UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.




For the
fiscal year ended: December 31, 2008




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




For the
transition period from __________ to ____________




Commission
File Number: 0-12122





Apollo
Solar Energy, Inc.





(Exact
name of registrant as specified in its charter)








Nevada
              (State
      or other jurisdiction of
              incorporation
      or organization)
            84-0601802
              (I.R.S.
      Employer
              Identification
      No.)





No.
      485Tengfei Third,
                Shuangliu
      Southwest Airport Economic Development Zone,
                Shuangliu,
      Chengdu
                People’s
      Republic of China, 610207
              N/A(Address
      of principal executive offices)
              (Zip
      Code)





Registrant’s
Telephone Number, Including Area Code: +86(755)2580-1888





Securities
Registered Pursuant to Section 12(b) of the Act:




Title of Each Class
            Name of Each Exchange on Which
      RegisteredCommon
      Stock, $0.001 par value
            NASDAQ
      OTCBB





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 oNo ý





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 oNo ý





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 ýNo o





Indicate
by 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. o





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 the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):





Large accelerated filer o                                                                                                Accelerated
filer  o


Non-accelerated filer  ý                                                                                     Smaller
reporting company  o


(Do
not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes oNo ý





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on December 31, 2008 (the last business day of
the registrant’s most recently completed fiscal year), was $31,188,591 based on
the closing price of the registrant’s common stock on The NASDAQ OTCBB of $7.00
per share.





There
were 44,555,131 shares of common stock outstanding as of March 31,
2009.





DOCUMENTS
INCORPORATED BY REFERENCE:  The information required by Part III of
Form 10-K is incorporated by reference from the Registrant's definitive proxy
statement on Schedule 14A that will be filed no later than the end of the
120-day period following the Registrant's fiscal year end, or, if the
Registrant's definitive proxy statement is not filed within that time, the
information will be filed as part of an amendment to this Annual Report on Form
10-K, not later than the end of the 120-day period.










APOLLO
SOLAR ENERGY, INC.




TABLE
OF CONTENTS TO ANNUAL REPORT ON FORM 10-K




For
the Fiscal Year Ended December 31, 2008


ITEM
              
              
              
              PagePART
      IItem
      1.
              
              Business
              
              1Item
      1A.
              
              Risk
      Factors
              
              11Item
      2.
              
              Properties
              
              24Item
      3.
              
              Legal
      Proceedings
              
              24Item
      4.
              
              Submission
      of Matters to a Vote of Security Holders
              
              24PART
      IIItem
      5.
              
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              
              25Item
      6.
              
              Selected
      Financial Data
              
              26Item
      7.
              
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              27Item
      7A.
              
              Quantitative
      and Qualitative Disclosures About Market Risk
              
              37Item
      8.
              
              Financial
      Statements and Supplementary Data
              
              37Item
      9.
              
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              
              37Item
      9A.
              
              Controls
      and Procedures
              
              37Item
      9B.
              
              Other
      Information
              
              39PART
      IIIItem
      10.
              
              Directors,
      Executive Officers and Corporate Governance
              
              40Item
      11.
              
              Executive
      Compensation
              
              42Item
      12.
              
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              
              43Item
      13.
              
              Certain
      Relationships and Related Transactions, and Director
      Independence
              
              43Item
      14.
              
              Principal
      Accountant Fees and Services
              
              44PART
      IVItem
      15.
              
              Exhibits
      and Financial Statement Schedules
              
              45Signatures
              
              46














CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS









The
information contained in this Form 10-K, including in the documents incorporated
by reference into this Form 10-K, includes some statements that are not purely
historical and that are “forward-looking statements.” Such forward-looking
statements include, but are not limited to, statements regarding the Company and
its management’s expectations, hopes, beliefs, intentions or strategies
regarding the future, including its financial condition, and results of
operations. In addition, any statements that refer to projections, forecasts or
other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. The words “anticipates,”
“believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,”
“might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,”
“should,” “will,” “would” and similar expressions, or the negatives of such
terms, may identify forward-looking statements, but the absence of these words
does not mean that a statement is not forward-looking.




The
forward-looking statements contained in this Form 10-K are based on current
expectations and beliefs concerning future developments and the potential
effects on the Company. There can be no assurance that future developments
actually affecting the Company will be those anticipated. These forward-looking
statements involve a number of risks, uncertainties (some of which are beyond
the Company’s control) or other assumptions that may cause actual results or
performance to be materially different from those expressed or implied by these
forward-looking statements, including the following:









l
            Vulnerability
      of the Company’s business to general economic
  downturn;




l
            Fluctuation
      and unpredictability of costs related to the precious metals and other
      commodities used to make the Company’s
product;




l
            Changes
      in the laws of the People’s Republic of China (“PRC”) that affect the
      Company’s operations;




l
            Competition
      from the Company’s competitors;




l
            Any
      recurrence of earthquakes in the areas Apollo and its subsidiaries
      operate;




l
            The
      Company’s ability to obtain all necessary government certifications and/or
      licenses to conduct the Company’s
business;




l
            Development
      of a public trading market for the Company’s
  securities;




l
            The
      cost of complying with current and future governmental regulations and the
      impact of any changes in the regulations on the Company’s
      operations;




l
            Fluctuation
      of the foreign currency exchange rate between U.S. Dollars and Renminbi
      (“RMB”); and




l
            The
      other factors referenced in this Form 10-K, including, without limitation,
      under the sections entitled “Risk Factors,” “Financial Information,”
      “Management’s Discussion and Analysis of Financial Condition and Results
      of Operations,” and “Description of
Business.”









These
risks and uncertainties, along with others, are also described above under the
heading “Risk Factors.” Should one or more of these risks or uncertainties
materialize, or should any of the Company’s assumptions prove incorrect, actual
results may vary in material respects from those projected in these
forward-looking statements. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as may be required under applicable
securities laws.




1




PART
I




ITEM 1. BUSINESS







We are a
vertically integrated miner, and refiner of tellurium (Te) and high-purity
tellurium based metals for specific segments of the electronic materials market.
Our main expertise is in the production of Te-based compounds used to produce
thin-film solar cells, cell modules and solar electronic products. The tellurium
used in our products will be primarily sourced from our wholly-owned
Dashuigou mine located in Sichuan Province, China. In addition we will source
tellurium from another mine in Shimian, Majiagou, through a variable interest
entity agreement (“VIE”) with Sichuan Xinju Mineral Resources Development
Corporation and certain of its shareholders holding a majority of its voting
stock.  Under the terms of the VIE, the Company was granted the
exclusive exploration and mining rights to these two mines in accordance with a
license granted by the Chinese government, which extends through January, 2013,
subject to potential renewal thereafter.





Currently,
tellurium is produced as a product in the process
of processing copper and other metals. As a result, costs are high. We believe
that the Dashuigou and Majiagou mines are the only two known deposits in the
world in which tellurium, one of the rarest metallic elements on earth, is the
primary commodity of economic interest. By the end of 2010, we plan to obtain
approximately 60% to 70% of the tellurium necessary for our products from the
mines and believe this ability to be a significant competitive advantage because
the cost of tellurium sourced from our own mines will be substantially lower
than that purchased from an outside third party.  We will source the
rest of the tellurium from third parties suppliers that we have established good
business relationships with over the past few years. By vertically integrating
our processes, we believe we are able to achieve significant operating
efficiencies and produce high-quality products that offer cost and quality
benefits to our customers.  Currently, we are able to procure raw
materials from the mines at a significant discount to prevailing market
price.  Upon the execution of the VIE on April
10, 2009,the mining rightsof the other knowntellurium deposit, Majiagou mine,
owned by Xinju Mining Company in Sichuan,wasassigned to the
Company. Wenowhave themining rightand the exploration right to
the Majiagoumine.





Our
operations are currently based in a 650,000 square foot facility in Chengdu,
Sichuan Province, PRC. The newly built modern facility will have the capacity to
produce approximately 1,000 tons of high-purity photovoltaic cell materials and
42 other types of electronic materials. Vacant land owned by the company for
future expansion with a capacity to produce up to an additional 350 tons of
CdTe.





We
believe we are unique in that we are both a miner and refiner of our Te-based
products with primary and secondary refining capabilities. Our primary refining
capabilities are such that we can treat metal concentrates (containing, for
example, as little as 50% of the metals of interest), and extract and refine the
metals of interest so that they can be fed to our secondary refining operations,
where we attain a higher level of purity. Once we mine the raw material, and
perform both refining functions we consider ourselves a supplier with uniquely
integrated capabilities. Our end-products are tellurium, cadmium, zinc and
related compounds of 99.999% (five nines, or 5N) purity or above. Our products
are critical precursors in a number of electronic applications, including the
rapidly-expanding thin-film photovoltaic (PV) market.




Thin film
technologies, because of their relatively low usage of raw materials when
compared with traditional silicon-based photovoltaic technologies, offer a
potential cost advantage in the marketplace.  Accordingly, these
technologies are beginning to gain a foothold in the market – more than doubling
to 400MW in 2007 compared to 181MW in 2006, according to
SolarbuzzTM.




Renewable
Energy Industry




The
demand for electricity is steadily increasing as the worldwide economy continues
to grow. Global electric power generation is expected to reach 25,000 TWh
annually by 2020, according to the Energy Information Administration (EIA) of
the United States government, up from 17,000 TWh in 2005. According to a study
by the European Commission, the market volume is expected to increase to
approximately $53 billion by 2010.




2


To meet
this increasing demand, significant investments are required to ensure that the
availability of fossil fuels, which account for approximately 65% of the world’s
supply of electricity, is maintained. However, fossil fuels face a number of
challenges that limit their availability and result in significant price
pressures. The limited availability and rising cost of fossil fuels have
stimulated the development of renewable energy technologies and created, in our
view, a significant business opportunity.




The
challenges facing fossil fuels are creating a growth opportunity for renewable
energy. Renewable energy sources for electric power generation include
hydroelectric, biomass, geothermal, wind and solar. Among renewable sources of
electricity, solar energy has the most potential to meet the world’s growing
electricity needs. According to the U.S. Department of Energy, the sun is the
only source of renewable energy that has a large enough resource base to meet a
significant portion of the world’s electricity needs. A study commissioned by
the U.S. Department of Energy estimates that, on average, 120,000 trillion
Watts, or TW, of solar energy strike the Earth per year, far exceeding the
global electricity consumption rate of 14.3TW in 2002.  At a typical
latitude for the United States, a net 10% efficient solar energy “farm” covering
1.6% of the U.S. land area could theoretically meet the country’s entire
domestic electricity needs.




Photovoltaic
Systems




Solar
electricity is generated using either photovoltaic or solar thermal technology
to extract energy from the sun. Photovoltaic (PV) electricity generating systems
directly convert the sun’s energy into electricity, whereas solar thermal
systems heat water or other fluids that are then used as sources of energy.
Photovoltaic systems are either grid-connected systems or off-grid systems.
Grid-connected systems are connected to the electricity transmission and
distribution grid and feed solar electricity into the end-user’s electrical
system and/or the grid. Such systems are commonly mounted on the rooftops of
buildings, integrated into building facades or installed on the ground using
support structures, and range in size from 2-3 kilowatts to multiple megawatts,
or MW. Off-grid photovoltaic systems are typically much smaller and are
frequently used in remote areas where they may be the only source of electricity
for the end-user.  Photovoltaic systems are currently the most widely
used method of transforming sunlight into electricity.




In a
recent overview of PV market potential, ECN Solar Energy reports that the PV
sector has grown at a rate of 25% per annum over the last two decades and at a
rate of 45% per annum over the last five years. According to Photon Consulting,
a global solar energy research firm, the PV market is expected to grow at
approximately this rate for the next five years.  The current
installed worldwide PV-power generation capacity (that is, the number of
installed modules multiplied by their average power rating), is still relatively
marginal, representing slightly more than 8 gigawatts in 2006. Although this
corresponds to only 0.06% of global electricity consumption, a 2007 report by
Photon Consulting suggests that mass substitution by PV modules has begun. In
particular, the report predicts that by 2011, PV will represent 10% to 15% of
the annual additions of electricity generating capacity and that in selected
countries the annual solar capacity additions will exceed those of coal and
nuclear energy.




Thin
Film Photovoltaic Technologies




Approximately
80% of PV-generated electricity is currently produced using traditional
crystalline silicon. This technology requires a significant amount of
high-purity silicon. The increase in PV production has resulted in a shortage of
this type of silicon, adversely affecting PV growth and costs. Recently, because
of over-capacity in silicon waver, cost of traditional PV has come down
significantly. However, thin-film technologies based on either amorphous silicon
or Cadmium telluride (CdTe) are rapidly being phased into production because of
their potential for further lowering the cost of PV modules. This is largely due
to the fact that thin-film-based modules, as their name implies, consume much
smaller amounts of the foregoing starting materials, typically only 1% compared
to crystalline silicon, and also because they are produced using a continuous
manufacturing process which is mass production proven. Thin-film technologies
are thus believed by many to be better positioned to enable the PV industry to
reach installation prices of approximately US$2 per watt, at which price
electricity so generated becomes directly competitive with conventional sources
of electricity.  Additionally, thin film technologies are inherently
free from the supply constraints associated with traditional silicon-based
photovoltaic technologies, thus offering additional cost advantage in the
marketplace.  Accordingly, these technologies are beginning to gain a
foothold in the market – more than doubling to 400MW in 2007 compared to 181MW
in 2006, according to SolarbuzzTM.




3


Strategy




We seek
to become the leading global provider of both high-purity metals and PV products
by taking advantage of our high degree of vertical integration which we believe
yields economies of scale and cost savings.  We consider ourselves
uniquely positioned in China among suppliers of high-purity materials because of
our exclusive access to the Dashuigou mine.  A key element of our
strategy is to increase our shipments globally and, in the longer term, become a
leading producer of CdTe thin-film solar modules.




Our
strategy includes the following key elements:




·
            Leverage our
      cost.  The technical improvements resulting from our
      research and development efforts have been instrumental in significantly
      reducing our production costs and increasing our operational
      efficiency.  Additionally, once we begin to arouce our tellurium
      is internally, we will be able to achieve significantly higher profit
      margins than our competitors. We intend to utilize this cost advantage to
      attract both new customers and larger orders from existing
      customers.




·
            Increase production
      capacity. The main constraint limiting our sales has been
      production capacity as customer demand has exceeded the amount of
      materials we are able to produce. In May 2008, we relocated our operations
      to a new 37 acre facility in Chengdu, China and launched an aggressive
      expansion project to increase our annual production capacity of
      high-purity materials to 1000 tons as of 2008.  Of these 1000 tons,
      we plan to increase our capacity to produce tellurium and cadmium
      telluride. We will continue to closely monitor the progress of this
      expansion project to avoid risks of over-expansion while evaluating other
      available expansion opportunities. We believe expansion of our production
      capacity is likely to result in greater economies of scale for our
      operations.




Penetrate new market
      segments. Our current key markets are the United States and China,
      which represented our two largest markets based on revenues in 2008. We
      seek to increase sales in the United States and Japan and expand into
      selected countries in Europe, where we believe the PV market is likely to
      grow significantly in the near term. For example, in October of 2007 we
      entered into 6N Sulfur supply contracts with several German companies,
      including Sulfurcell Solartechnit GMBH. We believe the visibility of our
      brand name in Germany will help us expand into our new targeted markets in
      Europe. We also seek to strengthen our relationships with existing
      customers, particularly with First Solar, CERAC and Honeywell. We also
      plan to hire additional sales agents to be based in Europe and the Middle
      East to provide services to our customers in those
  markets.




·
            Expand market share in
      China.Although the PV market in China is currently
      smaller than other major PV markets, we believe that the adoption of a
      series of new laws, regulations and initiatives by the Chinese government,
      including China’s Renewable Energy Law, the Supervision Regulations on the
      Purchase of All Renewable Energy by Power Grid Enterprises, the National
      Medium- and Long-Term Programs for Renewable Energy and the recent
      amendments to the PRC Energy-Saving Law demonstrates the PRC government’s
      commitment to develop renewable energy sources and may lead to rapid
      growth in the PV market in China.  As a leading supplier of
      high-purity materials in China with plans to introduce our own thin-film
      modules, we believe we are well-positioned to capitalize on this growth
      and capture a significant portion of China’s thin-film PV
      market.





Products
and Main Markets




4


We
produce and sell a range of metals and compounds to address the requirements of
our customers in the various electronic materials market segments. Our range of
products and their typical end-uses are as follows:





·
            Ultra-High Purity
      Tellurium These include tellurium in purity levels of 99.999% (5N)
      to 99.99999% (7N) or more. High purity tellurium  is used to
      manufacture radiation and infrared
detectors.




·
            CdTe Thin Film
      Compounds. These are tellurium-based compounds in purity levels
      ranging from 99.999% (5N) to 99.9999% (6N). These products are primarily
      used in the production of thin-film solar electric power
      modules.





·
            Other Commercial-Purity
      Metals. These include tellurium, selenium, antimony, bismuth,
      cadmium and zinc in purities ranging from 99.99% (4N) to 99.9999% (6N).
      These metals find applications in numerous electronic material market
      segments, including PV, radiation detector, and infrared
      detection.·
            Our
      products are sold primarily in Asia and North
  America.




Customers




Our
principal customers are manufacturers of thin-film solar cells, cell modules,
and solar electronic products.  We also serve additional customers
involved in various segments of other electronic materials markets. In 2008, our
top customer, First Solar, accounted for 32% of our revenue. In 2008,
approximately 32% and 18%, of our sales were to two customers, First Solar and
Shaoshan Metals in China. Although our sales will not be as heavily concentrated
as in 2008, we still expect our sales to continue to be concentrated among a
small number of customers. However, we also expect that our significant
customers may change from time to time. In January 2009, we received purchase
orders from First Solar to purchase nine tons of high purity Te. Upon complete
shipment of the 9-ton order, we will negotiate with First Solar on potential
orders for the second quarter of 2009.




In 2008,
61% of our sales were made to customers in Asia, 38% of our sales were made to
customers in North America and 1% of our sales were made to customers in the
rest of the world. In 2007, 75.3% of our sales were made to customers in Asia,
24.4% of our sales were made to customers in North America and 0.3% of our sales
were made to customers in Europe. Our contracts with major customers are
non-cancelable and provide for minimum levels of product sales for the duration
of the contract (typically 6 to 12 months) with the potential for higher sales
levels depending on such factors as rising market prices, customer’s needs, our
available capacity and/or our ability to reach agreement on key terms. Our
standard arrangement with First Solar is for 30-day payment
terms.





According
to recent estimates from the German Department of Energy, by the year 2020, 30%
of all electricity produced in Europe will be clean energy; and solar generated
energy will constitute 60% of such clean energy. As such, the Company intends to
commit additional resources to develop the European market. If this program
succeeds, it will bring to the Company new customers.




5


As we
expand our manufacturing capacity to include thin-film PV modules, we anticipate
developing additional customer relationships with providers of solar systems to
end-users that include individual owners of agricultural buildings, owners of
commercial warehouses, offices and industrial buildings, public agencies and
municipal government authorities that own buildings suitable for solar system
deployment, owners of land designated as former agricultural land, waste land or
conversion land, such as former military bases or industrial areas, and
financial investors that desire to own large scale solar projects.




Our
Customer Supply Agreements




In
January 2009, we received purchase orders from First Solar to purchase nine tons
of high purity Te. We will negotiate with First Solar for additional orders in
the second quarter in 2009. On January 8, 2009, we signed an agreement to
appoint CERAC, Inc. as the exclusive distributor to sell our products in North
America, excluding sales to First Solar. According to CERAC, CdTe based thin
film PV panels will become more readily available in 2009, and there will be
other new companies that enter into this market. We believe that once these new
players are ready to produce, we will be able to sell our products to them
through the distribution network established by CERAC. We have also entered
into monthly or semi-annual contracts with other customers including Pioneer
Materials, Inc., Relden Crystals Inc., along with additional domestic
companies.





Competition




We face
competition from producers of raw materials such as Vital Chemicals Co., Xiandao
(Qingyuan) Rare Metal and Chemical Co., and Emei Semiconductor Material Co. in
China.  Overseas we face competition from 5N Plus, Inc. in Canada,
Honeywell Electronic Materials in the United States, PPM Pure Metals in Germany
and Nikko Materials in Japan.  As solar opportunities grow, given
First Solar’s pioneering success, new entrants are likely to enter the market
and our existing customers may begin to backwards integrate. It is also likely
that our current suppliers, who are large non-ferrous mining, refining and metal
processing companies, will begin to vertically integrate as well.  We
believe that our complete vertical integration as both a miner and refiner
uniquely positions us to compete effectively on these issues.




