**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





x  **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





For
      the
      quarterly period ended June 30, 2008





OR





£  **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





Commission
      File Number: 001-31593





APOLLO
      GOLD CORPORATION


(Exact
      name of registrant as specified in its charter)





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





**5655
      South Yosemite St., Suite 200**


**Greenwood
      Village, Colorado 80111-3220**


(Address
      of principal executive offices) (Zip code)





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





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
x No £





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





Large
                Accelerated Filer£
            
            Accelerated
                Filer£Non-Accelerated
                Filer£(do not check if a smaller reporting company)
            
            Smaller
                Reporting Company x





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


Yes £ No x





At
      August
      8, 2008, there were 202,860,257 common shares of Apollo Gold Corporation
      outstanding.













**TABLE
      OF CONTENTS**




PagePART
                I
            
            FINANCIAL
                INFORMATION
            
            4ITEM
                1.
            
            FINANCIAL
                STATEMENTS (Unaudited)
            
            4Condensed
                Consolidated Balance Sheets - As of June 30, 2008 and as of
                December 31, 2007
            
            5Condensed
                Consolidated Statements of Operations and Comprehensive Income (Loss)
                for
                the Three and Six Months Ended June 30, 2008 and 2007
            
            6Condensed
                Consolidated Statements of Shareholders’ Equity for the Year ended
                December 31, 2007 and the Six Months Ended June 30, 2008
            
            7Condensed
                Consolidated Statements of Cash Flows for the Three and Six Months
                Ended
                June 30, 2008 and 2007
            
            8Notes
                to the Condensed Consolidated Financial Statements
            
            9ITEM
                2.
            
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            
            32ITEM
                3.
            
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            
            39ITEM
                4.
            
            CONTROLS
                AND PROCEDURES
            
            40PART
                II
            
            OTHER
                INFORMATION
            
            40ITEM
                1.
            
            LEGAL
                PROCEEDINGS
            
            40ITEM
                1A.
            
            RISK
                FACTORS
            
            40ITEM
                2.
            
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            
            41ITEM
                3.
            
            DEFAULTS
                UPON SENIOR SECURITIES
            
            41ITEM
                4.
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            41ITEM
                5.
            
            OTHER
                INFORMATION
            
            42ITEM
                6.
            
            EXHIBITS
            
            42INDEX
                TO EXHIBITS
            
            44





Certification
                of CEO Pursuant to Section 302
            Exhibit
                31.1Certification
                of CFO Pursuant to Section 302
            Exhibit
                31.2Certification
                of CEO and CFO Pursuant to Section 906
            Exhibit
                32.1





2




**STATEMENTS
      REGARDING FORWARD LOOKING INFORMATION**




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


·
              plans
                  for Black Fox and Huizopa, including development, exploration and
                  drilling, and the ability to finance
                  development  ·
              future financing of projects, including the contemplated
                $75 million debt financing for Black Fox  ·
              liquidity to support operations and debt
                repayment  ·
              operational results and future timing of cash
                flow from
                the Montana Tunnels mine;  ·
              the establishment and estimates of mineral reserves
                and
                resources;  ·
              production and production
                costs;  ·
              daily production and mill throughput
                rates;  ·
              cash operating costs;  ·
              total cash costs;  ·
              grades of ore mined and
                milled;  ·
              grade of concentrates
                produced;  ·
              anticipated expenditures for development, exploration,
                and corporate overhead;  ·
              timing and issue of permits;  ·
              expansion plans for existing
                properties;  ·
              estimates of closure costs;  ·
              estimates of environmental
                liabilities;  ·
              our ability to obtain financing to fund our estimated
                expenditure and capital requirements;  ·
              factors impacting our results of operations;
                and  ·
              the impact of adoption of new accounting
                standards.


These
      forward looking statements are subject to numerous risks, uncertainties and
      assumptions including:  unexpected
      changes in business and economic conditions; significant increases or
      decreases in gold and zinc prices; changes in interest and currency exchange
      rates; timing and amount of production; unanticipated grade changes;
      unanticipated recovery or production problems; changes in mining and milling
      costs; operational problems at our mining properties; metallurgy, processing,
      access, availability of materials, equipment, supplies and water; determination
      of reserves; changes in project parameters; costs and timing of development
      of
      new reserves; results of current and future exploration activities; results
      of
      future feasibility studies; joint venture relationships; political or economic
      instability, either globally or in the countries in which we operate; local
      and
      community impacts and issues; timing of receipt of government approvals;
      accidents and labor disputes; environmental costs and risks; competitive
      factors, including competition for property acquisitions; availability of
      external financing on reasonable terms or at all; and the factors discussed
      in
      our Annual Report on Form 10-K for the year ended December 31, 2007 under the
      heading “Risk Factors.” Many of these factors are beyond our ability to control
      and predict. These factors are not intended to represent a complete list of
      the
      general or specific factors that may affect us. We disclaim any obligation
      to
      update forward looking statements, whether as a result of new information,
      future events or otherwise.




**ACCOUNTING
      PRINCIPLES, REPORTING CURRENCY AND OTHER INFORMATION**




Apollo
      Gold Corporation prepares its consolidated financial statements in accordance
      with accounting principles generally accepted in Canada and publishes its
      financial statements in United States dollars. This Quarterly Report on Form
      10-Q should be read in conjunction with our condensed consolidated financial
      statements and related notes included in this quarterly report, as well as
      our
      annual financial statements for the fiscal year ended December 31, 2007
      included in our Annual Report on Form 10-K.




3




Unless
      stated otherwise, all dollar amounts are expressed in United States
      dollars.




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




**NON-GAAP
      FINANCIAL INFORMATION**




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




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




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




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




This
      information differs from measures of performance determined in accordance with
      generally accepted accounting principles (GAAP) in Canada and the United States
      and should not be considered in isolation or a substitute for measures of
      performance prepared in accordance with GAAP. These measures are not necessarily
      indicative of operating profit or cash flow from operations as determined under
      GAAP and may not be comparable to similarly titled measures of other companies.
      See Item 2, Management’s Discussion and Analysis of Financial Condition and
      Results of Operations, for a reconciliation of these non-GAAP measures to our
      Statements of Operations.




**PART
              I**
            **FINANCIAL
                INFORMATION**




**ITEM
              1.**
            **FINANCIAL
                STATEMENTS**




These
      condensed consolidated financial statements should be read in conjunction with
      the financial statements, accompanying notes and other relevant information
      included in the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2007 filed with the Securities and Exchange Commission on
      March 25, 2008.




4


**APOLLO
      GOLD CORPORATION**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(In
      thousands of U.S. dollars)


(Unaudited)




**June
                  30,**
                **2008**
              
              **December
                  31,**
                **2007****ASSETS**CURRENTCash
                  and cash equivalents
              
              $
              602
              
              $
              4,852Derivative
                  instruments (Note 5)
              
              
              1,368
              
              
              2,101Restricted
                  certificates of deposit
              
              
              1,000
              
              
              1,000Accounts
                  receivable and other
              
              
              2,285
              
              
              1,846Prepaids
              
              
              44
              
              
              509Inventories
                  (Note 6)
              
              
              3,805
              
              
              2,169Total
                  current assets
              
              
              9,104
              
              
              12,477Long-term
                  investments (Note 5)
              
              
              1,300
              
              
              1,467Property,
                  plant and equipment
              
              
              52,774
              
              
              48,378Deferred
                  stripping costs
              
              
              3,025
              
              
              4,787Restricted
                  certificates of deposit
              
              
              7,880
              
              
              6,715Other
                  long-term assets
              
              
              1,722
              
              
              84Future
                  income tax assets
              
              
              -
              
              
              1,165TOTAL
                  ASSETS
              
              $
              75,805
              
              $
              75,073**LIABILITIES**CURRENTAccounts
                  payable
              
              $
              4,472
              
              $
              2,748Accrued
                  liabilities
              
              
              1,766
              
              
              2,940Property
                  and mining taxes payable
              
              
              1,268
              
              
              957Notes
                  payable and other current debt (Note 13)
              
              
              4,390
              
              
              7,617Convertible
                  debentures
              
              
              5,710
              
              
              -Total
                  current liabilities
              
              
              17,606
              
              
              14,262Accrued
                  long-term liabilities
              
              
              302
              
              
              289Notes
                  payable
              
              
              96
              
              
              159Convertible
                  debentures
              
              
              -
              
              
              5,537Accrued
                  site closure costs
              
              
              9,812
              
              
              9,442Deferred
                  gain (Note 4)
              
              
              1,587
              
              
              2,511TOTAL
                  LIABILITIES
              
              
              29,403
              
              
              32,200Continuing
                  operations (Note 1)Commitments
                  and contingencies (Note 11)**SHAREHOLDERS’
                  EQUITY**Share
                  capital (Note 7)
              
              
              167,556
              
              
              166,424Equity
                  component of convertible debentures
              
              
              1,987
              
              
              2,238Note
                  warrants
              
              
              2,234
              
              
              2,292Contributed
                  surplus
              
              
              14,972
              
              
              14,591Deficit
              
              
              (140,347
              )
              
              (142,672
              )TOTAL
                  SHAREHOLDERS’ EQUITY
              
              
              46,402
              
              
              42,873TOTAL
                  LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              75,805
              
              $
              75,073




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




5


**APOLLO
      GOLD CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
      (LOSS)**


(U.S.
      dollars and shares in thousands, except per share amounts)


(Unaudited)





**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Revenue
                from sale of minerals
            
            $
            10,019
            
            $
            12,841
            
            $
            25,921
            
            $
            15,731Operating
                expensesDirect
                operating costs
            
            
            9,469
            
            
            7,932
            
            
            18,530
            
            
            10,995Depreciation
                and amortization
            
            
            355
            
            
            380
            
            
            759
            
            
            630General
                and administrative expenses
            
            
            1,159
            
            
            859
            
            
            2,088
            
            
            1,999Accretion
                expense - accrued site closure costs
            
            
            178
            
            
            127
            
            
            355
            
            
            254Amortization
                of deferred gain
            
            
            (369
            )
            
            (358
            )
            
            (924
            )
            
            (429
            )Exploration
                and business development
            
            
            1,001
            
            
            185
            
            
            1,757
            
            
            1,73711,793
            
            
            9,125
            
            
            22,565
            
            
            15,186Operating
                (loss) income
            
            
            (1,774
            )
            
            3,716
            
            
            3,356
            
            
            545Other
                income (expenses)Interest
                income
            
            
            83
            
            
            151
            
            
            209
            
            
            339Interest
                expense (Note 8)
            
            
            (1,021
            )
            
            (1,468
            )
            
            (2,169
            )
            
            (2,613
            )Financing
                costs
            
            
            -
            
            
            -
            
            
            -
            
            
            (480
            )Realized
                gains on derivative contracts
            
            
            1,432
            
            
            -
            
            
            1,950
            
            
            -Unrealized
                gains (losses) on derivative contracts
            
            
            122
            
            
            -
            
            
            (733
            )
            
            -Foreign
                exchange loss and other
            
            
            (108
            )
            
            37
            
            
            (225
            )
            
            (2
            )(Loss)
                income from continuing operations before income taxes
            
            
            (1,266
            )
            
            2,436
            
            
            2,388
            
            
            (2,211
            )Income
                taxes
            
            
            (63
            )
            
            -
            
            
            (63
            )
            
            -Net
                (loss) income and comprehensive income (loss) income for the
                period
            
            $
            (1,329
            )
            $
            2,436
            
            $
            2,325
            
            $
            (2,211
            )Basic
                and diluted net (loss) income per share (Note 10)
            
            $
            (0.01
            )
            $
            0.02
            
            $
            0.01
            
            $
            (0.02
            )Basic
                weighted-average number of shares outstanding
            
            
            161,169
            
            
            143,467
            
            
            160,252
            
            
            143,072Diluted
                weighted-average number of shares
            
            
            161,169
            
            
            144,746
            
            
            165,885
            
            
            143,072




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




6


**APOLLO
      GOLD CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**


(U.S.
      dollars and shares in thousands)


(Unaudited)




**Share
                Capital**
            
            **Equity
                Component****Number**
              **of**
              **Shares**
            
            **Amount**
            
            **of**
                **Convertible**
                **Debentures**
            
            **Note
                Warrants**
            
            **Contributed**
              **Surplus**
            
            **Deficit**
            
            **Total**Balance
                January 1, 2007,
                as adjusted
            
            
            142,282
            
            $
            159,029
            
            $
            1,809
            
            $
            1,062
            
            $
            11,166
            
            $
            (145,088
            )
            $
            27,978Shares
                issued for services
            
            
            120
            
            
            52
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            52Shares
                issued for Huizopa settlement
            
            
            1,000
            
            
            540
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            540Shares
                issued for Black Fox mineral rights
            
            
            1,058
            
            
            527
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            527Flow-through
                shares issued for cash and related compensation warrants
            
            
            7,455
            
            
            3,857
            
            
            -
            
            
            -
            
            
            58
            
            
            -
            
            
            3,915Income
                tax benefits renounced to shareholders of flow-through units issued
                in
                2006
            
            
            -
            
            
            (234
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (234
            )Equity
                component of convertible debentures
            
            
            -
            
            
            -
            
            
            2,292
            
            
            -
            
            
            -
            
            
            -
            
            
            2,292Note
                warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            2,292
            
            
            -
            
            
            -
            
            
            2,292Debenture
                compensation warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            467
            
            
            -
            
            
            467Note
                warrants exercised
            
            
            3,933
            
            
            2,506
            
            
            -
            
            
            (1,062
            )
            
            129
            
            
            -
            
            
            1,573Conversion
                of debentures
            
            
            400
            
            
            147
            
            
            (54
            )
            
            -
            
            
            -
            
            
            -
            
            
            93Redemption
                of debentures
            
            
            -
            
            
            -
            
            
            (1,809
            )
            
            -
            
            
            1,809
            
            
            -
            
            
            -Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            962
            
            
            -
            
            
            962Net
                income and comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,416
            
