**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





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


**SECURITIES
      EXCHANGE ACT OF 1934**





For
      the
      quarterly period ended September 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 R 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 CompanyR





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


Yes £ No R





At
      November 10, 2008, there were 219,860,257 common shares of Apollo Gold
      Corporation outstanding.








**TABLE
      OF CONTENTS**


*Page*PART
                  I
              FINANCIAL
                  INFORMATION
              4ITEM
                  1.
              FINANCIAL
                  STATEMENTS (UNAUDITED)
              4Condensed
                  Consolidated Balance Sheets - As of
                  September 30, 2008 and as of December 31, 2007
              5Condensed
                  Consolidated Statements of Operations and
                  Comprehensive Income for the Three and Nine Months Ended September
                  30,
                  2008 and 2007
              6Condensed
                  Consolidated Statements of Shareholders’ Equity
                  for the Year ended December 31, 2007 and the Nine Months Ended
                  September
                  30, 2008
              7Condensed
                  Consolidated Statements of Cash Flows for the
                  Three and Nine Months Ended September 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
              35ITEM
                  3.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK
              42ITEM
                  4.
              CONTROLS
                  AND PROCEDURES
              43PART
                  II
              OTHER
                  INFORMATION
              44ITEM
                  1.
              LEGAL
                  PROCEEDINGS
              44ITEM
                  1A.
              RISK
                  FACTORS
              44ITEM
                  2.
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS
              46ITEM
                  3.
              DEFAULTS
                  UPON SENIOR SECURITIES
              46ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS
              46ITEM
                  5.
              OTHER
                  INFORMATION
              46ITEM
                  6.
              EXHIBITS
              46Index
                  to exhibits
              48Certification
                  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


**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:




2




· plans
      for
      Black Fox and Huizopa, including development, exploration and drilling, and
      the
      ability to finance development;




· future
          financing of projects, including the contemplated $60 to $70 million debt
          financing for Black Fox and the approximately $70 million financing required
          for
          the M-Pit expansion at Montana Tunnels;




· the
          cessation of ore
          mining at the Montana Tunnels mine, the amount of stockpiled ore upon cessation
          of mining and the timing of the processing thereof, future notices to employees
          at the Montana Tunnels mine and the amount of time required to conduct
          the
          pre-stripping program prior to production of ore at the M
          Pit;




·  liquidity
      to support operations and debt repayment;




·  timing
      and amount of future cash flows 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, including the permits necessary to conduct the M-Pit
          expansion at Montana Tunnels;




·  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, including the recent significant
      deterioration in global financial and capital markets; significant
      increases or decreases in gold and zinc prices; changes in interest and currency
      exchange rates; changes in availability and cost of financing; 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 and development activities; results of future feasibility
      studies; joint venture relationships; political or economic instability, either
      globally or in the countries in which we operate; local and community impacts
      and issues; timing of receipt of government approvals; accidents and labor
      disputes; environmental costs and risks; competitive factors, including
      competition for property acquisitions; availability of external financing 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.




3


**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.




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)





**September
                30,**
              **2008**
            
            **December
                31,**
              **2007****ASSETS**CURRENTCash
                and cash equivalents
            
            $
            7,612
            
            $
            4,852Derivative
                instruments (Note 6)
            
            
            605
            
            
            2,101Restricted
                certificates of deposit
            
            
            1,000
            
            
            1,000Accounts
                receivable and other
            
            
            2,556
            
            
            1,846Prepaids
            
            
            600
            
            
            509Inventories
                (Note 7)
            
            
            4,941
            
            
            2,169Total
                current assets
            
            
            17,314
            
            
            12,477Long-term
                investments (Note 6)
            
            
            1,215
            
            
            1,467Property,
                plant and equipment
            
            
            75,809
            
            
            48,378Deferred
                stripping costs
            
            
            1,958
            
            
            4,787Restricted
                certificates of deposit
            
            
            9,581
            
            
            6,715Other
                long-term assets
            
            
            1,161
            
            
            84Future
                income tax assets
            
            
            -
            
            
            1,165TOTAL
                ASSETS
            
            $
            107,038
            
            $
            75,073**LIABILITIES**CURRENTAccounts
                payable
            
            $
            3,605
            
            $
            2,748Accrued
                liabilities
            
            
            1,787
            
            
            2,940Property
                and mining taxes payable
            
            
            1,280
            
            
            957Notes
                payable and other current debt (Notes 8 and 15)
            
            
            7,506
            
            
            7,617Convertible
                debentures
            
            
            6,728
            
            
            -Total
                current liabilities
            
            
            20,906
            
            
            14,262Accrued
                long-term liabilities
            
            
            309
            
            
            289Notes
                payable
            
            
            70
            
            
            159Convertible
                debentures
            
            
            -
            
            
            5,537Accrued
                site closure costs
            
            
            11,589
            
            
            9,442Deferred
                gain (Note 5)
            
            
            1,027
            
            
            2,511TOTAL
                LIABILITIES
            
            
            33,901
            
            
            32,200Continuing
                operations (Note 1)Commitments
                and contingencies (Note 13)**SHAREHOLDERS’
                EQUITY**Share
                capital (Note 9)
            
            
            190,192
            
            
            166,424Equity
                component of convertible debentures
            
            
            1,987
            
            
            2,238Note
                warrants
            
            
            2,234
            
            
            2,292Contributed
                surplus
            
            
            18,523
            
            
            14,591Deficit
            
            
            (139,799
            )
            
            (142,672
            )TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            73,137
            
            
            42,873TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            107,038
            
            $
            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**


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


(Unaudited)





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Revenue
                from sale of minerals
            
            $
            12,764
            
            $
            11,863
            
            $
            38,685
            
            $
            27,594Operating
                expensesDirect
                operating costs
            
            
            9,978
            
            
            7,285
            
            
            28,508
            
            
            18,280Depreciation
                and amortization
            
            
            406
            
            
            377
            
            
            1,165
            
            
            1,007General
                and administrative expenses
            
            
            826
            
            
            902
            
            
            2,914
            
            
            2,901Accretion
                expense - accrued site closure costs
            
            
            177
            
            
            126
            
            
            532
            
            
            380Amortization
                of deferred gain
            
            
            (560
            )
            
            (345
            )
            
            (1,484
            )
            
            (774
            )Exploration
                and business development
            
            
            754
            
            
            291
            
            
            2,511
            
            
            2,02811,581
            
            
            8,636
            
            
            34,146
            
            
            23,822Operating
                income
            
            
            1,183
            
            
            3,227
            
            
            4,539
            
            
            3,772Other
                income (expenses)Interest
                income
            
            
            100
            
            
            146
            
            
            309
            
            
            485Interest
                expense (Note 10)
            
            
            (1,143
            )
            
            (1,584
            )
            
            (3,312
            )
            
            (4,197
            )Financing
                costs
            
            
            (70
            )
            
            -
            
            
            (70
            )
            
            (480
            )Realized
                gains on derivative contracts
            
            
            1,556
            
            
            -
            
            
            3,506
            
            
            -Unrealized
                losses on derivative contracts
            
            
            (763
            )
            
            -
            
            
            (1,496
            )
            
            -Foreign
                exchange (loss) gain and other
            
            
            (283
            )
            
            33
            
            
            (508
            )
            
            31(603
            )
            
            (1,405
            )
            
            (1,571
            )
            
            (4,161
            )Income
                (loss) before income taxes
            
            
            580
            
            
            1,822
            
            
            2,968
            
            
            (389
            )Income
                taxes (Note 11)
            
            
            (32
            )
            
            295
            
            
            (95
            )
            
            295Net
                income (loss) and comprehensive income (loss) for the
                period
            
            $
            548
            
            $
            2,117
            
            $
            2,873
            
            $
            (94
            )Basic
                and diluted earnings (loss) per share (Note 12)
            
            $
            0.00
            
            $
            0.01
            
            $
            0.02
            
            $
            (0.00
            )Basic
                weighted-average number of shares outstanding
            
            
            199,748
            
            
            143,922
            
            
            173,374
            
            
            143,359Diluted
                weighted-average number of shares
            
            
            199,914
            
            
            145,202
            
            
            175,052
            
            
            143,359





**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****Number**
                **of
                  Shares**
              
              **Amount**
              
              **Equity
                  Component 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
              )
              
              42,873Shares
                  issued for services (Note 9(a)(i))
              
              
              650
              
              
              351
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              351Units
                  issued for cash and related compensation warrants (Note
                  9(a)(ii))
              
              
              40,806
              
              
              14,885
              
              
              -
              
              
              -
              
              
              3,247
              
              
              -
              
              
              18,131Flow-through
                  shares issued for cash and related compensation warrants (Note
                  9(a)(iii))
              
              
              17,000
              
              
              7,400
              
              
              -
              
              
              -
              
              
              79
              
              
              -
              
              
              7,480Warrants
                  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
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              607
              
              
              -
              
              
              607Net
                  income and comprehensive income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,873
              
              
              2,873Balance,
                  September 30, 2008
              
              
              219,860
              
              $
              190,192
              
              $
              1,987
              
              $
              2,234
              
              $
              18,523
              
              $
              (139,799
              )
              $
              73,137







**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**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Operating
                activitiesNet
                income (loss) for the period
            
            $
            548
            
            $
            2,117
            
            $
            2,873
            
            $
            (94
            )Items
                not affecting cash:Depreciation
                and amortization
            