Competitive
Advantages





We
believe that we possess a set of attributes which provide us with a significant
competitive advantage. These include:





·
            Well established market
      position and significant Barriers to Entry. We believe that we are
      one of the very few main   suppliers of cadmium, selenium,
      and Tellurium metal and compounds in all the markets that we serve. We
      have a very limited number of competitors, a situation which illustrates
      the highly specialized nature of our business. The niche markets we serve
      require extensive expertise and know-how. Once our products are qualified
      by customers after long periods of testing, we will be leading our
      competitors for a significant period of time. Most of the materials that
      we produce must also be handled with care because of their environmental
      and occupational impact, and must be recycled, all of which constitute
      significant entry barriers for potential
  competitors.





·
            Key supplier in the
      Fast-Growing CdTe PV Industry. We are one of the key suppliers of
      CdTe to the PV industry, as evidenced by our relationship with First
      Solar, a leading CdTe PV module supplier. A significant increase in
      CdTe-based PV production capacity is expected over the next few years and
      we believe that we are well positioned to be an active participant in the
      growth of the industry.





6


·
            Stable Stream of Future
      Revenue. As we have exclusive access to tellurium, the issue of
      constant stable supplies to our customers does not exist. Therefore, we
      anticipate that we will be able to negotiate with all our customers in the
      future for long term supply agreement which will lead to stable stream of
      revenue in future years.





·
            Stable Supply of Critical Raw
      Materials at Competitive Pricing. We have the access to our own
      tellurium mines and to other sources of feedstock materials that we
      require.  We consider ourselves uniquely positioned in China
      among suppliers of high-purity materials because of our exclusive access
      to the Dashuigou mine.  We believe we can yield economies of
      scale and cost savings and thus offer highly competitive pricing to our
      customers.




Sales
and Marketing




We market
and sell our products through our direct sales force to customers in North
America, Japan, the rest of Asia, and Europe. Our sales team consists of eight
in-house sales managers.  Our direct sales force includes experienced
and technically sophisticated sales professionals and engineers who are
knowledgeable in photovoltaics and the various applications in which our
products are used.  Our sales staff works with customers during all
stages of the manufacturing process, from developing the precise composition of
the compound through manufacturing and processing to the customer’s exact
specifications. On January 8, 2009, we appointed CERAC, Inc. to be our exclusive
distributor for the North American market, excluding sales to First Solar. We
can leverage on CERAC’s established distribution channel to sell products to
customers that may begin production of their thin film PV modules this
year.




A key
component of our marketing strategy is developing and maintaining strong
relationships with our customers, especially at the senior management level. We
seek to achieve this through working closely with our customers to optimize our
products for their production processes.  In addition, we believe we
are able to develop long-term relationships with key customers by offering
competitive pricing, delivering high quality products and providing superior
customer service. We believe that maintaining close relationships with senior
management and providing necessary customer support improves customer
satisfaction and provides us with a competitive advantage when selling our
products.





In order
to increase brand recognition of our products and of Apollo in general, we
publish technical articles, advertise in trade journals, distribute promotional
materials and participate in industry trade shows and conferences.




Research
and Development




We
plan to devote a substantial amount of our resources to research and development
with the objective of improving our mining output efficiency, and optimizing our
extraction and refining steps. We will primarily focus our research and
development on the following areas:




·
            Mining output
      efficiency. Mining is becoming increasingly
      sophisticated, with some mines now using smart sensors to
              identify
      areas to prospect, guide sophisticated equipment used in extracting
      minerals, and monitor air quality in
              mines.
      We are consistently seeking new technologies and techniques to raise
      efficiency at the Dashuigou mine while
              concurrently
      seeking to improve environmental and safety
  conditions.




·
            Mineral processing and
      refining. We are focusing our efforts on the optimization of both
      our front-end and back-end
              processes,
      namely our primary hydrometallurgical extraction and refining steps
      (leaching, solid liquid
              separation
      and electrowinning), as well as our secondary high-purity refining steps
      (vacuum distillation and zone
refining).




7


As of
December 31, 2008, our research and development team consists of 22 full-time
employees which are broken down into three groups:




·
            Mineral
      resources prospecting and development, 14 engineers;·
            Mineral
      processing, metallurgy, new materials, 4 engineers;·
            New
      energy development, 4 engineers.




Additionally, we have strategic R&D collaborations with various universities
including Sichuan University, Chengdu Electronic Engineering University, Chengdu
Polytechnic University, Shanghai Technical Physics Institute, and China
Nonferrous Metal Research Institute.




Intellectual
Property




Our
success depends, in part, on our ability to maintain and protect our proprietary
technology and to conduct our business without infringing on the proprietary
rights of others. As of December 31, 2008, we held seven Chinese patents with
respect to our proprietary refining techniques and had an additional five patent
applications pertaining to elements of our unique thin-film solar module
manufacturing process pending.





With
respect to proprietary know-how that is not patentable and processes for which
patents are difficult to enforce, we rely on, among other things, trade secret
protection and confidentiality agreements to safeguard our
interests.  All of our research and development personnel have entered
into confidentiality and proprietary information agreements with us. These
agreements address intellectual property protection issues and require our
associates to assign to us all of the inventions, designs and technologies they
develop during the course of employment with us. We also require our customers
and business partners to enter into confidentiality agreements before we
disclose any sensitive aspects of our refining techniques, solar modules,
technology or business plans.




Environmental
Regulations




Our
Dashuigou mine and high purity material manufacturing facilities are subject to
various pollution control regulations with respect to noise, water and air
pollution and the disposal of waste and hazardous materials. The basic laws in
China governing environmental protection in the mineral industry sector of the
economy are the Environmental Protection Law, the Environment Impact Assessment
Law and the Mineral Resources Law. The State Administration of Environmental
Protection and its provincial counterparts are responsible for the supervision,
implementation and enforcement of environment protection laws and regulations.
Provincial governments also have the power to implement rules and policies in
relation to environmental protection in their respective
jurisdictions.




Our
material purification process generates gaseous wastes, liquid wastes, waste
water, noise and other industrial wastes in various stages of the manufacturing
process. We have installed various types of anti-pollution equipment in our
production facilities to reduce and treat the wastes generated in our
manufacturing process. Our operations are subject to regulation and periodic
monitoring by the State environmental Protection Bureau of the PRC, as well as
local environmental protection authorities. The PRC national and local
environmental laws and regulations impose fees for the discharge of certain
waste substances. If discharges exceed the prescribed levels, excess discharge
fees are charged. The PRC national and local governments may at their own
discretion assess fines, close or suspend the operation of any facility that
fails to comply with orders requiring it to cease or remedy activities causing
environmental damage. No such penalties have been imposed on us, and we believe
that we have been in material compliance with applicable environmental
regulations and standards.




We have
obtained the land use permit and the water and soil preservation permit for our
Dashuigou mine. We also received ISO 9001:2000 and GB/T19001-2000 certificates
which are valid from January 9, 2008 until December 20, 2009. This Quality
Management System applies in the areas of design, development and production of
certain metals and high purity compounds.




8


Government
Regulations




The
following is a summary of the principal governmental laws and regulations that
are or may be applicable to our operations in the PRC.  The scope and
enforcement of many of the laws and regulations described below are uncertain.
We cannot predict the effect of further developments in the Chinese legal
system, including the promulgation of new laws, changes to existing laws or the
interpretation or enforcement of laws.




Renewable
Energy Law and Other Government Directives




In
February 2005, China enacted its Renewable Energy Law, which became effective on
January 1, 2006. The Renewable Energy Law sets forth policies to encourage the
development and use of solar energy and other non-fossil energy. The renewable
energy law sets forth the national policy to encourage and support the use of
solar and other renewable energy and the use of on-grid generation. It also
authorizes the relevant pricing authorities to set favorable prices for the
purchase of electricity generated by solar and other renewable power generation
systems.




The law
also sets forth the national policy to encourage the installation and use of
solar energy water-heating systems, solar energy heating and cooling systems,
solar photovoltaic systems and other solar energy utilization systems. It also
provides financial incentives, such as national funding, preferential loans and
tax preferences for the development of renewable energy projects. In January
2006, China’s National Development and Reform Commission promulgated two
implementation directives of the Renewable Energy Law. These directives set
forth specific measures in setting prices for electricity generated by solar and
other renewable power generation systems and in sharing additional expenses
occurred. The directives further allocate the administrative and supervisory
authorities among different government agencies at the national and provincial
levels and stipulate responsibilities of electricity grid companies and power
generation companies with respect to the implementation of the renewable energy
law.




In
November 2005, China’s National Development and Reform Commission promulgated
the Renewable Energy Industry Development Guidance Catalogue, where solar power
figured prominently. In January 2006, China’s National Development and Reform
Commission promulgated an implementation directive for the renewable energy
power generation industry. This directive sets forth specific measures for
setting the price of electricity generated by solar and other renewable power
generation systems and in sharing the costs incurred. The directive also
allocates administrative and supervisory authority among different government
agencies at the national and provincial levels and stipulates the
responsibilities of electricity grid companies and power generation companies
with respect to the implementation of the renewable energy law.




On August
31, 2007, China’s National Development and Reform Commission promulgated the
Medium and Long-Term Development Plan for the Renewable Energy Industry. This
plan sets forth national policy to provide financial allowance and preferential
tax regulations for the renewable energy industry. A similar demonstration of
PRC government commitment to renewable energy is also stipulated in the Eleventh
Five-Year Plan for Renewable Energy Development, which was promulgated by
China's National Development and Reform Commission in March 2008.




The
principal regulations governing the mining business in the PRC
include:




·
            China
      Mineral Resources Law, which requires a mining business to have
      exploration and mining licenses from provincial or local land and
      resources agencies;




·
            China
      Environmental Law, which requires a mining project to obtain an
      environmental feasibility study of the project;
  and




·
            China
      Mine Safety Law, which requires a mining business to have a safe
      production license and provides for
              random
      safety inspections of mining
facilities.




9


Chinese
regulations also require that a mining company must have a safety certification
from the PRC Administration of Work Safety before it can engage in mining and
extracting activities. All of our operating subsidiaries have obtained the
necessary licenses and certifications.




Insurance




We have
personal injury insurance for our employees and management under a group
insurance policy with Ping An Life Insurance Company of China, Ltd. The
insurance coverage for our employees includes accidental injury, medical cost
for accidental injury, and hospital allowance for accidental injury. In addition
to coverage for our employees, insurance for management covers extra car and
airplane accidental insurance.





Income
Tax




On
March 16, 2007, the National People’s Congress of China approved the
Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”),
which is effective from January 1, 2008. Under the new CIT law, the
corporate income tax rate applicable to all Companies, including both domestic
companies and foreign-invested companies, is 25%, replacing the old applicable
tax rate of 33%.




We are
currently applying for the Sichuan provincial high technology reduced tax rate.
If we are approved, our tax rate will be 15%.




Employees




We employ
214 people. Of our employees, 68 hold university degrees in engineering or
physical sciences. A breakdown of our current personnel by category is as
follows:


Production
                      123Research
      and Development
                      22Administration
                      55Sales
      and Marketing
                      8Senior
      Management
                      6Total
                      214




10


ITEM
1A: RISK FACTORS




Any
investment in our common stock involves a high degree of risk. Potential
investors should carefully consider the material risks described below and all
of the information contained in this Form 10-K before deciding whether to
purchase any of our securities. Our business, financial condition or results of
operations could be materially adversely affected by these risks if any of them
actually occur. Some of these factors have affected our financial condition and
operating results in the past or are currently affecting our company. This
filing also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks faced described below and elsewhere in this Form 10-K.




Risks
Related To Our Operations





Our limited operating history may
not serve as an adequate basis to judge our future prospects and results of
operations.




We
commenced our current line of business operations in 2006. Our limited operating
history may not provide a meaningful basis on which to evaluate our business.
Although our revenues have grown rapidly since inception, we cannot assure you
that we will maintain our profitability or that we will not incur net losses in
the future. We expect that our operating expenses will increase as we expand.
Any significant failure to realize anticipated revenue growth could result in
significant operating losses. We will continue to encounter risks and
difficulties frequently experienced by companies at a similar stage of
development, including our potential failure to:




●
            raise
      adequate capital for expansion and operations;●
            implement
      our business model and strategy and adapt and modify them as
      needed;




●
            increase
      awareness of our brands, protect our reputation and develop customer
      loyalty;




●
            manage
      our expanding operations and service offerings, including the integration
      of any future acquisitions;




●
            maintain
      adequate control of our
expenses;




●
            anticipate
      and adapt to changing conditions in the renewable energy market in which
      we operate as well as the impact of any changes in government regulations,
      mergers and acquisitions involving our competitors, technological
      developments and other significant competitive and market
      dynamics.




If we are
not successful in addressing any or all of these risks, our business may be
materially and adversely affected.




Uncertainty
in the results of exploration for resources.





Resources
and reserves are non-renewable and the exploration of new potential resources is
crucial to a mining enterprise. Exploration of mineral resources is speculative
in nature, so substantial expenses may be incurred from initial drilling to
production. As tellurium is the ninth rarest elements on earth and Dashuigou and
Majiagou tellurium mines are the only two known tellurium mines found to date,
there is also no assurance that exploration can lead to the discovery of new
mines or economically feasible reserves. Although the exploration is not the
main business of the Company, we will constantly commit efforts to search new
tellurium mines. If the Company fails to replenish its mineral resource levels
in existing or new mining areas, the Company may not be able to maintain the
current production level after the remaining usable life of the existing mining
areas.





11


Fluctuation
in the market price of base metals may significantly affect the results of our
operations.





The
results of our operations are significantly affected by the market price of base
metals, which are subject to substantial price fluctuations. Our earnings are
particularly sensitive to changes in the market price of tellurium, cadmium, and
other metals that we sell. Market prices can be affected by numerous factors
beyond our control, including supply and demand for a broad range of industrial
reasons, substitution of new or different products in critical applications for
our existing products, expectation with respect to the level of fossil fuel
price, and speculative activities. If prices should decline below our cash costs
of production and remain at such levels for any substantial period, we could
determine that it is not economically feasible to continue commercial production
at any or all of our mines.





As
tellurium is rare and its applications highly specific, there is no know hedge
tools for us to utilize to protect us against price fluctuation. As such, our
ability to protect our operations performance due to base metal price
fluctuation is minimal.





We
may face restricted access to markets in the future.





Access to
our markets may be subject to ongoing interruptions and trade barriers due to
political and tariffs of individual countries, and the actions of certain
interest groups to restrict the import of certain commodities. Although there
are currently no significant trade barriers existing or impending of which we
are aware that do, or could, materially affect our access to certain markets,
there can be no assurance that our access to these markets will not be restrict
in the future.





We
may not be able to renew the current license period of mining
rights.





Under the
“Mineral Resources Law”, all mineral resources of the PRC are owned by the
State. The Company may obtain mining rights for conducting mining activities in
a specific mining area during the license period. The Company has, under the
relevant laws and regulations, obtained valid mining rights of 0.08 square
kilometer with a validity period of 6 years and may apply to the relevant
authorities for extension. There can be no assurance that the Company will be
able to exploit the entire mineral resources of any of its mines during the
initial license period. If the Company fails to renew its mining rights upon
expiry or it cannot effectively utilize the resources within a license period
specified in the mining right, the operation and performance of the Company may
be adversely affected.





Our
Performance relies on the operations of two existing mines.





The
principal operating assets of the Company are the Dashuigou and Majiagou
tellurium mines. A substantial portion of the revenue of the Company will be
generated from these two mines. There is no assurance that other developing
mineral projects of the Company will perform satisfactorily. If other developing
mineral projects fail to perform satisfactorily, this may lead to a decrease in
the overall profit margin, operating performance and investment return, and may
adversely affect the operating results of the Company.





The
change of amortization policy on mining rights may affect our
performance.





The
mining rights of the Company are amortized on a straight-line basis over the
estimated useful life of five to ten years. The Company will review the
remaining useful life of its remaining rights in accordance with the production
plans of the Company and the reserve level of the respective mine. Accordingly,
any material change in the production plan of the Company’s mines or
modification of reserve levels may alter the Company’s amortization policy of
mining rights and impose a negative impact to the Company.





12


Production
safety.





The
Company employs the open pit mining method for the two mines. Due to the
geographic setting and relatively high elevation difference, there is a
possibility of localized mud-rock flow during the rainy season, and a risk of
instability of the slopes and subsidence of the working area. As the mining
process requires the use of explosives and sodium cyanide, any improper storage
or use of these materials could lead to injury or death.





Another
earthquake in the region may have negative impact on the operations of mines and
therefore our performance.





A major
earthquake at the Rita scale of 8.1 took place in the Sichuan province on May
21, 2008. If such an earthquake were to take place again, the facilities in our
mines could be damaged, lead to injury and death of employees, and the complete
halt to our mining activities.





Government
regulations on the mining industry.





The
mining production of the Company is subject to various government policies and
regulations relating to exploration, development, production, taxation, labor
standards, vocational health and safety, waste treatment, environmental
monitoring, protection and control, operations management and other problems.
Any changes to these policies and regulations may increase the operating costs
of the Company and may adversely affect the operating results of the
Company.




The
loss of, or a decrease in the amount of business from, our major customers or
any default payment on their part could significantly reduce our net sales and
harm our operating results.




In 2008,
our top two customers, First Solar and Shaoshan Metals accounted for 50% of our
revenue.  In 2007, approximately 55% and 23%, of sales were to two
customers, First Solar and Osaka Titanium Technologies, respectively. The loss
of, or a decrease in the amount of business from, these customers, or any
default in payment on their part,  could significantly reduce our net
sales and harm our operating results. We understand that First Solar intends to
increase its number of suppliers of CdTe.  We have no assurance of
securing additional business from our major customers beyond our long-term
supply agreements. Although we believe that these maximum volumes are beyond the
requirements of the other producers during this time period, they may represent
a limit on our ability to diversify our sales of CdTe until 2010 and to reduce
our reliance on our major customers. We therefore expect that our dependence on
our major customers will continue over this period of time and then, we hope,
gradually reduce as we expand our capacity to meet the requirements of currently
merging manufacturers of CdTe-based PV modules, as well as those of our
customers active in the medical imaging market.





We
may not be able to effectively control and manage our growth.




If our
business and markets grow and develop, it will be necessary for us to finance
and manage expansion in an orderly fashion. In addition, we may face challenges
in managing and expanding facilities and in integrating acquired businesses with
our own. Such eventualities will increase demands on our existing management,
workforce and facilities. Failure to satisfy such increased demands could
interrupt or adversely affect our operations and cause longer operation location
completion cycle, and administrative inefficiencies.




We
depend on market acceptance of our customers’ products and the technology
associated therewith.




We depend
on market acceptance of our customers’ products and the technology associated
therewith. Any delay or failure by our customers to successfully penetrate their
respective markets could lead to a reduction in our sales and operating margins.
Most of our products are sold either into emerging markets or alternatively in
existing markets, for which they are used to manufacture replacement products
intended to represent new and improved technologies. If our customers are unable
to meet the performance and cost targets required for commercial viability,
their products are subject to regulations which limit their use, or the new or
improved technology associated with their products proves unsuitable for
widespread adoption, it may have an adverse effect on our sales and operating
margins.


13




More
specifically, a good part of our sales are made in the solar energy market using
thin-film technology. First Solar is currently the sole volume manufacturer of
thin-film CdTe-based PV modules and its oldest active production line has been
in operation only since November 2004. As a result, thin-film technology does
not have a sufficient operating history to confirm how PV modules will perform
over their estimated useful life of 25 years. Long-term viability of CdTe-based
thin film technology will also depend on the manufacturers’ ability to reduce
the cost of PV modules to a level at which the technology is competitive with
other energy sources without government subsidies. If thin-film technology
performs below expectations or if it does not achieve cost competitiveness with
conventional or other solar or non-solar renewable energy sources without
government subsidies, it could result in the failure of the technology to be
widely adopted in the market.