            
            2,416Balance,
                December 31, 2007
            
            
            156,248
            
            
            166,424
            
            
            2,238
            
            
            2,292
            
            
            14,591
            
            
            (142,672
            )
            
            42,873Warrants
                exercised
            
            
            3,272
            
            
            1,463
            
            
            -
            
            
            (58
            )
            
            (1
            )
            
            -
            
            
            1,404Conversion
                of debentures
            
            
            1,884
            
            
            834
            
            
            (251
            )
            
            -
            
            
            -
            
            
            -
            
            
            583Income
                tax benefits renounced to shareholders of flow-through units issued
                in
                2007
            
            
            -
            
            
            (1,165
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,165
            )Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            382
            
            
            -
            
            
            382Net
                income and comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,325
            
            
            2,325Balance,
                June 30, 2008
            
            
            161,404
            
            $
            167,556
            
            $
            1,987
            
            $
            2,234
            
            $
            14,972
            
            $
            (140,347
            )
            $
            46,402




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




7


**APOLLO
      GOLD CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(In
      thousands of U.S. dollars)


(Unaudited)





**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Operating
                activitiesNet
                (loss) income for the period
            
            $
            (1,329
            )
            $
            2,436
            
            $
            2,325
            
            $
            (2,211
            )Items
                not affecting cash:Depreciation
                and amortization
            
            
            355
            
            
            380
            
            
            759
            
            
            630Amortization
                of deferred stripping costs
            
            
            704
            
            
            558
            
            
            1,762
            
            
            661Financing
                costs
            
            
            -
            
            
            -
            
            
            -
            
            
            174Stock-based
                compensation
            
            
            240
            
            
            189
            
            
            382
            
            
            387Shares
                issued for services and settlement of claims
            
            
            -
            
            
            -
            
            
            -
            
            
            550Accretion
                expense - accrued site closure costs
            
            
            178
            
            
            127
            
            
            355
            
            
            254Accretion
                expense - convertible debentures
            
            
            877
            
            
            1,203
            
            
            1,770
            
            
            2,000Interest
                paid on convertible debentures
            
            
            -
            
            
            (264
            )
            
            (1,016
            )
            
            (529
            )Amortization
                of deferred gain
            
            
            (369
            )
            
            (358
            )
            
            (924
            )
            
            (429
            )Net
                change in value of derivative instruments
            
            
            (1,554
            )
            
            -
            
            
            (1,217
            )
            
            -Other
            
            
            160
            
            
            (6
            )
            
            215
            
            
            (2
            )Net
                change in non-cash operating working capital items (Note
                12)
            
            
            3,468
            
            
            (762
            )
            
            (779
            )
            
            (364
            )Net
                cash provided by operating activities
            
            
            2,730
            
            
            3,503
            
            
            3,632
            
            
            1,121Investing
                activitiesProperty,
                plant and equipment expenditures
            
            
            (2,388
            )
            
            (802
            )
            
            (3,644
            )
            
            (3,677
            )Proceeds
                from settlement of derivative contracts
            
            
            1,432
            
            
            -
            
            
            1,950
            
            
            -Deferred
                stripping costs
            
            
            -
            
            
            (1,496
            )
            
            -
            
            
            (3,748
            )Restricted
                certificate of deposit and other assets
            
            
            (2,183
            )
            
            (499
            )
            
            (2,759
            )
            
            (892
            )Net
                cash used in investing activities
            
            
            (3,139
            )
            
            (2,797
            )
            
            (4,453
            )
            
            (8,317
            )Financing
                activitiesProceeds
                on issuance of convertible debentures and note warrants,
                net
            
            
            -
            
            
            -
            
            
            -
            
            
            8,062Proceeds
                from exercise of warrants
            
            
            -
            
            
            -
            
            
            1,404
            
            
            66Proceeds
                from notes payable and other current debt
            
            
            955
            
            
            -
            
            
            955
            
            
            1,250Payments
                of notes payable
            
            
            (2,782
            )
            
            (1,125
            )
            
            (5,744
            )
            
            (1,485
            )Notes
                receivable from Elkhorn Tunnels, LLC
            
            
            -
            
            
            -
            
            
            -
            
            
            1,865Net
                cash (used in) provided by financing activities
            
            
            (1,827
            )
            
            (1,125
            )
            
            (3,385
            )
            
            9,758Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (30
            )
            
            6
            
            
            (44
            )
            
            2Net
                (decrease) increase in cash and cash equivalents
            
            
            (2,266
            )
            
            (413
            )
            
            (4,250
            )
            
            2,564Cash
                and cash equivalents, beginning of period
            
            
            2,868
            
            
            7,489
            
            
            4,852
            
            
            4,512Cash
                and cash equivalents, end of period (Note 12)
            
            $
            602
            
            $
            7,076
            
            $
            602
            
            $
            7,076SUPPLEMENTAL
                CASH FLOW INFORMATIONInterest
                paid
            
            $
            114
            
            $
            334
            
            $
            1,502
            
            $
            604Income
                taxes paid
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -




See
      Note
      12 for additional supplemental cash flow information.




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




8


**APOLLO
      GOLD CORPORATION**


**Notes
      to the Condensed Consolidated Financial Statements**


**Six
      month period ended June 30, 2008**


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


(Unaudited)


**1.** **CONTINUING
        OPERATIONS**




These
      condensed consolidated financial statements are prepared on the basis of a
      going
      concern which assumes that Apollo Gold Corporation (“Apollo” or the “Company”)
      will realize its assets and discharge its liabilities in the normal course
      of
      business for the foreseeable future. To date the Company has funded its
      operations through issuance of debt and equity securities, joint venture
      contributions from Elkhorn Tunnels, LLC (“Elkhorn”) and cash generated by the
      Montana Tunnels joint venture (Note 4). The Company’s ability to continue as a
      going concern is dependent on its ability to generate cash flow from the Montana
      Tunnels joint venture and/or continue to issue debt and equity
      securities.




If
      the
      Company is unable to generate sufficient cash flow from the Montana Tunnels
      joint venture and/or secure additional financing (see Note 16), it may be unable
      to continue as a going concern and material adjustments would be required to
      the
      carrying value of assets and liabilities and balance sheet classifications
      used.




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




Apollo
      is
      engaged in gold mining including extraction, processing, refining and the
      production of other co-product metals, as well as related activities including
      exploration and development. The Company is the operator of the Montana Tunnels
      mine (the “Mine”), which is a 50% joint venture with Elkhorn. The Mine is an
      open pit mine and mill located in the State of Montana that produces gold dore
      and lead-gold and zinc-gold concentrates. The Company owns the Diamond Hill
      mine, which is also located in Montana and is currently under care and
      maintenance.




Apollo
      has a development property, the Black Fox development project (the “Black Fox
      Project”), which is located near the Township of Matheson in the Province of
      Ontario, Canada. Apollo also owns Mexican subsidiaries that own concessions
      at
      the Huizopa exploration project (the “Huizopa Project”), which is located in the
      Sierra Madres in Chihuahua, Mexico.




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




***(a)***  These
      unaudited condensed consolidated interim financial statements have been prepared
      in accordance with Canadian generally accepted accounting principles (“Canadian
      GAAP”) and except as described in Note 15, conform in all material respects with
      accounting principles generally accepted in the United States (“U.S. GAAP”). The
      accounting policies followed in preparing these financial statements are those
      used by the Company as set out in the audited financial statements for the
      year
      ended December 31, 2007, except as disclosed in *(b)* below.
      Certain information and note disclosures normally included in consolidated
      financial statements prepared in accordance with Canadian GAAP have been
      omitted. These interim financial statements should be read together with the
      Company’s audited financial statements for the year ended December 31,
      2007.




In
      the
      opinion of management, all adjustments considered necessary for fair
      presentation have been included in these financial statements. Interim results
      are not necessarily indicative of the results expected for the fiscal
      year.




9


**APOLLO
      GOLD CORPORATION**


**Notes
      to the Condensed Consolidated Financial Statements**


**Six
      month period ended June 30, 2008**


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


(Unaudited)


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




***(b)*** Changes
        in accounting policies




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





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





**4.** **MONTANA
        TUNNELS JOINT VENTURE**




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




Elkhorn
      receives 55% and Apollo receives 45% of the positive free cash flow, as defined
      in the JV agreement, from the Mine until such time as Elkhorn has received
      cash
      flow of $13 million (at which time Apollo will have received $10.6 million).
      At
      that time, Apollo will become entitled to 60% and Elkhorn 40% of the positive
      free cash flow from the Mine, until both parties have received an equal amount
      (at which time Apollo and Elkhorn will have each received $17.7 million).
      Thereafter, the sharing will be 50/50. Additionally, Elkhorn is entitled to
      a
      10% interest distribution (reduced from 12% effective April 1, 2007) charged
      to
      the joint venture as interest expense (Note 8)  on
      its
      initial contribution of $13 million until it has received cash flow of $13
      million. The interest distribution is based on the declining balance of this
      cash flow of $13 million and, as of June 30, 2008, Elkhorn had received cash
      flow of $12.4 million from the joint venture and Apollo had received $10.1
      million. These cash flows to Elkhorn
      and Apollo are included in net cash used in financing activities below but
      are
      eliminated in the consolidated cash flow.




10


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)




**4.** **MONTANA
        TUNNELS JOINT VENTURE** **(continued)**




Apollo
      accounts for its 50% interest in the Montana Tunnels joint venture using the
      proportionate consolidation method. As of December 31, 2006, the Company
      recorded a deferred gain on the transfer of assets and liabilities to the joint
      venture of $3.8 million. The deferred gain is amortized using the
      units-of-production method over the expected life of the operation based on
      the
      estimated recoverable gold equivalent ounces. Amortization of the deferred
      gain
      was $0.4  million
      and $0.9 million for the three and six months ended June 30, 2008 and
      $0.4  million
      and $0.4 million for the three and six months ended June 30, 2007,
      respectively.




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





**June
                30,**
              **2008**
            
            **December
                31,**
              **2007**CurrentCash
                and cash equivalents
            
            $
            454
            
            $
            306Other
                non-cash current assets
            
            
            3,950
            
            
            3,1904,404
            
            
            3,496Property,
                plant and equipment
            
            
            8,712
            
            
            9,167Deferred
                stripping costs
            
            
            3,025
            
            
            4,787Restricted
                certificates of deposit
            
            
            6,617
            
            
            5,435Total
                assets
            
            $
            22,758
            
            $
            22,885Current
                liabilities
            
            
            3,871
            
            
            3,573Notes
                payable
            
            
            96
            
            
            145Accrued
                site closure costs
            
            
            8,643
            
            
            8,314Total
                liabilities
            
            $
            12,610
            
            $
            12,032




11




**APOLLO
      GOLD CORPORATION**


**Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)


**4.** **MONTANA
        TUNNELS JOINT VENTURE** **(continued)**




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




**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Revenue
                from sale of minerals
            
            $
            10,019
            
            $
            12,841
            
            $
            25,921
            
            $
            15,731Direct
                operating costs
            
            
            9,467
            
            
            7,932
            
            
            18,526
            
            
            10,995Depreciation
                and amortization
            
            
            326
            
            
            354
            
            
            705
            
            
            578Accretion
                expense - accrued site closure costs
            
            
            164
            
            
            116
            
            
            329
            
            
            2329,957
            
            
            8,402
            
            
            19,560
            
            
            11,805Operating
                income
            
            
            62
            
            
            4,439
            
            
            6,361
            
            
            3,926Interest
                income
            
            
            38
            
            
            52
            
            
            90
            
            
            97Interest
                expense
            
            
            (102
            )
            
            (239
            )
            
            (214
            )
            
            (587
            )(Loss)
                income from continuing operations
            
            $
            (2
            )
            $
            4,252
            
            $
            6,237
            
            $
            3,436Net
                cash provided by operating activities
            
            $
            3,987
            
            $
            2,299
            
            $
            8,811
            
            $
            3,265Net
                cash used in investing activities
            
            $
            (684
            )
            $
            (2,128
            )
            $
            (1,361
            )
            $
            (4,855
            )Net
                cash (used in) provided by financing activities
            
            $
            (3,164
            )
            $
            1,150
            
            $
            (7,303
            )
            $
            3,034





Cash
      used
      in financing activities includes cash distributed to the joint venture partners,
      Apollo and Elkhorn. These cash flows eliminate upon consolidation.





**5.** **FAIR
        VALUE OF DERIVATIVE INSTRUMENTS AND LONG-TERM
        INVESTMENTS**




The
      fair
      value of the Company’s derivative instruments, which are comprised of lead and
      zinc contracts, are $1.4 million and $2.1 million as of June 30, 2008 and
      December 31, 2007, respectively. The cost basis of these instruments at June
      30,
      2008 and December 31, 2007 is $nil and, as a result, the Company has recorded
      unrealized gains of $1.4 million and $2.1 million as of June 30, 2008 and
      December 31, 2007, respectively.




The
      Company acquired auction rate securities (“ARS”) in 2007, which are recorded in
      Long-term investments, with a face value of $1.5 million. The Company has
      recorded an other than temporary impairment on its ARS in the consolidated
      statement of $0.1 million and $0.2 million during the three and six months
      ended
      June 30, 2008, respectively, and as such, no amounts have been recorded in
      other
      comprehensive income. The adjusted
      cost basis and fair value of ARS at June 30, 2008 are $1.3 million. See Note
      13(b). On June 4, 2008, the ARS were pledged as collateral for a $0.96 million
      margin loan.




12


**APOLLO
        GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**6.            **INVENTORIES****




Inventories
      consist of:




**June
                30,**
              **2008**
            
            **December
                31,**
              **2007**Concentrate
                inventory
            
            $
            491
            
            $
            341Doré
                inventory
            
            
            -
            
            
            56Stockpiled
                ore inventory
            
            
            2,317
            
            
            749Materials
                and supplies
            
            
            997
            
            
            1,023$
            3,805
            
            $
            2,169





**7.** **SHARE
        CAPITAL**




***(a)*** Shares
        issued in 2008




For
      the
      six months ended June 30, 2008, there were 3,271,834 shares issued upon exercise
      of warrants for proceeds of $1.4 million and 1,883,800 shares issued upon
      conversion of $0.9 million face value of February 2007 Series-A convertible
      debentures.




