UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


Form
10-K


(Mark
one)


R
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2008or£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934
              For
      the transition period from ____ to
____


Commission
File Number:  001-31593


Apollo
Gold Corporation


(Exact
name of registrant as specified in its charter)


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


5655
S. Yosemite Street, Suite 200


Greenwood
Village, Colorado 80111-3220


(Address
of Principal Executive Offices Including Zip Code)


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


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




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





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


None




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




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




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




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




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




Large accelerated
      filer ̈
                    Accelerated
      filer  ̈Non-accelerated
      filer  ̈
      (do not check if a smaller reporting company)
                    Smaller
      Reporting Company 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, 2008, the aggregate market value of the registrant’s voting common
stock held by non-affiliates of the registrant was $69,201,110 based upon the
closing sale price of the common stock as reported by the NYSE Amexon that
date.




As of
March 20, 2009, the registrant had 232,811,195 common shares, no par value per
share, outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




Part III
of this Annual Report on Form 10-K is incorporated by reference from the
registrant’s definitive Proxy Statement for its 2009 Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A no later than 120 days after
the close of the registrant’s fiscal year.










TABLE
OF CONTENTS




ITEM 1.
                  BUSINESS
                  
                  13ITEM 1A.
                  RISK FACTORS
                  
                  22ITEM 2.
                  BUSINESS
                  
                  36ITEM 3.
                  LEGAL PROCEEDINGS
                  
                  50ITEM 4.
                  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                  
                  50ITEM 5.
                  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
      SHAREHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY
      SECURITIES
                  
                  51ITEM 6.
                  SELECTED FINANCIAL DATA
                  
                  52ITEM 7.
                  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
                  
                  54ITEM 7A.
                  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                  
                  73ITEM 8.
                  FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA
                  
                  74ITEM 9.
                  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE
                  
                  75ITEM 9A(T).
                  CONTROLS AND PROCEDURES
                  
                  75ITEM 9B.
                  OTHER INFORMATION
                  
                  76ITEMS 10, 11, 12, 13 AND 14
                  
                  77ITEM 15.
                  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                  
                  78SIGNATURES
                  
                  83INDEX TO CONSOLIDATED FINANCIAL
    STATEMENTS
                  
                  F-1INDEX
      TO EXHIBITS


-2-


REPORTING
CURRENCY, FINANCIAL AND OTHER INFORMATION




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




Financial
information is presented in accordance with generally accepted accounting
principles (“GAAP”) in 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 25 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 and the documents incorporated by reference in this
report contain forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995, with respect to our financial condition, results
of operations, business prospects, plans, objectives, goals, strategies, future
events, capital expenditures, and exploration and development
efforts.  Forward-looking statements can be identified by the use of
words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “intends,” “continue,” or the negative of such terms,
or other comparable terminology. These statements include comments
regarding:




-3-




·
            plans
      for the development of the Black Fox
project;


·
            the
      timing of commencement of mining and milling at Black
  Fox;


·
            estimates
      of future production at Black Fox;


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


·
            timing
      and amount of future cash flows from the Montana Tunnels
    mine;


·
            our
      ability to finance exploration at
Huizopa;


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


·
            the
      future effect of recent issuances and registration for immediate resale of
      a significant number of common share purchase warrants on our share
      price;


·
            future
      financing of projects, including the possible financing Apollo’s share of
      the M Pit at Montana Tunnels;


·
            placing
      the Montana Tunnels mine on care and maintenance and the costs associated
      therewith;


·
            the
      decision to undertake the M Pit
expansion;


·
            liquidity
      to support operations and debt
repayment;


·
            acquisition
      of new equipment at the Black Fox
complex;


·
            sufficiency
      of future cash flows from the Montana Tunnels mine to repay the Montana
      Tunnels’ indebtedness;


·
            completion
      of a Canadian National Instrument NI 43-101 for the Huizopa
      project;


·
            the
      establishment and estimates of mineral reserves and
    resources;


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


·
            total
      production costs;


·
            cash
      operating costs;


·
            total
      cash costs;


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


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


·
            timing
      and issue of permits, including permits necessary to conduct phase II of
      open pit mining at Black Fox;


·
            expansion
      plans for existing properties;


·
            estimates
      of closure costs;


·
            estimates
      of environmental liabilities;


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


·
            our
      ability to hedge metals and financial
products;


·
            factors
      impacting our results of operations;
and


·
            the
      impact of adoption of new accounting
standards.





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




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


·
            significant
      increases or decreases in gold and zinc
prices;


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


·
            changes
      in availability and cost of
financing;


·
            timing
      and amount of production;


-4-





·
            unanticipated
      grade of ore changes;


·
            unanticipated
      recovery or production problems;


·
            changes
      in operating costs;


·
            operational
      problems at our mining properties;


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


·
            determination
      of reserves;


·
            costs
      and timing of development of new
reserves;


·
            results
      of current and future exploration and development
    activities;


·
            results
      of future feasibility studies;


·
            joint
      venture relationships;


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


·
            local
      and community impacts and issues;


·
            timing
      of receipt of government approvals;


·
            accidents
      and labor disputes;


·
            environmental
      costs and risks;


·
            competitive
      factors, including competition for property
  acquisitions;


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


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





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




GLOSSARY
OF TERMS




We report
our reserves on two separate standards to meet the requirements for reporting in
both Canada and the United States (“U.S.”).  Canadian reporting
requirements for disclosure of mineral properties are governed by National
Instrument 43-101 (“NI 43-101”).  The definitions given in NI 43-101
are adopted from those given by the Canadian Institute of Mining Metallurgy and
Petroleum.  U.S. reporting requirements for disclosure of mineral
properties are 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.


-5-





NI
      43-101 Definitionsindicated
      mineral resource
                          
                          The
      term “indicated mineral resource” refers to that part of a mineral
      resource for which quantity, grade or quality, densities, shape and
      physical characteristics can be established with a level of confidence
      sufficient to allow the appropriate application of technical and economic
      parameters, to support mine planning and evaluation of the economic
      viability of the deposit.  The estimate is based on detailed and
      reliable exploration and testing information gathered through appropriate
      techniques from locations such as outcrops, trenches, pits, workings and
      drill holes that are spaced closely enough for geological and grade
      continuity to be reasonably assumed.inferred
      mineral resource
                          
                          The
      term “inferred mineral resource” refers to that part of a mineral resource
      for which quantity and grade or quality can be estimated on the basis of
      geological evidence and limited sampling and reasonably assumed, but not
      verified, geological and grade continuity.  The estimate is
      based on limited information and sampling gathered through appropriate
      techniques from locations such as outcrops, trenches, pits, workings and
      drill holes.measured
      mineral resource
                          
                          The
      term “measured mineral resource” refers to that part of a mineral resource
      for which quantity, grade or quality, densities, shape and physical
      characteristics are so well established that they can be estimated with
      confidence sufficient to allow the appropriate application of technical
      and economic parameters to support production planning and evaluation of
      the economic viability of the deposit.  The estimate is based on
      detailed and reliable exploration, sampling and testing information
      gathered through appropriate techniques from locations such as outcrops,
      trenches, pits, workings and drill holes that are spaced closely enough to
      confirm both geological and grade continuity.mineral
      reserve
                          
                          The
      term “mineral reserve” refers to the economically mineable part of a
      measured or indicated mineral resource demonstrated by at least a
      preliminary feasibility study.  This study must include adequate
      information on mining, processing, metallurgical, economic, and other
      relevant factors that demonstrate, at the time of reporting, that economic
      extraction can be justified.  A mineral reserve includes
      diluting materials and allowances for losses that might occur when the
      material is mined.mineral
      resource
                          
                          The
      term “mineral resource” refers to a concentration or occurrence of
      natural, solid, inorganic material or natural solid fossilized organic
      material, including base and precious metals, coal and industrial metals
      in or on the Earth’s crust in such form and quantity and of such a grade
      or quality that it has reasonable prospects for economic
      extraction.  The location, quantity, grade, geological
      characteristics and continuity of a mineral resource are known, estimated
      or interpreted from specific geological evidence and
      knowledge.




-6-





probable
      mineral reserve
                        
                        The
      term “probable mineral reserve” refers to the economically mineable part
      of an indicated, and in some circumstances a measured mineral resource
      demonstrated by at least a preliminary feasibility study.  This
      study must include adequate information on mining, processing,
      metallurgical, economic, and other relevant factors that demonstrate, at
      the time of reporting, that economic extraction can be
      justified.proven
      mineral reserve1
                        
                        The
      term “proven mineral reserve” refers to the economically mineable part of
      a measured mineral resource demonstrated by at least a preliminary
      feasibility study.qualified
      person2
                        
                        The
      term “qualified person” refers to an individual who is an engineer or
      geoscientist with at least five years of experience in mineral
      exploration, mine development, production activities and project
      assessment, or any combination thereof, including experience relevant to
      the subject matter of the mineral project or technical report and is a
      member or licensee in good standing of a professional
      association.





SEC
Industry Guide 7 Definitions




exploration
      stage
                        
                        An
      “exploration stage” prospect is one which is not in either the development
      or production stage.development
      stage
                        
                        A
      “development stage” project is one which is undergoing preparation of an
      established commercially mineable deposit for its extraction but which is
      not yet in production.  This stage occurs after completion of a
      feasibility study.mineralized
      material3
                        
                        The
      term “mineralized material” refers to material that is not included in the
      reserve as it does not meet all of the criteria for adequate demonstration
      for economic or legal extraction.probable
      reserve
                        
                        The
      term “probable reserve” refers to reserves for which quantity and grade
      and/or quality are computed from information similar to that used for
      proven (measured) reserves, but the sites for inspection, sampling, and
      measurement are farther apart or are otherwise less adequately
      spaced.  The degree of assurance, although lower than that for
      proven reserves, is high enough to assume continuity between points of
      observation.production
      stage
                        
                        A
      “production stage” project is actively engaged in the process of
      extraction and beneficiation of mineral reserves to produce a marketable
      metal or mineral product.proven
      reserve
                        
                        The
      term “proven reserve” refers to reserves for which (a) quantity is
      computed from dimensions revealed in outcrops, trenches, workings or drill
      holes; grade and/or quality are computed from the results of detailed
      sampling and (b) the sites for inspection, sampling and measurement are
      spaced so closely and the geologic character is so well defined that size,
      shape, depth and mineral content of reserves are
      well-established.




-7-





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.


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


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





Additional
      Definitionsbreccia
                                      
                                      rock
      consisting of angular fragments of other rocks held together by mineral
      cement or a fine-grained matrixcall
                                      
                                      a
      financial instrument that provides the right, but not the obligation, to
      buy a specified number of ounces of gold or silver or of pounds of lead or
      zinc at a specified priceclasts
                                      
                                      fragments
      of a pre-existing rock or fossil embedded within another
    rockconcentrate
                                      
                                      a
      processing product containing the valuable ore mineral from which most of
      the waste mineral has been eliminatedcretaceous
                                      
                                      the
      third and latest of the periods in the Mesozoic eracut
      off or 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
      profitdiatreme
                                      
                                      an
      upward sloping passage forced through sedimentary rock by volcanic
      activitydoré
                                      
                                      unrefined
      gold bullion bars containing various impurities such as silver, copper and
      mercury, which will be further refined to near pure
goldfault
                                      
                                      a
      rock fracture along which there has been displacementfeasibility
      study
                                      
                                      a
      definitive engineering and economic study addressing the viability of a
      mineral deposit taking into consideration all associated technical
      factors, costs, revenues, and risksfold
                                      
                                      a
      curve or bend of a planar structure such as rock strata, bedding planes,
      foliation, or cleavageformation
                                      
                                      a
      distinct layer of sedimentary rock of similar
  composition




-8-





geophysicist
                                              
                                              one
      who studies the earth; in particular the physics of the solid earth, the
      atmosphere and the earth’s magnetospheregeotechnical
                                              
                                              the
      study of ground stabilitygrade
                                              
                                              quantity
      of metal per unit weight of host rockheap
      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 metalsheterolithic
                                              
                                              having
      more than one, differing kinds of rock componentshost
      rock
                                              
                                              the
      rock containing a mineral or an ore bodyhydrothermal
                                              
                                              the
      products of the actions of heated water, such as a mineral deposit
      precipitated from a hot solutionintercalated
                                              
                                              said
      of layered material that exists or is introduced between layers of a
      different characterlatitic
      composition
                                              
                                              igneous
      rock composed largely of equal amounts of orthoclase and plagioclase
      feldspar minerals and less than 10% quartzmafic
                                              
                                              pertaining
      to or composed dominantly of the ferromagnesian rock-forming silicates;
      said of some igneous rocks and their constituent
  mineralsmapping
      or geologic mapping
                                              
                                              the
      recording of geologic information such as the distribution and nature of
      rock units and the occurrence of structural features, mineral deposits,
      and fossil localitiesmineral
                                              
                                              a
      naturally formed chemical element or compound having a definite chemical
      composition and, usually, a characteristic crystal formmineralogy
                                              
                                              the
      science of mineralsmineralization
                                              
                                              a
      natural occurrence in rocks or soil of one or more metal yielding
      mineralsmining
                                              
                                              the
      process of extraction and beneficiation of mineral reserves to produce a
      marketable metal or mineral product.  Exploration continues
      during the mining process and, in many cases, mineral reserves are
      expanded during the life of the mine operations as the exploration
      potential of the deposit is realized.National
      Instrument 43-101
                                              
                                              Canadian
      standards of disclosure for mineral projectsopen
      pit
                                              
                                              surface
      mining in which the ore is extracted from a pit or quarry, the geometry of
      the pit may vary with the characteristics of the ore
  body




-9-





ore
                                              
                                              mineral
      bearing rock that can be mined and treated profitably under current or
      immediately foreseeable economic conditionsore
      body
                                              
                                              a
      mostly solid and fairly continuous mass of mineralization estimated to be
      economically mineableoutcrop
                                              
                                              that
      part of a geologic formation or structure that appears at the surface of
      the earthpetrographic
                                              
                                              the
      systematic classification and description of rocks, especially by
      microscopic examinations of thin sectionspluton
                                              
                                              a
      body of igneous rock that has formed beneath the surface of the earth by
      consolidation from magmaput
                                              
                                              a
      financial instrument that provides the right, but not the obligation, to
      sell a specified number of ounces of gold or of pounds of lead or zinc at
      a specified pricepyrite
                                              
                                              common
      sulfide of ironquartz
                                              
                                              a
      mineral composed of silicon dioxide, SiO2 (silica)quartz
      monzonite
                                              
                                              a
      course-grained igneous rock made up principally of feldspar minerals and
      quartzreclamation
                                              
                                              the
      process by which lands disturbed as a result of mining activity are
      modified to support beneficial land use.Reclamation
      activity may include the removal of buildings, equipment, machinery and
      other physical remnants of mining, closure of tailings storage facilities,
      leach pads and other mine features, and contouring, covering and
      re-vegetation of waste rock and other disturbed areas.reclamation
      and closure costs
                                              
                                              the
      cost of reclamation plus other costs, including without limitation certain
      personnel costs, insurance, property holding costs such as taxes, rental
      and claim fees, and community programs associated with closing an
      operating minerecovery
      rate
                                              
                                              a
      term used in process metallurgy to indicate the proportion of valuable
      material physically recovered in the processing of ore, generally stated
      as a percentage of the material recovered compared to the total material
      originally presentSAG
                                              
                                              semi-autogenous
      grinding, a method of grinding rock into fine particles, in which the
      grinding media consists of steel ballsSEC
      Industry Guide 7
                                              
                                              U.S.
      reporting guidelines that apply to registrants engaged or to be engaged in
      significant mining operationssedimentary
      rock
                                              
                                              rock
      formed at the earth’s surface from solid particles, whether mineral or
      organic, which have been moved from their position of origin and
      redeposited




-10-





skarn
                                
                                a
      rock of complex mineral compositionstratigraphy
                                
                                the
      branch of geology which studies the formation, composition, sequence and
      correlation of the stratified rock as parts of the earth’s
      cruststrike
                                
                                the
      direction or trend that a structural surface, e.g.  a bedding or
      fault plane, takes as it intersects the horizontalstrip
                                
                                to
      remove overburden in order to expose oresubangular
                                
                                somewhat
      angular, free from sharp angles but not smoothly
roundedsulfide
                                
                                a
      mineral including sulfur (S) and iron (Fe) as well as other elements;
      metallic sulfur-bearing mineral often associated with gold
      mineralizationvariogram
                                
                                graphical
      representation of the rate of change of grade with distance which is used
      to define parameters for controlling sample layout and resource
      modelingvein
                                
                                a
      thin, sheet-like crosscutting body of hydrothermal mineralization,
      principally quartzvolcanic
      clastics
                                
                                volcanic
      rocks containing significant amounts of rock fragments that have been
      moved from their place of origin during volcanic
  activityvolcanic
      rock
                                
                                originally
      molten rocks, generally fine grained, that have reached or nearly reached
      the earth’s surface before
solidifying




-11-


CONVERSION
FACTORS AND ABBREVIATIONS




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




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





The
following abbreviations could be used herein:




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





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




-12-




PART
I




ITEM 1.  BUSINESS




OVERVIEW
OF APOLLO GOLD




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




Apollo is
engaged in gold mining including extraction, processing, refining and the
production of by-product metals, as well as related activities including
exploration and development.  The Company is the operator of the
Montana Tunnels mine, which is a 50% joint venture with Elkhorn Tunnels, LLC
(“Elkhorn”).  The Montana Tunnels mine is an open pit mine and mill
producing gold doré and lead-gold and zinc-gold concentrates.  We
ceased mining at Montana Tunnels on December 5, 2008 and, following the expected
completion of milling of stockpiled ore at the end of April 2009, we expect to
place the mine on care and maintenance.




Apollo
has an advanced stage development project, the Black Fox project, located near
Matheson in the Province of Ontario, Canada.  The Black Fox project
consists of mining operations located 7 miles east of Matheson and the Black Fox
mill complex located 12 miles west of Matheson, therefore approximately 19 miles
from the mine.  Mining of ores at the open pit mine began in March
2009 and milling of ores are scheduled to commence in April 2009.




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




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


-13-


BACKGROUND




Apollo
Gold Corporation




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




APOLLO GOLD CORPORATION AND ITS
SUBSIDIARIES


(as
of March 20, 2009)









APOLLO
GOLD CORPORATION:  NYSE Amex 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.




MONTANA
TUNNELS MINING, INC.:  Owns a 50% interest in and operates the Montana
Tunnels mine and owns the Diamond Hill mine.  The Montana Tunnels mine
is subject to a joint venture agreement with Elkhorn which has a 50% beneficial
interest in the Montana Tunnels mine.




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




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




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


-14-




Financial
Information




Segmented information is contained in
Note 23 of the “Notes to the Consolidated Financial Statements” contained within
this Annual Report on Form 10-K.





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
                
                2008
                
                
                2007
                
                
                2006Gold
                
                
                46
                %
                
                
                32
                %
                
                
                32
                %Zinc
                
                
                32
                %
                
                
                40
                %
                
                
                47
                %Silver
      and Lead
                
                
                22
                %
                
                
                28
                %
                
                
                21
                %




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




Year
      Ended December 31,2008
      (1)
              
              
              2007(1)
      (2)
              
              
              2006(3)Production
      SummaryGold
      ounces
              
              
              24,346
              
              
              
              16,632
              
              
              
              4,959Silver
      ounces
              
              
              242,875
              
              
              
              250,982
              
              
              
              116,004Lead
      pounds
              
              
              7,780,046
              
              
              
              5,590,737
              
              
              
              1,196,317Zinc
      pounds
              
              
              18,986,730
              
              
              
              11,874,543
              
              
              
              3,040,058Average
      metals pricesGold
      – London Bullion Mkt.  ($/ounce)
              
              $
              872
              
              
              $
              696
              
              
              $
              604Silver
      – London Bullion Mkt.  ($/ounce)
              
              $
              15.02
              
              
              $
              13.40
              
              
              $
              11.55Lead
      – London Metals Exchange (LME) Cash ($/pound)
              
              $
              0.95
              
              
              $
              1.17
              
              
              $
              0.58Zinc
      – LME Cash
      ($/pound)
              
              $
              0.85
              
              
              $
              1.47
              
              
              $
              1.49





(1)
            Effective
      December 31, 2006, the Montana Tunnels mine became a 50/50 joint venture;
      therefore, 2008 and 2007 metal production shown in the table above
      represents Apollo’s 50% share of the joint
  venture.


(2)
            The
      Montana Tunnels mine recommenced milling operations on March 1, 2007;
      therefore, production in 2007 is for a ten month
  period.


(3)
            The
      Montana Tunnels mine ceased milling operations on May 12, 2006; therefore,
      no metal products were produced after that date for the remainder of
      2006.





Gold




Montana
Tunnels produced 24,346, 16,632, and 4,959 ounces of gold during the years
ended December 31, 2008, 2007, and 2006, 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.




-15-




Gold
Uses




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




Gold
Supply




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




Gold
Price 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
                
                
                Average1999
                
                
                326
                
                
                
                253
                
                
                
                2792000
                
                
                313
                
                
                
                264
                
                
                
                2792001
                
                
                293
                
                
                
                256
                
                
                
                2712002
                
                
                349
                
                
                
                278
                
                
                
                3102003
                
                
                416
                
                
                
                320
                
                
                
                3642004
                
                
                454
                
                
                
                375
                
                
                
                4092005
                
                
                537
                
                
                
                411
                
                
                
                4452006
                
                
                725
                
                
                
                525
                
                
                
                6042007
                
                
                841
                
                
                
                608
                
                
                
                6962008
                
                
                1011
                
                
                
                713
                
                
                
                8722009*
                
                
                990
                
                
                
                810
                
                
                
                901


* Through
February 28, 2009




Zinc




Production
from the Montana Tunnels mine also includes the extraction, processing and sale
of zinc contained in sulfide concentrates.  The Montana Tunnels mine
produced approximately 19,000,000, 11,900,000, and 3,000,000 pounds of payable
zinc in 2008, 2007, and 2006, 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.


-16-


Annual
Global Supply/ Demand Balance for Zinc, 2004-2008




2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004(000
      tonnes)Refined
      Consumption
              
              
              11,563
              
              
              
              11,437
              
              
              
              11,040
              
              
              
              10,612
              
              
              
              10,654Refined
      Production
              
              
              11,789
              
              
              
              11,412
              
              
              
              10,669
              
              
              
              10,232
              
              
              
              10,353Implied
      Surplus (Deficit)
              
              
              226
              
              
              
              (15
              )
              
              
              (343
              )
              
              
              (351
              )
              
              
              (269
              )LME
      Stocks           –
      Total
              
              Not
      avail
              
              
              
              88
              
              
              
              90
              
              
              
              394
              
              
              
              629– As weeks of consumption
              
              Not
      avail
              
              
              
              0.4
              
              
              
              0.4
              
              
              
              1.9
              
              
              
              3.1Reported
      Stocks    – Total
              
              
              827
              
              
              
              601
              
              
              
              548
              
              
              
              828
              
              
              
              1,038– As weeks of consumption
              
              
              3.7
              
              
              
              2.7
              
              
              
              2.6
              
              
              
              4.1
              
              
              
              5.1LME
      Cash Price    – $/tonne
              
              
              1,873
              
              
              
              3,250
              
              
              
              3,273
              
              
              
              1,382
              
              
              
              1,048– cents/lb
              
              
              85.0
              
              
              
              147.4
              
              
              
              148.5
              
              
              
              62.7
              
              
              
              47.5


Data
Source:  Standard Bank Metals Report




Zinc
Price History




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




ZincYear
                
                High
                
                
                Low
                
                
                Average2001
                
                
                0.48
                
                
                
                0.33
                
                
                
                0.402002
                
                
                0.42
                
                
                
                0.33
                
                
                
                0.352003
                
                
                0.46
                
                
                
                0.34
                
                
                
                0.382004
                
                
                0.56
                
                
                
                0.42
                
                
                
                0.562005
                
                
                0.86
                
                
                
                0.53
                
                
                
                0.642006
                
                
                1.93
                
                
                
                1.43
                
                
                
                1.532007
                
                
                1.84
                
                
                
                1.00
                
                
                
                1.472008
                
                
                1.28
                
                
                
                0.47
                
                
                
                0.852009*
                
                
                0.52
                
                
                
                0.48
                
                
                
                0.58


*  Through
February 28, 2009




Silver




Montana
Tunnels produced 242,875, 250,982, and 116,004 ounces of silver in the years
ended December 31, 2008, 2007, and 2006, 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, low and average settlement prices of silver in U.S. dollars per
ounce.


-17-




SilverYear
                
                High
                
                
                Low
                
                
                Average2001
                
                
                4.83
                
                
                
                4.03
                
                
                
                4.372002
                
                
                5.13
                
                
                
                4.22
                
                
                
                4.602003
                
                
                5.99
                
                
                
                4.35
                
                
                
                4.882004
                
                
                8.29
                
                
                
                5.49
                
                
                
                6.652005
                
                
                9.22
                
                
                
                6.39
                
                
                
                7.312006
                
                
                14.94
                
                
                
                8.83
                
                
                
                11.572007
                
                
                15.82
                
                
                
                11.67
                
                
                
                13.382008
                
                
                20.92
                
                
                
                8.88
                
                
                
                15.022009*
                
                
                14.39
                
                
                
                10.41
                
                
                
                12.35


*  Through
February 28, 2009




Lead




Production
from Montana Tunnels also includes the extraction, processing and sale of lead
contained in sulfide concentrates.  Montana Tunnels produced
approximately 7,800,000, 5,600,000, and 1,200,000 pounds of payable lead in
2008, 2007 and 2006, 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, 2004-2008




2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004(000
      tonnes)Refined
      Consumption
              
              
              8,596
              
              
              
              8,235
              
              
              
              8,051
              
              
              
              7,774
              
              
              
              7,295Refined
      Production
              
              
              8,637
              
              
              
              8,078
              
              
              
              7,921
              
              
              
              7,638
              
              
              
              6,957Implied
      Surplus (Deficit)
              
              
              41
              
              
              
              (157
              )
              
              
              (111
              )
              
              
              (100
              )
              
              
              (282
              )LME
      Stocks           –
      Total
              
              Not
      avail
              
              
              
              45
              
              
              
              41
              
              
              
              44
              
              
              
              40–
      As weeks of consumption
              
              Not
      avail
              
              
              
              0.3
              
              
              
              0.3
              
              
              
              0.3
              
              
              
              0.3Reported
      Stocks     – Total
              
              
              311
              
              
              
              270
              
              
              
              292
              
              
              
              296
              
              
              
              298– As weeks of consumption
              
              
              1.9
              
              
              
              1.7
              
              
              
              1.9
              
              
              
              2.0
              
              
              
              2.1LME
      cash price     – $/tonne
              
              
              2,090
              
              
              
              2,595
              
              
              
              1,288
              
              
              
              976
              
              
              
              887– cents/lb
              
              
              94.8
              
              
              
              117.7
              
              
              
              58.4
              
              
              
              44.3
              
              
              
              40.2


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.




LeadYear
                
                High
                
                
                Low
                
                
                Average2001
                
                
                0.24
                
                
                
                0.20
                
                
                
                0.222002
                
                
                0.24
                
                
                
                0.18
                
                
                
                0.202003
                
                
                0.34
                
                
                
                0.19
                
                
                
                0.232004
                
                
                0.45
                
                
                
                0.29
                
                
                
                0.402005
                
                
                0.49
                
                
                
                0.41
                
                
                
                0.442006
                
                
                0.79
                
                
                
                0.47
                
                
                
                0.582007
                
                
                1.80
                
                
                
                0.78
                
                
                
                1.182008
                
                
                1.57
                
                
                
                0.40
                
                
                
                0.952009*
                
                
                0.51
                
                
                
                0.45
                
                
                
                0.54


*  Through
February 28, 2009


-18-


Smelting
and Refining Process




Our 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 covers all lead
and zinc concentrates produced from the ores from the L Pit.  See Item
2 “Description of Properties – Montana Tunnels Mine” for further
information.




We have
an agreement with Johnson Matthey to refine gold doré produced at the Montana
Tunnels mine to a final finished product.  Johnson Matthey receives
$0.75 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 $750 per delivery.




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




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




The
following table sets forth the estimated mineral reserves attributable to the
interest held by Apollo in its properties.




Estimated
Proven and Probable Reserves – Gold Ounces




As
      of December 31,Mines
                
                Apollo
      interest
                
                
                2008
                
                
                2007
                
                
                2006Montana
      Tunnels
                
                
                50
                %
                
                
                251,900
                
                
                
                283,664
                
                
                
                275,850Black
      Fox Project
                
                
                100
                %
                
                
                1,330,000
                
                
                
                1,002,000
                
                
                
                448,800Apollo
      Gold – Total
                
                
                
                
                
                
                1,581,900
                
                
                
                1,285,664
                
                
                
                724,650







Montana
Tunnels Reserves – Apollo’s Interest




Apollo’s
interest in the end-of-year 2008 reserves at Montana Tunnels is approximately
19.8 million tons containing approximately 251,900 ounces of gold, 4,160,000
ounces of silver,  375.6 million pounds of zinc, and 128.6 million
pounds of lead.  The grade model was modified in 2008 with a new
indicator cut off to reflect higher metal prices.  Further, the M Pit
was redesigned and incorporates new geological information and better access to
the north end of the pit.  This combination has resulted in an
increase of reserves.  The Montana Department of Environmental Quality
and the Bureau of Land Management issued a Record of Decision approving the M
Pit expansion in November 2008.


-19-





Montana
Tunnels Mine Reserve Estimate at December 31, 2008


(Apollo’s
50% interest)




Pit
      (Imperial Summary)
              Classification
              
              Tons
                  000’s
              
              
              Grade
                  oz
      Au/T
              
              
              Ag
      oz
                  Ag/T
              
              
              Pb
      %
              
              
              Zn
      %
              
              
              Ounces
                  AuM
      Pit
              Proven
              
              
              13,886.6
              
              
              
              0.0129
              
              
              
              0.212
              
              
              
              0.164
              
              
              
              0.487
              
              
              
              179,000Mill
      Stockpile (1)
              Proven
              
              
              887.5
              
              
              
              0.0089
              
              
              
              0.200
              
              
              
              0.170
              
              
              
              0.550
              
              
              
              7,500Subtotal
              Proven
              
              
              14,774.0
              
              
              
              0.0126
              
              
              
              0.211
              
              
              
              0.164
              
              
              
              0.491
              
              
              
              186,500M
      Pit
              Probable
              
              
              5,052.5
              
              
              
              0.0129
              
              
              
              0.211
              
              
              
              0.160
              
              
              
              0.434
              
              
              
              65,400Subtotal
              Probable
              
              
              5,052.5
              
              
              
              0.0129
              
              
              
              0.211
              
              
              
              0.160
              
              
              
              0.434
              
              
              
              65,400Total
              Proven
      + Probable
              
              
              19,826.5
              
              
              
              0.0128
              
              
              
              0.211
              
              
              
              0.163
              
              
              
              0.476
              
              
              
              251,900


(1)  Represents
material mined from the current L Pit and stockpiled at the Montana Tunnels
mill.





The past
three years average metal prices were used for the calculation of the year-end
2008 reserves, which are as follows:


Gold -
$724/oz                 Silver
-
$13.32/oz                 Lead
-
$0.90/lb                 Zinc
- $1.27/lb





Black
Fox Reserves




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





Black
Fox Probable Reserve Statement as of December 31, 2008




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


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





Employee
Relations




As of
December 31, 2008, we had approximately 225 employees, including 6 employees at
our principal executive office in Greenwood Village, Colorado, 190 employees at
Montana Tunnels and 29 employees at Black Fox.




Competition




We
compete with major mining companies and other natural mineral resource companies
in the acquisition, exploration, financing and development of new
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 ore bodies, costs of operation, and the
acquisition and retention of qualified employees.  We also compete
with other mining companies for skilled mining engineers, mine and processing
plant operators and mechanics, geologists, geophysicists and other technical
personnel.  This could result in higher turnover and greater labor
costs.


-20-




Regulatory Environment




Our mining exploration, development and production
activities are subject to extensive regulation at the federal, state and local
levels in the countries in which we operate. These regulations relate to,among other things, environmental and
land-use matters, conservation, safety, drilling and spacing of drill holes and
transportation matters. The following is a summary of some key regulations that
affect our operations.





Safety. Our U.S. mining operationis 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.In addition, our Black Fox operations are subject to
safety and health regulations in Ontario, Canada.




Current Environmental Laws and
Regulations.We must comply with
environmental standards, laws and regulations that may resultin 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 usfrom 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.In addition, the construction and commercial operation
of a mine typically entail compliance with applicable environmental legislation
and review processes, as well as the obtainingof permits, particularly for the use of the land,
permits for the use of water, and similar authorizations from various government
bodies.We have made, and expect to make in
the future, significant expenditures to comply with such laws,regulationsand permitting requirements.




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





Available
Information




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


-21-





ITEM
1A.          RISK
FACTORS


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





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





We now
have, and for the foreseeable future will continue to have, a significant amount
of indebtedness.  As of March 20, 2009, we had an aggregate principal
amount of approximately $57.1 million in long-term debt
outstanding.  In addition, we expect to drawdown the remaining $33
million of the $70 million Black Fox project finance facility on or before June
30, 2009.  While our $70 million project facility is outstanding, we
will have annual principal obligations of between approximately $10.2 million
and $24.5 million (assuming we drawdown the full $70 million available
thereunder).  The interest rate on this loan is floating based on the
LIBOR rate plus 7 percent per annum; accordingly, if the LIBOR rate is
increased, interest expense will be higher.  The maturity date on this
loan is March 31, 2013.  We intend to fulfill our debt service
obligations from cash generated by our Black Fox project, which is expected to
be our only source of significant revenues.  Because we anticipate
that a substantial portion of the cash generated by our operations will be used
to service this loan during its term, such funds will not be available to use in
future operations, or investing in our businesses.  The foregoing may
adversely impact our ability to repay the $4,290,000 principal amount of
convertible debentures due February 23, 2010 owned by RAB Special Situations
(Master) Fund Limited (“RAB”), to finance the development of the M Pit at
Montana Tunnels and conduct all of our planned exploration activities at our
Huizopa property or pursue other corporate opportunities.





If
we do not generate sufficient cash flow from Black Fox operations in 2009 or by
raising additional equity or debt financing in the near term, then we may not be
able to meet our debt obligations and capital expenditure
commitments.




As of
March 20, 2009, we had an aggregate principal amount of approximately $57.1
million in long-term debt outstanding.  In addition, we expect to
drawdown an additional $33 million under the Black Fox project finance facility
on or before June 30, 2009, which drawdown will give rise to $22.5 million in
principal and interest repayment obligations and capital lease payment
obligations during fiscal year 2009.  Furthermore, as of March 20,
2009, we had aggregate capital commitments outstanding of approximately $18.0
million, $15.8 million of which is due during fiscal year
2009.  Currently, we are not generating positive cash
flow.  If we are unable to satisfy our debt service and capital
commitment requirements, we may not be able to continue our
operations.  We may not generate sufficient cash from operations to
repay our debt obligations or satisfy any additional debt obligations when they
become due and may have to raise additional financing from the sale of equity or
debt securities, enter into commercial transactions or otherwise restructure our
debt obligations.  There can be no assurance that any such financing
or restructuring will be available to us on commercially acceptable terms, or at
all, and our existing debt agreements prohibit us from incurring additional
indebtedness without the consent of the lenders thereunder.  If we are
unable to restructure our obligations, we may be forced to seek protection under
applicable bankruptcy laws.  Any restructuring or bankruptcy would
materially impair the value of our common shares.


-22-





Operational
problems and start-up issues may disrupt mining operations at Black Fox which
commenced in March 2009 and prevent or delay us from commencing milling
operations in April 2009, or substantially reduce gold production once milling
commences.