This
could significantly affect demand for our products and reduce our sales and
profit margins. Many other factors may affect the widespread adoption of PV
technology and demand for our customers’ products, including the
following:




·
            cost-effectiveness
      of thin film PV modules compared to conventional and other non-solar
      renewable energy sources and products;·
            performance
      and reliability of thin film PV modules and thin-film technology compared
      to conventional and other nonsolar renewable energy sources and
      products;·
            availability
      of government subsidies and incentives to support the development of the
      solar energy industry;·
            success
      of other renewable energy generation technologies, such as hydroelectric,
      wind, geothermal, solar thermal, concentrated PV and
    biomass;·
            fluctuations
      in economic and market conditions that affect the viability of
      conventional and non-solar renewable energy sources, such as increases or
      decreases in the prices of oil and other fossil fuels;·
            fluctuations
      in capital expenditures by end-users of PV modules, which tend to decrease
      when the economy slows and interest rates increase; and·
            deregulation
      of the electric power industry and the broader energy
      industry.




A
change in environmental regulations could cause serious disruption to operations
and negatively impact our results.




Our
operations involve the use, handling, generation, processing, storage,
transportation, recycling and disposal of hazardous materials and are subject to
extensive environmental laws and regulations at the national, provincial, local
and international level. These environmental laws and regulations include those
governing the discharge of pollutants into the air and water, the use,
management and disposal of hazardous materials and wastes, the clean-up of
contaminated sites and occupational health and safety. We have incurred and will
continue to incur capital expenditures in order to seek to comply with these
laws and regulations. In addition, violations of, or liabilities under,
environmental laws or permits may result in restrictions being imposed on our
operating activities or in our being subject to substantial fines, penalties,
criminal proceedings, third party property damage or personal injury claims,
clean-up costs or other costs. While we believe that we are currently in
compliance with applicable environmental requirements, future developments such
as more aggressive enforcement policies, the implementation of new, more
stringent laws and regulations, or the discovery of currently unknown
environmental conditions may require expenditures, or changes in our operations,
that could have a material adverse effect on our business, results of operations
and financial condition.




Although
China has enacted environmental protection legislation to regulate the mining
industry, due to the very short history of this legislation, national and local
environmental protection standards are still in the process of being formulated
and implemented.




Chinese
legislation provides for penalties and other liabilities for the violation of
environmental protection standards and establishes, in certain circumstances,
obligations to rehabilitate current and former facilities and locations where
operations are being or have been conducted.




14


We
believe that there are no outstanding notices, orders or directives from central
or local environmental protection agencies or local government authorities
alleging any breach of national or local environmental quality standards by us
or any other party in respect of our property. Although we intend to fully
comply with all environmental regulations, there is a risk that permission to
conduct exploration, development and manufacture activities could be withdrawn
temporarily or permanently where there is evidence of serious breaches of such
standards. In addition, given the relative lack of precedents in enforcing the
new environmental protection laws, there are no guarantees that the laws or the
interpretation of the laws or regulations, will not materially change, which
could require us to substantially change, or entirely cease, our operations in
China.




Because
of growing demand for high-purity metals, we may be subject to more competition
in the near future.




The
forecasted growth in demand for high-purity metals, especially those used by the
solar power industry, is expected to attract more metal refiners into that
industry and increase competition. Competition could arise from new low-cost
metal refiners or from certain of our customers who could decide to integrate
backward.




Our
future success will be totally dependent upon the efforts of our key
personnel.




Our
future success depends on our ability to retain our key employees and attract,
train, retain and successfully integrate new talent into our management team. We
are dependent on the services of our senior management team. The loss of any of
these could have a material adverse effect on us. Renyi Hou and Yong Ling, who
have been with us since the inception of Sichuan Apollo in 2006, play active
roles in our operation and growth initiatives. Our future success also depends,
to a significant extent, on our ability to attract, train and retain talented
personnel. Recruiting and retaining talented personnel, particularly those with
expertise in the electronic materials industry, refining technology and cadmium,
tellurium and selenium-based compounds is vital to our success and may prove
difficult.




We
may incur losses resulting from business interruptions.




We may
incur losses resulting from business interruptions. In many instances,
especially those related to our long-term contracts, we have contractual
obligations to deliver product in a timely manner. Any disruption in our
activities which leads to a business interruption could harm our customers’
confidence level and lead to the cancellation of our contracts and legal
recourse against us. Although we believe that we have taken reasonable
precautions to avoid business interruptions, we could still experience
interruptions which would adversely impact our financial results.




Protection
of our proprietary processes, methods and other technologies is critical to our
business and therefore any failure to protect the use of our existing
intellectual property rights could result in the loss of valuable technologies
and processes.




Protection
of our proprietary processes, methods and other technologies is critical to our
business. We rely almost exclusively on a combination of Chinese patents, trade
secrets and employee confidentiality agreements to safeguard our intellectual
property. Failure to protect and monitor the use of our existing intellectual
property rights could result in the loss of valuable technologies and processes
and materially adversely affect our business.




If
our insurance coverage is unavailable or insufficient to cover future claims
against us, our financial resources and results of operations could be adversely
affected.




We have
limited insurance coverage for a number of risks, including environmental
situations and personal injury. Although we believe that the events and amounts
of liability covered by our insurance policies are reasonable taking into
account the risks relevant to our business as carried out to date, there can be
no assurance that such coverage will be available or sufficient to cover all
claims to which we may become subject. If insurance coverage is unavailable or
insufficient to cover any such claims, our financial resources and results of
operations could be adversely affected.




15


We
have limited business insurance coverage, and accordingly any business
disruption, litigation or natural disaster might result in substantial costs and
diversion of resources.




The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited business insurance products, and do not
generally, to our knowledge, presently offer business liability insurance. As a
result, we do not have any business liability insurance coverage for our
operations. Moreover, while business disruption insurance is available, we have
determined that the risks of disruption and cost of the insurance are such that
we have not obtained such insurance at this time. Any business disruption,
litigation or natural disaster might result in substantial costs and diversion
of resources.




We
are responsible for the indemnification of our officers and
directors.




Our
Bylaws provide for the indemnification of our directors, officers, employees,
and agents, under certain circumstances, against costs and expenses incurred by
them in any litigation to which they become a party arising from their
association with or activities on behalf of us. This indemnification policy
could result in substantial expenditures, which we may be unable to
recoup.




Risks Related to Doing
Business in the PRC





Government
regulations may hinder our ability to function efficiently.




The
national, provincial and local governments in the People’s Republic of China are
highly bureaucratized.  The day-to-day operations of our business will
require frequent interaction with representatives of the Chinese government
institutions.  The effort to obtain the registrations, licenses and permits
necessary to carry out our business activities can be daunting.
 Significant delays can result from the need to obtain governmental
approval of our activities.  These delays can have an adverse effect on the
profitability of our operations.




The
PRC laws and regulations governing our current business operations are sometimes
vague and uncertain. Any changes in such PRC laws and regulations or their
interpretation and application may have a material and adverse effect on our
business.




There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing our business, or the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy and criminal proceedings. We and any future subsidiaries are
considered foreign persons or foreign funded enterprises under PRC laws, and as
a result, we are required to comply with PRC laws and regulations applicable to
such persons or enterprises. These laws and regulations are sometimes vague and
may be subject to future changes, and their official interpretation and
enforcement may involve substantial uncertainty. The effectiveness of newly
enacted laws, regulations or amendments may be delayed, resulting in detrimental
reliance by foreign investors. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively. We cannot predict
what effect the interpretation or application of existing or new PRC laws or
regulations may have on our businesses.




A
slowdown or other adverse developments in the PRC economy may materially and
adversely affect our customers, demand for our services and our
business.




We are a
holding company and all of our operations are conducted in the PRC. Although the
PRC economy has grown significantly in recent years, we cannot assure you that
such growth will continue. The solar energy industry in the PRC is relatively
new and growing, but we do not know how sensitive we are to a slowdown in
economic growth or other adverse changes in the PRC economy which may affect
demand for our products. A slowdown in overall economic growth, an economic
downturn or recession or other adverse economic developments in the PRC may
materially reduce the demand for our products and materially and adversely
affect our business.




16


Inflation
in the PRC could negatively affect our profitability and growth.




While the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. If prices for our products rise at a rate that is insufficient to
compensate for the rise in the costs of supplies, it may have an adverse effect
on profitability. In order to control inflation in the past, the PRC government
has imposed controls on bank credits, limits on loans for fixed assets and
restrictions on state bank lending. Such an austerity policy can lead to a
slowing of economic growth. In October 2004, the People’s Bank of China, the
PRC’s central bank, raised interest rates for the first time in nearly a decade
and indicated in a statement that the measure was prompted by inflationary
concerns in the Chinese economy. Repeated rises in interest rates by the central
bank would likely slow economic activity in China, which could, in turn,
materially increase our costs and also reduce demand for our
products.




Capital
outflow policies in China may hamper our ability to pay dividends to
shareholders in the United States.




The
People’s Republic of China has adopted currency and capital transfer
regulations. These regulations require that we comply with complex regulations
for the movement of capital. Although Chinese governmental policies were
introduced in 1996 to allow the convertibility of RMB into foreign currency for
current account items, conversion of RMB into foreign exchange for capital
items, such as foreign direct investment, loans or securities, requires the
approval of the State Administration of Foreign Exchange. We may be unable to
obtain all of the required conversion approvals for our operations, and Chinese
regulatory authorities may impose greater restrictions on the convertibility of
the RMB in the future. Because most of our future revenues will be in RMB, any
inability to obtain the requisite approvals or any future restrictions on
currency exchanges will limit our ability to pay dividends to our shareholders.




Sichuan
Apollo is subject to restrictions on paying dividends and making other payments
to us.




We are a
holding company incorporated in the State of Nevada and do not have any assets
or conduct any business operations other than our investments in our
subsidiaries. As a result of our holding company structure, we rely primarily on
dividend payments from our indirect wholly owned subsidiaries in China. However,
PRC regulations currently permit payment of dividends only out of accumulated
profits, as determined in accordance with PRC accounting standards and
regulations. Our subsidiaries in China are also required to set aside a portion
of their after-tax profits according to PRC accounting standards and regulations
to fund certain reserve funds. The PRC government also imposes controls on the
conversion of RMB into foreign currencies and the remittance of currencies out
of China. We may experience difficulties in completing the administrative
procedures necessary to obtain and remit foreign currency. See “Government control of currency
conversion may affect the value of your investment.” Furthermore, if our
subsidiary or affiliated entity in China incurs debt on their own in the future,
the instruments governing the debt may restrict their ability to pay dividends
or make other payments. If we, or our subsidiary, are unable to receive all
of the revenues from our operations through these contractual or dividend
arrangements, we may be unable to pay dividends on our common
stock.




Governmental
control of currency conversion may affect the value of an investment in the
Company.




The PRC
government imposes controls on the convertibility of RMB into foreign currencies
and, in certain cases, the remittance of currency out of the PRC. We receive a
significant portion of our revenues in RMB, which is currently not a freely
convertible currency. Shortages in the availability of foreign currency may
restrict our ability to remit sufficient foreign currency to pay dividends, or
otherwise satisfy foreign currency dominated obligations. Under existing PRC
foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from the transaction,
can be made in foreign currencies without prior approval from the PRC State
Administration of Foreign Exchange by complying with certain procedural
requirements. However, approval from appropriate governmental authorities is
required where RMB is to be converted into foreign currency and remitted out of
China to pay capital expenses such as the repayment of bank loans denominated in
foreign currencies.





17


The PRC
government may also at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange control
system prevents us from obtaining sufficient foreign currency to satisfy our
currency demands, we may not be able to pay certain of our expenses as they come
due.




The
fluctuation of the Renminbi may materially and adversely affect an investment in
the Company.




The value
of the RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in the PRC's political and economic
conditions. As a significant portion of our revenues are earned in the PRC, any
significant revaluation of the RMB may materially and adversely affect our cash
flows, revenues and financial condition. For example, to the extent that we need
to convert U.S. dollars we receive from an offering of our securities or other
financing into RMB for use in our operations, appreciation of the RMB against
the U.S. dollar could have a material adverse effect on our business, financial
condition and results of operations. Conversely, if we decide to convert our RMB
into U.S. dollars for the purpose of making payments for dividends on our common
shares or for other business purposes and the U.S. dollar appreciates against
the RMB, the U.S. dollar equivalent of the RMB we convert would be reduced. In
addition, the depreciation of significant U.S. dollar denominated assets could
result in a charge to our income statement and a reduction in the value of these
assets.




On July
21, 2005, the PRC government changed its decade-old policy pegging the value of
the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy has resulted in an approximately 2.0%
appreciation of the RMB against the U.S. dollar. While the international
reaction to the RMB revaluation has generally been positive, there remains
significant international pressure on the PRC government to adopt an even more
flexible currency policy, which could result in a further and more significant
appreciation of the RMB against the U.S. dollar.




Because
the ownership and exploitation of mineral resources is subject to extensive
government regulation we cannot assure that required approvals, licenses and
permits will be granted, or if granted, will be granted in a timely
manner.




Ownership
of all land in China remains with the State and the State, at the national,
regional and local levels, is extensively involved in the regulation of
exploration and mining activities. Transfers of exploration rights are also
subject to governmental approval. Failure or delays in obtaining necessary
approvals could have a materially adverse affect on our financial condition and
results of operations. Nearly all mining projects in the PRC require government
approval. There can be no certainty that any such approvals will be granted
(directly or indirectly) to the Company or any direct or indirect subsidiary of
the Company, or at all. There is no assurance that our mineral exploration and
development activities will result in any discoveries of commercial bodies of
tellurium. The long−term profitability of our operations will in part be
directly related to the costs and success of our exploration programs, which may
be affected by a number of factors. Failure to obtain such licenses and permits
as are required would cause us to materially change or cease operations in
China.




Our
targeted industries are heavily regulated and we may not be able to remain in
compliance with all such regulations, and may be required to incur substantial
costs in complying with such regulation.




Our
mining projects, properties and companies in China are subject to extensive
regulation by China's Mining Ministry, and by other provincial, county and local
authorities in jurisdictions in which products are processed or sold, regarding
the processing, storage, and distribution of mineral products. In addition,
processing facilities are subject to periodic inspections by government
agencies. We may not be able to comply with current laws and regulations, or any
future laws and regulations. To the extent that new regulations are adopted, we
will be required to conform our activities in order to comply with such
regulations. We may be required to incur substantial costs in order to comply.
Our failure to comply with applicable laws and regulations could subject us to
civil remedies, including fines, injunctions, recalls or seizures, as well as
potential criminal sanctions which could have a material and adverse effect on
our business operations and finances. Changes in applicable laws and regulations
may also have a negative impact on our operations and revenues.





18


Risks Related to Our Common
Stock




Our
officers, directors and affiliates will control us through their positions and
stock ownership and contractual provisions, and their interests may differ from
other stockholders.




Pursuant
to the Entrusted Management Agreement, effective shortly after the completion of
the Merger, the Apollo Managers, including certain persons that are officers,
directors and affiliates of the Company, are entitled to receive shares of
Common Stock of the Company, with the result that such officers, directors and
affiliates beneficially own approximately 60.15% of our Common Stock, after
giving effect to such issuance.  As a result, the Apollo Managers are
able to influence the outcome of stockholder votes on various matters, including
the election of directors and extraordinary corporate transactions including
business combinations.  The Apollo Managers’ interests may differ from
other stockholders. Furthermore, the current ratios of ownership of our Common
Stock reduce the public float and liquidity of our Common Stock, which can in
turn affect the market price of our Common Stock.




We
are not likely to pay cash dividends in the foreseeable future.




We
currently intend to retain any future earnings for use in the operation and
expansion of our business. We do not expect to pay any cash dividends in the
foreseeable future but will review this policy as circumstances dictate. Should
we decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends or
other payments from our subsidiaries. In addition, our operating subsidiary,
from time to time, may be subject to restrictions on its ability to make
distributions to us, including as a result of restrictions on the conversion of
local currency into U.S. dollars or other hard currency and other regulatory
restrictions.




There
is currently a limited trading market for our Common Stock.




Our
Common Stock is quoted on the over-the-counter Bulletin Board. However, our bid
and asked quotations have not regularly appeared on the OTC Bulletin Board for
any consistent period of time. There is no established trading market for our
Common Stock and our Common Stock may never be included for trading on any stock
exchange or through any other quotation system (including, without limitation,
the NASDQ Stock Market). Investors may not be able to sell their shares due to
the absence of a trading market. Furthermore, the current ratios of ownership of
our Common Stock reduce the public float and liquidity of our Common Stock which
can in turn affect the market price of our Common Stock.




Our
Common Stock may be also subject to the "penny stock" rules to the extent that
the price drops below $5.00, which require delivery of a schedule explaining the
penny stock market and the associated risks before any sale. These requirements
may further limit investors’ ability to sell their shares.




Our
Common Stock is illiquid and subject to price volatility unrelated to our
operations.




The
market price of our Common Stock could fluctuate substantially due to a variety
of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of other companies in the same industry,
trading volume in our Common Stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or us.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market price
of securities issued by many companies for reasons unrelated to their operating
performance and could have the same effect on our Common Stock.




19


Failure
to comply with the United States Foreign Corrupt Practices Act could subject us
to penalties and other adverse consequences.




As our
ultimate holding company is a Nevada corporation, we are subject to the United
States Foreign Corrupt Practices Act, which generally prohibits United States
companies from engaging in bribery or other prohibited payments to foreign
officials for the purpose of obtaining or retaining business. Foreign companies,
including some that may compete with our company, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices may occur from time-to-time in the PRC. We can make no
assurance, however, that our employees or other agents will not engage in such
conduct for which we might be held responsible. If our employees or other agents
are found to have engaged in such practices, we could suffer severe penalties
and other consequences that may have a material adverse effect on our business,
financial condition and results of operations.




Because
our business is located in the PRC, we may have difficulty establishing adequate
management, legal and financial controls, which we are required to do in order
to comply with U.S. securities laws.




PRC
companies have historically not adopted a Western style of management and
financial reporting concepts and practices, which includes strong corporate
governance, internal controls and, computer, financial and other control
systems. Most of our middle and top management staff are not educated and
trained in the Western system, and we may have difficulty hiring new employees
in the PRC with such training. In addition, we may need to rely on a new and
developing communication infrastructure to efficiently transfer our information
from our centers of operations to our headquarters. As a result of these
factors, we may experience difficulty in establishing management, legal and
financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet Western standards. Therefore, we may, in turn, experience
difficulties in implementing and maintaining adequate internal controls as
required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result in
significant deficiencies or material weaknesses in our internal controls, which
could impact the reliability of our financial statements and prevent us from
complying with SEC rules and regulations and the requirements of the
Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of
compliance could have a materially adverse effect on our business.




You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based upon U.S. laws,
including the federal securities laws, or other foreign laws against us or our
management.




All of
our current operations are conducted in China. Moreover, most of our directors
and officers are nationals and residents of China. All or substantially all of
the assets of these persons are located outside the United States and in the
PRC. As a result, it may not be possible to effect service of process within the
United States or elsewhere outside China upon these persons. In addition,
uncertainty exists as to whether the courts of China would recognize or enforce
judgments of U.S. courts obtained against us or such officers and/or directors
predicated upon the civil liability provisions of the securities laws of the
United States or any state thereof, or be competent to hear original actions
brought in China against us or such persons predicated upon the securities laws
of the United States or any state thereof.




Risks Related To Our Capital
Structure




Our
stock price is volatile and you might not be able to resell your securities at
or above the price you have paid.




Since the
completion of the reverse merger in October 2008 through March 20, 2009, our
share price has been volatile, with a high and low sales price of $7.50 and
$5.75, respectively, at volume that is extremely thin. You might not be able to
sell the shares of our common stock at or above the price you have paid. The
stock market has experienced extreme volatility that often has been unrelated to
the performance of its listed companies. Moreover, only a limited number of our
shares are traded each day, which could increase the volatility of the price of
our stock. These market fluctuations might cause our stock price to fall
regardless of our performance. The market price of our common stock might
fluctuate significantly in response to many factors, some of which are beyond
our control, including the following:




20


·
            actual
      or anticipated fluctuations in our annual and quarterly results of
      operations;




·
            changes
      in securities analysts’
expectations;




·
            variations
      in our operating results, which could cause us to fail to meet analysts’
      or investors’ expectations;




·
            announcements
      by our competitors or us of significant new products, contracts,
      acquisitions, strategic partnerships, joint ventures or capital
      commitments;




·
            conditions
      and trends in our industry;




·
            general
      market, economic, industry and political
  conditions;




·
            changes
      in market values of comparable
companies;




·
            additions
      or departures of key personnel;




·
            stock
      market price and volume fluctuations attributable to inconsistent trading
      volume levels; and




·
            future
      sales of equity or debt securities, including sales which dilute existing
      investors.