            
            406
            
            
            377
            
            
            1,165
            
            
            1,007Amortization
                of deferred stripping costs
            
            
            1,066
            
            
            597
            
            
            2,828
            
            
            1,258Financing
                costs
            
            
            -
            
            
            -
            
            
            -
            
            
            174Stock-based
                compensation
            
            
            225
            
            
            208
            
            
            607
            
            
            595Shares
                issued for services and settlement of claims
            
            
            -
            
            
            -
            
            
            -
            
            
            550Accretion
                expense - accrued site closure costs
            
            
            177
            
            
            126
            
            
            532
            
            
            380Accretion
                expense - convertible debentures
            
            
            1,017
            
            
            787
            
            
            2,787
            
            
            1,729Interest
                paid on convertible debentures
            
            
            -
            
            
            265
            
            
            (1,016
            )
            
            794Amortization
                of deferred gain
            
            
            (560
            )
            
            (345
            )
            
            (1,484
            )
            
            (774
            )Net
                change in value of derivative instruments
            
            
            (793
            )
            
            -
            
            
            (2,010
            )
            
            -Income
                taxes
            
            
            -
            
            
            (295
            )
            
            -
            
            
            (295
            )Other
            
            
            392
            
            
            (21
            )
            
            607
            
            
            (23
            )Net
                change in non-cash operating working capital items (Note
                14)
            
            
            (2,345
            )
            
            797
            
            
            (3,124
            )
            
            433Net
                cash provided by operating activities
            
            
            133
            
            
            4,613
            
            
            3,765
            
            
            5,734Investing
                activitiesProperty,
                plant and equipment expenditures
            
            
            (22,841
            )
            
            (2,072
            )
            
            (26,485
            )
            
            (5,749
            )Proceeds
                from settlement of derivative contracts
            
            
            1,556
            
            
            -
            
            
            3,506
            
            
            -Deferred
                stripping costs
            
            
            -
            
            
            (1,937
            )
            
            -
            
            
            (5,685
            )Restricted
                certificate of deposit and other assets
            
            
            (1,170
            )
            
            (600
            )
            
            (3,929
            )
            
            (1,492
            )Net
                cash used in investing activities
            
            
            (22,455
            )
            
            (4,609
            )
            
            (26,908
            )
            
            (12,926
            )Financing
                activitiesProceeds
                on issuance of shares and warrants
            
            
            25,611
            
            
            -
            
            
            25,611
            
            
            -Proceeds
                on issuance of convertible debentures and note warrants,
                net
            
            
            -
            
            
            -
            
            
            -
            
            
            8,062Proceeds
                from exercise of warrants
            
            
            -
            
            
            13
            
            
            1,404
            
            
            79Proceeds
                from notes payable and other current debt
            
            
            6,198
            
            
            -
            
            
            7,153
            
            
            1,250Payments
                of notes payable
            
            
            (2,098
            )
            
            (475
            )
            
            (7,842
            )
            
            (1,960
            )Notes
                receivable from Elkhorn Tunnels, LLC
            
            
            -
            
            
            -
            
            
            -
            
            
            1,865Net
                cash provided by (used in) financing activities
            
            
            29,711
            
            
            (462
            )
            
            26,326
            
            
            9,296Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (379
            )
            
            19
            
            
            (423
            )
            
            21Net
                increase (decrease) in cash and cash equivalents
            
            
            7,010
            
            
            (439
            )
            
            2,760
            
            
            2,125Cash
                and cash equivalents, beginning of period
            
            
            602
            
            
            7,076
            
            
            4,852
            
            
            4,512Cash
                and cash equivalents, end of period (Note 14)
            
            $
            7,612
            
            $
            6,637
            
            $
            7,612
            
            $
            6,637SUPPLEMENTAL
                CASH FLOW INFORMATIONInterest
                paid
            
            $
            90
            
            $
            867
            
            $
            1,592
            
            $
            1,471Income
                taxes paid
            
            $
            63
            
            $
            -
            
            $
            63
            
            $
            -




See
      Note
      14 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**
 **Nine
            month period ended September 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 and cash generated
      by
      the Montana Tunnels joint venture (Note 5). The Company’s ability to continue as
      a going concern is dependent on its ability to (1) continue to issue debt and/or
      equity securities, (2) generate cash flow from the Montana Tunnels joint venture
      and/or (3) generate cash flow from the Black Fox mine.




As
        of
        September 30, 2008, the Company has a working capital deficiency of $3.6
        million
        and an accumulated deficit of $139.8 million. In addition, as at September
        30,
        2008, the Company held cash and cash equivalents of $7.6 million, had unexpended
        flow-through share funds of $7.8 million, had current debt obligations of
        $10.2
        million consisting of the outstanding principal of the Series 2007-A convertible
        debentures of $7.4 million due in February 2009 and other debt obligations
        of
        $2.8 million due in installments in March 2009 and June 2009 (Notes 8 and
        18(a)). Additionally, as of November 10, 2008, the Company has committed
        to make
        capital expenditures of approximately $32 million for the development of
        Black
        Fox (Notes 13(a) and 18(b)). Based on the current cash balance and expected
        cash
        flows of the Montana Tunnels joint venture, the Company will not have sufficient
        funds to (1) repay the full amount of the $7.4 million principal amount of
        the
        Debentures and interest due of $1.3 million in February 2009, (2) fund the
        capital commitments for the development of Black Fox, (3) repay the $2.8
        million
        debt facility and (4) fund corporate expenditures. The Company plans to meet
        these obligations by arranging additional debt and capital lease financing
        and
        may also consider the need to issue equity and/or refinance the Series 2007-A
        convertible debentures. The Company’s ability to issue debt and/or equity
        securities or refinance the convertible debentures may be negatively affected
        by
        the current volatile economic financial market conditions which could
        significantly increase issuance costs and/or lead to the Company being unable
        to
        issue debt or equity securities.


If
      the
      Company is unable to generate sufficient cash flow from the activities listed
      above, it may be unable to continue as a going concern and material adjustments
      would be required to the carrying value of assets and liabilities and balance
      sheet classifications used.




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




Apollo
      is
      engaged in gold mining including extraction, processing, refining and the
      production of other co-product metals, as well as related activities including
      exploration and development. The Company is the operator of the Montana Tunnels
      mine (the “Mine”), which is a 50% joint venture with Elkhorn Tunnels, LLC
      (“Elkhorn”). The Mine is an open pit mine and mill located in the State of
      Montana that produces gold dore࿸ and lead-gold and zinc-gold concentrates. The
      Company 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 17, 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**
 **Nine
            month period ended September 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 all externally imposed capital requirements; and (iv)
      if it has not complied, the consequences of such non-compliance. Sections 3862
      and 3863 replace Handbook Section 3861, Financial Instruments - Disclosure
      and
      Presentation, revising and enhancing its disclosure requirements and carrying
      forward unchanged its presentation requirements for financial instruments.
      Sections 3862 and 3863 place increased emphasis on disclosures about the nature
      and extent of risks arising from financial instruments and how the entity
      manages those risks.





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





**4.** **PURCHASE
          OF THE STOCK MILL COMPLEX FROM ST ANDREW**




On
      July 28, 2008, the Company completed the purchase of the Stock Mill Complex
      (the
“Purchase”) from St Andrew Goldfields Ltd. (“St Andrew”), a significant
      shareholder of the Company, for a purchase price of $19.9 million cash (Cdn$20.1
      million). The Stock Mill Complex includes a mill and related land, equipment,
      infrastructure, laboratory and tailings facilities, located near Timmins,
      Ontario (collectively, the “Stock Mill Complex”). The Company intends to use the
      Stock Mill Complex to process ore mined at the Black Fox Mine, which is
      approximately 30 kilometers from the Stock Mill Complex. 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 acquisition and is required to refund St Andrew
      its bonding commitment for the Stock Mill Complex in the amount of approximately
      $1.1 million (Cdn$1.2 million) by July 28, 2009. As of July 28 and September
      30,
      2008, St Andrew held approximately 30.6 million and 29.5 million common shares
      of the Company, respectively (14.0% and 13.4% of the outstanding common shares,
      respectively).




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




10
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**4.** **PURCHASE
      OF THE STOCK MILL COMPLEX FROM ST ANDREW (continued)**





Cash
                paid to St Andrew (Cdn$20.134 million)
            
            $
            19,870Transaction
                costs, including $0.35 million fair value of common shares issued
                (Note
                9(a)(i))
            
            
            1,039Purchase
                consideration
            
            $
            20,909Net
                assets acquiredProperty,
                plant and equipment
            
            $
            22,119Accrued
                site closure costs
            
            
            (1,210
            )$
            20,909





**5.** **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
      received 55% and Apollo received 45% of the positive free cash flow, as defined
      in the JV agreement, from the Mine until July 8, 2008 when Elkhorn had received
      cash flow of $13 million (at which time Apollo had received $10.6 million).
      Since July 8, 2008, Apollo receives 60% and Elkhorn 40% of the positive free
      cash flow from the Mine, until both parties have received an equal amount (at
      which time Apollo and Elkhorn will have each received $17.7 million).
      Thereafter, the sharing will be 50/50. Additionally, Elkhorn was entitled to
      a
      10% interest distribution (reduced from 12% effective April 1, 2007) charged
      to
      the joint venture as interest expense (Note 10)  on
      its
      initial contribution of $13 million until it received cash flow of $13 million
      on July 8, 2008. The interest distribution was based on the declining balance
      of
      this cash flow of $13 million. As of September 30, 2008, Elkhorn had received
      cash flow of $13.7 million from the joint venture and Apollo had received $11.7
      million. These cash flows to Elkhorn and Apollo are included in net cash used
      in
      financing activities below but are eliminated in the consolidated cash
      flow.