***(b)*** Warrants




The
      following summarizes outstanding warrants as at June 30, 2008:




**Date
                Issued**
            
            **Number
                of Warrants and of**
              **Shares
                Issuable upon Exercise**
            
            **Exercise
                Price**
            
            **Expiry
                Date**Exercisable
                in US$November
                8, 2006
            
            8,678,943
            
            0.50
            
            November
                8, 2009February
                23, 2007
            
            17,933,200
            
            0.50
            
            February
                23, 200926,612,143Exercisable
                in Cdn$October
                30, 2006
            
            1,111,111
            
            Cdn$
                1.15
            
            October
                30, 2008March
                31, 2008
            
            5,250
            
            Cdn$
                1.15
            
            October
                30, 2008October
                31, 2007
            
            372,727
            
            Cdn$
                0.55
            
            April
                30, 20091,489,08828,101,231





In
      addition, 156,166 broker compensation warrants are outstanding which were issued
      on October 30, 2006. Each broker compensation warrant is exercisable at Cdn$0.45
      for two years into one common share of the Company and one-half of one share
      purchase warrant, with each whole share purchase warrant exercisable into one
      common share of the Company at Cdn$1.15. The broker compensation warrants expire
      on October 30, 2008.




13


**APOLLO
        GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)
  7.            SHARE
          CAPITAL (continued)


***(c)*** Options




A
      summary
      of information concerning outstanding stock options at June 30, 2008 is as
      follows:






**Number
                of**
              **Common**
              **Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                Per Share**Balance,
                December 31, 2007
            
            
            6,227,503
            
            $
            0.81Options
                granted
            
            
            2,152,488
            
            
            0.66Options
                forfeited
            
            
            (84,358
            )
            
            0.59Balance,
                June 30, 2008
            
            
            8,295,633
            
            $
            0.77





The
      following table summarizes information concerning outstanding and exercisable
      stock options at June 30, 2008:




**Options
                Outstanding**
            
            **Options
                Exercisable****Number**
              **Outstanding**
            
            **Expiry
                Date**
            
            **Weighted
                Average**
              **Exercise**
              **Price
                Per Share**
            
            **Weighted
                Average**
              **Remaining
                Contractual Life (in years****)**
            
            **Number**
              **Exercisable**
            
            **Weighted
                Average**
              **Exercise**
              **Price
                Per Share**100,000
            
            
            September
                1, 2011
            
            $
            0.46
            
            
            3.2
            
            
            50,000
            
            $
            0.46678,200
            
            
            February
                18, 2013
            
            
            2.24
            
            
            4.6
            
            
            678,200
            
            
            2.24260,000
            
            
            March
                10, 2014
            
            
            2.05
            
            
            5.7
            
            
            260,000
            
            
            2.0525,000
            
            
            May
                19, 2014
            
            
            1.44
            
            
            5.9
            
            
            25,000
            
            
            1.4421,200
            
            
            August
                10, 2014
            
            
            0.95
            
            
            6.1
            
            
            21,200
            
            
            0.951,162,000
            
            
            March
                10, 2015
            
            
            0.65
            
            
            6.7
            
            
            1,162,000
            
            
            0.65100,000
            
            
            August
                4, 2015
            
            
            0.27
            
            
            7.1
            
            
            100,000
            
            
            0.27300,000
            
            
            December
                12, 2015
            
            
            0.20
            
            
            7.5
            
            
            300,000
            
            
            0.20125,000
            
            
            March
                28, 2016
            
            
            0.65
            
            
            7.7
            
            
            125,000
            
            
            0.65200,000
            
            
            May
                23, 2016
            
            
            0.53
            
            
            7.9
            
            
            200,000
            
            
            0.53108,000
            
            
            August
                10, 2016
            
            
            0.48
            
            
            8.1
            
            
            54,000
            
            
            0.4840,000
            
            
            November
                9, 2016
            
            
            0.32
            
            
            8.4
            
            
            20,000
            
            
            0.322,994,920
            
            
            February
                6, 2017
            
            
            0.57
            
            
            8.6
            
            
            1,497,460
            
            
            0.5749,825
            
            
            August
                13, 2017
            
            
            0.46
            
            
            9.1
            
            
            -
            
            
            -2,131,488
            
            
            March
                27, 2018
            
            
            0.66
            
            
            9.7
            
            
            -
            
            
            -8,295,633
            
            
            
            
            $
            0.77
            
            
            8.0
            
            
            4,492,860
            
            $
            0.90





***(d)*** Stock-based
        compensation




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





**Six
                months ended June 30,****2008**
            
            **2007**Risk
                free interest rate
            
            
            2.9%
            
            
            4.0%Dividend
                yield
            
            
            0%
            
            
            0%Volatility
            
            
            73%
            
            
            71%Expected
                life in years
            
            
            6%
            
            
            6%Weighted
                average grant-date fair value of stock options
            
            $
            0.44
            
            $
            0.38






14


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**8.** **INTEREST
        EXPENSE**




Interest
      expense consists of:




**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Accretion
                on convertible debentures
            
            $
            877
            
            $
            1,203
            
            $
            1,770
            
            $
            2,000Interest
                related to Montana Tunnels joint venture agreement (Note
                4)
            
            
            22
            
            
            171
            
            
            101
            
            
            449Capital
                leases and other
            
            
            122
            
            
            94
            
            
            298
            
            
            164$
            1,021
            
            $
            1,468
            
            $
            2,169
            
            $
            2,613





**9.** **INCOME
        TAXES**




The
      Company recorded $0.1 million in income tax expense for the period ended June
      30, 2008 for alternative minimum taxes resulting on its income from U.S.
      operations. There was no other income tax expense recorded for the period since
      additional taxable income will be offset by a recovery of prior tax losses.
      The
      Company did not record a recovery for income taxes for the period ended June
      30,
      2007 as the net loss carry forwards are fully offset by a valuation
      allowance.





**10.** **EARNINGS
        PER SHARE**




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




Earnings
      used in determining earnings per share are presented below.




**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                (loss) income
            
            $
            (1,329
            )
            $
            2,436
            
            $
            2,325
            
            $
            (2,211
            )Weighted
                average number of shares, basic
            
            
            161,168,592
            
            
            143,467,186
            
            
            160,252,248
            
            
            143,072,061Dilutive
                securities:Options
            
            
            -
            
            
            225,349
            
            
            549,662
            
            
            -Warrants
            
            
            -
            
            
            1,053,341
            
            
            5,083,533
            
            
            -Weighted
                average number of shares, diluted
            
            
            161,168,592
            
            
            144,745,876
            
            
            165,885,443
            
            
            143,072,061Basic
                and diluted net (loss) income per share
            
            $
            (0.01
            )
            $
            0.02
            
            $
            0.01
            
            $
            (0.02
            )





For
      the
      calculation of EPS for the six months ended June 30, 2008, warrants and stock
      options to purchase 5.5 million shares of common stock at an average
      exercise price of $1.02 were outstanding, but were not included in the
      computation of diluted weighted average number of shares (the “EPS computation”)
      because the strike prices of the warrants and stock options exceeded the average
      price of the common shares. For the calculation of EPS for the three months
      ended June 30, 2007, warrants and stock options to purchase 36.3 million
      shares of common stock at an average exercise price of $0.58 were outstanding,
      but were not included in the EPS computation for the same reason. Due to a
      net
      loss for the three months ended June 30, 2008, 36.6 million warrants and stock
      options were excluded from the EPS computation because their effect would have
      been anti-dilutive and for the six months ended




15


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**10.          
      **EARNINGS
      PER SHARE**** **(continued)**




June
      30,
      2007, 43.2 million warrants and stock options were excluded from the EPS
      computation for the same reason. Also, for the three and six months ended June
      30, 2008, outstanding convertible debentures that were convertible at $0.50
      per
      share into 14.9 million common shares were not included in the EPS computation
      because their effect would have been anti-dilutive. For the three and six months
      ended June 30, 2007, outstanding convertible debentures that were convertible
      at
      an average of $0.60 per share into 28.8 million common shares were not included
      in the EPS computation because their effect would have been
      anti-dilutive.





**11.** **COMMITMENTS
        AND CONTINGENCIES**




***(a)*** WARN
        Act
        litigation at Montana Tunnels




In
      May
      2006, a purported class action lawsuit was filed in U.S. Federal Court Missoula
      Division of Montana by 14 former employees at the Montana Tunnels mine alleging
      (i) violations of the Worker Adjustment and Retraining Notification Act of
      1988
      (the “WARN Act”) and the Montana Wage Act and (ii) breach of contract. The
      allegations related to the termination of the employees following the cessation
      of mining in October 2005. Specifically, the plaintiffs alleged that the Company
      gave a deficient WARN Act notice in connection with the terminations and were
      seeking damages for back pay and benefits. A negotiated settlement was reached
      between the Company and the plaintiffs and a final cash settlement was
      paid on July 8, 2008.




***(b)*** Asset
        Purchase Agreement with St Andrew for Stock Mill Complex




On
      June
      6, 2008, the Company entered into a binding asset purchase agreement (the
“Binding Agreement”) with St Andrew Goldfields Ltd. (“St Andrew”), a significant
      shareholder of the Company, pursuant to which St Andrew agreed to sell its
      Stock
      Mill complex, including its mill and related equipment, infrastructure,
      laboratory and tailings facilities, located near Timmins, Ontario (collectively,
      the “Stock Mill Complex”), to Apollo for a purchase price of $19.6 million
      (Cdn$20 million) (the “Purchase Price”). In connection with the acquisition of
      the Stock Mill Complex, Apollo agreed to assume certain contractual liabilities
      of St Andrew and environmental liabilities relating to events after the closing
      of the transactions contemplated by the Binding Agreement.  On
      June
      30, 2008, the Company entered into an amending agreement (the “Amending
      Agreement”) to amend certain terms of the Binding Agreement. As of June 6 and
      30, 2008, St Andrew held approximately 28.3 million common shares of the Company
      (17.5% of the outstanding common shares).




The
      Amending Agreement provides, among other things, that the purchase and sale
      of
      the Stock Mill Complex will take place on the date that the final payment is
      made by Apollo to St Andrew, being on or before August 29, 2008, with no further
      right of Apollo to extend such date. Apollo paid a $1.5 million (Cdn$1.5
      million) deposit to St Andrew on June 10, 2008, recorded in Other long-term
      assets, and the Amending Agreement provides that the balance of the Purchase
      Price (the “Balance”) is due and payable as follows: (i) $3.9 million (Cdn$4.0
      million) in cash is to be paid by Apollo to St Andrew on July 3, 2008; (ii)
      $5.9
      million (Cdn$6.0 million) in cash is to be paid by Apollo to St Andrew on or
      before July 31, 2008; and (iii) $8.3 million (Cdn$8.5 million) (the “Final
      Payment”) is to be paid by Apollo to St Andrew on or before August 29,
      2008.




16


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)


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




The
      Final
      Payment was made on July 28, 2008 (see Note 16(c)). In addition, Apollo paid
      $0.1 million (Cdn$0.1 million) interest on the Balance from June 30, 2008,
      at a
      rate of 12% per annum in connection with the Final Payment.




**12.** **SUPPLEMENTAL
        CASH FLOW INFORMATION**




***(a)*** Net
        changes in non-cash operating working capital items are:




**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**(Increase)
                decrease in:Accounts
                receivable and other
            
            $
            1,579
            
            $
            (938
            )
            $
            (439
            )
            $
            (1,599
            )Prepaids
            
            
            179
            
            
            172
            
            
            423
            
            
            201Inventories
            
            
            282
            
            
            (284
            )
            
            (1,636
            )
            
            (865
            )Increase
                (decrease) in:Accounts
                payable
            
            
            2,416
            
            
            (373
            )
            
            1,724
            
            
            406Accrued
                liabilities
            
            
            (1,146
            )
            
            470
            
            
            (1,162
            )
            
            1,365Property
                and mining taxes payable
            
            
            158
            
            
            191
            
            
            311
            
            
            128$
            3,468
            
            $
            (762
            )
            $
            (779
            )
            $
            (364
            )





***(b)*** Components
        of cash and cash equivalents are:




**June
                30,**
              **2008**
            
            **June
                30,**
              **2007**Cash
            
            $
            174
            
            $
            1,106Cash
                equivalents
            
            
            428
            
            
            5,970Cash
                and cash equivalents
            
            $
            602
            
            $
            7,076





***(c)*** Non-cash
        transactions




During
      the three and six months ended June 30, 2008, Series 2007-A convertible
      debentures with a face value of $0.2 million and $0.9 million, respectively,
      were converted into common shares of the Company and the Company recorded a
      reduction of $0.1 million and $0.6 million, respectively, in convertible
      debentures and a corresponding increase in equity. Also, during the three and
      six months ended June 30, 2008, property, plant and equipment totaling $1.4
      million was acquired via issuance of a promissory note. During the six months
      ended June 30, 2008, future income tax assets of $1.2 million were transferred
      to share capital upon renouncement of expenditures in connection with a
      flow-through share offering completed in October 2007.




During
      the three and six months ended June 30, 2007, property, plant and equipment
      totaling $0.3 million and $0.3 million, respectively, was acquired via issuance
      of a promissory note. During the six months ended June 30, 2007, the Company
      issued agent’s compensation warrants with a value of $0.3 million for services
      rendered in connection with the issuance of the Series 2007-A convertible
      debentures.