The
sale or availability for sale of substantial amounts of our common stock could
adversely affect its market price.




The
market price of our common stock could decline as a result of sales of a large
number of shares of our common stock in the market or the perception that these
sales could occur. These sales, or the possibility that these sales may occur,
also might make it more difficult for us to sell equity securities in the future
at a time and at a price that we deem appropriate.




As of
March 31, 2009, we had 44,555,131 shares of Common Stock outstanding, and
approximately 524,956 were freely tradable without further restriction under the
Securities Act of 1933, as amended, by persons other than our affiliates (within
the meaning of Rule 144 under the Securities Act). In addition, our certificate
of incorporation permits the issuance of up to approximately 55,444,869
additional shares of common stock. Thus, we have the ability to issue
substantial amounts of common stock in the future, which would dilute the
percentage ownership held by the existing investors.




Further,
effective February 15, 2008, the SEC revised Rule 144, which provides a safe
harbor for the resale of restricted securities, shortening applicable holding
periods and easing other restrictions and requirements for resales by our
non-affiliates, thereby enabling an increased number of our outstanding
restricted securities to be resold sooner in the public market. Sales of
substantial amounts of our stock at any one time or from time to time by the
investors to whom we have issued them, or even the availability of these shares
for sale, could cause the market price of our common stock to
decline.




21


If
we fail to maintain effective internal controls over financial reporting, the
price of our common stock may be adversely affected.




We are
required to establish and maintain appropriate internal controls over financial
reporting. Failure to establish those controls, or any failure of those controls
once established, could adversely impact our public disclosures regarding our
business, financial condition or results of operations. Any failure of these
controls could also prevent us from maintaining accurate accounting records and
discovering accounting errors and financial frauds. Rules adopted by the SEC
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual
assessment of our internal control over financial reporting, and attestation of
this assessment by our company’s independent registered public accountants for
the year ended December 31, 2009. The standards that must be met for management
to assess the internal control over financial reporting as effective are new and
complex, and require significant documentation, testing and possible remediation
to meet the detailed standards. We may encounter problems or delays in
completing activities necessary to make an assessment of our internal control
over financial reporting. In addition, the attestation process by our
independent registered public accountants is new to us and we may encounter
problems or delays in completing the implementation of any requested
improvements and receiving an attestation of our assessment by our independent
registered public accountants. If we cannot assess our internal control over
financial reporting as effective, or our independent registered public
accountants are unable to provide an unqualified attestation report on such
assessment, investor confidence and share value may be negatively
impacted.




In
addition, management’s assessment of internal controls over financial reporting
may identify weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for
investors. Any actual or perceived weaknesses and conditions that need to be
addressed in our internal control over financial reporting, disclosure of
management’s assessment of our internal controls over financial reporting, or
disclosure of our public accounting firm’s attestation to or report on
management’s assessment of our internal controls over financial reporting may
have an adverse impact on the price of our common stock. Our public accountants,
Paritz & Company., identified that our accounting for certain significant
transactions were incorrectly calculated or incorrectly recorded. Our public
accountants informed us that these adjustments reflected significant
deficiencies in our internal controls over accounting and financial reporting
for the year ended December 31, 2008. We are in the process of improving our
internal controls in an effort to improve our control processes and procedures;
however, there can be no guarantee that we will be successful in our attempts to
correct our significant deficiencies.




Restrictions
on the convertibility of RMB into foreign currency may limit our ability to make
dividends or other payments in U.S. dollars or fund possible business activities
outside China.




A
significant portion of our net revenues are currently generated in RMB. Any
future restrictions on currency exchanges may limit our ability to use net
revenues generated in RMB to make dividends or other payments in U.S. dollars or
fund possible business activities outside China. Although the PRC government
introduced regulations in 1996 to allow greater convertibility of RMB for
current account transactions, significant restrictions still remain, including
primarily the restriction that foreign-invested enterprises may only buy, sell
and/or remit foreign currencies at those banks authorized to conduct foreign
exchange business after providing valid commercial documents. In addition,
remittance of foreign currencies abroad and conversion of RMB for capital
account items, including direct investment and loans is subject to government
approval in China, and companies are required to open and maintain separate
foreign exchange accounts for capital account items. We cannot assure you the
Chinese regulatory authorities will not impose more stringent restrictions on
the convertibility of RMB, especially with respect to foreign exchange
transactions.




Because
our revenues are generated in RMB and our results are reported in U.S. dollars,
devaluation of the RMB could negatively impact our results of
operations.




The value
of RMB is subject to changes in China’s governmental policies and to
international economic and political developments. In January, 1994, the PRC
government implemented a unitary managed floating rate system. Under this
system, the People’s Bank of China, or PBOC, began publishing a daily base
exchange rate with reference primarily to the supply and demand of RMB against
the U.S. dollar and other foreign currencies in the market during the previous
day. Authorized banks and financial institutions are allowed to quote buy and
sell rates for RMB within a specified band around the central bank’s daily
exchange rate. On July 21, 2005, PBOC announced an adjustment of the exchange
rate of the U.S. dollar to RMB from 1:8.27 to 1:8.11 and modified the system by
which the exchange rates are determined. This modification has resulted in an
approximate 9.93% appreciation of the RMB against the U.S. dollar from July 21,
2005 to December 31, 2007. While the international reaction to the RMB
revaluation has generally been positive, there remains significant international
pressure on the PRC government to adopt an even more flexible currency policy,
which could result in further fluctuations of the exchange rate of RMB against
the U.S. dollar, including possible devaluations. As all of our net revenues are
recorded in RMB, any future devaluation of RMB against the U.S. dollar could
negatively impact our results of operations.




22


We
do not foresee paying cash dividends in the foreseeable future and, as a result,
our investors sole source of gain, if any, will depend on capital appreciation,
if any.




We do not
plan to declare or pay any further cash dividends on our shares of common stock
in the foreseeable future and we currently intend to retain any future earnings
for funding growth. As a result, you should not rely on an investment in our
securities if you require the investment to produce dividend income. Capital
appreciation, if any, of our shares may be your sole source of gain for the
foreseeable future. Moreover, you may not be able to resell your shares in our
company at or above the price you paid for them.




The PRC Laws and Regulations
relating to the Industry




Law
and regulations related to mineral resources




Under the
“Mineral Resources Law?? all mineral resources of the PRC are owned by the
State. The Ministry of Land and Natural Resources is responsible for the
supervision and administration of the mining and exploration of mineral
resources nationwide. The geology and mineral resources departments of the
People’s Government of the respective provinces, autonomous regions and
municipals are responsible for the supervision and administration of the
exploration, development and mining of mineral resources within their own
jurisdictions. Enterprises engaged in the mining or exploration of mineral
resources must obtain mining and exploration rights, as the case may be, which
are transferable.




Laws
and regulations related to environmental protection.




The State
Environmental Protection Bureau is responsible for supervision of environmental
protection in, implementation of national standard for environmental management
system of the PRC. Environmental protection bureaus at the county level or above
are responsible for environmental protection within their
jurisdictions.




The laws
and regulations on environmental protection require each company to lodge
environmental impact statements for a construction project to the environmental
protection bureaus at the county level. It must be done before the construction,
expansion or modification of a project commences. The environmental protection
bureau inspects new production facilities and determines compliance with
required environmental standards, before commencement of operation.




The
“Environmental Protection Law” requires production facilities that may cause
pollution or produce other toxic materials to take steps to protect the
environment and establish an environmental protection and management system.
This system includes the adoption of effective measures to prevent and control
exhaust gas, sewage, waste residues, dust or other waste materials. Entities
discharging pollutants must register with the relevant environmental protection
authorities.




Penalties
for breaching the Environmental Protection Law include a warning, payment of a
penalty calculated on the damage incurred, or payment of a fine. When an entity
has failed to adopt preventing measure or control facilities that meet the
requirements of environmental protection standards, it may be liable to
suspension of its production or operations and for the payment of a fine.
Material violation of environmental laws and regulations causing property damage
or casualties may subject to criminal liabilities.




All
current production and operating activities of the Company are in compliance
with the environmental protection requirements of the State. The Company has
never been penalized as a result of any breach of the laws and regulations on
environmental protection.




23


Laws
and regulations related to taxation.




The PRC
encourages the development of the mining industry by implementing preferential
tax treatment on taxation. The Company is subject to corporate income tax of 25%
and various sales taxes and fees which are listed below:




Tax Categories
                
                Tax
      rateVAT
                
                17%City
      construction tax
                
                5% of
      VATResources
      tax
                
                0.5 Yuan per
      ToneEducation
      surcharge
                
                4% of
      VAT
 ITEM 2. PROPERTIES





Our
corporate headquarters are located in Shuangliu Chengdu, Sichuan, China, where
we own the land use rights and occupy 89,412 square meters of
space.  The facility currently consists of an office building, testing
center, laboratory, production department, dormitory, and dining
hall.




Effective
August 22, 2008, we acquired 100% of the equity of Sichuan Xinju Shimian Dadu
River Mining & Metallurgy Co., Ltd. from Renyi Hou, our Chairman and Chief
Executive Officer, Wei Li and Yong Ling. With this acquisition, we now own the
exclusive mining rights to the Dashuigou tellurium mine until January 2013,
subject to potential renewal thereafter.




OnApril 10,weentered into a VIEwith Sichuan Xinju Mineral Resources Development
Corporationand certain of its
shareholders holding a majority of its voting equity stock. Under the terms of
the VIE, we were granted the exclusive exploration and mining rights to
the Majiagou mine, in accordance with a license granted by the Chinese
government which extends through January, 2013, subject to potential renewal
thereafter.




ITEM 3. LEGAL PROCEEDINGS




We are not involved in any material legal proceedings, nor are we aware of any
potential or threatened material litigation, or any asserted claims that may
result in material litigation or other legal proceedings.




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




No matter was submitted to a vote of our
security holders during the fourth quarter of the fiscal year ended December 31,
2008.




24


PART
II




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




Market
Information




On
October 21, 2008, we completed the reverse merger and our common stock began
trading on the OTCBB under the symbol “ASOE”. The low and high sales price for
our common stock, as reported by OTCBB, since October 21, 2008 to the fiscal
year ended December 31, 2008 was $5.75 and $7.50, respectively. The closing
price of our common stock on March 31, 2009 on the OTCBB was $6.00. As of March
31, 2009, we had approximately 44,555,131 issued and outstanding shares of
common stock.  As at March 31, 2009, there were 510 common stock
holders.




The stock
market in general has experienced extreme stock price fluctuations in the past
few years. In some cases, these fluctuations have been unrelated to the
operating performance of the affected companies. Many companies have experienced
dramatic volatility in the market prices of their common stock. We believe that
a number of factors, both within and outside its control, could cause the price
of our common stock to fluctuate, perhaps substantially. Factors such as the
following could have a significant adverse impact on the market price
of its common stock:





·
            Our
      ability to obtain additional financing and, if available, the terms and
      conditions of the financing;


·
            Our
      financial position and results of
operations;


·
            Concern
      as to, or other evidence of, the reliability and efficiency of our
      proposed products and services or our competitors’ products and
      services;


·
            Announcements
      of innovations or new products or services by we or our
      competitors;


·
            Federal
      and state governmental regulatory actions and the impact of such
      requirements on our business;


·
            The
      development of litigation against
us;


·
            Period-to-period
      fluctuations in our operating
results;


·
            Changes
      in estimates of our performance by any securities
  analysts;


·
            The
      issuance of new equity securities pursuant to a future offering or
      acquisition;


·
            Changes
      in interest rates;


·
            Competitive
      developments, including announcements by competitors of new products or
      services or significant contracts, acquisitions, strategic partnerships,
      joint ventures or capital
commitments;


·
            Investor
      perceptions of our company; and


·
            General
      economic and other national
conditions.




Recent
Sales of Unregistered Securities




None.




Dividends




The
Company has not paid or does not expect to declare or pay any cash dividends on
its common stock in the foreseeable future, and it currently intends to retain
future earnings, if any, to finance the expansion of its business. The decision
whether to pay cash dividends on the Company’s common stock will be made by the
Company’s board of directors, in their discretion, and will depend on its
financial condition, operating results, capital requirements and other factors
that the board of directors considers significant.




25


Transfer
Agent and Registrar




The
transfer agent and registrar for our common stock is Empire Stock Transfer,
Inc.




Equity
Compensation Plan Information




Our
equity compensation plan information is provided as set forth in Part III, Item
11 herein.




ITEM
6. SELECTED CONSOLIDATED FINANCIAL DATA




The
following consolidated statements of income data for each of the two years ended
December 31, 2008 and 2007, and the consolidated balance sheet data as of
December 31, 2008, and 2007 are derived from our audited consolidated financial
statements. Historical results are not necessarily indicative of the results of
operations for future years. The following data is qualified in its entirety by
and should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial
statements and related notes included elsewhere in this Form 10-K.




Year
      Ended December 31,2008
                                                                                                
                                                                                                
                                                                                                2007Revenues
                                                                                                
                                                                                                $
                                                                                                6,968,430
                                                                                                
                                                                                                
                                                                                                $
                                                                                                2,003,788Cost
      of Goods Sold
                                                                                                
                                                                                                
                                                                                                5,150,943
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,315,002Gross
      Profit
                                                                                                
                                                                                                
                                                                                                1,817,487
                                                                                                
                                                                                                
                                                                                                
                                                                                                688,786ExpensesGeneral
      & administrative expenses
                                                                                                
                                                                                                
                                                                                                1,143,327
                                                                                                
                                                                                                
                                                                                                
                                                                                                117,190Selling expenses
                                                                                                
                                                                                                
                                                                                                302,577
                                                                                                
                                                                                                
                                                                                                
                                                                                                59,069Research
      and development expenses
                                                                                                
                                                                                                
                                                                                                83,166
                                                                                                
                                                                                                
                                                                                                
                                                                                                18,605Total
      operating expenses
                                                                                                
                                                                                                
                                                                                                1,529,070
                                                                                                
                                                                                                
                                                                                                
                                                                                                194,864Income
      from operations
                                                                                                
                                                                                                
                                                                                                288,417
                                                                                                
                                                                                                
                                                                                                
                                                                                                493,922Interest
      expense
                                                                                                
                                                                                                
                                                                                                57,774
                                                                                                
                                                                                                
                                                                                                
                                                                                                -Income
      before income taxes
                                                                                                
                                                                                                
                                                                                                230,643
                                                                                                
                                                                                                
                                                                                                
                                                                                                493,922Provision
      for income taxes
                                                                                                
                                                                                                
                                                                                                212,051
                                                                                                
                                                                                                
                                                                                                
                                                                                                -Net
      income
                                                                                                
                                                                                                $
                                                                                                18,592
                                                                                                
                                                                                                
                                                                                                $
                                                                                                493,922As
      a Percentage of Sales RevenueSales
      revenue
                                                                                                
                                                                                                
                                                                                                100
                                                                                                %
                                                                                                
                                                                                                
                                                                                                100
                                                                                                %Cost
      of sales
                                                                                                
                                                                                                
                                                                                                73.9
                                                                                                %
                                                                                                
                                                                                                
                                                                                                65.6
                                                                                                %Gross
      profit
                                                                                                
                                                                                                
                                                                                                26.1
                                                                                                %
                                                                                                
                                                                                                
                                                                                                34.4
                                                                                                %ExpensesGeneral & Administrative
      expenses
                                                                                                
                                                                                                
                                                                                                16.4
                                                                                                %
                                                                                                
                                                                                                
                                                                                                5.8
                                                                                                %Selling expenses
                                                                                                
                                                                                                
                                                                                                4.3
                                                                                                %
                                                                                                
                                                                                                
                                                                                                3.0
                                                                                                %Research and development
      costs
                                                                                                
                                                                                                
                                                                                                1.2
                                                                                                %
                                                                                                
                                                                                                
                                                                                                0.9
                                                                                                %Total
      operating expenses
                                                                                                
                                                                                                
                                                                                                21.9
                                                                                                %
                                                                                                
                                                                                                
                                                                                                9.7
                                                                                                %Income
      before income taxes
                                                                                                
                                                                                                
                                                                                                3.3
                                                                                                %
                                                                                                
                                                                                                
                                                                                                24.6
                                                                                                %Income
      taxes
                                                                                                
                                                                                                
                                                                                                3.0
                                                                                                %
                                                                                                
                                                                                                
                                                                                                0
                                                                                                %Net
      (loss) income
                                                                                                
                                                                                                
                                                                                                0.3
                                                                                                %
                                                                                                
                                                                                                
                                                                                                24.6
                                                                                                %
 26




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




The
following discussion contains forward-looking statements that involve risks and
uncertainties. Forward-looking statements include, but are not limited to,
statements regarding future events, our plans and expectations and financial
projections. Our actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed elsewhere in this Form 10-K. See “Risk
Factors” beginning on page 8. Unless the context otherwise requires, the terms
“we,” the “Company,” “us,” or “Apollo” refers to Apollo Solar Energy, Inc. and
our wholly-owned subsidiaries.




Overview




We are a
vertically integrated miner, and refiner of tellurium (Te) and high-purity
tellurium based metals for specific segments of the electronic materials market.
Our main expertise is in the production of Te-based compounds used to produce
thin-film solar cells, cell modules and solar electronic products. The tellurium
used in our products will be primarily sourced from our wholly-owned
Dashuigou mine located in Sichuan Province, China. In addition we will source
tellurium from another mine in Shimian, Majiagou, through a variable interest
entity agreement (“VIE”) with Sichuan Xinju Mineral Resources Development
Corporation and certain of its shareholders holding a majority of its voting
stock.  Under the terms of the VIE, the Company was granted the
exclusive exploration and mining rights to these two mines in accordance with a
license granted by the Chinese government, which extends through January, 2013,
subject to potential renewal thereafter.




Currently, tellurium is produced as a product in the
process of processing copper and other metals. As a result, costs are high. We
believe that the Dashuigou and Majiagou mines are the only two known deposits in
the world in which tellurium, one of the rarest metallic elements on earth, is
the primary commodity of economic interest. By the end of 2010, we plan to
obtain approximately 60% to 70% of the tellurium necessary for our products from
the mines and believe this ability to be a significant competitive advantage
because the cost of tellurium sourced from our own mines will be substantially
lower than that purchased from an outside third party.  We will source
the rest of the tellurium from third parties suppliers that we have established
good business relationships with over the past few years. By vertically
integrating our processes, we believe we are able to achieve significant
operating efficiencies and produce high-quality products that offer cost and
quality benefits to our customers.  Currently, we are able to procure
raw materials from the mines at a significant discount to prevailing market
price. The mining rights of the other known
tellurium deposit, Majiagou mine, owned by Xinju Mining Company in Sichuan, wasassigned to the Company in the upon
execution of the VIEon April10.Wenowhave the mining rightand the exploration right to the
Majiagou mine.





Our operations are currently based in a 650,000 square
foot facility in Chengdu, Sichuan Province, PRC. The newly built modern
facility will have the capacity to produce approximately 1,000 tons of
high-purity photovoltaic cell materials and 42 other types of electronic
materials. Vacant land owned by the company for future expansion with a capacity
to produce up to an additional 350 tons of CdTe.





We
believe we are unique in that we are both a miner and refiner of our Te-based
products with primary and secondary refining capabilities. Our primary refining
capabilities are such that we can treat metal concentrates (containing, for
example, as little as 50% of the metals of interest), and extract and refine the
metals of interest so that they can be fed to our secondary refining operations,
where we attain a higher level of purity. Once we mine the raw material, and
perform both refining functions we consider ourselves a supplier with uniquely
integrated capabilities. Our end-products are tellurium, cadmium, zinc and
related compounds of 99.999% (five nines, or 5N) purity or above. Our products
are critical precursors in a number of electronic applications, including the
rapidly-expanding thin-film photovoltaic (PV) market. (cut and paste from item 1
to make the language consistent)




27


Recent
Events




Business
Acquisition





On August
18, 2008, the Company entered into a Merger Agreement dated August 8, 2008, as
amended and restated on October 14, 2008 (the “Merger Agreement”) with
Apollo Solar Energy, Inc., a Delaware corporation (“ASE”), and Apollo Solar
Energy, Inc., a Nevada corporation and a wholly owned subsidiary of the Company
(the “Merger Sub”), pursuant to which, on October 14, 2008, Merger Sub was
merged with and into ASE (the “Merger”).   Under the terms of the
Merger Agreement, each share of ASE common stock (“ASE Common Stock”)
outstanding immediately prior to the closing of the Merger was converted into
the right to receive Four Thousand (4,000) (the “Exchange Ratio”) shares of
Wincroft common stock (“Wincroft Common Stock” or “Common Stock”). As a result
of the completion of the Merger, ASE became a wholly owned subsidiary of
Wincroft.




