclamation costs. 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




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. Monetary
      assets and liabilities denominated in foreign currencies have been translated
      into U.S. dollars at the year-end exchange rate. Exchange gains and losses
      are
      included in operating results.




***(d)***  Cash
      and
      cash equivalents




Cash
      and
      cash equivalents are comprised of cash, term deposits and treasury bills. The
      original maturity dates of term deposits and treasury bills is not in excess
      of
      90 days.




F-9
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**3.**  **SIGNIFICANT
      ACCOUNTING POLICIES (continued)**




***(e)***  Inventories




Metals
      inventories are stated at the lower of cost and net realizable value determined
      by using the first-in, first-out method. Materials and supplies at the mine
      sites are valued at the lower of direct cost of acquisition and replacement
      cost.




***(f)***  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 operation based on the estimated recoverable gold
      equivalent ounces or value of metals over proven and probable reserves and
      a
      portion of resources expected to be converted to reserves based on past
      results.




Buildings
      and equipment are recorded at acquisition cost and amortized over the remaining
      reserves of the mine site on a units-of-production basis. Equipment that is
      mobile is amortized on a straight-line basis over the estimated useful life
      of
      the equipment of five to ten years. Costs relating to repair and maintenance
      costs are expensed as incurred.




Financing
      and acquisition costs including interest and fees are capitalized on the basis
      of expenditures incurred for the acquisition of assets and mineralized
      properties and related development activities. Capitalization ceases when the
      asset or property is substantially complete and ready to produce at commercial
      rates.




***(g)***  Mineral
      rights




Mineral
      rights include the cost of obtaining unpatented and patented United States
      of
      America 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 production
      begins 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.




***(h)***  Stripping
      costs




On
      March
      30, 2005, the Financial Accounting Standard Board (“FASB”) ratified the
      consensus of the Emerging Issues Task Force (“EITF”) Issue 04-06 that stripping
      costs incurred during the production phase of a mine are variable production
      costs that should be included in the costs of the inventory produced during
      the
      period that the stripping costs are incurred.




In
      2004
      and prior periods, Apollo deferred or accrued stripping costs incurred during
      production, as appropriate, and charged these costs to operations on the basis
      of the estimated average stripping ratio for Montana Tunnels. Commencing in
      the
      second quarter of 2005, Apollo changed its accounting policy under Canadian
      GAAP
      and U.S. GAAP with respect to stripping costs to be consistent with the
      consensus reached by the EITF, on the basis that the consensus results in a
      more
      reliable, relevant and consistent application of GAAP. This change has been
      applied retrospectively by restating prior periods. The effect of this change
      was to increase the deficit at January 1, 2003 by $12,129,000 and to increase
      the net loss for the years ended December 31, 2004 and 2003 by $12,818,000
      ($0.16 per share) and $11,904,000 ($0.22 per share), respectively.




F-10
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**3.**  **SIGNIFICANT
      ACCOUNTING POLICIES (continued)**




***(i)***  Exploration
      expenditures




Exploration
      expenditures are expensed as incurred during the reporting period.




***(j)***  Property
      evaluations




The
      Company evaluates the carrying amounts of its mining properties and related
      buildings, plant and equipment 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) and corresponding co-product credits along
      with
      estimated future metals prices and estimated operating and capital costs. The
      inclusion of mineral resources is based on various circumstances, 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 ore is
      commercially recoverable. The future cash flows cover the known ore reserve
      at
      the time. If the future undiscounted cash flows are less than the


carrying
      value of the assets, the assets will be written down to fair value and the
      write-off charged to earnings in the current period.




***(k)***  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 affects
      the
      ultimate cost of remediation and reclamation.




***(l)***  Revenue
      recognition




Revenue
      from the sale of gold and co-products 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.
      Revenue for lead and zinc concentrates is determined by contract as legal title
      to the concentrate transfers and include provisional pricing arrangements
      accounted for as an embedded derivative instrument under SFAS No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      as
      amended.




F-11
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**3.**  **SIGNIFICANT
      ACCOUNTING POLICIES (continued)**




***(m)***  Commodity
      contracts




The
      Company entered into hedging contracts for gold involving the use of
      combinations of put and call options. These options had common notional amounts
      and maturity dates and were designated in combination as hedges of future gold
      sales on the basis that they generated offsetting cash flows. No premium was
      received with respect to these options.




Providing
      that the criteria for an effective hedge are met, gains and losses on the
      contracts are deferred and recognized in revenue at the time of the sale of
      the
      designated future gold production. If the criteria are not met these contracts
      will be marked to market each period.




***(n)***  Stock
      incentive plans




Effective
      January 1, 2004, the Company adopted the amended recommendations of the CICA
      Handbook Section 3870, *Stock-based
      Compensation and Other Stock-based Payments.* Under
      the
      amended standards of this Section, the fair value of all stock-based awards
      granted are estimated using the Black-Scholes model and are recorded in
      operations over their vesting periods. The compensation cost related to stock
      options granted to employees and directors after January 1, 2004 is recorded
      in
      the consolidated statement of operations.




Previously,
      the Company provided note disclosure of pro forma net loss as if the fair value
      based method had been used on stock options granted to employees and directors
      after January 1, 2002. The amended recommendations have been applied using
      the
      retroactive method without restatement and had the effect of increasing share
      capital, contributed surplus and opening deficit as follows:




**Increase
                as at**
              **January
                1, 2004**Share
                capital
            
            $
            257Contributed
                surplus
            
            
            5,594Deficit
            
            
            (5,851
            )





***(o)***  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 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 13), there
      is
      uncertainty as to utilization prior to their expiry. Accordingly, the future
      income tax asset amounts have been fully offset by an uncertainty
      provision.




***(p)***  Loss
      per
      share




The
      basic
      loss per share is computed by dividing the net loss by the weighted average
      number of common shares outstanding during the year. The fully diluted loss
      per
      share reflects the potential dilution of common share equivalents, such as
      outstanding stock options and share purchase warrants, in the




F-12
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**3.**  **SIGNIFICANT
      ACCOUNTING POLICIES (continued)**




weighted
      average number of common shares outstanding during the year, if dilutive. For
      this purpose, the “treasury stock method” is used for the assumed proceeds upon
      the exercise of stock options and warrants that are used to purchase common
      shares at the average market price during the year.




***(q)***  Comparative
      figures




Certain
      of the prior year’s figures have been reclassified to conform to the current
      year’s presentation. In particular, the assets and liabilities of the
      discontinued operations (Note 4) as at December 31, 2004 and their results
      of
      operations and cash flows for the years ended December 31, 2004 and 2003 have
      been reclassified as discontinued operations.




**4.**  **DISCONTINUED
      OPERATIONS**




On
      November 18, 2005, the Company sold its Nevada properties (“the Nevada Assets”)
      to Jipangu for $14.0 million in cash, resulting in the Company recording a
      total
      impairment of $8.7 million. The Nevada Assets include the Florida Canyon Mine,
      an open pit heap leach operation located in the State of Nevada; the Standard
      Mine, an open pit heap leach operation situated 8 kilometers south of the
      Florida Canyon Mine; and four exploration properties located near the Florida
      Canyon Mine.




The
      following tables present summarized financial information related to
      discontinued operations:




**December
                  31,****2005**
              
              **2004**ASSETSCash
                  and cash equivalents
              
              $
              -
              
              $
              61Broken
                  ore on leach pad - current
              
              
              -
              
              
              8,960Other
                  non-cash current assets
              
              
              -
              
              
              1,489Current
                  assets related to discontinued operations
              
              
              -
              
              
              10,510Broken
                  ore on leach pad - long-term
              
              
              -
              
              
              4,824Property,
                  plant and equipment
              
              
              -
              
              
              20,945Restricted
                  certificate of deposit
              
              
              -
              
              
              4,995Deferred
                  loss on commodity contracts (Note 14)
              
              
              -
              
              
              1,340Non-current
                  assets related to discontinued operations
              
              
              -
              
              
              32,104Total
                  assets related to discontinued operations
              
              
              -
              
              
              42,614LIABILITIESCurrent
                  liabilities related to discontinued operations
              
              
              -
              
              
              8,224Notes
                  payable
              
              
              -
              
              
              376Accrued
                  site closure costs
              
              
              -
              
              
              14,439Non-current
                  liabilities related to discontinued operations
              
              
              -
              
              
              14,815Total
                  liabilities related to discontinued operations
              
              
              -
              
              
              23,039Net
                  assets related to discontinued operations
              
              $
              -
              
              $
              19,575
  F-13
 **APOLLO
            GOLD CORPORATION**
  **Notes
            to the Consolidated Financial Statements**  **-
            (Continued)**