17


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**13.** **FAIR
        VALUE OF FINANCIAL INSTRUMENTS**




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




***(a)*** Capital
        Risk Management




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





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





***(b)*** Credit
        Risk




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




The
      Company assesses quarterly whether there has been an impairment of the financial
      assets of the Company. Other than disclosed in Note 5 related to ARS, the
      Company has not recorded an impairment on any of the financial assets of the
      Company during the six month period ended June 30, 2008. Apollo continues to
      maintain a portion of its investments in ARS, which are floating rate securities
      that are marketed by financial institutions with auction reset dates at 28
      day
      intervals to provide short-term liquidity. All ARS were rated Aaa when
      purchased, pursuant to Apollo’s investment policy. Beginning in August 2007, a
      number of auctions began to fail and the Company is currently holding ARS with
      a
      par value of $1.5 million which currently lack liquidity. Apollo’s ARS were
      originally structured and marketed by Lehman Brothers, Inc., a major U.S.
      investment bank. All of Apollo’s ARS have continued to make regular interest
      payments. Apollo’s ARS were downgraded to Aa during the second quarter of 2008.
      If uncertainties in the credit and capital markets persist or Apollo experiences
      further downgrades on its ARS holdings, the Company may incur additional
      impairments, which may continue to be judged other than temporary. Apollo
      believes that the current illiquidity of its ARS will not have a material impact
      on Apollo’s ability to carry on its business.




18


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)


**13.**** **FAIR
      VALUE OF FINANCIAL INSTRUMENTS (continued)**





The
      Company’s maximum exposure to credit risk is represented by the carrying amount
      on the balance sheet, which has not changed significantly since December 31,
      2007. The financial assets past due do net exceed 1% of total carrying
      value.





***(c)*** Liquidity
        Risk




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





Trade
      payables and accrued liabilities are paid in the normal course of business
      typically according to their terms, which are typically due thirty days or
      less.
      The Company ensures that there are sufficient committed loan facilities to
      meet
      its short-term business requirements, taking into account its anticipated cash
      flows from operations and its holdings of cash and cash equivalents. At June
      30,
      2008, the Company is in compliance with its debt covenants. The Company’s
      overall liquidity risk has not changed significantly from 2007.





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





**Payment
                Due by Period**
              **As
                of June 30, 2008**
            
            **As
                of**
              **December
                31, 2007****Within**
              **1
                Year**
            
            **1-3**
              **Years**
            
            **3-5**
              **Years**
            
            **Over**
              **5
                Years**
            
            **Total**
            
            **Total**Accounts
                payable, accrued liabilities and property and mining taxes
                payable
            
            $
            7,506
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            7,506
            
            $
            6,645Notes
                payable and other current debt
            
            
            4,390
            
            
            96
            
            
            -
            
            
            -
            
            
            4,486
            
            
            7,776Convertible
                debentures
            
            
            7,438
            
            
            -
            
            
            -
            
            
            -
            
            
            7,438
            
            
            8,380Interest
                on Convertible debentures
            
            
            1,339
            
            
            -
            
            
            -
            
            
            -
            
            
            1,339
            
            
            2,711Operating
                lease obligations
            
            
            83
            
            
            42
            
            
            -
            
            
            -
            
            
            125
            
            
            183Capital
                expenditures
            
            
            18,153
            
            
            -
            
            
            -
            
            
            -
            
            
            18,153
            
            
            21$
            38,909
            
            $
            138
            
            $
            -
            
            $
            -
            
            $
            39,047
            
            $
            25,716





***(d)*** Currency
        Risk




Financial
      instruments that impact the Company’s net income or other comprehensive income
      due to currency fluctuations include: Canadian dollar denominated cash and
      cash
      equivalents and accounts payable. For the three and six months ended June 30,
      2008, the sensitivity of the Company’s net income due to changes in the exchange
      rate between the Canadian dollar and the United States dollar would have
      impacted net income by $0.1 and $0.3 million, respectively, for a 10% increase
      or decrease in the Canadian dollar.




19


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**13.**** **FAIR
      VALUE OF FINANCIAL INSTRUMENTS (continued)**





***(e)*** Interest
        Rate Risk




The
      Company is exposed to interest rate risk on its outstanding borrowings and
      short-term investments. Currently, the Company’s outstanding borrowings consist
      of (1) a credit facility with a balance  of
      $1.7
      million at June 30, 2008, (2) the Series 2007-A convertible debentures (“the
      Debentures”) which have an aggregate $7.4 million face value at June 30, 2008
      and (3) a margin loan, included within Notes payable and other current debt,
      with a balance of $0.9 million which is secured by an auction rate security
      (Note 5). The credit facility and the margin loan both have a floating interest
      rate based on LIBOR plus 1.25%, and the Debentures have a stated rate of 18%
      which increased from 12% on February 23, 2008 as part of the original terms.
      The
      Company monitors its exposure to interest rates and has not entered into any
      derivative contracts to manage this risk. The weighted average interest rate
      paid by the Company during the three and six months ended June 30, 2008 on
      its
      outstanding borrowings was 3.9% and 9.9%, respectively.





For
      the
      three and six months ended June 30, 2008, a 1% increase or decrease in floating
      interest rates would not have had a material impact on the amount of interest
      expense recorded during those periods.





***(f)*** Commodity
        Price Risk




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




On
      October 15, 2007, in order to meet certain loan criteria of the credit facility
      mentioned in (e) above, the Company entered into certain option contracts to
      buy
      and sell 2,267 tonnes (approximately 5,000,000 pounds) of lead and 3,418 tonnes
      (approximately 7,500,000 pounds) of zinc which equates to approximately 65%
      and
      40%, respectively, of Apollo's share of lead and zinc production from the Mine
      during the 12-month term of the facility. Approximately one quarter of the
      contracts remain outstanding at June 30, 2008. The lead and zinc option
      contracts are in the form of a no premium collar (buy a put, sell a call) at
      the
      following prices: Lead - put $1.40 per lb, call $1.90 per lb.; Zinc - put $1.20
      per lb, call $1.54 per lb. (See Note 16(a)).





***(g)*** Fair
        Value Estimation




The
      fair
      value of financial instruments that are not traded in an active market (such
      as
      derivative instruments) is determined using a Black-Scholes model based on
      assumptions that are supported by observable current market conditions. Changes
      in these assumptions to reasonably possible alternative assumptions would not
      significantly affect the Company’s results.




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




20


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**14.** **SEGMENTED
        INFORMATION**




Apollo
      operates the Montana Tunnels mine (a 50% joint venture) in the United States
      and
      the Black Fox development project in Canada. The reportable segments have been
      determined at the level where decisions are made on the allocation of resources
      and capital and where performance is measured. The segment information for
      Montana Tunnels assets and liabilities and the results of operations are
      reported under the proportionate consolidation method as a result of the JV
      Agreement (Note 4). The Montana Tunnels assets and liabilities and results
      of
      operations of the Montana Tunnels joint venture disclosed in Note 4 differ
      from
      the amounts below due to the inclusion of assets and liabilities and results
      of
      operations of Montana Tunnels Mining, Inc. not pertaining to the Montana Tunnels
      joint venture which primarily relate to the Diamond Hill mine. The accounting
      policies for these segments are the same as those followed by the Company as
      a
      whole.




Amounts
      as at June 30, 2008 are as follows:


**Montana**
              **Tunnels**
            
            **Black**
              **Fox**
            
            **Corporate**
              **and
                Other**
            
            **Total**Cash
                and cash equivalents
            
            $
            454
            
            $
            41
            
            $
            107
            
            $
            602Other
                non-cash current assets
            
            
            4,008
            
            
            122
            
            
            4,372
            
            
            8,5024,462
            
            
            163
            
            
            4,479
            
            
            9,104Long-term
                investments
            
            
            -
            
            
            -
            
            
            1,300
            
            
            1,300Property,
                plant and equipment
            
            
            8,720
            
            
            40,964
            
            
            3,090
            
            
            52,774Deferred
                stripping costs
            
            
            3,025
            
            
            -
            
            
            -
            
            
            3,025Restricted
                certificates of deposit
            
            
            7,240
            
            
            632
            
            
            8
            
            
            7,880Other
                long-term assets
            
            
            -
            
            
            1,722
            
            
            -
            
            
            1,722Total
                assets
            
            $
            23,447
            
            $
            43,481
            
            $
            8,877
            
            $
            75,805Current
                liabilities
            
            $
            3,881
            
            $
            633
            
            $
            13,092
            
            $
            17,606Notes
                payable and other long-term liabilities
            
            
            96
            
            
            -
            
            
            302
            
            
            398Accrued
                site closure costs
            
            
            9,349
            
            
            463
            
            
            -
            
            
            9,812Deferred
                gain
            
            
            1,587
            
            
            -
            
            
            -
            
            
            1,587Total
                liabilities
            
            $
            14,913
            
            $
            1,096
            
            $
            13,394
            
            $
            29,403





Amounts
      as at June 30, 2007 are as follows:




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




21


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)


**14.** **SEGMENTED
      INFORMATION (continued)**





Amounts
      for the three and six month periods ended June 30, 2008 and 2007, respectively,
      are as follows:




**Three
                months ended June 30, 2008****Montana**
              **Tunnels**
            
            **Black
                Fox**
            
            **Corporate
                and Other**
            
            **Total**Revenue
                from sale of minerals
            
            $
            10,019
            
            $
            -
            
            $
            -
            
            $
            10,019Direct
                operating costs
            
            
            9,469
            
            
            -
            
            
            -
            
            
            9,469Depreciation
                and amortization
            
            
            327
            
            
            -
            
            
            28
            
            
            355General
                and administrative expenses
            
            
            -
            
            
            -
            
            
            1,159
            
            
            1,159Accretion
                expense - accrued site closure costs
            
            
            178
            
            
            -
            
            
            -
            
            
            178Amortization
                of deferred gain
            
            
            (369
            )
            
            -
            
            
            -
            
            
            (369
            )Exploration
                and business development
            
            
            -
            
            
            25
            
            
            976
            
            
            1,0019,605
            
            
            25
            
            
            2,163
            
            
            11,793Operating
                income (loss)
            
            
            414
            
            
            (25
            )
            
            (2,163
            )
            
            (1,774
            )Interest
                income
            
            
            38
            
            
            -
            
            
            45
            
            
            83Interest
                expense
            
            
            (102
            )
            
            -
            
            
            (919
            )
            
            (1,021
            )Realized
                gains on derivative contracts
            
            
            -
            
            
            -
            
            
            1,432
            
            
            1,432Unrealized
                gains on derivative contracts
            
            
            -
            
            
            -
            
            
            122
            
            
            122Foreign
                exchange loss and other
            
            
            -
            
            
            -
            
            
            (108
            )
            
            (108
            )Income
                (loss) from continuing operations
            
            $
            350
            
            $
            (25
            )
            $
            (1,591
            )
            $
            (1,266
            )Investing
                activitiesProperty,
                plant and equipment expenditures and deferred stripping
                expenditures
            
            $
            98
            
            $
            3,673
            
            $
            42
            
            $
            3,813




**Six
                months ended June 30, 2008****Montana**
              **Tunnels**
            
            **Black
                Fox**
            
            **Corporate
                and Other**
            
            **Total**Revenue
                from sale of minerals
            
            $
            25,921
            
            $
            -
            
            $
            -
            
            $
            25,921Direct
                operating costs
            
            
            18,530
            
            
            -
            
            
            -
            
            
            18,530Depreciation
                and amortization
            
            
            705
            
            
            -
            
            
            54
            
            
            759General
                and administrative expenses
            
            
            -
            
            
            -
            
            
            2,088
            
            
            2,088Accretion
                expense - accrued site closure costs
            
            
            355
            
            
            -
            
            
            -
            
            
            355Amortization
                of deferred gain
            
            
            (924
            )
            
            -
            
            
            -
            
            
            (924
            )Exploration
                and business development
            
            
            -
            
            
            50
            
            
            1,707
            
            
            1,75718,666
            
            
            50
            
            
            3,849
            
            
            22,565Operating
                income (loss)
            
            
            7,255
            
            
            (50
            )
            
            (3,849
            )
            
            3,356Interest
                income
            
            
            90
            
            
            -
            
            
            119
            
            
            209Interest
                expense
            
            
            (214
            )
            
            -
            
            
            (1,955
            )
            
            (2,169
            )Realized
                gains on derivative contracts
            
            
            -
            
            
            -
            
            
            1,950
            
            
            1,950Unrealized
                gains on derivative contracts
            
            
            -
            
            
            -
            
            
            (733
            )
            
            (733
            )Foreign
                exchange loss and other
            
            
            -
            
            
            -
            
            
            (225
            )
            
            (225
            )Income
                (loss) from continuing operations
            
            $
            7,131
            
            $
            (50
            )
            $
            (4,693
            )
            $
            2,388Investing
                activitiesProperty,
                plant and equipment expenditures and deferred stripping
                expenditures
            
            $
            178
            
            $
            4,849
            
            $
            42
            
            $
            5,069





22


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)


**14.** **SEGMENTED
      INFORMATION (continued)**




**Three
                months ended June 30, 2007****Montana**
              **Tunnels**
            
            **Black
                Fox**
            
            **Corporate
                and Other**
            
            **Total**Revenue
                from sale of minerals
            
            $
            12,841
            
            $
            -
            
            $
            -
            
            $
            12,841Direct
                operating costs
            
            
            7,932
            
            
            -
            
            
            -
            
            
            7,932Depreciation
                and amortization
            
            
            354
            
            
            -
            
            
            26
            
            
            380General
                and administrative expenses
            
            
            -
            
            
            -
            
            
            859
            
            
            859Accretion
                expense - accrued site closure costs
            
            
            127
            
            
            -
            
            
            -
            
            
            127Amortization
                of deferred gain
            
            
            (358
            )
            
            -
            
            
            -
            
            
            (358
            )Exploration
                and business development
            
            
            -
            
            
            -
            
            
            185
            
            
            1858,055
            
            
            -
            
            
            1,070
            
            
            9,125Operating
                income (loss)
            
            
            4,786
            
            
            -
            
            
            (1,070
            )
            