Shortly
after the completion of the Merger, the Company entered into an Entrusted
Management Agreement with the former managers of Apollo’s Chinese operating
companies (the “Apollo Managers”), certain of whom are directors and/or
officers of the Company. Pursuant to the Entrusted Management Agreement,
the Company issued the Apollo Managers an aggregate of 26.8 million newly issued
shares of Common Stock of the Company, with the result that the Apollo Managers
own approximately 60.15% of the Common Stock of the Company, after giving effect
to such issuance.




Upon the
consummation of the Merger, the Company ceased being a shell company as such
term is defined in Rule 12b-2 under the Exchange Act, ASE became a wholly owned
operating subsidiary of the Company and ASE’s wholly owned subsidiary Sichuan
Apollo Solar Science and Technology Co., Ltd. (“Sichuan Apollo”), a wholly
foreign-owned enterprise (“WOFE”) organized under the laws of the People’s
Republic of China, became the indirect wholly owned subsidiary of the
Company.




The
acquisition of Sichuan Apollo by ASE will be accounted for as an “as-if-pooling”
in accordance with SFAS141 since the shareholders of Sichuan Apollo will
ultimately own approximately 60.15% of ASE and will control the Board of
Directors and daily operations of ASE.




Completion
of Acquisition of Assets




As a
result of the Merger, the Company ceased being a shell company as such term is
defined in Rule 12b-2. See Item 5.06 of this current report for more
information.





28


Our
Corporate Structure




Our
corporate structure following the Merger is set forth in diagram 1
below:











29


Organizational
History of Wincroft




Wincroft
was organized in Colorado in May 1980 as part of a reorganization of Colspan
Environmental Systems, and has made several acquisitions and divestments of
businesses unrelated to its present activities.




In April
2000, Wincroft disposed of its only operating business and became a shell
company.  From April 2000 to immediately before the completion of the
Merger, Wincroft did not engage in any operations and was dormant.  As
such, Wincroft prior to the Merger was defined as a “shell” company, whose sole
purpose was to seek to locate and consummate a merger or acquisition with a
private entity.




On
February 1, 2008, we reincorporated in the State of Nevada and completed a
1-for-8 reverse split of our shares of common stock by merging with and into
Wincroft, Inc., a Nevada corporation, with the Nevada corporation surviving the
merger. In addition, the following changes resulted from the February 2008
reincorporation merger:




§
        The Articles of  Incorporation and Bylaws of Wincroft
      became the Articles of Incorporation and Bylaws of the surviving
      corporation;




§
        The authorized common stock was increased from 75,000,000 shares to
      100,000,000 shares; and




§
        The preferred stock was changed from no par stock to stock having
      par value of $.001 per share.




As a
result of the consummation of the October 14, 2008 Merger through which ASE
became a wholly owned subsidiary of Wincroft, we are now a vertically integrated
miner, refiner and producer of tellurium (Te) and high-purity tellurium based
metals for specific segments of the electronic materials market. Our main
expertise is in the production of Te-based compounds used to produce thin-film
solar modules, panels, and solar electronic products. On October 23, Wincroft
changed its name to Apollo Solar Energy, Inc.




Organizational
History of ASE and Sichuan Apollo




ASE was
incorporated on October 17, 2007 in the State of Delaware with Xiaojin Wang, a
resident of the United States, as its sole stockholder.  ASE became
the holding company of Sichuan Apollo.




Sichuan
Apollo was organized on June 20, 2006, under the laws of the People’s Republic
of China.   In June of 2006, Sichuan Apollo commenced
revenue-producing activities, initially selling cadium and telluride-based
compounds, ultra-high purity metals, and commercial-purity metals to its
domestic and international customers.   In 2007, Sichuan Apollo
was wholly owned by Sichuan Xinju Mining Resources Development Co. and three
individuals.




Pursuant
to an agreement dated December 26, 2007 between ASE and Sichuan Apollo, ASE
agreed to acquire 100% of the ownership of Sichuan Apollo for 106,000,000 RMB
(approximately $15,000,000), which amount was to be paid by ASE investing
80,000,000 RMB into Sichuan Apollo and paying the existing shareholders of
Sichuan Apollo 26,000,000 RMB in exchange for their original investment of
20,000,000 RMB.  The agreement was to be effective on the date that
the total registered capital of Sichuan Apollo aggregated 100,000,000
RMB.  As of June 30, 2008, approximately 49,000,000 RMB (approximately
$7.0 million) had been advanced to Sichuan Apollo (which had been classified as
“advance from Apollo Solar Energy, Inc.” on the Sichuan Apollo balance
sheet).  As of August 4, 2008, ASE invested the remaining 31,000,000
RMB (approximately $4,500,000) into Sichuan Apollo and, effective on that date,
since the registered capital of Sichuan Apollo had reached 100,000,000 RMB, ASE
became the 100% shareholder of Sichuan Apollo.




30


Effective
August 22, 2008, Sichuan Apollo’s wholly owned subsidiary Sichuan Xinlong
acquired 100% of the equity of Sichuan Xinju, which owned the exclusive rights
to the Dashuigou tellurium mine through at least January 2013 and subject to
potential renewal thereafter.




Pursuant
to the Entrusted Management Agreement is reached, the Apollo Managers are
entitled to receive shares of Common Stock of the Company, with the result that
the Apollo Managers will own approximately 60.15% of the Common Stock of the
Company, after giving effect to such issuance.




Critical
Accounting Policies, Estimates and Assumptions




Management’s
discussion and analysis of results of operations and financial condition are
based upon our consolidated financial statements. These statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require management to make certain
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes. The most significant estimates and
assumptions include valuation of inventories, provisions for income taxes,
allowance for doubtful accounts, and the recoverability of the long-lived
assets. Actual results could differ from these estimates. Periodically, we
review all significant estimates and assumptions affecting the financial
statements and record the effect of any necessary adjustments.




The
following critical accounting policies rely upon assumptions and estimates and
were used in the preparation of our consolidated financial
statements:




Revenue
recognition





Revenue
is recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, and no
other significant obligations of the Company exist and collectability is
reasonably assured.  Payments received before all of the relevant
criteria for revenue recognition are satisfied and recorded as advances from
customers.




Currency
Reporting




Amounts
reported are stated in U.S. Dollars, unless stated otherwise. Our functional
currency is the RMB. Foreign currency transactions (outside the PRC) are
translated into RMB according to the prevailing exchange rate at the transaction
dates. Assets and liabilities denominated in foreign currencies at the balance
sheet dates are translated into RMB at period-end exchange rates. For the
purpose of preparing the consolidated financial statements, the consolidated
balance sheets of our company have been translated into U.S. dollars at the
current rates as of the end of the respective periods and the consolidated
statements of income have been translated into U.S. dollars at the weighted
average rates during the periods the transactions were recognized. The resulting
translation gain adjustments are recorded as other comprehensive income in the
statements of income and comprehensive income and as a separate component of
statements of stockholders’ equity.




31


Accounts
Receivable





Accounts
receivable consist of trade receivables resulting from sales of products during
the normal course of business.  As of December 31, 2008, two customers
accounted for 54% and 36% respectively of the total accounts receivable
outstanding. For the years ended December 31, 2008 and 2007, allowance for
uncollectible amounts were approximately $15,000 and $0 for the years ended
December 31, 2008 and 2007, respectively.




Results
of Operations




Year
Ended December 31, 2008, 2007




Net
sales




Net sales
for the year ended December 31, 2008 was $6,968,430, compared to the net sales
of $2,003,788 in 2007. This increase of 248% was primarily attributable to our
increase in production capacity, successful sales and marketing campaigns,
improved product quality, and expansion of product categories. In 2007, we began
shipment of tellurium to First Solar, the biggest CdTe based thin film PV
producer in the world. In 2008, First Solar became our biggest customer. The
successful development of this business relationship proved the superior quality
of our products. We were also able to develop new customers in China, supplied
to them with high purity metal products at competitive pricing.




Gross
profit




Gross
profit for the year ended December 31, 2008 was $1,817,487, compared to the
gross profit of $688,786. This represented an increase of $1,128,701, or 164%,
over that of 2007. The gross profit margin for the year ended December 31, 2008
was 26.1%, compared to that of 34.4% in 2007. Three primary factors attributed
to the decrease in gross profit margin. The increase of price in most of the
feedstock we purchased from third party suppliers worldwide, especially that of
tellurium. Price of tellurium feedstock increased more than 100% in 2008 over
the price of 2007; and we were not able to pass through the increase in cost to
our customers. As a significant amount of our revenue was generated from the
sale of high purity tellurium, our margin was impacted adversely. Secondly,
labor costs in 2008 increased significantly in China, and thus increase our
cost. Thirdly, during 2008, we were building a new factory campus and we moved
from the old factory site to the new site from May to August. During this period
we moved and tested our production equipments and therefore normal production
was affected. As continuous production runs were frequently interrupted,
production costs, mainly electricity, increased significantly.




32


Selling
and marketing expenses




For the
year ended December 31, 2008, selling and marketing expenses were $302,577,
compared to $59,069 for the year ended December 31, 2007. This presented an
increase of 412% and was in line with our increase in revenue. We employed an
in-house sale team of 6 people targeting the Chinese and North American markets.
Most of the sales and marketing expenses were traveling, lodging and
entertainment related. We did not run any advertisement in 2008. In February
2009, we signed an agreement to appoint CERAC as our exclusive agent to
distribute our products in North America, excluding First Solar. This will save
us a significant amount of marketing cost in 2009 when we target after the North
American market.




General
and administrative expenses




We
incurred general and administrative expenses of $1,143,327 for the year ended
December 31, 2008, when compared to that of $117,190 in 2007, representing an
increase of 875%. The increase was primarily due to the growing in size and
revenue of the company, and the expenses we incurred as a public company. After
the reverse merger in October 2008, we incurred significant amount of audit
fees, legal fees and financial advisory fees. We also expanded our
accounting/finance department. Additional administrative staff was also added to
support listing function and the reverse merger process.




Write
down of inventory




For the
year ended December 31, 2008, we made a provision to write down inventory in the
amount of $150,165, versus a write down of $0 for the year ended December 31,
2007. In early 2008, we received verbal order from a long term customer for
indium, at the time indium price increased dramatically. We were told that the
likelihood of the order was high. After we purchased indium, we were informed
that the order would not be materialized. At the end of 2008, indium price
decreased and we had to make a provision to mark the inventory to market. The
write down was included in general and administrative expenses.




Research
and Development expenses




For the
year ended December 31, 2008, we incurred R&D expenses of $83,166, compared
to $18,605 for the year ended December 31, 2007. The increase was 347% and was
due to the increase of R&D headcount. The Company is committed to the
improvement of product quality and the development of new products. We will
continue to invest in R&D to ensure our products are with high quality and
stay competitive.




Provision
for income tax




Provision
for income tax for the year ended December 31, 2008 was $212,051, compared to
that of $0 for the year ended December 31, 2007.




The
provision of income taxes is computed at the statutory rate of 25% and 33% for
2008 and 2007, respectively, in the Peoples Republic of China decreased by net
operating loss carry forwards by which a valuation allowance had been provided
in previous years, additional amortization permitted by Chinese tax law, and
increased by a valuation allowance against the deferred tax asset generated from
net operating losses of subsidiaries , which currently cannot be used to offset
taxable income.




33


Net
income/loss




For the
year ended December 31, 2008 we had a net income of 18,592, compared to net
income $493,922 for the year ended December 31, 2007. The mainly reason for
decrease in net income in 2008 was decrease in gross margin and increase in
costs, especially in administrative costs and a write down of
inventory.




Liquidity
and Capital Resources


Years
      Ended December 31,2008
                                                        
                                                        
                                                        2007Net cash (used in) provided by operating activities
                                                        
                                                        $
                                                        (2,014,285
                                                        )
                                                        
                                                        $
                                                        (1,408,975
                                                        )Net cash (used in) provided by investing activities
                                                        
                                                        
                                                        (8,945,111
                                                        )
                                                        
                                                        
                                                        (6,548,423
                                                        )Net cash provided by financing activities
                                                        
                                                        
                                                        13,125,140
                                                        
                                                        
                                                        
                                                        10,440,859Effect
      of exchange rate changes on cash
                                                        
                                                        
                                                        89,123
                                                        
                                                        
                                                        
                                                        49,571Net increase (decrease) in cash
                                                        
                                                        $
                                                        2,254,867
                                                        
                                                        
                                                        $
                                                        2,533,032Cash at beginning of year
                                                        
                                                        
                                                        2,619,176
                                                        
                                                        
                                                        
                                                        86,144Cash at end of year
                                                        
                                                        $
                                                        4,874,043
                                                        
                                                        
                                                        $
                                                        2,619,176


Net cash (used
in) provided by operating activities.




Net cash
used in operating activities for the year ended December 31, 2008 was
$2,014,285, compared to $1,408,975 used in the year ended December 31, 2007.
Cash used in operating activities were accounted for by increase in accounts
receivable $928,131, increase in inventory $5,114,886, and increase in accounts
payable $3,352,243.




For the
year ended December 31, 2007, cash used in operating activities were accounted
for substantially by increase of inventory $1,166,712 and decrease of accounts
payable $767,407.




Net cash (used
in) investing activities.




Net cash
used in investing activities for the year ended December 31, 2008 and 2007 was
$8,945,111 and $6,548,423, respectively, primarily constituted of the purchase
of plant and equipment.




Net cash provided
by financing activities.




Net cash
provided by financing activities for the year ended December 31, 2008 was
$13,125,140, attributable to shareholder loans of $8,977,519, capital
contributions of $7,650,635, and advance to related party of
$3,503,014.




Net cash
provided by financing activities for the year ended December 31, 2007 was
$10,440,859 in 2007, comprised of proceeds from short term loan and advance from
related party.





We
believe that our existing cash balances combined with cash flows will be
sufficient to support our operations beyond the next twelve months, and that
sufficient cash flows will be available to meet our business objectives during
that period. We believe that we have sufficient liquidity to support our
operations beyond the next twelve months despite the disruption of the capital
markets. We are not dependent on the availability of short-term debt facilities
and the limited availability of credit in the market has not affected our
liquidity or materially affected our funding.




34


Contractual
obligations




The following table describes our contractual commitments and obligations as of
December 31, 2008:


Payments
      due by Period (in $)Contractual
      Obligations
                    
                    Total
                    
                    Less
      Than 1 Year
                    
                    1 – 3
                      Years
                    
                    3 – 5
                      Years
                    
                    More
      Than
                      5
      YearsLoans from shareholders
                    
                    $
                    9,032,382
                    
                    
                    $
                    9,032,382
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Long term debt
                    
                    $
                    4,397,215
                    
                    
                    $
                    -
                    
                    
                    $
                    4,397,215
                    
                    
                    
                    -
                    
                    
                    
                    -$
                    13,429,597
                    
                    
                    $
                    9,032,382
                    
                    
                    $
                    4,397,215
                    
                    
                    $
                    -
                    
                    
                    $
                    -


The long term debt was a loan from an un-related party for the building of the
factory campus and was due in July, 2009. In March 2009, we received written
confirmation from the county government that the loan would be extended for a
period of 12 months.




Employment
Agreements of Executive Officers and New Labor Contract Law




In
February 2009, we entered into two-year employment contracts with our Chief
Financial Officer of which includes a fixed amount of annual salary and stock
options to purchase the Company’s common stock.  Details of each
executive officer can be found herein in Part III, Item 11.




Effective
January 1, 2008, PRC introduced a new labor contract law that enhances rights
for the nation's workers, including open-ended work contracts and severance
pay.  The legislation requires employers to provide written contracts
to their workers, restricts the use of temporary laborers and makes it harder to
lay off employees. It also requires that employees with short-term contracts
become full-time employees with lifetime benefits after a short-term contract is
renewed twice. Although the new labor contract law would increase our labor
costs, we do not anticipate there will be significantly affect on our overall
profitability in the near future since such amount was historically not material
to our operating cost. Management anticipates this may be a step toward
improving candidate retention for skilled workers.




Seasonality




Our
business is not cyclical and does not have a clear pattern of
seasonality.




Off-Balance
Sheet Transactions




We have
no material off-balance sheet transactions.




Impact
of Recent Currency Exchange Rate Increase




We use
the U.S. dollar as the reporting currency for our financial statements. Our
operations are conducted through our PRC operating subsidiary, Sichuan Apollo,
and our functional currency is the RMB. On July 21, 2005, the PRC government
changed its policy of pegging the value of the RMB to the U.S. dollar and, as a
result, the RMB has appreciated against the U.S. dollar by approximately 8.26%
from 1:8.27 on July 21, 2005 to 1:7.3046 on December 31, 2007 and 1:6.8225 on
December 31, 2008. In converting our RMB income statement amounts into U.S.
dollars we used the following RMB/$ exchange rates: 7.314 for 2007 and 6.8225
for 2008. Our operating results in 2007 and 2008 have benefited as a result of
appreciation of the RMB against the U.S. dollar. There is no guarantee that we
will benefit from the exchange rate in the future and our operations may suffer
if a less favorable exchange rate develops.




35


New Accounting
Pronouncements


In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”,
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements, where fair value is the relevant
measurement attribute. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. The management of the Company is currently evaluating the impact
of adopting SFAS 157 on its consolidated financial statements.





In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115 (“FAS 159”)”. FAS 159 permits companies to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. The objective of FAS 159 is to
provide opportunities to mitigate volatility in reported earnings caused by
  measuring related assets and liabilities differently without having to
apply hedge accounting provisions. FAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 will be effective in the first quarter of fiscal 2009. The
Company is evaluating the impact that this statement will have on its
consolidated financial statements.





In June 2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance
Payments for Goods or Services Received for use in Future Research and
Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or were rendered
for research and development activities should be expensed when the advance
payment is made or when the research and development activity has been
performed. The Company has adopted FSP EITF 07-3 and expensed the research and
development as it incurred.





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”), which 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 non-controlling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
160 is effective for fiscal years beginning after December 15,
2007.  The Company has not determined the effect that the application
of SFAS 160 will have on its consolidated financial statements.





In December 2007, Statement of Financial Accounting Standards No. 141(R),
Business Combinations, was issued. SFAS No. 141R replaces SFAS No. 141, Business
Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that
the acquisition method of accounting (which SFAS 141 called the purchase method)
be used for all business combinations and for an acquirer to be identified for
each business combination. SFAS 141R requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date, with limited exceptions. This replaces SFAS 141’s cost-allocation process,
which required the cost of acquisition to be allocated to the individual assets
acquired and liabilities assumed based on their estimated fair values. SFAS 141R
also requires the acquirer in a business combination achieved in stages
(sometimes referred to as a step acquisition) to recognize the identifiable
assets and liabilities, as well as the non-controlling interest in the acquiree,
at the full amounts of their fair values (or other amounts determined in
accordance with SFAS 141R). SFAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2007 An entity
may not apply it before that date. The Company is currently evaluating the
impact that adopting SFAS No. 141R will have on its financial
statements.





36





ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK




Foreign
Exchange Risk




We use
the U.S. dollar as the reporting and functional currency for our financial
statements. As we conduct our operations through our PRC subsidiary, the
functional currency of our PRC subsidiary is RMB. Substantially all our revenue
and related expenses, including cost of revenues and advertising expenses, are
denominated and paid in RMB. Transactions in other currencies are recorded in
RMB at the rates of exchange prevailing when the transactions occur. Monetary
assets and liabilities denominated in other currencies are remeasured into RMB
at rates of exchange in effect at the balance sheet dates. Exchange gains and
losses are recorded in our statements of operations as other comprehensive
income.