**4.**  **DISCONTINUED
      OPERATIONS (continued)**




**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Revenue
                from sale of minerals
            
            $
            18,591
            
            $
            26,487
            
            $
            35,983Direct
                operating costs
            
            
            17,375
            
            
            26,190
            
            
            28,535Depreciation
                and amortization
            
            
            867
            
            
            2,581
            
            
            3,731Accretion
                expense
            
            
            898
            
            
            598
            
            
            780Royalty
                expenses
            
            
            267
            
            
            669
            
            
            898Exploration
                and business development
            
            
            218
            
            
            -
            
            
            -Impairment
            
            
            8,724
            
            
            -
            
            
            -28,349
            
            
            30,038
            
            
            33,944Operating
                (loss) income
            
            
            (9,758
            )
            
            (3,551
            )
            
            2,039Interest
                expense
            
            
            (74
            )
            
            (216
            )
            
            (339
            )Gain
                on sale of property, plant and equipment and
              other
            
            
            3,547
            
            
            (177
            )
            
            -Realized
                and unrealized gain on commodity
              contracts
                (Note 14)
            
            
            38
            
            
            232
            
            
            -(Loss)
                income from discontinued operations
            
            $
            (6,247
            )
            $
            (3,712
            )
            $
            1,700







**5.**  **INVENTORIES**




Inventories
      consist of:




**2005**
            
            **2004**Concentrate
                inventory
            
            $
            94
            
            $
            729Doré
                inventory
            
            
            14
            
            
            45Materials
                and supplies
            
            
            1,600
            
            
            1,418$
            1,708
            
            $
            2,192





**6.**  **PROPERTY,
      PLANT AND EQUIPMENT**




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




**2005**
            
            **2004****Cost**
            
            **Accumulated**
              **Depreciation**
            
            **Net
                Book**
              **Value**
            
            **Net
                Book**
              **Value**Mine
                assetsBuilding,
                plant and equipment
            
            $
            8,919
            
            $
            3,163
            
            $
            5,756
            
            $
            7,738Mining
                properties and development costs
            
            
            31,497
            
            
            2,663
            
            
            28,834
            
            
            24,40640,416
            
            
            5,826
            
            
            34,590
            
            
            32,144Mineral
                rights
            
            
            5,455
            
            
            -
            
            
            5,455
            
            
            5,455Total
                property, plant and equipment
            
            $
            45,871
            
            $
            5,826
            
            $
            40,045
            
            $
            37,599








F-14
 **APOLLO
            GOLD CORPORATION**
  **Notes
            to the Consolidated Financial Statements**  **-
            (Continued)**





**7.**  **RESTRICTED
      CERTIFICATES OF DEPOSIT**




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




**2005**
            
            **2004**Restricted
                certificate of deposit - Site closure obligation - Montana Tunnels
                (a)
            
            $
            5,465
            
            $
            3,810Restricted
                certificate of deposit - Site closure obligation - Black
                Fox
            
            
            581
            
            
            561Restricted
                certificate of deposit - Convertible Debenture (b)
            
            
            10,997
            
            
            -$
            17,043
            
            $
            4,371





***(a)***  Restricted
      certificate of deposit - Site closure obligation - Montana Tunnels




The
      restricted certificate of deposit represents cash that has been placed in trust
      as security to the State of Montana relating to the Company’s site closure
      obligations (see Note 11).




The
      Company has entered into an agreement with CNA, an insurer, to complete the
      bonding requirements at MTMI. CNA committed to an approximate $15 million
      15-year term bonding facility which is not cancelable, unless MTMI fails to
      meet
      its requirements under the arrangement. The agreement obligates MTMI to make
      current payments of $150,000 monthly until the balance in the trust account
      is
      equal to the penal sum of the CNA bond. The monthly payments are adjusted
      annually in August of each year and are dependent upon the average gold price
      for the previous twelve months. At December 31, 2005, the restricted certificate
      of deposit for bonding requirements at Montana Tunnels is $5.5 million (2004
      -
      $3.8 million). In March 2006, the Company adopted a plan to dispose of
      MTMI.




***(b)***  Restricted
      certificate of deposit - Convertible Debenture




The
      restricted certificate of deposit - convertible debenture represents cash that
      has been placed in trust with The Canada Trust Company as security for the
      convertible debenture (Note 9). This restriction was released on January 8,
      2006
      (Note 21(a)).




**8.**  **NOTES
      PAYABLE**




The
      notes
      payable are secured by a fixed charge on certain machinery and equipment and
      bear interest at various rates between 2.76% and 7.5%, (2004 - 2.76% and 7.5%)
      and are repayable as follows at December 31, 2005:




2006
            
            $
            5962007
            
            
            75Total
                notes payable
            
            
            671Less
                current portion
            
            
            (596
            )Total
                long-term obligations
            
            $
            75





**9.**  **CONVERTIBLE
      DEBENTURE**




On
      November 4, 2004 the Company completed a $10.5 million offering consisting
      of
      $8.8 million special notes and $1.7 million special warrants (Note 12 (b)(i)).
      These special notes were converted into $8.8 million convertible secured
      debentures (the “Debentures”) and 5,253,750 warrants (the “Note Warrants”). The
      Debentures mature on December 16, 2007 and bear interest at a rate of 12%
      per annum, payable quarterly in arrears beginning on December 31, 2004. The
      Note
      Warrants




F-15
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**




**9.**  **CONVERTIBLE
      DEBENTURE (continued)**




expire
      on November 4, 2007 and are each exercisable for one common share of the
      Company at a price of $0.40 per common share, except as noted (Note
      21(a)).




The
      Debentures are convertible, at the option of the holder, at any time prior
      to
      maturity or five days prior to redemption into common shares of the Company
      at a
      price of $0.75 per common share. Since redemption can be made either by cash
      or
      by common shares at the option of the Company, the Debentures are classified
      as
      a compound financial instrument for accounting purposes.




The
      value
      of the Debentures is comprised of a $5.6 million fair value of the Debentures,
      $2.2 million fair value of the holder’s option to convert the principal balance
      into common shares, and $0.9 million fair value of the Note Warrants. These
      components have been measured at their respective fair values on the date that
      the Debentures and Note Warrants were issued. The $5.6 million fair value of
      the
      Debentures is classified as a liability and the $3.1 million combined fair
      value
      of the conversion option and Note Warrants have been classified in shareholders’
equity. Over the three-year term of the Debentures, the fair value of the
      Debentures are accreted to their face value. The periodic accretion of the
      Debentures is charged to accretion expense. For the year ended December 31,
      2005, the Company recorded accretion of $2.1 million (2004 - $71,000) related
      to
      the Debentures as a charge to accretion expense with a corresponding credit
      to
      the liability component of the Debentures.




The
      Company incurred equity issuance costs of $0.4 million and deferred financing
      costs of $0.8 million. Deferred financing costs are amortized over the term
      of
      the Debenture. During 2005 and 2004, $319,000 and $53,000, respectively, of
      deferred financing costs were charged to operations.




In
      addition, the agents were granted 1,167,500 warrants as additional compensation
      in connection with the issuance of the Debentures. Each warrant entitles the
      holder to acquire one share at a price of $0.80 per share until November 4,
      2006. In the event that the weighted average trading price of the Company’s
      shares on the TSX is more that $2.00 for 20 consecutive trading days, the
      Company has the right to cause the exercise of the warrants into shares. The
      fair value of these compensation warrants of $0.3 million is comprised of
      $91,000 equity issuance costs and $0.2 million deferred financing costs to
      be
      amortized over the term of the Debenture.




On
      October 7, 2004, the Company completed a bridge loan facility for $3.0 million,
      which was repaid in full from the proceeds of this offering. In connection
      with
      this bridge loan the agents were granted 1,000,000 compensation warrants with
      an
      exercise price of $0.80 expiring October 7, 2006. The fair value of these
      warrants of $0.3 million is treated as a financing cost.




**10.**  **EMPLOYEE
      BENEFIT PLAN**




The
      Company maintains a defined contribution 401(k) plan for all U.S. employees.
      Employees have the right to invest up to 25% of their respective earnings up
      to
      the statutory limits. All U.S. employees are eligible to participate on the
      first of the following month after their date of hire. In the past, the Company
      matched 100% of the first 6% invested. Due to cash constraints, the Company
      match was discontinued on September 10, 2004. The vesting schedule is two
      years.




The
      amounts charged to earnings for the Company’s defined contribution plan totaled
      nil, $338,000 and $449,000 for the years ended December 31, 2005, 2004 and
      2003,
      respectively.