            3,716Interest
                income
            
            
            52
            
            
            -
            
            
            99
            
            
            151Interest
                expense
            
            
            (239
            )
            
            -
            
            
            (1,229
            )
            
            (1,468
            )Foreign
                exchange gain and other
            
            
            -
            
            
            -
            
            
            37
            
            
            37Income
                (loss) from continuing operations
            
            $
            4,599
            
            $
            -
            
            $
            (2,163
            )
            $
            2,436Investing
                activitiesProperty,
                plant and equipment expenditures and deferred stripping
                expenditures
            
            $
            1,962
            
            $
            618
            
            $
            4
            
            $
            2,584




**Six
                months ended June 30, 2007****Montana**
              **Tunnels**
            
            **Black
                Fox**
            
            **Corporate
                and Other**
            
            **Total**Revenue
                from sale of minerals
            
            $
            15,731
            
            $
            -
            
            $
            -
            
            $
            15,731Direct
                operating costs
            
            
            10,995
            
            
            -
            
            
            -
            
            
            10,995Depreciation
                and amortization
            
            
            578
            
            
            -
            
            
            52
            
            
            630General
                and administrative expenses
            
            
            -
            
            
            -
            
            
            1,999
            
            
            1,999Accretion
                expense - accrued site closure costs
            
            
            254
            
            
            -
            
            
            -
            
            
            254Amortization
                of deferred gain
            
            
            (429
            )
            
            -
            
            
            -
            
            
            (429
            )Exploration
                and business development
            
            
            -
            
            
            -
            
            
            1,737
            
            
            1,73711,398
            
            
            -
            
            
            3,788
            
            
            15,186Operating
                gain (loss)
            
            
            4,333
            
            
            -
            
            
            (3,788
            )
            
            545Interest
                income
            
            
            97
            
            
            -
            
            
            242
            
            
            339Interest
                expense
            
            
            (587
            )
            
            -
            
            
            (2,026
            )
            
            (2,613
            )Financing
                costs
            
            
            -
            
            
            -
            
            
            (480
            )
            
            (480
            )Foreign
                exchange loss and other
            
            
            -
            
            
            -
            
            
            (2
            )
            
            (2
            )Income
                (loss) from continuing operations
            
            $
            3,843
            
            $
            -
            
            $
            (6,054
            )
            $
            (2,211
            )Investing
                activitiesProperty,
                plant and equipment expenditures and deferred stripping
                expenditures
            
            $
            4,341
            
            $
            1,458
            
            $
            1,951
            
            $
            7,750





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




The
      Company prepares its consolidated financial statements in accordance with
      Canadian GAAP. The following adjustments and/or additional disclosures would
      be
      required in order to present the financial statements in accordance with U.S.
      GAAP and with practices prescribed by the U.S. Securities and Exchange
      Commission at June 30, 2008 and December 31, 2007 and for the three and six
      months ended June 30, 2008 and 2007.




23


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)


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





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




**June
                30,**
              **2008**
            
            **Dec
                31,**
              **2007****Total
                assets in accordance with Canadian GAAP**
            
            **$**
            **75,805**
            
            **$**
            **75,073**Deferred
                financing costs (a)
            
            
            53
            
            
            160Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            (12,610
            )
            
            (12,032
            )Impairment
                of property, plant and equipment, and change in depreciation and
                amortization(b)(ii)
            
            
            (1,720
            )
            
            (1,812
            )Deferred
                stripping costs (b)(iii)
            
            
            (3,025
            )
            
            (4,787
            )Black
                Fox development costs(c)
            
            
            (29,159
            )
            
            (26,827
            )Convertible
                debentures (d)
            
            
            288
            
            
            509Income
                taxes related to flow-through share issuance (e)
            
            
            -
            
            
            (1,165
            )**Total
                assets in accordance with U.S. GAAP**
            
            **$**
            **29,632**
            
            **$**
            **29,119**





**Total
                liabilities in accordance with Canadian GAAP**
            
            **$**
            **29,403**
            
            **$**
            **32,200**Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            (12,610
            )
            
            (12,032
            )Deferred
                gain (b)(i)
            
            
            (1,587
            )
            
            (2,511
            )Convertible
                debentures (d)
            
            
            1,041
            
            
            2,063Income
                taxes related to flow-through share issuance (e)
            
            
            -
            
            
            628**Total
                liabilities in accordance with U.S. GAAP**
            
            **$**
            **16,247**
            
            **$**
            **20,348**


**Total
                shareholders’ equity in accordance with Canadian
                GAAP**
            
            **$**
            **46,402**
            
            **$**
            **42,873**Deferred
                financing costs (a)
            
            
            53
            
            
            160Deferred
                gain (b)(i)
            
            
            1,587
            
            
            2,511Impairment
                of property, plant and equipment, and change in depreciation and
                amortization(b)(ii)
            
            
            (1,720
            )
            
            (1,812
            )Deferred
                stripping costs (b)(iii)
            
            
            (3,025
            )
            
            (4,787
            )Black
                Fox development costs (c)
            
            
            (29,159
            )
            
            (26,827
            )Convertible
                debentures (d)
            
            
            (753
            )
            
            (1,554
            )Income
                taxes related to flow-through share issuance (e)
            
            
            -
            
            
            (1,793
            )**Total
                shareholders’ equity in accordance with U.S. GAAP**
            
            **$**
            **13,385**
            
            **$**
            **8,771**


**Total
                shareholders’ equity and liabilities in accordance with U.S.
                GAAP**
            
            **$**
            **29,632**
            
            **$**
            **29,119**





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





**June
                30,**
              **2008**
            
            **Dec
                31,**
              **2007**Share
                capital
            
            $
            168,048
            
            $
            165,790Note
                warrants
            
            
            2,234
            
            
            2,292Contributed
                surplus
            
            
            41,530
            
            
            39,463Deficit
            
            
            (198,427
            )
            
            (198,774
            )**Total
                shareholders’ equity in accordance with U.S. GAAP**
            
            **$**
            **13,385**
            
            **$**
            **8,771**





24


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)


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





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




**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                (loss) income for the period based on Canadian GAAP
            
            $
            (1,329
            )
            $
            2,436
            
            $
            2,325
            
            $
            (2,211
            )Financing
                costs (a)
            
            
            (54
            )
            
            -
            
            
            (107
            )
            
            -Amortization
                of deferred gain (b)(i)
            
            
            (369
            )
            
            (358
            )
            
            (924
            )
            
            (429
            )Change
                in depreciation of property, plant and equipment (b)(ii)
            
            
            39
            
            
            50
            
            
            92
            
            
            94Capitalized
                deferred stripping costs and amortization (b)(iii)
            
            
            704
            
            
            (938
            )
            
            1,762
            
            
            (3,087
            )Black
                Fox development costs (c)
            
            
            (1,137
            )
            
            (643
            )
            
            (2,332
            )
            
            (1,321
            )Convertible
                debentures (d)
            
            
            233
            
            
            92
            
            
            (1,097
            )
            
            (5,227
            )Income
                taxes related to flow-through share issuance (e)
            
            
            -
            
            
            -
            
            
            628
            
            
            -Net
                (loss) income for the period based on U.S. GAAP
            
            $
            (1,913
            )
            $
            639
            
            $
            347
            
            $
            (12,181
            )Comprehensive
                income (loss) based on U.S. GAAP
            
            $
            (1,913
            )
            $
            639
            
            $
            347
            
            $
            (12,181
            )Basic
                and diluted net (loss) income per share in accordance with U.S.
                GAAP
            
            $
            (0.01
            )
            $
            0.00
            
            $
            0.00
            
            $
            (0.09
            )





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





**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Cash
                provided by operating activities based on Canadian GAAP
            
            $
            2,730
            
            $
            3,503
            
            $
            3,632
            
            $
            1,121Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            (3,987
            )
            
            (2,299
            )
            
            (8,811
            )
            
            (3,265
            )Black
                Fox development costs (c)
            
            
            (1,137
            )
            
            (643
            )
            
            (2,332
            )
            
            (1,321
            )Cash
                used in operating activities based on U.S. GAAP
            
            
            (2,394
            )
            
            561
            
            
            (7,511
            )
            
            (3,465
            )Cash
                used in investing activities based on Canadian GAAP
            
            
            (3,139
            )
            
            (2,797
            )
            
            (4,453
            )
            
            (8,317
            )Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            684
            
            
            2,128
            
            
            1,361
            
            
            4,855Black
                Fox development costs (c)
            
            
            1,137
            
            
            643
            
            
            2,332
            
            
            1,321Restricted
                cash for Canadian flow-through expenditures (e)
            
            
            1,864
            
            
            108
            
            
            2,609
            
            
            183Cash
                provided by (used in) investing activities based on U.S.
                GAAP
            
            
            546
            
            
            82
            
            
            1,849
            
            
            (1,958
            )Cash
                provided by financing activities based on Canadian GAAP
            
            
            (1,827
            )
            
            (1,125
            )
            
            (3,385
            )
            
            9,758Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            3,164
            
            
            (1,151
            )
            
            7,303
            
            
            (3,035
            )Cash
                provided by financing activities based on U.S. GAAP
            
            
            1,337
            
            
            (2,276
            )
            
            3,918
            
            
            6,723Effect
                of exchange rate changes on cash
            
            
            (30
            )
            
            6
            
            
            (44
            )
            
            2Net
                cash (outflow) inflow in accordance with U.S. GAAP
            
            
            (541
            )
            
            (1,627
            )
            
            (1,788
            )
            
            1,302Cash,
                beginning of period in accordance with U.S. GAAP
            
            
            87
            
            
            6,647
            
            
            1,334
            
            
            3,718Cash,
                end of period in accordance with U.S. GAAP
            
            $
            (454
            )
            $
            5,020
            
            $
            (454
            )
            $
            5,020





25


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





***(a)*** Financing
        costs




As
      of
      January 1, 2007, under Canadian GAAP, the Company expenses debt financing costs
      when they are incurred. Under U.S. GAAP, debt financing costs are capitalized
      and amortized over the term of the related debt. Deferred financing costs and
      financing costs associated with convertible debentures are presented within
      “Convertible debentures (d)” in the US GAAP reconciliations above.




***(b)*** Montana
        Tunnels




*(i)* Joint
        venture




Under
      Canadian GAAP, the Company has accounted for its joint venture interest in
      the
      Montana Tunnels mine (“MTM”) using the proportionate consolidation method
      whereby the Company’s proportionate share of each line item of MTM’s assets,
      liabilities, revenues and expenses is included in the corresponding line item
      of
      the Company's financial statements (Note 4).  Under U.S. GAAP, the Company
      would account for MTM using the equity method whereby the Company's share of
      the
      investee’s earnings and losses is included in operations and its investments
      therein are adjusted by a similar amount.  The carrying value of MTM was
      lower under U.S. GAAP than under Canadian GAAP following an impairment of the
      property, plant and equipment in prior years and as a result the gain on
      transfer of the Company's interest in MTM into the joint venture under U.S.
      GAAP
      is higher. Under U.S. GAAP the gain on transfer of the Company's interest in
      MTM
      into the joint venture was included in the net loss for the year ended December
      31, 2006; whereas under Canadian GAAP it was deferred and is recognized as
      an
      adjustment to net income using the units-of-production method over the expected
      life of mine based on the recoverable gold equivalent ounces. The adjustments
      to
      reconcile between Canadian GAAP and U.S. GAAP for Montana Tunnels have been
      presented separately rather than being presented as a single equity accounting
      adjustment.  The Company believes that this presentation provides more
      detailed information to a reader of the financial statements enabling the reader
      to reconcile the individual adjustments to the primary Canadian GAAP financial
      statements and footnotes.




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




Under
      Canadian GAAP, write-downs for impairment of property, plant and equipment
      are
      determined using current proven and probable reserves and mineral resources
      expected to be converted into mineral reserves. In 2002, under U.S. GAAP,
      write-downs were determined using current proven and probable reserves.
      Accordingly, for U.S. GAAP purposes, an impairment of property, plant and
      equipment and an adjustment to the related depreciation has been
      recorded.




*(iii)* Deferred
        stripping costs




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




26


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





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




Under
      Canadian GAAP, mining development costs at the Black Fox Project have been
      capitalized. Under U.S. GAAP, these expenditures have been expensed as incurred.
      Accordingly, for U.S. GAAP purposes, a cumulative reduction in property, plant
      and equipment of $29.2 million has been recorded as at June 30, 2008 and an
      additional expense of $1.1 and $2.3 million has been recorded for the three
      and
      six months then ended.




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




***(d)*** Convertible
        debentures




Under
      Canadian GAAP, the Series 2007-A convertible debentures were recorded as a
      compound financial instrument including detachable note warrants. On issuance,
      under U.S. GAAP, the detachable note warrants are similarly treated as an equity
      instrument with the remainder of the convertible debentures treated as a
      liability. Further, under U.S. GAAP, the beneficial conversion features
      determined using the effective conversion prices based on the proceeds allocated
      to the convertible debentures in accordance with EITF 00-27, *Application
      of Issue No. 98-5 to Certain Convertible Instruments* ,
      is
      allocated to contributed surplus. This discount on the debenture is recognized
      as additional interest expense immediately as the debt is convertible at the
      date of issuance. Canadian GAAP does not require the recognition of any
      beneficial conversion feature.




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




Under
      Canadian income tax legislation, a company is permitted to issue shares whereby
      the Company agrees to incur qualifying expenditures and renounce the related
      income tax deductions to the investors. The Company has accounted for the issue
      of flow-through shares using the deferral method in accordance with Canadian
      GAAP. At the time of issue, the funds received are recorded as share
      capital.




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




Also,
      notwithstanding whether there is a specific requirement to segregate the funds,
      the flow-through funds which are unexpended at the consolidated balance sheet
      dates are considered to be restricted and are not considered to be cash or
      cash
      equivalents under U.S. GAAP. As at June 30, 2008, unexpended flow-through funds
      were $0.6 million (December 31, 2007 - $3.2 million).