The value
of RMB is subject to changes in China’s governmental policies and to
international economic and political developments. In January, 1994, the PRC
government implemented a unitary managed floating rate system. Under this
system, the People’s Bank of China, or PBOC, began publishing a daily base
exchange rate with reference primarily to the supply and demand of RMB against
the U.S. dollar and other foreign currencies in the market during the previous
day. Authorized banks and financial institutions are allowed to quote buy and
sell rates for RMB within a specified band around the central bank’s daily
exchange rate. On July 21, 2005, PBOC announced an adjustment of the exchange
rate of the U.S. dollar to RMB from 1:8.27 to 1:8.11 and modified the system by
which the exchange rates are determined. This modification has resulted in an
approximate 9.93% appreciation of the RMB against the U.S. dollar from July 21,
2005 to December 31, 2008. While the international reaction to the RMB
revaluation has generally been positive, there remains significant international
pressure on the PRC government to adopt an even more flexible currency policy,
which could result in further fluctuation of the exchange rate of RMB against
the U.S. dollar. As all of our net revenues are recorded in RMB, any future
devaluation of RMB against the dollar could negatively impact our results of
operations.




Commodity
Price Sensitivity




We are
exposed to market risk in connection with our inventory balances, which are
comprised primarily tellurium, cadmium, selenium, indium and metal powder made
from rare base metals. Our inventories are stated at the lower of cost or market
using the weighted average method. If there is a downward change in the market
price of base metals, we are required to mark-down the value of our inventory
and record a loss in our statement of income. In 2008, the price of certain
metals that we owned in our inventory decreased. Consequently, we made a
provision to write down inventory in the amount of $150,165. We cannot predict
the extent to which high raw material price levels will continue in the future.
We do not have any long-term raw material purchase contracts.




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The
information required by this Item 8 is incorporated by reference to information
begins on Page F-1 at the end of this Form 10-K.




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




None.




ITEM
9A. CONTROLS AND PROCEDURES.




Disclosure
Controls and Procedures




As
required by Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act, our
management has carried out an evaluation, with the participation and under the
supervision of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2008. Disclosure controls and procedures refer to
controls and other procedures designed to ensure that information required to be
disclosed in the reports we file or submit under the Securities Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating and implementing possible controls and procedures.


37




Management
conducted its evaluation of disclosure controls and procedures under the
supervision of our Chief Executive Officer and our Chief Financial Officer.
Based upon, and as of the date of this evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of March 31, 2009.




Management's
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, 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 and procedures may deteriorate.




Our
management has assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008. In making its assessment, management used the
criteria described in Internal Control - Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission, or
COSO.




A
significant deficiency (within the meaning of PCAOB Auditing Standard No. 5) is
a deficiency, or a combination of deficiencies, in internal control over
financial reporting that is less severe than material weakness, yet important
enough to merit attention by those responsible for oversight of our financial
reporting. The following significant deficiencies have been identified and
included in our management’s assessment as of December 31, 2008:




1.
            We
      did not maintain effective controls over the financial closing process to
      ensure the accurate and timely preparation of local financial statements
      and financial data which is necessary for preparation of consolidated
      financial statements due to an insufficient complement of local financial
      and accounting staffs who are knowledgeable of local accounting rules to
      support the size of our company’s current organizational structure;
      and




2.
            We
      did not maintain effective internal audit function due to the lack of
      qualified internal auditors who are familiar with internal audit, and we
      did not implement adequate and proper supervisory review to ensure that
      the significant internal control deficiencies can be detected or
      prevented.




3.
            Our
      independent auditors, Paritz, Inc., identified that our accounting on
      certain significant transactions were incorrectly calculated or
      incorrectly recorded. During the course of the audit field work, our
      independent auditors discovered these errors. The independent auditors
      discussed these matters with our Chief Financial Officer, and we
      subsequently reevaluated the transactions and recorded the necessary
      adjustments. The auditors believe that these adjustments reflected
      significant deficiencies in our internal controls over accounting and
      financial reporting.




Our
management believes that none of these internal control deficiencies is
identified as material weakness or has had a material effect on our financial
condition or results of operations or caused our financial statements as of and
for the year ended December 31, 2008 to contain a material
misstatement.





This
annual report on Form 10-K does not include an attestation report of our
registered independent public accounting firm regarding management's assessment
of our internal control over financial reporting. Management's report was not
subject to audit by our registered independent public accounting firm pursuant
to rules of the Securities and Exchange Commission that permit us to provide
only management's report in this annual report.  Beginning with the
year ended December 31, 2009, Section 404 of the Sarbanes-Oxley Act will require
our independent registered public accounting firm to provide an attestation
report regarding management's assessment of our internal control over financial
reporting as of the end of our fiscal year ended December 31, 2009 with our
annual report on Form 10-K.




38


Remediation
Measures of Significant Deficiencies




To
remediate the first identified significant deficiency, we, in connection with
the preparation of our annual report for 2008, implemented additional controls
to accurately and consistently identify required adjustments through period-end
account analysis and detailed reconciliation processes. We improved our closing
process and we hired a US qualified accountant in January 2008 with relevant
accounting experience, skills and knowledge in the preparation of financial
statements under the requirements of US GAAP and financial reporting disclosure
under the requirement of SEC rules, which will enhance the supervision control
over financial data prepared by local financial and accounting
staffs.




In
addition, since 2008, our management has or plans to implement the measures
described below under the supervision and guidance of our audit committee to
remediate such ineffectiveness and to strengthen our internal controls over
financial reporting. As of the date of the filing, our management has
implemented, or is in the process of implementing, the following
measures:




·
            We
      increased the level of interaction among our management, audit committee,
      independent auditors and other external
  advisors;




·
            We
      recruited a Chief Financial Officer with substantial financial control
      experience to replace the CFO at the time of the reverse merger. The new
      CFO will commence work in the latter part of the first quarter of 2009, to
      enhance financial reporting function of China
  operation;




·
            We
      evaluated the sufficiency of local financial and accounting staff, and,
      based on that evaluation, we hired and continue to hire additional
      accounting staff;




·
            We
      are in the process of enhancing training programs on accounting principles
      and procedures for our existing
staffs;




·
            We
      are in the process of standardizing the monthly and quarterly data
      collection timetable and procedures, and assigning data collection
      responsibilities to designated
personnel;




·
            We
      are in the process of negotiating with a professional advisory firm on
      outsourcing part of our internal audit
function;




·
            We
      are in the process of recruiting an internal audit staff to assist us in
      improving our internal audit function;
and




·
            We
      are in the process of recruiting a qualified and experienced internal
      auditor to implement the internal audit function, and we plan to provide
      additional training to this internal auditor on appropriate controls and
      procedures necessary to document and evaluate our internal control
      procedures.




We
believe that we are taking the steps necessary for remediation of the
significant deficiencies identified above, and we will continue to monitor the
effectiveness of these steps and to make any changes that our management deems
appropriate.




Changes
in Internal Controls over Financial Reporting




Other
than the remediation measures we have been taking, there were no changes in our
internal controls over financial reporting during the year ended December 31,
2008 that have materially affected, or are reasonably likely to materially
affect our internal control over financial reporting.




ITEM
9B. OTHER INFORMATION




None.


39




PART
III




ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE







Upon
completion of the Merger, the Board of Directors consisted of Xiaojin Wang,
Renyi Hou, Ling Yong and Hongwei Ke.  Within the next few days,
Wincroft will file with the Securities and Exchange Commission (“SEC”) and mail
to its shareholders of record an information statement prepared in accordance
with SEC Rule 14f-1, containing information about Renyi Hou, Ling Yong and
Hongwei Kei, among other things.  Ten days after the information statement
is mailed to the shareholders of record, Xiaojin Wang will resign from her
position as a member of the Board of Directors.  In February 1, 2009,
the Company appointed Mr. Fong Heung Sang as the CFO and director. Mr. Ling Yong
resigned from his position of CFO and director of Apollo but remains as the
Chief Accounting Officer of Sichuan Apollo, a fully owned subsidiary of the
Company. Current executive officers and directors of ASOE are:




Name
            
            Age
            
            Position
      with the Company
            
            Director
      SinceRenyi
      Hou
            
            52
            
            Chairman
      and Chief Executive Officer
            
            October
      20, 2008Fong
      Heung Sang
            
            49
            
            Chief
      Financial Officer and Director
            
            February
      1, 2009Hongwei
      Ke
            
            48
            
            Director
            
            October
      20, 2008




Kang
      Sun
            
            53
            
            Director
            
            December
      5, 2008Zhimin
      Cao
            
            51
            
            Director
            
            December
      5, 2008Elliot
      Maza
            
            53
            
            Director
            
            March
      4, 2009





James
      M. Lee
            
            62
            
            Director
            
            March
      4, 2009





All
directors hold office until the next annual meeting of our shareholders and
until their successors have been elected and qualified. Officers serve at the
pleasure of the Board of Directors.




Renyi Hou is the President,
Chief Executive Officer, and Chairman of the Board. Mr. Hou has earned a medical
degree from the Chengdu University of Traditional Chinese Medicine along with a
Masters of Business from Chengdu Southwest Jiaotong University. Mr. Hou began
his entrepreneurial careering by creating a rolling mill in Chengdu, Sichuan
which at the time was the first privately-run iron enterprise in Sichuan
Province in 1986. He entered into the mineral and natural resources business in
1998 by establishing the Sichuan Mineral Resources Development Co. Ltd, of which
he was Chairman and General Manager. Mr. Hou joined Sichuan Apollo as Chairman
and Chief Executive Officer in June 2006.


40





Heung Sang Fong is the Chief
Financial Officer and a member of the Board. Mr. Fong has more than 23 years of
accounting/finance/capital market experience. Before joining Apollo, Mr. Fong
served as Executive Vice President of Corporate Development of FUQI
International, Inc. (Nasdaq: FUQI ), a leading designer of high quality precious
metal jewelry in China, where he helped guide the company through a successful
IPO. Prior to this role, from January 2004 to November 2006, Mr. Fong served as
a Managing Partner of Iceberg Financial Consultants, a financial advisory firm
based in China that advises Chinese clients in capital raising activities in the
United States. He also served as the Chief Executive Officer of Holley
Communications, a Chinese company engaged in CDMA chip and cell phone design. A
U.S. certified public accountant (CPA), Mr. Fong had held various positions with
accounting firms in the United States and Hong Kong, including Deloitte and
Touche, Ernst and Young, and KPMG Peat Marwick. He received a Diploma in History
from the Hong Kong Baptist College in 1982, a MBA from the University of Nevada
at Reno in 1989, and a Masters in Accounting from the University of Illinois at
Urbana Champaign in 1993.




Hongwei Ke is a member of the
Board. Mr. Ke graduated from Southwest Petroleum University, Department of
Petroleum Engineering, with a bachelor’s degree in Oil Field Chemistry. From
1982 to 1999, he held positions with the Bohai Oil Company, Research Institute,
Engineer and China National Offshore Oil Corp. (CNOOC) where he was a Senior
Engineer and the Deputy Director of the Communication and Computer Center. From
1999 until he joined Sichuan Apollo in 2006, he served as Chairman of Beijing
Joinkey Electronics Technology Development Co. Ltd. and as the Chairman and
Chief Engineer of Beijing Jiegao Software Co. Ltd.







Kang Sunis a member of the
Board.Dr. Sunserved as an independent
director of JA Solar Holdings Co., Ltd. from January 2007 through September 2007
as a member of the audit committee, compensation committee, and the nominating
and corporate governance committee. From September 2007 to July 2008, Dr. Sun
served as the president and chief operating officer of JA Solar Holdings Co.,
Ltd.., and remained on the board of directors, but was not designated as an
independent director.  Dr. Sun has over 20 years of experience in
enterprise management and venture capital investment . Dr. Sun served as a
managing director of new business development and chief strategy officer of new
business and new product group at Applied Materials Inc., the world's largest
manufacturer of semiconductor capital equipment since 2005. Dr. Sun has served
as a director and partner at Index Capital Group, an investment company in the
U.S., since 2002. From 2002 to 2005, Dr. Sun served as vice president of
business development of Microfabrica Inc., a U.S. manufacturer of micro devices.
Prior to 2002, Dr. Sun served in several senior management positions in several
U.S. and European corporations. Dr. Sun received his Ph. D. in material science
from Brown University, master's degree in chemistry from the University of
Georgia and bachelor's degree in chemistry from Nanjing University,
China.




Zhimin Caois a member of the
Board.Dr. Caohas been a professor at
the College of Marine Geosciences, Ocean University of China since October 2000.
Dr. Cao’s research is focused on Economic geology, Geochemistry, Marine Geology,
Submarine Resources Exploring Sensor Technology. Prior to receiving his tenure
at Ocean University of China, Dr. Cao held positions with various universities
and research institutions in Geology-science and rare metal exploring. From May
2000 to July 2000, Dr. Cao served as a visiting scientist at Colorado State
University. Dr. Cao earned his Ph. D. , Master’s and Bachelor’s degree from
Chengdu University of Technology, China University of Geosciences and Wuhan
University of Geosciences (predecessor of China University of Geosciences),
respectively. Dr. Cao has been rewarded National and Provincial Prizes for
Progress Science and Technology for many times during the period from 1995 to
2004. Dr. Cao is also a member of the American Advanced Association of Sciences,
New York Academy of Sciences, and the National Geographic Society.






Elliot M.
Maza is a member of the Board. Mr. Maza has served as Chief Financial
Officer of Intellect Neurosciences, Inc., a development stage biopharmaceutical
company, since May 2006. From December 2003 to May 2006, Mr. Maza was Chief
Financial Officer of Emisphere Technologies, Inc., a company specializing in
oral drug delivery. Mr. Maza was previously a partner at Ernst and Young LLP and
a Vice President at Goldman Sachs, Inc. and JP Morgan Securities, Inc. From
September 1985 to April 1989, Mr. Maza practiced law at Sullivan and Cromwell
LLP in New York. From December 2004 to May 2008, Mr. Maza served on the Board of
Directors and was Chairman of the Audit Committee of Tapestry Pharmaceuticals,
Inc., a listed development stage company focused on developing proprietary
therapies for the treatment of cancer. Mr. Maza received his J.D. degree from
University of Pennsylvania Law School in 1985. Mr. Maza is a licensed CPA in the
State of New Jersey and the State of New York.




41




James M. Lee is a memeber of the Board. Mr. Lee
previously served at Intel Corporation for 21 years and has 30 years working
experience in the semiconductor industry. During his tenure at Intel, Mr. Lee
successfully led a professional team developing leading edge DRAMs and the
world's first commercial flash memories. Mr. Lee was also the Director of
Intel's California Technology Lab. Before his retirement Mr. Lee served as
General Manager of Intel's manufacturing subsidiary in Shanghai. Mr. Lee
received his bachelor and master degrees majoring in Electronic Engineering from
University of Illinois and Syracuse University, respectively. Mr. Lee is in
possession of five US patents in the semiconductor field.





On March
13, 2009, a Board meeting was held and it was resolved that three subcommittees,
namely, the Audit committee, the Compensation Committee, and the Nomination and
Corporate Governance Committee, were to be formed. Mr. Elliot Maza was appointed
as the Chairman of the Audit Committee; Mr. James Lee was appointed the Chairman
of the Compensation Committee; and Mr. Kang Sun was appointed the Chairman of
the Nomination and Corporate Governance Committee. In a Board meeting on April
6, 2009, the Board adopted a Code of Ethics attached hereto as an exhibit to the
Form 10-K.




The other
information required by this Item 12 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end of
the 120-day period immediately following the end of our 2008 fiscal year, or, if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A, not
later than the end of the 120-day period.




ITEM
11. EXECUTIVE COMPENSATION





Executive
Compensation




The table
below itemizes all compensation for the last three fiscal years paid to our
Chief Executive Officer, Renyi Hou.  The table also shows the
compensation of Ling Yong who was our Chief Financial Officer until February 1,
2009 and Hongwei Ke, our managing director.  There was no officer of
Sichuan Apollo whose salary and bonus for services rendered during the year
ended December 31, 2008 exceeded $100,000.




Fiscal
      Year
              
              SalaryRenyi
      Hou
              2008
              
              $
              22,4892007
              
              $
              21,3532006
              
              $
              10,677Ling
      Yong
              2008
              
              $
              18,0972007
              
              $
              14,2502006
              
              $
              7,125Hongwei
      Ke
              2008
              
              $
              14,2502007
              
              $
              14,2502006
              
              $
              7,125


42




Employment
Agreements




Effective
June 20, 2006, we entered into an employment agreement with Renyi Hou, as
Chairman and CEO, until June 19, 2011. Mr. Hou receives annual compensation of
RMB 145,200, including a RMB 7,980 monthly salary and the remainder RMB 49,440
as evaluative compensation dispensed according to annual evaluations, and may be
entitled to receive a bonus at the discretion of our board of
directors.





Effective
February 2, 2009, we entered into an employment agreement with Fong Heung Sang,
as CFO, until January 31, 2011. Mr. Fong will receive an annual base salary of
$70,000, increasing to $90,000 in June 2009 and further increasing to $110,000
in January 2010 and has been granted options to acquire 750,000 shares of the
Company’s common stock which will vest in equal installments over the
twenty-four month period of his employment contract.





Effective
June 20, 2006, we entered into an employment agreement with Hongwei Ke, as
managing director, until June 19, 2011.  Mr. Ke receives annual
compensation of RMB 96,900, including a RMB 5,325 monthly salary and the
remainder RMB 33,000 as evaluative compensation dispensed according to annual
evaluations, and may be entitled to receive a bonus at the discretion of our
board of directors.




The other
information required by this Item 12 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end of
the 120-day period immediately following the end of our 2008 fiscal year, or, if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A, not
later than the end of the 120-day period.




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




The
information required by this Item 12 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end of
the 120-day period immediately following the end of our 2008 fiscal year, or, if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A, not
later than the end of the 120-day period.




ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Loan
Transactions




We have
an outstanding loan from Xinju Mining Resources Development Co. in the amount of
$2,313,198 as of December 31, 2008, which is non-interest bearing and due on
demand.  Our CEO is also the CEO and major shareholder of Xinju Mining
Resources Development Co.  We have an additional outstanding loan from
our shareholders Renyi Hou, Hongwei Ke and Yong Ling, in the amount of $854,086,
which is also non-interest bearing and due on demand.  We have another
outstanding non-interest bearing loan from our shareholder Feng Yuliang and Wang
Xiaojin in the amount of $8,178,296 due between July 2009 and November 2009. On
February 16, 2009, $2,726,208 was repaid to Feng Yuliang.




Merger
Agreement




On August
18, 2008, the Company entered into the Merger Agreement dated August 8, 2008, as
amended and restated on October 14, 2008, with ASE and Merger Sub, pursuant to
which Merger Sub was merged with and into the ASE on October 14,
2008.  The President of ASE is Huakang Zhou, the spouse of Xiaojin
Wang, the Chief Executive Officer and sole director of the Company.  
Under the terms of the Merger Agreement, all of the outstanding shares of common
stock, $0.0001 par value, of ASE were converted into the right to receive
17,200,000 shares of Common Stock of the Company.  After the
consummation of the Merger, and prior to any issuance of shares pursuant to the
Entrusted Management Agreement, the former stockholders of ASE owned
approximately 96.87% of the Company.




43




Following
the consummation of the Merger, the Company ceased being a shell company as such
term is defined in Rule 12b-2 under the Exchange Act, and ASE became a wholly
owned subsidiary of the Company.  The Company subsequently changed its
name to Apollo Solar Energy, Inc.




The
foregoing description of the Merger Agreement is qualified in its entirety by
the text of such agreement which is annexed hereto as Exhibit 10-a.




Entrusted
Management Agreement




Shortly
after the completion of the Merger, the Company entered into the Entrusted
Management Agreement with the Apollo Managers, the former managers of Apollo’s
Chinese operating companies, certain of whom are directors and/or officers of
the Company. Pursuant to the Entrusted Management Agreement, the Company
issued the Apollo Managers an aggregate of 26.8 million newly issued shares of
Common Stock of the Company, with the result that the Apollo Managers own
approximately 60.15% of the Common Stock of the Company, after giving effect to
such issuance.