F-16
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**




**11.**  **ACCRUED
      SITE CLOSURE COSTS**




All
      of
      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 their bonding requirements.
      The estimates prepared by management are then reconciled with the requirements
      of the state and federal officials.




At
      December 31, 2005, the accrued site closure liability amounted to $12.6 million
      (2004 - $11.8 million). This liability is based on a third party engineer
      report. The liability is covered by a combination of surety bonds, a restricted
      certificate of deposit and property which in aggregate are valued at
      approximately $17.0 million.




In
      view
      of the uncertainties concerning future removal and site restoration costs,
      as
      well as the applicable laws and legislations, 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, 2002
            
            $
            8,679Accretion
            
            
            500Expenditures
            
            
            (31
            )Balance,
                December 31, 2003
            
            
            9,148Accretion
            
            
            820Increase
                in reclamation assets
            
            
            1,785Balance,
                December 31, 2004
            
            
            11,753Accretion
            
            
            881Balance,
                December 31, 2005
            
            $
            12,634


The
      Company has estimated that the total obligations associated with the retirement
      of the Montana Tunnels mine at December 31, 2005 are $18.3 million. The $12.6
      million (2004 - $11.8 million) fair value of these obligations is determined
      using a 7.5% credit adjusted risk-free discount rate and expected payment of
      obligations over fifteen years.




**12.**  **SHARE
      CAPITAL**




***(a)***  Shares
      issued in 2005




*(i)*  On
      January 7, 2005, the Company completed the second tranche of a private placement
      of 4,199,998 units with a purchase price of $0.75 for net proceeds of $2.8
      million, net of expenses of $0.3 million and fair value of broker’s compensation
      warrants of $0.2 million. Each unit is comprised of one common share of the
      Company and 0.75 share purchase warrant, with each whole share purchase warrant
      exercisable into one common share of the Company for two years at an exercise
      price of $1.00 per share. In connection with the first and second tranches,
      1,250,000 broker compensation warrants were issued. (See Note 12(d) for a
      description of the broker compensation warrants.)




F-17
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**12.**  **SHARE
      CAPITAL (continued)**


**


*(ii)*  During
      2005, the Company increased its interest in the Huizopa Project with Argonaut.
      In consideration for such increase, the Company issued shares with a value
      of
      $410,000 which were recorded as property, plant and equipment within the balance
      sheet. Following this arrangement, the Company’s Mexican subsidiary owns
      Argonaut’s former subsidiary which has a contractual interest in two of the
      concessions at the Huizopa Project. The Company no longer has any earn-in
      requirement for the project, although it will still be responsible for the
      underlying payments to the landowner of the project, and the payments and
      performance or obligations required to maintain those concessions.




*(iii)*  On
      June
      3, 2005, the Company completed the issuance to Jipangu of 10,000,000 common
      shares at $0.32 (Cdn$0.40) per share for proceeds of $3.2 million, net of
      expense of $32,000.




*(iv)*  The
      Company issued to BMO Nesbitt Burns Inc. (“BMO”) on June 30, 2005, as an
      engagement fee to act as a financial adviser to the Company with respect to
      the
      sale of the Nevada Assets, 350,000 common shares of the Company and 1,250,000
      common share purchase warrants of the Company, with each warrant immediately
      exercisable into one common share of the company at an exercise price of
      Cdn$0.40 and an expiry date of June 30, 2007.




The
      1,250,000
      common 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 78%, an expected life of the warrants of two years, and
      an annual risk-free rate of 3.6%.




*(v)*  On
      November 30, 2005, the Company issued 900,000 common shares to BMO at $0.22
      (Cdn$0.26) per share, as a completion fee related to the closing of the sale
      of
      the Nevada Assets.




***(b)***  Shares
      issued in 2004




*(i)*  On
      November 4, 2004, in connection with the offering of Special Notes (Note 9),
      the
      Company issued 2,326,666 special warrants for proceeds of $1.4 million, net
      of
      expenses of $0.2 million and fair value of agent’s warrants of $50,000. Each
      special warrant was converted at no additional cost into one share and 0.6
      share
      purchase warrant entitling the purchase of one share of the Company for three
      years at a price of $0.80 per share.




In
      connection with this offering, the agent received a commission of 6.5% of gross
      proceeds plus 232,667 compensation warrants, each warrant entitling the purchase
      of one share of the Company for two years at $0.80 per share.




*(ii)*  On
      December 31, 2004, the Company completed the first tranche of a private
      placement for 8,299,999 units with an exercise price of $0.75 for proceeds
      of
      $4.9 million, net of expenses of $0.7 million and fair value of underwriter’s
      units of $0.6 million. Each unit is convertible at no additional cost into
      one
      common share of the Company and 0.75 share purchase warrant with each whole
      share purchase warrant entitling the purchase of one share of the Company for
      two years at a price of $1.00 per share. In connection with this offering,
      830,000 underwriter’s units were issued with the same terms as described
      above.




*(iii)*  On
      December 31, 2004, under a private placement financing, the Company issued
      714,285 flow-through common shares, for aggregate proceeds of $0.5
      million.




F-18
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**12.**  **SHARE
      CAPITAL (continued)**




*(iv)*  Using
      the
      fair value based method of stock-based compensation, share issuance costs of
      $50,000 and $0.6 million were recognized for the compensation warrants and
      broker units. These amounts were determined using an option pricing model with
      the following weighted average assumptions: no dividends were paid, a volatility
      of the Company’s share price of 64%, and an expected life of the warrants of two
      years and annual risk-free rate of 3.48%.




*(v)*  The
      Company issued 48,978 shares in part consideration to meet the earn-in
      requirements of the Huizopa joint venture agreement with Argonaut Mines
      LLC.




***(c)***  Shares
      issued in 2003




*(i)*  On
      September 26, 2003, the Company issued 22,300,000 shares for proceeds of $37.2
      million, net of agent’s commissions of $2.2 million, expenses of $0.7 million
      and fair value of agent’s warrants of $0.4 million.




*(ii)*  On
      October 27, 2003, the agents exercised their over-allotment option and the
      Company issued a further 2,132,300 shares for proceeds of $3.7 million, net
      of
      expenses of $0.2 million and fair value of agent’s warrants of
      $35,000.




*(iii)*  The
      Company granted the agents 732,969 agent’s warrants with an exercise price of
      $1.67 (Cdn$2.25) per warrant in connection with this issuance. These agent’s
      warrants expired in 2005. Using the fair value based method for stock-based
      compensation, share issuance costs of $0.4 million were recognized. This amount
      was determined using an option pricing model assuming no dividends were paid,
      a
      volatility of the Company’s share price of 53%, an expected life of the warrants
      of two years, and annual risk-free rate of 3.50%.




***(d)***  Warrants




The
      following summarizes outstanding warrants as at December 31, 2005:




**Date
                Issued**
            
            **Number
                of Warrants**
            
            **Number
                of Shares**
            
            **Exercise
                Price**
            
            **Expiry
                Date**Exercisable
                in US$October
                19, 2004
            
            
            1,000,000
            
            
            1,000,000
            
            $
            0.80
            
            
            October
                19, 2006November
                4, 2004
            
            
            1,400,133
            
            
            1,400,133
            
            
            0.80
            
            
            November
                4, 2006December
                31, 2004
            
            
            6,224,999
            
            
            6,224,999
            
            
            1.00
            
            
            December
                31, 2006November
                4, 2004
            
            
            5,253,600
            
            
            5,253,600
            
            
            0.80
            
            
            November
                4, 2007November
                4, 2004
            
            
            1,396,000
            
            
            1,396,000
            
            
            0.80
            
            
            November
                4, 2007January
                7, 2005
            
            
            3,149,998
            
            
            3,149,998
            
            
            1.00
            
            
            January
                7, 200718,424,730
            
            
            18,424,730Exercisable
                in Cdn$December
                23, 2002
            
            
            3,000,000
            
            
            3,000,000
            
            
            Cdn$
                3.25
            
            
            December
                23, 2006June
                30, 2005
            
            
            1,250,000
            
            
            1,250,000
            
            
            Cdn$
                0.40
            
            
            June
                30, 20074,250,000
            
            
            4,250,00022,674,730
            
            
            22,674,730





In
      addition, 1,250,000 broker compensation warrants were issued and were
      immediately exercisable on January 7, 2005. The broker compensation
      warrants were issued in connection with the first and second





F-19
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**12.**  **SHARE
      CAPITAL (continued)**




tranches
      of the private placement described in Note 12(a)(i). Each broker
      compensation warrant is exercisable at $0.75 into one common share of the
      Company and 0.75 of a share purchase warrant, with each whole share purchase
      warrant exercisable into one common share of the Company at $1.00 per common
      share. The broker compensation warrants expire on January 7, 2007. The
      share purchase warrants are exercisable for two years from the date of issue.