Apollo
      accounts for its 50% interest in the Montana Tunnels joint venture using the
      proportionate consolidation method. As of December 31, 2006, the Company
      recorded a deferred gain on the transfer of assets and liabilities to the joint
      venture of $3.8 million. The deferred gain is amortized using the
      units-of-production method over the expected life of the operation based on
      the
      estimated recoverable gold equivalent ounces. Amortization of the deferred
      gain
      was $0.6 million and $1.5  million
      for the three and nine months ended September 30, 2008 and $0.3 million and
      $0.8
      million for the three and nine months ended September 30, 2007,
      respectively.




11
 **APOLLO
            GOLD CORPORATION**
 **Notes
            to the Condensed Consolidated Financial Statements**
 **Nine
            month period ended September 30, 2008**
 (Stated
            in U.S. dollars; tabular amounts in thousands except share and per share
            data)
 (Unaudited)


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




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




**September
                30,**
              **2008**
            
            **December
                31,**
              **2007**CurrentCash
                and cash equivalents
            
            $
            1,327
            
            $
            306Other
                non-cash current assets
            
            
            5,920
            
            
            3,1907,247
            
            
            3,496Property,
                plant and equipment
            
            
            8,909
            
            
            9,167Deferred
                stripping costs
            
            
            1,958
            
            
            4,787Restricted
                certificates of deposit
            
            
            7,406
            
            
            5,435Total
                assets
            
            $
            25,520
            
            $
            22,885Current
                liabilities
            
            
            5,291
            
            
            3,573Notes
                payable
            
            
            70
            
            
            145Accrued
                site closure costs
            
            
            9,262
            
            
            8,314Total
                liabilities
            
            $
            14,623
            
            $
            12,032





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





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Revenue
                from sale of minerals
            
            $
            12,764
            
            $
            11,863
            
            $
            38,685
            
            $
            27,594Direct
                operating costs
            
            
            9,978
            
            
            7,283
            
            
            28,504
            
            
            18,278Depreciation
                and amortization
            
            
            380
            
            
            351
            
            
            1,085
            
            
            929Accretion
                expense - accrued site closure costs
            
            
            165
            
            
            114
            
            
            494
            
            
            34510,523
            
            
            7,748
            
            
            30,083
            
            
            19,552Operating
                income
            
            
            2,241
            
            
            4,115
            
            
            8,602
            
            
            8,042Interest
                income
            
            
            38
            
            
            60
            
            
            128
            
            
            157Interest
                expense
            
            
            (45
            )
            
            (199
            )
            
            (259
            )
            
            (786
            )Income
                from continuing operations
            
            $
            2,234
            
            $
            3,976
            
            $
            8,471
            
            $
            7,413Net
                cash provided by operating activities
            
            $
            2,248
            
            $
            5,508
            
            $
            11,059
            
            $
            8,773Net
                cash used in investing activities
            
            $
            (911
            )
            $
            (3,235
            )
            $
            (2,272
            )
            $
            (8,090
            )Net
                cash (used in) provided by financing activities
            
            $
            (463
            )
            $
            (2,895
            )
            $
            (7,766
            )
            $
            139





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




12
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)
 **6.**
                  **FAIR
                      VALUE OF DERIVATIVE INSTRUMENTS AND LONG-TERM
                      INVESTMENTS**


The
      fair
      value of the Company’s derivative instruments (see Note 8), which are comprised
      of gold, silver, lead and zinc contracts, are $0.6 million and $2.1 million
      as
      of September 30, 2008 and December 31, 2007, respectively. The cost basis of
      these instruments at September 30, 2008 and December 31, 2007 is $nil and,
      as a
      result, the Company has recorded unrealized gains of $0.6 million and $2.1
      million as of September 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. During the three
      and
      nine months ended September 30, 2008, there were no purchases, sales or
      settlements of these ARS. The Company has recorded an other than temporary
      impairment on its ARS, within foreign exchange (loss) gain and other in the
      consolidated statement of operations, of $0.1 million and $0.3  million
      during the three and nine months ended September 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 September 30, 2008 are  $1.2
      million.  See
      Note
      15(b). The ARS are pledged as collateral for a $0.9 million margin
      loan.





**7.**
            **INVENTORIES**




Inventories
      consist of:




**September
                30,**
              **2008**
            
            **December
                31,**
              **2007**Concentrate
                inventory
            
            $
            377
            
            $
            341Doré
                inventory
            
            
            -
            
            
            56Stockpiled
                ore inventory
            
            
            3,510
            
            
            749Materials
                and supplies
            
            
            1,054
            
            
            1,023$
            4,941
            
            $
            2,169





**8.**
            **CREDIT
                FACILITY AND DErIVATIVE
                CONTRACTS**




On
      July
      1, 2008, the Company entered into a $5.15 million extension of an existing
      credit facility (the “Credit Facility Extension”). The Credit Facility
      Extension, which was fully drawn on July 1, 2008, matures on June 30, 2009
      and
      bears interest at LIBOR plus 2.0%, and is repayable in three quarterly payments
      beginning December 31, 2008 (see Note 18(a)). 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
      Credit Facility Extension agreement required the Company to use proceeds from
      the loan as follows: (i) first, to make a down payment of $3.9 million (Cdn$4.0
      million) for the purchase of the Stock Mill Complex (see Note 4) and the $0.1
      million arrangement fee, and (ii) second, for general working capital
      purposes.





As
      a
      requirement of the Credit Facility Extension, the Company entered into certain
      option contracts to buy and sell 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:


13
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements** **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)
 
 **8.** **CREDIT
        FACILITY AND DERIVATIVE CONTRACTS (continued)**


**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 did not apply hedge accounting to this transaction. As a result, the
      Company accounts for these derivative instruments as investments and records
      the
      changes in unrealized gains and losses in the statement of income each period.
      The fair value of these derivatives is recorded as a current asset or current
      liability at each balance sheet date (see Note 6). See Note 18 (a) for
      information regarding the termination of a portion of these option
      contracts.





**9.** **SHARE
          CAPITAL**





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




*(i)*  Shares
      issued for services




On
      July
      1, 2008, the Company issued 650,000 common shares of the Company valued at
      $0.4
      million, or $0.54 per common share in connection with the $5.15 million Credit
      Facility Extension. See Note 8.




*(ii)*  Units
      issued for cash and related compensation warrants




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 US$0.2 million). Net proceeds to the Company, after agency fees
      and
      other expenses, were approximately $18.1 million (Cdn$18.6 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 (the “Unit Warrants”)
      exercisable into one common share at a price of Cdn$0.65 per share for 36
      months, expiring on July 24, 2011. The Unit Warrants were fair valued at $2.7
      million, using an option pricing model with the following assumptions: no
      dividends are paid, a volatility of the Company’s share price of 74%, an
      expected life of the warrants of three years, and an annual risk-free rate
      of
      3.4%.





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





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




14
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**9.** **SHARE
      CAPITAL (continued)**





Cdn$0.78
      from January 20, 2009 to July 24, 2012. The Agents’ Units were fair valued at
      $0.4 million, using an option pricing model with the following assumptions:
      no
      dividends are paid, a volatility of the Company’s share price of 74%, an
      expected life of the warrants of four years, and an annual risk-free rate of
      3.4%.




*(iii)*  Flow-through
      common shares issued for cash and related compensation warrants




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





*(iv)*  Warrants
      exercised and debentures converted




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




***(b)*** Warrants




The
      following summarizes outstanding warrants as at September 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, 2008**(1)**March
                31, 2008
            5,250
            Cdn$
                1.15
            October
                30, 2008**(1)**October
                31, 2007
            372,727
            Cdn$
                0.55
            April
                30, 2009August
                21, 2008
            1,020,000
            Cdn$
                0.50
            February
                21, 2010July
                24, 2008
            20,403,250
            Cdn$
                0.65
            July
                24, 201122,912,33849,524,481**(1)**Expired unexercised on October 30,
                2008





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




15


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


**9.** **SHARE
      CAPITAL (continued)**





***(c)*** Options




A
      summary
      of information concerning outstanding stock options at September 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
            
            
            2,173,738
            
            
            0.66Options
                forfeited
            
            
            (174,932
            )
            
            0.61Balance,
                September 30, 2008
            
            
            8,226,309
            
            $
            0.77





The
      following table summarizes information concerning outstanding and exercisable
      stock options at September 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
            