Mine
development projects, including our Black Fox project, inherently involve risks
and hazards.  Although we commenced mining of the Black Fox open pit
in March 2009 and expect to commence milling in April 2009, development of and
any future production at our Black Fox project could be prevented, delayed or
disrupted by, among other things:





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


·
              unanticipated
      adverse geotechnical conditions;·
              adverse
      weather conditions;


·
            incorrect
      data on which engineering assumptions are
made;


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


·
            availability
      of economic sources of power;


·
            adequacy
      of access to the site;


·
            unanticipated
      transportation costs;


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


·
            lower
      than expected ore grades;


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


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


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





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





Furthermore,
we cannot be certain that the Black Fox project will be developed at the
budgeted cost and on schedule.  Although we believe that we have
obtained sufficient funds to develop the Black Fox project, we cannot provide
assurance of this.  Furthermore, if the actual cost to complete the
Black Fox project is significantly higher than currently expected, there can be
no assurance that we will have sufficient funds to cover these costs or that we
will be able to obtain alternative sources of financing to cover these
costs.





The
Toronto Stock Exchange has indicated to us that it is conducting a review of our
eligibility for continued listing of our common shares on the Toronto Stock
Exchange.





In
connection with the completion of the project finance facility, we issued
34,836,111 common share purchase warrants to the project finance
banks.  Each warrant is exercisable for a period of 48 months from
closing at an exercise price of Cdn.$0.252 per share (subject to customary
anti-dilution adjustments).  These warrants were in addition to the
42,614,254 common share purchase warrants issued to the project finance banks in
connection with the bridge facility agreement entered into on December 10,
2008.  Under the Company Manual of the Toronto Stock Exchange, which
we sometimes refer to herein as the TSX, shareholder approval would be required
for the issuance of these warrants because the number of common shares issuable
upon exercise of these warrants is in excess of 25% of our currently issued and
outstanding common shares.  Because we did not have sufficient time to
obtain shareholder approval prior to the anticipated closing of the project
finance facility, we applied to the TSX for a financial hardship exemption from
the shareholder approval requirements. The TSX granted the financial hardship
exemption to us, but as a consequence of relying upon such exemption, the TSX
has informed us that it will commence a review to determine the eligibility for
continued listing of our common shares on the TSX.  The TSX has
indicated that we must demonstrate that we meet all TSX listing requirements on
or before September 15, 2009.  Following the completion of the project
finance facility on February 20, 2009, we believe that we meet all the listing
requirements of the TSX.  However, there can be no assurance that the
TSX will agree and, if we are unable to demonstrate our compliance, our common
shares would be delisted from the TSX.


-23-


Mining
of ore at our Montana Tunnels mine ceased in December 2008.





On
December 5, 2008, we ceased mining of ore from the Montana Tunnels open pit
operation as a result of exhausting the ore in our current L Pit
permit.  While we have received all necessary permits to expand the
current pit, which expansion plan we refer to as the M Pit project, the M Pit
project would cost approximately $70 million, and we and our joint venture
partner have not yet determined whether to proceed with the M Pit
project.  Such decision will depend, among other things, on the
ability to secure financing for the $70 million on acceptable terms and the
prices of gold, silver, lead and zinc and available smelter terms.





The
Montana Tunnels mine is our only source of revenue and cash flow at this
time.  If we are unable or choose not to pursue the M Pit project, the
Montana Tunnels mine will cease to generate revenues and cash flow once the
stockpiled ore at the Montana Tunnels mine has been processed, which stockpile
we expect to exhaust in April 2009.  We expect that the proceeds from
stockpiled ore will be fully utilized in repaying the $2,762,000 of existing
indebtedness outstanding under the October 2007 debt facility (as increased by
the July 2008 amendment thereto) and completing closure of the mine and milling
facilities.  In addition, if we choose to and are able to pursue the M
Pit project, we expect that the pre-stripping program will take approximately 12
months, during which time no ore will be produced.  As a result, there
will be a period of time after the ore stockpiles from the L Pit have been
exhausted and prior to production from the M Pit (which period we expect would
be a minimum of twelve months but could be longer) during which we will have no
revenue or cash flow from the Montana Tunnels mine.




We
do not currently have and may not be able to raise sufficient funds to explore
our Huizopa property and commence the development of the M Pit.




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





In
addition, in recent months, the U.S. stock market indexes experienced a steep
decline and the available debt financing has tightened.  In light of
these developments, concerns by investors regarding the stability of the U.S.
financial system could result in less favorable commercial financing terms,
including higher interest rates or costs and tighter operating covenants,
thereby preventing us from obtaining the financing required to develop the M Pit
at Montana Tunnels and to conduct all of our planned exploration activities at
our Huizopa property.


-24-




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





Approximately
129.2 million of our common shares are issuable on exercise of warrants,
options or other rights to purchase common shares at prices ranging from $0.176
to $2.24 and a weighted average price of $0.29.  In addition, there
are 8,580,000 common shares issuable upon the conversion of the $4,290,000
outstanding principal amount of convertible debentures now due February 23, 2010
held by RAB, which are convertible at the option of the holder at a conversion
price of $0.50 per share.  During the term of the warrants, options,
convertible debentures and other rights, the holders are given an opportunity to
profit from a rise in the market price of our common shares with a resulting
dilution in the interest of the other shareholders. Our ability to obtain
additional equity financing during the period such rights are outstanding may be
adversely affected, and the existence of the rights may have an adverse effect
on the price of our common shares. The holders of the warrants, options,
convertible debentures and other rights can be expected to exercise them at a
time when we would, in all likelihood, be able to obtain any needed capital by a
new offering of securities on terms more favorable to us than those provided by
the outstanding rights.





Past
and future equity issuances could impair our share price.





If our
shareholders sell substantial amounts of our common shares, the market price of
our common shares could decrease. We have 232,811,195 common shares outstanding
as at March 20, 2009.  In addition, we may sell additional common
shares in subsequent offerings and issue additional common shares to finance
future acquisitions or as compensation in financing transactions.  In
the bridge facility financing completed on December 10, 2008 and the project
facility financing completed February 20, 2009, we issued warrants to purchase
77,450,365 common shares to the project finance banks (32,944,902 to RMB
Australia Holdings Limited and 44,505,463 to Macquarie Bank Limited),
representing approximately 34.3% of our outstanding common shares (on an
undiluted basis) as partial consideration for financing services.  In
addition, we issued 2,567,901 common share purchase warrants to Haywood
Securities Inc. in consideration for financial advisory services provided in
connection with the restructuring of the February 2007 convertible debentures
held by RAB and the project finance facility.  We have agreed to
register the resale of the common shares underlying the warrants issued to the
project finance banks and Haywood with the SEC.





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





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





Our
common shares are listed on the NYSE Amex exchange and the Toronto Stock
Exchange.  Our share price has declined significantly since 2004, and
over the last year the closing price of our common shares has fluctuated from a
low of $0.11 per share to a high of $0.74 per share.  The stock prices
of virtually all companies have decreased since the fall of 2008 as global
economic issues have adversely affected public markets.  Furthermore,
securities of small-cap companies have experienced substantial volatility in the
past, often based on factors unrelated to the financial performance or prospects
of the companies involved.  These factors include macroeconomic
developments in North America and globally and market perceptions of the
attractiveness of particular industries.  Our share price is also
likely to be significantly affected by global economic issues, as well as
short-term changes in gold and zinc prices or in our financial condition or
liquidity.  As a result of any of these factors, the market price of
our common shares at any given point in time might not accurately reflect our
long-term value.  Securities class action litigation often has been
brought against companies following periods of volatility in the market price of
their securities.  We could in the future be the target of similar
litigation.  Securities litigation could result in substantial costs
and damages and divert management’s attention and resources.


-25-





We
have a history of losses.




With the
exception of the fiscal years ended December 31, 2008 and 2007, during which we
had a net income of $1,596,000 and $2,416,000, respectively, we have incurred
significant losses.  Our net losses were $15,587,000 and $22,208,000 for
the years ended December 31, 2006 and 2005, respectively.  In
addition, the Montana Tunnels mine is our only current source of revenue and
mining of ore at the mining operations ceased on December 5,
2008.  We expect to continue the milling of ore stockpiles at Montana
Tunnels until April 2009.  Following the cessation of the milling of
the ore stockpiles, we will no longer have any revenues or cash flow from the
Montana Tunnels mine.  In addition, if we choose and are able to
pursue the M Pit expansion, there will be a period of time after the ore
stockpiles from the L Pit have been exhausted and prior to production from the M
Pit (which period we expect would be a minimum of twelve months but could be
longer) during which we will have no revenue or cash flow from the Montana
Tunnels mine.  However, during this time we will have obligations
under loan agreements and for the development of the Black Fox project, and
therefore we expect that there could be significant losses until such time as we
begin production from Black Fox and there can be no assurance that we will
achieve or sustain profitability in the future.




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




We
historically have derived 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 future earnings are directly related to the
price of gold.  Since the beginning of 2008, the London P.M. or
afternoon fix gold spot price, as reported by the Wall Street Journal, has
fluctuated from a high of $1,011/oz to a low of $712/oz and was $954/oz on March
20, 2009.  Changes in the price of gold significantly affect our
profitability and the trading price of our common shares.  Gold prices
historically have fluctuated widely, based on numerous industry factors
including:





·
            industrial
      and jewelry demand;


·
            central
      bank lending, sales and purchases of
gold;


·
            forward
      sales of gold by producers and
speculators;


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


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





Gold
prices are also affected by macroeconomic factors, including:




·
            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.


-26-





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




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





Possible
hedging activities could expose us to losses.




As a part
of the project finance facility, we and the lenders have entered into a
hedging program covering both gold sales and part of our Canadian dollar
operating costs.  Specifically, we have entered into a 250,420 ounce gold
forward sales program which will be allocated across the four year term of the
project facility agreement.  The weighted average price of the sales
program is $876 per ounce of gold.  The foreign exchange hedge
program is for the Canadian dollar equivalent of $60 million, at an exchange
rate of Cdn$1.21=US$1.0, over the four year term of the project facility
agreement.  In addition, in connection with our Montana Tunnels debt
facility financed by RMB Australia Holdings Limited, we were required to enter
into hedges on gold, silver, lead and zinc.  These hedges cover the
first quarter 2009 production from the Montana Tunnels mine and represent
approximately 40% of our share of gold and silver and 50% of our share of lead
production from the Montana Tunnels mine.  There is no outstanding
hedge on zinc production.




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




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





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


-27-





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




We
acquired auction rate securities in 2007 with a face value of $1.5
million.  The securities were marketed by financial institutions with
auction reset dates at 28 day intervals to provide short-term
liquidity.  All such auction rate securities were rated AAA when
purchased, pursuant to our investment policy.  Beginning in August
2007, a number of auctions failed and there is no assurance that auctions for
the auction rate securities in our investment portfolio, which currently lack
liquidity, will succeed.  An auction failure means that the parties
wishing to sell their securities could not do so as a result of a lack of buying
demand.  As at December 31, 2008, our auction rate securities held an
adjusted cost basis and fair value of $1.1 million based on liquidity
impairments to these securities and, during the second quarter of 2008, were
downgraded to a AA rating.  Uncertainties in the credit and capital markets
could lead to further downgrades of our auction rate securities holdings and
additional impairments.  Furthermore, as a result of auction failures,
our ability to liquidate and fully recover the carrying value of our auction
rate securities in the near term may be limited or not exist.




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




Substantially
all of the Montana Tunnels assets and our Black Fox property are pledged to
secure indebtedness outstanding under (i) the Facility Agreement, dated October
12, 2007 and as amended July 1, 2008, by and among Montana Tunnels Mining, Inc.,
Apollo Gold, Apollo Gold, Inc., a wholly owned subsidiary of Apollo Gold, RMB
Australia Holdings Limited and RMB Resources Inc. and (ii) the Facility
Agreement, dated February 20, 2009, by and among Apollo Gold, Macquarie Bank
Limited, RMB Australia Holdings Limited and RMB Resources Inc.  Since
these assets represent substantially all of our assets, we will not have access
to additional secured lending with other financial institutions, which will
require us to raise additional funds through unsecured debt and equity
offerings, and covenants in our borrowing agreements limit our ability to incur
unsecured indebtedness.  Default under our debt obligations would
entitle our lenders to foreclose on our assets.





Our
Huizopa exploration project is subject to political and regulatory
uncertainty.




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


-28-





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




Operational
problems may occur in our Montana Tunnels mining and milling
operations.




It is
common to encounter operational issues in mining and milling of
ores.  Since 2005, all of our revenues have been derived from our
operations at the Montana Tunnels mine, which is a low-grade
mine.  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.  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.  After the suspension of mining and until May 12, 2006, we
were able to continue to produce gold doré, lead-gold and zinc-gold concentrates
from milling low-grade stockpiled ore.  However, on May 12, 2006, all
operations ceased at the mine and it was placed on care and
maintenance.  On July 28, 2006, we entered into a joint venture
agreement with Elkhorn Tunnels, LLC, in respect of the Montana Tunnels mine
pursuant to which Elkhorn Tunnels made financial contributions in exchange for a
50% interest in the mine.  Mill operations recommenced in March
2007.  In April and May 2008, the mill at the Montana Tunnels mine was
shut down for approximately three weeks due to a crack in the exterior shell of
the ball mill.  There can be no assurances that we will not encounter
additional operational problems at our Montana Tunnels mine or mill or other
mines or mills we may operate in the future.





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.


-29-





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




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




We are
engaged in the development of new ore bodies.  Our ability to sustain
or increase our present level of production is dependent in part on the
successful exploration and development of new ore bodies and/or expansion of
existing mining operations.  Decisions about the development
of the M Pit expansion at Montana Tunnels and other future projects, such
as Huizopa, are subject to the successful completion of feasibility studies,
issuance of necessary governmental permits and receipt of adequate
financing.




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




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





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




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




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





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




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


-30-


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.  Over
this period, with the exception of the fiscal years 2008 and 2007, we have not
generated sufficient revenues to cover our expenses and costs.





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




Certain
of our United States mineral rights of the Montana Tunnels mine 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 our rights to mine on any of our properties are
in doubt, title to mining properties are subject to potential claims by third
parties claiming an interest in them and, in September 2006 some of our claims
associated with our Black Fox project were listed as reopened for staking on the
Ministry of Northern Development and Mines (MNDM) website.  Five of
these claims totaling 185 acres were immediately staked by local
prospectors.  None of our reserves or resources at our Black Fox
project are located on the properties related to these claims.  All of
these overstaked claims have since been returned to us.




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




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


-31-




We
face substantial governmental regulation.




Canadian
Regulation.  Our Black Fox mining operations and exploration
activities in the Province of Ontario are subject to various laws and
regulations governing the environment, agricultural zoning, prospecting,
development, production, exports, taxes, labor standards, occupational health,
waste disposal, toxic substances, mine safety and other matters. The Canadian
mining industry is subject to federal and provincial environmental protection
legislation. This legislation imposes high standards on the mining industry in
order to reduce or eliminate the effects of waste generated by extraction and
processing operations and subsequently emitted into the air or water.
Consequently, drilling, refining, extracting and milling are all subject to the
restrictions imposed by this legislation. In addition, the construction and
commercial operation of a mine typically entail compliance with applicable
environmental legislation and review processes, as well as the obtaining of
permits, particularly for the use of the land, permits for the use of water, and
similar authorizations from various government bodies. Canadian federal,
provincial, and local laws and regulations relating to the exploration for and
development, production and marketing of mineral production, as well as
environmental and safety matters have generally become more stringent in recent
years, often imposing greater liability on a larger number of potentially
responsible parties. Because the requirements imposed by such laws and
regulations are frequently changed, we are unable to predict the ultimate cost
of compliance with such requirements. There is no assurance that laws and
regulations enacted in the future will not adversely affect our financial
condition and results of operations. We believe that it is in substantial
compliance with all current laws and regulations material to our activities.
However, changing government regulations may have an adverse effect on
us.




United States
Regulation.  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.




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.


-32-


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 granted 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.  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.




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.




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 bonds in accordance with
regulatory determinations is a condition to the right to operate under all
material operating permits, and therefore increases in bonding requirements
could prevent our operations from continuing even if we were in full compliance
with all substantive environmental laws.


-33-




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




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





We
are dependent on certain key personnel.




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





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





U.S.
persons who are potential holders of our common shares, warrants or options to
purchase our common shares, or debentures convertible into our common shares,
which we sometimes refer to in this report as equity securities, should be aware
that we could constitute a “passive foreign investment company” (or a “PFIC”)
for U.S. federal income tax purposes.  The tests for determining PFIC
status for a taxable year depend upon the relative values of certain categories
of assets and the relative amounts of certain kinds of income.  The
application of these factors depends upon our financial results for the year,
which is beyond our ability to predict or control, and may be subject to legal
and factual uncertainties.  While we do not believe that we were a
PFIC in 2008 and do not expect to be a PFIC in 2009, we cannot guarantee that we
were not a PFIC in 2008 and we are unable to predict whether we will be a PFIC
2009 or in later years.  We undertake no obligation to advise
investors as to our PFIC status for any year.





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





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


-34-





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





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





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




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


-35-


ITEM 2.  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





-36-


Montana
Tunnels Mine




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




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





-37-




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




Location




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




Production




At
Montana Tunnels the mining of the open pit was suspended on October 21, 2005 for
safety reasons due to increased wall activity on the eastern side of the open
pit.  Following suspension of mining, the mill continued to process
ore from stockpiled low grade material and produce gold dore and lead-gold and
zinc-gold concentrates until May 12, 2006 when all operations ceased and the
property was placed on care and maintenance.




Following
the signing of the JV Agreement the Montana Tunnels mine commenced an open pit
wall remediation program on August 10, 2006, which called for removal of
approximately 7 million tons of waste over a six month period and encompassed
the laying back of the east and south east sectors of the pit wall and
rebuilding the access ramp to the pit bottom.  Mill start up occurred
on March 1, 2007.




During
the second quarter of 2008 there was a failure of the ball mill shell due to
cracking which caused a shutdown of the mill for three weeks severely impacting
production of metals.




For the
year ended December 31, 2008, the mill processed 4,510,000 tons of ore producing
gold dore and lead-gold and zinc-gold concentrates containing 52,700 ounces of
gold, 661,000 ounces of silver, 16,500,000 pounds of lead and 47,200,000 million
pounds of zinc.  Payable metal is shown in the table
below.




Montana
Tunnels Mine Production History




Statistics
below are for 100% of the Montana Tunnels mine, Apollo’s share of production is
50%




Year
      Ended December 31, 2008Year
                
                Milled
                    Tons
                    000’s
                
                
                Grade
                    Au
      oz/T
                
                
                Grade
                    Ag
      oz/T
                
                
                Grade
                    Pb
                    %
                
                
                Grade
                    Zn
                    %2008
                
                
                4,510
                
                
                
                0.0144
                
                
                
                0.18
                
                
                
                0.22
                
                
                
                0.632007
                
                
                3,971
                
                
                
                0.0123
                
                
                
                0.22
                
                
                
                0.20
                
                
                
                0.472006
                
                
                1,427
                
                
                
                0.0078
                
                
                
                0.17
                
                
                
                0.10
                
                
                
                0.20





Year Ended December 31,Payable
      Metal
              
              2008
              
              
              2007
              
              
              2006Gold
      (oz)
              
              
              48,691
              
              
              
              33,263
              
              
              
              4,959Silver
      (oz)
              
              
              485,759
              
              
              
              501,963
              
              
              
              116,004Lead
      (lb)
              
              
              15,560,091
              
              
              
              11,181,474
              
              
              
              1,196,317Zinc
      (lb)
              
              
              37,973,460
              
              
              
              23,749,087
              
              
              
              3,040,058


-38-





Year Ended December 31,2008
              
              
              2007(1)
              
              
              2006(2)Total
      Cost/Ton Ore Processed
              
              $
              16.70
              
              
              $
              18.62
              
              
              $
              7.08Cash
      Operating Cost/Oz Gold
              
              $
              447
              
              
              $
              (124
              )
              
              $
              643Total
      Cash Cost/Oz Gold
              
              $
              503
              
              
              $
              (60
              )
              
              $
              718Total
      Production Cost/Oz Gold
              
              $
              563
              
              
              $
              10
              
              
              $
              794


(1)
            Only
      10 months of ore processing (March to
December)


(2)
            Only
      5 months of ore processing (January to
May)





The
Montana Tunnels mine has produced the following aggregate amounts of the listed
metals from its inception in 1987 through December 31, 2008:





Payable ProductionGold
                              
                              1,637,000
      ozsSilver
                              
                              30,760,000
      ozsLead
                              
                              409,100,000
      lbs.Zinc
                              
                              1,105,000,000
      lbs.





On
December 5, 2008, we ceased mining of ore from the Montana Tunnels open pit
operation as a result of exhausting the ore in our current “L Pit”
permit.  In connection therewith, we issued 60 day notice of
terminations of employment to 87 employees in compliance with the U.S.
Department of Labor’s Worker Adjustment and Retraining Notification Act
(“WARN”).  On February 3, 2009, 82 of these employees were
terminated.





As at
December 31, 2008 there was a stockpile of ore of approximately 1.6 million
tons, which we expect will be sufficient for us to continue milling and thus
produce concentrates until the end of April 2009.





We
have received all necessary permits to expand the current pit, which
expansion plan we refer to as the M Pit project.  The M Pit project
would involve a 12 month pre-stripping program that would cost approximately $70
million, during which time no ore would be produced.  The decision to
proceed with the M Pit project must be agreed to by both our company and
Elkhorn.  We and our joint venture partner have not yet made a
production decision on the M Pit project and such decision will depend, among
other things, on securing financing for the $70 million; the prices of gold,
silver, lead and zinc; and available smelter terms.  We are not
currently engaged in discussions with financing sources for our $35 million
share of the financing costs.  We expect to continue milling
stockpiled ore at Montana Tunnels until April 2009.  If no decision
has been made on the M Pit project by the time that the stockpiled ore is
exhausted, then the mill will be placed on care and maintenance.  On
February 27, 2009, we issued additional WARN notices to all of the remaining 104
employees in anticipation of the cessation of milling in April
2009.





Description
of Land, Geology, Process and Equipment




Property
Ownership Status.





More than 99% of the Montana Tunnels
mineable deposit is overlain by private property wholly owned by
MTMI.  One 0.3 acre BLM parcel is controlled by an unpatented mining
claim.  More than 90% of the property located within the permit
boundary is private property owned by MTMI.  In October 2007 Montana
Tunnels purchased an additional private parcel of land to secure a 1,000 foot
section of the mine access road.  Properties controlled by MTMI in the
vicinity of the Montana Tunnels mine and the permit boundary are summarized in
the table below:


-39-





Property
Holdings


Land Type
                            
                            Approx. Acres
                            
                            NotesFee
      Lands
                            
                            2,633Patented
      Mining Claims
                            
                            2,415
                            
                            139
      claims total; 15 with partial, usually majority
  ownership.Total
      Private Property Owned
                            
                            5,050Leased
      Patented Claims
                            
                            45
                            
                            Lease
      Agreement on three patented claims west of the pit. 4.5% net smelter
      royaltyUnpatented
      Claims
                            
                            4,620
                            
                            213
      claims; majority are peripheral to land package and outside permit
      boundary; few cover minor BLM fractions between private parcels; acreage
      assumes 20-acre claims.Other
      Property Mineral Rights
                            
                            7,200
                            
                            Private
      properties formerly owned by MTMI in which all mineral estate
      retained.





Royalty





The design layback of the M Pit
encompasses a very small amount of mineralized material beneath three leased
patented claims in the Clancy Creek area.  If we proceed with the M
Pit expansion, ores mined from these claims will be minimal and subject to a
4.5% net smelter royalty (“NSR”).





Royalty
Agreements





Agreement
                    
                    Royalty
                    
                    DescriptionLouis
      Hill
                    
                    4.5%
      NSR
                    
                    Lease
      Agreement on three patented claims west of the pit.Clara
      Kyler Estate
                    
                    1.5%
      NSR
                    
                    Fee
      land and patented claims south and southeast of tailings
      impoundment.Bar
      Ed Ranch/Estate
                    
                    1.5%
      NSR
                    
                    7,200
      acres of fee lands and patented claims to the north, northeast, and south
      of the permit boundary in which MTMI controls the mineral rights
      only.Bar
      Ed Partnership
                    
                    1.5%
      NSR
                    
                    Patented
      claim southeast of permit boundary.Gannon/Lemieux
                    
                    1.5%
      NSR
                    
                    12
      patented claims 0.1 miles south of the Montana Tunnels
  pit.Alfred
      Nugent
                    
                    2%
      NSR
                    
                    7
      patented claims east of the mine site.Dudley
      Billett, Jr.
                    
                    4%
      NSR
                    
                    One
      patented claim east of the tailings impoundment.Franco
      Nevada US Corp.
                    
                    5%
      NSR
                    
                    13
      patented claims east of the mine plus fractional interest in two patented
      claims one mile east of permit boundary.Fife,
      et.al.
                    
                    1.5%
      NSR
                    
                    4
      patented claims 0.75 miles south of the Montana Tunnels
    pit.





Geology




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.


-40-


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 plain view is oblong in
shape and ranges from about 200 feet to 1,000 feet in width, and from 1,400 to
2,000 feet in length, with a vertical extent of at least 2,000
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.




Process
and Equipment




Open pit
mining at Montana Tunnels was conducted 20 hours per day seven days per
week.  Mining was performed by two shovels, twelve 150 ton and two 85
ton haul trucks in addition to ancillary equipment.  Following the
cessation of mining activities on December 5, 2008  all mining
equipment, except for three  trucks and  two loaders used
for transferring ore from the stockpile to the crusher,  is parked and
in good working order.




When in
full production a primary and secondary crusher is used, in series, to generate
a coarse ore stockpile ahead of the concentrator.  The crusher has an
approximate 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 10-15% 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 concentrates are shipped, via rail, to a
smelter.  The original mill was constructed during 1986 and 1987, and
is currently in good working order.  When milling operations cease at
the end of April 2009, the mill will be cleaned and Montana Tunnels will be
placed on care and maintenance at a cost of approximately $150,000 per month,
the cost of which will be shared by our JV partner.




At the
same time Apollo entered into the JV Agreement, Apollo also entered into two
other agreements with Elkhorn Goldfields Inc. (“EGI”), an affiliate of
Elkhorn.  The first agreement is an option agreement pursuant to which
EGI was granted an option to purchase Apollo’s Diamond Hill mine for $0.8
million.  The option had an exercise term of two years which was
extended by an additional year and will expire on July 28, 2009.  The
underground Diamond Hill gold mine is situated 28 miles southeast of Helena,
Montana and has been on care and maintenance since 2000.





The
second agreement is a custom milling agreement pursuant to which EGI will have
the right to have MTMI process the ore from EGI’s Elkhorn mine, located 20 miles
to the south of the Montana Tunnels mine, through the 1,000 ton per day Diamond
Hill mill which is situated within the Montana Tunnels mill
complex.  Should EGI exercise its right to have MTMI process the ore,
it will reimburse MTMI for all of its expenses in connection with the
milling.  The custom milling agreement also gives EGI a two-year
option to purchase the Diamond Hill mill for $1.0 million.  This
option to purchase was extended by an additional year and will expire on July
28, 2009.





Mineral
Reserves




The table below shows Apollo’s share of
the mineral reserves at Montana Tunnels.




-41-


Montana
Tunnels Mine Reserve Estimate at December 31, 2008


(Apollo’s
50% interest)




Pit (Imperial Summary)
                        
                        Classification
                        
                        Tons
                          000’s
                        
                        
                        Grade
                          oz Au/T
                        
                        
                        Ag oz
                          Ag/T
                        
                        
                        Pb %
                        
                        
                        Zn %
                        
                        
                        Ounces
                          AuM
      Pit
                        
                        Proven
                        
                        
                        13,836.5
                        
                        
                        
                        0.0129
                        
                        
                        
                        0.212
                        
                        
                        
                        0.164
                        
                        
                        
                        0.487
                        
                        
                        
                        179,000Mill
      Stockpile
                        
                        Proven
                        
                        
                        837.5
                        
                        
                        
                        0.0089
                        
                        
                        
                        0.200
                        
                        
                        
                        0.170
                        
                        
                        
                        0.550
                        
                        
                        
                        7,500Subtotal
                        
                        Proven
                        
                        
                        14,674.0
                        
                        
                        
                        0.0127
                        
                        
                        
                        0.211
                        
                        
                        
                        0.164
                        
                        
                        
                        0.490
                        
                        
                        
                        186,500M
      Pit
                        
                        Probable
                        
                        
                        5,052.5
                        
                        
                        
                        0.0129
                        
                        
                        
                        0.211
                        
                        
                        
                        0.160
                        
                        
                        
                        0.434
                        
                        
                        
                        65,400Subtotal
                        
                        Probable
                        
                        
                        5,052.5
                        
                        
                        
                        0.0129
                        
                        
                        
                        0.211
                        
                        
                        
                        0.160
                        
                        
                        
                        0.434
                        
                        
                        
                        65,400Total
                        
                        Proven + Probable
                        
                        
                        19,726.5
                        
                        
                        
                        0.0128
                        
                        
                        
                        0.211
                        
                        
                        
                        0.163
                        
                        
                        
                        0.476
                        
                        
                        
                        251,900





The three
years average metal prices for 2006 - 2008 were used for the calculation of the
year-end 2007 reserves, which are as follows:





Gold - $724/oz                      Silver
-
$13.32/oz                      Lead
-
$0.90/lb                      Zinc
- $1.27/lb





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
Montana Tunnels mine closed down the open pit in October 2005.  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.  This work was initiated in
August 2006 following completion of the JV Agreement with Elkhorn.




Following
the closure of the open pit in October 2005, milling of low grade stockpiles
continued until May 2006 at which time the mill was shut down and the property
placed on care and maintenance.  As a result of the unplanned milling
of the low grade stockpiles, a revision to the operating permit was obtained in
the fourth quarter of 2006 allowing the Montana Tunnels mine to raise the
tailings embankment thus increasing the tailings capacity to accommodate the
mill tailings from the L Pit ore reserves.  The raising of the
tailings embankment was completed during 2007.




The
Montana Department of Environmental Quality and Bureau of Land Management issued
a Record of Decision approving the M Pit Expansion in November
2008.  The M Pit mine expansion amendment would provide approximately
38 million tons of additional ore for processing and add approximately seven
years to the life of the mine.  The decision to proceed with the $70
million M Pit project must be agreed by both our company and Elkhorn, LLC, our
joint venture partner.  To date no decision has been made to proceed
with the M Pit project.




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




Year Ended December 31,Type of Bonding
                  
                  2008(1)
                  
                  
                  2007(1)Partially
      secured surety bond issued by CNA pursuant to the Term Bonding Agreement
      described immediately below
                  
                  $
                  14,988,000
                  
                  
                  $
                  14,988,000Cash
      bond posted directly with the State of Montana
                  
                  
                  129,000
                  
                  
                  
                  129,000Real
      estate bond posted directly with the State of Montana
                  
                  
                  3,576,000
                  
                  
                  
                  3,576,000Total
      Obligated Bonding Requirement Met
                  
                  $
                  18,693,000
                  
                  
                  $
                  18,693,000





(1)
            Apollo’s
      share of the amounts shown is 50%.




-42-


National
Fire Insurance Company of Hartford, a unit of Continental Casualty Company
(“CNA”), provides $15,041,000 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.  CNA also provides a separate exploration bond in the amount of
$53,000 under the same agreement.




Bonding
requirements are subject to adjustment by the State of Montana for various
reasons from time to time.




Drilling




As of
December 31, 2008, the Montana Tunnels mine database contains 896 reverse
circulation, rotary, core and blasthole drill holes, totaling 470,299 feet that
were drilled from the mid-1970s to the present by numerous mining and
exploration companies.




From 2002
through 2004 thirteen reverse-circulation holes for 11,000 feet were drilled to
increase confidence levels in the M Pit reserve.  The drill holes were
placed as mine development phases provided locations to collar specific
holes.  Results from both the 2002 and 2004 drilling programs were
favorable, providing a higher degree of definition to the current ore reserve
and established the geometric distribution of the polymetallic grade
mineralization in the M Pit design.




The
Montana Tunnels mine drill hole spacing is generally within the gold variogram
range of 30 feet to 140 feet in the core.




Black
Fox Project




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




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




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




On July
28, 2008, we completed the acquisition from St Andrew Goldfields Ltd., which we
refer to as St Andrew, of its Stock Mill and related equipment, infrastructure,
property rights, laboratory and tailings facilities, located near Timmins,
Ontario.  The acquisition was made pursuant to an asset purchase
agreement dated June 11, 2008, as amended June 30, 2008 and July 23, 2008,
between Apollo Gold and St Andrew.  Pursuant to the asset purchase
agreement, St Andrew agreed to sell the Stock Mill complex to Apollo Gold for a
purchase price of Cdn$20 million and the refund to St Andrew of its bonding
commitment at the mill complex in the amount of approximately Cdn$1.2
million.




-43-


Figure 3
– Black Fox mine and Black Fox mill (formerly known as the Stock mill) locations
along


Destor-Porcupine
Fault Zone in Province of Ontario, Canada











Location




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




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.  Property,
plant and equipment at the Black Fox mill consists of an administrative office,
electrical and mechanical shops, laboratory and an 1,100 tonnes per day mill for
processing the Black Fox ores.  The mill is currently being
refurbished and expanded to increase the throughput rate to 2,000 tonnes per
day.  All plant facilities and equipment are in good working order and
we expect the expanded mill to be commissioned in April 2009.  Within
the mill property, there is also a permitted tailings compound.




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




The Black
Fox mine consists of 3,195 acres of which: 185 acres are leasehold patents,
1,559 acres are owned by Apollo, 319 acres are leased by us, 820 acres where we
have surface rights only and 311 acres where we have mineral rights but no
surface rights.  The 3,195 acres includes property known as Grey Fox,
which is approximately 2 miles southeast of the actual Black Fox
mine.




-44-


The Black Fox mill property consists
of:




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





None of
the currently defined reserves are subject to production
royalties.  However, Apollo owns properties totaling 1,414 acres that
are subject to net smelter return royalties, ranging from 2.0% to 3.25%, if
there is production in the future from any reserves found on that
property.




Exploration
and Development




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




Black
Fox Project Drill Hole Database




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





In addition, during 2008, we drilled 16
exploration diamond drill holes on our property know as Grey Fox and expect to
announce the assay results in April 2009.





Mineral
Reserves




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





Black
Fox Probable Reserve Statement as of December 31, 2008




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







-45-


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





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





Permits




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




Mining
Operations




In
October, 2008, we awarded a contract for the removal of the glacial till
material which overlays the open pit and work commenced on October 23,
2008.  This removal is scheduled to be completed in May
2009.  Mining of the open pit ore and waste, which commenced in March
2009, is undertaken by Company employees.  All long lead time mining
equipment, and all items required to commence mining were on site February
2009.




We expect
that, by the second quarter of 2009, the open pit will produce 1,500 tonnes of
ore per day, which will be sufficient to feed the mill.  Based on this
assessment, we have decided to defer underground mining to periods after
2009.  Our decisions regarding the development of the underground mine
and the timing thereof will be partially influenced by progress with the phase
II of the open pit permitting.  Therefore, we do not expect to be in a
position to make a determination regarding the development and timing of
underground mining until 2010.




Mill
Complex




In the
third quarter 2008, we awarded GBM Engineering Ltd., of the UK an EPCM contract
(Engineering, Procurement, Construction and Management) to increase the mill
capacity to 2,000 tonnes per day at a cost of approximately $22.0
million.  The mill is scheduled to start commissioning in April 2009
and is expected to reach a throughput rate of 1,500 tonnes per day in May
2009.  The upgrade of our mill means that we will not toll treat ores
as highlighted in the NI 43-101.




Production




In March
2009, we commenced mining of the Black Fox open pit and we estimate that we will
mine 2,983,000 tonnes in 2009, 374,000 tonnes of which will be
ore.  The mine will operate 24 hours per day, 7 days per week and will
employ approximately 140 personnel.  The ore will be crushed at the
mine site and be transported to the Black Fox mill by a fleet of contract
trucks.  The mining equipment consists of four CAT 777 trucks, two CAT
excavators, one Komatsu PC 2000 loader, two CAT D8 bulldozers and two Atlas
Copco drills.