***(e)***  Options




A
      summary
      of information concerning outstanding stock options at December 31, 2005 is
      as
      follows:




**Fixed
                Stock Options**
            
            **Performance-based**
              **Stock
                Options****Number
                of**
              **Common**
              **Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number
                of**
              **Common**
              **Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Balances,
                December 31, 2002
            
            
            -
            
            $
            -
            
            
            2,780,412
            
            $
            0.80Options
                granted
            
            
            2,039,100
            
            
            2.20
            
            
            -
            
            
            -Options
                exercised
            
            
            -
            
            
            -
            
            
            (158,616
            )
            
            0.80Options
                cancelled
            
            
            (151,800
            )
            
            2.24
            
            
            (121,642
            )
            
            0.80Balances,
                December 31, 2003
            
            
            1,887,300
            
            
            2.20
            
            
            2,500,154
            
            
            0.80Options
                granted
            
            
            689,300
            
            
            1.84
            
            
            -
            
            
            -Options
                exercised
            
            
            -
            
            
            -
            
            
            (399,054
            )
            
            0.80Options
                cancelled
            
            
            (380,300
            )
            
            2.22
            
            
            (196,344
            )
            
            0.80Balances,
                December 31, 2004
            
            
            2,196,300
            
            
            2.10
            
            
            1,904,756
            
            
            0.80Options
                granted
            
            
            3,039,700
            
            
            0.58
            
            
            -
            
            
            -Options
                cancelled
            
            
            (1,361,900
            )
            
            1.42
            
            
            (110,174
            )
            
            0.80Balances,
                December 31, 2005
            
            
            3,874,100
            
            $
            1.15
            
            
            1,794,582
            
            $
            0.80





*(i)*  Fixed
      stock option plan




The
      Company has a stock option plan that provides for the granting of options to
      directors, officers, employees and service providers of the
      Company.




The
      following table summarizes information concerning outstanding and exercisable
      fixed stock options at December 31, 2005:






F-20
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**12.**  **SHARE
      CAPITAL (continued)**




**Options
                Outstanding**
            
            **Options
                Exercisable****Number**
              **Outstanding**
            
            **Expiry
                Date**
            
            **Weighted
                Average**
              **Exercise**
              **Price
                per Share**
            
            **Number**
              **Exercisable**
            
            **Weighted
                Average**
              **Exercise**
              **Price
                per Share**969,800
            
            
            February
                18, 2013
            
            $
            2.24
            
            
            969,800
            
            $
            2.242,600
            
            
            March
                28, 2013
            
            
            2.34
            
            
            2,600
            
            
            2.34100,000
            
            
            November
                13, 2013
            
            
            1.67
            
            
            100,000
            
            
            1.67271,600
            
            
            March
                10, 2014
            
            
            2.05
            
            
            135,800
            
            
            2.05125,000
            
            
            May
                19, 2014
            
            
            1.44
            
            
            62,500
            
            
            1.4426,600
            
            
            August
                10, 2014
            
            
            0.95
            
            
            13,300
            
            
            0.951,878,500
            
            
            March
                10, 2015
            
            
            0.65
            
            
            -
            
            
            -100,000
            
            
            April
                6, 2015
            
            
            0.39
            
            
            -
            
            
            -100,000
            
            
            August
                4, 2015
            
            
            0.27
            
            
            -
            
            
            -300,000
            
            
            December
                12, 2015
            
            
            0.20
            
            
            -
            
            
            -3,874,100
            
            
            
            
            $
            1.15
            
            
            1,284,000
            
            $
            2.12





*(ii)*  Performance-based
      stock option plan




In
      2002,
      2,780,412 performance-based options with an expiry date of June 25, 2007 were
      granted to certain directors, officers and employees, and were subject to
      reduction if certain performance criteria were not met. In fiscal 2003, the
      balance of the options vested based upon the established fiscal 2003 performance
      criteria. As of December 31, 2005 there are 1,794,582 performance-based stock
      options outstanding.




***(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:




**2005**
            
            **2004**
            
            **2003**Risk
                free interest rate
            
            
            3.669
            %
            
            3.141
            %
            
            3.534
            %Dividend
                yield
            
            
            0
            %
            
            0
            %
            
            0
            %Volatility
            
            
            73
            %
            
            57
            %
            
            75
            %Expected
                life in years
            
            
            5
            
            
            5
            
            
            5





As
      the
      Company has selected the retroactive without restatement method for reporting
      the change in accounting policy related to stock compensation expense (Note
      3
      (n)), the Company must disclose the impact on net loss and net loss per share
      as
      if the fair value based method of accounting for stock-based compensation had
      been applied in 2003.


**2003**Net
                  lossAs
                  reported
              
              $
              (14,090
              )Compensatory
                  fair value of options
              
              
              (3,871
              )Pro
                  forma
              
              $
              (17,961
              )Basic
                  and diluted net loss per shareAs
                  reported
              
              $
              (0.26
              )Pro
                  forma
              
              
              (0.33
              )





The
      weighted average grant-date fair value of stock options granted
      during 2005 was $0.36.




F-21
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**




**13.**  **INCOME
        TAXES**
  The
        Company did not record a provision or benefit for income taxes for the periods
        ended December 31, 2005, 2004 and 2003, 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:


**2005**
            
            **2004**
            
            **2003**Statutory
                tax rate
            
            
            34.90
            %
            
            35.62
            %
            
            37.62
            %Recovery
                of income taxes computed at standard rates
            
            $
            5,570
            
            $
            9,722
            
            $
            5,940Higher
                (lower) foreign tax rates
            
            
            817
            
            
            150
            
            
            (425
            )Tax
                losses not recognized in the period that the benefit arose
            
            
            (6,387
            )
            
            (9,872
            )
            
            (5,515
            )$
            -
            
            $
            -
            
            $
            -





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




**2005**
            
            **2004**Future
                income tax assetsNet
                operating losses carried forward
            
            $
            46,385
            
            $
            37,676Exploration
                and development expenses
            
            
            829
            
            
            1,871Property,
                plant and equipment
            
            
            2,672
            
            
            10,082Accrued
                site closure costs
            
            
            4,587
            
            
            4,251Other
            
            
            5,676
            
            
            2,54260,149
            
            
            56,422Less:
                Valuation allowance
            
            
            (60,149
            )
            
            (56,422
            )Net
                future income tax assets
            
            $
            -
            
            $
            -





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, 2005, the Company has the following unused
      tax
      losses available for tax purposes:




**Country**
              
              **Amount**
              
              **Expiry**Canada
              
              $
              14,738
              
              
              2006-2015United
                  States
              
              
              113,600
              
              
              2011-2025




F-22
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**




**14.**  **FINANCIAL
          INSTRUMENTS AND RISK MANAGEMENT**
  ***(a)***  Market
          risk


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 and silver.
      However, if the Company had to change the smelters to which zinc and lead
      concentrates are shipped, the additional transportation costs could be
      considerable. Although it is possible that the Company could be directly
      affected by weaknesses in the metals processing business, the Company
      periodically monitors the financial condition of its customers.




Accounts
      receivable at December 31, 2005 are due from two customers.




***(b)***  The
      estimated fair value of the Company’s financial instruments was as
      follows:




**December
                31,****2005**
            
            **2004****Carrying**
              **Amount**
            
            **Fair**
              **Value**
            
            **Carrying**
              **Amount**
            
            **Fair**
              **Value**Cash
                and cash equivalents
            
            $
            127
            
            $
            127
            
            $
            6,886
            
            $
            6,886Accounts
                receivable
            
            
            2,638
            
            
            2,638
            
            
            2,963
            
            
            2,963Accounts
                payable
            
            
            7,185
            
            
            7,185
            
            
            6,007
            
            
            6,007Accrued
                liabilities
            
            
            1,841
            
            
            1,841
            
            
            1,795
            
            
            1,795Notes
                payable and other liabilitiesCurrent
            
            
            596
            
            
            596
            
            
            789
            
            
            789Non-current
            
            
            75
            
            
            75
            
            
            423
            
            
            423Convertible
                debenture
            
            
            6,601
            
            
            6,601
            
            
            5,538
            
            
            5,538





The
      fair
      value of notes payable was determined using the discounted cash flows at
      prevailing market rates. The fair value of the Company’s other financial
      instruments was estimated to approximate their carrying value due primarily
      to
      the immediate or short-term maturity of these financial
      instruments.