            
            2.9
            
            
            100,000
            
            $
            0.46677,300
            
            
            February
                18, 2013
            
            
            2.24
            
            
            4.4
            
            
            677,300
            
            
            2.24260,000
            
            
            March
                10, 2014
            
            
            2.05
            
            
            5.4
            
            
            260,000
            
            
            2.0525,000
            
            
            May
                19, 2014
            
            
            1.44
            
            
            5.6
            
            
            25,000
            
            
            1.4420,200
            
            
            August
                10, 2014
            
            
            0.95
            
            
            5.9
            
            
            20,200
            
            
            0.951,160,500
            
            
            March
                10, 2015
            
            
            0.65
            
            
            6.4
            
            
            1,160,500
            
            
            0.65100,000
            
            
            August
                4, 2015
            
            
            0.27
            
            
            6.8
            
            
            100,000
            
            
            0.27300,000
            
            
            December
                12, 2015
            
            
            0.20
            
            
            7.2
            
            
            300,000
            
            
            0.20125,000
            
            
            March
                28, 2016
            
            
            0.65
            
            
            7.5
            
            
            125,000
            
            
            0.65200,000
            
            
            May
                23, 2016
            
            
            0.53
            
            
            7.7
            
            
            200,000
            
            
            0.53108,000
            
            
            August
                10, 2016
            
            
            0.48
            
            
            7.9
            
            
            108,000
            
            
            0.4840,000
            
            
            November
                9, 2016
            
            
            0.32
            
            
            8.1
            
            
            20,000
            
            
            0.322,940,246
            
            
            February
                6, 2017
            
            
            0.57
            
            
            8.4
            
            
            1,470,123
            
            
            0.5749,825
            
            
            August
                13, 2017
            
            
            0.46
            
            
            8.9
            
            
            24,913
            
            
            0.462,098,988
            
            
            March
                27, 2018
            
            
            0.66
            
            
            9.5
            
            
            -
            
            
            -21,250
            
            
            August
                12, 2018
            
            
            0.37
            
            
            9.9
            
            
            -
            
            
            -8,226,309
            
            
            
            
            $
            0.77
            
            
            7.8
            
            
            4,591,036
            
            $
            0.89





***(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:


16


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


**9.** **SHARE
      CAPITAL (continued)**




**Nine
                months ended September 30,****2008**
            
            **2007**Risk-free
                interest rate
            
            
            2.9
            %
            
            4.1
            %Dividend
                yield
            
            
            0
            %
            
            0
            %Volatility
            
            
            73
            %
            
            71
            %Expected
                life in years
            
            
            6
            
            
            6Weighted
                average grant-date fair value of stock options
            
            $
            0.44
            
            $
            0.37





**10.** **INTEREST
          EXPENSE**




Interest
      expense consists of:




**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Accretion
                on convertible debentures
            
            $
            1,017
            
            $
            1,328
            
            $
            2,787
            
            $
            3,328Interest
                related to Montana Tunnels joint venture agreement (Note
                5)
            
            
            1
            
            
            144
            
            
            102
            
            
            593Capital
                leases and other
            
            
            125
            
            
            112
            
            
            423
            
            
            276$
            1,143
            
            $
            1,584
            
            $
            3,312
            
            $
            4,197





**11.** **INCOME
          TAXES**




The
      Company recorded $0.03 million and $0.10 million in income tax expense for
      the
      three and nine months ended September 30, 2008, respectively, 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 recorded a $0.3 million
      recovery for income taxes for the three and nine months ended September 30,
      2007
      in connection with flow-through units issued in October 2006.




**12.** **EARNINGS
      (LOSS) PER SHARE**




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




Earnings
      (loss) used in determining earnings (loss) per share are presented
      below.




17
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**12.** **EARNINGS
      (LOSS) PER SHARE (continued)**




**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                income (loss)
            
            $
            548
            
            $
            2,117
            
            $
            2,873
            
            $
            (94
            )Weighted
                average number of shares, basic
            
            
            199,747,625
            
            
            143,922,308
            
            
            173,373,528
            
            
            143,358,591Dilutive
                securities:Options
            
            
            166,106
            
            
            1,048,244
            
            
            284,577
            
            
            -Warrants
            
            
            -
            
            
            231,453
            
            
            1,394,042
            
            
            -Weighted
                average number of shares, diluted
            
            
            199,913,731
            
            
            145,202,005
            
            
            175,052,147
            
            
            143,358,591**Basic
                and diluted earnings (loss) per share**
            
            **$**
            **0.00**
            
            **$**
            **0.01**
            
            **$**
            **0.02**
            
            **$**
            **(0.00**
            **)**Option
                and warrants outstanding but not included in computation of diluted
                weighted average number of shares (“OWNI”) because the strike prices
                exceeded the average price of the common shares
            
            
            59,815,346
            
            
            36,343,852
            
            
            31,847,962
            
            
            36,235,852Average
                exercise price of OWNI
            
            $
            0.60
            
            $
            0.58
            
            $
            0.69
            
            $
            0.58




Due
      to a
      net loss for the nine months ended September 30, 2007, 1.3 million warrants
      and
      stock options were excluded from the EPS computation because their effect would
      have been anti-dilutive. **** Also,
      for
      the three and nine months ended September 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 nine months ended September 30, 2007,
      outstanding convertible debentures that were convertible at an average of $0.60
      per share into 28.4 million common shares were not included in the EPS
      computation because their effect would have been anti-dilutive.


**13.** **COMMITMENTS
        AND CONTINGENCIES**
  ***(a)*** Commitments
        for the development of Black Fox


As
      of
      September 30, 2008, the Company had made certain commitments to lease mining
      equipment for use at Black Fox and to make certain expenditures for improvements
      to the milling process at the Stock Mill Complex as follows:




Commitments
                to lease mining equipment
            
            $
            8,679Commitments
                for expenditures to make improvements to the mill at the Stock Mill
                Complex
            
            $
            2,179Less:
                Deposits made on commitments for expenditures
            
            
            (1,063
            )$
            1,116




See
      Note
      18(b) for additional commitments made subsequent to September 30,
      2008.




***(b)*** Black
          Fox
          bonding




In
      order
      to proceed with open pit mining at the Black Fox Project in the fourth quarter
      of 2008, the Company committed to post Cdn$6.8 million on bond, in addition
      to
      the Cdn$0.6 million already posted in previous years, for the benefit of the
      Ontario Ministry of Northern Development and Mines to cover estimated costs
      of
      site reclamation. As of September 30, 2008, Cdn$1.0 million had been placed
      on




18
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





bond,
      included in restricted certificates of deposit, and the remaining amount of
      Cdn$5.8 million is scheduled to be posted as follows: (1) Cdn$2.0 million in
      November 2008, (2) Cdn$2.0 million in February 2009 and (3) Cdn$1.8 million
      in
      May 2009.




***(c)*** Stock
          Mill Complex bonding




Upon
      acquisition of the Stock Mill Complex (Note 4), the Company committed to replace
      the Cdn$1.2 million bond posted by St Andrew by July 28, 2009. When the existing
      bond is replaced, the cash on deposit will be released to Apollo and Apollo
      will
      be required to pay Cdn$1.2 million to St Andrew.




**14.** **SUPPLEMENTAL
          CASH FLOW INFORMATION**




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




**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**(Increase)
                decrease in:Accounts
                receivable and other
            
            $
            (271
            )
            $
            23
            
            $
            (710
            )
            $
            (1,576
            )Prepaids
            
            
            (112
            )
            
            39
            
            
            311
            
            
            240Inventories
            
            
            (1,136
            )
            
            50
            
            
            (2,772
            )
            
            (815
            )Increase
                (decrease) in:Accounts
                payable
            
            
            (867
            )
            
            791
            
            
            857
            
            
            1,197Accrued
                liabilities
            
            
            29
            
            
            (245
            )
            
            (1,133
            )
            
            1,120Property
                and mining taxes payable
            
            
            12
            
            
            139
            
            
            323
            
            
            267$
            (2,345
            )
            $
            797
            
            $
            (3,124
            )
            $
            433





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




**Sept.
                30, 2008**
            
            **Sept.
                30,****2007**Cash
            
            $
            6,577
            
            $
            227Cash
                equivalents
            
            
            1,035
            
            
            6,410Cash
                and cash equivalents
            
            $
            7,612
            
            $
            6,637





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




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




During
      the three and nine months ended September 30, 2008, the Company (i) recorded
      an
      increase of $1.6 million in property, plant and equipment related to the
      acquisition of the Stock Mill Complex and an increase in equity of $0.4 million
      for the issuance of common shares of the Company valued at $0.4 million for
      services rendered in connection with acquisition financing costs and a $1.2
      million increase in accrued site closure costs for the assumption of a
      reclamation liability associated with the Stock Mill Complex, (ii) recorded
      a
      $0.5 million increase in its reclamation liability due to a change in estimates
      for the Montana Tunnels mine and a corresponding increase in the reclamation
      asset recorded in




19


**APOLLO
        GOLD CORPORATION**
 **Notes
        to the Condensed Consolidated Financial Statements**
 **Nine
        month period ended September 30, 2008**
 (Stated
        in U.S. dollars; tabular amounts in thousands except share and per share
        data)
 (Unaudited)
  **14.** **SUPPLEMENTAL
        CASH FLOW INFORMATION (continued)**





property,
      plant and equipment and (iii) financed a portion of its insurance program
      included in prepaids by issuing notes payable of $0.4 million.




During
      the nine months ended September 30, 2008, Series 2007-A convertible debentures
      with a face value of $0.9 million were converted into common shares of the
      Company and the Company recorded a reduction of $0.6 million in convertible
      debentures and a corresponding increase in equity. Also, during the nine months
      ended September 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 nine months ended September 30, 2007, (i) Series 2007-A
      convertible debentures with a face value of $0.2 million were converted and
      the
      Company recorded a reduction of $0.1 million in convertible debentures and
      a
      corresponding increase in equity; (ii) property, plant and equipment totaling
      $0.5 million was acquired via issuance of common shares of the Company and
      (iii)
      the Company financed a portion of its insurance program included in prepaids
      by
      issuing notes payable of $0.7 million.