Purchase of Dashuigou Mining Rights




Effective
August 22, 2008, Sichuan Xinlong, a wholly owned subsidiary of Sichuan Apollo,
acquired 100% of the equity of the Sichuan Xinju from Renyi Hou, now our
Chairman and Chief Executive Officer, Wei Li and Yong Ling. The share transfer
agreements were executed on August 18, 2008. Sichuan Xinju owns the exclusive
mining rights to the Dashuigou tellurium mine from January 2007 to January
2013.  As of December 31, 2008, the tellurium used in our products was
primarily purchased from suppliers on the open market.  In 2009, 70%
of the tellurium used in our products is expected to be sourced from the
Dashuigou tellurium mine.




Sichuan
Xinlong entered into a Variable Interest Entities Agreementon
April 10,with Sichuan
Xinju Mineral Resources Development Corporation (“Xinju”), a related party, to
obtain the mining rights of Xinju, which possesses the exploration rights to
that certain land of 6.29 square kilometers in the Dashuigou area and the mining
rights of that certain tellurium and bismuth mine of 0.0568 square kilometers in
Shimian Majiagou.  SSDM’s financial statements will be consolidated
with those of the Company.





Description
of Securities




The
Company is authorized to issue 100,000,000 shares of Common Stock, $.001 par
value per share, of which 44,555,131 shares are outstanding as of March 31,
2009. Holders of the Common Stock are entitled to one vote for each share in the
election of directors and in all other matters to be voted on by the
stockholders.  There is no cumulative voting in the election of directors.
 Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors with respect to the Common
Stock out of funds legally available therefor and, in the event of liquidation,
dissolution or winding up of the Company, to share ratably in all assets
remaining after payment of liabilities.  The holders of Common Stock have
no pre-emptive or conversion rights and are not subject to further calls or
assessments.  There are no redemption or sinking fund provisions applicable
to the Common Stock.




ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.




The
information required by this Item 14 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end of
the 120-day period immediately following the end of our 2008 fiscal year, or, if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-K/A, not
later than the end of the 120-day period.





44


PART
IV





ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





1.   Financial
Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8
of this Annual Report on Form 10-K.





2.   Financial
Statement Schedule: See “Schedule II—Valuation and Qualifying Accounts” on page
F-26 of the Financial Statements of this annual report on Form
10-K.





3.   Exhibits:
The exhibits listed in the accompanying “Index to Exhibits” are filed or
incorporated by reference as part of this Form 10-K.





45


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 on its behalf by
the undersigned, thereunto duly authorized, in the City of Chengsu, People’s
Republic of China, on April 14,
2009.


Apollo
      Solar Energy, Inc.By:
                /s/Renyi
      HouName
                Renyi
      HouTitle:
                Chief
      Executive Officer and
President
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company in the capacities
and on the dates indicated.
  SIGNATURE
                            
                            TITLE
                            
                            DATE/s/Renyi
      Hou
                            
                            Chief
      Executive Officer and President (Principal Executive
    Officer)
                            
                            April
      14, 2009Renyi
      Hou/s/Dexter
      Heung Sang
      Fong
                            
                            Chief
      Financial Officer and Director
                            
                            April
      14, 2009Dexter
      Heung Sang Fong/s/ Hongwei
      Ke
                            
                            Director
                            
                            April
      14, 2009Hongwei
      Ke/s/Kang
    Sun
                            
                            Director
                            
                            April
      14, 2009Kang
      Sun/s/Zhimin Cao
                            
                            Director
                            
                            April
      14, 2009Zhimin Cao/s/Elliot
      Maza
                            
                            Director
                            
                            April
      14, 2009Elliot
      Maza/s/James
      Lee
                              James
      Lee
                            
                            Director
                            
                            April
      14, 2009





46
  
 Exhibit
              
              Description
      of Exhibit3(i).1
              
              Articles
      of Incorporation. (Incorporated by reference to Appendix B of our
      Definitive Proxy Statement on Schedule 14A filed January 18,
      2008.)3(ii).1
                
                3(iii).1
              
              Restated
      Articles of Incorporation filed with the Nevada Secretary of State on
      October 23, 2008. (Incorporated by reference to Exhibit 3.1 of our Current
      Report on Form 8-K filed October 23, 2008.)
                Bylaws,
      adopted February 1, 2008. (Incorporated by reference to Exhibit 3.1 of our
      Current Report on Form 8-K filed February 1, 2008.)20.1
              
              Code
      of Ethics*10.1
              
              Amended
      and Restated Merger Agreement dated on October 14, 2008, among
      Wincroft, Apollo Solar Energy, Inc., a Delaware corporation, and Apollo
      Solar Energy Inc., a Nevada corporation.
                (Incorporated
      by reference to Exhibit 10-a of our Current Report on Form 8-K filed
      October 16, 2008.)10.2*
              
              First
      Option Exclusive Acquiring Agreement, executed on April 10, by and among
      Sichuan Xinlong Tellurium & Technique Co., Ltd., Sichuan Xinju Mineral
      Resources Development Corporation, and all the shareholder listed on
      Appendix A thereto. *10.3*
              
              Business
      Operations Agreement, executed on April 10, by and among Sichuan Xinlong
      Tellurium & Technique Co., Ltd., Sichuan Xinju Mineral Resources
      Development Corporation, and all the shareholder listed on Appendix A
      thereto. *10.4*
              
              Exclusive
      Technical and Consulting Agreement, executed on April 10 , by and between
      Sichuan Xinlong Tellurium & Technique Co., Ltd . and Sichuan Xinju
      Mineral Resources Development Corporation.*10.5*
              
              Exclusive
      Sales Agreement, executed on April 10 , by and between Sichuan Xinlong
      Tellurium & Technique Co., Ltd. and Sichuan Xinju Mineral Resources
      Development Corporation. *10.6
              
              Entrusted
      Management Agreement, dated as of October 20, 2008, by and among Renyi
      Hou, Liu Zhenyu, Hou Longchao, Hou Cijiu, Yang Yang, Ling Yong, Li
      Xuefeng, Ke Hongwei, Li Wei,He Yue, and Huakang Zhou (Incorporated by
      reference to Exhibit 10.1 of our Current Report on Form 8-K filed October
      20, 2008.)10.7*
              
              Employment
      Agreement by and between the Company and Renyi Hou dated June 20,
      2006*10.8*
              
              Employment
      Agreement by and between Fong Heung Sang dated February 2,
      2009*10.9*
              
              Employment
      Agreement by and between Hongwei Ke dated June 20,
2006*10.10*
              
              Loan
      Contract dated January 19, 2009, by and between the Company and Chengdu
      Xihang Gang Construction & Investment Co., Ltd.*10.11*
              
              Loan
      Agreement dated February 2, 2009 by and between the Company and
      Communication Bank of China, Sichuan Branch.*21.1*
              
              List
      of Subsidiaries*31.1*
              
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002. *31.2*
              
              Certificate
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002. *32.1*
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    *32.2*
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    *
 Filed
herewith.
    47


Apollo
Solar Energy, Inc.




CONSOLIDATED
FINANCIAL STATEMENTS




INDEX
TO FINANCIAL STATEMENTS


APOLLO
SOLAR ENERGY, INC.


(FORMERLY
KNOWN AS WINCROFT, INC.)








TABLE
OF CONTENTS




Report of
      Independent Registered Accounting Firm
              Page
    F-1Consolidated
      Balance Sheets as of December 31, 2008 and 2007
              Page
    F-2Consolidated
      Statements of Operations For The Years Ended
      December 31, 2008 and 2007
              Page
    F-3Consolidated
      Statements of Changes in Stockholders’ Equity For
      The Years Ended December 31, 2008 and 2007
              Page
    F-4Consolidated
      Statements of Cash Flows For The Years Ended
      December 31, 2008 and 2007
              Page
    F-5Notes to
      Consolidated Financial Statements
              Pages
      F-6---F-16


















REPORT OF INDEPENDENT
REGISTERED ACCOUNTING FIRM











To the
Board of Directors of


Apollo
Solar Energy, Inc.


(Formerly
Know as Wincroft, Inc.)








We have
audited the accompanying consolidated balance sheets of Apollo Solar Energy,
Inc. (formerly known as Wincroft, Inc.) as of December 31, 2008 and 2007 and the
related consolidated statements of operations and comprehensive income, changes
in stockholders’ equity and cash flows for the years then
ended.  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 audit.




We
conducted our audit in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform an audit of is
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.







In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Apollo Solar Energy, Inc. (formerly
known as Wincroft, Inc.) as of December 31, 2008 and 2007, and the results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.








/s/ Paritz & Company, P.A.  Hackensack,
New Jersey


March 27,
2009




F-1




APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 CONSOLIDATED
BALANCE SHEETS
 (In U.S.
Dollars)
  December
      31,2008
                              
                              
                              2007ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                              
                              $
                              4,874,044
                              
                              
                              $
                              2,619,176Accounts
      receivable
                              
                              
                              961,600
                              
                              
                              
                              15,348Inventories
                              
                              
                              7,496,477
                              
                              
                              
                              2,055,908Due
      from related party
                              
                              
                              2,313,198
                              
                              
                              
                              -Deferred
      tax assets
                              
                              
                              25,414
                              
                              
                              
                              -Prepaid
      expenses and other sundry current assets
                              
                              
                              899,154
                              
                              
                              
                              427,780TOTAL
      CURRENT ASSETS
                              
                              
                              16,569,887
                              
                              
                              
                              5,118,212PROPERTY,
      MACHINERY AND MINING ASSETS, NET
                              
                              
                              19,549,909
                              
                              
                              
                              9,561,503TOTAL
      ASSETS
                              
                              $
                              36,119,796
                              
                              
                              $
                              14,679,715LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIES:Short-term
      loan
                              
                              $
                              -
                              
                              
                              $
                              2,734,482Accounts
      payable – trade
                              
                              
                              876,221
                              
                              
                              
                              8,774-
      construction vendors
                              
                              
                              2,546,890
                              
                              
                              
                              -Due
      to related party
                              
                              
                              -
                              
                              
                              
                              741,505Due
      to stockholders
                              
                              
                              9,032,382
                              
                              
                              
                              12,965Accrued
      expenses and other sundry current liabilities
                              
                              
                              959,186
                              
                              
                              
                              399,704TOTAL
      CURRENT LIABILITIES
                              
                              
                              13,414,679
                              
                              
                              
                              3,897,430LONG-TERM
      DEBT
                              
                              
                              4,397,215
                              
                              
                              
                              4,101,723STOCKHOLDERS’
      EQUITY:Preferred
      stock, $.001 par value, 25,000,000 shares authorized,
                                0
      shares issued and outstanding at December 31, 2008 and
2007Common
      stock, $.001 par value, 100,000,000 shares authorized,
                                44,555,131
      issued at outstanding at December 31, 2008 and 2007
                              
                              
                              44,555
                              
                              
                              
                              44,555Additional
      paid-in capital
                              
                              
                              17,347,905
                              
                              
                              
                              6,832,129Accumulated
      deficit
                              
                              
                              (383,221
                              )
                              
                              
                              (401,813
                              )Accumulated
      other comprehensive income
                              
                              
                              1,298,663
                              
                              
                              
                              205,691TOTAL
      STOCKHOLDERS’ EQUITY
                              
                              
                              18,307,902
                              
                              
                              
                              6,680,562TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                              
                              $
                              36,119,796
                              
                              
                              $
                              14,679,715
 See notes
to consolidated financial statements








F-2





APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 (In U.S.
Dollars)
 
 Years
      ended December 31,2008
                        
                        
                        
                        2007SALES
                        
                        $
                        6,968,430
                        
                        
                        $
                        2,003,788COST
      OF SALES
                        
                        
                        5,150,943
                        
                        
                        
                        1,315,002GROSS
      PROFIT
                        
                        
                        1,817,487
                        
                        
                        
                        688,786OPERATING
      EXPENSES:General
      and administrative expenses
                        
                        
                        1,143,327
                        
                        
                        
                        117,190Selling
      expenses
                        
                        
                        302,577
                        
                        
                        
                        59,069Research
      and development expenses
                        
                        
                        83,166
                        
                        
                        
                        18,605TOTAL
      OPERATING EXPENSES
                        
                        
                        1,529,070
                        
                        
                        
                        194,864OPERATING
      INCOME
                        
                        
                        288,417
                        
                        
                        
                        493,922Interest
      expense
                        
                        
                        57,774
                        
                        
                        
                        -INCOME
      BEFORE PROVISION FOR INCOME TAXES
                        
                        
                        230,643
                        
                        
                        
                        493,922Provision
      for income taxes
                        
                        
                        212,051
                        
                        
                        
                        -NET
      INCOME
                        
                        
                        18,592
                        
                        
                        
                        493,922OTHER
      COMPREHENSIVE INCOME:Foreign
      currency translation adjustment
                        
                        
                        1,092,972
                        
                        
                        
                        112,887COMPREHENSIVE
      INCOME
                        
                        $
                        1,111,564
                        
                        
                        $
                        606,809Basic
      and diluted income per common share
                        
                        $
                        0.00
                        
                        
                        $
                        0.01Weighted
      average number of common shares outstanding
                        
                        
                        44,555,131
                        
                        
                        
                        44,555,131
 See notes
to consolidated financial statements


F-3


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS??EQUITY
 
 Common
      Stock, $.001 Par Value
                    
                    
                    Addition Paid-in
                    
                    
                    
                    
                    
                    
                    Accumulated
      OtherShares
      Amount
                    
                    
                    Capital
                    
                    
                    Accumulated
      Deficit
                    
                    
                    
                    Comprehensive Income
                    
                    
                    TotalBALANCE
      – JANUARY 1, 2007
                    
                    
                    44,555,131
                    
                    
                    $
                    44,555
                    
                    
                    $
                    1,949,789
                    
                    
                    $
                    (895,735
                    )
                    
                    $
                    92,804
                    
                    
                    $
                    1,191,413Capital
      contributions
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,882,340
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    4,882,340Foreign
      currency translation adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    112,887
                    
                    
                    
                    112,887Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    493,922
                    
                    
                    
                    -
                    
                    
                    
                    493,922BALANCE
      – DECEMBER 31, 2007
                    
                    
                    44,555,131
                    
                    
                    
                    44,555
                    
                    
                    
                    6,832,129
                    
                    
                    
                    (401,813
                    )
                    
                    
                    205,691
                    
                    
                    
                    6,680,562Capital
      contributions
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    10,515,776
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    10,515,776Foreign
      currency translation adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,092,972
                    
                    
                    
                    1,092,972Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    18,592
                    
                    
                    
                    -
                    
                    
                    
                    18,592BALANCE
      – DECEMBER 31, 2008
                    
                    
                    44,555,131
                    
                    
                    $
                    44,555
                    
                    
                    $
                    17,347,905
                    
                    
                    $
                    (383,221
                    )
                    
                    $
                    1,298,663
                    
                    
                    $
                    18,307,902
 See notes
to financial statements








F-4


APOLLO
SOLAR ENERGY, INC.


(FORMERLY
KNOWN AS WINCROFT, INC.)





CONSOLIDATED
STATEMENTS OF CASH FLOWS





Year
      Ended December 31,2008
                    
                    
                    2007OPERATING
      ACTIVITIES:Net
      income
                    
                    $
                    18,592
                    
                    
                    $
                    493,922Adjustments
      to reconcile net income to net cashused
      in operating activities:Depreciation
                    
                    
                    457,737
                    
                    
                    
                    310,092Deferred
      tax assets
                    
                    
                    (25,414
                    )
                    
                    
                    -Inventory
      mark-down
                    
                    
                    150,165
                    
                    
                    
                    -Changes
      in assets and liabilities:(Increase)
      decrease in -Accounts
      receivable
                    
                    
                    (928,131
                    )
                    
                    
                    (14,838
                    )Inventories
                    
                    
                    (5,114,886
                    )
                    
                    
                    (1,166,712
                    )Prepaid
      expenses and other sundry current assets
                    
                    
                    (359,027
                    )
                    
                    
                    -Accounts
      payable – trade
                    
                    
                    851,208
                    
                    
                    
                    (767,407
                    )-
      construction
                    
                    
                    2,501,035
                    
                    
                    
                    -Accrued
      expenses and other sundry current liabilities
                    
                    
                    434,436
                    
                    
                    
                    14,714NET
      CASH USED IN OPERATING ACTIVITIES
                    
                    
                    (2,014,285
                    )
                    
                    
                    (1,408,975
                    )INVESTING
      ACTIVITIES:Acquisition
      of property and equipment
                    
                    
                    (8,945,111
                    )
                    
                    
                    (6,548,423
                    )NET
      CASH USED IN INVESTING ACTIVITIES
                    
                    
                    (8,945,111
                    )
                    
                    
                    (6,548,423
                    )FINANCING
      ACTIVITIES:Proceeds
      from borrowings
                    
                    
                    -
                    
                    
                    
                    6,836,205Capital
      contribution
                    
                    
                    7,650,635
                    
                    
                    
                    -Advance
      from stockholders
                    
                    
                    8,977,519
                    
                    
                    
                    839,845Advance
      from (repayment to) related party
                    
                    
                    (3,503,014
                    )
                    
                    
                    2,764,809NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                    
                    
                    13,125,140
                    
                    
                    
                    10,440,859EFFECT
      OF EXCHANGE RATE ON CASH
                    
                    
                    89,123
                    
                    
                    
                    49,571INCREASE
      IN CASH AND CASH AND CASH EQUIVALENTS
                    
                    
                    2,254,867
                    
                    
                    
                    2,533,032CASH
      AND CASH EQUIVALENTS – BEGINNING OF YEAR
                    
                    
                    2,619,176
                    
                    
                    
                    86,144CASH
      AND CASH EQUIVALENTS – END OF YEAR
                    
                    $
                    4,874,043
                    
                    
                    $
                    2,619,176Supplemental
      disclosures of cash flow information:Income
      taxes paid
                    
                    $
                    161,061
                    
                    
                    $
                    -Non-cash
      financing activities:Conversion
      of debt to additional paid-in capital
                    
                    $
                    2,878,692
                    
                    
                    $
                    -


See notes
to financial statements


F-5


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008 AND 2007





1           BUSINESS
DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES




On October 14,
2008, the Company completed a reverse merger transaction with Apollo Solar
Energy, Inc., (“ASE-Delaware”) by issuing 4,000 shares of its common stock in
exchange for each outstanding share of ASE-Delaware’s common
stock.  Under the terms of the merger agreement, all of the
outstanding shares of common stock of ASE-Delaware were exchanged for 44,000,000
shares of common stock of the Company, resulting in the former shareholders of
ASE-Delaware now owning 98.75% of the Company’s issued and outstanding common
stock.





For
accounting purposes, the ASE-Delaware became the surviving entity where as the
Company will be recognized as the surviving entity for legal
purposes.  Accordingly, the financial statements include the assets,
liabilities and operations of ASE-Delaware.





On August
4, 2008, ASE-Delaware, an inactive company, acquired of 100% of the registered
capital of Sichuan Apollo Solar Science & Technology Co., Ltd. (“Sichuan
Apollo”), in a transaction accounted for as a re-organization.





Sichuan
Apollo was formed in June, 2006 in the People’s Republic of China and develops
and manufactures high purity metals and compounds which are widely used in the
field of national defense, navigation, spaceflight and the electronic
industry.  In addition, the Company is developing semiconductor,
photoelectrical, photoconductive and photovoltaic basic materials for thin film
solar cells through its 100% owned subsidiary-Sichuan Xinlong Diye Tellurium
Industry & Technique Co., Ltd ( “Diye”).





Effective
August 22, 2008 Diye acquired 100% of the equity of Sichuan Xinju Shimian Dadu
River Mining & Metallurgy Co., Ltd. (“Dadu River”) from significant
shareholders of Apollo.  Dadu River owned the exclusive rights to the
Dashuigou tellurium mine through at least January 2013.  Prior year
financial statements have not been restated as the effects of this acquisition
of the financial position and results of operations are immaterial.





Basis of
presentation




The
accompanying consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America (“US
GAAP”).





The
consolidated financial statements include the financial statements of the
Company and its wholly owned subsidiaries, Sichuan Apollo, Diye and Dadu
River.  All significant inter-company transactions and balances among
the Company and its subsidiaries are eliminated upon consolidation.





The
Company’s functional currency is the Chinese Renminbi (“RMB”); however, the
accompanying financial statements have been translated and presented in United
States Dollars (“USD”).





Certain
amounts included in the 2007 financial statement have been reclassified to
conform to the 2008 financial statement presentation.