***(c)***  Commodity
      contracts




In
      2003
      the Company entered into commodity contracts, with Standard Bank London Limited,
      for gold in the aggregate amount of 100,000 ounces involving the use of
      combinations of put and call options. The contracts gave the holder the right
      to
      buy, and the Company the right to sell, stipulated amounts of gold at the upper
      and lower exercise prices, respectively. The contracts continued through April
      25, 2005 with a put option strike price of $295 per ounce and a call option
      strike price of $345 per ounce. As at December 31, 2005 there were no ounces
      remaining on these contracts.




**15.**  **COMMITMENTS
        AND CONTINGENCIES**
  ***(a)***  Royalties
  The
        Company’s properties are subject to royalty obligations based on minerals
        produced from the properties. The Montana Tunnels and Black Fox Project reserves
        are not subject to a royalty obligation. Royalty obligations for the Huizopa
        Project arise upon mine production.


F-23
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**




**15.**  **COMMITMENTS
      AND CONTINGENCIES (continued)**




***(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)***  Black
      Fox
      Project




An
      additional $2.6 million (Cdn$3.0 million) was due to the original owners to
      purchase the Black Fox Project property free and clear of all encumbrances.
      This
      payment was made in January 2006 as more fully described in Note
      21(a).




***(e)***  Huizopa
      Project




If
      the
      Company wishes to maintain the exploration and exploitation rights for the
      “Rosa” and “Donna” concessions, both located in the Municipality of Madera,
      Chihuahua, Mexico, then it will be required to pay $0.1 million in April 2006,
      $0.1 million in April 2007 and $1.5 million in October 2007. These concessions
      represent approximately 17% of the Huizopa property.




***(f)***Indemnification
      obligations




The
        Company is subject to certain indemnification obligations to Jipangu relating
        to
        the sale of the Nevada Assets. At this time, the Company is unable to predict
        what cost there will be, if any, related to such indemnification
        obligations.




***(g)***Potential Sale of Montana
      Tunnels Mining, Inc.




The
        Company has employed the services of a merchant bank to assist with the sale
        of
        Montana Tunnels Mining, Inc., the successful sale of which would result in
        the
        payment of a success fee to the bank.


F-24
 **APOLLO
            GOLD CORPORATION**
  **Notes
            to the Consolidated Financial Statements**  **-
            (Continued)**


**16.
      LEASE COMMITMENTS**




Minimum
      lease payments under capital and non-cancelable operating leases and the present
      value of net minimum payments at December 31, 2005 were as follows:


**Capital**
              **Leases**
            
            **Operating**
              **Leases**2006
            
            $
            92
            
            $
            1932007
            
            
            37
            
            
            972008
            
            
            28
            
            
            262009
            
            
            14
            
            
            -Total
            
            
            171
            
            $
            316Less
                imputed interest
            
            
            15Total
                present value of minimum capital lease payments
            
            
            156Less
                current portion of capital lease obligations
            
            
            82Long-term
                capital lease obligations
            
            $
            74





Rent
      expense under non-cancelable operating leases was $71,000, $81,000 and $87,000
      for 2005, 2004 and 2003, respectively. The current portion of the capital lease
      obligations is included in current portion of notes payable and the long-term
      portion is included in long-term portion of notes payable in the consolidated
      balance sheets.




**17.**  **NET
      CHANGE IN NON-CASH OPERATING WORKING CAPITAL ITEMS**




**2005**
            
            **2004**
            
            **2003**(Increase)
                decrease in:Accounts
                receivable
            
            $
            325
            
            $
            898
            
            $
            (1,656
            )Prepaids
            
            
            (291
            )
            
            165
            
            
            (25
            )Inventories
            
            
            484
            
            
            (552
            )
            
            (133
            )Increase
                (decrease) in:Accounts
                payable
            
            
            1,178
            
            
            2,564
            
            
            28Accrued
                liabilities
            
            
            45
            
            
            224
            
            
            550Property
                and mining taxes payable
            
            
            104
            
            
            124
            
            
            142$
            1,845
            
            $
            3,423
            
            $
            (1,094
            )





**18.**  **RELATED
      PARTY TRANSACTIONS**




The
      Company had the following related party transactions during each of the years
      in
      the three-year period ended December 31, 2005:




**2005**
            
            **2004**
            
            **2003**Legal
                fees paid to two law firms, a partner of each firm is a director
                of the
                Company
            
            $
            335
            
            $
            549
            
            $
            795Consulting
                services paid to a relative of an officer and director of the
                Company
            
            
            18
            
            
            6
            
            
            64





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.




F-25
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**







**19.**  **SEGMENTED
      INFORMATION**




Apollo
      operates the Montana Tunnels mine in the United States and the Black Fox
      development project in Canada. The reportable segments have been determined
      at
      the level where decisions are made on the allocation of resources and capital
      and where performance is measured. The Nev ada
      Assets have been reported as discontinued operations (Note 4). The accounting
      policies for these segments are the same as those followed by the Company as
      a
      whole.




Amounts
      as at December 31, 2005 are as follows:




**Montana**
              **Tunnels**
            
            **Black**
              **Fox**
            
            **Corporate**
              **and
                Other**
            
            **Total**Cash
                and cash equivalents
            
            $
            8
            
            $
            15
            
            $
            104
            
            $
            127Other
                non-cash current assets
            
            
            4,218
            
            
            100
            
            
            428
            
            
            4,7464,226
            
            
            115
            
            
            532
            
            
            4,873Property,
                plant and equipment
            
            
            13,917
            
            
            24,794
            
            
            1,334
            
            
            40,045Restricted
                certificates of deposit
            
            
            5,465
            
            
            581
            
            
            10,997
            
            
            17,043Deferred
                financing costs
            
            
            -
            
            
            -
            
            
            584
            
            
            584Total
                assets
            
            $
            23,608
            
            $
            25,490
            
            $
            13,447
            
            $
            62,545Current
                liabilities
            
            $
            5,444
            
            $
            221
            
            $
            5,129
            
            $
            10,794Notes
                payable and convertible debenture
            
            
            -
            
            
            66
            
            
            6,610
            
            
            6,676Accrued
                site closure costs
            
            
            12,634
            
            
            -
            
            
            -
            
            
            12,634Total
                liabilities
            
            $
            18,078
            
            $
            287
            
            $
            11,739
            
            $
            30,104





Amounts
      as at December 31, 2004 are as follows:




**Montana**
              **Tunnels**
            
            **Black**
              **Fox**
            
            **Corporate**
              **and
                Other**
            
            **Total**Cash
                and cash equivalents
            
            $
            (260
            )
            $
            53
            
            $
            7,093
            
            $
            6,886Other
                non-cash current assets
            
            
            4,985
            
            
            151
            
            
            128
            
            
            5,2644,725
            
            
            204
            
            
            7,221
            
            
            12,150Property,
                plant and equipment
            
            
            17,239
            
            
            19,560
            
            
            800
            
            
            37,599Restricted
                certificate of deposit
            
            
            3,794
            
            
            562
            
            
            15
            
            
            4,371Deferred
                financing costs
            
            
            -
            
            
            -
            
            
            901
            
            
            901Total
                assets
            
            $
            25,758
            
            $
            20,326
            
            $
            8,937
            
            $
            55,021Current
                liabilities
            
            $
            6,943
            
            $
            481
            
            $
            2,237
            
            $
            9,661Notes
                payable and convertible debenture
            
            
            423
            
            
            -
            
            
            5,538
            
            
            5,961Accrued
                site closure costs
            
            
            11,753
            
            
            -
            
            
            -
            
            
            11,753Total
                liabilities
            
            $
            19,119
            
            $
            481
            
            $
            7,775
            
            $
            27,375





F-26
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**19.**  **SEGMENTED
      INFORMATION (continued)**




Amounts
      for the years ended December 31, 2005, 2004 and 2003 are as
      follows:




**Year
                    Ended December 31, 2005****Montana**
                  **Tunnels**
                
                **Black**
                  **Fox**
                
                **Corporate**
                  **and
                    Other**
                
                **Total**Revenue
                    from sale of minerals
                
                $
                43,254
                
                $
                -
                
                $
                -
                
                $
                43,254Direct
                    operating costs
                
                
                48,357
                
                
                -
                
                
                -
                
                
                48,357Depreciation
                    and amortization
                
                
                2,417
                
                
                -
                
                
                134
                
                
                2,551General
                    and administrative expenses
                
                
                -
                
                
                -
                
                
                7,588
                
                
                7,588Stock-based
                    compensation
                
                
                -
                
                
                -
                
                
                597
                
                
                597Accrued
                    site closure costs - accretion expense
                
                
                881
                
                
                -
                
                
                -
                
                
                881Exploration
                    and business development
                
                
                -
                
                
                -
                
                
                918
                
                
                91851,655
                
                
                -
                
                
                9,237
                
                
                60,892Operating
                    loss
                
                
                (8,401
                )
                