During
      the nine months ended September 30, 2007, property, plant and equipment totaling
      $0.3 million was acquired via issuance of a promissory note. Also, during the
      nine months ended September 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.




**15.** **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




20
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





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




The
      Company assesses quarterly whether there has been an impairment of the financial
      assets of the Company. Other than disclosed in Note 6 related to ARS, the
      Company has not recorded an impairment on any of the financial assets of the
      Company during the nine month period ended September 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 at the time. Auction rate
      securities are no longer allowed to be purchased under the Company’s current
      investment policy. Beginning in August 2007, a number of auctions began to
      fail
      and the Company is currently holding ARS with a par value of $1.5 million which
      currently lack liquidity. All of Apollo’s ARS have continued to make regular
      interest payments. Apollo’s ARS were downgraded to Aa during the second quarter
      of 2008. If uncertainties in the credit and capital markets persist or Apollo’s
      ARS experience further downgrades, the Company may incur additional impairments,
      which may continue to be judged other than temporary. Apollo believes that
      the
      current illiquidity of its ARS will not have a material impact on Apollo’s
      financial condition.





The
      Company’s maximum exposure to credit risk is represented by the carrying amount
      on the balance sheet, which has not changed significantly since December 31,
      2007. The financial assets past due do not 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, the Company
      may be required to conduct equity issues or obtain project debt
      financing.





Trade
      payables and accrued liabilities are paid in the normal course of business
      generally according to their terms, which are typically due thirty days or
      less.
      The Company ensures that there are sufficient committed loan facilities to
      meet
      its short-term business requirements, taking into account its anticipated cash
      flows from operations and its holdings of cash and cash equivalents. At
      September 30, 2008, the Company is in compliance with its debt covenants. As
      of
      September 30, 2008, the outstanding principal balance of the Series 2007-A
      convertible debentures (“2007 Debentures”) is $7.4 million. The 2007 Debentures
      are convertible at $0.50 per share which is considerably higher than the price
      of the Company’s common shares on the American Stock Exchange on November 10,
      2008 of $0.15. Additionally, as of November 10, 2008, the Company has committed
      to expend approximately $32 million for the development of Black Fox and will
      be
      required to repay the outstanding balance of the





21
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





Credit
      Facility Extension of $2.8 million (Notes 8 and 18(a)) due in installments
      in
      March 2009 and June 2009. Based on the current cash balance and expected cash
      flows of the Montana Tunnels joint venture, the Company will not have sufficient
      funds to (1) repay the full amount of the $7.4 million principal amount of
      the
      Debentures and interest due of $1.3 million on February 23, 2009, (2) fund
      the
      commitments for the development of Black Fox, (3) repay the Credit Facility
      Extension and (4) fund corporate expenditures. Therefore, the Company is
      currently considering its financing options to meet the obligations listed
      above
      which include debt financing, capital leasing arrangements, additional equity
      issuances and refinancing the Series 2007-A convertible debentures. The
      Company’s financing options may be significantly affected by the current
      volatile economic financial market conditions which could significantly increase
      costs of financing or the Company may be unable to issue debt or equity
      securities at all.





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 September 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
            
            $
            6,672
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            6,672
            
            $
            6,645Notes
                payable and other current debt
            
            
            7,506
            
            
            70
            
            
            -
            
            
            -
            
            
            7,576
            
            
            7,776Convertible
                debentures
            
            
            7,438
            
            
            -
            
            
            -
            
            
            -
            
            
            7,438
            
            
            8,380Interest
                on convertible debentures
            
            
            1,339
            
            
            -
            
            
            -
            
            
            -
            
            
            1,339
            
            
            2,711Operating
                lease obligations
            
            
            86
            
            
            61
            
            
            -
            
            
            -
            
            
            147
            
            
            183Capital
                expenditures
            
            
            9,795
            
            
            -
            
            
            -
            
            
            -
            
            
            9,795
            
            
            21$
            32,836
            
            $
            131
            
            $
            -
            
            $
            -
            
            $
            32,967
            
            $
            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 nine months ended September
      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 $0.3 and $0.6 million, respectively, for a 10%
      increase or decrease in the Canadian dollar.





***(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 $4.8 million at September 30, 2008,
      (2) the Series 2007-A convertible debentures (“the Debentures”) which have an
      aggregate $7.4 million face value at September 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 auction rate securities (Note 6). The credit
      facility and the margin loan both have a floating




22
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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




interest
      rate based on LIBOR plus 2.0% for the credit facility and plus 1.25% for the
      margin loan, and the Debentures have a stated rate of 18% which increased from
      12% on February 23, 2008 as part of the original terms. The Company monitors
      its
      exposure to interest rates and has not entered into any derivative contracts
      to
      manage this risk. The weighted average interest rate paid by the Company during


the
      three
      and nine months ended September 30, 2008 on its outstanding borrowings was
      4.5%
      and 8.5%, respectively.





For
      the
      three and nine months ended September 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 and future and forward contracts, but
      generally does not enter into such arrangements except as required to obtain
      favorable financing terms.




On
      July
      1, 2008, in order to meet certain loan criteria of the credit facility mentioned
      in (e) above, the Company entered into certain option contracts. See Note 8
      for
      details.





***(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.





**16.** **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 5). The Montana Tunnels assets and liabilities and results
      of
      operations of the Montana Tunnels joint venture disclosed in Note 5 differ
      from
      the amounts below due to the inclusion of assets and liabilities and results
      of
      operations of Montana Tunnels Mining, Inc. not pertaining to the Montana Tunnels
      joint venture which primarily relate to the Diamond Hill mine. The accounting
      policies for these segments are the same as those followed by the Company as
      a
      whole.





23
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**16.** **SEGMENTED
      INFORMATION (continued)**





Amounts
      as at September 30, 2008 are as follows:





**Montana**
              **Tunnels**
            
            **Black**
              **Fox**
            
            **Corporate**
              **and
                Other**
            
            **Total**Cash
                and cash equivalents
            
            $
            1,327
            
            $
            341
            
            $
            5,944
            
            $
            7,612Other
                non-cash current assets
            
            
            5,964
            
            
            376
            
            
            3,362
            
            
            9,7027,291
            
            
            717
            
            
            9,306
            
            
            17,314Long-term
                investments
            
            
            -
            
            
            -
            
            
            1,215
            
            
            1,215Property,
                plant and equipment
            
            
            8,917
            
            
            63,829
            
            
            3,063
            
            
            75,809Deferred
                stripping costs
            
            
            1,958
            
            
            -
            
            
            -
            
            
            1,958Restricted
                certificates of deposit
            
            
            8,028
            
            
            1,545
            
            
            8
            
            
            9,581Other
                long-term assets
            
            
            -
            
            
            98
            
            
            1,063
            
            
            1,161Total
                assets
            
            $
            26,194
            
            $
            66,189
            
            $
            14,655
            
            $
            107,038Current
                liabilities
            
            $
            5,304
            
            $
            1,102
            
            $
            14,500
            
            $
            20,906Notes
                payable and other long-term liabilities
            
            
            70
            
            
            -
            
            
            309
            
            
            379Accrued
                site closure costs
            
            
            9,911
            
            
            1,678
            
            
            -
            
            
            11,589Deferred
                gain
            
            
            1,027
            
            
            -
            
            
            -
            
            
            1,027Total
                liabilities
            
            $
            16,312
            
            $
            2,780
            
            $
            14,809
            
            $
            33,901





Amounts
      as at December 31, 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




24
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**16.** **SEGMENTED
      INFORMATION (continued)**





**Three
                months ended September 30, 2008****Montana
                Tunnels**
            
            **Black
                Fox**
            
            **Corporate
                and Other**
            
            **Total**Revenue
                from sale of minerals
            
            $
            12,764
            
            $
            -
            
            $
            -
            
            $
            12,764Direct
                operating costs
            
            
            9,978
            
            
            -
            
            
            -
            
            
            9,978Depreciation
                and amortization
            
            
            380
            
            
            -
            
            
            26
            
            
            406General
                and administrative expenses
            
            
            -
            
            
            -
            
            
            826
            
            
            826Accretion
                expense - accrued site closure costs
            
            
            177
            
            
            -
            
            
            -
            
            
            177Amortization
                of deferred gain
            
            
            (560
            )
            
            -
            
            
            -
            
            
            (560
            )Exploration
                and business development
            
            
            -
            
            
            167
            
            
            587
            
            
            7549,975
            
            
            167
            
            
            1,439
            
            
            11,581Operating
                income (loss)
            
            
            2,789
            
            
            (167
            )
            
            (1,439
            )
            
            1,183Interest
                income
            
            
            38
            
            
            -
            
            
            62
            
            
            100Interest
                expense
            
            
            (45
            )
            
            -
            
            
            (1,098
            )
            
            (1,143
            )Financing
                costs
            
            
            -
            
            
            -
            
            
            (70
            )
            
            (70
            )Realized
                gains on derivative contracts
            
            
            -
            
            
            -
            
            
            1,556
            
            
            1,556Unrealized
                gains on derivative contracts
            
            
            -
            
            
            -
            
            
            (763
            )
            
            (763
            )Foreign
                exchange loss and other
            
            
            -
            
            
            -
            
            
            (283
            )
            
            (283
            )Income
                (loss) from continuing operations before income taxes
            