-46-


The Black Fox mill is scheduled to
commence milling in April 2009 and should reach a throughput rate of 1,500
tonnes per day in May 2009.  Recoveries of gold are projected to be
95%.  The mill will produce a gold dore, which will be refined by the
Johnson Matthey refinery in Brampton, Ontario.  The mill is expected
to employ 42 personnel.





Bonding




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




Phase
      I of Black Fox mine
                      
                      $
                      7,428,830Black
      Fox mill complex
                      
                      
                      6,892,300Total
                      
                      $
                      14,321,130




As of
March 20, 2009 we had posted Cdn$5,644,650 of the Black Fox mine bonding
requirement with the balance of Cdn$1,784,180 due in May 2009 and had posted
Cdn$3,500,000 towards the Black Fox mill complex with the balance of
Cdn$3,392,300 due prior to mill start up which is estimated to be April
2009.




We have
met these bonding requirements through letters of credit issued by TD Canada
Trust secured by a pledged deposit account of Cdn$9,144,650.  The
obligations to reimburse TD Canada Trust for any drawing under the letter of
credit are secured by Apollo’s maintenance of an amount equal to the amount
available for drawing the above mentioned deposit account pledged to TD Canada
Trust.  The annual letter of credit fee is 1% of the amount available
for drawing.  Interest is earned on the deposit account at a rate
established by TD Canada Trust from time to time.  We will file an
amended closure plan for phase II of the open pit in the third quarter of
2009.  We expect that there will be additional bonding requirements in
connection with this amended closure plan for phase II, but we are unable to
quantify the amount at this time.




Exploration
Stage Properties




Huizopa




We own
Mexican subsidiaries which own 100% of the concessions at the Huizopa
exploration project.  Pursuant to an agreement with the previous owner
(the “Previous Owner”) of one of those Mexican subsidiaries, we have a joint
venture with the Previous Owner in which we hold an 80% interest and the
Previous Owner holds a 20% free carry interest.  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 Madres in the
state of Chihuahua, Mexico, near the border with the State of Sonora, and
encompasses a block of mining concession claims of approximately 170 sq.
km.  During 2007, we acquired new claims to the east of our holdings
that expanded our land position from 128 sq. km. to 170 sq. km.




-47-


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.  To maintain the exploration and exploitation rights for
the “Rosa” and “Donna” concessions, we were required to pay $0.1 million in
April 2007 and $1.5 million (plus applicable taxes in Mexico) in October
2007.  These concessions represent approximately 17% of the Huizopa
property.  These payments were made ahead of schedule on February 28,
2007 when the Company issued 1,000,000 common shares and paid $2.55 million in
settlement of these contractual land payments and certain other claims on its
Huizopa properties.




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 volcanic
clastics.  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.




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




Mapping
of the mining concession began in June 2004 and were ongoing through
2007.  The results were compiled and transferred to 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.




In the
first quarter of 2006, we entered into an agreement with the Ejido Huizopa (the
“Ejido”), which is a group of local inhabitants who, under Mexican law, are
granted rights to conduct agricultural activities and control surface access on
the property.  Pursuant to the agreement, and in consideration for
certain payments to the Ejido, we have a right to use Ejido land
covering  our mining concessions in Huizopa for all activities
necessary for the exploration, development, and production of potential ore
deposits in our Huizopa project area.  We can in the future apply for
a change of use of land without any additional obligations to the
Ejido.  In addition, we may traverse adjoining and nearby Ejido land
outside the boundaries of the Huizopa mining concessions for the purpose of
constructing, operating, and maintaining improvements or facilities necessary
for the Huizopa project.




In 2006,
a geophysical program was initiated on the property and the process to select
initial drilling targets commenced in 2007.  Drill targets were
selected and a contract signed with a drilling contractor to commence helicopter
supported core drilling in 2008.  This initial drilling program
commenced in February 2008 and on August 14, 2008 we announced the results of
the core drilling program on the Puma De Oro exploration
target.  Twenty five NQ core holes were drilled on a north-trending
zone targeted for drilling based on Apollo’s geochemical sampling and geologic
mapping.  Anomalous gold and silver was found in twenty of the holes
with six of the twenty holes having significant gold and silver
values.  We are currently working on completing an NI 43-101 for the
Huizopa project more fully describing the property and drill
results.  This NI 43-101 will not contain any resources and
reserves.  Drilling assay results of core holes with intercepts
greater than 0.5 grams per tonne are shown below.


-48-





Hole
                    I.D.
                  
                  From
                    Meters
                  
                  
                  To
                    Meters
                  
                  
                  Assays grams
                    Au/tonne
                  
                  
                  Assays
                    grams
                    Ag/tonnePDO
      08
                  
                  
                  24.8
                  
                  
                  
                  26.4
                  
                  
                  
                  1.1
                  
                  
                  
                  12.0PDO
      09
                  
                  
                  37.5
                  
                  
                  
                  38.1
                  
                  
                  
                  4.1
                  
                  
                  
                  46.0PDO
      09
                  
                  
                  38.1
                  
                  
                  
                  39.2
                  
                  
                  
                  1.6
                  
                  
                  
                  18.0PDO
      09
                  
                  
                  39.6
                  
                  
                  
                  40.0
                  
                  
                  
                  0.8
                  
                  
                  
                  11.5PDO
      10
                  
                  
                  81.1
                  
                  
                  
                  81.3
                  
                  
                  
                  0.0
                  
                  
                  
                  61.0PDO
      10
                  
                  
                  81.3
                  
                  
                  
                  81.9
                  
                  
                  
                  0.0
                  
                  
                  
                  20.7PDO
      10
                  
                  
                  81.9
                  
                  
                  
                  83.4
                  
                  
                  
                  42.5
                  
                  
                  
                  162.0PDO
      10
                  
                  
                  83.4
                  
                  
                  
                  84.7
                  
                  
                  
                  0.5
                  
                  
                  
                  29.7PDO
      11
                  
                  
                  83.5
                  
                  
                  
                  85.0
                  
                  
                  
                  1.7
                  
                  
                  
                  24.8PDO
      11
                  
                  
                  85.0
                  
                  
                  
                  85.5
                  
                  
                  
                  0.8
                  
                  
                  
                  7.8PDO
      11
                  
                  
                  85.5
                  
                  
                  
                  87.1
                  
                  
                  
                  1.3
                  
                  
                  
                  19.2PDO
      11
                  
                  
                  119.1
                  
                  
                  
                  120.2
                  
                  
                  
                  3.7
                  
                  
                  
                  5.3PDO
      13
                  
                  
                  81.7
                  
                  
                  
                  83.2
                  
                  
                  
                  4.7
                  
                  
                  
                  64.0PDO
      13
                  
                  
                  83.2
                  
                  
                  
                  83.7
                  
                  
                  
                  0.5
                  
                  
                  
                  23.7PDO
      15
                  
                  
                  29.6
                  
                  
                  
                  30.3
                  
                  
                  
                  9.0
                  
                  
                  
                  262.0PDO
      15
                  
                  
                  32.3
                  
                  
                  
                  32.7
                  
                  
                  
                  21.6
                  
                  
                  
                  340.0





Assays were performed by Inspectorate
America Corporation of Sparks, Nevada.





Diamond
Hill




The
Diamond Hill mine, which has been on care and maintenance since 2000, is owned
by Montana Tunnels Mining, Inc.  The Diamond Hill 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.





On July
28, 2006, Apollo entered into an agreement with Elkhorn Goldfields Inc. (“EGI”),
an affiliate of Elkhorn.  The agreement is an option agreement
pursuant to which EGI was granted an option to purchase the Diamond Hill mine
for $0.8 million.  The option originally had an exercise term of two
years but it was extended by an additional year and now expires on July 28,
2009.





The
Diamond Hill mine covers over 1,215 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,
2008, we hold 30 unpatented claims and lease 19 unpatented claims.  The
current Diamond Hill mine permit boundary covers 270 acres with most of the mine
disturbance footprint within a 27 acre area of the main patented group of
claims.




-49-


The
Diamond Hill ore bodies 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 requirement for Diamond Hill, totaling approximately $763,000 is
posted with the Montana Department of Environmental Quality, and is managed as
part of the bonding activities through Montana Tunnels.




In June of 2008, a cleanup work plan
was carried out at Diamond Hill to improve site conditions.  As part
of this work plan, Montana Tunnels personnel removed some weathered structures,
removed all scrap from the site, improved storm water controls, sprayed weeds,
and reclaimed the waste rock dump and some exploration roads.  In
addition, a total of 4 acres of waste dump surface and unused exploration roads
were graded, soiled and seeded to control water runoff and seepage.




ITEM 3.  LEGAL PROCEEDINGS




We are
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 2008.




-50-


PART
II




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




Price
Range of Common Shares and Number of Holders




Our
common shares are listed on the NYSE Amex under the trading symbol “AGT” and on
the Toronto Stock Exchange under the trading symbol “APG.” As of March 20, 2009,
232,811,195 common shares were outstanding, and we had approximately 976
shareholders of record.  On March 20, 2009, the closing price per
share for our common shares as reported by the NYSE Amex was $0.30 and as
reported by the Toronto Stock Exchange was Cdn$0.37.




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




NYSE Amex
                      (AGT)
                    
                    
                    Toronto
                      Stock Exchange
                      (APG)High
                    
                    
                    Low
                    
                    
                    High
                    
                    
                    Low($)
                    
                    
                    (Cdn$)2008First
      Quarter
                    
                    $
                    0.74
                    
                    
                    $
                    0.15
                    
                    
                    $
                    0.72
                    
                    
                    $
                    0.18Second
      Quarter
                    
                    
                    0.70
                    
                    
                    
                    0.51
                    
                    
                    
                    0.71
                    
                    
                    
                    0.53Third
      Quarter
                    
                    
                    0.54
                    
                    
                    
                    0.24
                    
                    
                    
                    0.51
                    
                    
                    
                    0.25Fourth
      Quarter
                    
                    
                    0.25
                    
                    
                    
                    0.11
                    
                    
                    
                    0.30
                    
                    
                    
                    0.132007First
      Quarter
                    
                    $
                    0.74
                    
                    
                    $
                    0.44
                    
                    
                    $
                    0.85
                    
                    
                    $
                    0.52Second
      Quarter
                    
                    
                    0.52
                    
                    
                    
                    0.40
                    
                    
                    
                    0.59
                    
                    
                    
                    0.42Third
      Quarter
                    
                    
                    0.56
                    
                    
                    
                    0.39
                    
                    
                    
                    0.56
                    
                    
                    
                    0.42Fourth
      Quarter
                    
                    
                    0.61
                    
                    
                    
                    0.45
                    
                    
                    
                    0.60
                    
                    
                    
                    0.44





Dividend
Policy





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




NYSE
Amex Corporate Governance Requirements





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




-51-


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





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




Unregistered
Sales of Equity Securities




Not applicable.




ITEM 6.  SELECTED FINANCIAL
DATA




The
following table sets forth selected historical consolidated financial data for
Apollo Gold Corporation as of December 31, 2008, 2007, 2006, 2005, and 2004,
derived from our audited financial statements.  The data set forth
below should be read in conjunction with, and is qualified in its entirety by
reference to, our financial statements and notes thereto included elsewhere in
this Annual Report on Form 10-K and with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”




-52-


Summary
of Financial Condition


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




Canadian GAAP
                          
                          Years Ended December 31,2008 (1)
                          
                          
                          2007 (1)
                          
                          
                          2006
                          
                          
                          2005
                          
                          
                          2004Statements
      of Operations DataRevenue
      from sale of minerals
                          
                          $
                          46,387
                          
                          
                          $
                          38,474
                          
                          
                          $
                          10,177
                          
                          
                          $
                          43,254
                          
                          
                          $
                          38,254Direct
      operating costs
                          
                          
                          37,567
                          
                          
                          
                          26,336
                          
                          
                          
                          15,361
                          
                          
                          
                          48,357
                          
                          
                          
                          52,473Exploration
      and business development
                          
                          
                          3,185
                          
                          
                          
                          2,430
                          
                          
                          
                          1,033
                          
                          
                          
                          918
                          
                          
                          
                          1,051Operating
      income (loss)
                          
                          
                          1,615
                          
                          
                          
                          4,413
                          
                          
                          
                          (12,823
                          )
                          
                          
                          (13,790
                          )
                          
                          
                          (26,586
                          )Income
      (loss) from continuing operations
                          
                          
                          1,596
                          
                          
                          
                          2,416
                          
                          
                          
                          (15,237
                          )
                          
                          
                          (15,961
                          )
                          
                          
                          (27,295
                          )Loss
      from discontinued operations
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          (350
                          )
                          
                          
                          (6,247
                          )
                          
                          
                          (3,712
                          )Net
      income (loss)
                          
                          
                          1,596
                          
                          
                          
                          2,416
                          
                          
                          
                          (15,587
                          )
                          
                          
                          (22,208
                          )
                          
                          
                          (31,007
                          )Net
      income (loss) per share, basic and dilutedContinuing
      operations
                          
                          
                          0.01
                          
                          
                          
                          0.02
                          
                          
                          
                          (0.13
                          )
                          
                          
                          (0.16
                          )
                          
                          
                          (0.34
                          )Discontinued
      operations
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          (0.00
                          )
                          
                          
                          (0.06
                          )
                          
                          
                          (0.05
                          )Total
                          
                          $
                          0.01
                          
                          
                          $
                          0.02
                          
                          
                          $
                          (0.13
                          )
                          
                          $
                          (0.22
                          )
                          
                          $
                          (0.39
                          )Balance
      Sheets Data
                          
                          At December 31,Total
      assets
                          
                          $
                          131,630
                          
                          
                          $
                          75,073
                          
                          
                          $
                          51,804
                          
                          
                          $
                          62,545
                          
                          
                          $
                          97,635Long-term
      debt, including current portion
                          
                          
                          29,575
                          
                          
                          
                          13,313
                          
                          
                          
                          8,900
                          
                          
                          
                          7,272
                          
                          
                          
                          6,750Total
      shareholders’ equity
                          
                          
                          73,755
                          
                          
                          
                          42,873
                          
                          
                          
                          28,243
                          
                          
                          
                          32,441
                          
                          
                          
                          47,221





U.S. GAAP
                          
                          Years Ended December 31,2008 (1)(2)
                          
                          
                          2007 (1)(2)
                          
                          
                          2006
                          
                          
                          2005
                          
                          
                          2004Statements
      of Operations DataRevenue
      from sale of minerals
                          
                          $
                          46,387
                          
                          
                          $
                          38,474
                          
                          
                          $
                          10,177
                          
                          
                          $
                          43,254
                          
                          
                          $
                          38,254Direct
      operating costs
                          
                          
                          37,567
                          
                          
                          
                          26,336
                          
                          
                          
                          15,361
                          
                          
                          
                          48,357
                          
                          
                          
                          52,473Exploration
      and business development
                          
                          
                          3,185
                          
                          
                          
                          2,430
                          
                          
                          
                          4,206
                          
                          
                          
                          6,051
                          
                          
                          
                          11,456Operating
      income (loss)
                          
                          
                          1,202
                          
                          
                          
                          (5,964
                          )
                          
                          
                          (15,813
                          )
                          
                          
                          (22,183
                          )
                          
                          
                          (36,302
                          )Income
      (loss) from continuing operations
                          
                          
                          1,202
                          
                          
                          
                          (13,898
                          )
                          
                          
                          (11,813
                          )
                          
                          
                          (19,826
                          )
                          
                          
                          (38,792
                          )(Loss)
      income from discontinued operations
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          (350
                          )
                          
                          
                          (4,907
                          )
                          
                          
                          308Net
      income (loss)
                          
                          
                          1,202
                          
                          
                          
                          (13,898
                          )
                          
                          
                          (12,163
                          )
                          
                          
                          (24,733
                          )
                          
                          
                          (38,484
                          )Net
      earnings (loss) per share, basic and dilutedContinuing
      operations
                          
                          
                          0.01
                          
                          
                          
                          (0.10
                          )
                          
                          
                          (0.10
                          )
                          
                          
                          (0.19
                          )
                          
                          
                          (0.49
                          )Discontinued
      operations
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          (0.00
                          )
                          
                          
                          (0.05
                          )
                          
                          
                          0.00Total
                          
                          $
                          0.01
                          
                          
                          $
                          (0.10
                          )
                          
                          $
                          (0.10
                          )
                          
                          $
                          (0.24
                          )
                          
                          $
                          (0.49
                          )Balance
      Sheets Data
                          
                          At December 31,Total
      assets
                          
                          $
                          86,262
                          
                          
                          $
                          29,119
                          
                          
                          $
                          19,042
                          
                          
                          $
                          39,331
                          
                          
                          $
                          77,749Long-term
      debt, including current portion
                          
                          
                          29,693
                          
                          
                          
                          15,376
                          
                          
                          
                          9,664
                          
                          
                          
                          8,785
                          
                          
                          
                          9,071Total
      shareholders’ equity
                          
                          
                          42,354
                          
                          
                          
                          8,771
                          
                          
                          
                          6,940
                          
                          
                          
                          7,714
                          
                          
                          
                          25,014





(1)           Effective December 31, 2006, the
Montana Tunnels Mine is a 50/50 joint venture; therefore, revenue from the sale
of minerals and costs shown for the years ended December 31, 2008 and 2007 in
the tables above represent Apollo’s 50% share of the joint
venture.




(2)           For
the years ended December 31, 2008 and 2007, the Montana Tunnels joint venture is
reported under the equity method for U.S. GAAP purposes; therefore, we would
show no revenue from sale of minerals and no direct operating costs for those
years, but they are shown in the table above for comparability
purposes.  Additionally, operating income (loss) would be adjusted
accordingly.





-53-


Summary
Operational Statistics




Year
      Ended December 31,2008(1)
              
              
              2007(1)(2)
              
              
              2006(3)Production
      SummaryGold
      (ounces)
              
              
              24,346
              
              
              
              16,632
              
              
              
              4,959Silver
      (ounces)
              
              
              242,875
              
              
              
              250,982
              
              
              
              116,004Lead
      (pounds)
              
              
              7,780,046
              
              
              
              5,590,737
              
              
              
              1,196,317Zinc
      (pounds)
              
              
              18,986,730
              
              
              
              11,874,543
              
              
              
              3,040,058Total
      revenues ($millions)
              
              
              46,387
              
              
              
              38,474
              
              
              
              10,177Costs
      Per Ounce on a By-Product BasisCash
      operating costs per ounce of gold
              
              $
              455
              
              
              $
              (124
              )
              
              $
              643Total
      cash costs per ounce of gold
              
              $
              511
              
              
              $
              (60
              )
              
              $
              718Total
      production costs per ounce of gold
              
              $
              571
              
              
              $
              10
              
              
              $
              794Total
      Cash Costs Per Ounce on a Co-Product BasisTotal
      cash costs per ounce of gold
              
              $
              707
              
              
              $
              486
              
              
              $
              678Total
      cash costs per ounce of silver
              
              $
              11.27
              
              
              $
              9.02
              
              
              $
              12.81Total
      cash costs per ounce of lead
              
              $
              0.71
              
              
              $
              0.83
              
              
              $
              0.58Total
      cash costs per ounce of zinc
              
              $
              0.64
              
              
              $
              0.85
              
              
              $
              1.62





(1)
            Effective
      December 31, 2006, the Montana Tunnels Mine is a 50/50 joint venture;
      therefore, production and costs shown for the years ended December 31,
      2008 and 2007 in the table above represent Apollo’s 50% share of the joint
      venture.


(2)
            Costs
      per ounce for the year ended December 31, 2007 only includes the ten
      months of March through December as milling was restarted on March 1, 2007
      after being shut down since May 12,
2006.


(3)
            Costs
      per ounce are through May 2006.  The Montana Tunnels mine ceased
      milling operations on May 12, 2006; therefore, no metal products were
      produced after that date during the remainder of
  2006.




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 25 to the attached consolidated financial
statements.  Unless stated otherwise, all dollar amounts are reported
in U.S. dollars.




-54-


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.




RECONCILIATION
OF CASH OPERATING AND TOTAL PRODUCTION COSTS PER OUNCE




Year
      Ended December 31,2008(1)
              
              
              2007(1)(2)
              
              
              2006(1)(2)($
      in thousands, except per ounce data)Gold
      ounces sold
              
              
              24,346
              
              
              
              16,632
              
              
              
              4,959Direct
      operating costs
              
              $
              37,567
              
              
              $
              25,095
              
              
              $
              10,469Less:  Mining
      and property taxes
              
              
              1,358
              
              
              
              1,079
              
              
              
              375By-product
      credits
              
              
              25,128
              
              
              
              26,086
              
              
              
              6,907Cash
      operating cost
              
              
              11,081
              
              
              
              (2,070
              )
              
              
              3,187Cash
      operating cost per ounce
              
              
              455
              
              
              
              (124
              )
              
              
              643Cash
      operating cost
              
              
              11,081
              
              
              
              (2,070
              )
              
              
              3,187Add:  Mining
      and property taxes
              
              
              1,358
              
              
              
              1,079
              
              
              
              375Total
      cash cost
              
              
              12,439
              
              
              
              (991
              )
              
              
              3,562Total
      cash cost per ounce
              
              
              511
              
              
              
              (60
              )
              
              
              718Total
      cash cost
              
              
              12,439
              
              
              
              (991
              )
              
              
              3,562Add:  Depreciation
      & amortization
              
              
              1,465
              
              
              
              1,162
              
              
              
              376Total
      production cost
              
              
              13,904
              
              
              
              171
              
              
              
              3,938Total
      production cost per ounce
              
              
              571
              
              
              
              10
              
              
              
              794





(1)
            Effective
      December 31, 2006, the Montana Tunnels Mine is a 50/50 joint venture;
      therefore, gold ounces sold and costs shown for the years ended December
      31, 2008 and 2007 in the table above represent Apollo’s 50% share of the
      joint venture.


(2)
            Costs
      and costs per ounce for the year ended December 31, 2007 in the table
      above only include the ten months of March through December as milling was
      restarted on March 1, 2007 after being shut down since May 12,
      2006.




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 gold mining including extraction, processing, refining
and the production of other co-product metals, as well as related activities
including exploration and development of mineral deposits principally in North
America.  We are the operator of the Montana Tunnels, which is a 50%
joint venture with Elkhorn Tunnels, LLC (“Elkhorn”).  The Montana
Tunnels mine is an open pit mine and mill located near Helena, Montana, which
produces gold doré and lead-gold and zinc-gold concentrates.




We own an
advanced stage development property, the Black Fox project, which is located
near Matheson in the Province of Ontario, Canada.  The Black Fox
project consists of a mine site situated seven miles east of Matheson and the
recently acquired mill complex 12 miles west of Matheson.  We expect
we will commence gold production at Black Fox in the second quarter
2009.  We also own Mexican subsidiaries which own concessions at the
Huizopa exploration property located in the Sierra Madres in Chihuahua,
Mexico.




-55-


Corporate





Flow
Through Private Placement





On
December 31, 2008, we completed a private placement to Canadian purchasers of
3,000,000 common shares issued at Cdn$0.30 per share on a “flow through” basis
pursuant to the Income Tax Act(Canada) for gross proceeds equal to Cdn$900,000. We used the net
proceeds from the sale of the flow through shares to fund exploration and
certain development expenditures at our Black Fox project.





In
consideration for finding the purchasers in the private placement, we paid a
cash finder’s fee of Cdn$40,500 (which is equal to 4.5% of the gross proceeds in
the private placement) to MAK Allen & Day Capital Partners. In addition, in
consideration for advisory services rendered in connection with the private
placement, we paid Haywood Securities Inc. an advisory fee equal to Cdn$36,000
(which is equal to 4.0% of the gross proceeds in the private placement),
together with 255,000 common share purchase warrants representing the number of
our common shares as is equal to 8.5% of the number of flow through shares sold
to purchasers in the private placement. Each such warrant is immediately
exercisable at a price of Cdn$0.30 into one of our common shares within
twenty-four (24) months of closing of the private placement.





Black
Fox Project Financing





In May 2008, Apollo retained Macquarie
Bank Ltd. (“Macquarie Bank”) and RMB Australia Holdings Limited (“RMB”) as joint
arrangers (the “Banks”) and underwriters for the Black Fox project finance
facility.  The Banks conducted due diligence and project review with
Apollo throughout the remainder of 2008 and to ensure that development of the
Black Fox open pit mine and the upgrade of the mill complex continued on
schedule, Apollo and the Banks completed a $15 million bridge facility (the
“Bridge Facility”) on December 10, 2008, with each Bank making available 50% of
the aggregate loan.  The Bridge Facility was subject to an arrangement
fee of 5% and interest at LIBOR plus 10% per annum.  In addition, each
of the Banks received  21,307,127 warrants, each warrant entitling the
holder to purchase one common share at a price of Cdn$0.221 per common share and
exercisable for a four year period.




On
February 20, 2009, we entered into a project facility agreement (“Project
Facility”) with the Banks.  The Project Facility refinanced the $15
million Bridge Facility under which we had drawn down $13.8 million as of
the closing of the Project Facility.  Under the Project Facility
agreement, we may borrow up to $70,000,000 from the Banks at any time between
February 20, 2009 and June 30, 2009, after which time any undrawn portion of the
$70,000,000 commitment will be cancelled and will no longer be available for
drawdown.  The Project Facility requires us to use proceeds from the
facility only for: (i) the funding of the development, construction and
operation of our Black Fox project; (ii) the funding of certain fees and costs
due under the Project Facility and certain related project agreements; (iii)
corporate expenditures of up to $7,000,000 as approved by the Banks in our
corporate budget ($3,723,939 of which was used to repay the February 2007
convertible debentures, and interest thereon, not held by RAB Special Situation
(Master)Fund Limited (“RAB)); (iv) repayment of $15,341,345 under the Bridge
Facility and (v) any other purpose that the Banks approve.





The
Project Facility was subject to an arrangement fee of $3,465,551, which was paid
upon the initial drawdown under the Project Facility, and a commitment fee equal
to 1% per annum calculated on a daily basis on the average monthly balance of
the undrawn commitment, which is payable in arrears on March 31, 2009 and June
30, 2009.  Amounts borrowed under the Project Facility bear interest
at LIBOR plus 7% per annum and interest is payable quarterly commencing March
31, 2009.  The principal amount is repayable by us in accordance with
the following schedule:




-56-




Repayment Date
                  
                  Repayment AmountSeptember
      30, 2009
                  
                  $
                  9,300,000December
      31, 2009
                  
                  $
                  6,000,000March
      31, 2010
                  
                  $
                  4,400,000June
      30, 2010
                  
                  $
                  4,000,000September
      30, 2010
                  
                  $
                  3,200,000December
      31, 2010
                  
                  $
                  2,200,000March
      31, 2011
                  
                  $
                  1,800,000June
      30, 2011
                  
                  $
                  2,700,000September
      30, 2011
                  
                  $
                  2,800,000December
      31, 2011
                  
                  $
                  2,900,000March
      31, 2012
                  
                  $
                  4,900,000June
      30, 2012
                  
                  $
                  6,800,000September
      30, 2012
                  
                  $
                  9,000,000December
      31, 2012
                  
                  $
                  3,800,000March
      31, 2013
                  
                  $
                  6,200,000





In
connection with the Project Facility, we issued 34,836,111 warrants to the Banks
(11,637,775 to RMB and 23,198,336 to Macquarie Bank) as consideration for
financing services provided in connection with the Project
Facility.  Each warrant entitles the holder to purchase one of our
common shares pursuant to the terms and conditions of the
warrant.  The warrants expire on February 20, 2013 and have an
exercise price of Cdn$0.252 per warrant share, subject to customary
anti-dilution adjustments.  We have agreed to use our best efforts to
register the resale of the shares issuable upon exercise of the warrants with
the SEC promptly following the execution of the Project Facility.  The
warrants are in addition to the 42,614,254 warrants  issued to the Banks in
connection with the Bridge Facility.  Following the issuance of the
34,836,111 warrants provided in connection with the Project Facility and
assuming exercise by the Banks of all warrants held by them, RMB and Macquarie
Bank would beneficially own 14.88% and 18.54%, respectively, of our issued and
outstanding capital stock (on an otherwise undiluted basis).




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




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


-57-





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





As a part
of the Project Facility, we and the Banks have entered into a hedging program
covering both gold sales and part of our Canadian dollar operating costs.
Specifically, we have entered into a 250,420 ounce gold forward sales program
which will be allocated across the four year term of the Project Facility. The
weighted average price of the sales program is $876 per ounce of
gold.  The foreign exchange hedge program was for the Canadian dollar
equivalent of $60 million, at an average exchange rate of US$1 = Cdn$1.21, over
a period covering the four year term of the Project Facility.





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





On
February 23, 2007, we concluded a private placement pursuant to which we sold
$8,580,000 aggregate principal amount of convertible debentures due February 23,
2009.  Each $1,000 principal amount of the February 2007 convertible
debentures was convertible at the option of the holder into 2,000 of our common
shares, at any time until February 23, 2009.  Additionally, each
$1,000 principal amount of the February 2007 convertible debentures included
2,000 common share purchase warrants,  entitling the holder to
purchase one of our common shares at an exercise price of $0.50 per share, with
such accompanying warrants expiring February 23, 2009.  We filed a
Form 8-K with the SEC on February 26, 2007 disclosing the terms of the February
2007 convertible debentures, the warrants and the private placement pursuant to
which such securities were issued.





RAB owns
$4,290,000 principal amount of February 2007 convertible debentures (on which
$772,200 of interest was accrued and unpaid on the maturity date of February 23,
2009) and 8,580,000 accompanying warrants.  We and RAB agreed to
extend the original maturity date of the February 2007 convertible debentures
owned by RAB to February 23, 2010.  Furthermore, RAB agreed that we
shall have the option to repay the $772,200 of accrued interest on RAB’s
February 2007 convertible debentures in either our common shares or
cash.  We elected to pay the accrued interest in common shares and
issued 2,444,765 shares to RAB calculated by dividing the accrued interest owed
by the volume weighted average market price of our common shares as quoted on
the Toronto Stock Exchange during the five trading days ending February 23,
2009.  In consideration for the foregoing, we agreed to (i) issue
2,000,000 common shares to RAB, (ii) extend the expiration date of the
accompanying warrants issued to RAB to March 5, 2010 and (iii) reduce the
exercise price of the accompanying warrants issued to RAB from $0.50 to
$0.25.  The terms and conditions of the $3,148,100 aggregate principal
amount of February 2007 convertible debentures and accompanying warrants not
owned by RAB were not amended and we repaid the principal amount and accrued
interest thereon to the holders thereof on in cash February 23,
2009.


-58-





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





Early
repayment of debt facility with RMB





On July
1, 2008, we entered into an amendment to the October 2007 debt facility with RMB
pursuant to which we borrowed an additional $5,150,000 under that debt
facility.  In connection therewith, we entered into additional put and
call contracts for gold, silver, lead and zinc.





On
October 23, 2008, we closed some of the additional put and call contracts
put in place in connection with the July 2008 amendment early since the current
value of the contracts exceeded the December 2008 repayment obligation of
$1,716,667 under the debt facility, and the proceeds therefrom of $2,010,000
were applied as follows:





1.    Repayment
      of facility principal
                    
                    $
                    1,952,0002.    Interest
      due December 31, 2008
                    
                    $
                    49,3003.    Fees
                    
                    $
                    8,600




As of
March 20, 2009 and after giving effect to the $1,952,000 repayment of principal
described above and an additional $75,000 payment made on December 23, 2008, we
owed $2,762,000 under the October 2007 RMB debt facility, as amended, $1,717,000
of which is payable on March 31, 2009 and $1,045,000 on June 30,
2009.





Montana
Tunnels





During
2008, approximately 8,069,000 tons were mined, of which 5,562,000 tons were
ore.  The mill processed 4,510,000 tons of ore at an average
throughput of 12,300 tons per day for the year.  As at December 31,
2008, the ore stockpile sitting alongside the mill was 1,650,000
tons.  Payable production was 48,700 ounces of gold, 486,000 ounces of
silver, 15,560,000 pounds of lead and 37,973,000 pounds of
zinc.  Apollo’s share of this production was 50%.





Grade
      of Ore Milled 2008:
                    
                    Mill
      Recoveries 2008:Gold
      ounces per ton
                    
                    
                    0.0144
                    
                    Gold
                    
                    
                    81.2
                    %Silver
      ounces per ton
                    
                    
                    0.1750
                    
                    Silver
                    
                    
                    83.9
                    %Lead
      %
                    
                    
                    0.2200
                    
                    Lead
                    
                    
                    82.7
                    %Zinc
      %
                    
                    
                    0.6300
                    
                    Zinc
                    
                    
                    83.2
                    %




-59-


Total
cash costs for 2008 on a by-product basis were $503 per ounce of gold and on a
co-product basis they were $703 per ounce of gold, $11.21 per ounce of silver,
$0.71 per lb of lead and $0.63 per lb of zinc.  For the fourth quarter
2008, the total cash costs per ounce of gold on a by-product basis were $1,519
which was significantly higher than the first nine months of 2008 as a direct
result of the sharp fall in price of both lead and zinc which occurred in the
period October to December 2008.  A sharp fall in the price of lead
and zinc not only has an effect on what the smelter pays for our deliveries in
the month of delivery but also has the effect of repricing the estimates paid to
us in the previous two months.  A sharp rise in the price of a metal
would have the opposite effect.





During
2008, the joint venture spent $0.8 million on capital
expenditures.  Apollo’s share of these capital expenditures is
50%.  Also during 2008, the joint venture distributed $17.3 million to
its principals, 53% of which went to Elkhorn and 47% of which went to
Apollo.





On
December 5, 2008, we ceased mining of ore from the Montana Tunnels open pit as a
result of exhausting the ore in our current “L Pit” permit.  In
connection therewith, we issued 60 day notice of terminations of employment to
87 employees in compliance with the U.S. Department of Labor’s Worker Adjustment
and Retraining Notification Act (“WARN”).  On February 3, 2009, 82 of
these employees were terminated.





We
have received all necessary permits to expand the current L pit, which
expansion plan we refer to as the M Pit project.  The M Pit project
would involve a 12 month pre-stripping program that would cost approximately $70
million, during which time no ore would be produced.  We are not
currently engaged in discussions with financing sources for our $35 million
share of the financing costs.  The decision to proceed with the M Pit
project must be agreed to by both Apollo and Elkhorn.  We and our
joint venture partner have not yet made a production decision on the M Pit
project and such decision will depend, among other things, on securing financing
for the $70 million and the prices of gold, silver, lead and zinc and available
smelter terms.  We expect to continue milling stockpiled ore at
Montana Tunnels until the end of April 2009.  If no decision has been
made on M Pit project by the time that the stockpiled ore is exhausted, then the
mill will be placed on care and maintenance.  In anticipation of the
closure of the mill at the end of April 2009 we issued additional WARN Act
notices to all of the remaining employees on February 27, 2009.  The
current estimate of the reclamation liability for the L Pit and the Montana
Tunnels site is $18.5 million which is covered by $15.3 million in cash in a
trust account plus collateralized land valued at $3.2 million (our share of the
liability, cash in trust and collateralized land is 50% of these
amounts).





Black
Fox





Reserves - On April 14, 2008,
we filed a Canadian National Instrument, NI 43-101 Technical
Report.  The mineral reserves shown in the table below were calculated
based on a gold price of $650 per ounce.





Black
Fox Probable Reserve Statement as of December 31, 2008




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





Purchase of the Stock Mill Complex– On  July 28, 2008, we completed the acquisition of the Stock
Mill Complex (now referred to as the Black Fox mill) from St Andrew for a
purchase price consisting of (i) $19.6 million cash (Cdn$20.1 million) and (ii)
the obligation to refund to St Andrew its bonding commitment at the mill complex
in the amount of approximately $1.1 million (Cdn$1.2 million) by July 28,
2009.