27


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





***(f)*** Income
        taxes




While
      tax
      accounting rules are essentially the same under both U.S. and Canadian GAAP,
      tax
      account differences can arise from differing treatment of various assets and
      liabilities. For example, certain mine developments cost are capitalized under
      Canadian GAAP and expensed under U.S. GAAP, as explained in (c) above. An
      analysis of these differences indicates that there are larger potential tax
      benefits under U.S. GAAP than under Canadian GAAP but a valuation allowance
      has been applied to all the financial statement recognition and measurement
      of a
      tax position taken or expected to be taken in a tax return. FIN 48 requires
      that
      the Company recognize in its consolidated financial statements, only those
      tax
      positions that are “more-likely-than-not” of being sustained as of the adoption
      date, based on the technical merits of the position.




Under
      current conditions and expectations, the Company does not foresee any
      significant changes in unrecognized tax benefits that would have a material
      impact on the Company’s financial statements. The Company and/or one of its
      subsidiaries are subject to the material taxing jurisdictions of the United
      States and Canada. The Company is generally not subject to examinations that
      could create a tax liability for tax years before 2004 by the Internal Revenue
      Service and before 2001 by Revenue Canada. The Company recognizes interest
      accrued related to unrecognized tax benefits in interest expense and penalties
      in operating expenses. The Company has no accrued interest or penalties related
      to uncertain tax positions as of June 30, 2008.




***(g)*** Recently
        issued accounting pronouncements




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”). This statement defines fair value, establishes guidelines for measuring
      fair value and expands disclosures regarding fair value measurements. SFAS
      157
      does not require any new fair value measurements but rather eliminates
      inconsistencies in guidance found in various prior accounting pronouncements.
      The provisions of SFAS 157 were adopted January 1, 2008. The adoption of SFAS
      157 did not have a material impact on the Company’s financial position, results
      of operations or cash flows.




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





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




28


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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


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





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





**16.** **SUBSEQUENT
        EVENTS**




***(a)*** Credit
        Facility and hedging terms




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





The
      credit facility extension agreement required the Company to use proceeds from
      the loan as follows: (i) first, to make a down payment of $3.9 million (Cdn$4.0
      million) for the purchase of a stock mill complex (see (c) below) and the $0.1
      million arrangement fee, and (ii) second, for general working capital
      purposes.




29


**APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Six
          month period ended June 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


16.SUBSEQUENT
        EVENTS (continued)
  As
      a
      requirement of the credit facility extension, the Company entered into certain
      option contracts to buy and sell 5,973 ounces of gold, 50,238 ounces of silver,
      1,026 tonnes (approximately 2,260,000 pounds) of lead and 2,784 tonnes
      (approximately 6,140,000 pounds) of zinc, which equates to approximately 50%
      of
      Apollo’s share of expected metal production from the Montana Tunnels Mine in the
      fourth quarter of 2008 and the first quarter of 2009. The option contracts
      are
      in the form of a no premium collar (buy a put, sell a call) at the following
      prices:


**Put**
              
              **Call**Gold
              
              $
              800
                  per ounce
              
              $
              1,075
                  per ounceSilver
              
              $
              16.25
                  per ounce
              
              $
              18.80
                  per ounceLead
              
              $
              0.775
                  per lb
              
              $
              0.835
                  per lbZinc
              
              $
              0.80
                  per lb
              
              $
              0.943
                  per lb





The
      Company will not apply hedge accounting to this transaction. As a result, the
      Company will account for these derivative instruments as investments and will
      record the changes in unrealized gains and losses in the statement of income
      each period. The fair value of these derivatives will be recorded as a current
      asset or current liability at each balance sheet date.





***(b)*** Equity
        Unit Financing




On
      July
      24, 2008, the Company issued 40,806,500 equity units at a price of Cdn$0.50
      per
      unit (US$0.495 per unit for purchasers residing in the United States), for
      total
      gross proceeds of $20.0 million (Cdn$20.2 million and $0.2 million). Net
      proceeds to the Company, after agency fees and other expenses, were
      approximately $18.4 million (Cdn$18.6 million and $0.2 million). Each unit
      is
      comprised of one common share and one-half of one common share purchase warrant,
      with each whole warrant exercisable into one common share at a price of Cdn$0.65
      per share for 36 months.





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





The
      agents received the following compensation in consideration for their services:
      (1) a cash fee equal to Cdn$1.3 million or 6.5% of the gross proceeds of the
      offering; and (2) a non-transferable option to acquire up to 2,448,390 units
      (the “Agents’ Units”) at a price per unit of Cdn$0.60, which number of units is
      equal to 6% of the total number of units sold in the offering (the “Agents’
Compensation Option”). The Agents’ Compensation Option will be exercisable from
      January 20, 2009 to July 24, 2012. Each Agents’ Unit will be comprised of one
      common share and one-half of one common share purchase warrant (“Agents’
Warrant”), each whole Agents’ Warrant included in the Agents’ Unit entitling the
      Agent holding such warrant to purchase one common share of the Company at an
      exercise price of Cdn$0.78 from January 20, 2009 to July 24, 2012.





***(c)*** Stock
        Mill Complex Purchase




On
      July
      28, 2008, the Company completed the acquisition from St Andrew of the Stock
      Mill
      Complex, including its mill and related equipment, infrastructure, laboratory
      and tailings facilities, located near Timmins, Ontario, for a purchase price
      of
      Cdn$20 million. The Company intends to use the Stock Mill Complex to process
      ore
      produced at the Black Fox mine. A payment of $3.9 million (Cdn$4.0 million)
      was
      made on July 1, 2008, and the final payment of $14.3 million (Cdn$14.5 million
      plus Cdn$0.1 million interest) was made on July 28, 2008. Apollo is also
      required to refund to St Andrew its bonding commitment at the Stock Mine in
      the
      amount of approximately $1.2 million (Cdn$1.2 million). See Note 11(b) for
      additional information.




30


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Six
        month period ended June 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)


**16.** **SUBSEQUENT
      EVENTS (continued)**





***(d)*** Flow-Through
        Common Share Financing




On
      August
      6, 2008, the Company entered an agreement for a private placement financing
      pursuant to which Apollo proposes to sell 14.0 million flow-through shares
      for
      purposes of the Income Tax Act (Canada) on a bought deal basis at Cdn$0.50
      per
      flow-through share to raise gross proceeds of $6.9 million (Cdn$7.0 million).
      The underwriters were granted an over-allotment option entitling them to sell,
      on a best efforts basis, up to an additional 3.0 million flow-through shares
      for
      gross proceeds of up to $1.5 million (Cdn$1.5 million) until the closing of
      the
      offering. The Company will use the gross proceeds of the private placement
      for
      the pre-strip of the Black Fox open pit mine and to incur Canadian Exploration
      Expenses (as defined under the Income Tax Act (Canada)) at its Black Fox
      Project. The private placement is scheduled to close on or about August 21,
      2008
      and is subject to certain conditions including, but not limited to, the receipt
      of all necessary regulatory approvals including the approval of the Toronto
      Stock Exchange and the American Stock Exchange.




31




**ITEM
              2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**




**All
      Dollar amounts are expressed in United States Dollars**




The
      following discussion and analysis should be read in conjunction with the
      accompanying condensed consolidated financial statements and related notes.
      The
      financial statements have been prepared in accordance with generally accepted
      accounting principles in Canada (Canadian GAAP). For a reconciliation to GAAP
      in
      the United States (U.S. GAAP), see Note 15 to the attached condensed
      consolidated financial statements.




In
      this
      Form 10-Q, the terms “cash operating cost,” “total cash cost” and “total
      production cost” are non-GAAP financial measures and are used on a per ounce of
      gold sold basis. Cash operating costs per ounce is equivalent to direct
      operating cost as found on the Condensed Consolidated Statements of Operations,
      less production royalty expenses and mining taxes but includes by-product
      credits for payable silver, lead, and zinc production. Total cash costs is
      equivalent to cash operating costs plus production royalties and mining taxes.
      The term “total production costs” is equivalent to total cash costs plus
      non-cash costs including depreciation and amortization. See “Reconciliation of
      Cash Operating and Total Production Costs Per Ounce” below.




**BACKGROUND
      AND RECENT DEVELOPMENTS**




We
      are
      principally engaged in gold mining including extraction, processing, refining
      and the production of other co-product metals, as well as related activities
      including exploration and development of mineral deposits principally in North
      America. We are the operator of the Montana Tunnels mine (the “Mine”), which is
      a 50% joint venture with Elkhorn Tunnels, LLC (“Elkhorn”). The Mine is an open
      pit mine and mill located near Helena, Montana, which produces gold doré and
      lead-gold and zinc-gold concentrates. On July 28, 2006, we entered into a joint
      venture agreement with Elkhorn in respect of the Mine, pursuant to which Elkhorn
      was granted a 50% interest in the Mine in exchange for financial
      contributions.




We
      own a
      development property, the Black Fox Project, which is located near the township
      of Matheson in the Province of Ontario, Canada. We also own Mexican subsidiaries
      which own concessions at the Huizopa exploration property located in the Sierra
      Madres in Chihuahua, Mexico.




**Corporate**





On
      May 5,
      2008, we announced the Apollo had retained Macquarie Bank Ltd. and RMB
      Resources, Inc. (“RMB”) as joint arrangers and underwriters for a proposed $75
      million debt facility to fund development capital for the Black Fox
      Project.





On
      July
      1, 2008, we announced that Montana
      Tunnels Mining, Inc. had entered into a $5.15 million extension of an existing
      debt facility with RMB. As at June 30, 2008, Apollo owed RMB $1.65 million
      from
      the original facility, which amount is scheduled for payment on September 30,
      2008. The primary use of funds from this extended facility was the payment
      of
      Cdn$4.0 million to St Andrew Goldfields Ltd. (“St Andrew”) as a partial payment
      of the purchase price for the Stock Mill complex.





On
      July
      24, 2008, we announced that we had closed the offering of units (“Units”). A
      total of 40,806,500 Units were subscribed for at a price of Cdn$0.50 per Unit
      (US$0.495 per Unit for purchasers residing in the United States), for total
      gross proceeds of Cdn$20.2 million and US$0.2 million. Each Unit is comprised
      of
      one common share and one-half of one common share purchase warrant (a
“Warrant”), with each whole Warrant exercisable into one common share at a price
      of Cdn$0.65 per share for 36 months.





On
      August
      6, 2008, we entered an agreement for a private placement financing pursuant
      to
      which we propose to sell 14.0 million flow-through shares for purposes of the
      Income Tax Act (Canada) on a bought deal basis at Cdn$0.50 per flow-through
      share to raise gross proceeds of Cdn$7.0 million. The underwriters were granted
      an over-allotment option entitling them to sell, on a best efforts basis, up
      to
      an additional 3.0 million flow-through shares for gross proceeds of up to
      Cdn$1.5 million until the closing of the offering. We intend to use the gross
      proceeds of the private placement for the pre-strip of the Black Fox open pit
      mine and to incur Canadian Exploration Expenses (as defined under the Income
      Tax
      Act (Canada)) at our Black Fox Project. The private placement is scheduled
      to
      close on or about August 21, 2008 and is subject to certain conditions
      including, but not limited to, the receipt of all necessary regulatory approvals
      including the approval of the Toronto Stock Exchange and the American Stock
      Exchange.




32




**Montana
      Tunnels**





During
      the second quarter 2008, approximately 1,867,000 tons were mined, of which
      885,000 tons were ore. The mill processed 903,000 tons of ore at an average
      throughput of 9,900 tons per day for the quarter. In April there was a failure
      of the ball mill shell due to cracking which caused a shutdown of the mill
      for
      three weeks severely impacting production of metals for the quarter. During
      May
      the open pit was impacted due to three weeks of rain plus the fact that mine
      crews were idle during the ball mill repair, resulting in ore production being
      1,700,000 tons lower than planned. As at June 30, 2008, the ore stockpile
      sitting alongside the mill was 1,310,000 tons. Payable production in the second
      quarter was 9,200 ounces of gold, 96,000 ounces of silver, 2,488,000 pounds
      of
      lead and 9,298,000 pounds of zinc. Apollo’s share of this production is
      50%.





**Grade:**
            
            
            **Recoveries:**Gold
                ounces per ton
            0.0127
            
            
            
            Gold
            
            
            79.80%Silver
                ounces per ton
            0.1660
            
            
            
            Silver
            
            
            83.27%Lead
                %
            0.1900
            
            
            
            Lead
            
            
            79.69%Zinc
                %
            0.6000
            
            
            
            Zinc
            
            
            86.31%





Total
      cash costs for the second quarter 2008 on a by-product basis were $758 per
      ounce
      of gold and on a co-product basis they were $842 per ounce of gold, $15.65
      per
      ounce of silver, $0.95 per lb of lead and $0.79 per lb of zinc. For the second
      quarter 2008, the higher cash costs per ounce of gold on a by-product basis
      compared to the second quarter 2007 are the result of (1) 16% lower gold
      production stemming from the three-week shutdown of the mill, (2) 19% higher
      direct costs related to higher cost of consumables such as diesel fuel and
      (3) a
      35% reduction in by-product credits due to lower zinc prices and lower silver
      and lead production.





During
      the second quarter 2008, the joint venture spent $0.2  million
      on capital expenditures. Apollo’s share of these capital expenditures is 50%.  Also
      in
      the second quarter 2008, the joint venture distributed  $5.96  million
      to its principals, 55% of which went to Elkhorn and 45% of which went to
      Apollo.





**Black
      Fox**





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





**Black
      Fox Probable Reserve Statement as of February 29, 2008**




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





Highlights
      of the Bankable feasibility study include:




·
            Net Present Value of $302 million using a gold price
              per
              ounce of $750. ·
            Internal Rate of Return of 62% ·
            Gold Production of 150,000 ounces annually over
              the life
              of the project ·
            Average
                total cash cost for the first three years of production estimated
                at $326
                per ounce




33




On
      May 1,
      2008, we purchased five used Komatsu HD785-3 haul trucks for $1.5 million that
      were previously being rented by Montana Tunnels and are currently still at
      the
      Montana Tunnels location. We plan to use the trucks to haul ore at the Black
      Fox
      open pit mining operations. As of June 30, 2008, we had made payments of $0.1
      million with respect to the purchase of these trucks, resulting in an
      outstanding balance of $1.4 million owed to the seller.