            $
            2,782
            
            $
            (167
            )
            $
            (2,035
            )
            $
            580Investing
                activitiesProperty,
                plant and equipment expenditures
            
            $
            123
            
            $
            21,644
            
            $
            -
            
            $
            21,767








**Nine
                months ended September 30, 2008****Montana
                Tunnels**
            
            **Black
                Fox**
            
            **Corporate
                and Other**
            
            **Total**Revenue
                from sale of minerals
            
            $
            38,685
            
            $
            -
            
            $
            -
            
            $
            38,685Direct
                operating costs
            
            
            28,508
            
            
            -
            
            
            -
            
            
            28,508Depreciation
                and amortization
            
            
            1,085
            
            
            -
            
            
            80
            
            
            1,165General
                and administrative expenses
            
            
            -
            
            
            -
            
            
            2,914
            
            
            2,914Accretion
                expense - accrued site closure costs
            
            
            532
            
            
            -
            
            
            -
            
            
            532Amortization
                of deferred gain
            
            
            (1,484
            )
            
            -
            
            
            -
            
            
            (1,484
            )Exploration
                and business development
            
            
            -
            
            
            217
            
            
            2,294
            
            
            2,51128,641
            
            
            217
            
            
            5,288
            
            
            34,146Operating
                income (loss)
            
            
            10,044
            
            
            (217
            )
            
            (5,288
            )
            
            4,539Interest
                income
            
            
            128
            
            
            -
            
            
            181
            
            
            309Interest
                expense
            
            
            (259
            )
            
            -
            
            
            (3,053
            )
            
            (3,312
            )Financing
                costs
            
            
            -
            
            
            -
            
            
            (70
            )
            
            (70
            )Realized
                gains on derivative contracts
            
            
            -
            
            
            -
            
            
            3,506
            
            
            3,506Unrealized
                gains on derivative contracts
            
            
            -
            
            
            -
            
            
            (1,496
            )
            
            (1,496
            )Foreign
                exchange loss and other
            
            
            -
            
            
            -
            
            
            (508
            )
            
            (508
            )Income
                (loss) from continuing operations before income taxes
            
            $
            9,913
            
            $
            (217
            )
            $
            (6,728
            )
            $
            2,968Investing
                activitiesProperty,
                plant and equipment expenditures and deferred stripping
                expenditures
            
            $
            301
            
            $
            26,493
            
            $
            42
            
            $
            26,836





25
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**16.** **SEGMENTED
      INFORMATION (continued)**





**Three
                months ended September 30,
                2007**


**Montana
                Tunnels**
            
            **Black
                Fox**
            
            **Corporate
                and Other**
            
            **Total**Revenue
                from sale of minerals
            
            $
            11,863
            
            $
            -
            
            $
            -
            
            $
            11,863Direct
                operating costs
            
            
            7,285
            
            
            -
            
            
            -
            
            
            7,285Depreciation
                and amortization
            
            
            351
            
            
            -
            
            
            26
            
            
            377General
                and administrative expenses
            
            
            -
            
            
            -
            
            
            902
            
            
            902Accretion
                expense - accrued site closure costs
            
            
            126
            
            
            -
            
            
            -
            
            
            126Amortization
                of deferred gain
            
            
            (345
            )
            
            -
            
            
            -
            
            
            (345
            )Exploration
                and business development
            
            
            -
            
            
            -
            
            
            291
            
            
            2917,417
            
            
            -
            
            
            1,219
            
            
            8,636Operating
                income (loss)
            
            
            4,446
            
            
            -
            
            
            (1,219
            )
            
            3,227Interest
                income
            
            
            60
            
            
            -
            
            
            86
            
            
            146Interest
                expense
            
            
            (199
            )
            
            -
            
            
            (1,385
            )
            
            (1,584
            )Foreign
                exchange gain and other
            
            
            -
            
            
            -
            
            
            33
            
            
            33Income
                (loss) from continuing operations before income taxes
            
            $
            4,307
            
            $
            -
            
            $
            (2,485
            )
            $
            1,822Investing
                activitiesProperty,
                plant and equipment expenditures and deferred stripping
                expenditures
            
            $
            2,678
            
            $
            1,859
            
            $
            -
            
            $
            4,537





**Nine
                months ended September 30,
                2007**


**Montana
                Tunnels**
            
            **Black
                Fox**
            
            **Corporate
                and Other**
            
            **Total**Revenue
                from sale of minerals
            
            $
            27,594
            
            $
            -
            
            $
            -
            
            $
            27,594Direct
                operating costs
            
            
            18,280
            
            
            -
            
            
            -
            
            
            18,280Depreciation
                and amortization
            
            
            929
            
            
            -
            
            
            78
            
            
            1,007General
                and administrative expenses
            
            
            -
            
            
            -
            
            
            2,901
            
            
            2,901Accretion
                expense - accrued site closure costs
            
            
            380
            
            
            -
            
            
            -
            
            
            380Amortization
                of deferred gain
            
            
            (774
            )
            
            -
            
            
            -
            
            
            (774
            )Exploration
                and business development
            
            
            -
            
            
            -
            
            
            2,028
            
            
            2,02818,815
            
            
            -
            
            
            5,007
            
            
            23,822Operating
                gain (loss)
            
            
            8,779
            
            
            -
            
            
            (5,007
            )
            
            3,772Interest
                income
            
            
            157
            
            
            -
            
            
            328
            
            
            485Interest
                expense
            
            
            (786
            )
            
            -
            
            
            (3,411
            )
            
            (4,197
            )Financing
                costs
            
            
            -
            
            
            -
            
            
            (480
            )
            
            (480
            )Foreign
                exchange loss and other
            
            
            -
            
            
            -
            
            
            31
            
            
            31Income
                (loss) from continuing operations before income taxes
            
            $
            8,150
            
            $
            -
            
            $
            (8,539
            )
            $
            (389
            )Investing
                activitiesProperty,
                plant and equipment expenditures and deferred stripping
                expenditures
            
            $
            7,019
            
            $
            3,317
            
            $
            1,951
            
            $
            12,287





**17.**
            **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




26
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





and
      Exchange Commission at September 30, 2008 and December 31, 2007 and for the
      three and nine months ended September 30, 2008 and 2007.





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


**Sept.
                30, 2008**
            
            **Dec
                31,****2007****Total
                assets in accordance with Canadian GAAP**
            
            **$**
            **107,038**
            
            **$**
            **75,073**Deferred
                financing costs (a)
            
            
            -
            
            
            160Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            (14,623
            )
            
            (12,032
            )Impairment
                of property, plant and equipment, and change in depreciation and
                amortization(b)(ii)
            
            
            (1,667
            )
            
            (1,812
            )Deferred
                stripping costs (b)(iii)
            
            
            (1,958
            )
            
            (4,787
            )Black
                Fox development costs(c)
            
            
            (29,159
            )
            
            (26,827
            )Convertible
                debentures (d)
            
            
            177
            
            
            509Income
                taxes related to flow-through share issuance (e)
            
            
            -
            
            
            (1,165
            )**Total
                assets in accordance with U.S. GAAP**
            
            **$**
            **59,808**
            
            **$**
            **29,119**





**Total
                liabilities in accordance with Canadian GAAP**
            
            **$**
            **33,901**
            
            **$**
            **32,200**Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            (14,623
            )
            
            (12,032
            )Deferred
                gain (b)(i)
            
            
            (1,027
            )
            
            (2,511
            )Convertible
                debentures (d)
            
            
            643
            
            
            2,063Income
                taxes related to flow-through share issuance (e)
            
            
            1,788
            
            
            628**Total
                liabilities in accordance with U.S. GAAP**
            
            **$**
            **20,682**
            
            **$**
            **20,348**





**Total
                shareholders’ equity in accordance with Canadian
                GAAP**
            
            **$**
            **73,137**
            
            **$**
            **42,873**Deferred
                financing costs (a)
            
            
            -
            
            
            160Deferred
                gain (b)(i)
            
            
            1,027
            
            
            2,511Impairment
                of property, plant and equipment, and change in depreciation and
                amortization(b)(ii)
            
            
            (1,667
            )
            
            (1,812
            )Deferred
                stripping costs (b)(iii)
            
            
            (1,958
            )
            
            (4,787
            )Black
                Fox development costs (c)
            
            
            (29,159
            )
            
            (26,827
            )Convertible
                debentures (d)
            
            
            (466
            )
            
            (1,554
            )Income
                taxes related to flow-through share issuance (e)
            
            
            (1,788
            )
            
            (1,793
            )**Total
                shareholders’ equity in accordance with U.S. GAAP**
            
            **$**
            **39,126**
            
            **$**
            **8,771**





**Total
                shareholders’ equity and liabilities in accordance with U.S.
                GAAP**
            
            **$**
            **59,808**
            
            **$**
            **29,119**





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





**Sept.
                30, 2008**
            
            **Dec
                31,****2007**Share
                capital
            
            $
            188,896
            
            $
            165,790Note
                warrants
            
            
            2,234
            
            
            2,292Contributed
                surplus
            
            
            45,081
            
            
            39,463Deficit
            
            
            (197,085
            )
            
            (198,774
            )**Total
                shareholders’ equity in accordance with U.S. GAAP**
            
            **$**
            **39,126**
            
            **$**
            **8,771**




27
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





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




**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                income (loss) for the period based on Canadian GAAP
            