-60-


Mine Development -We have
received all necessary permits and approvals required to commence mining
activities for phase I of the open pit mine. In particular, we have received
Certified Closure Plan Approval, an Amended Certificate of Approval for
Industrial Sewage Works, and a Permit to Take Water (Surface and Ground
Water.)




Mining Operations -In October
2008, we awarded a contract for the removal of the glacial till material which
overlays the open pit. This work commenced on October 23, 2008 and is scheduled
to be completed in May 2009. Mining of the open pit ore and waste was undertaken
by our employees utilizing our fleet of equipment in March 2009. We expect that,
by the second quarter of 2009, the open pit will produce 1,500 tonnes of ore per
day, which will be sufficient to feed the mill.




Mill Complex -In the third
quarter 2008, we awarded GBM Engineering Ltd., of the UK, an EPCM (Engineering,
Procurement, Construction and Management) contract to increase throughput of the
mill’s historic throughput rate of 1,100 tonnes per day up to 2,000 tonnes per
day at a cost of approximately $22.0 million. The upgraded mill is scheduled for
commissioning in April 2009 and is expected to reach a throughput rate of 1,500
tonnes per day in May 2009.




Huizopa
Project




On August
14, 2008, we announced the results of the core drilling program on the Puma de
Oro Exploration target. Twenty five NQ core holes were drilled on a
north-trending zone targeted for drilling based on Apollo’s geochemical sampling
and geologic mapping. Anomalous gold and silver was found in twenty of the holes
with six of the twenty holes having significant gold and silver values. We are
currently working on completing a Canadian National Instrument 43-101 for the
Huizopa property.





BUSINESS
STRATEGY AND DEVELOPMENT




2009
Forecasted Highlights:




We have
three properties: the Montana Tunnels mine (of which Apollo has a 50% interest),
the Black Fox project and the Huizopa project. Below is a summary of our
expectations for these three properties in 2009.




Montana Tunnels Mine – The
mine is a 50/50 joint venture with Elkhorn. In December 2008, we ceased mining
of the L Pit. As of December 31, 2008, stockpiled ore amounted to 1,600,000
tons, which we believe is sufficient to keep the mill operational until the end
of April 2009. The mill is expected to operate at 13,000 tons per day for total
production of the following payable metals during the period January through
April 2009: 8,000 ozs of gold, 150,000 ozs of silver, 3,000,000 lbs of lead and
11,000,000 lbs of zinc. Apollo’s share of this production is: 4,000 ozs of gold,
75,000 ozs of silver, 1,500,000 lbs of lead and 5,500,000 lbs of zinc. We do not
expect to incur capital expenditures at Montana Tunnels in 2009.





Following
the expected cessation of milling at the end of April 2009, we will place
Montana Tunnels on care and maintenance.




-61-




Black Fox Project – We started
mining from the Black Fox mine in March 2009 and expect to commission the
upgraded Black Fox Mill in April with an objective of reaching a throughput rate
of 1,500 tonnes per day by the end of May 2009. We estimate that we will mine
2,983,000 tonnes in 2009, 374,000 tonnes of which will be ore. The ore will be
crushed at the mine site and be transported to the Black Fox mill by a fleet of
contract trucks. Recoveries of gold are projected to be 95%. The mill will
produce a gold dore.





Huizopa Project – Following
the completion of our 2008 drilling program, we expect to publish a Canadian
National Instrument 43-101 for the Huizopa project during the second quarter of
2009. This 43-101 will more fully describe the property and the drill results.
This 43-101 will not contain any resources or reserves.





APOLLO
GOLD CORPORATION




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




Revenue
from the Sale of Minerals.





Revenues
for the year ended December 31, 2008, all of which came from Montana Tunnels,
increased 21% to $46.4 million, compared to $38.5 million for the year ended
December 31, 2007. The increase in revenue is due to (i) higher gold prices in
2008, (ii) a 46% increase in gold ounces produced and sold and (iii) the fact
that the mill was shut down during the first two months of 2007.




Revenues
from gold for the year ended December 31, 2008 were $21.3 million, compared to
$12.4 million for the year ended December 31, 2007. The average price received
for gold for the years ended December 31, 2008 and 2007 was $873 and $740 per
ounce, respectively.




Revenues
from the sale of silver, zinc and lead for the year ended December 31, 2008
decreased from $26.1 million in 2007 to $25.1 million, a decrease of 4% due to
lower prices of lead and zinc.




For the
year ended December 31, 2008, 46% of the total revenue was derived from sales of
gold, 32% from the sales of zinc, and 22% from sales of silver and lead,
compared to 32% from sales of gold, 40% from the sales of zinc, and 28% from
sales of silver and lead for 2007.




Gold
production increased from 16,632 ounces in 2007 to 24,346 ounces for the year
ended December 31, 2008. This increase is due to the fact that the mill was shut
down during the first two months of 2007 and an increase in 2008 in the grade of
the ore processed.




Operating
Expenses.




Direct Operating Costs. For
the year ended December 31, 2008, direct operating costs, which include mining
costs, processing costs, smelting and refining charges, and care and maintenance
costs, increased 43% to $37.6 million, from $26.3 million for the year ended
December 31, 2007. This increase is a result of there being twelve months of
production in 2008 compared to the ten months in 2007 plus 54% higher treatment
charges and increased cost per ton of mining.




Depreciation and
Amortization. Depreciation and amortization expenses were $1.6 million
for the year ended December 31, 2008, compared to $1.4 million for 2007. The
increase in depreciation expense of $0.2 million is due to higher depreciation
expense at Montana Tunnels.




-62-




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




Accretion Expense. Accretion
expense, relating to accrued site closure costs at the Montana Tunnels mine was
$0.7 million for the year ended December 31, 2008, compared to $0.5 million for
the year ended December 31, 2007.




Amortization of deferred
gain. Amortization of deferred gain, relating to the transfer of assets
and liabilities to the Montana Tunnels joint venture, were $2.0 million for the
year ended December 31, 2007 and $1.2 million for the year ended December 31,
2007. The increase is a result of higher gold production during
2008.




Exploration and Business
Development. Expenses for exploration and development, consisting of
exploration related expenses at our exploration properties, totaled $3.2 million
and $2.4 million for the years ended December 31, 2008 and 2007, respectively.
The increase is due primarily to increased exploration activity at the Huizopa
property.




Total Operating Expenses. As
a result of these expense components, our total operating expenses for the year
ended December 31, 2008 increased 31% to $44.8 million from $34.1 million for
the year ended December 31, 2007. Most of this increase in costs is due to
increased mining activities at the Montana Tunnels mine.




Other
Income (Expense).




Interest Income, Interest Expense
and Financing Costs. We realized interest income of $0.4 million for the
year ended December 31, 2008 compared to interest income of $0.7 million for the
year ended December 31, 2007 due to lower interest rates realized during 2008.
We incurred interest expense of $4.6 million during 2008 and $5.7 million during
2007. The decrease in interest expense is primarily the result of retiring the
Series 2004-B convertible debentures in December 2007.Financing costs of $0.7
million were recorded in 2007 in conjunction with the convertible debentures
issued February 2007.




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




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




Income Tax Recovery. For the
year ended December 31, 2008, we recorded a $1.8 million tax benefit, which
includes a $1.9 million benefit for the issuance of flow-through shares in
connection with the flow-through equity offering in August 2008 and an income
tax expense of $0.1 million for alternative minimum taxes resulting from U.S.
operations, but recorded no other recovery for income taxes as the net loss
carry forwards are fully offset by a valuation allowance. For the year ended
December 31, 2007, we recorded a $1.4 million recovery of income taxes in
connection with the flow-through equity offering in October 2007, but recorded
no other recovery for income taxes as the net loss carry forwards were fully
offset by a valuation allowance.




-63-




Net
Income (Loss) for the Year.




As a
result of the foregoing, we recorded net income of $1.6 million, or $0.01 per
share for the year ended December 31, 2008, as compared to net income of $2.4
million, or $0.02 per share, for the year ended December 31, 2007.




Results
of Operations Year Ended December 31, 2007 Compared to Year Ended December 31,
2006




Revenue
from the Sale of Minerals.





Revenues
for the year ended December 31, 2007, all of which came from Montana Tunnels
increased 278% to $38.5 million, compared to $10.2 million for the year ended
December 31, 2006. The increase in revenue is due to milling higher grade ores,
higher metal prices in 2007 and the fact that the mill was shut down from May
12, 2006 through February 28, 2007. These factors were partially offset because,
effective December 31, 2006, the Montana Tunnels mine is a 50/50 joint venture,
and therefore Apollo’s share of revenue is 50%.




Revenues
from gold for the year ended December 31, 2007 were $12.4 million, compared to
$3.3 million for the year ended December 31, 2006. The average price received
for gold for the years ended December 31, 2007 and 2006 was $740 and $659 per
ounce, respectively.




Revenues
from silver, zinc and lead for the year ended December 31, 2007 increased from
$6.9 million in 2006 to $26.1 million, an increase of 278% as a direct result of
higher production and metal prices.




For the
year ended December 31, 2007, 32% of the total revenue was derived from sales of
gold, 40% from the sales of zinc, and 28% from sales of silver and lead,
compared to 32% from sales of gold, 47% from the sales of zinc, and 21% from
sales of silver and lead for 2006.




Gold
production increased from 4,959 ounces in 2006 to 16,632 ounces for the year
ended December 31, 2007. This increase is due to resumption of the milling
operations on March 1, 2007 at Montana Tunnels and an increase in the grade of
the ore processed.




Operating
Expenses.




Direct Operating Costs. For
the year ended December 31, 2007, direct operating costs, which include mining
costs, processing costs, smelting and refining charges, and care and maintenance
costs, increased 71% to $26.3 million, from $15.4 million for the year ended
December 31, 2006. The increase in costs is due to the following factors: (1) in
2006 mining was suspended until August, while mining occurred during all of 2007
and (2) the resumption of milling operations at Montana Tunnels on March 1, 2007
after being shut down since May 2006. These factors were partially offset
because, effective December 31, 2006, the Montana Tunnels mine became a 50/50
joint venture, and therefore Apollo’s share of direct operating costs is
50%.




Depreciation and
Amortization. Depreciation and amortization expenses were $1.4 million
for the year ended December 31, 2007, compared to $1.6 million for 2006. The
decrease in depreciation and amortization is a result of the Montana Tunnels
mine becoming a 50/50 joint venture effective December 31, 2006, and therefore
Apollo’s share of depreciation and amortization at the Montana Tunnels mine is
50%. This decrease was partially offset due to the increase in mining
activities.




-64-




General and Administrative
Expenses. General and administrative expenses for the year ended December
31, 2007 were $4.6 million compared to $4.0 million for the year ended December
31, 2006. Stock-based compensation expense recorded during 2007 was $1.0
million, an increase of $0.5 million over 2006.




Accretion Expense. Accretion
expense, relating to accrued site closure costs at the Montana Tunnels mine was
$0.5 million for the year ended December 31, 2007, compared to $0.9 million for
the year ended December 31, 2006. Effective December 31, 2006, the Montana
Tunnels mine is a 50/50 joint venture, and therefore Apollo’s share of the
accretion expense is 50%.




Amortization of Deferred
Gain. Amortization of deferred gain, relating to the transfer of assets
and liabilities to the Montana Tunnels joint venture, was $1.2 million for the
year ended December 31, 2007. As the Montana Tunnels joint venture became
effective December 31, 2006, there was no gain amortized in 2006.




Exploration and Business
Development. Expenses for exploration and development, consisting of
exploration related expenses at our exploration properties, totaled $2.4 million
and $1.0 million for the years ended December 31, 2007 and 2006, respectively.
The increase in exploration expenses is due to increased activity at our Huizopa
property and the settlement of certain claims in relation to the Huizopa
property.




Total Operating Expenses. As
a result of these expense components, our total operating expenses for the year
ended December 31, 2007 increased 48% to $34.1 million from $23.0 million for
the year ended December 31, 2006. Most of this increase in costs is due to the
resumption of mining and milling operations at the Montana Tunnels
mine.




Other
Income (Expense).




Interest Income, Interest Expense
and Financing Costs. We realized interest income of $0.7 million for the
year ended December 31, 2007 compared to interest income of $0.4 million for the
year ended December 31, 2006 due to higher cash balances throughout the year. We
incurred interest expense of $5.7 million during 2007 and $2.7 million during
2006. The increase in interest expense is due to the accretion on the
convertible debentures issued in February 2007. Financing costs of $0.7 million
were recorded in 2007 in conjunction with the convertible debentures issued
February 2007.




Realized and Unrealized Gains on
Derivative Instruments.For the year ended December 31, 2007, we realized
gains of $0.4 million from lead and zinc derivative instruments and recorded
$2.1 million in unrealized gains for the fair value of lead and zinc derivative
instruments maturing in 2008. We held no derivative instruments in
2006.




Foreign Exchange Loss and
Other. We realized foreign exchange loss and other expenses of $0.2
million and $0.2 million during the years ended December 31, 2007 and 2006,
respectively, from cash balances not held in United States dollars.




Income Tax Recovery. We
recorded a $1.4 million recovery of income taxes in connection with the
flow-through equity offering in October 2007, but recorded no other recovery for
income taxes as the net loss carry forwards are fully offset by a valuation
allowance.




-65-




Income
(Loss) from Continuing Operations.




As a
result of the foregoing, the Company had income from continuing operations of
$2.4 million, or $0.02 per share, for the year ended December 31, 2007, as
compared to a loss of $15.2 million or $0.13 per share, for the year ended
December 31, 2006.




Loss
from Discontinued Operations.




For the
year ended December 31, 2007, there was no gain or loss from discontinued
operations as compared to a loss of $0.4 million for the year ended December 31,
2006 in connection with assets we held in Nevada that were sold in
2005.




Net
Income (Loss) for the Year.




For the
year ended December 31, 2007, we recorded net income of $2.4 million, or $0.02
per share, as compared to a net loss of $15.6 million, or $0.13 per share, for
the year ended December 31, 2006.




Summary
of Quarterly Results




2008
      Quarter Ended In
              
              
              2007
      Quarter Ended InDec
              
              
              Sept
              
              
              June
      (1)
              
              
              March
              
              
              Dec
              
              
              Sept
              
              
              June
              
              
              March
      (2)($
      in thousands, except per share and total cash cost per ounce
      data)Revenue
      from the sale of minerals
              
              $
              7,702
              
              
              $
              12,764
              
              
              $
              10,019
              
              
              $
              15,902
              
              
              $
              10,880
              
              
              $
              11,863
              
              
              $
              12,841
              
              
              $
              2,890Operating
      income (loss)
              
              
              (2,924
              )
              
              
              1,183
              
              
              
              (1,774
              )
              
              
              5,130
              
              
              
              641
              
              
              
              3,227
              
              
              
              3,716
              
              
              
              (3,171
              )Net
      (loss) income
              
              
              (1,277
              )
              
              
              548
              
              
              
              (1,329
              )
              
              
              3,654
              
              
              
              2,510
              
              
              
              2,117
              
              
              
              2,436
              
              
              
              (4,647
              )Net
      (loss) income per share, basic and diluted
              
              
              0.00
              
              
              
              0.00
              
              
              
              (0.01
              )
              
              
              0.02
              
              
              
              0.02
              
              
              
              0.01
              
              
              
              0.02
              
              
              
              (0.03
              )Gold
      production in ounces
              
              
              5,482
              
              
              
              7,319
              
              
              
              4,612
              
              
              
              6,933
              
              
              
              5,233
              
              
              
              4,755
              
              
              
              5,483
              
              
              
              1,161Total
      cash cost per ounce of gold – by-product basis
              
              $
              971
              
              
              $
              471
              
              
              $
              758
              
              
              $
              (3
              )
              
              $
              315
              
              
              $
              (215
              )
              
              $
              (237
              )
              
              $
              (270
              )Total
      cash cost per ounce of gold – co-product basis
              
              $
              873
              
              
              $
              666
              
              
              $
              829
              
              
              $
              561
              
              
              $
              632
              
              
              $
              459
              
              
              $
              406
              
              
              $
              418





(1)
            Included
      a three-week mill shutdown for repair of the Montana Tunnels ball
      mill.


(2)
            Remediation
      of the Montana Tunnels open pit completed in January 2007. Milling
      commenced on March 1, 2007. Cash costs per ounce of gold represent March
      2007 only.





Financial
Condition, Liquidity and Capital Resources




To date,
we have funded our operations primarily through issuances of debt and equity
securities and cash generated by the Montana Tunnels joint venture. At December
31, 2008, we had cash of $3.1 million, compared to cash of $4.9 million at
December 31, 2007. The decrease in cash since December 31, 2007 is primarily the
result of investing cash outflows of $41.3 million, partially offset by
operating cash inflows of $1.3 million and financing cash inflows of $39.5
million. Additionally, there was a $1.2 million reduction in cash due to the
effect of exchange rate changes on cash.




During
the year ended December 31, 2008, net cash used in investing activities totaled
$41.3 million. Capital expenditures for property, plant and equipment of $32.5
million include $32.1 million for the further development of the Black Fox
project and $0.4 million spent at Montana Tunnels. Included in the Black Fox
capital expenditures is $20.6 million for the purchase of the Black Fox mill
complex. Net cash used in restricted cash and restricted certificates of deposit
amounted to $14.3 million, of which $9.0 million was in connection with the $15
million Bridge Facility pending satisfaction of certain conditions required by
the Banks, respecting the improvement of our capital liquidity position on terms
satisfactory to the Banks. Other investing activities included restricted
certificate of deposit cash outflows of $2.2 million for the funding of the
Montana Tunnels reclamation liability and $3.3 million for additional bonding
for future reclamation at Black Fox. Additionally, there were cash inflows of
$5.5 million from settlement of gold, silver, lead and zinc derivative
contracts.




-66-




During
the year ended December 31, 2008, cash provided by financing activities was
$39.5 million. Net proceeds on issuance of shares and warrants were $26.3
million which consists of (1) $18.1 million for the unit offering completed July
24, 2008, (2) $7.5 million for the flow-through offering completed August 21,
2008 and (3) $0.7 million for the flow-through offering completed December 31,
2008. Proceeds from loans of $22.2 million were comprised of (1) $5.2 million
for an extension on an existing debt facility, (2) $15.0 million for the Bridge
Facility entered into on December 10, 2008, (3) $1.0 million for an equipment
lease and (4) funding from a margin loan of $1.0 million that is secured by
long-term investments (the $1.5 million face value auction rate securities).
Payments of notes payable accounted for cash outflows of $10.3 million. Also,
cash inflows of financing activities included the exercise of 3.3 million
warrants at an average exercise price of $0.43 per common share for proceeds of
$1.4 million.




During
2008, we spent $38.2 million on the development of the Black Fox project,
including $20.6 million on the purchase of the Black Fox mill complex and $3.3
million on additional bonding. In addition to the $38.2 million spent in 2008,
we estimate that an additional $57 million of capital, including $8.4 million of
additional bonding, will be required to complete the project. As of December 31,
2008, we had capital commitments associated with the development of Black Fox
amounting to $17.1 million and were committed to post $9.0 million (Cdn$10.9
million) cash for environmental bonding at Black Fox. At Montana Tunnels, mining
of the L Pit ceased on December 5, 2008 and milling of stockpiled ore is
scheduled to continue until the end of April 2009. At current commodity prices,
we anticipate that Montana Tunnels will produce a positive cash flow until the
cessation of milling. There are no capital commitments at Montana Tunnels within
the next twelve months unless Apollo and its JV partner, Elkhorn, decide to
develop the M Pit project. At this time no decision to proceed has been made. If
there has not been a decision to proceed with the M Pit before we complete
milling stockpiled ore in the second quarter of 2009, then the mill will be
placed on care and maintenance at an annual cost to Apollo of approximately $1.0
million. The current estimate of the reclamation liability for the L Pit and the
Montana Tunnels site is $18.5 million which as at the date of this report is
covered by $16.0 million in cash in a trust account plus collateralized land
valued at $3.2 million (Apollo’s share of the liability, cash in trust and
collateralized land is 50% of these amounts). Therefore, in summary, we do not
anticipate any further capital expenditures at Montana Tunnels unless the M Pit
is developed.




Management
has performed a mineral property impairment test to assess whether there are
facts and circumstances that indicate potential impairment of the Montana
Tunnels joint venture. Management has considered the expected future gold,
silver, lead and zinc prices, cost structures, the reserves, resources and
status of the Montana Tunnels joint venture and financial plans and concluded
that there was no impairment for the Montana Tunnels joint venture as of
December 31, 2008. However, the ongoing challenging conditions in the financial
markets, the commodity markets, and the related uncertainty about the future
business environment make an assessment of the mid-to-long term performance by
using estimates and assumptions extremely difficult. The continuation of the
global liquidity crisis, the commodity market volatility and its wider
implications for the operating environment of the Company’s mining operation
could result in an impairment of mineral properties in the future.




We
estimate that with our December 31, 2008 cash balance of $3.1 million, the
projected cash flows from Black Fox and the Montana Tunnels mine joint venture,
and utilization of the $70.0 million Project Facility, we will have sufficient
funds to (1) fund the 2009 work programs for the continued development of Black
Fox, including the capital commitments discussed in the immediately preceding
paragraph, (2) fund $0.7 million for exploration at Huizopa, (3) repay the $3.7
million outstanding principal amount of convertible debentures due February 2009
(including interest of $0.6 million), (4) repay $15.3 million principal due in
2009 on the Project Facility and (5) fund corporate overhead.




-67-




Table
of Contractual Obligations




Payments Due by PeriodContractual
      Obligations
                    (as
      of December 31, 2008)
                
                Total
                
                
                Less
                    Than
                    1 Year
                
                
                1-3
                    Years
                
                
                3-5
                    Years
                
                
                More
                    than
                    5
      Years(Thousands)Convertible
      debentures
                
                $
                7,438
                
                
                $
                3,148
                
                
                $
                4,290
                
                
                $
                –
                
                
                $
                –Interest
      on convertible debentures
                
                
                1,339
                
                
                
                567
                
                
                
                772
                
                
                
                –
                
                
                
                –Capital
      lease obligations
                
                
                3,077
                
                
                
                1,920
                
                
                
                1,157
                
                
                
                –
                
                
                
                –Operating
      lease obligations
                
                
                511
                
                
                
                394
                
                
                
                111
                
                
                
                6
                
                
                
                –Purchase
      obligations
                
                
                17,094
                
                
                
                17,094
                
                
                
                –
                
                
                
                –
                
                
                
                –Notes
      payable and other current debt
                
                
                18,954
                
                
                
                18,954
                
                
                
                –
                
                
                
                –
                
                
                
                –Other
      long-term liabilities reflected on the balance sheet (1)
                
                
                16,369
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                16,369





(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 10.6 million as shown on
      the balance sheet as of December 31, 2008 (full value is $29.1 million
      before removing 50% joint venture interest). The amount shown above is
      undiscounted to show full expected cash requirements to Apollo (full value
      is $29.3 million before removing 50% joint venture interest). As of
      December 31, 2008, restricted certificates of deposit of $12.0 million
      ($19.6 million before removing 50% joint venture interest) has been placed
      in trust as security relating to the asset retirement
      obligations.





Off
Balance Sheet Arrangements




We have
no off balance sheet arrangements as of December 31, 2008.




Environmental
Compliance




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




Our
current environmental liabilities are at Montana Tunnels and Black Fox. As of
December 31, 2008, we have accrued $10.6 million related to reclamation, an
increase of $1.1 million from December 31, 2007. These liabilities are covered
by a combination of surety bonds, restricted cash and property totaling $22.5
million (Apollo’s share is $13.2 million) at December 31, 2008. We have accrued
the present value of management’s estimate of the future liability as of
December 31, 2008.




Also, we
assumed additional environmental liabilities when we purchased the Black Fox
mill complex which are currently recorded at $1.2 million. We will be required
to post a bond of Cdn$1.2 million by July 28, 2009 to replace the existing bond
put in place by St Andrew.




-68-




CRITICAL
ACCOUNTING POLICIES




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




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




Transition
to United States generally accepted accounting principles





During the year ended December 31,
2008, the Company initiated a plan to transition from accounting principles
generally accepted in Canada (“Canadian GAAP”) to accounting principles
generally accepted in the United States (“US GAAP”), as allowable under both
Canada and US securities laws. The transition is anticipated to be retroactive
and effective for the three years ended December 31, 2009, with initial
presentation of the consolidated financial statements prepared in accordance
with US GAAP to be filed with our Annual Report on Form 10-K for the fiscal year
ending December 31, 2009.


We are
currently developing our US GAAP change-over plan. Towards this end we have
retained qualified professional personnel to oversee and effect the conversion
process. It is expected that the plan will take into consideration, among other
things:




•
            Changes
      in note disclosures;


•
            Information
      technology and data system
requirements;


•
            Disclosure
      controls and procedures, including investor relations and external
      communications plans related to the US GAAP
  conversion;


•
            Financial
      reporting expertise requirements, including training of personnel;
      and


•
            Impacts
      on other business activities that may be influenced by GAAP measures, such
      as performance measures and debt
covenants.





Although it is not possible at this
time to quantify the impact of these factors, Note 25 of the consolidated
financial statements highlights those key areas likely to be impacted by changes
in accounting policy.





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 Statement of Financial
Accounting Standards (“SFAS”) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended.




-69-




Stock
incentive plans





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




Stripping
Costs




Stripping
costs incurred during the production phase of a mine are variable production
costs that are included in the costs of the inventory produced during the period
that the stripping costs. EIC-160, Stripping Costs Incurred in the
Production Phase of a Mining Operation, requires stripping costs that
represent a betterment to the mineral property to be capitalized and amortized
in a rational and systematic manner over the reserves that directly benefit from
the specific stripping activity. During the years ended December 31, 2008 and
2007, the Company capitalized $nil and $6.8 million in deferred stripping costs
and recorded amortization thereon in the amount of $3.7 million and $2.0
million, respectively. Deferred stripping costs are amortized using the
units-of-production method over the expected life of the operation based on the
estimated recoverable gold equivalent ounces.




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.




Income
taxes





The
Company accounts for income taxes whereby future income tax assets and
liabilities are computed based on differences between the carrying amount of
assets and liabilities on the balance sheet and their corresponding tax values
using the enacted or substantially enacted income tax rates at each balance
sheet date. Future income tax assets also result from unused loss carryforwards
and other deductions. The valuation of future income tax assets is reviewed
annually and adjusted, if necessary, by use of a valuation allowance to reflect
the estimated realizable amount. Although the Company has tax loss carryforwards
(see Note 16 to the consolidated financial statements), there is uncertainty as
to utilization prior to their expiry. Accordingly, the future income tax asset
amounts have been fully offset by a valuation allowance.




-70-




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.




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.




Changes
in Accounting Pronouncements




During
the first quarter 2008, we adopted three new presentation and disclosure
standards that were issued by the Canadian Institute of Chartered Accountants
(“CICA”): Handbook Section 1535, Capital Disclosures (“Section
1535”), Handbook Section 3862, Financial Instruments –
Disclosures (“Section 3862”) and Handbook Section 3863, Financial Instruments –
Presentation (“Section 3863”). Section 1535 requires the disclosure of
both qualitative and quantitative information that enables users of financial
statements to evaluate (i) an entity’s objectives, policies and processes for
managing capital; (ii) quantitative data about what the entity regards as
capital; (iii) whether the entity has complied with any capital requirements;
and (iv) if it has not complied, the consequences of such non-compliance.
Sections 3862 and 3863 replace Handbook Section 3861, Financial Instruments –
Disclosure and Presentation, revising and enhancing its disclosure requirements
and carrying forward unchanged its presentation requirements for financial
instruments. Sections 3862 and 3863 place increased emphasis on disclosures
about the nature and extent of risks arising from financial instruments and how
the entity manages those risks.





During
the second quarter 2008, Handbook Section 1400, General Standards of Financial
Statement Presentation, was amended to include requirements to assess and
disclose an entity’s ability to continue as a going concern. The new
requirements were effective for interim and annual financial statements relating
to fiscal years beginning on or after January 1, 2008. The adoption of this
statement did not have an impact on our consolidated financial
statements.




-71-




During
the first quarter 2008, the Company adopted Handbook Section 3031 – Inventories, which replaces
the former Section 3030 – Inventories. Section 3031
establishes standards for the measurement and disclosure of inventories,
including the measurement of inventories at the lower of cost and net realizable
value, consistent use of either first-in, first-out (FIFO) or weighted average
cost formulas and the reversal of inventory write-downs previously recognized.
The Company has applied the new standard prospectively. The adoption of Section
3031 on January 1, 2008, did not have a material impact on the Company’s
financial condition or operating results.





Recent
Accounting Pronouncements




Effective
January 1, 2009, we will adopt Handbook Section 3064, Goodwill and Intangible
Assets, which replaces Section 3062, and establishes revised standards
for recognition, measurement, presentation and disclosure of goodwill and
intangible assets. Concurrent with the introduction of this standard, the CICA
restricted the application of EIC 27, Revenues and Expenditures in the
Pre-operating Period (“EIC 27”). We are evaluating the impact of the
adoption of this new Section on our consolidated financial
statements.





During
January 2009, the CICA issued Handbook Sections 1582, Business Combinations
(“Section 1582”), 1601, Consolidated Financial
Statements (“Section 1601”) and 1602, Non-controlling Interests
(“Section 1602”) which replaces CICA Handbook Sections 1581, Business Combinations, and
1600, Consolidated Financial
Statements. Section 1582 establishes standards for the accounting for
business combinations that is equivalent to the business combination accounting
standard under International Financial Standards (“IFRS”). Section 1582 is
applicable for the Company’s business combinations with acquisition dates on or
after January 1, 2011. Early adoption of this Section is permitted. Section 1601
together with Section 1602 establishes standards for the preparation of
consolidated financial statements. Section 1601 is applicable for our interim
and annual consolidated financial statements for the fiscal year beginning
January 1, 2011. Early adoption of this Section is permitted. If we choose to
early adopt any one of these Sections, the other two sections must also be
adopted at the same time. We are evaluating the impact of the adoption of these
new Sections on our consolidated statements.





RELATED
PARTY TRANSACTIONS




The
Company had the following related party transactions for the three years ended
December 31, 2008, 2007, and 2006, respectively.




2008
              
              
              2007
              
              
              2006(Thousands)Legal
      fees paid to two law firms, a partner of each firm is a director of the
      Company
              
              $
              512
              
              
              $
              381
              
              
              $
              118Consulting
      services paid to a relative of an officer and director of the
      Company
              
              
              16
              
              
              
              9
              
              
              
              14





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




-72-




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




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




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




ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK




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




Interest
Rate Risk




As of
December 31, 2008, the Company was subject to minimal debt and thus no material
interest rate exposure related to debt. However, on February 23, 2009, the
Company entered into a $70 million project financing agreement (the “Project
Facility”) relating to the Black Fox Project. The terms of the Project facility
include interest on the outstanding principal amount accruing at a rate equal to
the London interbank offered rate (“LIBOR”) plus 7% per annum and repayable in
quarterly installments commencing March 31, 2009.




We
typically invest excess cash in high quality short-term debt instruments. The
rates received on such investments fluctuate with changes in economic
conditions. As a result, our investment income may fall short of expectations
during periods of lower interest rates. We estimate that given the cash balances
expected during 2009, a one percent change in interest rates would not
materially impact our annual income. We may in the future actively manage our
exposure to interest rate risk.




Foreign
Currency Exchange Rate Risk




While the
majority of our transactions are denominated in U.S. dollars, certain purchases
of labor, operating supplies and capital assets are denominated in Canadian
dollars and Mexican pesos. The appreciation of non-US dollar currencies against
the US dollar increases the costs of goods and services purchased in non-US
dollar terms, which can adversely impact our net income and cash flows.
Conversely, a depreciation of non-US dollar currencies against the US dollar
usually decreases the costs of goods and services purchased in US dollar terms.
We have entered into the forward purchase of Canadian dollars at an exchange
rate with the US dollar of Cdn$1.21=US$1.0 for Cdn$ equivalent of US$60 million
over a four year period commencing April 2009.




-73-




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





Commodity
Price Risk




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




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




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




Equity
Price Risk




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




ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA




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




-74-




PageReport of Independent Registered Chartered
      Accountants
            
            F-2Comments by Independent Registered Chartered
      Accountants on Canada-United States of America Reporting
      Differences
            
            F-2Consolidated Balance Sheets as of December 31, 2008
      and 2007
            
            F-3Consolidated Statements of Operations and
      Comprehensive Income (Loss) for the Years Ended December 31, 2008, 2007,
      and 2006
            
            F-4Consolidated Statements of Shareholders’ Equity
      for the Years Ended December 31, 2008, 2007, and
    2006
            
            F-5Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2008, 2007, and 2006
            
            F-6Notes to the Consolidated Financial
      Statements
            
            F-7





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(T). CONTROLS AND
PROCEDURES





Disclosure
Controls and Procedures




We
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, or Exchange Act) as of December 31,
2008. This evaluation was conducted under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer. Based upon this evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that, subject to the limitations noted in
this section, as of December 31, 2008, our disclosure controls and procedures
were effective to provide reasonable assurance that information required to be
disclosed by us in reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
by the rules and forms of the SEC. We also concluded that our disclosure
controls and procedures are effective to provide reasonable assurance that
information required to be disclosed in the reports filed or submitted under the
Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.




Changes
in Internal Control over Financial Reporting




There was
no change in the Company’s internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Rule 13a-15 under
the Exchange Act that occurred during the last fiscal quarter of 2008 that has
materially affected, or that is reasonably likely to materially affect, the
Company’s internal control over financial reporting.





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Company’s principal
executive and principal financial officers and effected by the Company’s board
of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.




-75-




The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2008. In making this
assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based upon its assessment, management concluded that, as of
December 31, 2008, the Company’s internal control over financial reporting was
effective.





This
Annual Report on Form 10-K does not include an attestation report of the
Company’s independent registered chartered accountants regarding internal
control over financial reporting. Management’s report was not subject to
attestation by the Company’s independent registered chartered accountants
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this Annual Report on
Form 10-K.





Inherent
Limitations on Effectiveness of Controls





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





ITEM 9B. OTHER
INFORMATION





None.




-76-




PART III




In
accordance with General Instruction G(3), the information required by Part III
is hereby incorporated by reference from our proxy statement for our 2009 annual
shareholders’ meeting to be filed pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K.




ITEM
10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2009 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




ITEM
11. EXECUTIVE
COMPENSATION




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2009 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




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




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2009 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




ITEM
13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2009 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




ITEM
14. PRINCIPAL ACCOUNTANT FEES
AND SERVICES




Information
relating to this item will be included in an amendment to this report or in the
proxy statement for our 2009 annual shareholders’ meeting and is incorporated by
reference in this Annual Report on Form 10-K.




-77-




PART
IV




ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES




Financial
Statements and Financial Statement Schedules




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




Exhibits




Exhibit
                      No.
                  