F-6


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007





1           BUSINESS
DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)




Use of
Estimates




The
preparation of the accompanying consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amount 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. Actual results could differ from the
estimates.





Cash and cash equivalents





The
Company maintains cash with financial institutions in the Peoples Republic of
China (“PRC”) which are not insured or otherwise protected.  Should
any of these institutions holding the Company’s cash become insolvent, or if the
Company is unable to withdraw funds for any reason, the Company could lose the
cash on deposit with that institution.





Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposits and all highly liquid debt instruments with original maturities of
three months or less.





Accounts Receivable





The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments.  The Company calculates a reserve based on the aging of
receivables and either increases or decreases the estimate of doubtful accounts
accordingly.  Additional allowances may be required if one or more of
the Company’s customers’ financial condition deteriorates, resulting in an
impairment of their ability to make payments.  Such allowances, if
any, would be recorded in the period the impairment is
identified.  The Company recorded bad debt expense of approximately
$15,000 and $0 in 2008 and 2007, respectively.





Inventories





Inventories
are valued at the lower of cost or market with cost determined on the weighted
average method.





Advance for purchases





The
Company made interest free advances to certain vendors for purchase of its raw
materials and construction in progress equipment.





Property, machinery and mining
assets





Expenditures
for new facilities or equipment and expenditures that extend the useful lives of
existing facilities or equipment are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives.




F-7


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 1           BUSINESS
DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Mineral
exploration costs are expensed according to the term of license granted to the
Company.  Extraction rights are stated at the lower of cost and
recoverable amount.  When extraction rights are obtained from the
government according to the mining industry practice in the PRC, extraction
rights and other costs incurred prospectively to develop the property are
capitalized as incurred and are amortized using the units-of-production (“UOP”)
method over the estimated life of the mineralized body based on estimated
recoverable volume through to the end of the period over which the Company has
extraction rights.  At the Company’s underground mines, these costs
include the cost of building access ways, shaft sinking and access, lateral
development, drift development, ramps and infrastructure
development.




Major
development costs incurred after the commencement of production are amortized
using the UOP method based on estimated recoverable volume in mineralized
material.  To the extent that these costs benefit the entire
mineralized body, they are amortized over the estimated life of the mineralized
body.  Costs incurred to access specific mineralized blocks or areas
that only provide benefit over the life of that area are amortized over the
estimated life of that specific mineralized block or area.  Interest
cost allocable to the cost of developing mining properties and to constructing
new facilities, if any, is capitalized until assets are ready for their intended
use.





Impairment of long-lived
assets





The
Company accounts for the impairment of long-lived assets in accordance with SFAS
No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets”.  Long-lived assets are reviewed for impairment when
circumstances indicate the carrying value of an asset may not be
recoverable.  For assets that are to be held and used, an impairment
is recognized when the estimated undiscounted cash flows associated with the
asset or group of assets is less than their carrying value. If impairment
exists, an adjustment is made to write the asset down to its fair value, and a
loss is recorded as the difference between the carrying value and fair
value.  Fair values are determined based on quoted market values,
discounted cash flows or internal and external appraisals, as applicable. Assets
to be disposed of are carried at the lower of carrying value or estimated net
realizable value.





No
impairment loss is recorded for the years ended December 31, 2008 and
2007.





Deferred income taxes





The
Company accounts for income tax under the provisions of SFAS No.109 "Accounting
for Income Taxes", which requires that deferred tax assets and liabilities be
recognized for future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  In addition, SFAS 109 requires
recognition of future tax benefits, such as carryforwards, to the extent that
realization of such benefits is more likely than not and that a valuation
allowance be provided when it is more likely than not that some portion of the
deferred tax assets will not be realized.




Currency translation





Since the
Company operates in the PRC, the Company’s functional currency is the Chinese
Yuan (“RMB”).  Revenue and expense accounts are translated at the
average rates during the period, and balance sheet items are translated at
year-end rates.  Translation adjustments arising from the use of
different exchange rates from period to period are included as a component of
owners’ equity.  Gains and losses from foreign currency transactions
are recognized in current operations.





Fair value of financial
instruments





Statement
of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
Financial Instruments” requires that the Company disclose estimated fair value
of financial statements.





The
Company’s financial instruments primarily consist of cash and cash equivalents,
accounts receivable, other receivables, accounts payable, accrued expenses,
taxes payable, and other related party advances and borrowings, and short-term
loans.





As of the
balance sheet date, the estimated fair values of financial instruments were not
materially different from their carrying values as presented on the balance
sheet.  This is attributed to the short maturities of the instruments
and that interest rates on the borrowings approximate those that would have been
available from loans of similar remaining maturity and risk profile at the
respective balance sheet dates.


F-8


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 1           BUSINESS
DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Segment reporting





Statement
of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure about
Segments of an Enterprise and Related Information” requires use of the
“management approach” model for segment reporting.  The management
approach model is based on the way a company’s management organized segments
within the company for making operating decisions and assessing
performance.  Reportable segments are based on products and services,
geography, legal structure, management structure, or any other manner in which
management disaggregates a company.





Revenue recognition





Revenue
is recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, and no
other significant obligations of the Company exist and collectability is
reasonably assured.  Payments received before all of the relevant
criteria for revenue recognition are satisfied and recorded as advances from
customers.





Shipping and handling
costs





In
accordance with Emerging Issues Task Force Issue 00-10, “Accounting for Shipping and Handling
Fees and Costs”, all amounts billed to customers in a sales transaction
for shipping and handling are classified as revenue.





Research and development




Research
and development expenditures are charged to operations as incurred.





Comprehensive income




Comprehensive
income is defined to include all changes in equity except those resulting from
investments by shareholders and distributions to shareholders.  Among
other disclosures, all items that are required to be recognized under current
accounting standards as components of comprehensive income are required to be
reported in a financial statement that is presented with the same prominence as
other financial statements.  Comprehensive income includes net income
and the foreign currency translation gain, net of tax.





Earnings per share





Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There are no such additional common shares available for dilution purposes as of
December 31, 2008 and 2007.


F-9


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 1           BUSINESS
DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Recently
issued accounting pronouncements




In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”,
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements, where fair value is the relevant
measurement attribute. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. The management of the Company is currently evaluating the impact
of adopting SFAS 157 on its consolidated financial statements.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115 (“FAS 159”)”. FAS 159 permits companies to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. The objective of FAS 159 is to
provide opportunities to mitigate volatility in reported earnings caused by
  measuring related assets and liabilities differently without having to
apply hedge accounting provisions. FAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 will be effective in the first quarter of fiscal 2009. The
Company is evaluating the impact that this statement will have on its
consolidated financial statements.





In June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance
Payments for Goods or Services Received for use in Future Research and
Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or were rendered
for research and development activities should be expensed when the advance
payment is made or when the research and development activity has been
performed. The Company has adopted FSP EITF 07-3 and expensed the research and
development as it incurred.





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”), which 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 non-controlling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
160 is effective for fiscal years beginning after December 15,
2007.  The Company has not determined the effect that the application
of SFAS 160 will have on its consolidated financial statements.





In
December 2007, Statement of Financial Accounting Standards No. 141(R), Business
Combinations, was issued. SFAS No. 141R replaces SFAS No. 141, Business
Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that
the acquisition method of accounting (which SFAS 141 called the purchase method)
be used for all business combinations and for an acquirer to be identified for
each business combination. SFAS 141R requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any non-controlling
interest


in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
required the cost of acquisition to be allocated to the individual assets
acquired and liabilities assumed based on their estimated fair values. SFAS 141R
also requires the acquirer in a business combination achieved


in stages
(sometimes referred to as a step acquisition) to recognize the identifiable
assets and liabilities, as well as the non-controlling interest in the acquiree,
at the full amounts of their fair values (or other amounts determined in
accordance with SFAS 141R). SFAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2007 An entity
may not apply it before that date. The Company is currently evaluating the
impact that adopting SFAS No. 141R will have on its financial
statements.





F-10


APOLLO
SOLAR ENERGY, INC.


(FORMERLY
KNOWN AS WINCROFT, INC.)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


YEARS
ENDED DECEMBER 31, 2008 AND 2007





2           INVENTORIES





Inventories consists of the
following:


December
      31,2008
                        
                        
                        2007Raw
      Materials
                        
                        $
                        4,351,326
                        
                        
                        $
                        1,048,619Work
      in process
                        
                        
                        1,080,390
                        
                        
                        
                        419,658Finished
      goods
                        
                        
                        2,064,761
                        
                        
                        
                        587,631$
                        7,496,477
                        
                        
                        $
                        2,055,908
 3           PROPERTY
AND EQUIPMENT





A summary
of property and equipment and the estimate lives used in the computation of
depreciation and amortization is as follows:




2008
            
            
            2007
            
            LifeBuilding
            
            $
            13,349,541
            
            
            $
            1,003,154
            
            40
      yearsRight
      to use land
            
            
            324,809
            
            
            
            302,982
            
            Life
      of leaseMachinery
      and equipment
            
            
            3,506,879
            
            
            
            2,277,611
            
            10
      yearsOffice
      equipment
            
            
            209,543
            
            
            
            45,901
            
            5
      yearsVehicle
            
            
            464,512
            
            
            
            68,143
            
            5
      yearsMining
      rights
            
            
            318,113
            
            
            
            -Construction
      in progress
            
            
            2,630,538
            
            
            
            6,554,27020,803,935
            
            
            
            10,252,061Less
      accumulated depreciation
            
            
            1,254,026
            
            
            
            690,558$
            19,549,909
            
            
            $
            9,561,503




Depreciation
expense for the years ended December 31, 2008 and 2007 was $457,737 and $310,092
respectively.





Anticipated
costs to complete the construction in progress will aggregate approximately
1,800,000 RMB ($300,000). Construction is expected to be completed in
2009.





4           DUE
FROM RELATED PARTY





Amounts
due from related party consist of amounts due from a related company partially
owned by a majority shareholder of the Apollo.  This loan is
non-interest bearing and due on demand.





F-11


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007




5           DUE
TO STOCKHOLDERS





Due to
stockholders consist of non-interest bearing notes due as follows:




March
      2009
            
            $
            3,800,000July
      2009
            
            
            2,912,558November
      2009
            
            
            1,465,738On
      Demand
            
            
            854,086$
            9,032,382




6           ACCRUED
EXPENSES





Accrued expenses consist of the
following:




December
      31,2008
            
            
            2007Accrued
      interest
            
            $
            447,255
            
            
            $
            143,606Government
      subsidy for research and development
            
            
            80,615
            
            
            
            51,134Salaries
      and benefits
            
            
            137,733
            
            
            
            183,316Taxes
            
            
            84,828
            
            
            
            -Professional
      fees
            
            
            153,000
            
            
            
            -Other
      accrued expense
            
            
            55,755
            
            
            
            21,648$
            959,186
            
            
            $
            399,704





7           LONG-TERM
DEBT





Long term
debt consist of a note payable bearing interest at 6.57% per annum through May
31, 2009 and at Bank of China’s rate for a three year loan
thereafter.  $2,931,476 is due June 5, 2010 and $1,465,739 is due July
16, 2010.





8           TAXES





Corporation income tax





The
Company is governed by the Income Tax Law of the People’s Republic of China
concerning the privately run and foreign invested enterprises, which are
generally subject to tax at a new statutory rate of 25% on income reported in
the statutory financial statements after appropriate tax
adjustments.


F-12


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 8           TAXES
(CONTINUED)




On March
16, 2007, the National People’s Congress of China approved the Corporate Income
Tax Law of the People’s Republic of China, which is effective from January 1,
2008. Under the new law, the corporate income tax rate applicable to all
Companies, including both domestic and foreign-invested companies, will be 25%,
replacing the old tax rate of 33%.





The
comparison of income tax expense at the U.S. statutory rate of 35% in 2008 and
2007, to the Company’s effective tax rate is as follows:




December
      31,2008
            
            2007U.S.
      statutory rate
            35%
            
            35%Tax
      rate difference between China and U.S.
            -10%
            
            -2%Net
      loss carryforward from prior period
            -10%
            
            -33%GAAP
      and Chinese tax law difference onamortization
      of intangibles
            -29%
            
            -Valuation
      allowance
            106%
            
            -Effective
      tax rate
            92%
            
            0%





The
provisions for income taxes are summarized as follows:




December
      31,2008
            
            
            2007Current
            
            $
            237,465
            
            
            $
            -Deferred
            
            
            (25,414
            )
            
            
            -$
            212,051
            
            
            $
            -


The tax
effects of temporary differences that give rise to the Company’s net deferred
tax asset as of December 31, 2008 and 2007 are as follows:




December
      31,2008
            
            
            2007Deferred
      tax assets:Inventory
      markdown
            
            $
            36,865
            
            
            $
            -Bad
      debt expense
            
            
            3,599
            
            
            
            -Net
      loss carryforward
            
            
            245,008
            
            
            
            61,078Gross
      deferred tax assets
            
            
            285,472
            
            
            
            61,078Valuation
      allowance
            
            
            (245,008
            )
            
            
            (61,078
            )Total
      deferred tax asset
            
            
            40,464
            
            
            
            -Deferred
      tax liabilities:Depreciation
      and amortization
            
            
            (12,581
            )
            
            
            -Other
            
            
            (2,469
            )
            
            
            -Total
      deferred tax liabilities
            
            
            (15,050
            )
            
            
            -Net
      deferred tax assets
            
            $
            25,414
            
            
            $
            -





F-13


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007
 
 8           TAXES
(CONTINUED)





Enterprises
or individuals who sell commodities, engage in repair and maintenance or import
or export goods in the PRC are subject to a value added tax in accordance with
the PRC laws. The value added tax standard rate is 17% of the gross sales price.
A credit is available whereby VAT paid on the purchases of semi-finished
products or raw materials used in the production of the Company’s finished
products can be used to offset the VAT due on the sales of the finished
products.





As of
December 31, 2008 and 2007, the Company had tax receivable of $494,387 and $0
respectively.





9             PRC
STATUTORY RESERVES





In
accordance with the PRC Companies Law, the Company was required to transfer 10%
of its profit after tax, as determined in accordance with accounting standards
and regulations of the PRC, to the statutory surplus reserve and a percentage of
not less than 5%, as determined by management, of the profit after tax to the
public welfare fund.  With the amendment of the PRC Companies Law
which was effective from January 1, 2006, enterprises in the PRC are no longer
required to transfer any profit to the public welfare fund.  Any
balance of public welfare funds brought forward from December 31, 2005 should be
transferred to the statutory surplus reserve. The statutory surplus reserve is
non-distributable.





As of
December 31, 2008 and 2007, the Company did not accumulate any statutory reserve
due to the accumulated deficit.





10           SEGMENT
OF BUSINESS





YEAR ENDED DECEMBER 31,
2008


Manufacturing
                        
                        
                        
                        Refining
                        
                        
                        
                        Mining
                        
                        
                        
                        Corporate
      and Other
                        
                        
                        
                        Consolidated TotalRevenue
                        
                        $
                        -
                        
                        
                        $
                        6,968,430
                        
                        
                        $
                        94,485
                        
                        
                        $
                        (94,485
                        )
                        
                        $
                        6,968,430Operating
      profit (loss)
                        
                        
                        (610,606
                        )
                        
                        
                        1,209,850
                        
                        
                        
                        (164,175
                        )
                        
                        
                        (146,652
                        )
                        
                        
                        288,417Depreciation
      and amortization
                        
                        
                        323,471
                        
                        
                        
                        123,694
                        
                        
                        
                        10,572
                        
                        
                        
                        
                        
                        
                        
                        457,737Capital
      expenditures
                        
                        
                        7,963,456
                        
                        
                        
                        839,319
                        
                        
                        
                        142,335
                        
                        
                        
                        
                        
                        
                        
                        8,945,110


YEAR ENDED DECEMBER 31,
2007


Manufacturing
                      
                      
                      
                      Refining
                      
                      
                      
                      Consolidated
      TotalRevenue
                      
                      $
                      -
                      
                      
                      $
                      2,003,788
                      
                      
                      $
                      2,003,788Operating
      profit (loss)
                      
                      
                      (244,318
                      )
                      
                      
                      738,240
                      
                      
                      
                      493,922Depreciation
      and amortization
                      
                      
                      225,186
                      
                      
                      
                      84,906
                      
                      
                      
                      310,092Capital
      expenditures
                      
                      
                      5,938,762
                      
                      
                      
                      609,661
                      
                      
                      
                      6,548,423
 
 F-14


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007





11           SUBSEQUENT
EVENTS




On January 1, 2009, the Company signed a loan contract with
Chengdu Xihang Gang Construction & Investment Co., Ltd. (“Xihang Gang”), an
unaffiliated company for the amount of RMB 11,300,000 (equivalent to US
$1,652,165  at the date of signing).  The term is from
January 1, 2009 to August 31, 2009, with interest rate at 5.31% per annum
collateralized by certain plant equipment.  The purpose of this loan
was to obtain land use right as described below, collateralized by the plant
equipment of Apollo, with the condition that once the land use right is
successfully obtained, the Company should obtain a new loan to repay RMB 30m
loan with Xihang Gang.





On March
2, 2009, the Company obtained a new fifty year land use right from the
government of the PRC, for RMB 25,013,318 (equivalent to US $3,652,288 at the
date of the acquisition). The term of the land use right is through February 8,
2059. The purchase price is being amortized over the term of the land use right,
which is 50 years.





On
February 2, 2009, the Company signed a loan agreement with Communication Bank of
China, Sichuan Branch for RMB2,000,000 (equivalent to US$292,028  at
the date of signing).  The term is from February 6, 2009 to February
5, 2010, with interest rate at 6.903% per annum, collateralized by the buildings
and land use right of Diye.





Employment agreement





On
February 2, 2009 the Company entered into an employment agreement with its Chief
Financial Officer, Mr. Fong, for a fixed term of two years.  Mr. Fong
will receive an annual base salary of $70,000, increasing to $90,000 in June
2009 and further increasing to $110,000 in January 2010 and has been granted
options to acquire 750,000 shares of the Company’s common stock which will vest
in equal installments over the twenty-four month period of his employment
contract.





12           CONCENTRATIONS





Sales to
major customers for the year ended December 31, 2008 were 32%, 18% and
10%.





Sales to
major customers for the year ended December 31, 2007, were 54% and
23%.





As of
December 31, 2008, two customers accounted for 54% and 36% of the total accounts
receivable outstanding.





In 2008,
61% of sales were made to customers in Asia and 30% of sales were made to
customers in North America.





F-15


APOLLO
SOLAR ENERGY, INC.
 (FORMERLY
KNOWN AS WINCROFT, INC.)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2008 AND 2007




13           VULNERABILITY
DUE TO OPERATIONS IN PRC





The
Company’s operations may be adversely affected by significant political,
economic and social uncertainties in the PRC.  Although the PRC
government has been pursuing economic reform policies for more than twenty
years, no assurance can be given that the PRC government will continue to pursue
such policies or that such policies may not be significantly altered, especially
in the event of a change in leadership, social or political disruption or
unforeseen circumstances affecting the PRCs political, economic and social
conditions.  There is also no guarantee that the PRC government’s
pursuit of economic reforms will be consistent or effective.





Substantially
all of the Company’s businesses are transacted in RMB, which is not freely
convertible.  The Peoples Bank of China or other banks are authorized
to buy and sell foreign currencies at the exchange rates quoted by the Peoples
Bank of China.  Approval of foreign currency payments by the Peoples
Bank of China or other institutions requires submitting a payment application
form together with suppliers’ invoices, shipping documents and signed
contracts.





Since the
Company has its primary operations in the PRC, the majority of its revenues will
be settled in RMB, not U.S. Dollars. Due to certain restrictions on currency
exchanges that exist in the PRC, the Company’s ability to use revenue generated
in RMB to pay any dividend payments to its shareholders outside of China may be
limited.





The
Company’s business depends on maintaining licenses of its current products from
the Chinese government.  Failure to obtain the necessary licenses when
needed can cause the Company’s business plan to be delayed.





In
September 2006, PRC changed the laws regarding transfer of equity in PRC
companies in exchange for equity in non-PRC companies.  Approvals and
registrations for such transfers are required and penalties may be imposed if
the requirements are not met.





Concentration
of Credit Risk





Financial
instruments that potentially subject the Company to significant concentration of
credit risk are primarily cash and cash equivalents.




F-16