                -
                
                
                (9,237
                )
                
                (17,638
                )Interest
                    income
                
                
                126
                
                
                -
                
                
                271
                
                
                397Interest
                    expense
                
                
                (64
                )
                
                -
                
                
                (2,469
                )
                
                (2,533
                )Gain
                    (loss) on sale of property, plant and
                  equipment
                    and other
                
                
                3,865
                
                
                -
                
                
                (52
                )
                
                3,813Loss
                    from continuing operations
                
                $
                (4,474
                )
                $
                -
                
                $
                (11,487
                )
                $
                (15,961
                )Investing
                    activities
                  Property,
                    plant and equipment expenditures
                
                $
                97
                
                $
                5,290
                
                $
                721
                
                $
                6,108
 
 
 **Year
                  Ended December 31, 2004****Montana**
                **Tunnels**
              
              **Black**
                **Fox**
              
              **Corporate**
                **and
                  Other**
              
              **Total**Revenue
                  from sale of minerals
              
              $
              38,254
              
              $
              -
              
              $
              -
              
              $
              38,254Direct
                  operating costs
              
              
              52,473
              
              
              -
              
              
              -
              
              
              52,473Depreciation
                  and amortization
              
              
              2,527
              
              
              -
              
              
              113
              
              
              2,640General
                  and administrative expenses
              
              
              -
              
              
              -
              
              
              7,095
              
              
              7,095Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              767
              
              
              767Accrued
                  site closure costs - accretion expense
              
              
              820
              
              
              -
              
              
              -
              
              
              820Exploration
                  and business development
              
              
              -
              
              
              -
              
              
              1,051
              
              
              1,05155,820
              
              
              -
              
              
              9,026
              
              
              64,846Operating
                  loss
              
              
              (17,566
              )
              
              -
              
              
              (9,026
              )
              
              (26,592
              )Interest
                  income
              
              
              27
              
              
              -
              
              
              286
              
              
              313Interest
                  expense
              
              
              (141
              )
              
              -
              
              
              (111
              )
              
              (252
              )Foreign
                  exchange loss and other
              
              
              (111
              )
              
              -
              
              
              (653
              )
              
              (764
              )Loss
                  from continuing operations
              
              $
              (17,791
              )
              $
              -
              
              $
              (9,504
              )
              $
              (27,295
              )Investing
                  activities
                Property,
                  plant and equipment expenditures
              
              $
              4,207
              
              $
              10,646
              
              $
              394
              
              $
              15,247













F-27
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**19.**  **SEGMENTED
      INFORMATION (continued)**





**Year
                  Ended December 31, 2003****Montana**
                **Tunnels**
              
              **Black**
                **Fox**
              
              **Corporate**
                **and
                  Other**
              
              **Total**Revenue
                  from sale of minerals
              
              $
              30,858
              
              $
              -
              
              $
              -
              
              $
              30,858Direct
                  operating costs
              
              
              34,184
              
              
              -
              
              
              -
              
              
              34,184Depreciation
                  and amortization
              
              
              6,120
              
              
              -
              
              
              15
              
              
              6,135General
                  and administrative expenses
              
              
              -
              
              
              -
              
              
              4,651
              
              
              4,651Stock-based
                  compensation
              
              
              -
              
              
              -
              
              
              376
              
              
              376Accrued
                  site closure costs - accretion expense
              
              
              500
              
              
              -
              
              
              -
              
              
              500Exploration
                  and business development
              
              
              -
              
              
              1,553
              
              
              564
              
              
              2,11740,804
              
              
              1,553
              
              
              5,606
              
              
              47,963Operating
                  loss
              
              
              (9,946
              )
              
              (1,553
              )
              
              (5,606
              )
              
              (17,105
              )Interest
                  income
              
              
              14
              
              
              -
              
              
              199
              
              
              213Interest
                  expense
              
              
              (152
              )
              
              -
              
              
              (53
              )
              
              (205
              )Foreign
                  exchange (loss) gain and other
              
              
              -
              
              
              (271
              )
              
              1,578
              
              
              1,307Loss
                  from continuing operations
              
              $
              (10,084
              )
              $
              (1,824
              )
              $
              (3,882
              )
              $
              (15,790
              )Investing
                  activities
                Property,
                  plant and equipment expenditures
              
              $
              4,184
              
              $
              3,937
              
              $
              531
              
              $
              8,652





**20.**  **DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP**




The
      Company prepares its consolidated financial statements in accordance with
      Canadian GAAP. The following adjustments and/or additional disclosures would
      be
      required in order to present the financial statements in accordance with U.S.
      GAAP and with practices prescribed by the U.S. Securities and Exchange
      Commission for the years ended December 31, 2005, 2004 and 2003.




Material
      variances between financial statement items under Canadian GAAP and the amounts
      determined under U.S. GAAP are as follows:




F-28
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**20.**  **DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP (continued)**





**Consolidated
      Balance Sheets as at December 31, 2005 and 2004**












**Property**
                **Plant**
                **and**
                **Equipment**
              
              **Deferred**
                **Financing**
              
              **Convertible**
                **Debenture**
              
              **Share**
                **Capital**
              
              **Equity**
                **Component**
                **of**
                **Convertible**
                **Debentures**
              
              **Contributed**
                **Surplus**
              
              **Deficit**As
                  at December 31, 2005,
                Canadian
                  GAAP
              
              $
              40,045
              
              $
              584
              
              $
              6,601
              
              $
              148,295
              
              $
              1,809
              
              $
              10,561
              
              $
              (129,236
              )Impairment
                  of property, plant and equipment,
                and
                  change in depreciation and amortization(b)
              
              
              (4,260
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,260
              )Black
                  Fox development costs(c)
              
              
              (19,181
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (19,181
              )Convertible
                  debenture(d)(i)
              
              
              -
              
              
              227
              
              
              1,512
              
              
              (1
              )
              
              (1,809
              )
              
              123
              
              
              401Convertible
                  debenture(d)(ii)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              20,675
              
              
              (20,675
              )Flow-through
                  common shares(f)
              
              
              -
              
              
              -
              
              
              -
              
              
              (238
              )
              
              -
              
              
              -
              
              
              238As
                  at December 31, 2005, U.S. GAAP
              
              $
              16,604
              
              $
              811
              
              $
              8,113
              
              $
              148,056
              
              $
              -
              
              $
              31,359
              
              $
              (172,713
              )
 
 
 **Property**
                **Plant**
                **and**
                **Equipment**
              
              **Non-Current
                  Assets Related to Discontinued Operations**
              
              **Deferred**
                **Financing**
              
              **Convertible**
                **Debenture**
              
              **Share**
                **Capital**
              
              **Equity**
                **Component**
                **of**
                **Convertible**
                **Debentures**
              
              **Contributed**
                **Surplus**
              
              **Deficit**As
                  at December 31, 2004, Canadian GAAP
              
              $
              37,599
              
              $
              32,104
              
              $
              901
              
              $
              5,538
              
              $
              141,795
              
              $
              1,815
              
              $
              9,627
              
              $
              (107,028
              )Impairment
                  of property, plant and equipment,
                and
                  change in depreciation and amortization(b)
              
              
              (4,848
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,848
              )Black
                  Fox development costs(c)
              
              
              (14,048
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (14,048
              )Convertible
                  debenture(d)(i)
              
              
              -
              
              
              -
              
              
              350
              
              
              2,321
              
              
              -
              
              
              (1,815
              )
              
              123
              
              
              (279
              )Convertible
                  debenture(d)(ii)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              20,675
              
              
              (20,675
              )Commodity
                  contracts(e)
              
              
              -
              
              
              (1,340
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,340
              )Flow-through
                  common shares(f)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (238
              )
              
              -
              
              
              -
              
              
              238As
                  at December 31, 2004, U.S. GAAP
              
              $
              18,703
              
              $
              30,764
              
              $
              1,251
              
              $
              7,859
              
              $
              141,557
              
              $
              -
              
              $
              30,425
              
              $
              (147,980
              )





F-29
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**20.**  **DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP (continued)**





Under
      U.S. GAAP, the net loss and net loss per share would be adjusted as
      follows:


**2005**
              
              **2004**
              
              **2003**Loss
                  from continuing operations for the year ended December 31,
                based
                  on Canadian GAAP
              
              $
              (15,961
              )
              $
              (27,295
              )
              $
              (15,790
              )Cumulative
                  effect of change in accounting policy (a)
              
              
              -
              
              
              (1,508
              )
              
              -Stock-based
                  compensation (a)
              
              
              -
              
              
              -
              
              
              (1,739
              )Change
                  in depreciation of property, plant and equipment (b)
              