                  Exhibit
      Name3.1
                  
                  Certificate
      of Continuance of Apollo Gold Corporation filed May 28, 2003, filed with
      the SEC on June 23, 2003 as Exhibit 3.12 to the Registration Statement on
      Form 10 (File No. 001-31593).3.2
                  
                  By-Laws
      of Apollo Gold Corporation, as amended to date, filed with the SEC on June
      23, 2003 as Exhibit 3.13 to the Registration Statement on Form 10 (File
      No. 001-31593).4.1
                  
                  Sample
      Certificate of Common Shares of Apollo Gold Corporation, filed with the
      SEC on June 23, 2003 as Exhibit 4.1 to the Registration Statement on Form
      10 (File No. 001-31593).4.2
                  
                  Shareholder
      Rights Plan Agreement dated January 17, 2007, by and between Apollo Gold
      Corporation and CIBC Mellon Trust Company, filed with the SEC on January
      19, 2007 as Exhibit 4.1 to the Current Report on Form
  8-K4.3
                  
                  Form
      of Purchase Agreement dated October 30, 2006, by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on November 1, 2006
      as Exhibit 4.4 to the Current Report on Form 8-K.4.4
                  
                  Form
      of U.S. Unit Warrant dated October 30, 2006, by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on November 1, 2006
      as Exhibit 4.5 to the Current Report on Form 8-K.4.5
                  
                  Form
      of Compensation Warrant, dated October 30, 2006, by and between Apollo
      Gold Corporation and Shoreline Pacific, LLC, filed with the SEC on
      November 1, 2006 as Exhibit 4.6 to the Current Report on Form
      8-K.4.6
                  
                  Form
      of Subscription Agreement dated February 23, 2007, by and among Apollo
      Gold Corporation and certain investors, filed with the SEC on February 26,
      2007 as Exhibit 4.1 to the Current Report on Form 8-K.4.7
                  
                  Form
      of Convertible Debenture dated February 23, 2007, by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on February 26, 2007
      as Exhibit 4.2 to the Current Report on Form 8-K.4.8
                  
                  Form
      of Purchase Warrant dated February 23, 2007, by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on February 26, 2007
      as Exhibit 4.3 to the Current Report on Form 8-K.4.9
                  
                  First
      Amending Agreement dated February 16, 2009, by and between Apollo Gold
      Corporation and RAB Special Situations (Master) Fund Limited, filed with
      the SEC on February 19, 2009 as Exhibit 10.1 to the Current Report on Form
      8-K.4.10
                  
                  Form
      of Compensation Warrant dated February 23, 2007, by and among Apollo Gold
      Corporation,  Shoreline Pacific, LLC and Regent Securities
      Capital Corporation, filed with the SEC on February 26, 2007 as Exhibit
      4.4 to the Current Report on Form 8-K.4.11
                  
                  Form
      of Registration Rights Agreement dated February 23, 2007, by and among
      Apollo Gold Corporation and certain investors, filed with the SEC on
      February 26, 2007 as Exhibit 4.5 to the Current Report on Form
      8-K.




-78-




Exhibit
                    No.
                
                Exhibit
      Name4.12
                
                Form
      of Subscription Agreement dated October 31, 2007, by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on November 1, 2007
      as Exhibit 4.2 to the Current Report on Form 8-K.4.13
                
                Form
      of Registration Rights Agreement dated October 31, 2007, by and among
      Apollo Gold Corporation and certain investors, filed with the SEC on
      November 1, 2007 as Exhibit 4.3 to the Current Report on Form
      8-K.4.14
                
                Compensation
      Option Certificate dated October 31, 2007, issued by Apollo Gold
      Corporation to Haywood Securities Inc., filed with the SEC on November 1,
      2007 as Exhibit 4.1 to the Current Report on Form 8-K.4.15
                
                Warrant
      Indenture dated as of July 9, 2008, between CIBC Mellon Trust Company and
      Apollo Gold
                  Corporation,
      filed with the SEC on July 10, 2008 as Exhibit 4.1 to the Current Report
      on Form 8-K.4.16
                
                Certificate
      of Agent’s Compensation Option to Purchase Units of Apollo Gold
      Corporation issued to Haywood Securities Inc., filed with the SEC on July
      25, 2008 as Exhibit 10.1 to the Current Report on Form
  8-K.4.17
                
                Certificate
      of Agent’s Compensation Option to Purchase Units of Apollo Gold
      Corporation issued to Blackmont Capital Inc., filed with the SEC on July
      25, 2008 as Exhibit 10.2 to the Current Report on Form
  8-K.4.18
                
                Form
      of Agents’ Warrant to Purchase Common Shares of Apollo Gold Corporation,
      filed with the SEC on July 25, 2008 as Exhibit 10.3 to the Current Report
      on Form 8-K.4.19
                
                Compensation
      Option Certificate dated August 21, 2008 issued by Apollo Gold Corporation
      to Haywood Securities Inc., filed with the SEC on August 26, 2008 as
      Exhibit 4.1 to the Current Report on Form 8-K.4.20
                
                Form
      of Subscription Agreement for Flow-Through Shares by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on August 26, 2008
      as Exhibit 4.2 to the Current Report on Form 8-K.4.21
                
                Form
      of Registration Rights Agreement for Flow-Through Shares by and among
      Apollo Gold Corporation and certain investors, filed with the SEC on
      August 26, 2008 as Exhibit 4.3 to the Current Report on Form
      8-K.4.22
                
                Form
      of Warrant Certificate issued by Apollo Gold Corporation to RMB Australia
      Holdings Limited and Macquarie Bank Limited, filed with the SEC on
      December 16, 2008 as Exhibit 10.2 to the Current Report on Form
      8-K.4.23
                
                Form
      of Warrant Certificate issued by Apollo Gold Corporation to RMB Australia
      Holdings Limited and Macquarie Bank Limited, filed with the SEC on
      February 24, 2009 as Exhibit 10.2 to the Current Report on Form
      8-K.4.24
                
                Form
      of Subscription Agreement for Flow-Through Shares by and among Apollo Gold
      Corporation and certain investors, filed with the SEC on December 31, 2008
      as Exhibit 4.1 to the Current Report on Form 8-K.4.25
                
                Form
      of Registration Rights Agreement for Flow-Through Shares by and among
      Apollo Gold Corporation and certain investors, filed with the SEC on
      December 31, 2008 as Exhibit 4.2 to the Current Report on Form
      8-K.4.26
                
                Form
      of Warrant Certificate issued by Apollo Gold Corporation to Haywood
      Securities Inc., filed with the SEC on December 31, 2008 as Exhibit 10.1
      to the Current Report on Form 8-K.4.27
                
                Form
      of Warrant Certificate issued by Apollo Gold Corporation to Haywood
      Securities Inc., filed with the SEC on February 24, 2009 as Exhibit 10.3
      to the Current Report on Form 8-K.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).




-79-




Exhibit
                    No.
                
                Exhibit
      Name10.2
                
                Amended
      and Restated Employment Agreement dated May, 2003, by and between Apollo
      Gold Corporation and Richard F. Nanna, filed with the SEC on June 23, 2003
      as Exhibit 10.2 to the Registration Statement on Form 10 (File No.
      001-31593).10.3
                
                Employment
      Agreement by and between Apollo Gold Corporation and Melvyn Williams,
      effective as of February 16, 2004, as amended, filed with the SEC on
      September 24, 2004 as Exhibit 10.3 to the Current Report on Form
      8-K.10.4
                
                Form
      of Amendment No. 1 dated January 23, 2006, to Amended and Restated
      Employment Agreement, by and between Apollo Gold Corporation and each of
      R. David Russell, Melvyn Williams and Richard F. Nanna, filed with the SEC
      on January 27, 2006 as Exhibit 10.2 to the Current Report on Form
      8-K.10.5
                
                Employment
      Agreement by and between Apollo Gold Corporation and Montana Tunnels
      Mining, Inc. and Timothy G. Smith, effective as of February 15, 2004,
      filed with the SEC on March 25, 2008 as Exhibit 10.25 to the Annual Report
      on Form 10-K.10.6
                
                Employment
      Agreement by and between Apollo Gold Corporation and Brent E. Timmons,
      effective as of April 1, 2007, filed with the SEC on March 25, 2008 as
      Exhibit 10.26 to the Annual Report on Form 10-K.10.7
                
                Apollo
      Gold Corporation Stock Option Incentive Plan, as amended and restated May
      24, 2006, filed with the SEC on April 27, 2006 as Schedule B to Apollo
      Gold Corporation’s Proxy Statement on Schedule 14A.10.8
                
                Apollo
      Gold, Inc. and Affiliated Companies Company Retirement Plan (Employee
      Savings Plan), filed with the SEC on June 23, 2003 as Exhibit 10.12 to the
      Registration Statement on Form 10 (File No. 001-31593).10.9
                
                Form
      of Indemnification Agreement by and between Apollo Gold Corporation and
      Richard F. Nanna, filed with the SEC on September 24, 2004 as Exhibit 10.1
      to the Current Report on Form 8-K.10.10
                
                Form
      of Indemnification Agreement by and among Apollo Gold, Inc.; Apollo Gold
      Exploration, Inc.; Apollo Gold Finance Inc.; and Donald W. Vagstad, filed
      with the SEC on September 24, 2004 as Exhibit 10.2 to the Current Report
      on Form 8-K.10.11
                
                Form
      of Amended and Restated Indemnification Agreement dated November 18, 2005,
      by and among Apollo Gold, Inc.; Apollo Gold Finance, Inc.; Montana Tunnels
      Mining, Inc. and each of R. David Russell, Melvyn Williams, David K.
      Young, Donald O. Miller, James T. O’Neil, Jr., G. Michael Hobart, W.S.
      Vaughan, and Charles Stott, filed with the SEC on March 31, 2006 as
      Exhibit 10.20 to the Annual Report on Form 10-K.10.12
                
                Term
      Bonding Agreement dated August 1, 2002, by and 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).10.13
                
                Stock
      Purchase Agreement by and 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.10.14
                
                Promissory
      Note by and between 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.10.15
                
                General
      Security Agreement by and between 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.




-80-





Exhibit
                        No.
                      
                      Exhibit Name10.16
                      
                      Mine
      Development and Operating Agreement dated July 28, 2006, by and between
      Montana Tunnels Mining, Inc. and Elkhorn Tunnels, LLC, filed with the SEC
      on August 2, 2006 as Exhibit 10.1 to the Current Report on Form
      8-K.10.17
                      
                      Form
      of Amendment dated January 8, 2007 to Mine Development and Operating
      Agreement dated July 28, 2006, by and between Montana Tunnels Mining, Inc.
      and Elkhorn Tunnels, LLC, filed with the SEC on January 9, 2007 as Exhibit
      10.1 to the Current Report on Form 8-K.10.18
                      
                      Option
      Agreement dated July 28, 2006, by and between Montana Tunnels Mining, Inc.
      and Elkhorn Goldfields, Inc., filed with the SEC on August 2, 2006 as
      Exhibit 10.2 to the Current Report on Form 8-K.10.19
                      
                      Mill
      Operating and Option Agreement dated July 28, 2006, by and between Montana
      Tunnels Mining, Inc. and Elkhorn Goldfields, Inc., filed with the SEC on
      August 2, 2006 as Exhibit 10.3 to the Current Report on Form
      8-K.10.20
                      
                      Promissory
      Note dated August 1, 2006, issued by Montana Tunnels Mining, Inc. to Great
      American Group, filed with the SEC on August 2, 2006 as Exhibit 10.4 to
      the Current Report on Form 8-K.10.21
                      
                      Master
      Lease Agreement dated as of November 21, 2006, by and between Apollo Gold
      Corporation and Marquette Equipment Finance, LLC, filed with the SEC on
      December 7, 2006 as Exhibit 10.1 to the Current Report on Form
      8-K.10.22
                      
                      Lease
      Schedule No. 001 dated as of November 21, 2006, by and between Apollo Gold
      Corporation and Marquette Equipment Finance, LLC, filed with the SEC on
      December 7, 2006 as Exhibit 10.2 to the Current Report on Form
      8-K.10.23
                      
                      Security
      Agreement dated as of November 21, 2006, by and between Apollo Gold
      Corporation and Marquette Equipment Finance, LLC, filed with the SEC on
      December 7, 2006 as Exhibit 10.3 to the Current Report on Form
      8-K.10.24
                      
                      Facility
      Agreement dated October 12, 2007, by and among Montana Tunnels Mining,
      Inc., Apollo Gold Corporation, Apollo Gold, Inc., RMB Australia Holdings
      Limited and RMB Resources Inc., filed with the SEC on October 18, 2007 as
      Exhibit 10.1 to the Current Report on Form 8-K.10.25
                      
                      Asset
      Purchase Agreement dated June 6, 2008, by and among Apollo Gold
      Corporation and St Andrew Goldfields Ltd. and Fogler Rubinoff LLP, as
      escrow agent, filed with the SEC on June 11, 2008 as Exhibit 10.1 to the
      Current Report on Form 8-K.10.26
                      
                      First
      Amending Agreement to the Asset Purchase Agreement dated June 30, 2008, by
      and among Apollo Gold Corporation and St Andrew Goldfields Ltd. and
      Fogler, Rubinoff LLP, as trustee, filed with the SEC on July 1, 2008 as
      Exhibit 10.1 to the Current Report on Form 8-K.10.27
                      
                      Amendment
      and Restatement Agreement dated July 1, 2008, by and among Montana Tunnels
      Mining, Inc., Apollo Gold Corporation, Apollo Gold Inc., RMB Australia
      Holdings Limited and RMB Resources Inc., filed with the SEC on July 2,
      2008 as Exhibit 10.1 to the Current Report on Form 8-K.10.28
                      
                      Facility
      Agreement dated July 1, 2008, by and among Montana Tunnels Mining, Inc.,
      Apollo Gold Corporation, Apollo Gold Inc., RMB Australia Holdings Limited
      and RMB Resources Inc., filed with the SEC on July 2, 2008 as Exhibit 10.1
      to the Current Report on Form 8-K.10.29
                      
                      General
      Security Agreement dated July 1, 2008, by and between Apollo Gold
      Corporation and RMB Resources Inc., filed with the SEC on July 2, 2008 as
      Exhibit 10.1 to the Current Report on Form
8-K.




-81-





Exhibit
                      No.
                    
                    Exhibit Name10.30
                    
                    Acknowledgment,
      Consent and Undertaking dated July 23, 2008, provided by Apollo Gold
      Corporation to St Andrew Goldfields Ltd. amending the Asset Pursuant
      Agreement among Apollo Gold Corporation, St Andrew Goldfields Ltd. and
      Fogler, Rubinoff LLP, filed with the SEC on July 24, 2008 as Exhibit 10.2
      to the Current Report on Form 8-K.10.31
                    
                    Facility
      Agreement dated December 10, 2008, by and among Apollo Gold Corporation,
      RMB Australia Holdings Limited, RMB Resources Inc. and Macquarie Bank
      Limited, filed with the SEC on December 16, 2008 as Exhibit 10.1 to the
      Current Report on Form 8-K.10.32
                    
                    General
      Security Agreement dated December 10, 2008, by and between Apollo Gold
      Corporation and RMB Resources Inc., filed with the SEC on December 16,
      2008 as Exhibit 10.3 to the Current Report on Form 8-K.10.33
                    
                    Priority
      Agreement dated December 10, 2008, by and among Apollo Gold Corporation,
      RMB Australia Holdings Limited, RMB Resources Inc. and Macquarie Bank
      Limited, filed with the SEC on December 16, 2008 as Exhibit 10.4 to the
      Current Report on Form 8-K.10.34
                    
                    Facility
      Agreement dated February 20, 2009, by and among Apollo Gold Corporation,
      RMB Australia Holdings Limited, RMB Resources Inc. and Macquarie Bank
      Limited, filed with the SEC on February 24, 2009 as Exhibit 10.1 to the
      Current Report on Form 8-K.10.35
                    
                    Engagement
      Letter by and between Apollo Gold Corporation and Haywood Securities Inc.,
      filed with the SEC on February 24, 2009 as Exhibit 10.4 to the Current
      Report on Form 8-K.10.36
                    
                    Amendment
      No. 2 to Amended and Restated Employment Agreement, dated March 20, 2009,
      between Apollo Gold Corporation and R. David Russell, filed with the SEC
      on March 25, 2009 as Exhibit 10.1 to the Current Report on Form
      8-K.10.37
                    
                    Amendment
      No. 2 to Amended and Restated Employment Agreement, dated March 20, 2009,
      between Apollo Gold Corporation and Melvyn Williams, filed with the SEC on
      March 25, 2009 as Exhibit 10.2 to the Current Report on Form
      8-K.10.38
                    
                    Amendment
      No. 3 to Amended and Restated Employment Agreement, dated March 20, 2009,
      between Apollo Gold Corporation and Richard F. Nanna, filed with the SEC
      on March 25, 2009 as Exhibit 10.3 to the Current Report on Form
      8-K.12.1
                    
                    Computation
      of Earnings to Fixed Charges.*21.1
                    
                    List
      of subsidiaries of Apollo Gold Corporation.*23.1
                    
                    Consent
      of Deloitte & Touche LLP.*31.1
                    
                    Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act.*31.2
                    
                    Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act.*32.1
                    
                    Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley
Act.*







*  Filed
herewith.




-82-





SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed March 25, 2009 on
its behalf by the undersigned, thereunto duly authorized.




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





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




Signature
            
            Title
            
            Date/s/
      R. David
      Russell
            
            President
      and Chief Executive Officer, and
            
            March
      25, 2009R.
      David Russell
            
            Director
      (Principal Executive Officer)/s/
      Charles E.
      Stott
            
            Chairman
      of the Board of Directors
            
            March
      25, 2009Charles
      E. Stott/s/
      G. Michael
      Hobart
            
            Director
            
            March
      25, 2009G.
      Michael Hobart/s/
      Robert W.
      Babensee
            
            Director
            
            March
      25, 2009Robert
      W. Babensee/s/
      W. S.
      Vaughan
            
            Director
            
            March
      25, 2009W.
      S. Vaughan/s/
      Marvin K.
      Kaiser
            
            Director
            
            March
      25, 2009Marvin
      K. Kaiser/s/
      David W.
      Peat
            
            Director
            
            March
      25, 2009David
      W. Peat/s/
      Melvyn
      Williams
            
            Chief
      Financial Officer and Senior Vice
            
            March
      25, 2009Melvyn
      Williams
            
            President
      – Finance and Corporate Development(Principal
      Financial and Accounting Officer)




-83-




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-2Consolidated Balance Sheets as of December 31, 2008
      and 2007
                  
                  F-3Consolidated Statements of Operations and
      Comprehensive Income for the Years Ended December 31, 2008, 2007, and
      2006
                  
                  F-4Consolidated Statements of Shareholders’ Equity
      for the Years Ended December 31, 2008, 2007, and
    2006
                  
                  F-5Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2008, 2007, and 2006
                  
                  F-6Notes to the Consolidated Financial
      Statements
                  
                  F-7




F-1





REPORT OF INDEPENDENT REGISTERED CHARTERED
ACCOUNTANTS





To the
Board of Directors and Shareholders of Apollo Gold Corporation





We have
audited the accompanying consolidated balance sheets of Apollo Gold Corporation
(the “Company”) as at December 31, 2008 and 2007, and the consolidated
statements of operations and comprehensive income (loss), shareholders’ equity,
and cash flows for each of the three years in the period ended December 31,
2008.  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 an
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, 2008 and
2007, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2008 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 Company’s internal control over
financial reporting.  Accordingly, we express no such
opinion.




/s/Deloitte
      & Touche LLPIndependent
      Registered Chartered AccountantsVancouver,
      CanadaMarch
      25, 2009




COMMENTS BY INDEPENDENT REGISTERED CHARTERED
ACCOUNTANTS ON CANADA-UNITED STATES OF AMERICA REPORTING
DIFFERENCES




The
standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph (following the opinion
paragraph) when there are changes in accounting principles that have a material
effect on the comparability of the Company’s financial statements such as the
changes described in Note 3 to the consolidated financial
statements.  The standards of the Public Company Accounting Oversight
Board (United States) also 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 Board of
Directors and Shareholders dated March 25, 2009 is expressed in accordance with
Canadian reporting standards which do not require a reference to such changes in
accounting principles or permit such a reference to such conditions and events
in the auditors’ report when these matters are properly accounted for and
adequately disclosed in the consolidated financial statements.




/s/Deloitte
      & Touche LLPIndependent
      Registered Chartered AccountantsVancouver,
      CanadaMarch
      25, 2009





F-2





APOLLO GOLD CORPORATION


CONSOLIDATED
BALANCE SHEETS





December 31,2008
              
              
              2007(In thousands of
                U.S. Dollars)ASSETSCURRENTCash
      and cash equivalents
              
              $
              3,097
              
              
              $
              4,852Derivative
      instruments (Note 6)
              
              
              552
              
              
              
              2,101Restricted
      cash (Note 9)
              
              
              10,000
              
              
              
              1,000Accounts
      receivable and other
              
              
              3,134
              
              
              
              1,846Prepaids
              
              
              546
              
              
              
              509Inventories
      (Note 7)
              
              
              4,154
              
              
              
              2,169Total
      current assets
              
              
              21,483
              
              
              
              12,477Long-term
      investments (Note 6)
              
              
              1,081
              
              
              
              1,467Property,
      plant and equipment (Note 8)
              
              
              95,881
              
              
              
              48,378Deferred
      stripping costs (Note 3(j))
              
              
              1,052
              
              
              
              4,787Restricted
      certificates of deposit (Note 9)
              
              
              12,030
              
              
              
              6,715Other
      long-term assets
              
              
              103
              
              
              
              84Future
      income tax assets (Note 16)
              
              
              –
              
              
              
              1,165TOTAL
      ASSETS
              
              $
              131,630
              
              
              $
              75,073LIABILITIESCURRENTAccounts
      payable
              
              $
              13,827
              
              
              $
              2,748Accrued
      liabilities
              
              
              1,449
              
              
              
              2,940Property
      and mining taxes payable
              
              
              1,146
              
              
              
              957Notes
      payable and other current debt (Note 10)
              
              
              20,636
              
              
              
              7,617Convertible
      debentures (Note 11)
              
              
              3,356
              
              
              
              –Total
      current liabilities
              
              
              40,414
              
              
              
              14,262Accrued
      long-term liabilities
              
              
              316
              
              
              
              289Notes
      payable (Note 10)
              
              
              1,012
              
              
              
              159Convertible
      debentures (Notes 11 and 26(a))
              
              
              4,571
              
              
              
              5,537Accrued
      site closure costs (Note 13)
              
              
              10,563
              
              
              
              9,442Future
      income tax liability (Note 16)
              
              
              447
              
              
              
              –Deferred
      gain (Note 5)
              
              
              552
              
              
              
              2,511TOTAL
      LIABILITIES
              
              
              57,875
              
              
              
              32,200Continuing
      operations (Note 1)Commitments
      and contingencies (Note 19)SHAREHOLDERS’
      EQUITYShare
      capital (Note 14)
              
              
              188,927
              
              
              
              166,424Equity
      component of convertible debentures (Note 11)
              
              
              1,987
              
              
              
              2,238Note
      warrants (Note 11)
              
              
              2,234
              
              
              
              2,292Contributed
      surplus
              
              
              21,683
              
              
              
              14,591Deficit
              
              
              (141,076
              )
              
              
              (142,672
              )TOTAL
      SHAREHOLDERS’ EQUITY
              
              
              73,755
              
              
              
              42,873TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              131,630
              
              
              $
              75,073





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





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




F-3




APOLLO GOLD CORPORATION




CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)





Year Ended December 31,2008
              
              
              2007
              
              
              2006(U.S. dollars and shares in thousands,
                except per share amounts)Revenue
      from sale of minerals
              
              $
              46,387
              
              
              $
              38,474
              
              
              $
              10,177Operating
      expensesDirect
      operating costs
              
              
              37,567
              
              
              
              26,336
              
              
              
              15,361Depreciation
      and amortization
              
              
              1,565
              
              
              
              1,380
              
              
              
              1,647General
      and administrative expenses
              
              
              3,696
              
              
              
              4,647
              
              
              
              4,004Accretion
      expense – accrued site closure costs
              
              
              718
              
              
              
              507
              
              
              
              948Amortization
      of deferred gain (Note 5)
              
              
              (1,959
              )
              
              
              (1,239
              )
              
              
              –Exploration
      and business development and other
              
              
              3,185
              
              
              
              2,430
              
              
              
              1,04044,772
              
              
              
              34,061
              
              
              
              23,000Operating
      income (loss)
              
              
              1,615
              
              
              
              4,413
              
              
              
              (12,823
              )Other
      income (expenses)Interest
      income
              
              
              381
              
              
              
              701
              
              
              
              421Interest
      expense (Note 15)
              
              
              (4,609
              )
              
              
              (5,738
              )
              
              
              (2,677
              )Financing
      costs
              
              
              (190
              )
              
              
              (693
              )
              
              
              –Realized
      gain on investments – derivative instruments
              
              
              5,507
              
              
              
              395
              
              
              
              –Unrealized
      gain (loss) on investments – derivative instruments
              
              
              (1,549
              )
              
              
              2,101
              
              
              
              –Foreign
      exchange loss and other
              
              
              (1,329
              )
              
              
              (157
              )
              
              
              (158
              )(1,789
              )
              
              
              (3,391
              )
              
              
              (2,414
              )(Loss)
      income from continuing operations before income taxes
              
              
              (174
              )
              
              
              1,022
              
              
              
              (15,237
              )Income
      taxes (Note 16)
              
              
              1,770
              
              
              
              1,394
              
              
              
              –Income
      (loss) from continuing operations
              
              
              1,596
              
              
              
              2,416
              
              
              
              (15,237
              )Loss
      from discontinued operations (Note 24)
              
              
              –
              
              
              
              –
              
              
              
              (350
              )Net
      income (loss) and comprehensive income (loss)
              
              $
              1,596
              
              
              $
              2,416
              
              
              $
              (15,587
              )Basic
      and diluted net income (loss) per share from:Continuing
      operations
              
              $
              0.01
              
              
              $
              0.02
              
              
              $
              (0.13
              )Discontinued
      operations
              
              
              –
              
              
              
              –
              
              
              
              (0.00
              )$
              0.01
              
              
              $
              0.02
              
              
              $
              (0.13
              )Basic
      weighted-average number of shares outstanding
              
              
              185,059
              
              
              
              145,645
              
              
              
              123,621Diluted
      weighted-average number of shares outstanding (Note 17)
              
              
              212,139
              
              
              
              146,428
              
              
              
              123,621





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




F-4
 
  APOLLO GOLD CORPORATION




CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY




EquityComponentofNumber of
                                              
                                              
                                              Share
                                              
                                              
                                              Convertible
                                              
                                              
                                              Note
                                              
                                              
                                              ContributedShares
                                              
                                              
                                              Capital
                                              
                                              
                                              Debentures
                                              
                                              
                                              Warrants
                                              
                                              
                                              Surplus
                                              
                                              
                                              Deficit
                                              
                                              
                                              Total(U.S.
      dollars and shares in thousands)Balance,
      December 31, 2005
                                              
                                              
                                              107,456
                                              
                                              
                                              $
                                              148,526
                                              
                                              
                                              $
                                              1,809
                                              
                                              
                                              $
                                              781
                                              
                                              
                                              $
                                              10,561
                                              
                                              
                                              $
                                              (129,236
                                              )
                                              
                                              $
                                              32,441Units
      issued for cash (Note 14(c)(i))
                                              
                                              
                                              11,650
                                              
                                              
                                              
                                              3,488
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              3,488Shares
      issued for 2005 stock-based compensation (Note 14(c)(ii))
                                              
                                              
                                              2,290
                                              
                                              
                                              
                                              955
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              955Reduction
      of exercise price of Note Warrants
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              305
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              305Note
      warrants exercised
                                              
                                              
                                              600
                                              
                                              
                                              
                                              264
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (24
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              240Shares
      issued for services (Note 14(c)(iii))
                                              
                                              
                                              1,325
                                              
                                              
                                              
                                              668
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              668Flow-through
      units issued for cash (Note 14(c)(iv))
                                              
                                              
                                              2,222
                                              
                                              
                                              
                                              746
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              27
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              773Units
      issued for cash (Note 14(c)(v))
                                              
                                              
                                              16,688
                                              
                                              
                                              
                                              4,357
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              156
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              4,513Options
      exercised
                                              
                                              
                                              50
                                              
                                              
                                              
                                              25
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (5
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              20Stock-based
      compensation
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              427
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              427Net
      loss
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (15,587
                                              )
                                              
                                              
                                              (15,587
                                              )Balance,
      December 31, 2006
                                              
                                              
                                              142,282
                                              
                                              
                                              
                                              159,029
                                              
                                              
                                              
                                              1,809
                                              
                                              
                                              
                                              1,062
                                              
                                              
                                              
                                              11,166
                                              
                                              
                                              
                                              (144,823
                                              )
                                              
                                              
                                              28,243Change
      in accounting policy (Note 3(e))
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (265
                                              )
                                              
                                              
                                              (265
                                              )Balance
      (as adjusted) January 1, 2007
                                              
                                              
                                              142,282
                                              
                                              
                                              
                                              159,029
                                              
                                              
                                              
                                              1,809
                                              
                                              
                                              
                                              1,062
                                              
                                              
                                              
                                              11,166
                                              
                                              
                                              
                                              (145,088
                                              )
                                              
                                              
                                              27,978Shares
      issued for services
                                              
                                              
                                              120
                                              
                                              
                                              
                                              52
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              52Shares
      issued for Huizopa settlement (Note 14 (b)(i))
                                              
                                              
                                              1,000
                                              
                                              
                                              
                                              540
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              540Shares
      issued for Black Fox mineral rights (Note 14(b)(ii))
                                              
                                              
                                              1,058
                                              
                                              
                                              
                                              527
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              527Flow-through
      shares issued for cash and related compensation warrants (Note
      14(b)(iii))
                                              
                                              
                                              7,455
                                              
                                              
                                              
                                              3,857
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              58
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              3,915Income
      tax benefits renounced to shareholders of flow-through units issued in
      2006
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (234
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (234
                                              )Equity
      component of convertible debentures (Note 11)
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              2,292
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              2,292Note
      warrants (Note 11)
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              2,292
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              2,292Debenture
      compensation warrants (Note 11)
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              467
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              467Note
      warrants exercised
                                              
                                              
                                              3,934
                                              
                                              
                                              
                                              2,506
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (1,062
                                              )
                                              
                                              
                                              129
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              1,573Conversion
      of debentures (Note 11)
                                              
                                              
                                              400
                                              
                                              
                                              
                                              147
                                              
                                              
                                              
                                              (54
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              93Redemption
      of debentures
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (1,809
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              1,809
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –Stock-based
      compensation
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              962
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              962Net
      income and comprehensive income
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              2,416
                                              
                                              
                                              
                                              2,416Balance,
      December 31, 2007
                                              
                                              
                                              156,248
                                              
                                              
                                              
                                              166,424
                                              
                                              
                                              
                                              2,238
                                              
                                              
                                              
                                              2,292
                                              
                                              
                                              
                                              14,591
                                              
                                              
                                              
                                              (142,672
                                              )
                                              
                                              
                                              42,873Shares
      issued for services (Note 14(a)(i))
                                              
                                              
                                              650
                                              
                                              
                                              
                                              351
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              351Units
      issued for cash and related compensation warrants (Note
      14(a)(ii))
                                              
                                              
                                              40,806
                                              
                                              
                                              
                                              14,885
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              3,247
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              18,132Flow-through
      shares issued for cash and related compensation warrants (Note 14(a)(iii
      and vi)
                                              
                                              
                                              20,000
                                              
                                              
                                              
                                              8,028
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              104
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              8,132Warrants
      issued for services (Note 14(a)(iv))
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              2,907
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              2,907Warrants
      exercised (Note 14(a)(vii))
                                              
                                              
                                              3,272
                                              
                                              
                                              
                                              1,463
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (58
                                              )
                                              
                                              
                                              (1
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              1,404Conversion
      of debentures (Note 14(a)(vii))
                                              
                                              
                                              1,884
                                              
                                              
                                              
                                              834
                                              
                                              
                                              
                                              (251
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              583Income
      tax benefits renounced in connection  with issuance of
      flow-through shares
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (3,058
                                              )
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              (3,058
                                              )Stock-based
      compensation
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              835
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              835Net
      income and comprehensive income
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              –
                                              
                                              
                                              
                                              1,596
                                              
                                              
                                              
                                              1,596Balance,
      December 31, 2008
                                              
                                              
                                              222,860
                                              
                                              
                                              $
                                              188,927
                                              
                                              
                                              $
                                              1,987
                                              
                                              
                                              $
                                              2,234
                                              
                                              
                                              $
                                              21,683
                                              
                                              
                                              $
                                              (141,076
                                              )
                                              
                                              $
                                              73,755





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





F-5





APOLLO GOLD CORPORATION




CONSOLIDATED
STATEMENTS OF CASH FLOWS




Year Ended December 31,2008
              
              
              2007
              
              
              2006(In thousands of U.S. dollars)Operating
      ActivitiesNet
      income (loss) for the year
              
              $
              1,596
              
              
              $
              2,416
              
              
              $
              (15,587
              )Items
      not affecting cash:Depreciation
      and amortization
              
              
              1,565
              
              
              
              1,380
              
              
              
              1,647Amortization
      of deferred stripping costs
              
              
              3,735
              
              
              
              2,001
              
              
              
              –Amortization
      of deferred financing costs
              
              
              –
              
              
              
              –
              
              
              
              319Financing
      costs
              
              
              –
              
              
              
              174
              
              
              
              –Loss
      from discontinued operations
              
              
              –
              
              
              
              –
              
              
              
              350Reduction
      in exercise price of warrants
              
              
              –
              
              
              
              –
              
              
              
              305Stock-based
      compensation
              
              
              835
              
              
              
              962
              
              
              
              427Shares
      issued for services and settlement of claims
              
              
              –
              
              
              
              592
              
              
              
              668Accretion
      expense – accrued site closure costs
              
              
              718
              
              
              
              507
              
              
              
              948Accretion
      expense – convertible debentures
              
              
              3,986
              
              
              
              4,533
              
              
              
              2,117Interest
      paid on convertible debentures
              
              
              (1,016
              )
              
              
              (1,016
              )
              
              
              (1,058
              )Net
      change in value of derivative instruments
              
              
              (3,958
              )
              
              
              (2,496
              )
              
              
              –Amortization
      of deferred gain
              
              
              (1,959
              )
              
              
              (1,239
              )
              
              
              –Foreign
      exchange loss and other
              
              
              1,283
              
              
              
              174
              
              
              
              87Income
      taxes
              
              
              (1,893
              )
              
              
              (1,394
              )
              
              
              –Net
      change in non-cash operating working capital items (Note
    21)
              
              
              (3,550
              )
              
              
              891
              
              
              
              (1,482
              )Discontinued
      operations
              
              
              –
              
              
              
              –
              
              
              
              (350
              )Net
      cash provided by (used in) operating activities
              
              
              1,342
              
              
              
              7,485
              
              
              
              (11,609
              )Investing
      ActivitiesProperty,
      plant and equipment expenditures
              
              
              (32,510
              )
              
              
              (8,281
              )
              
              
              (5,417
              )Purchase
      of long-term investments
              
              
              –
              
              
              
              (1,500
              )
              
              
              –Proceeds
      from sale of derivative instruments
              
              
              5,507
              
              
              
              395
              
              
              
              –Deferred
      stripping costs
              
              
              –
              
              
              
              (6,787
              )
              
              
              –Proceeds
      from disposal of property, plant and equipment
              
              
              –
              
              
              
              –
              
              
              
              92Restricted
      cash, restricted certificates of deposit, and other long-term
      assets
              
              
              (14,333
              )
              
              
              (3,110
              )
              
              
              9,007Net
      cash (used in) provided by investing activities
              
              
              (41,336
              )
              
              
              (19,283
              )
              
              
              3,682Financing
      ActivitiesProceeds
      on issuance of shares and warrants
              
              
              26,263
              
              
              
              3,954
              
              
              
              8,773Proceeds
      from exercise of warrants and options
              
              
              1,404
              
              
              
              1,573
              
              
              
              260Proceeds
      on issuance of convertible debentures and note warrants,
    net
              
              
              –
              
              
              
              8,062
              
              
              
              –Proceeds
      from notes payable and other current debt
              
              
              22,153
              
              
              
              9,250
              
              
              
              –Repayment
      of convertible debentures
              
              
              –
              
              
              
              (8,731
              )
              
              
              –Repayments
      of notes payable
              
              
              (10,339
              )
              
              
              (3,692
              )
              
              
              (1,357
              )Funding
      by joint venture partner, Elkhorn Tunnels, LLC
              
              
              –
              
              
              
              1,865
              
              
              
              4,635Net
      cash provided by financing activities
              
              
              39,481
              
              
              
              12,281
              
              
              
              12,311Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (1,242
              )
              
              
              (143
              )
              
              
              1Net
      (decrease) increase in cash and cash equivalents
              
              
              (1,755
              )
              
              
              340
              
              
              
              4,385Cash
      and cash equivalents, beginning of year
              
              
              4,852
              
              
              
              4,512
              
              
              
              127Cash
      and cash equivalents, end of year (Note 21)
              
              $
              3,097
              
              
              $
              4,852
              
              
              $
              4,512Supplemental
      cash flow informationInterest
      paid
              
              $
              1,695
              
              
              $
              1,973
              
              
              $
              1,299Income
      taxes paid
              
              $
              95
              
              
              $
              –
              
              
              $
              –





See Note
21 for additional supplemental cash flow information.