            $
            548
            
            $
            2,117
            
            $
            2,873
            
            $
            (94
            )Financing
                costs (a)
            
            
            (53
            )
            
            -
            
            
            (160
            )
            
            -Amortization
                of deferred gain (b)(i)
            
            
            (560
            )
            
            (345
            )
            
            (1,484
            )
            
            (774
            )Change
                in depreciation of property, plant and equipment (b)(ii)
            
            
            53
            
            
            66
            
            
            145
            
            
            160Capitalized
                deferred stripping costs and amortization (b)(iii)
            
            
            1,067
            
            
            (1,340
            )
            
            2,829
            
            
            (4,427
            )Black
                Fox development costs (c)
            
            
            -
            
            
            (1,135
            )
            
            (2,332
            )
            
            (2,456
            )Convertible
                debentures (d)
            
            
            287
            
            
            231
            
            
            (810
            )
            
            (4,996
            )Income
                taxes related to flow-through share issuance (e)
            
            
            -
            
            
            (230
            )
            
            628
            
            
            (230
            )Net
                income (loss) for the period based on U.S. GAAP
            
            $
            1,342
            
            $
            (636
            )
            $
            1,689
            
            $
            (12,817
            )Comprehensive
                income (loss) based on U.S. GAAP
            
            $
            1,342
            
            $
            (636
            )
            $
            1,689
            
            $
            (12,817
            )Basic
                and diluted earnings (loss) per share in accordance with U.S.
                GAAP
            
            $
            0.01
            
            $
            0.00
            
            $
            0.01
            
            $
            (0.09
            )





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





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Cash
                provided by operating activities based on Canadian GAAP
            
            $
            133
            
            $
            4,613
            
            $
            3,765
            
            $
            5,734Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            (2,248
            )
            
            (5,508
            )
            
            (11,059
            )
            
            (8,773
            )Black
                Fox development costs (c)
            
            
            -
            
            
            (1,135
            )
            
            (2,332
            )
            
            (2,456
            )Cash
                used in operating activities based on U.S. GAAP
            
            
            (2,115
            )
            
            (2,030
            )
            
            (9,626
            )
            
            (5,495
            )Cash
                used in investing activities based on Canadian GAAP
            
            
            (22,455
            )
            
            (4,609
            )
            
            (26,908
            )
            
            (12,926
            )Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            911
            
            
            3,235
            
            
            2,272
            
            
            8,090Black
                Fox development costs (c)
            
            
            -
            
            
            1,135
            
            
            2,332
            
            
            2,456Restricted
                cash for Canadian flow-through expenditures (e)
            
            
            (7,243
            )
            
            490
            
            
            (4,634
            )
            
            673Cash
                provided by (used in) investing activities based on U.S.
                GAAP
            
            
            (28,787
            )
            
            251
            
            
            (26,938
            )
            
            (1,707
            )Cash
                provided by financing activities based on Canadian GAAP
            
            
            29,711
            
            
            (462
            )
            
            26,326
            
            
            9,296Equity
                accounting for investment in Montana Tunnels joint venture
                (b)(i)
            
            
            463
            
            
            2,895
            
            
            7,766
            
            
            (140
            )Cash
                provided by financing activities based on U.S. GAAP
            
            
            30,174
            
            
            2,433
            
            
            34,092
            
            
            9,156Effect
                of exchange rate changes on cash
            
            
            (379
            )
            
            19
            
            
            (423
            )
            
            21Net
                cash (outflow) inflow in accordance with U.S. GAAP
            
            
            (1,107
            )
            
            673
            
            
            (2,895
            )
            
            1,975Cash,
                beginning of period in accordance with U.S. GAAP
            
            
            (454
            )
            
            5,020
            
            
            1,334
            
            
            3,718Cash,
                end of period in accordance with U.S. GAAP
            
            $
            (1,561
            )
            $
            5,693
            
            $
            (1,561
            )
            $
            5,693




28
 
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)
  **17.** **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 5).  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.




29
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**17.** **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 September 30, 2008 and
      an
      additional expense of $1.1 million and $2.3 million has been recorded for the
      three and nine 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 September 30, 2008, unexpended flow-through
      funds were $7.8 million (December 31, 2007 - $3.2 million).




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


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




In
      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


31
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


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





combination.
      SFAS 141(R) is effective for fiscal years beginning after December 15,
      2008. The Company is currently evaluating the potential impact, if any, of
      the
      adoption of SFAS 141(R) on its consolidated financial
      statements.





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





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




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





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




32
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**18.**
            **SUBSEQUENT
                EVENTS**




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




On
      October 23, 2008, the Company unwound a portion of its outstanding derivative
      contracts early for proceeds of $2.01 million and repaid principal of $1.95
      million on the Credit Facility Extension (Note 8). The derivative contracts
      that
      were unwound early had been put into place on July 1, 2008 in order to meet
      certain loan criteria of the Credit Facility Extension. As of October 23, 2008
      and after giving effect to the $1.95 million prepayment, Apollo owes $2.84
      million under the Credit Facility Extension. This transaction did not affect
      any
      other terms of the Credit Facility Extension. As of October 23, 2008, Apollo
      has
      the following outstanding put and call contracts, which are in the form of
      a no
      premium collar (buy a put, sell a call) at the following prices:


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


These
      contracts mature in three equal amounts at the end of January, February and
      March 2009.




***(b)***
            Commitments
                for development of the Black Fox
                Project




Subsequent
      to September 30, 2008 and as of the date these condensed consolidated financial
      statements were prepared, the Company entered into certain agreements and made
      certain commitments for the development of Black Fox summarized in the table
      below:




Commitments
                to purchase mining equipment
            
            $
            162Commitments
                to lease mining equipment
            
            $
            4,822Commitments
                to a contractor to perform the pre-strip of alluvial waste to gain
                access
                to the ore body
            
            $
            12,204Commitments
                to a contractor to construct waste water ponds
            
            $
            3,739Commitments
                for expenditures to make improvements to the mill at the Stock Mill
                Complex
            
            $
            1,389





***(c)***
            Cessation
                of Mining at Montana Tunnels




On
        October 22, 2008, Apollo announced that, as at the end of November 2008,
        it will
        have completed mining of ore from the Montana Tunnels open pit operation
        as
        permitted by the current “L Pit” permit. Upon completion of ore mining at the
        Montana Tunnels mine, the Company estimates that it will have a stockpile
        of
        over two million tons of ore, which the Company believes is sufficient feed
        for
        the Montana Tunnels mill to continue to produce zinc-gold and lead-gold
        concentrates for approximately five more months. When mining operations at
        the L
        Pit cease at the end of November 2008, the Company has notified employees
        at the
        Montana Tunnels mine that it expects that approximately 100 of the mine’s 200
        employees will be given a 60-day notice of the termination of their employment
        in compliance with the U.S. Department of Labor’s Worker Adjustment and
        Retraining Notification Act (the “WARN Act”).




The
      Company has applied for the necessary permits to expand the current pit, which
      expansion plan is referred to as the “M Pit project,” and is awaiting the
      necessary approvals. The permits for the M Pit project would allow Montana
      Tunnels to begin a 12 month pre-stripping program that would cost





33
 **APOLLO
          GOLD CORPORATION**
 **Notes
          to the Condensed Consolidated Financial Statements**
 **Nine
          month period ended September 30, 2008**
 (Stated
          in U.S. dollars; tabular amounts in thousands except share and per share
          data)
 (Unaudited)


**18.** **SUBSEQUENT
      EVENTS (continued)**




approximately
      $70 million, during which time no ore would be produced. The Company is not
      currently engaged in discussions with financing sources for its $35 million
      share of the financing costs. The decision to proceed with the M Pit project
      must be agreed to by both Apollo and Elkhorn Tunnels, LLC, its joint venture
      partner at the mine. Apollo and its joint venture partner have not yet made
      a
      production decision on the M Pit project and such decision will depend, among
      other things, on the following factors:




·  receipt
        of the necessary permits for the M Pit project;




·  securing
        financing for the $70 million; and




·  prices
        of
        gold, silver, lead and zinc and available smelter terms.




34


**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 17 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
      July
      1, 2008, we announced that Montana Tunnels Mining, Inc., our wholly owned
      subsidiary, had 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 Goldfields Ltd. (“St Andrew”) as a
      partial payment of the purchase price for the Stock Mill Complex.





On
      July
      24, 2008, we completed an offering (“Unit Offering”) of equity 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
      21, 2008, we completed an offering of 17,000,000 flow-through common shares
      (“Flow-through Offering”) for purposes of the Income Tax Act (Canada) at
      Cdn$0.50 per common share for net proceeds of $7.5 million (Cdn$7.8 million).
      In
      connection with this offering, 1,020,000 share purchase warrants were issued
      to
      the agent. Each share purchase warrant is immediately exercisable at Cdn$0.50
      per common share of the Company and expires on August 21, 2010. 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.




In
      May
      2008, we retained Macquarie Bank Ltd. and RMB Resources Inc. as joint arrangers
      (the “Banks”) and underwriters for the Black Fox project finance facility. The
      Banks have conducted extensive due diligence and this process is nearing
      completion. Following completion of due diligence, Apollo and the Banks will
      be
      in a position to proceed with credit committee approvals and negotiation of
      definitive documents.