              
              588
              
              
              695
              
              
              (87
              )Black
                  Fox development costs (c)
              
              
              (5,133
              )
              
              (10,405
              )
              
              (3,643
              )Convertible
                  debenture ((d)(i))
              
              
              680
              
              
              (279
              )
              
              -Flow-through
                  shares premium paid in excess of market value (f)
              
              
              -
              
              
              -
              
              
              238Loss
                  from continuing operations for the year based on U.S. GAAP
              
              
              (19,826
              )
              
              (38,792
              )
              
              (21,021
              )(Loss)
                  income from discontinued operations for the year based on
                Canadian
                  GAAP
              
              
              (6,247
              )
              
              (3,712
              )
              
              1,700Commodity
                  contract gains (loss) (e)
              
              
              1,340
              
              
              4,020
              
              
              (3,095
              )Standard
                  Mine development costs
              
              
              (980
              )
              
              -
              
              
              -Impairment
              
              
              980
              
              
              -
              
              
              -(Loss)
                  income from discontinued operations for the year based on U.S.
                GAAP
              
              
              (4,907
              )
              
              308
              
              
              (1,395
              )Net
                  loss for the year based on U.S. GAAP
              
              $
              (24,733
              )
              $
              (38,484
              )
              $
              (22,416
              )Comprehensive
                  loss
              
              $
              (24,733
              )
              $
              (38,484
              )
              $
              (22,416
              )Basic
                  and diluted loss per share in accordance with U.S. GAAP:Continuing
                  operations
              
              $
              (0.19
              )
              $
              (0.49
              )
              $
              (0.38
              )Discontinued
                  operations
              
              
              (0.05
              )
              
              0.00
              
              
              (0.03
              )Net
                  loss per share - U.S. GAAP basic and diluted
              
              $
              (0.24
              )
              $
              (0.49
              )
              $
              (0.41
              )





***(a)***  Stock-based
      compensation




Under
      Canadian GAAP, effective January 1, 2004, the Company adopted the amended
      recommendations of CICA Handbook Section 3870 (Note 3 (n)). Under U.S. GAAP,
      effective January 1, 2004, the Company adopted the modified prospective method
      of accounting for stock-based compensation recommended in Statement of Financial
      Accounting Standards (“SFAS”) No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure* (“SFAS
      148”) resulting in a cumulative effect of change in accounting policy of $1.5
      million. Prior to January 1, 2004, the Company measured its employee stock-based
      awards using the intrinsic value method prescribed by APB No. 25, *Accounting
      for Stock Issued to Employees.* As
      required by SFAS 148, the Company must disclose the impact on net income and
      basic and diluted loss per share as if the fair value based method had been
      applied in the comparative periods.




**2005**
              
              **2004**
              
              **2003**Net
                  loss based on U.S. GAAP
              
              $
              (24,733
              )
              $
              (38,484
              )
              $
              (22,416
              )Stock
                  option expense as reported
              
              
              597
              
              
              767
              
              
              2,115Pro
                  forma stock option expense
              
              
              (597
              )
              
              (767
              )
              
              (4,247
              )Net
                  loss - pro forma
              
              $
              (24,733
              )
              $
              (38,484
              )
              $
              (24,548
              )Net
                  loss per share
              
              $
              (0.24
              )
              $
              (0.49
              )
              $
              (0.41
              )Stock
                  option expense as reported, per share
              
              
              0.01
              
              
              0.01
              
              
              0.04Pro
                  forma stock option expense, per share
              
              
              (0.01
              )
              
              (0.01
              )
              
              (0.08
              )Net
                  loss per share, basic - pro forma
              
              $
              (0.24
              )
              $
              (0.49
              )
              $
              (0.45
              )


F-30
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**20.**  **DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP (continued)**





***(b)***  Impairment
      of property, plant and equipment




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. 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 has been
      recorded.




***(c)***  Black
      Fox
      Project




Under
      Canadian GAAP, mining development costs at the Black Fox Project have been
      capitalized. Under U.S. GAAP, these expenditures are expensed as incurred.
      Accordingly, for U.S. GAAP purposes, a reduction in property, plant and
      equipment of $19.2 million has been recorded as at December 31,
      2005.




***(d)***  Convertible
      debenture




*(i)*  Under
      Canadian GAAP, the convertible debentures were recorded as a compound financial
      instrument including detachable note warrants (Note 9). On issuance in November
      2004, under U.S. GAAP, the detachable note warrant is similarly treated as
      an
      equity instrument with the remainder of the convertible debentures treated
      as a
      liability. Further, under U.S. GAAP, the beneficial conversion feature
      determined using the effective conversion price based on the proceeds allocated
      to the convertible debenture in accordance with EITF 00-27, “Application of
      Issue No. 98-5 to Certain Convertible Instruments”, is allocated to contributed
      surplus. This discount on the debenture is recognized as additional interest
      expense immediately as the debt is convertible at the date of issuance. Canadian
      GAAP does not require the recognition of any beneficial conversion
      feature.




*(ii)*  Under
      Canadian GAAP, the convertible debentures were recorded as an equity instrument
      on issuance in March 2002. Under U.S. GAAP, on issuance, the convertible
      debenture would have been recorded as a liability and reclassified to equity
      only upon conversion. Further, under U.S. GAAP, the beneficial conversion
      feature was allocated to contributed surplus and the Company recognized
      debenture issuance costs of $20.7 million. Canadian GAAP does not require the
      recognition of any beneficial conversion feature.




***(e)***  Non-current
      assets related to discontinued operations (Commodity contracts)




Prior
      to
      January 1, 2004, under U.S. GAAP, unrealized gains and losses on the put and
      call option contracts were recorded in the statement of operations. As of
      January 1, 2004, the Company adopted the provisions of CICA Accounting Guideline
      13, *Hedging
      Relationships* and
      unrealized gains and losses on these contracts are now recorded in the statement
      of operations under Canadian GAAP.




F-31
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**20.**  **DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP (continued)**





***(f)***  Flow-through
      common shares




Under
      Canadian income tax legislation, a company is permitted to issue shares whereby
      the Company agrees to incur qualifying expenditures and renounce the related
      income tax deductions to the investors. 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.
      For U.S. GAAP, the premium over (discount from) market value is credited
      (debited) to other liabilities (deferred costs) and included in income as the
      qualifying expenditures are made.




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. As at December 31, 2005, unexpended flow-through
      funds were $0.2 million (December 31, 2004 - $0.6 million).




***(g)***  Comprehensive
      income




SFAS
      No.
      130, “Reporting Comprehensive Income” (“SFAS 130”) establishes standards for the
      reporting and display of comprehensive income and its components in a full
      set
      of general purpose financial statements. SFAS 130 requires that all items that
      are required to be recognized under accounting standards as components of
      comprehensive income be reported in a financial statement. For the Company,
      the
      only component of comprehensive loss is the net loss for the
      period.




***(h)***Statement of cash flows


Under
        Canadian GAAP, mining development costs at the Black Fox Project are included
        in
        cash flows from investing activities in the consolidated statements of cash
        flows. Under U.S. GAAP, these expenditures are included in cash flows from
        operating activities. Accordingly, under U.S. GAAP, the consolidated statements
        of cash flows for the years ended December 31, 2005, 2004 and 2003 would
        reflect
        an increase in cash provided by investing activities of $5.1 million, $10.4
        million and $3.6 million, respectively, and a corresponding decrease in cash
        used in operating activities.




***(i)***  Recently
      issued accounting pronouncements




In
      March
      2005, the Emerging Issues Committee issued EITF 04-3, Mining Assets - Impairment
      and Business Combinations, which states that an entity should include Value
      Beyond Proven and Probable Reserves and Resources (“VBPP”) in the value
      allocated to mining assets in a purchase price allocation to the extent that
      a
      market participant would include VBPP in determining the fair value of the
      assets. EITF 04-3 also states that an entity should include the effects of
      anticipated fluctuations in the future market price of minerals in determining
      the fair value of mining assets in a purchase price allocation in a manner
      that
      is consistent with the expectations of marketplace participants. In addition,
      EITF 04-3 states that an entity should include the cash flows associated with
      VBPP as well as the effects of anticipated fluctuations in the market price
      of
      minerals in estimates of future cash flows (both undiscounted and discounted)
      used for determining whether a mining asset is impaired. Management does not
      expect that the adoption of this Statement will have a material impact on the
      Company’s financial position or results of operations.