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





F-6





APOLLO GOLD CORPORATION




Notes
to the Consolidated Financial Statements


Years
ended December 31, 2008, 2007 and 2006


(Stated
in U.S. 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 and cash generated
by the Montana Tunnels joint venture (Note 5).  The Company’s ability
to continue as a going concern is dependent on its ability to (1) continue to
issue debt and/or equity securities, (2) generate cash flow from the Black Fox
mine, and/or (3) generate cash flow from the Montana Tunnels joint
venture.




As of December 31, 2008, the Company
has a working capital deficiency of $18.9 million and an accumulated deficit of
$141.1 million.  In addition, as at December 31, 2008, the Company
held cash and cash equivalents of $3.1 million, had unexpended flow-through
share funds of $3.8 million, had current debt obligations of $24.0 million
consisting of (1) the current portion of the outstanding principal of the Series
2007-A convertible debentures of $3.1 million due in February 2009, (2) $15
million for a bridge facility entered into on December 10, 2008 (Notes 10(c) and
26(c)) due on June 30, 2009, (3) $2.8 million for a debt facility due in
installments in March 2009 and June 2009 (Note 10(b)), and (4) $3.1 million for
other current debt.  Additionally, as of December 31, 2008, the
Company has committed to make capital expenditures of approximately $17.1
million for the development of Black Fox (Note 19(b)) and has committed to post
$9.0 million (Cdn$10.9 million) cash for environmental bonding at Black Fox
(Note 19(c)).  Based on the current cash balance, expected cash flows
of the Montana Tunnels joint venture, utilizing the $70 million financing
facility as per the subsequent event Note 26(b), and from the projected cash
flows from the Black Fox project which the Company expects to commence
production of gold in the second quarter of 2009, the Company expects to have
sufficient funds to (1) repay the $24.0 million current debt obligations listed
above, (2) fund the capital commitments for the development of Black Fox, (3)
repay $15.3 million principal due in 2009 on the $70 million financing facility,
and (4) fund corporate expenditures.





If the
Company is unable to utilize all of the $70 million financing facility or
generate sufficient cash flow from the activities listed above or is otherwise
unable to generate cash flow from Black Fox, it may be unable to continue as a
going concern and material adjustments would be required to the carrying value
of assets and liabilities and balance sheet classifications 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 is the operator of the
Montana Tunnels mine (the “Mine”), which is a 50% joint venture with Elkhorn
Tunnels, LLC (“Elkhorn”).  The Mine is an open pit mine and mill
located in the State of Montana that produces gold dore and lead-gold and
zinc-gold concentrates.  The Company also owns the Diamond Hill mine,
which is also located in the State of Montana and is currently under care and
maintenance.




Apollo
has an advanced-stage development property, the Black Fox development project
(the “Black Fox Project”), which is located near Matheson in the Province of
Ontario, Canada.  In July 2008, the Company purchased a mill facility,
located approximately 19 miles west of the Black Fox mine.




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




F-7




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





3.
            SIGNIFICANT
      ACCOUNTING POLICIES




The
consolidated financial statements of Apollo are prepared by management in
accordance with Canadian generally accepted accounting principles (“Canadian
GAAP”) and except as described in Note 25, 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
structures, 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 VIE’s as at December 31,
2008 and 2007.




The
Company’s 50% interest in the joint venture at the Montana Tunnels mine, which
is subject to joint control, is consolidated on a proportionate basis whereby
the Company includes in these consolidated financial statements its
proportionate share of the assets, liabilities, revenues and expenses of the
joint venture.




(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 and the
reported amounts of revenues and expenses during the reporting
period.  Significant estimates used herein include those relating to
gold and other metal prices, recoverable proven and probable reserves, deferred
stripping, available resources, available operating capital, depreciation and
depletion, realized value of inventory, valuation of warrants, stock-based
compensation, required reclamation costs, and contingencies and
commitments.  These estimates each affect management’s evaluation of
asset impairment and the recorded balances of property, plant and equipment,
reclamation and site closure costs and the future tax asset valuation
allowance.  It is reasonably possible that actual results could differ
in the near term from those and other estimates used in preparing these
financial statements and such differences could be material.




(c)
            Foreign
      currency transactions and
translation




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




(d)
            Cash
      and cash equivalents




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




F-8




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





3.
            SIGNIFICANT
      ACCOUNTING POLICIES (continued)




(e)
            Financial
      Instruments




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




The Company has designated its cash and
cash equivalents as held-for-trading, which are measured at fair
value.  Derivative instruments are classified as held for trading,
which are measured at fair value.  Accounts receivable and other are
classified as loans and receivables, which are measured at amortized
cost.  Long-term investments which is comprised of auction rate
securities held by the Company (Note 6), restricted cash, and restricted
certificates of deposit are classified as available for sale, and are measured
at fair value.  Accounts payable and accrued liabilities, property and
mining taxes payable, convertible debentures, and notes payable and other
current debt are classified as other liabilities, which are measured at
amortized cost.




On
January 1, 2007, the Company adopted a policy to expense debt financing costs
when they are incurred and as a result the Company recorded a non-cash
adjustment to increase opening deficit by $0.3 million to eliminate the opening
balance of deferred financing costs that were capitalized and amortized under
the Company’s previous accounting policy.




(f)
            Long-term
      investments




The
Company accounts for its investments in auction rate securities as
available-for-sale securities (see Note 3(e)).  The Company has
recorded an other than temporary impairment on its auction rate securities in
the consolidated statement of operations of $0.39 million and $0.03 million
during the years ended December 31, 2008 and 2007, respectively, and as such, no
amounts have been recorded in other comprehensive income.




(g)
            Inventories




Metals
inventories (concentrate and dore) are stated at the lower of weighted-average
production cost and net realizable value determined by using the first-in,
first-out method.  Production costs for metals inventories include
direct production costs and attributable overhead and depreciation incurred to
bring the materials to its current point in the processing cycle.  Ore
stockpiles represent ore that has been mined and is available for further
processing.  Work-in-process inventories, including ore stockpiles,
are valued at the lower of average production cost and net realizable
value.  Materials and supplies are valued at the lower of average
direct cost of acquisition and net realizable value.




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




(h)
            Property,
      plant and equipment




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




F-9




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





3.
            SIGNIFICANT
      ACCOUNTING POLICIES (continued)





Buildings
and equipment are recorded at acquisition cost and amortized over the remaining
proven and probable 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.  Repair and maintenance costs are expensed as
incurred.




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




(i)
            Mineral
      rights




Mineral
rights include the cost of obtaining unpatented and patented mining claims and
the cost of acquisition of properties.  Significant payments related
to the acquisition of land and mineral rights are capitalized.  If a
mineable ore body is discovered, such costs are amortized when 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.




(j)
            Stripping
      costs




Stripping
costs incurred during the production phase of a mine are variable production
costs that are included in the costs of the inventory produced during the period
that the stripping costs are incurred.  EIC-160, Stripping Costs Incurred in the
Production Phase of a Mining Operation, requires stripping costs that
represent a betterment to the mineral property to be capitalized and amortized
in a rational and systematic manner over the reserves that directly benefit from
the specific stripping activity.  Deferred stripping costs are
amortized using the units-of-production method over the expected life of the
operation based on the estimated recoverable gold equivalent
ounces.  The following represents a reconciliation of the Company’s
opening and closing balances for production phase deferred stripping
costs:




Balance,
      December 31, 2006
                
                $
                –Capitalized
      stripping costs
                
                
                6,788Amortization
                
                
                (2,001
                )Balance,
      December 31, 2007
                
                
                4,787Amortization
                
                
                (3,735
                )Balance,
      December 31, 2008
                
                $
                1,052





(k)
            Exploration
      expenditures




Exploration
expenditures are expensed as incurred during the reporting period.




F-10





APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





3.
            SIGNIFICANT
      ACCOUNTING POLICIES (continued)





(l)
            Property
      evaluations




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





(m)
            Derivative
      instruments




Historically,
Apollo’s policy has been to provide shareholders with leverage to changes in the
gold price by selling our gold production at market prices.  We have,
however, entered into derivative contracts to protect the selling price for
certain anticipated gold, silver, lead and zinc production (see Note 10(b) and
Note 26(b)).




The
Company has not applied hedge accounting to these transactions.  As a
result, the Company accounts for these contracts as investments and records the
changes in unrealized gains and losses in the statement of income each
period.  These changes can be significant.  The fair value
of these derivatives is recorded as a current asset or current liability at each
balance sheet date.




(n)
            Reclamation
      and closure costs




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




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




(o)
            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 Statement of Financial Accounting
Standards (“SFAS”) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended.




(p)
            Stock
      incentive plans




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




F-11




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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




3.
            SIGNIFICANT
      ACCOUNTING POLICIES (continued)




(q)
            Income
      taxes




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




(r)
            Income
      (loss) per share




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




(s)
            Changes
      in accounting pronouncements




Effective
January 1, 2008, the Company adopted three new presentation and disclosure
standards that were issued by the Canadian Institute of Chartered Accountants:
Handbook Section 1535, Capital
Disclosures (“Section 1535”), Handbook Section 3862, Financial Instruments –
Disclosures (“Section 3862”) and Handbook Section 3863, Financial Instruments –
Presentation (“Section 3863”).  Section 1535 requires the
disclosure of both qualitative and quantitative information that enables users
of financial statements to evaluate (i) an entity’s objectives, policies and
processes for managing capital; (ii) quantitative data about what the entity
regards as capital; (iii) whether the entity has complied with all externally
imposed capital requirements; and (iv) if it has not complied, the consequences
of such non-compliance.  Sections 3862 and 3863 replace Handbook
Section 3861, Financial Instruments – Disclosure and Presentation, revising and
enhancing its disclosure requirements and carrying forward unchanged its
presentation requirements for financial instruments. Sections 3862 and 3863
place increased emphasis on disclosures about the nature and extent of risks
arising from financial instruments and how the entity manages those
risks.





Effective
January 1, 2008, the Company adopted Handbook Section 3031 – Inventories, which replaces
the former Section 3030 – Inventories.  Section
3031 establishes standards for the measurement and disclosure of inventories,
including the measurement of inventories at the lower of cost and net realizable
value, consistent use of either first-in, first-out (FIFO) or weighted average
cost formulas and the reversal of inventory write-downs previously
recognized.  The Company has applied the new standard retrospectively,
without restatement.  The adoption of Section 3031 on January 1, 2008,
did not have a material impact on the Company’s financial condition, operating
results, or the opening balance of Inventories.




F-12




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





3.
            SIGNIFICANT
      ACCOUNTING POLICIES (continued)




(t)
            Recent
      accounting pronouncements




Effective
January 1, 2009, the Company will adopt Handbook Section 3064, Goodwill and Intangible
Assets, which replaces Section 3062, and establishes revised standards
for recognition, measurement, presentation and disclosure of goodwill and
intangible assets.  Concurrent with the introduction of this standard,
the CICA restricted the application of EIC 27, Revenues and Expenditures in the
Pre-operating Period (“EIC 27”).  The Company is evaluating the
impact of the adoption of this new Section on its consolidated financial
statements.





During
January 2009, the CICA issued Handbook Sections 1582, Business Combinations
(“Section 1582”), 1601, Consolidated Financial
Statements (“Section 1601”) and 1602, Non-controlling Interests
(“Section 1602”) which replaces CICA Handbook Sections 1581, Business Combinations, and
1600, Consolidated Financial
Statements.  Section 1582 establishes standards for the
accounting for business combinations that is equivalent to the business
combination accounting standard under International Financial Standards
(“IFRS”).  Section 1582 is applicable for the Company’s business
combinations with acquisition dates on or after January 1,
2011.  Early adoption of this Section is permitted.  Section
1601 together with Section 1602 establishes standards for the preparation of
consolidated financial statements.  Section 1601 is applicable for the
Company’s interim and annual consolidated financial statements for its fiscal
year beginning January 1, 2011.  Early adoption of this Section is
permitted.  If the Company chooses to early adopt any one of these
Sections, the other two sections must also be adopted at the same
time.  The Company is evaluating the impact of the adoption of these
new Sections on its consolidated statements.





4.
            PURCHASE
      OF THE STOCK MILL COMPLEX FROM ST
ANDREW




On July 28, 2008, the Company completed
the purchase of the Stock Mill Complex (the “Purchase”) from St Andrew
Goldfields Ltd. (“St Andrew”), a significant shareholder of the Company at that
time, for a purchase price of $19.9 million cash (Cdn$20.1
million).  The Stock Mill Complex was renamed Black Fox Mill Complex
(“Mill Complex”) by the Company.  The Mill Complex includes a mill and
related land, equipment, infrastructure, laboratory and tailings facilities,
located near Timmins, Ontario.  The Company intends to use the Mill
Complex to process ore mined at the Black Fox Mine, which is approximately 30
kilometers from the Mill Complex.  In connection with the acquisition
of the Mill Complex, Apollo agreed to assume certain contractual liabilities of
St Andrew and environmental liabilities relating to events after the closing of
the acquisition and is required to refund St Andrew its bonding commitment for
the Mill Complex in the amount of approximately $1.1 million  (Cdn$1.2
million) by July 28, 2009.  As of July 28 and December 31, 2008, St
Andrew held approximately 30.6 million and 19.1 million common shares of the
Company, respectively (14.0% and 8.6% of the outstanding common shares,
respectively).




The  Purchase
has been accounted for as a purchase of assets and assumption of liabilities of
the Mill Complex.  The allocation of the purchase consideration is as
follows:




Cash
      paid to St Andrew (Cdn$20.1 million)
                
                $
                19,870Transaction
      costs, including $0.35 million fair value of common shares issued (Note
      14(a)(i))
                
                
                1,039Purchase
      consideration
                
                $
                20,909Net
      assets acquiredProperty,
      plant and equipment
                
                $
                22,566Accrued
      site closure costs
                
                
                (1,210
                )Future
      income tax liability
                
                
                (447
                )$
                20,909




F-13





APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





5.
            MONTANA
      TUNNELS JOINT VENTURE AGREEMENT AND RELATED
  AGREEMENTS




(a)
            Joint
      Venture Agreement at Montana
Tunnels




On July
28, 2006, Apollo entered into a JV Agreement with Elkhorn in respect of the
Montana Tunnels mine.  Elkhorn contributed $13 million in return for a
50% interest in the Mine and Montana Tunnels Mining, Inc. (“MTMI”) contributed
all of its assets and liabilities related to the Mine into the joint venture for
a 50% interest in the Mine.  Effective December 31, 2006, the Mine
became a 50/50 joint venture.  MTMI is the operator of the
Mine.  A separate committee consisting of two designees from each of
MTMI and Elkhorn oversees the joint venture.




Elkhorn
received 55% and Apollo received 45% of the positive free cash flow, as defined
in the JV agreement, from the Mine until July 8, 2008 when Elkhorn had received
cash flow of $13 million (at which time Apollo had received $10.6
million).  Since July 8, 2008, Apollo receives 60% and Elkhorn 40% of
the positive free cash flow from the Mine, until both parties have received an
equal amount (at which time Apollo and Elkhorn will have each received $17.7
million).  Thereafter, the sharing will be
50/50.  Additionally, Elkhorn was entitled to a 10% interest
distribution (reduced from 12% effective April 1, 2007) charged to the joint
venture as interest expense (Note 15) on its initial contribution of $13 million
until it received cash flow of $13 million on July 8, 2008.  As of
December 31, 2008, Elkhorn had received cash flow of $13.9 million from the
joint venture and Apollo had received $12.0 million.  These cash flows
to Elkhorn and Apollo are included in net cash used in financing activities
below but are eliminated in the consolidated cash flow.




Apollo
accounts for its 50% interest in the Montana Tunnels joint venture using the
proportionate consolidation method. As of December 31, 2006, the Company
recorded a deferred gain on the transfer of assets and liabilities to the joint
venture of $3.8 million. The deferred gain is amortized using the
units-of-production method
over the expected life of the operation based on the estimated recoverable gold
equivalent ounces.  Amortization of the deferred gain was $2.0 million and
$1.2 million for the years ended December 31, 2008 and 2007,
respectively.




Apollo’s
      50% share of the assets and liabilities of the Montana Tunnels joint
      venture is as follows:




December 31,
                  2008
              
              
              December 31,
                  2007Cash
      and cash equivalents
              
              $
              12
              
              
              $
              306Other
      non-cash current assets
              
              
              5,323
              
              
              
              3,1905,335
              
              
              
              3,496Property,
      plant and equipment
              
              
              7,647
              
              
              
              9,167Deferred
      stripping costs
              
              
              1,052
              
              
              
              4,787Restricted
      certificates of deposit
              
              
              7,587
              
              
              
              5,435Total
      assets
              
              $
              21,621
              
              
              $
              22,885Current
      liabilities
              
              $
              4,361
              
              
              $
              3,573Notes
      payable
              
              
              –
              
              
              
              145Accrued
      site closure costs
              
              
              8,503
              
              
              
              8,314Total
      liabilities
              
              $
              12,864
              
              
              $
              12,032




F-14




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





5.
            MONTANA TUNNELS JOINT VENTURE AGREEMENT AND
      RELATED AGREEMENTS(continued)




Apollo’s 50% share of the results of
operations and cash flows of the Montana Tunnels joint venture is as
follows:




Year
      endedDecember 31,2008
              
              
              Year
      endedDecember 31,2007Revenue
      from sale of minerals
              
              $
              46,387
              
              
              $
              38,474Direct
      operating costs
              
              
              37,559
              
              
              
              26,324Depreciation
      and amortization
              
              
              1,465
              
              
              
              1,276Accretion
      expense – accrued site closure costs
              
              
              668
              
              
              
              46039,692
              
              
              
              28,060Operating
      income
              
              
              6,695
              
              
              
              10,414Interest
      income
              
              
              143
              
              
              
              219Interest
      expense
              
              
              (297
              )
              
              
              (946
              )Income
      from continuing operations
              
              $
              6,541
              
              
              $
              9,687Net
      cash provided by operating activities
              
              $
              10,485
              
              
              $
              12,165Net
      cash used in investing activities
              
              $
              (2,504
              )
              
              $
              (10,032
              )Net
      cash used in financing activities
              
              $
              (8,275
              )
              
              $
              (1,763
              )





(b)
            Additional
      Agreements with Elkhorn Goldfields
(“EGI”)





At the
same time Apollo entered into the JV Agreement, Apollo also entered into two
other agreements with EGI, an affiliate of Elkhorn.  The first
agreement is an option agreement pursuant to which EGI was granted an option to
purchase Apollo’s Diamond Hill mine for $0.8 million.  The option
originally had an exercise term of two years, which was extended one year to
July 28, 2009.  The second agreement is a mill operating and option
agreement pursuant to which EGI will have the right to have the Company process
the ore from EGI’s Elkhorn mine through the 1,000 ton per day Diamond Hill mill
which is situated within the Montana Tunnels mill complex.  The
milling agreement also provides EGI a two-year option (also extended one year to
July 28, 2009) to purchase the Diamond Hill mill for $1.0 million.





6.
            FAIR
      VALUE OF DERIVATIVE INSTRUMENTS AND LONG-TERM
  INVESTMENTS




The fair
value of the Company’s derivative instruments (see Note 10(b)), which are
comprised of gold, silver and lead contracts, are $0.6 million and $2.1 million
as of December 31, 2008 and December 31, 2007, respectively.  The cost
basis of these instruments at December 31, 2008 and December 31, 2007 is $nil
and $nil, as a result, unrealized gains on these instruments as of
December 31, 2008 and December 31, 2007, are $0.6 million and $2.1 million,
respectively.




The Company acquired auction rate
securities (“ARS”) in 2007, which are recorded in long-term investments, with a
face value of $1.5 million.  During the year ended December 31, 2008,
there were no purchases, sales, or settlements of these ARS.  The
Company has recorded an other than temporary impairment on its ARS, within
foreign exchange loss and other in the consolidated statement of operations, of
$0.39 million and $0.03 million for the years ended December 31, 2008 and 2007,
respectively, and as such, no amounts have been recorded in other comprehensive
income.  The adjusted cost basis and fair value of ARS at December 31,
2008 are $1.1 million. See Note 18(d).  The ARS are pledged
as collateral for a $0.9 million margin loan.




F-15





APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





7.
            INVENTORIES




Inventories
consist of:




2008
              
              
              2007Concentrate
      inventory
              
              $
              373
              
              
              $
              341Doré
      inventory
              
              
              21
              
              
              
              56Stockpiled
      ore inventory
              
              
              2,983
              
              
              
              749Materials
      and supplies
              
              
              777
              
              
              
              1,023$
              4,154
              
              
              $
              2,169





Expenses
related to the write down of the carrying value of inventories to net realizable
value was $1.4 million, $nil and $nil for the years ended December 31, 2008,
2007 and 2006, respectively.





8.
            PROPERTY,
      PLANT AND EQUIPMENT




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




2008
              
              
              2007Cost
              
              
              Accumulated
                  Depreciation
              
              
              Net Book
                  Value
              
              
              Cost
              
              
              Accumulated
                  Depreciation
              
              
              Net Book
                  ValueMine
      assetsBuilding,
      plant and equipment
              
              $
              37,504
              
              
              $
              4,418
              
              
              $
              33,086
              
              
              $
              6,955
              
              
              $
              3,423
              
              
              $
              3,532Mining
      properties and development costs
              
              
              57,353
              
              
              
              2,721
              
              
              
              54,632
              
              
              
              38,758
              
              
              
              2,075
              
              
              
              36,68394,857
              
              
              
              7,139
              
              
              
              87,718
              
              
              
              45,713
              
              
              
              5,498
              
              
              
              40,215Mineral
      rights
              
              
              8,163
              
              
              
              –
              
              
              
              8,163
              
              
              
              8,163
              
              
              
              –
              
              
              
              8,163Total
      property, plant and equipment
              
              $
              103,020
              
              
              $
              7,139
              
              
              $
              95,881
              
              
              $
              53,876
              
              
              $
              5,498
              
              
              $
              48,378Leased
      assets included above in Building, plant and equipment
              
              $
              3,307
              
              
              $
              797
              
              
              $
              2,510
              
              
              $
              1,857
              
              
              $
              472
              
              
              $
              1,385





9.
            RESTRICTED
      CASH AND RESTRICTED CERTIFICATES OF
DEPOSIT




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




2008
                
                
                2007Restricted
      cash, current – Debt covenants (a)
                
                $
                10,000
                
                
                $
                1,000Restricted
      certificates of deposit, non-currentSite
      closure obligations – Montana Tunnels (b)
                
                
                7,587
                
                
                
                6,057Site
      closure obligations – Black Fox and other (c)
                
                
                4,443
                
                
                
                658$
                12,030
                
                
                $
                6,715





(a)
            Debt
      Covenants




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




F-16





APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





9.           RESTRICTED CASH AND RESTRICTED CERTIFICATES OF
DEPOSIT(continued)




(b)
            Site
      Closure Obligation – Montana
Tunnels




The
restricted certificates of deposit represents cash that has been placed in trust
as security to the State of Montana relating to the site closure obligations of
the Montana Tunnels mine (see Note 13).




The
Company has entered into an agreement with a surety company to complete the
bonding requirements at MTMI.  The surety company committed to an
approximate $15 million 15-year term bonding (Apollo share is $7.5 million)
facility which is not cancelable, unless MTMI fails to meet its requirements
under the arrangement.  The agreement obligated MTMI to make monthly
payments until the balance in the trust account is equal to the penal sum of the
bond.  At December 31, 2008, the balance of $15 million in the trust
account equaled the penal sum of the bond (Apollo share is $7.5 million) (2007 –
$10.9 million, Apollo share was $5.4 million).




(c)
            Site
      Closure Obligation – Black Fox




The
bonding requirements for the closure obligations for the Black Fox mine and mill
sites have been agreed with the Ontario Ministry of Northern Development and
Mines (“MNDM”) (Note 19(c)).  The restricted certificates of deposits
represent Cdn$4.65 million pledged to the MNDM as of December 31, 2008 (2007 –
Cdn$0.65 million).





10.
            NOTES
      PAYABLE AND OTHER CURRENT DEBT




(a)
            Notes
      Payable




The notes
payable are secured by certain machinery and equipment and bear interest at
various effective interest rates between 5.7% and 16.4% (2007 – 5.7% and
28.2%).  Notes payable and the credit and bridge facilities described
below are repayable as follows at December 31, 2008:




NotesPayable
              
              
              Credit
      andBridgeFacilities
              
              
              Total2009
              
              $
              2,787
              
              
              $
              17,849
              
              
              $
              20,6362010
              
              
              489
              
              
              
              –
              
              
              
              4892011
              
              
              481
              
              
              
              –
              
              
              
              4812012
              
              
              42
              
              
              
              –
              
              
              
              42Total
              
              
              3,799
              
              
              
              17,849
              
              
              
              21,648Less
      current portion
              
              
              (2,787
              )
              
              
              (17,849
              )
              
              
              (20,636
              )Long-term
      portion
              
              $
              1,012
              
              
              $
              –
              
              
              $
              1,012





(b)
            Credit
      Facility and Related Derivative
Contracts




On July
1, 2008, the Company entered into a $5.15 million extension of an existing
credit facility (the “Credit Facility Extension”).  The Credit
Facility Extension, which was fully drawn on July 1, 2008, matures on June 30,
2009 and bears interest at LIBOR plus 2.0%, and is repayable in three quarterly
payments beginning December 31, 2008.  The lender received a $0.1
million arrangement fee and 650,000 common shares of the Company.  The
loan is secured by all of the assets of Montana Tunnels Mining, Inc. and the
Black Fox property.




F-17






APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





10.
            NOTES
      PAYABLE AND OTHER CURRENT DEBT
(continued)




The
Credit Facility Extension agreement required the Company to use proceeds from
the loan as follows: (i) first, to make a down payment of $3.9 million (Cdn$4.0
million) for the purchase of the Mill Complex (see Note 4) and the $0.1 million
arrangement fee, and (ii) second, for general working capital
purposes.





As a
requirement of the Credit Facility Extension, the Company entered into certain
option contracts to buy and sell gold, silver, lead and zinc, which equates to
approximately 50% of Apollo’s share of expected metal production from the
Montana Tunnels Mine in the fourth quarter of 2008 and the first quarter of
2009.  The option contracts are in the form of a no premium collar
(buy a put, sell a call) at the following prices:




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





The Company did not apply hedge
accounting to this transaction.  As a result, the Company accounts for
these derivative instruments as investments and records the changes in
unrealized gains and losses in the statement of income each
period.  The fair value of these derivatives is recorded as a current
asset or current liability at each balance sheet date (see Note 6).




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





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





These contracts mature in three equal
amounts at the end of January, February and March 2009.  The January
and February 2009 contracts matured for combined net proceeds of $0.3
million.




(c)
            Bridge
      Facility




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





The Bridge Facility matures on June 30,
2009.  Under the Bridge Facility, the Company retains the right to
elect not to pay accrued and unpaid interest, in which case the counter-parties
(two separate banks each with a 50% interest in the Bridge Facility) may elect
to convert its pro rata share of such amount of interest into common shares of
the Company at a conversion rate based on the then prevailing market price of
the common shares or, if the counter-party does not elect to so convert such
amount of interest into common shares, the amount of interest will be
capitalized and bear interest thereafter.  The Bridge Facility was
subject to an arrangement fee of 5% and bears interest at LIBOR plus 10% per
annum, equal to approximately 12% per annum as of the date of the arrangement.
In addition, the counter-parties received 42,614,254 warrants, each warrant
entitling the holder to purchase one common share at a price of Cdn$0.221 per
common share and exercisable for a four year period.




F-18




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


10.
            NOTES
      PAYABLE AND OTHER CURRENT DEBT
(continued)




The
Bridge Facility is secured by substantially all of the Company’s assets,
including the Black Fox Project and the stock of the consolidated subsidiaries
of the Company.  See Note 26(c) for discussion of the repayment of the
Bridge Facility.




11.
            CONVERTIBLE
      DEBENTURES




On
February 23, 2007, the Company completed a private placement of $8.6 million
aggregate principal amount of Series 2007-A convertible debentures (“2007
Debentures”).  Each $1,000 of principal amount of 2007 Debentures
included 2,000 common share purchase warrants (“2007 Debenture
Warrants”).  The 2007 Debentures mature on February 23, 2009 and bear
interest at a rate of 12% per annum during the first year and 18% per annum
during the second year, payable annually beginning on February 23,
2008.  During 2007 and 2008, $0.2 million and $0.7 million principal
amount, respectively, of 2007 Debentures were converted.  See Note
26(a) for a discussion of the repayment of a portion of the 2007 Debentures and
the restructuring of the terms of the remaining 2007 Debentures.




The 2007
Debentures are convertible, at the option of the holder, at any time prior to
maturity into common shares of the Company at a price of $0.50 per common
share.  The Company has the option to force conversion of the 2007
Debentures under certain circumstances.  The Debentures are classified
as a compound financial instrument for accounting purposes.  The 2007
Debenture Warrants have an exercise price of $0.50 per common share and have a
term of two years from the date of grant.




On the
date of issuance of the 2007 Debentures, the gross proceeds of $8.6 million was
allocated to the relative fair values of the Debentures ($3.2 million), the
holder’s option to convert the principal balance into common shares ($2.7
million) (the “Conversion Option”), and the 2007 Debenture Warrants ($2.7
million).  The $3.2 million fair value of the 2007 Debentures is
classified as a liability, while the $5.4 million allocated to the Conversion
Option and the 2007 Debenture Warrants is classified as separate components
within shareholders’ equity.




Over
their two-year term, the 2007 Debentures are accreted to their face value
through a periodic charge to accretion expense with a corresponding credit to
the liability component.  The accretion expense is based on the
effective interest method.  For the year ended December 31, 2008, the
Company recorded accretion expense of $3.9 million (2007 - $2.5 million) related
to the 2007 Debentures, which is included in interest expense.




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




The Company incurred transaction costs
of $1.3 million (including the fair value of the agents’ compensation warrants
of $0.5 million).  These costs were allocated to 2007 Debenture
issuance costs of $0.5 million and to equity issuance costs of $0.8 million,
based on their relative fair values of the debt and equity
components.  Financing costs associated with the issuance of the 2007
Debentures are expensed as incurred.




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




F-19


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


12.
            EMPLOYEE
      BENEFIT PLAN




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




The
amounts charged to earnings for the Company’s defined contribution plan totaled
$94,000, $88,000, and $10,000 for the years ended December 31, 2008, 2007 and
2006, respectively.




13.
            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 its bonding
requirements.  The estimates prepared by management are then
reconciled with legal and regulatory requirements.




At
December 31, 2008, the accrued site closure liabilities amounted to
$10.6 million (2007 – $9.4 million).  The liabilities are covered
by a combination of surety bonds, restricted certificates of deposit and
property which in aggregate are valued at approximately $10.6
million.




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




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




Balance,
      December 31, 2006
                
                $
                7,135Accretion
                
                
                507Increase
      in reclamation assets
                
                
                1,800Balance,
      December 31, 2007
                
                
                9,442Additions,
      changes in estimates and other
                
                
                (807
                )Acquisition
      of Black Fox mill (Note 4)
                
                
                1,210Accretion
                
                
                718Balance,
      December 31, 2008
                
                $
                10,563




As of
December 31, 2008, the total, undiscounted amount of the estimated future
obligations associated with the retirement of the Company’s properties is
estimated to be $16.4 million.  The $10.6 million (2007 – $9.4
million) fair value of these obligations was determined using credit adjusted
risk-free discount rates ranging from 7.5% to 13.0% and expected payment of
obligations over twelve years.




14.
            SHARE
      CAPITAL




(a)
            Shares
      Issued in 2008




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




F-20


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


14.
            SHARE
      CAPITAL (continued)




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




The net
proceeds of the offering were used to fund the Company’s acquisition of the Mill
Complex (see Note 4), the development of the Black Fox Project and for working
capital and general corporate purposes.





The
agents received the following compensation in consideration for their services:
(1) a cash fee equal to Cdn$1.3 million or 6.5% of the gross proceeds of the
offering; and (2) a non-transferable option to acquire up to 2,448,390 units
(the “Agents’ Units”) at a price per unit of Cdn$0.60, which number of units is
equal to 6% of the total number of units sold in the offering (the “Agents’
Compensation Option”).  The Agents’ Compensation Option will be
exercisable from January 20, 2009 to July 24, 2012.  Each Agents’ Unit
will be comprised of one common share and one-half of one common share purchase
warrant (“Agents’ Warrant”), each whole Agents’ Warrant included in the Agents’
Unit entitling the Agent holding such warrant to purchase one common share of
the Company at an exercise price of $0.53 (Cdn$0.78) from January 20, 2009 to
July 24, 2012.  The Agents’ Units were fair valued at $0.4 million,
using an option pricing model with the following assumptions:  no
dividends are paid, a volatility of the Company’s share price of 74%, an
expected life of the warrants of four years, and an annual risk-free rate of
3.4%.




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




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




(v)           On
December 10, 2008, the exercise price of 7,499,999 warrants issued in connection
with a unit offering completed on November 8, 2006 (Note 14(c)(v)) (the “2006
Unit Warrants”) was reduced to $0.176 from $0.50 as a result of the certain
anti-dilution provisions of those warrants.  The issuance of the
compensation warrants described in the above paragraph (iv) at Cdn$0.221 per
warrant constituted a “Dilutive Issuance” under the terms of the 2006 Unit
Warrants and therefore the exercise price of the 2006 Unit Warrants were reduced
to $0.176 based on the December 10, 2008 noon exchange rate of $0.7964 reported
by the Bank of Canada.




F-21


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


14.
            SHARE
      CAPITAL (continued)




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




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




(b)
            Shares
      Issued in 2007




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




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




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




(c)
            Shares
      Issued in 2006




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




(ii)           On
February 27, 2006, the Company issued 2,290,408 common shares of the Company at
Cdn$0.48 per share to officers of the Company, as approved by the Company’s
Board of Directors in December 2005.




(iii)           On
August 29, 2006, the Company issued 400,000 common shares for investor relations
services at $0.67 per share.  On September 12, 2006, the Company
issued 925,000 common shares at $0.43 per share as a fee related to the JV
Agreement in respect of MTMI.




(iv)           On
October 30, 2006, the Company completed an offering of 2,222,221 flow-through
units of the Company at Cdn$0.45 per unit for net proceeds of $773,000
(Cdn$903,000) and fair value of broker compensation warrants of
$27,000.  Each flow-through unit is comprised of one flow-through
common share of the Company and one-half of one share purchase warrant, with
each whole warrant exercisable into one common share of the Company for a period
of two years from closing at an exercise price of Cdn$1.00 for the first twelve
months and Cdn$1.15 for the last twelve months.  In connection with
this offering, 166,666 broker compensation warrants were issued.  The
broker compensation warrants were fair valued using an option pricing model with
the following assumptions:  no dividends are paid, a volatility of the
Company’s share price of 88%, an expected life of the warrants of two years, and
an annual risk-free rate of 4.0%.




F-22


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


14.
            SHARE
      CAPITAL (continued)




(v)           On
November 8, 2006, the Company completed an offering of approximately 16.7
million units of the Company at $0.30 per unit for net proceeds of approximately
$4.5 million and fair value of placement agents’ warrants of $0.2
million.  Each unit sold in the offering consists of one common share
and one-half of one share purchase warrant, with each whole warrant exercisable
into one common share of the Company for a period of three years after closing
at an exercise price of $0.50.  The warrants contain provisions that
provide that the exercise price of the warrants will be reduced under certain
circumstances.  In connection with this offering, approximately
1,168,174 million placement agents’ warrants were issued with the same terms as
described above.  The placement agents’ 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 85%, an
expected life of the warrants of three years, and an annual risk-free rate of
4.0%.