On
      June
      6, 2008, we entered into a binding purchase agreement with St Andrew pursuant
      to
      which St Andrew agreed to sell its Stock Mill complex, including related
      equipment, infrastructure, laboratory and tailings facilities, located
      twenty-eight kilometers from our Black Fox Project (collectively, the “Stock
      Mill Complex”) for a purchase price of Cdn$20 million. On July 28, 2008, we
      completed the acquisition.




On
      July
      17, 2008, we agreed to purchase a new regrind ball mill for $1.6 million to
      enhance production capability at the Black Fox stock mill. Payments are required
      to be paid based on the following: (1) 20% by July 31, 2008, (2) 40% by
      September 30, 2008, (3) 25% at completion of lubrication systems by October
      30,
      2008, and (4) 15% at completion of installation in working order by January
      30,
      2009. The mill was originally ordered by another party who did not complete
      the
      purchase and so we do not need to wait up to two years for it to be manufactured
      and delivered.




**Huizopa
      Project**




During
      the second quarter 2008, the helicopter assisted core drilling program on two
      identified targets at our Huizopa project was completed. On August 14, 2008,
      we
      announced the results of the core drilling program on the Puma de Oro
      Exploration target. Twenty five NQ core holes were drilled on a north-trending
      zone targeted for drilling based on Apollo’s geochemical sampling and geologic
      mapping. Anomalous gold and silver was found in twenty of the holes with six
      of
      the twenty holes having significant gold and silver values.





**METAL
      SALES & METAL PRICE AVERAGES**




The
      table
      below summarizes our share of metal sales of gold, silver, lead and zinc of
      the
      Montana Tunnels mine, as well as average metal prices and other key statistics,
      for each period indicated:




**Three
                months ended June 30,**
            
            **Six
                months ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007
                (1)****Metal
                sales:**Gold
                (ounces)
            
            
            4,612
            
            
            5,483
            
            
            11,545
            
            
            6,644Silver
                (ounces)
            
            
            48,012
            
            
            86,267
            
            
            109,595
            
            
            110,456Lead
                (pounds)
            
            
            1,243,867
            
            
            1,891,830
            
            
            3,368,561
            
            
            2,395,807Zinc
                (pounds)
            
            
            4,648,902
            
            
            3,488,291
            
            
            9,080,699
            
            
            4,413,306Total
                revenue ($millions)
            
            $
            10.0
            
            $
            12.8
            
            $
            25.9
            
            $
            15.7**Total
                cash and production costs on a by-product basis:**Total
                cash costs per ounce of gold
            
            $
            758
            
            $
            (237
            )
            $
            301
            
            $
            (243
            )Total
                production costs per ounce of gold
            
            $
            829
            
            $
            (173
            )
            $
            362
            
            $
            (173
            )**Total
                cash costs on a co-product basis:**Total
                cash costs per ounce of gold
            
            $
            829
            
            $
            406
            
            $
            673
            
            $
            407Total
                cash costs per ounce of silver
            
            $
            15.76
            
            $
            8.11
            
            $
            13.21
            
            $
            8.15Total
                cash costs per pound of lead
            
            $
            0.79
            
            $
            0.70
            
            $
            0.86
            
            $
            0.67Total
                cash costs per pound of zinc
            
            $
            0.84
            
            $
            1.05
            
            $
            0.71
            
            $
            1.03**Average
                metal prices:**Gold
                - London bullion mkt. ($/ounce)
            
            $
            896
            
            $
            667
            
            $
            911
            
            $
            662Silver
                - London bullion mkt. ($/ounce)
            
            $
            17.17
            
            $
            13.34
            
            $
            17.43
            
            $
            13.26Lead
                - London Metal Exchange ($/pound)
            
            $
            1.05
            
            $
            0.98
            
            $
            1.18
            
            $
            0.90Zinc
                - London Metal Exchange ($/pound)
            
            $
            0.96
            
            $
            1.66
            
            $
            1.03
            
            $
            1.62




34


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




**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****($
                in thousands, except per ounce of gold data)**
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007
                (1)**Gold
                ounces sold
            
            
            4,612
            
            
            5,483
            
            
            11,545
            
            
            6,644Direct
                operating costs
            
            $
            9,467
            
            $
            7,932
            
            $
            18,526
            
            $
            9,748Less:Mining
                taxes, royalty expenses
            
            
            297
            
            
            351
            
            
            788
            
            
            436By-product
                credits
            
            
            5,972
            
            
            9,234
            
            
            15,051
            
            
            11,363Cash
                operating cost
            
            
            3,198
            
            
            (1,653
            )
            
            2,687
            
            
            (2,051
            )Cash
                operating cost per ounce of gold
            
            **$**
            **693**
            
            **$**
            **(301**
            **)**
            **$**
            **233**
            
            **$**
            **(309**
            **)**Cash
                operating costs
            
            
            3,198
            
            
            (1,653
            )
            
            2,687
            
            
            (2,051
            )Add:Mining
                taxes, royalty expenses
            
            
            297
            
            
            351
            
            
            788
            
            
            436Total
                cash costs
            
            
            3,495
            
            
            (1,302
            )
            
            3,475
            
            
            (1,615
            )Total
                cash cost per ounce of gold
            
            **$**
            **758**
            
            **$**
            **(237**
            **)**
            **$**
            **301**
            
            **$**
            **(243**
            **)**Total
                cash costs
            
            
            3,495
            
            
            (1,302
            )
            
            3,475
            
            
            (1,615
            )Add:Depreciation
                & amortization
            
            
            327
            
            
            355
            
            
            705
            
            
            466Total
                production costs
            
            
            3,822
            
            
            (947
            )
            
            4,180
            
            
            (1,149
            )Total
                production cost per ounce of gold
            
            **$**
            **829**
            
            **$**
            **(173**
            **)**
            **$**
            **362**
            
            **$**
            **(173**
            **)**





**(1)**
            Metal
                sales, revenue and costs for the first six months of 2007 only includes
                the four months of March through June as milling was restarted on
                March 1,
                2007 after being shut down since May 12,
                2006.





**MATERIAL
      CHANGES IN RESULTS OF OPERATIONS**




***Three
      Months Ended June 30, 2008 Compared to the Three Months Ended June 30,
      2007***




**Revenue
      from the Sale of Minerals.**




Revenue
      for the three months ended June 30, 2008  decreased
      22% to $10.0 million from $12.8 million for the same period in 2007. The
      decrease in revenue was mainly due to a three-week shutdown of the mill at
      Montana Tunnels, following the failure of the ball mill shell which occurred
      on
      April 27, 2008 and a 35% reduction in by-product revenues due to lower zinc
      prices and lower silver and lead production. The ball mill was repaired and
      operations resumed the week of May 19, 2008.




**Operating
      Expenses.**




*Direct
      Operating Costs.* Direct
      operating costs, which include mining costs, processing costs and smelting
      and
      refining charges, for the three months ended June 30, 2008 increased 19% to
      $9.5
      million from $7.9 million  for
      the
      three months ended June 30, 2007. The cost per ton of mining increased from
      $2.30 per ton up to $3.18 per ton as a direct result of increased treatment
      charges and costs of consumables such as diesel fuel.




*Depreciation
      and Amortization.* Depreciation and amortization expenses  were
      $0.4
      million and $0.4 million for the three months ended June 30, 2008 and 2007,
      respectively.




*General
      and Administrative Expenses.* General
      and administrative expenses were $1.2 million and $0.9 million  for
      the
      three months ended June 30, 2008 and 2007, respectively.




*Accretion
      Expense - Accrued Site Closure Costs.* Accrued
      accretion expense was $0.2 million for the three months ended June 30, 2008
      compared to $0.1 million for the same period in 2007.





*Amortization
      of Deferred Gain.* Amortization
      of the deferred gain, relating to the transfer of assets and liabilities to
      the
      Montana Tunnels joint venture, was $0.4 million for the three months ended
      June
      30, 2008 compared to $0.4 million for the three months ended June 30,
      2007.





*Exploration
      and Business Development Expense.* Expenses
      for exploration and development, consisting of exploration related expenses
      at
      our Huizopa Project, totaled $1.0 million and $0.2 million for the three months
      ended June 30, 2008 and 2007, respectively. The increase in the costs for the
      second quarter 2008 was a result of the drilling campaign undertaken at the
      Huizopa project.




35




*Total
      Operating Expenses* .
      As a
      result of these expense components, our total operating expenses increased
      29%
      to $11.8 million for the three months ended June 30, 2008, from $9.1 million
      for
      the three months ended June 30, 2007.




**Other
      Income (Expenses).**




*Interest
      Income and Interest Expense.* We
      realized interest income of $0.1 million and incurred interest expense of $1.0
      million during the three months ended June 30, 2008 compared to $0.2 million
      in
      interest income and $1.5 million in interest expense during the three months
      ended June 30, 2007. The decrease in interest expense is primarily the result
      of
      retiring the Series 2004-B convertible debentures in December 2007.




**Net
      (Loss) Income.**




For
      the
      three months ended June 30, 2008, we recorded a net loss of $1.3 million, or
      $0.01 per share, as compared to net income of $2.4 million, or $0.02 per share,
      for the three months ended June 30, 2007.




***Six
      Months Ended June 30, 2008 Compared to the Six Months Ended June 30,
      2007***




**Revenue
      from the Sale of Minerals.**




Revenue
      for the six months ended June 30, 2008 increased 65% to $25.9 million from
      $15.7
      million for the same period in 2007. The increase in revenue is due to the
      fact
      that for 2008 we have six months of milling (less the three-week period during
      which the mill was shut down to repair the ball mill, as described above),
      compared to four months of milling in 2007 (milling resumed at Montana Tunnels
      on March 1, 2007).




**Operating
      Expenses.**




*Direct
      Operating Costs* *.* Direct
      operating costs, which includes mining costs, processing costs and smelting
      and
      refining charges, for the six months ended June 30, 2008 increased 68% to $18.5
      million from $11.0 million for the six months ended June 30, 2007. The increase
      in costs is mainly due to the resumption of production on March 1, 2007 after
      being shut down since May 2006. Additionally, mining costs increased as a result
      of increased treatment charges and costs of consumables such as diesel
      fuel.




*Depreciation
      and Amortization.* Depreciation and amortization expenses were $0.8 million and $0.6 million for
      the six months ended June 30, 2008 and 2007, respectively.




*General
      and Administrative Expenses.* General
      and administrative expenses were $2.1 million and $2.0 million for the six
      months ended June 30, 2008 and 2007, respectively.




*Accretion
      Expense - Accrued Site Closure Costs.* Accrued
      accretion expense was $0.4 million for the six months ended June 30, 2008
      compared to $0.3 million for the same period in 2007.





*Amortization
      of Deferred Gain.* Amortization
      of the deferred gain, relating to the transfer of assets and
      liabilities  to
      the
      Montana Tunnels joint venture, was $0.9 million for the six months ended June
      30, 2008 and $0.4 million for the six months ended June 30, 2007.





*Exploration
      and Business Development Expense.* Expenses
      for exploration and development, consisting of exploration related expenses
      at
      our exploration properties,  totaled
      $1.8 million and $1.7 million for the six months ended June 30, 2008 and 2007,
      respectively. The exploration expenses have remained constant due to the
      continued exploration activity at the Huizopa property.




*Total
      Operating Expenses* .
      As a
      result of these expense components, our total operating expenses increased
      49%
      to $22.6 million for the six months ended June 30, 2008, compared to $15.2
      million for the six months ended June 30, 2007.




36




**Other
      Income (Expenses).**




*Interest
      Income and Interest Expense* *.* We
      realized interest income of $0.2 million and incurred interest expense of $2.2
      million during the six months ended June 30, 2008 compared to $0.3 million
      in
      interest income and $2.6 million in interest expense during the six months
      ended
      June 30, 2007. The decrease in interest expense is primarily the result of
      retiring the Series 2004-B convertible debentures in December 2007.




*Financing
      Costs.* There
      have been no financing costs during the six months ended June 30, 2008.
      Financing costs of $0.5 million for the six months ended June 30, 2007 were
      in
      connection with the convertible debentures issued in February 2007.




**Net
      Income (Loss).**




For
      the
      six months ended June 30, 2008, we recorded net income of $2.3 million, or
      $0.01
      per share, as compared to a net loss of $2.2 million, or $0.02 per share, for
      the six months ended June 30, 2007.




**MATERIAL
      CHANGES IN LIQUIDITY**




To
      date,
      we have funded our operations primarily through issuances of debt and equity
      securities and funding from joint venture partners. At June 30, 2008, we had
      cash of $0.6 million, compared to cash of $4.9 million at December 31, 2007.
      The
      decrease in cash since December 31, 2007 is primarily the result of investing
      cash outflows of $4.5 million and financing cash outflows of $3.4 million,
      partially offset by operating cash inflows of $3.6 million.




During
      the six months ended June 30, 2008, net cash used in investing activities
      totaled $4.5 million. Capital expenditures for property, plant and equipment
      of
      $3.6 million include $3.4 million for the further development of the Black
      Fox
      Project and $0.2 million spent at Montana Tunnels. Additionally, we made
      payments of $1.6 million in connection with the acquisition of the Stock Mill
      Complex. Other investing activities include cash outflows of $1.2 million for
      the funding of the Montana Tunnels reclamation liability and cash inflows of
      $2.0 million from settlement of lead and zinc derivative contracts that matured
      at the end of March and June, 2008.