In
      November 2005, the FASB issued FASB Staff Position (FSP) FAS 115-1 and FAS
      124-1
      - The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments. This FSP addresses the determination as to when an investment
      is
      considered impaired, whether that impairment is other than temporary, and the
      measurement of an impairment loss. This FSP also includes accounting
      considerations subsequent to the recognition of an other-than-temporary
      impairment and requires certain disclosures about unrealized losses that have
      not been recognized as other-than-temporary impairments. The guidance in FSP
      FAS
      115-1 and FAS 124-1 is applicable to reporting period beginning after December
      15, 2005. Management does not expect the adoption of this FSP to have a material
      effect on the Company’s consolidated financial position and results of
      operations.


F-32
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**




**20.**  **DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP (continued)**





In
      December 2004, the FASB issued SFAS No. 123 (R) - Share-Based Payment, which
      replaces SFAS No. 123 -Accounting for Stock-Based Compensation, and supersedes
      APB Opinion No. 25 - Accounting for Stock Issued to Employees. In March 2005,
      the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
      No. 107 - Share-Based Payment, which provides interpretive guidance related
      to
      SFAS No. 123 (R). SFAS No. 123 (R) requires compensation costs related to
      share-based payment transactions to be recognized in the financial statements.
      With limited exceptions, the amount of compensation cost is measured based
      on
      the grant-date fair value of the equity or liability instruments issued. SFAS
      No. 123 (R) requires liability awards to be re-measured each reporting period
      and compensation costs to be recognized over the period that an employee
      provides service in exchange for the award. Management plans to adopt this
      statement on the modified prospective basis beginning January 1, 2006, and
      does
      not expect adoption of this statement to have a material effect on the Company’s
      consolidated financial position and results of operations. Subsequent to
      adoption of this statement, share-based benefits will be valued at fair value
      using the Black-Scholes option pricing model for option grants and the grant
      date fair market value for stock awards. Compensation amounts so determined
      will
      be expensed over the applicable vesting period .





In
      March
      2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement
      Obligation - an interpretation of FASB 143”. FIN 47 provides guidance that an
      entity must record a liability even if the obligation is conditional upon the
      occurrence of a future event (e.g. plant shutdown), unless it is not possible
      to
      make a reasonable estimate of the obligation. It also provides criteria for
      determining when an asset retirement obligation may be estimated reasonably.
      The
      interpretation is effective no later than the end of fiscal years ending after
      December 15, 2005. Retroactive application for interim financial information
      is
      permitted but not required. The Company has adopted this standard which did
      not
      have a significant impact on its results of operations.





In
      May
      2005, the FASB issued FAS 154 - Accounting Changes and Error Corrections, a
      replacement of APB Opinion 20 and FASB Statement 3. This Statement of changes
      the requirements for the accounting for and reporting a change in accounting
      principle and applies to all voluntary changes in accounting principle. It
      also
      applies to changes required by an accounting pronouncement in the unusual
      instance that the pronouncement does not include specific transition provisions.
      The Statement is effective for accounting changes made in fiscal years beginning
      after December 15, 2005. Management does not expect the adoption of this
      Statement to have a material effect on the Company’s consolidated financial
      position and results of operations.





The
      FASB
      issued FAS 153 - Exchanges of Non-monetary Assets, an amendment of APB Opinion
      29. This Statement amends Opinion 29 to eliminate the exception for non-monetary
      exchanges of similar productive assets and replaces it with a general exception
      for exchanges of non-monetary assets that do not have commercial substance.
      A
      non-monetary exchange has commercial substance if the future cash flows of
      the
      entity are expected to change significantly as a result of the exchange. The
      Statement is effective for fiscal periods beginning after June 15, 2005.
      Management does not expect the adoption of this Statement to have a material
      effect on the Company’s consolidated financial position and results of
      operations.





F-33
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**


**20.**  **DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP (continued)**





In
      November 2005, the FASB concluded that in their proposed Accounting for
      Uncertain Tax Positions - an Interpretation of FASB Statement No. 109, a benefit
      recognition model with a two-step approach would be used, with a
      more-likely-than-not recognition criterion and a best estimate measure
      attribute. The first step is to evaluate the tax position for recognition by
      determining if the weight of available evidence indicates it is
      more-likely-than-not, based solely on the technical merits, that the position
      will be sustained on audit, including resolution of related appeals or
      litigation processes, if any. The second step is to measure the appropriate
      amount of the benefit to recognize, which will be measured using the best
      estimate of the amount that will be sustained. The tax position should be
      derecognized when it is no longer more-likely-than-not of being sustained.
      In
      January 2006, the FASB concluded that the final Interpretation will be effective
      as of the beginning of the first annual period beginning after December 31,
      2006. The Company is currently evaluating the implications of this
      Interpretation.





In
      February 2006, the FASB issued FAS 155 Accounting for Certain Hybrid Financial
      Instruments - an amendment of FASB Statements No. 133 and 140. This Statement
      resolves issues addressed in Statement 133 Implementation Issue No. D1,
“Application of Statement 133 to Beneficial Interests in Securitized Financial
      Assets.” This Statement:


•
Permits
      fair value remeasurement for any hybrid financial instrument that contains
      an
      embedded derivative that otherwise would require bifurcation;


•
      Clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of Statement 133;


•
      Establishes a requirement to evaluate interests in securitized financial assets
      to identify interests that are freestanding derivatives or that are hybrid
      financial instruments that contain an embedded derivative requiring
      bifurcation;


•
      Clarifies that concentrations of credit risk in the form of subordination are
      not embedded derivatives;


•
Amends
      Statement 140 to eliminate the prohibition on a qualifying special-purpose
      entity from holding a derivative financial instrument that pertains to a
      beneficial interest other than another derivative financial
      instrument.





This
      Statement is effective for all financial instruments acquired or issued after
      the beginning of fiscal years that begin after September 15, 2006. The Company
      is currently evaluating the implications of this Statement.





**21.**  **SUBSEQUENT
      EVENTS**




***(a)***  Security
      of convertible debenture




Effective
      January 6, 2006, Apollo pledged the Company’s Black Fox Property to The Canada
      Trust Company (“the Secured Party”) as substitute collateral for the Debentures
      (Note 9), which were previously secured by $11.0 million restricted cash (Note
      7). The Secured Party is the trustee for the holders of the Debentures. In
      connection with this transaction, $2.6 million (Cdn$3.0 million) was used to
      release an existing lien over the Black Fox Property, resulting in $8.5 million
      cash being available to Apollo, less expenses for the transaction.




Related
        to this transfer of collateral the Company agreed to reduce the exercise
        price on 5,013,600 of the Note Warrants attached to the Debentures from
        $0.80 to $0.40 per common share. The


F-34
 **APOLLO
          GOLD CORPORATION**
  **Notes
          to the Consolidated Financial Statements**  **-
          (Continued)**




**21.**  **SUBSEQUENT
      EVENTES (continued)**





reduction
      in the exercise price was effective January 16, 2006, and applies to all
      warrants attached to the Debentures except for the 240,000 warrants held by
      the
      Company’s insiders, which remain exercisable at $0.80 per common
      share.




***(b)***  Corporate
      officer changes and related agreements




On
      January 23, 2006, Apollo announced that the number of executive officers would
      be reduced from seven to three, effective February 18, 2006. Apollo entered
      into
      severance agreements with the four departing officers, and as a result, an
      aggregate of 1,187,175 common shares were issued to the officers as part of
      their severance.




Also
      on
      January 23, 2006, the Company entered into amended employment agreements with
      the three remaining executive officers, pursuant to which the officers have
      agreed to reduce their base salaries by an aggregate of $170,000 per annum
      in
      exchange for an aggregate of 1,103,223 common shares.





The
      above
      described actions were approved by the Company’s Board of Directors in December
      2005 and the related expenses of $2.3 million were accrued in 2005.





***(c)***  Issuance
      of stock




On
      January 26, 2006, the Company completed a private placement with Jipangu for
      11,650,000 units at $0.30 (Cdn$0.35) per share for proceeds of $3.5 million.
      Each unit consists of one common share of Apollo and 0.17167 of a warrant (for
      a
      total of up to 2,000,000 warrants), with each whole warrant exercisable for
      two
      years at Cdn$0.39 for one common share of the Company.




***(d)***  Montana
      Tunnels




In
        March
        2006 the Company adopted a plan to dispose of Montana Tunnels Mining, Inc,
        which
        includes the Montana Tunnels and Diamond Hill mines. As at December 31, 2005,
        the net book value of Montana Tunnels Mining, Inc. was $5.5
        million.




F-35





**INDEX
      TO EXHIBITS**




**Exhibit**
              **No.**
            **Exhibit
                Name**10.20
            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.21.1
            List
                of subsidiaries of the Registrant23.1
            Consent
                of Deloitte & Touche LLP23.2
            Consent
                of Mine Development Associates31.1
            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