(d)
            Common
      Share Purchase Warrants




The
following summarizes outstanding warrants to purchase common shares of the
Company as at December 31, 2008:




Date Issued
                
                Number of Warrants and
                    of Shares Issuable upon
                    Exercise
                
                
                Exercise Price
                
                Expiry DateExercisable
      in US$November
      8, 2006
                
                
                7,499,999
                
                
                
                0.176
                
                November
      8, 2009November
      8, 2006
                
                
                1,178,944
                
                
                
                0.50
                
                November
      8, 2009February
      23, 2007
                
                
                17,933,200
                
                
                
                0.50
                
                February
      23, 2009(1)26,612,143Exercisable
      in Cdn$October
      31, 2007
                
                
                372,727
                
                
                
                0.55
                
                April
      30, 2009July
      24, 2008
                
                
                20,403,250
                
                
                
                0.65
                
                July
      24, 2011August
      21, 2008
                
                
                1,020,000
                
                
                
                0.50
                
                February
      21, 2010December
      10, 2008
                
                
                42,614,254
                
                
                
                0.221
                
                December
      10, 2012December
      31, 2008
                
                
                255,000
                
                
                
                0.30
                
                December
      31, 201064,665,23191,277,374





(1)On
February 19, 2009,8,580,000
of these warrants were extended to March 4, 2010 and the exercise price was
reduced to $0.25 (See Note 26(a)).  The remaining 9,353,200 warrants
expired unexercised on February 23, 2009.





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




F-23


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


14.
            SHARE
      CAPITAL (continued)




(e)
            Options




A summary
of information concerning outstanding stock options at December 31, 2008 is as
follows:




Fixed Stock Options
              
              
              Performance-based
                  Stock OptionsNumber of
                  Common
                  Shares
              
              
              Weighted
                  Average
                  Exercise
                  Price
              
              
              Number of
                  Common
                  Shares
              
              
              Weighted
                  Average
                  Exercise
                  PriceBalances,
      December 31, 2006
              
              
              3,874,100
              
              
              
              1.15
              
              
              
              1,794,582
              
              
              
              0.80Options
      granted
              
              
              473,000
              
              
              
              0.53
              
              
              
              –
              
              
              
              –Options
      exercised
              
              
              (50,000
              )
              
              
              0.39
              
              
              
              –
              
              
              
              –Options
      expired
              
              
              (900,000
              )
              
              
              1.20
              
              
              
              –
              
              
              
              –Options
      forfeited
              
              
              (344,200
              )
              
              
              1.05
              
              
              
              (563,730
              )
              
              
              0.80Balances,
      December 31, 2007
              
              
              3,052,900
              
              
              
              1.06
              
              
              
              1,230,852
              
              
              
              0.80Options
      granted
              
              
              3,291,939
              
              
              
              0.57
              
              
              
              –
              
              
              
              –Options
      forfeited
              
              
              (117,336
              )
              
              
              0.72
              
              
              
              –
              
              
              
              –Options
      expired
              
              
              –
              
              
              
              –
              
              
              
              (1,230,852
              )
              
              
              0.80Balances,
      December 31, 2007
              
              
              6,227,503
              
              
              
              0.81
              
              
              
              –
              
              
              
              –Options
      granted
              
              
              2,228,738
              
              
              
              0.66
              
              
              
              –
              
              
              
              –Options
      forfeited
              
              
              (174,932
              )
              
              
              0.61
              
              
              
              –
              
              
              
              –Balances,
      December 31, 2008
              
              
              8,281,309
              
              
              $
              0.77
              
              
              
              –
              
              
              $
              –





(i)           Fixed
stock option plan




The
Company has a fixed stock option plan that provides for the granting of options
to directors, officers, employees and service providers of the Company at a
price based on the trading price of the Common Shares one trading day preceding
the date of grant.  Options vest over two years and have a 10-year
contractual term, unless otherwise determined by the Company’s Board of
Directors.  The Company is authorized to issue a maximum of 12,139,686
fixed stock options.  As at December 31, 2008 an aggregate of
3,858,377 fixed stock options were available for future grants of awards under
the plan.




F-24


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


14.
            SHARE
      CAPITAL (continued)




The
following table summarizes information concerning outstanding and exercisable
fixed stock options at December 31, 2008:




Options Outstanding
              
              
              Options ExercisableNumber
                  Outstanding
              
              Expiry Date
              
              Weighted
                  Average
                  Exercise
                  Price per
                  Share
              
              
              Weighted
                  Average
                  Remaining
                  Contractual Life
                  (in years)
              
              
              Number
                  Exercisable
              
              
              Weighted
                  Average
                  Exercise
                  Price per
                  Share100,000
              
              September
      1, 2011
              
              $
              0.46
              
              
              
              2.7
              
              
              
              100,000
              
              
              $
              0.46677,300
              
              February
      18, 2013
              
              
              2.24
              
              
              
              4.1
              
              
              
              677,300
              
              
              
              2.24260,000
              
              March
      10, 2014
              
              
              2.05
              
              
              
              5.2
              
              
              
              260,000
              
              
              
              2.0525,000
              
              May
      19, 2014
              
              
              1.44
              
              
              
              5.4
              
              
              
              25,000
              
              
              
              1.4420,200
              
              August
      10, 2014
              
              
              0.95
              
              
              
              5.6
              
              
              
              20,200
              
              
              
              0.951,160,500
              
              March  10,
      2015
              
              
              0.65
              
              
              
              6.2
              
              
              
              1,160,500
              
              
              
              0.65100,000
              
              August
      4, 2015
              
              
              0.27
              
              
              
              6.6
              
              
              
              100,000
              
              
              
              0.27300,000
              
              December
      12, 2015
              
              
              0.20
              
              
              
              7.0
              
              
              
              300,000
              
              
              
              0.20125,000
              
              March
      28, 2016
              
              
              0.65
              
              
              
              7.2
              
              
              
              125,000
              
              
              
              0.65200,000
              
              May
      23, 2016
              
              
              0.53
              
              
              
              7.4
              
              
              
              200,000
              
              
              
              0.53108,000
              
              August
      10, 2016
              
              
              0.48
              
              
              
              7.6
              
              
              
              108,000
              
              
              
              0.4840,000
              
              November
      9, 2016
              
              
              0.32
              
              
              
              7.9
              
              
              
              40,000
              
              
              
              0.322,940,246
              
              February
      6, 2017
              
              
              0.57
              
              
              
              8.1
              
              
              
              1,470,123
              
              
              
              0.5749,825
              
              May
      23, 2017
              
              
              0.46
              
              
              
              8.6
              
              
              
              24,912
              
              
              
              0.462,098,988
              
              March
      27, 2018
              
              
              0.66
              
              
              
              9.2
              
              
              
              –
              
              
              
              –21,250
              
              August
      12, 2018
              
              
              0.37
              
              
              
              9.6
              
              
              
              –
              
              
              
              –55,000
              
              November
      11, 2018
              
              
              0.15
              
              
              
              9.9
              
              
              
              –
              
              
              
              –8,281,309
              
              
              
              $
              0.77
              
              
              
              8.0
              
              
              
              4,611,035
              
              
              $
              0.89





The
aggregate intrinsic value of options outstanding is $13,400 and the aggregate
intrinsic value of options currently exercisable is $9,000.  The
intrinsic value of options exercised for the year ending December 31, 2006 was
$20,000.  There were no options exercised during the years ended
December 31, 2008 and 2007.




Stock
compensation expense is recognized on a straight-line basis over the vesting
period.  Expense recognized for the years ended December 31, 2008,
2007 and 2006 was $0.8 million, $1.0 million, and $0.4 million,
respectively.  As at December 31, 2008 there was $0.4 million of total
unrecognized compensation cost related to unvested options, which will be
amortized over their remaining vesting period of 1.9 years.




(f)
            Stock-based
      Compensation




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




2008
              
              
              2007
              
              
              2006Risk-free
      interest rate
              
              
              2.9
              %
              
              
              4.0
              %
              
              
              4.1
              %Dividend
      yield
              
              
              0
              %
              
              
              0
              %
              
              
              0
              %Volatility
              
              
              67
              %
              
              
              71
              %
              
              
              89
              %Expected
      life in years
              
              
              6
              
              
              
              6
              
              
              
              6Weighted
      average grant-date fair value of stock options
              
              $
              0.40
              
              
              $
              0.37
              
              
              $
              0.40




F-25


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


14.
            SHARE
      CAPITAL (continued)




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




(g)
            Shareholder
      Rights Plan




On
January 17, 2007, the Company adopted a Shareholder Rights Plan (the “Rights
Plan”).  The Rights Plan was adopted to ensure the fair treatment of
shareholders in connection with any take-over bid for common shares of
Apollo.  The Rights Plan seeks to provide shareholders with adequate
time to properly assess a take-over bid without undue pressure.  It
also is intended to provide the Board with more time to fully consider an
unsolicited take-over bid and, if appropriate, to explore other alternatives to
maximize shareholder value.  The Rights Plan is not intended to
prevent take-over bids that treat shareholders fairly.  The Rights
Plan, adopted and effective in January 2007, was ratified by the shareholders at
Apollo’s Annual Meeting of Shareholders held on May 16, 2007.  The
Rights Plan expires in January 2012.





15.
            INTEREST
      EXPENSE




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




2008
              
              
              2007
              
              
              2006Accretion
      on convertible debentures
              
              $
              3,986
              
              
              $
              4,533
              
              
              $
              2,117Amortization
      of deferred financing costs
              
              
              –
              
              
              
              –
              
              
              
              319Interest
      related to Montana Tunnels joint venture agreement (Note
5)
              
              
              102
              
              
              
              711
              
              
              
              –Capital
      leases and other
              
              
              521
              
              
              
              494
              
              
              
              241$
              4,609
              
              
              $
              5,738
              
              
              $
              2,677





16.
            INCOME
      TAXES




The Company recorded a tax benefit of
$1.8 million for the year ended December 31, 2008, which includes a $1.9 million
benefit for the issuance of flow-through shares and an income tax expense of
$0.1 million for alternative minimum taxes resulting from U.S. operations, but
recorded no other recovery for income taxes as the net loss carry forwards are
fully offset by a valuation allowance.  The Company recorded a tax
benefit of $1.4 million for the year ended December 31, 2007, due to the
issuance of flow-through shares but recorded no other recovery for income taxes
as the net loss carry forwards are fully offset by a valuation
allowance.  The Company did not record a provision or benefit for
income taxes for the year ended December 31, 2006, due to the availability of
net operating loss carryforwards and the uncertainty of their future
realization.




F-26


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


16.
            INCOME
      TAXES (continued)




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




2008
              
              
              2007
              
              
              2006Statutory
      tax rate
              
              
              30.67
              %
              
              
              33.12
              %
              
              
              33.12
              %Provision
      for (recovery of) income taxes computed at standard rates
              
              $
              (53
              )
              
              $
              338
              
              
              $
              (5,046
              )Differences
      due to foreign tax rates
              
              
              1,026
              
              
              
              37
              
              
              
              (718
              )Flow
      through share recovery
              
              
              (1,893
              )
              
              
              (1,394
              )
              
              
              –Change
      in valuation allowance
              
              
              (6,425
              )
              
              
              (880
              )
              
              
              (1,138
              )Permanent
      differences and other
              
              
              5,575
              
              
              
              505
              
              
              
              6,902$
              (1,770
              )
              
              $
              (1,394
              )
              
              $
              –





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:




2008
              
              
              2007Future
      income tax assetsNet
      operating losses carried forward
              
              $
              46,536
              
              
              $
              51,239Exploration
      and development expenses
              
              
              (2,275
              )
              
              
              (505
              )Property,
      plant and equipment
              
              
              169
              
              
              
              1,003Accrued
      site closure costs
              
              
              4,246
              
              
              
              3,492Issuance
      of flow-through shares
              
              
              –
              
              
              
              1,165Other
              
              
              3,029
              
              
              
              2,90251,705
              
              
              
              59,296Less:
      Valuation allowance
              
              
              (51,705
              )
              
              
              (58,131
              )Net
      future income tax
      asset
              
              $
              –
              
              
              $
              1,165Net
      future income tax liabilities: Accumulated cost base differences on
      assets
              
              $
              447
              
              
              $
              –





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, 2008, the
Company has the following unused tax losses available for tax carryforward
purposes:




Country
                      
                      Amount
                      
                      
                      ExpiryCanada
                      
                      $
                      25,871
                      
                      
                      
                      2009-2028United
      States
                      
                      
                      106,622
                      
                      
                      
                      2011-2028





F-27


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


17.
            EARNINGS
      (LOSS) PER SHARE




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




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




2008
              
              
              2007
              
              
              2006Net
      income (loss)
              
              $
              1,596
              
              
              $
              2,416
              
              
              $
              (15,587
              )Weighted
      average number of shares, basic
              
              
              185,058,717
              
              
              
              145,645,178
              
              
              
              123,621,267Dilutive
      securities:Options
              
              
              249,457
              
              
              
              245,940
              
              
              
              –Warrants
              
              
              26,831,056
              
              
              
              536,852
              
              
              
              –Weighted
      average number of shares, diluted
              
              
              212,139,230
              
              
              
              146,427,970
              
              
              
              123,621,267Basic
      and diluted earnings (loss) per share
              
              $
              0.01
              
              
              $
              0.02
              
              
              $
              (0.13
              )Options
      and warrants outstanding but not included in computation of diluted
      weighted average number of shares (“OWNI”) because the strike prices
      exceeded the average price of the common shares
              
              
              51,121,570
              
              
              
              34,886,993
              
              
              
              19,975,138Average
      exercise price of OWNI
              
              $
              0.59
              
              
              $
              0.61
              
              
              $
              0.75Shares
      issuable for convertible debentures excluded from calculation of EPS
      because their effect would have been anti-dilutive
              
              
              14,876,200
              
              
              
              16,760,000
              
              
              
              11,641,333Average
      conversion price of anti-dilutive convertible securities
              
              $
              0.50
              
              
              $
              0.50
              
              
              $
              0.75





Due to a
net loss for the year ended December 31, 2006, an additional 8.4 million
warrants and stock options were excluded from the EPS computation because their
effect would have been anti-dilutive.




18.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS AND RISK
  MANAGEMENT




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




(a)
            Capital
      Risk Management




The Company manages its capital to
ensure that it will be able to continue as a going concern while maximizing the
return to shareholders through the optimization of its debt and equity balance.
The Company’s overall strategy remains unchanged from 2007.





The capital structure of the Company
consists of notes payable and other current debt, convertible debentures and
equity attributable to common shareholders, comprising issued share capital,
equity component of convertible debentures, note warrants, contributed surplus
and deficit.




F-28


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


18.
            FAIR VALUE OF
      FINANCIAL INSTRUMENTS AND RISK MANAGEMENT(continued)




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




December
      31,2008
              
              
              2007Carrying
                  Amount
              
              
              Fair
                  Value
              
              
              Carrying
                  Amount
              
              
              Fair
                  ValueCash
      and cash equivalents
              
              $
              3,097
              
              
              $
              3,097
              
              
              $
              4,852
              
              
              $
              4,852Derivative
      instruments
              
              
              552
              
              
              
              552
              
              
              
              2,101
              
              
              
              2,101Restricted
      cash
              
              
              10,000
              
              
              
              10,000
              
              
              
              1,000
              
              
              
              1,000Accounts
      receivable and other
              
              
              3,134
              
              
              
              3,134
              
              
              
              1,846
              
              
              
              1,846Long-term
      investments
              
              
              1,081
              
              
              
              1,081
              
              
              
              1,467
              
              
              
              1,467Accounts
      payable
              
              
              13,827
              
              
              
              13,827
              
              
              
              2,748
              
              
              
              2,748Accrued
      liabilities
              
              
              1,449
              
              
              
              1,449
              
              
              
              2,940
              
              
              
              2,940Property
      and mining taxes payable
              
              
              1,146
              
              
              
              1,146
              
              
              
              957
              
              
              
              957Notes
      payable and other liabilitiesCurrent
              
              
              20,636
              
              
              
              20,636
              
              
              
              7,617
              
              
              
              7,617Non-current
              
              
              1,328
              
              
              
              1,328
              
              
              
              448
              
              
              
              448Convertible
      debentures
              
              
              7,927
              
              
              
              8,579
              
              
              
              5,537
              
              
              
              8,380





(c)
            Market
      risk




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




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, the Company’s lead-gold and zinc-gold concentrates
are subject to a contract with one customer (Note 23) and if the Company had to
change the smelters to which these concentrates are shipped, the additional
transportation costs could be considerable.  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. For the year ended December 31, 2008, the sensitivity of the
Company’s net income due to a 10% change in gold, lead and zinc prices would
have impacted net income by $2.1 million, $0.6 million and $1.3 million,
respectively.




(d)
            Credit
      Risk




Credit risk on financial instruments
arises from the potential for counterparties to default on their obligations to
the Company.  The Company’s credit risk is limited to cash and cash
equivalents, trade receivables, restricted cash, restricted certificates of
deposit, derivative instruments and auction rate securities in the ordinary
course of business.  Cash and cash equivalents, restricted cash,
restricted certificates of deposit, derivative instruments and auction rate
securities are placed with high-credit quality financial
institutions.  The Company sells its metal production exclusively to
large international organizations with strong credit ratings.  The
balance of trade receivables owed to the Company in the ordinary course of
business is not significant.  The carrying value of accounts
receivable approximates fair value due to the relatively short periods to
maturity on these instruments.  Therefore, the Company is not exposed
to significant credit risk.  Overall, the Company’s credit risk has
not changed significantly from 2007.




F-29


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


18.
            FAIR VALUE OF
      FINANCIAL INSTRUMENTS AND RISK MANAGEMENT(continued)




The
Company assesses quarterly whether there has been an impairment of the financial
assets of the Company.  Other than disclosed in Note 6 related to ARS,
the Company has not recorded an impairment on any of the financial assets of the
Company during the year ended December 31, 2008.  Apollo continues to
maintain a portion of its investments in ARS, which are floating rate securities
that are marketed by financial institutions with auction reset dates at 28 day
intervals to provide short-term liquidity.  All ARS were rated Aaa
when purchased, pursuant to Apollo’s investment policy at the
time.  Auction rate securities are no longer permitted to be purchased
under the Company’s current investment policy.  Beginning in August
2007, a number of auctions began to fail and the Company is currently holding
ARS with a par value of $1.5 million which currently lack
liquidity.  All of Apollo’s ARS have continued to make regular
interest payments.  Apollo’s ARS were downgraded to Aa during the
second quarter of 2008.  If uncertainties in the credit and capital
markets persist or Apollo’s ARS experience further downgrades, the Company may
incur additional impairments, which may continue to be judged other than
temporary.  Apollo believes that the current illiquidity of its ARS
will not have a material impact on Apollo’s financial condition.





The Company’s maximum exposure to
credit risk is represented by the carrying amount on the balance sheet of cash
and cash equivalents, trade receivables, restricted cash, restricted
certificates of deposit, derivative instruments and auction rate
securities.  The Company has one customer (see (c) above) that
represents a significant portion of accounts receivable.




The aging
of accounts receivable as of December 31, 2008, was as follows:
 
 0-30
      Days
              31-60
      Days
              61-90
      Days
              91-120
      Days
              Over
      120 Days
              Total$2,180
              $     529
              $       53
              $       14
              $     358
              $3,134


(e)
            Liquidity
      Risk




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





Trade payables and accrued liabilities
are paid in the normal course of business generally according to their terms,
which are typically due thirty days or less.  The Company ensures that
there are sufficient committed loan facilities to meet its short-term business
requirements, taking into account its anticipated cash flows from operations and
its holdings of cash and cash equivalents.  As at December 31, 2008,
the Company is in compliance with its debt covenants.  As of December
31, 2008, the Company held cash and cash equivalents of $3.1 million, had
unexpended flow-through share funds of $3.8 million, had current debt
obligations of $24.0 million consisting of (1) the current portion of the
outstanding principal of the Series 2007-A convertible debentures of $3.1
million due in February 2009, (2) $15 million for a bridge facility entered into
on December 10, 2008 (Notes 10(c) and 26(c)) due on June 30, 2009, (3) $2.8
million for a debt facility due in installments in March 2009 and June 2009
(Note 10(b)), and (4) $3.1 million for other current
debt.  Additionally, as of December 31, 2008, the Company has
committed to make capital expenditures of approximately $17.1 million for
the development of Black Fox (Notes 19(b)) and has committed to post $9.0
million (Cdn$10.9 million) cash for environmental bonding at Black Fox (Note
19(c)).  Based on the current cash balance, expected cash flows of the
Montana Tunnels joint venture, utilizing the $70 million financing facility as
per the subsequent event Note 26(b), and from the projected cash flows from the
Black Fox Project which the Company expects to commence production of gold in
the second quarter of 2009, the Company expects to have sufficient funds to (1)
repay the $24.0 million current debt obligations listed above (2) fund the
capital commitments for the development of Black Fox, (3) repay $15.3 million
principal due in 2009 on the $70 million financing facility, and (4) fund
corporate expenditures.





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




F-30


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


18.
            FAIR VALUE OF
      FINANCIAL INSTRUMENTS AND RISK MANAGEMENT(continued)




Payments Due by Period
                  As of December 31,
    2008
                
                
                As of
                    December 31,
                    2007Within
                    1
      Year
                
                
                1-3
                    Years
                
                
                3-5
                    Years
                
                
                Over
                  5
      Years
                
                
                Total
                
                
                TotalAccounts
      payable, accrued liabilities and property and mining taxes
      payable
                
                $
                16,422
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –
                
                
                $
                16,422
                
                
                $
                6,645Notes
      payable and other current debt
                
                
                20,636
                
                
                
                1,012
                
                
                
                –
                
                
                
                –
                
                
                
                21,648
                
                
                
                7,776Convertible
      debentures
                
                
                3,148
                
                
                
                4,290
                
                
                
                –
                
                
                
                –
                
                
                
                7,438
                
                
                
                8,380Interest
      on convertible debentures
                
                
                567
                
                
                
                772
                
                
                
                –
                
                
                
                –
                
                
                
                1,339
                
                
                
                2,711Operating
      lease obligations
                
                
                394
                
                
                
                111
                
                
                
                6
                
                
                
                –
                
                
                
                511
                
                
                
                183Capital
      expenditures
                
                
                17,094
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                17,094
                
                
                
                21$
                58,261
                
                
                $
                6,185
                
                
                $
                6
                
                
                $
                –
                
                
                $
                64,452
                
                
                $
                25,716





(f)
            Currency
      Risk




Financial instruments that impact the
Company’s net income or other comprehensive income due to currency fluctuations
include:  Canadian dollar denominated cash and cash equivalents,
restricted certificates of deposit and accounts payable.  For the year
ended December 31, 2008, the sensitivity of the Company’s net income due to
changes in the exchange rate between the Canadian dollar and the United States
dollar would have impacted net income by $0.4 million, respectively, for a 10%
increase or decrease in the Canadian dollar.





(g)
            Interest
      Rate Risk




The Company is exposed to interest rate
risk on its outstanding borrowings and short-term investments.  The
Company’s outstanding borrowings at December 31, 2008 consist of (1) a bridge
facility with a balance of $15.1 million, (2) a credit facility with a balance
of $2.8 million at December 31, 2008, (3) the Series 2007-A convertible
debentures (“the Debentures”) which have an aggregate $7.4 million face value
and (4) a margin loan, included within notes payable and other current debt,
with a balance of $0.9 million which is secured by auction rate securities (Note
6).  The bridge facility, the credit facility and the margin loan each
have a floating interest rate based on LIBOR plus 10.0% for the bridge facility,
plus 2.0% for the credit facility and plus 1.25% for the margin loan, and the
Debentures have a stated rate of 18% which increased from 12% on February 23,
2008 as part of the original terms.  The Company monitors its exposure
to interest rates and has not entered into any derivative contracts to manage
this risk.  The weighted average interest rate incurred by the Company
during the year
ended December 31, 2008 on its outstanding borrowings was 8.4%.





For the year ended December 31, 2008, a
1% increase or decrease in floating interest rates would not have had a material
impact on the amount of interest expense recorded during those
periods.




(h)
            Commodity
      Price Risk




The Company’s principal businesses
include the sale of several commodities.  Revenues, earnings and cash
flows from the sale of gold, lead, zinc and silver are sensitive to changes in
market prices, over which the Company has little or no control.  The
Company has the ability to address its price-related exposures through the
limited use of options and future and forward contracts, but generally does not
enter into such arrangements except as required to obtain favorable financing
terms.




On July 1, 2008, in order to meet
certain loan criteria of the credit facility mentioned in (e) above, the Company
entered into certain option contracts.  See Note 10(b) for
details.




F-31


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


18.
            FAIR VALUE OF
      FINANCIAL INSTRUMENTS AND RISK MANAGEMENT(continued)




(i)
            Fair
      Value Estimation




The fair value of financial instruments
that are not traded in an active market (such as derivative instruments) is
determined using a Black-Scholes model based on assumptions that are supported
by observable current market conditions, with the exception of auction rate
securities.  The Company’s ARS investments (see Note 6) are valued
using a probability-weighted discounted cash flow valuation.  The Company’s
valuation of the ARS investments considers possible cash flows and probabilities
forecasted under certain potential scenarios. Each scenario’s cash flow is
multiplied by the probability of that scenario occurring.  The major inputs
included in the valuation are: (i) maximum contractual ARS interest rate, (ii)
probability of passing auction/early redemption at each auction, (iii)
probability of failing auction at each auction, (iv) probability of default at
each auction, (v) severity of default, and (vi) discount rate.  Changes in
these assumptions to reasonably possible alternative assumptions would not
significantly affect the Company’s results.




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





19.
            COMMITMENTS
      AND CONTINGENCIES




(a)
            Royalties




The
Company’s properties are subject to royalty obligations based on minerals
produced from the properties.  The Montana Tunnels (L Pit) and Black
Fox Project current reserves are not subject to royalty
obligations.  Royalty obligations for the M Pit of Montana Tunnels and
Huizopa Project may arise upon mine production.




(b)
            Commitments
      for the Development of Black Fox




As of December 31, 2008, the Company
had made certain commitments to lease mining equipment for use at Black Fox and
to make certain expenditures for improvements to the milling process at the Mill
Complex and the development of the open pit at the Black Fox mine as
follows:




Commitments
      to lease mining equipment
                
                $
                11,167Commitments
      for expenditures to make improvements to the mill at the Mill
      Complex
                
                $
                8,321Commitments
      for the development of the Black Fox open pit
                
                
                8,773$
                17,094





(c)
            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.




F-32


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


19.
            COMMITMENTS
      AND CONTINGENCIES (continued)




In order
to proceed with open pit mining at the Black Fox Project in the fourth quarter
of 2008, the Company committed to post $5.6 million (Cdn$6.8 million) on bond,
in addition to the $0.5 million (Cdn$0.6 million) already posted in previous
years, for the benefit of the MNDM to cover estimated costs of site
reclamation.  As of December 31, 2008, $2.5 million (Cdn$3.0 million)
had been placed on bond and is included in restricted certificates of
deposit.  The remaining amount of $3.1 million (Cdn$3.8 million) is
scheduled to be posted as follows: (1) $1.6 million (Cdn$2.0 million) in
February 2009 and (2) $1.5 million (Cdn$1.8 million) in May 2009.




In order
to proceed with the upgrade of the Mill Complex (Note 4) in the fourth quarter
of 2008, the Company committed to post $5.7 million (Cdn$6.9 million) on bond
for the benefit of the MNDM to cover estimated costs of site
reclamation.  As of December 31, 2008, $0.8 million (Cdn$1.0 million)
had been placed on bond and is included in restricted certificates of
deposit.  The remaining amount of $4.9 million (Cdn$5.9 million) is
scheduled to be posted as follows: (1) $2.1 million (Cdn$2.5 million) in
February 2009 and (2) $2.8 million (Cdn$3.4 million) in April 2009.




In
addition to the Cdn$6.9 million bond for the Mill Complex discussed in the above
paragraph, upon acquisition of the Mill Complex, the Company committed to
replace the $1.0 million (Cdn$1.2 million) bond posted by St Andrew by July 28,
2009.  When the existing bond is replaced, the cash on deposit will be
released to Apollo and Apollo will be required to pay $1.0 million (Cdn$1.2
million) to St Andrew.




(d)
            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.




(e)
            Indemnification
      obligations




The
Company is subject to certain indemnification obligations relating to the sale
of the Nevada Assets (Note 24).  At this time, the Company is unable
to predict what cost there will be related to such indemnification
obligations.




20.
            LEASE
      COMMITMENTS




Minimum
lease payments under capital and non-cancelable operating leases and the present
value of net minimum payments at December 31, 2008 were as follows:




F-33


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


20.
            LEASE
      COMMITMENTS (continued)




Capital
                  Leases
              
              
              Operating
                  Leases2009
              
              $
              1,920
              
              
              $
              3942010
              
              
              592
              
              
              
              482011
              
              
              522
              
              
              
              442012
              
              
              43
              
              
              
              192013
              
              
              –
              
              
              
              6Total
              
              
              3,077
              
              
              $
              511Less
      imputed interest
              
              
              385Total
      present value of minimum capital lease payments
              
              
              2,692Less
      current portion of capital lease obligations
              
              
              1,680Long-term
      capital lease obligations
              
              $
              1,012





Rent
expense under non-cancelable operating leases was $0.1 million for 2008, 2007,
and 2006.  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.




21.
            SUPPLEMENTAL
      CASH FLOW INFORMATION




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




2008
              
              
              2007
              
              
              2006(Increase)
      decrease in:Accounts
      receivable and other
              
              $
              (1,288
              )
              
              $
              (1,118
              )
              
              $
              1,889Prepaids
              
              
              379
              
              
              
              360
              
              
              
              385Inventories
              
              
              (1,985
              )
              
              
              (1,509
              )
              
              
              387Increase
      (decrease) in:Accounts
      payable
              
              
              619
              
              
              
              1,038
              
              
              
              (3,920
              )Accrued
      liabilities
              
              
              (1,464
              )
              
              
              1,605
              
              
              
              69Property
      and mining taxes payable
              
              
              189
              
              
              
              515
              
              
              
              (292
              )$
              (3,550
              )
              
              $
              891
              
              
              $
              (1,482
              )





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




2008
              
              
              2007
              
              
              2006Cash
              
              $
              3,097
              
              
              $
              625
              
              
              $
              387Cash
      equivalents
              
              
              –
              
              
              
              4,227
              
              
              
              4,125$
              3,097
              
              
              $
              4,852
              
              
              $
              4,512





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




F-34


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


21.
            SUPPLEMENTAL
      CASH FLOW INFORMATION (continued)




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




2008
              
              
              2007
              
              
              2006Increases
      in financial statement components related to the acquisition of the Mill
      Complex (see Note 4):Equity
      due to the issuance of common shares for services rendered related to
      acquisition financing costs
              
              $
              351
              
              
              $
              -
              
              
              $
              -Accrued
      site closure costs due to the assumption of a related reclamation
      liability
              
              
              1,210
              
              
              
              -
              
              
              
              -Increase
      in future income tax liability
              
              
              447
              
              
              
              -
              
              
              
              -Increase
      in prepaid assets due to financing a portion of the Company’s insurance
      program via the issuance of notes payable
              
              
              416
              
              
              
              653
              
              
              
              309Increase
      in property, plant and equipment due to assets acquired via issuance of
      trade and notes payable
              
              
              11,941
              
              
              
              325
              
              
              
              2,640Increase
      in capital lease obligations due to replacement of a promissory note
      payable
              
              
              -
              
              
              
              -
              
              
              
              2,300Increase
      in property, plant and equipment for capitalized expenses at Black Fox due
      to increase in equity related to issuance of shares in connection with the
      Bridge Facility (Note 10(c))
              
              
              2,907
              
              
              
              -
              
              
              
              -Increase
      in property, plant and equipment due to assets acquired via issuance of
      shares (see Note 14(b)(ii))
              
              
              -
              
              
              
              527
              
              
              
              -Net
      decrease in reclamation assets within property, plant, and equipment and
      net decrease in reclamation liabilities due to a change in estimate for
      the Montana Tunnels mine
              
              
              479
              
              
              
              -
              
              
              
              -Increase
      in share capital and reduction in convertible debentures due to the
      conversion of Series 2007-A convertible debentures into common shares of
      the Company
              
              
              621
              
              
              
              146
              
              
              
              -Increase
      in share capital  and a decrease in future income tax assets
      upon renouncement of expenditures in connection with a flow-through share
      offering completed in October 2007
              
              
              1,165
              
              
              
              -
              
              
              
              -Increase
      in equity via the issuance of agent’s compensation warrants for services
      rendered in connection with the issuance of the Series 2007-A convertible
      debentures (see Note 11)
              
              
              -
              
              
              
              294
              
              
              
              -





Also, as at December 31, 2006, the
Company contributed all of the assets and liabilities of MTMI related to the
Montana Tunnels mine to the joint venture entered into with Elkhorn (see Note
5).





22.
            RELATED
      PARTY TRANSACTIONS




The
Company had the following related party transactions during each of the years in
the three-year period ended December 31, 2008:




2008
              
              
              2007
              
              
              2006Legal
      fees paid to one law firm, a partner of the firm is a director of the
      Company
              
              $
              512
              
              
              $
              381
              
              
              $
              118Consulting
      services paid to a relative of an officer and director of the
      Company
              
              
              16
              
              
              
              9
              
              
              
              14





These
transactions are in the normal course of business and are measured at the
exchange amount which is the consideration established and agreed to by the
related parties.  During 2008, six officers and directors of the
Company participated in the July 2008 Unit Offering (Note 14(a)(ii)) and
purchased 315,000 Units comprised of 315,000 common shares of the Company and
157,500 warrants to purchase common shares of the Company.  During
2007, a director of the Company participated in the October 2007 flow-through
share offering and purchased 54,545 flow-through shares in connection with the
offering (Note 14(b)(iii)).




F-35


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


23.
            SEGMENTED
      INFORMATION




Apollo
operates the Montana Tunnels mine (a 50% joint venture effective December 31,
2006) 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 segment information for Montana Tunnels
assets and liabilities as of December 31, 2008 and 2007 and the results of
operations for the years ended December 31, 2008 and 2007 are reported under the
proportionate consolidation method as a result of the JV Agreement (Note
5).  The Montana Tunnels assets and liabilities and results of
operations of the Montana Tunnels joint venture disclosed in Note 5 differ from
the amounts below due to the inclusion of assets and liabilities and results of
operations of Montana Tunnels Mining, Inc. not pertaining to the Montana Tunnels
joint venture which primarily relate to the Diamond Hill mine.  The
accounting policies for these segments are the same as those followed by the
Company as a whole.  In each of the years ended December 31, 2008,
2007 and 2006, one customer accounted for more than 10% of revenues.  This
customer is located in Canada and accounted for approximately 94% (2007 – 96%,
2006 - 97%) of revenues.