During
      the six months ended June 30, 2008, cash used in financing activities was $3.4
      million. Payments of notes payable accounted for cash outflows of $5.7 million.
      Cash inflows of financing activities included (1) the exercise of 3.3 million
      warrants at an average exercise price of $0.43 per common share for proceeds
      of
      $1.4 million and (2) funding from a margin loan of $1.0 million that is secured
      by long-term investments - the $1.5 million face value auction rate security.




We
      estimate that with our June 30, 2008 cash balance of $0.6 million and the
      projected cash flows from the Montana Tunnels mine joint venture, we will have
      sufficient funds to finance the balance of the 2008 work programs of $0.6
      million for exploration at Huizopa, as well as corporate overhead. However,
      with
      the completion of the feasibility study at Black Fox and our announced
      acquisition of the Stock Mill Complex, we are exploring financing opportunities
      to further develop the Black Fox Project and expand the 2008 work program at
      Black Fox, which will include project financing of Black Fox, the issuance
      of
      equity, and issuance of flow-through common shares. On May 5, 2008, we announced
      that Apollo had retained Macquarie Bank Ltd. and RMB Resources, Inc. as joint
      arrangers and underwriters for a proposed $75 million debt facility to fund
      development capital for the Black Fox Project. On July 1, 2008, we entered
      into a $5.15 million extension of an existing debt facility with RMB. The
      primary use of funds from this extended facility was the payment of Cdn$4.0
      million to St Andrew as a partial payment of the purchase price for the Stock
      Mill Complex. On
      July
      24, 2008, we completed an offering of 40,806,500 equity Units at a price of
      Cdn$0.50 per Unit (US$0.495 per Unit for purchasers residing in the United
      States), for total gross proceeds of Cdn$20.2 million and US$0.2 million. Each
      Unit is comprised of one common share and one-half of one common share purchase
      warrant, with each whole Warrant exercisable into one common share at a price
      of
      Cdn$0.65 per share for 36 months. On August 6, 2008, we entered an agreement
      for
      a private placement financing pursuant to which we propose to sell 14.0 million
      flow-through shares for purposes of the Income Tax Act (Canada) on a bought
      deal
      basis at Cdn$0.50 per flow-through share to raise gross proceeds of Cdn$7.0
      million. The availability, amount, terms and timing of future financings are
      not
      certain at this time.




37




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




**MATERIAL
      CHANGES IN CONTRACTUAL OBLIGATIONS**




On
      June
      6, 2008, we entered into a binding purchase agreement with St Andrew pursuant
      to
      which St Andrew agreed to sell its Stock Mill Complex, including related
      equipment, infrastructure, laboratory and tailings facilities, located
      twenty-eight kilometers from our Black Fox Project for a purchase price of
      Cdn$20 million. On July 28, 2008, we completed the acquisition.




**MATERIAL
      CHANGES IN OFF BALANCE SHEET ARRANGEMENTS**




None.




**ENVIRONMENTAL**




The
      Company’s current environmental liabilities are at Montana Tunnels and Black
      Fox. As of June 30, 2008, we have accrued $9.8 million related to reclamation,
      an increase of $0.4 million from December 31, 2007. These liabilities are
      covered by a combination of surety bonds, restricted cash and property totaling
      $18.7 million (Apollo’s share is $9.3 million) at June 30, 2008. We have accrued
      the present value of management’s estimate of the future liability as of June
      30, 2008.




**DIFFERENCES
      BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
      (GAAP)**




The
      Company reports under Canadian GAAP and reconciles to U.S. GAAP. The application
      of U.S. GAAP has a significant effect on the net loss and net loss per share.
      For a detailed explanation see Note 15 of our interim financial statements.




**CRITICAL
      ACCOUNTING ESTIMATES AND POLICIES**




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




For
      other
      critical accounting policies, please refer to those disclosed in our 10-K filing
      for the year ended December 31, 2007 and to the changes in accounting policies
      described below.




**CHANGES
      IN ACCOUNTING POLICIES**




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




38





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





**ITEM
              3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**




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




**Interest
      Rate Risk**




We
      currently have minimal debt and thus no material interest rate exposure related
      to debt. We typically invest excess cash in high quality short-term debt
      instruments. The rates received on such investments fluctuate with changes
      in
      economic conditions. As a result, our investment income may fall short of
      expectations during periods of lower interest rates. We estimate that given
      the
      cash balances expected during 2008, a one percent change in interest rates
      would
      not materially impact our annual income. We may in the future actively manage
      our exposure to interest rate risk.




**Foreign
      Currency Exchange Rate Risk**




While
      the
      majority of our transactions are denominated in U.S. dollars, certain purchases
      of labor, operating supplies and capital assets are denominated in Canadian
      dollars and Mexican pesos. The appreciation of non-US dollar currencies against
      the US dollar increases the costs of goods and services purchased in non-US
      dollar, which can adversely impact our net income and cash flows. Conversely,
      a
      depreciation of non-US dollar currencies against the US dollar usually decreases
      the costs of goods and services purchased in US dollar terms.




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





**Commodity
      Price Risk**




The
      profitability of the Company’s operations will be dependent upon the market
      price of gold. Gold prices fluctuate widely and are affected by numerous factors
      beyond the control of the Company. The level of interest rates, the rate of
      inflation, the world supply of gold and the stability of exchange rates can
      all
      cause significant fluctuations in prices. Such external economic factors are
      in
      turn influenced by changes in international investment patterns, monetary
      systems and political developments. The price of gold has fluctuated widely
      in
      recent years, and future price declines could cause some projects to become
      uneconomic, thereby having a material adverse effect on the Company’s business
      and financial condition. We have entered into derivative contracts to protect
      the selling price for certain anticipated gold, silver, lead and zinc production
      through March 31, 2009 and we may in the future more actively manage our
      exposure through additional commodity price risk management
      programs.




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




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




39




**Equity
      Price Risk**




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




**ITEM
              4.**
            **CONTROLS
                AND PROCEDURES**




**Disclosure
      Controls and Procedures**




Our
      principal executive officer and principal financial officer have evaluated
      the
      effectiveness of our disclosure controls and procedures (as defined in
      Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
      1934, as amended (the “Exchange Act”) as of June 30, 2008. Based on the
      evaluation, our principal executive officer and principal financial officer
      concluded that the disclosure controls and procedures in place are effective
      to
      ensure that information required to be disclosed by us, including our
      consolidated subsidiaries, in reports that we file or submit under the Exchange
      Act, is recorded, processed, summarized and reported on a timely basis in
      accordance with applicable time periods specified by the Securities and Exchange
      Commission rules and forms, and ensure that information required to be
      disclosed by us in the reports that we file under the Securities Exchange Act
      is
      accumulated and communicated to our management, including our principal
      executive officer and principal financial officer, as appropriate to allow
      timely decisions regarding required financial disclosure.




**Changes
      in Internal Control**




There
      has
      been no change in our internal control over financial reporting during the
      quarter ended June 30, 2008, that has materially affected, or is reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.




**PART
      II — OTHER
      INFORMATION**




**ITEM
              1.**
            **LEGAL
                PROCEEDINGS**




In
      May
      2006, a purported class action lawsuit was filed in U.S. Federal Court Missoula
      Division of Montana by 14 former employees at our Montana Tunnels mine alleging
      (i) violations of the Worker Adjustment and Retraining Notification Act of
      1988
      (the “WARN Act”) and the Montana Wage Act and (ii) breach of contract. The
      allegations relate to the termination of the employees following the cessation
      of mining in October 2005. Specifically, the plaintiffs allege that we gave
      deficient WARN Act notice and are seeking damages for back pay and benefits.
      A
      negotiated settlement was tentatively reached between us and the plaintiffs
      and
      was finalized on July 8, 2008. The resolution of this matter did not have a
      material impact on our financial statements.




**ITEM
              1A.**
            **RISK
                FACTORS**




Item
      1A
      of our Annual Report on Form 10-K for the year ended December 31, 2007 sets
      forth information relating to important risks and uncertainties that could
      materially adversely affect our business, financial condition or results of
      operations. Those risk factors continue to be relevant to understanding our
      business, financial condition and operating results. Certain of those risk
      factors have been updated in this Quarterly Report on Form 10-Q to provide
      updated information, as set forth below.




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





After
      giving effect to the offering completed on July 24, 2008 and the proposed
      offering of 17,000,000 flow-through common shares announced on August 6, 2008
      (assuming the underwriters exercise in full their option to sell an additional
      3,000,000 “flow through” common shares), approximately 59.4 million of our
      common shares are issuable on exercise of warrants, options or other rights
      to
      purchase common shares at prices ranging from $0.20 to $2.24 and a weighted
      average price of $0.55. In addition, there are approximately 14.9 million common
      shares issuable upon the conversion of the $7.4 million outstanding principal
      amount of convertible debentures issued February 23, 2007 at the option of
      the
      holder at a conversion price of $0.50 per share. During the term of the
      warrants, options and other rights, the holders are given an opportunity to
      profit from a rise in the market price of our common shares with a resulting
      dilution in the interest of the other shareholders. Our ability to obtain
      additional equity financing during the period such rights are outstanding may
      be
      adversely affected, and the existence of the rights may have an adverse effect
      on the price of our common shares. The holders of the warrants, options and
      other rights can be expected to exercise them at a time when we would, in all
      likelihood, be able to obtain any needed capital by a new offering of securities
      on terms more favorable than those provided by the outstanding
      rights.




40





**Future
      Share Sales and Issuances**





If
      Apollo
      Gold’s shareholders sell substantial amounts of our common shares following this
      offering, the market price of our common shares could decrease. After giving
      effect to the unit offering completed on July 24, 2008, the issuance of 650,000
      common shares to RMB in connection with the July 1, 2008 amendment to our debt
      facility and the proposed 17,000,000 common shares expected to be issued in
      the
      offering of flow-through common shares announced on August 6, 2008 (assuming
      the
      underwriters exercise in full their option to sell an additional 3,000,000
      flow-through common shares), Apollo Gold will have outstanding 219,860,257
      common shares. In addition, we may sell additional common shares in subsequent
      offerings and issue additional common shares to finance future acquisitions.
      Apollo Gold cannot predict the size of future issuances of common shares or
      the
      effect, if any, that future issuances and sales of common shares will have
      on
      the market price of our common shares. Sales or issuances of large numbers
      of
      our common shares, or the perception that such sales might occur, may adversely
      affect prevailing market prices for our common shares. With any additional
      issuance of common shares, investors will suffer dilution to their voting power
      and we may experience dilution in our earnings per share.





**ITEM
                2.**
              **UNREGISTERED****SALES
                  OF EQUITY SECURITIES AND USE OF
                  PROCEEDS**




None.




**ITEM
              3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**




None.




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




The
      2008
      Annual Meeting of Stockholders of Apollo Gold Corporation was held on
      May 7, 2008. The matters voted upon and passed at the meeting were
      (i) the election of the directors listed below, and (ii) the
      ratification of the re-appointment of Deloitte & Touche LLP as the
      Corporation’s independent auditors to hold office until the next annual meeting
      of shareholders.





At
      the
      meeting, the slate of directors nominated by management-consisting of Robert
      W.
      Babensee, Marvin K. Kaiser, G. Michael Hobart, R. David Russell, Charles E.
      Stott, David W. Peat and W.S. (Steve) Vaughan-was elected. Each director was
      elected to serve until the next annual meeting or until his successor is
      appointed, unless his office is earlier vacated in accordance with the Business
      Corporation’s Act (Yukon Territory), and the By-laws of the Corporation.





The
      board
      of directors recommended the re-appointment of Deloitte & Touche LLP,
      Chartered Accountants, of Vancouver, British Columbia, the independent auditors
      of the Company since 2002, as the auditors of the Corporation to hold office
      until the close of the next annual meeting of the shareholders. The shareholders
      ratified this appointment.




41





The
      results of the voting on those matters are outlined in the following
      table:





**Votes
                Against/**
            
            **Votes**
            
            **Broker****Votes
                for**
            
            **Withheld
                (1)**
            
            **Abstained**
            
            **Non-Votes**Proposal(i) Election
                of Management’s Slate of Directors:Charles
                E. Stott
            
            
            70,144,557
            
            
            4,737,375
            
            
            —
            
            
            —R.
                David Russell
            
            
            70,010,047
            
            
            4,871,885
            
            
            —
            
            
            —W.S.
                (Steve) Vaughan
            
            
            66,400,298
            
            
            8,481,634
            
            
            —
            
            
            —G.
                Michael Hobart
            
            
            70,016,075
            
            
            4,865,857
            
            
            —
            
            
            —Robert
                W. Babensee
            
            
            70,250,469
            
            
            4,631,463
            
            
            —
            
            
            —Marvin
                K. Kaiser
            
            
            70,384,930
            
            
            4,497,002
            
            
            —
            
            
            —David
                W. Peat
            
            
            70,380,934
            
            
            4,500,998
            
            
            —
            
            
            —(ii) Ratification
                of Deloitte & Touche LLP
            
            
            69,584,755
            
            
            5,296,926
            
            
            —
            
            
            —







**(1)**
            Based
                on the records of the Company’s scrutineer for the meeting, this number
                may include votes abstained and/or broker
                non-votes.





**ITEM
              5.**
            **OTHER
                INFORMATION**




None.




**ITEM
              6.**
            
            **EXHIBITS****Exhibit
                No.**
            
            **Title
                of Exhibit**31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act





42


**SIGNATURES**




In
      accordance with the requirements of the Securities Exchange Act of 1934, the
      registrant caused this report to be signed on its behalf by the undersigned
      thereunto duly authorized.


**APOLLO
                GOLD CORPORATION**Date:August
              14, 2008
            
            /s/
              *R.
              David Russell*R.
                David Russell, President and
              Chief
                Executive Officer





Date:August
              14, 2008
            
            /s/
              *Melvyn
              Williams*Melvyn
                Williams,Chief
                Financial Officer and Senior Vice President
              Finance
                and Corporate Development





43


**Index
      to Exhibits**





**Exhibit
                No.**
            
            **Title
                of Exhibit**31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act





44