Amounts
as at December 31, 2008 are as follows:




Montana
                    Tunnels
                
                
                Black
                    Fox
                
                
                Corporate
                    and
      Other
                
                
                TotalCash
      and cash equivalents
                
                $
                12
                
                
                $
                214
                
                
                $
                2,871
                
                
                $
                3,097Other
      non-cash current assets
                
                
                5,425
                
                
                
                9,805
                
                
                
                3,156
                
                
                
                18,3865,437
                
                
                
                10,019
                
                
                
                6,027
                
                
                
                21,483Long-term
      investments
                
                
                –
                
                
                
                –
                
                
                
                1,081
                
                
                
                1,081Property,
      plant and equipment
                
                
                7,655
                
                
                
                85,183
                
                
                
                3,043
                
                
                
                95,881Deferred
      stripping costs
                
                
                1,052
                
                
                
                –
                
                
                
                –
                
                
                
                1,052Restricted
      certificates of deposit
                
                
                8,209
                
                
                
                3,813
                
                
                
                8
                
                
                
                12,030Other
      long-term assets
                
                
                –
                
                
                
                103
                
                
                
                –
                
                
                
                103Total
      assets
                
                $
                22,353
                
                
                $
                99,118
                
                
                $
                10,159
                
                
                $
                131,630Current
      liabilities
                
                $
                4,376
                
                
                $
                26,925
                
                
                $
                9,113
                
                
                $
                40,414Notes
      payable and other long-term liabilities
                
                
                44
                
                
                
                967
                
                
                
                4,888
                
                
                
                5,899Accrued
      site closure costs
                
                
                9,165
                
                
                
                1,398
                
                
                
                –
                
                
                
                10,563Future
      income tax liability
                
                
                –
                
                
                
                447
                
                
                
                –
                
                
                
                447Deferred
      gain
                
                
                552
                
                
                
                –
                
                
                
                –
                
                
                
                552Total
      liabilities
                
                $
                14,137
                
                
                $
                29,737
                
                
                $
                14,001
                
                
                $
                57,875




F-36


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


23.
            SEGMENTED INFORMATION
      (continued)




Amounts
as at December 31, 2007 are as follows:




Montana
                  Tunnels
              
              
              Black
                  Fox
              
              
              Corporate
                  and
      Other
              
              
              TotalCash
      and cash equivalents
              
              $
              306
              
              
              $
              (39
              )
              
              $
              4,585
              
              
              $
              4,852Other
      non-cash current assets
              
              
              3,206
              
              
              
              171
              
              
              
              4,248
              
              
              
              7,6253,512
              
              
              
              132
              
              
              
              8,833
              
              
              
              12,477Long-term
      investments
              
              
              –
              
              
              
              –
              
              
              
              1,467
              
              
              
              1,467Property,
      plant and equipment
              
              
              9,176
              
              
              
              36,100
              
              
              
              3,102
              
              
              
              48,378Deferred
      stripping costs
              
              
              4,787
              
              
              
              –
              
              
              
              –
              
              
              
              4,787Restricted
      certificates of deposit
              
              
              6,057
              
              
              
              650
              
              
              
              8
              
              
              
              6,715Other
      long-term assets
              
              
              –
              
              
              
              84
              
              
              
              –
              
              
              
              84Future
      income tax assets
              
              
              –
              
              
              
              –
              
              
              
              1,165
              
              
              
              1,165Total
      assets
              
              $
              23,532
              
              
              $
              36,966
              
              
              $
              14,575
              
              
              $
              75,073Current
      liabilities
              
              $
              3,580
              
              
              $
              688
              
              
              $
              9,994
              
              
              $
              14,262Notes
      payable and other long-term liabilities
              
              
              145
              
              
              
              14
              
              
              
              5,826
              
              
              
              5,985Accrued
      site closure costs
              
              
              8,995
              
              
              
              447
              
              
              
              –
              
              
              
              9,442Deferred
      gain
              
              
              2,511
              
              
              
              –
              
              
              
              –
              
              
              
              2,511Total
      liabilities
              
              $
              15,231
              
              
              $
              1,149
              
              
              $
              15,820
              
              
              $
              32,200





Amounts
for the years ended December 31, 2008, 2007 and 2006 are as
follows:




Year
      Ended December 31, 2008Montana
                  Tunnels
              
              
              Black
                  Fox
              
              
              Corporate
                  and
      Other
              
              
              TotalRevenue
      from sale of minerals
              
              $
              46,387
              
              
              $
              –
              
              
              $
              –
              
              
              $
              46,387Direct
      operating costs
              
              
              37,567
              
              
              
              –
              
              
              
              –
              
              
              
              37,567Depreciation
      and amortization
              
              
              1,465
              
              
              
              –
              
              
              
              100
              
              
              
              1,565General
      and administrative expenses
              
              
              –
              
              
              
              –
              
              
              
              3,696
              
              
              
              3,696Accrued
      site closure costs – accretion expense
              
              
              718
              
              
              
              –
              
              
              
              –
              
              
              
              718Amortization
      of deferred gain
              
              
              (1,959
              )
              
              
              –
              
              
              
              –
              
              
              
              (1,959
              )Exploration
      and business development and other
              
              
              –
              
              
              
              466
              
              
              
              2,719
              
              
              
              3,18537,791
              
              
              
              466
              
              
              
              6,515
              
              
              
              44,772Operating
      income (loss)
              
              
              8,596
              
              
              
              (466
              )
              
              
              (6,515
              )
              
              
              1,615Interest
      income
              
              
              143
              
              
              
              –
              
              
              
              238
              
              
              
              381Interest
      expense
              
              
              (297
              )
              
              
              –
              
              
              
              (4,312
              )
              
              
              (4,609
              )Financing
      costs
              
              
              –
              
              
              
              –
              
              
              
              (190
              )
              
              
              (190
              )Realized
      gain on investments – derivative instruments
              
              
              –
              
              
              
              –
              
              
              
              5,507
              
              
              
              5,507Unrealized
      gain (loss) on investments – derivative instruments
              
              
              –
              
              
              
              –
              
              
              
              (1,549
              )
              
              
              (1,549
              )Foreign
      exchange loss and other
              
              
              –
              
              
              
              –
              
              
              
              (1,329
              )
              
              
              (1,329
              )Income
      (loss) from operations before income taxes
              
              $
              8,442
              
              
              $
              (466
              )
              
              $
              (8,150
              )
              
              $
              (174
              )Investing
      activitiesProperty,
      plant and equipment expenditures
              
              $
              352
              
              
              $
              47,402
              
              
              $
              42
              
              
              $
              47,796





F-37




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





23.
            SEGMENTED
      INFORMATION (continued)




Year Ended December 31, 2007Montana
                                        Tunnels
                                      
                                      
                                      Black
                                        Fox
                                      
                                      
                                      Corporate
                                        and Other
                                      
                                      
                                      TotalRevenue
      from sale of minerals
                                      
                                      $
                                      38,474
                                      
                                      
                                      $
                                      –
                                      
                                      
                                      $
                                      –
                                      
                                      
                                      $
                                      38,474Direct
      operating costs
                                      
                                      
                                      26,336
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      26,336Depreciation
      and amortization
                                      
                                      
                                      1,276
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      104
                                      
                                      
                                      
                                      1,380General
      and administrative expenses
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      4,647
                                      
                                      
                                      
                                      4,647Accrued
      site closure costs – accretion expense
                                      
                                      
                                      507
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      507(Gain)
      loss on sale of property, plant and equipment
                                      
                                      
                                      (1,239
                                      )
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      (1,239
                                      )Exploration
      and business development and other
                                      
                                      
                                      –
                                      
                                      
                                      
                                      39
                                      
                                      
                                      
                                      2,391
                                      
                                      
                                      
                                      2,43026,880
                                      
                                      
                                      
                                      39
                                      
                                      
                                      
                                      7,142
                                      
                                      
                                      
                                      34,061Operating
      loss
                                      
                                      
                                      11,594
                                      
                                      
                                      
                                      (39
                                      )
                                      
                                      
                                      (7,142
                                      )
                                      
                                      
                                      4,413Interest
      income
                                      
                                      
                                      219
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      482
                                      
                                      
                                      
                                      701Interest
      expense
                                      
                                      
                                      (946
                                      )
                                      
                                      
                                      –
                                      
                                      
                                      
                                      (4,792
                                      )
                                      
                                      
                                      (5,738
                                      )Financing
      costs
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      (693
                                      )
                                      
                                      
                                      (693
                                      )Realized
      gain on investments – derivative instruments
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      395
                                      
                                      
                                      
                                      395Unrealized
      gain on investments – derivative instruments
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      2,101
                                      
                                      
                                      
                                      2,101Foreign
      exchange loss and other
                                      
                                      
                                      –
                                      
                                      
                                      
                                      –
                                      
                                      
                                      
                                      (157
                                      )
                                      
                                      
                                      (157
                                      )(Income)
      loss from operations before income taxes
                                      
                                      $
                                      10,867
                                      
                                      
                                      $
                                      (39
                                      )
                                      
                                      $
                                      (9,806
                                      )
                                      
                                      $
                                      1,022Investing
      activitiesProperty,
      plant and equipment expenditures
                                      
                                      $
                                      8,352
                                      
                                      
                                      $
                                      5,617
                                      
                                      
                                      $
                                      1,951
                                      
                                      
                                      $
                                      15,920





Year
      Ended December 31, 2006Montana
                  Tunnels
              
              
              Black
                  Fox
              
              
              Corporate
                  and
      Other
              
              
              TotalRevenue
      from sale of minerals
              
              $
              10,177
              
              
              $
              –
              
              
              $
              –
              
              
              $
              10,177Direct
      operating costs
              
              
              15,361
              
              
              
              –
              
              
              
              –
              
              
              
              15,361Depreciation
      and amortization
              
              
              1,538
              
              
              
              –
              
              
              
              109
              
              
              
              1,647General
      and administrative expenses
              
              
              –
              
              
              
              –
              
              
              
              4,004
              
              
              
              4,004Accrued
      site closure costs – accretion expense
              
              
              948
              
              
              
              –
              
              
              
              –
              
              
              
              948Exploration
      and business development and other
              
              
              –
              
              
              
              –
              
              
              
              1,040
              
              
              
              1,04017,847
              
              
              
              –
              
              
              
              5,153
              
              
              
              23,000Operating
      loss
              
              
              (7,670
              )
              
              
              –
              
              
              
              (5,153
              )
              
              
              (12,823
              )Interest
      income
              
              
              273
              
              
              
              –
              
              
              
              148
              
              
              
              421Interest
      expense
              
              
              (237
              )
              
              
              –
              
              
              
              (2,440
              )
              
              
              (2,677
              )Foreign
      exchange loss and other
              
              
              –
              
              
              
              –
              
              
              
              (158
              )
              
              
              (158
              )Loss
      from continuing operations before income taxes
              
              $
              (7,634
              )
              
              $
              –
              
              
              $
              (7,603
              )
              
              $
              (15,237
              )Investing
      activitiesProperty,
      plant and equipment expenditures
              
              $
              2,640
              
              
              $
              5,289
              
              
              $
              127
              
              
              $
              8,056





24.
            DISCONTINUED
      OPERATIONS




On
November 18, 2005, the Company sold its Nevada Assets 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.




For the
year ended December 31, 2006 the Company incurred a $0.35 million loss from
discontinued operations.


F-38





APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





25.
            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 at December 31, 2008 and 2007 and for the years ended
December 31, 2008, 2007 and 2006.




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




2008
                      
                      
                      2007Total
      assets in accordance with Canadian GAAP
                      
                      $
                      131,630
                      
                      
                      $
                      75,073Bank
      indebtedness
                      
                      
                      (742
                      )
                      
                      
                      –Deferred
      financing costs (a)
                      
                      
                      –
                      
                      
                      
                      160Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
                      
                      
                      (12,864
                      )
                      
                      
                      (12,032
                      )Impairment
      of property, plant and equipment, and change in depreciation and
      amortization(b)(ii)
                      
                      
                      (1,617
                      )
                      
                      
                      (1,812
                      )Deferred
      stripping costs (b)(iii)
                      
                      
                      (1,052
                      )
                      
                      
                      (4,787
                      )Black
      Fox development costs(c)
                      
                      
                      (29,159
                      )
                      
                      
                      (26,827
                      )Convertible
      debentures (d)
                      
                      
                      66
                      
                      
                      
                      509Income
      taxes related to flow-through share issuance (e)
                      
                      
                      –
                      
                      
                      
                      (1,165
                      )Total
      assets in accordance with U.S. GAAP
                      
                      $
                      86,262
                      
                      
                      $
                      29,119Total
      liabilities in accordance with Canadian GAAP
                      
                      $
                      57,875
                      
                      
                      $
                      32,200Bank
      indebtedness
                      
                      
                      (742
                      )
                      
                      
                      –Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
                      
                      
                      (12,864
                      )
                      
                      
                      (12,032
                      )Deferred
      gain (b)(i)
                      
                      
                      (552
                      )
                      
                      
                      (2,511
                      )Convertible
      debentures (d)
                      
                      
                      118
                      
                      
                      
                      2,063Income
      taxes related to flow-through share issuance (e)
                      
                      
                      73
                      
                      
                      
                      628Total
      liabilities in accordance with U.S. GAAP
                      
                      $
                      43,908
                      
                      
                      $
                      20,348Total
      shareholders’ equity in accordance with Canadian GAAP
                      
                      $
                      73,755
                      
                      
                      $
                      42,873Deferred
      financing costs (a)
                      
                      
                      –
                      
                      
                      
                      160Deferred
      gain (b)(i)
                      
                      
                      552
                      
                      
                      
                      2,511Impairment
      of property, plant and equipment, and change in depreciation and
      amortization(b)(ii)
                      
                      
                      (1,617
                      )
                      
                      
                      (1,812
                      )Deferred
      stripping costs (b)(iii)
                      
                      
                      (1,052
                      )
                      
                      
                      (4,787
                      )Black
      Fox development costs (c)
                      
                      
                      (29,159
                      )
                      
                      
                      (26,827
                      )Convertible
      debentures (d)
                      
                      
                      (52
                      )
                      
                      
                      (1,554
                      )Income
      taxes related to flow-through share issuance (e)
                      
                      
                      (73
                      )
                      
                      
                      (1,793
                      )Total
      shareholders’ equity in accordance with U.S. GAAP
                      
                      $
                      42,354
                      
                      
                      $
                      8,771Total  shareholders’
      equity and liabilities in accordance with U.S. GAAP
                      
                      $
                      86,262
                      
                      
                      $
                      29,119





Under U.S. GAAP, the components of
shareholders’ equity would be as follows:





2008
              
              
              2007Share
      capital
              
              $
              189,451
              
              
              $
              165,790Note
      warrants
              
              
              2,234
              
              
              
              2,292Contributed
      surplus
              
              
              48,241
              
              
              
              39,463Deficit
              
              
              (197,572
              )
              
              
              (198,774
              )Total
      shareholders’ equity in accordance with U.S. GAAP
              
              $
              42,354
              
              
              $
              8,771




F-39


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





25.
            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:




Year
      ended December 31,2008
              
              
              2007
              
              
              2006Income
      (loss) from continuing operations for the year, based on
                Canadian
      GAAP
              
              $
              1,596
              
              
              $
              2,416
              
              
              $
              (15,237
              )Financing
      costs (a)
              
              
              (160
              )
              
              
              (105
              )
              
              
              –Gain
      on transfer of assets and liabilities to JV and amortization
      (b)(i)
              
              
              (1,959
              )
              
              
              (1,239
              )
              
              
              5,789Change
      in depreciation of property, plant and equipment (b)(ii)
              
              
              195
              
              
              
              227
              
              
              
              183Capitalized
      deferred stripping and amortization (b)(iii)
              
              
              3,735
              
              
              
              (4,787
              )
              
              
              –Black
      Fox development costs (c)
              
              
              (2,332
              )
              
              
              (4,473
              )
              
              
              (3,173
              )Convertible
      debentures (d)
              
              
              (396
              )
              
              
              (4,543
              )
              
              
              625Income
      taxes (e)
              
              
              523
              
              
              
              (1,394
              )
              
              
              –Income
      (loss) from continuing operations for the year based on U.S.
      GAAP
              
              
              1,202
              
              
              
              (13,898
              )
              
              
              (11,813
              )Loss
      from discontinued operations for the year based on U.S.
    GAAP
              
              
              –
              
              
              
              –
              
              
              
              (350
              )Net
      income (loss) for the year based on U.S. GAAP
              
              $
              1,202
              
              
              $
              (13,898
              )
              
              $
              (12,163
              )Comprehensive
      income (loss)
              
              $
              1,202
              
              
              $
              (13,898
              )
              
              $
              (12,163
              )Basic
      and diluted earnings (loss) per share in accordance with U.S.
      GAAP:Continuing
      operations
              
              $
              0.01
              
              
              $
              (0.10
              )
              
              $
              (0.10
              )Discontinued
      operations
              
              
              –
              
              
              
              –
              
              
              
              (0.00
              )Net
      loss per share, basic and diluted – U.S. GAAP
              
              $
              0.01
              
              
              $
              (0.10
              )
              
              $
              (0.10
              )





Under
U.S. GAAP, the consolidated statements of cash flows would be adjusted as
follows:




Year
      ended December 31,2008
              
              
              2007
              
              
              2006Cash
      provided by (used in) operating activities based on Canadian
      GAAP
              
              $
              1,342
              
              
              $
              7,485
              
              
              $
              (11,609
              )Deferred
      financing costs (a)
              
              
              –
              
              
              
              160
              
              
              
              –Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
              
              
              (10,485
              )
              
              
              (12,165
              )
              
              
              –Black
      Fox development costs (c)
              
              
              (2,332
              )
              
              
              (4,473
              )
              
              
              (3,173
              )Cash
      used in operating activities based on U.S. GAAP
              
              
              (11,475
              )
              
              
              (8,993
              )
              
              
              (14,782
              )Cash
      (used in) provided by investing activities based on Canadian
      GAAP
              
              
              (41,336
              )
              
              
              (19,283
              )
              
              
              3,682Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
              
              
              2,504
              
              
              
              10,032
              
              
              
              64Black
      Fox development costs (c)
              
              
              2,332
              
              
              
              4,473
              
              
              
              3,173Restricted
      cash for Canadian flow-through expenditures (e)
              
              
              (615
              )
              
              
              (2,354
              )
              
              
              (858
              )Cash
      (used in) provided by investing activities based on U.S.
    GAAP
              
              
              (37,115
              )
              
              
              (7,132
              )
              
              
              6,061Cash
      provided by financing activities based on Canadian GAAP
              
              
              39,481
              
              
              
              12,281
              
              
              
              12,311Deferred
      financing costs (a)
              
              
              –
              
              
              
              (160
              )
              
              
              –Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
              
              
              8,275
              
              
              
              1,763
              
              
              
              –Cash
      provided by financing activities based on U.S. GAAP
              
              
              47,756
              
              
              
              13,884
              
              
              
              12,311Effect
      of exchange rate changes on cash
              
              
              (1,242
              )
              
              
              (143
              )
              
              
              1Net
      cash (outflow) inflow in accordance with U.S. GAAP
              
              
              (2,076
              )
              
              
              (2,384
              )
              
              
              3,591Cash,
      beginning of year in accordance with U.S. GAAP
              
              
              1,334
              
              
              
              3,718
              
              
              
              127(Bank
      indebtedness) cash, end of year in accordance with U.S.
    GAAP
              
              $
              (742
              )
              
              $
              1,334
              
              
              $
              3,718


F-40


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





25.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)





(a)
            Financing
      costs




As of
January 1, 2007, under Canadian GAAP, the Company expenses debt financing costs
when they are incurred (Note 3(e)).  Prior to January 1, 2007, under
Canadian GAAP, debt financing costs were capitalized and amortized over the term
of the related debt.  As a result, the Company recorded an adjustment
to increase opening deficit by $0.3 million and reduce the opening balance of
deferred financing costs by $0.3 million.  Under U.S. GAAP, debt
financing costs are capitalized and amortized over the term of the related
debt.  Deferred financing costs for the credit facility (Note 10(b))
are $0.2 million at December 31, 2007.  Also, as of December 31, 2008,
the Company recorded $2.6 million for financing costs in connection with the
Bridge Facility which were capitalized as development expenses for the Black Fox
Project under Canadian GAAP.  Under U.S. GAAP, these costs are
recorded as deferred financing costs. There is no difference in total assets
between Canadian and U.S. GAAP with respect to this transaction; and therefore,
it has not been included as a U.S. GAAP adjusting item.




(b)
            Montana
      Tunnels




(i)           Joint
venture




Under
Canadian GAAP, the Company has accounted for its joint venture interest in the
Montana Tunnels mine ("MTM") using the proportionate consolidation method
whereby the Company's proportionate share of each line item of MTM's assets,
liabilities, revenues and expenses is included in the corresponding line item of
the Company's financial statements (Note 5).  Under U.S. GAAP, the Company
would account for MTM using the equity method whereby the Company's share of the
investees' earnings and losses is included in operations and its investments
therein are adjusted by a similar amount.  The carrying value of MTM was
lower under U.S. GAAP than under Canadian GAAP following an impairment of the
property, plant and equipment (Note 25(b)(ii)) in prior years and as a result
the gain on transfer of the Company's interest in MTM into the joint venture
under U.S. GAAP is higher.  Under U.S. GAAP the gain on transfer of
the Company's interest in MTM into the joint venture was included in the net
loss for the year ended December 31, 2006; whereas under Canadian GAAP it was
deferred and is recognized as an adjustment to net income using the
units-of-production method over the expected life of mine based on the
recoverable gold equivalent ounces.  The adjustments to reconcile
between Canadian GAAP and U.S. GAAP for Montana Tunnels have been presented
separately rather than being presented as a single equity accounting adjustment.
 The Company believes that this presentation provides more detailed
information to a reader of the financial statements enabling the reader to
reconcile the individual adjustments to the primary Canadian GAAP financial
statements and footnotes.




(ii)           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.




(iii)           Deferred
stripping costs




Under
Canadian GAAP, stripping costs that represent a betterment to the mineral
property are capitalized and amortized using the units-of-production method over
the expected life of the mine based on the estimated recoverable gold equivalent
ounces.  Under U.S. GAAP, these expenditures are expensed as
incurred.


F-41




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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




25.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)




(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 cumulative reduction
in property, plant and equipment of $29.2 million has been recorded as at
December 31, 2008 and an additional expense of $2.3 million has been recorded
for the year then ended.




On April 14, 2008, the Company filed a
Canadian National Instrument 43-101 prepared to U.S. standards and on April 24,
2008, the Company’s Board of Directors approved a plan authorizing management to
proceed with development of the Black Fox Project.  Therefore,
effective April 24, 2008, under U.S. GAAP, mining development costs at the Black
Fox Project are capitalized.




(d)
            Convertible
      debentures




Under
Canadian GAAP, the 2007 Debentures and 2004 Debentures were recorded as compound
financial instruments including detachable note warrants (Note
11).  On issuance, under U.S. GAAP, the detachable note warrants are
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 features determined using the effective conversion prices
based on the proceeds allocated to the convertible debentures 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.




(e)
            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.




The
Financial Accounting Standards Board ("FASB") staff has taken the view that
under SFAS No. 109, Accounting
for Income Taxes, the proceeds from issuance should be allocated between
the offering of shares and the sale of tax benefits.  The allocation
is made based on the difference between the quoted price of the existing shares
and the amount the investor pays for the shares.  A liability is
recognized for this difference.  The liability is reversed when tax
benefits are renounced and a deferred tax liability is recognized at that
time.  Income tax expense is the difference between the amount of a
deferred tax liability and the liability recognized on issuance.




Also,
notwithstanding whether there is a specific requirement to segregate the funds,
the flow-through funds which are unexpended at the consolidated balance sheet
dates are considered to be restricted and are not considered to be cash or cash
equivalents under U.S. GAAP.  As at December 31, 2008, unexpended
flow-through funds were $3.8 million (December 31, 2007 – $3.2
million).




(f)
            Income
      taxes




While tax
accounting rules are essentially the same under both U.S. and Canadian GAAP, tax
account differences can arise from differing treatment of various assets and
liabilities.  For example, certain mine developments cost are
capitalized under Canadian GAAP and expensed under U.S. GAAP, as explained
in (c) above.  An analysis of these differences indicates that there
are larger potential tax benefits under U.S. GAAP than under Canadian GAAP
but a valuation allowance has been applied to all amounts as of
December 31, 2008.


F-42





APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





25.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)





The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes(“FIN 48”), on January 1, 2007.  FIN 48 addresses the
determination of how tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements.  Under FIN 48,
the Company must recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position.  The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate
resolution.  As a result of the implementation of FIN 48, the Company
did not recognize a cumulative effect adjustment to the balance of retained
earnings as of January 1, 2007.  The Company did not recognize any
additional liabilities, subsequent to adoption, for uncertain tax positions as a
result of the implementation of FIN No 48.




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




Gross
unrecognized tax benefits as of January 1, 2007 were zero, and there were no
additions to gross unrecognized tax benefits for tax positions of the current or
prior years during the year ended December 31, 2007.  There were also
no reductions to gross unrecognized tax benefits due to settlements with tax
authorities or due to statute of limitations during the year ended December 31,
2007.  Gross unrecognized tax benefits as of December 31, 2007 were
zero, and there were no additions to gross unrecognized tax
benefits  for tax positions of the current or prior years during the
year ended December 31, 2008.  There were also no reductions to gross
unrecognized tax benefits due to settlements with tax authorities or due to
statute of limitations during the year ended December 31, 2008.




The
Company and one or more of its subsidiaries file income tax returns in the
Canada, United States, and the states of Colorado and Montana.  The
Company is generally not subject to examinations that could create a tax
liability for tax years before 2002 by the Canada Revenue Agency.  The
U.S. Federal tax return has a three year statute of limitations.  The
Colorado state income tax return has a four year statute of limitations and the
Montana state income tax return has a five year statute of
limitations.  The U.S. return for tax years ending on or after
December 31, 2005 and the Colorado return for years ending on or after December
31, 2004 and the Montana return for years ending on or after December 31,2003
are subject to examination by the relevant taxing authority.




The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses.  No such amounts
were accrued for at January 1, 2007.  Additionally, there were no
amounts accrued as of December 31, 2008 and 2007.  Management is
currently unaware of any issues under review that could result in significant
payments, accruals or material deviations from its position. These amounts will
be disclosed should they arise.




(g)
            Changes
      to accounting pronouncements




In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”).  This statement defines fair value, establishes
guidelines for measuring fair value and expands disclosures regarding fair value
measurements.  SFAS 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements.  The provisions of SFAS 157 were
adopted January 1, 2008.


F-43


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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




25.
              DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)
 
 All of
the Company’s financial assets and liabilities are measured at fair value using
Level 1 inputs with the exception of (1) derivative contracts which use Level 2
inputs and (2) auction rate securities which use Level 3 inputs (See Note
6).  The adoption of SFAS 157 did not have a material impact on the
Company’s financial position, results of operations or cash
flows.




In
October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (“FSP
FAS 157-3”), which clarifies the application of SFAS 157 in an inactive
market.  The intent of this FSP is to provide guidance on how the fair
value of a financial asset is to be determined when the market for that
financial asset is inactive.  FSP FAS 157-3 states that
determining fair value in an inactive market depends on the facts and
circumstances, requires the use of significant judgment and in some cases,
observable inputs may require significant adjustment based on unobservable data.
Regardless of the valuation technique used, an entity must include appropriate
risk adjustments that market participants would make for nonperformance and
liquidity risks when determining fair value of an asset in an inactive market.
 FSP FAS 157-3 was effective upon issuance.  We have incorporated
the principles of FSP FAS 157-3 in determining the fair value of financial
assets when the market for those assets is not active, specifically its auction
rate securities.





FAS 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements).  The three levels of the fair value
hierarchy under FAS 157 are described below:
  Level 1
                  
                  Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or liabilities;Level 2
                  
                  Quoted
      prices in markets that are not active, or inputs that are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability;Level 3
                  
                  Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (supported by little or no
      market activity).


The
company’s derivative instruments (see Note 6 and Note 10(b)) and auction rate
securities (see Note 6) represent those financial assets and liabilities
measured at fair value by level within the fair value hierarchy.  As
required by FAS 157, assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement.





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





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





In
February 2007, the FASB issued SFAS 159,The Fair Value Option for Financial
Assets and Liabilities – Including an Amendment of FASB Statement No. 115(“SFAS 159”). SFAS 159 permits
entities to choose to measure certain financial assets and liabilities at fair
value (the “fair value option”).  Unrealized gains and losses, arising
subsequent to adoption, are reported in earnings.  The provisions of
SFAS 159 were adopted January 1, 2008.  The Company did not elect the
Fair Value Option for any of its financial assets or liabilities, and therefore,
the adoption of SFAS 159 had no impact on the Company’s financial position,
results of operations or cash flows.


F-44




APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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




25.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)





(h)
            Recently
      issued accounting pronouncements




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(“SFAS 141(R)”).  SFAS 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired.  SFAS 141(R) also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business
combination.  SFAS 141(R) is effective for fiscal years beginning
after December 15, 2008.  The Company is currently evaluating the
potential impact, if any, of the adoption of SFAS 141(R) on its
consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an Amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”).  SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated.  SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners.  SFAS 160 is effective for fiscal years beginning after
December 15, 2008.  The Company is currently evaluating the
potential impact, if any, of the adoption of SFAS 160 on its consolidated
financial statements.





In
February 2008, the FASB staff issued FSP No. 157-2 “Effective Date of FASB
Statement No. 157” (“FSP FAS 157-2”).  FSP FAS 157-2 delayed the
effective date of FAS 157 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually).  The provisions
of FSP FAS 157-2 are effective for our fiscal year beginning January 1, 2009,
and are not expected to have a significant impact on the Company.





In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities.The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows.  It is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged.  The Company is currently evaluating the
impact of this standard on its consolidated financial statements.





In May
2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles.  The statement is intended to improve
financial reporting by identifying a consistent frame work, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted accounting
principles. It is effective 60 days following the SEC’s approval of Public
Company Accounting Oversight Board amendments to AU
Section 411.  The Company does not believe that the adoption of
this statement will have a material impact on its consolidated financial
statements.




F-45





APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





25.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)




In May
2008, the FASB issued FASB Staff Positions (FSP) APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (including Partial Cash
Settlements)”.  This FSP clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase
Warrants.  Additionally, this FSP specifies that issuers of
such instruments should separately account for the liability and equity
components in a manner that will reflect the entity’s nonconvertible debt
borrowing rate when interest cost is recognized in subsequent
periods.  The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods with
those fiscal years, and will be applied retroactively. Early adoption is not
permitted.  The Company is currently evaluating the impact of this
standard on its consolidated financial statements.





In June
2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities(“FSP EITF 03-6-1”). The FSP addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share under the two-class method described in SFAS No. 128,
“Earnings Per Share”. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
years. All prior-period earnings per share data presented shall be adjusted
retrospectively. The Company adopted FSP EITF 03-6-1 effective January 1, 2009
and will reflect the presentation and disclosure requirements of FSP EITF 03-6-1
in our Form 10-Q for the period ending March 31, 2009.





In June
2008, the EITF reached consensus on Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock
(“EITF 07-5”).  EITF 07-5 clarifies the determination of whether
an instrument (or an embedded feature) is indexed to an entity’s own stock,
which would qualify as a scope exception under FASB Statement No. 133,
Accounting for Derivative
Instruments and Hedging
Activities (“FAS 133”).  EITF 07-5 is effective for our
fiscal years beginning January 1, 2009.  Early adoption for an
existing instrument is not permitted.





Under
EITF 07-5, an equity-linked financial instrument (or embedded feature) would not
be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional
currency.  As of December 31, 2008, the Company had 64.7 million
outstanding warrants to purchase common shares of the Company that were
denominated in a currency (Canadian dollars) other than its functional currency
(US dollars)(see Note 14(d)).  As such, these warrants are not
considered to be indexed to the Company’s own stock, which precludes the
warrants from meeting the scope exception under FAS 133.  The warrants
thereby must be accounted for separately as derivative instruments, rather than
as equity instruments. The Company is currently evaluating the impact of this
standard on its consolidated financial statements.








26.
            SUBSEQUENT
      EVENTS




(a)
            Restructuring
      of Series 2007-A Convertible
Debentures




On
February 19, 2009, the Company reached an agreement with the largest holder (the
“Large Holder”) of its Series 2007-A convertible debentures (see Note 11) to
extend the maturity date of the 2007 Debentures held by the Large Holder from
February 23, 2009 to February 23, 2010.




F-46





APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





26.
            SUBSEQUENT
      EVENTS (continued)




Company
shall have the option to repay on February 23, 2009 the $0.8 million of accrued
interest on the Large Holder’s 2007 Debentures in either common shares of the
Company or cash.  Upon the election by the Company to pay the accrued
interest in common shares, the number of common shares is calculated by dividing
the accrued interest owed by the US dollar equivalent of the volume weighted
average market price of the Company’s common shares as quoted on the Toronto
Stock Exchange during the five-day period ending February 23,
2009.  In consideration for the foregoing, the Company agreed to (i)
issue 2,000,000 common shares of the Company to the Large Holder on February 23,
2009 (the “Large Holder Shares”), (ii) extend the expiration date of the
8,580,000 2007 Debenture Warrants issued to the Large Holder to March 4, 2010
(the “Large Holder Warrants”) and (iii) reduce the exercise price of the Large
Holder Warrants from $0.50 to $0.25.





On
February 23, 2009, the Company repaid the $0.8 million of accrued interest on
the Large Holder’s 2007 Debentures by issuing 2,444,765 common shares of the
Company.





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





(b)
            Black
      Fox Project $70 Million Financing
Agreement




On
February 20, 2009, the Company entered into a $70 million project financing
agreement (the “Project Facility”) with two banks (the Banks”) relating to the
Black Fox Project.  The Project Facility refinances the $15.0 million
Bridge Facility (Note 10(c)) entered into on December 10, 2008.





The
Company intends to use the proceeds from the Project Facility (i) to repay the
Bridge Facility, (ii) to complete the development of the Black Fox Project and
(iii) to provide for up to $7.0 million in agreed corporate
expenditures.





The terms
of the Project Facility include:  (i) a commitment by the Banks who
are counterparty to the Project Facility (the “Banks”) to lend to the Company up
to $70 million available for drawdown between February 20, 2009 and June 30,
2009; (ii) interest on the outstanding principal amount accruing at a rate equal
to LIBOR plus 7% per annum and repayable in quarterly installments commencing
March 31, 2009; (iii) scheduled repayment of the principal amount in unequal
quarterly amounts commencing September 30, 2009 with the final repayment no
later than March 31, 2013; and (iv) an arrangement fee of $3.5 million payable
by the Company to the Banks in cash upon first drawdown under the Project
Facility.





In
consideration for providing the financing, the Banks were issued an aggregate of
34,836,111 warrants (“Banks Compensation Warrants”) exercisable for a period of
48 months from closing at an exercise price of


$0.201
(Cdn$0.252) per share (subject to anti-dilution adjustments).  The
Banks Compensation Warrants are in addition to the 42,614,254 common share
purchase warrants issued to the Banks in connection with the Bridge
Facility.





As a part
of the Project Facility, the Company and the Banks have entered into a
derivative program covering both gold sales and part of the Company’s Canadian
dollar operating costs.  The Company has entered into a 250,420 ounce
gold forward sales program which will be allocated across the four year term of
the Project Facility.  The weighted average price of the sales program
is $876 per ounce of gold.  The foreign exchange derivative program
will be for the Canadian dollar equivalent of $60 million over a period covering
the four year term of the Project Facility.





F-47


APOLLO
GOLD CORPORATION




Notes to the Consolidated Financial
Statements –
(Continued)


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





26.
            SUBSEQUENT
      EVENTS (continued)





Under the
terms of a previously existing engagement letter between the Company and a
certain financial advisory services firm (the “Firm”) pursuant to which the Firm
agreed to provide financial advisory services to the Company, the Project
Facility constitutes an “alternative transaction” that requires the Company to
pay certain compensation to the Firm.  Specifically, under the terms
of such engagement letter, the Company is required to compensate the Firm by
issuing to it 3,172,840 common shares and 2,567,901 common share purchase
warrants exercisable for a two year period at an exercise price of $0.205
(Cdn$0.256).





(c)
            Settlement
      of the Bridge Facility




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


F-48





INDEX
TO EXHIBITS




Exhibit
                  No.
                
                Exhibit Name12.1
                
                Computation
      of Earnings to Fixed Charges21.1
                
                List
      of subsidiaries of the Registrant23.1
                
                Consent
      of Deloitte & Touche LLP31.1
                
                Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act31.2
                
                Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act32.1
                
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley
Act




F-49