35


**Montana
      Tunnels**





During
      the third quarter 2008, approximately 2,454,000 tons were mined, of which
      1,824,000 tons were ore. The mill processed 1,221,000 tons of ore at an average
      throughput of 13,300 tons per day for the quarter. As at September 30, 2008,
      the
      ore stockpile sitting alongside the mill was 1,982,000 tons. Payable production
      in the third quarter was 14,600 ounces of gold, 144,000 ounces of silver,
      4,586,000 pounds of lead and 9,623,000 pounds of zinc. Apollo’s share of this
      production is 50%.


**Grade:**
              
              **Recoveries:**Gold
                  ounces per ton
              0.0154
              Gold
              81.20%Silver
                  ounces per ton
              0.1811
              Silver
              82.80%Lead
                  %
              0.2292
              Lead
              83.98%Zinc
                  %
              0.6261
              Zinc
              82.48%


Total
      cash costs for the third quarter 2008 on a by-product basis were $471 per ounce
      of gold and on a co-product basis they were $666 per ounce of gold, $9.40 per
      ounce of silver, $0.69 per lb of lead and $0.59 per lb of zinc. For the third
      quarter 2008, the higher cash costs per ounce of gold on a by-product basis
      compared to the third quarter 2007 are the result of (1) 37% higher direct
      costs
      related to higher cost of consumables such as diesel fuel and (2) a 19%
      reduction in by-product credits due to lower zinc and lead prices.





During
      the third quarter 2008, the joint venture spent $0.1 million on capital
      expenditures. Apollo’s share of these capital expenditures is 50%. Also in the
      third quarter 2008, the joint venture distributed $3.0 million to its
      principals, 54% of which went to Apollo and 46% of which went to
      Elkhorn.





See
        Note
        18 (Subsequent Events) for a discussion of the cessation of mining activities
        at
        Montana Tunnels in November 2008.





**Black
      Fox**





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





**Black
      Fox Probable Reserve Statement as of 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**





**Purchase
      of the Stock Mill Complex** -
      On July
      28, 2008, the Company completed the acquisition of the Stock Mill Complex from
      St Andrew, a significant shareholder of the Company, for a purchase price of
      $19.6 million cash (Cdn$20.1 million). The Stock Mill Complex, which we now
      refer to as the Black Fox mill complex, includes a mill and related land,
      equipment, infrastructure, laboratory and tailings facilities, located near
      Timmins, Ontario. The Company intends to use the Black Fox mill complex to
      process ore mined at the Black Fox mine, which is approximately 30 kilometers
      from the Black Fox mill complex. In connection with the acquisition of the
      Black
      Fox mill complex, Apollo agreed to assume certain contractual liabilities of
      St
      Andrew and environmental liabilities relating to events after the closing of
      the
      acquisition and is required to refund St Andrew its bonding commitment at the
      Black Fox mill complex in the amount of approximately $1.1 million (Cdn$1.2
      million) by July 28, 2009. As of July 28 and September 30, 2008, St Andrew
      held
      approximately 30.6 million and 29.5 million common shares of the Company,
      respectively (14.0% and 13.4% of the outstanding common shares,
      respectively).




36


**Mine
      Development** - Since
      April 2008, when we completed the bankable feasibility study on the Black Fox
      mine, we have made progress at Black Fox on a number of fronts. Specifically,
      we
      have received all necessary permits and approvals required to commence mining
      activities, initiated removal of the glacial till material which overlays the
      open it and begun placing orders for the long lead time items required to
      upgrade the Black Fox mill complex. Consequently, assuming we obtain the
      necessary financing, mining of the Black Fox open pit is expected to commence
      in
      March 2009.




On
      October 23, 2008, we commenced removal of the glacial till material which
      overlays the open pit. This removal is scheduled to be completed in May 2009.
      Apollo has placed orders for the long lead time mining equipment, and all items
      required to commence mining are scheduled to be on site in January and February
      2009. We expect that, by the second quarter of 2009, the open pit will produce
      1,500 tonnes of ore per day, which will be sufficient to feed the mill. Based
      on
      this assessment, we have decided to defer underground mining to periods after
      2009.




**Black
      Fox Mill Complex** - We
      recently reviewed the costs associated with upgrading the Black Fox mill complex
      to process 1,500 tonnes of ore per day (1,650 tonnes at a 90% availability).
      It
      is estimated that the cost of the upgrade would be $17.0 million, for which
      we
      would need to obtain financing, and that the upgrade could be completed by
      April
      2009.




Apollo
      is
      currently in the process of placing orders for the long lead time items required
      for mill upgrade, with the key item being a new 12ft x 18ft 1200 kw ball mill
      to
      enhance the grinding circuit, which is scheduled to arrive in March
      2009.




**Commitments** - As of
      September 30, 2008, we had committed to lease $8.7 million of mining equipment
      and expend an additional $1.1 million for improvements to the Black Fox mill
      complex. As of November 10, 2008, we had (1) committed to lease an additional
      $4.8 million of mining equipment for use at Black Fox, (2) contracted the
      pre-strip of alluvial waste for $12.2 million, (3) contracted the construction
      of waste water ponds for $3.7 million and (4) made additional commitments to
      expend $1.4 million for improvements to the mill.




**Huizopa
      Project**




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





The
      next
      drill program is scheduled for 2009 and, in the meantime, we are working on
      completing a Canadian National Instrument 43-101 for the Huizopa
      property.





**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:





37





**Three
                months ended September 30,**
            
            **Nine
                months ended September 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007****Metal
                sales:**Gold
                (ounces)
            
            
            7,319
            
            
            4,755
            
            
            18,864
            
            
            11,399Silver
                (ounces)
            
            
            72,202
            
            
            79,048
            
            
            181,797
            
            
            189,504Lead
                (pounds)
            
            
            2,293,152
            
            
            1,685,385
            
            
            5,661,713
            
            
            4,081,191Zinc
                (pounds)
            
            
            4,811,612
            
            
            3,305,620
            
            
            13,892,310
            
            
            7,718,926Total
                revenue ($millions)
            
            $
            12.8
            
            $
            11.9
            
            $
            38.7
            
            $
            27.6**Total
                cash and production costs on a by-product basis:**Total
                cash costs per ounce of gold
            
            $
            471
            
            $
            (215
            )
            $
            367
            
            $
            (231
            )Total
                production costs per ounce of gold
            
            $
            523
            
            $
            (141
            )
            $
            424
            
            $
            (160
            )**Total
                cash costs on a co-product basis:**Total
                cash costs per ounce of gold
            
            $
            666
            
            $
            459
            
            $
            668
            
            $
            429Total
                cash costs per ounce of silver
            
            $
            9.40
            
            $
            8.15
            
            $
            11.73
            
            $
            8.15Total
                cash costs per pound of lead
            
            $
            0.69
            
            $
            1.12
            
            $
            0.79
            
            $
            0.86Total
                cash costs per pound of zinc
            
            $
            0.59
            
            $
            0.78
            
            $
            0.67
            
            $
            0.92**Average
                metal prices:**Gold
                - London bullion mkt. ($/ounce)
            
            $
            870
            
            $
            681
            
            $
            897
            
            $
            666Silver
                - London bullion mkt. ($/ounce)
            
            $
            15.03
            
            $
            12.70
            
            $
            16.63
            
            $
            13.12Lead
                - London Metal Exchange ($/pound)
            
            $
            0.87
            
            $
            1.43
            
            $
            1.08
            
            $
            1.07Zinc
                - London Metal Exchange ($/pound)
            
            $
            0.80
            
            $
            1.46
            
            $
            0.95
            
            $
            1.56




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




**Three
                months ended Sept. 30,**
            
            **Nine
                months ended**
              **Sept.
                30,****($
                in thousands, except per ounce of gold data)**
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007
                (1)**Gold
                ounces sold
            
            
            7,319
            
            
            4,755
            
            
            18,864
            
            
            11,399Direct
                operating costs
            
            $
            9,977
            
            $
            7,283
            
            $
            28,503
            
            $
            17,031Less:Mining
                taxes, royalty expenses
            
            
            377
            
            
            327
            
            
            1,165
            
            
            763By-product
                credits
            
            
            6,531
            
            
            8,305
            
            
            21,582
            
            
            19,668Cash
                operating cost
            
            
            3,069
            
            
            (1,349
            )
            
            5,756
            
            
            (3,400
            )Cash
                operating cost per ounce of gold
            
            **$**
            **419**
            
            **$**
            **(284**
            **)**
            **$**
            **305**
            
            **$**
            **(298**
            **)**Cash
                operating costs
            
            
            3,069
            
            
            (1,349
            )
            
            5,756
            
            
            (3,400
            )Add:Mining
                taxes, royalty expenses
            
            
            377
            
            
            327
            
            
            1,165
            
            
            763Total
                cash costs
            
            
            3,446
            
            
            (1,022
            )
            
            6,921
            
            
            (2,637
            )Total
                cash cost per ounce of gold
            
            **$**
            **471**
            
            **$**
            **(215**
            **)**
            **$**
            **367**
            
            **$**
            **(231**
            **)**Total
                cash costs
            
            
            3,446
            
            
            (1,022
            )
            
            6,921
            
            
            (2,637
            )Add:Depreciation
                & amortization
            
            
            381
            
            
            351
            
            
            1,086
            
            
            817Total
                production costs
            
            
            3,827
            
            
            (671
            )
            
            8,007
            
            
            (1,820
            )Total
                production cost per ounce of gold
            
            **$**
            **523**
            
            **$**
            **(141**
            **)**
            **$**
            **424**
            
            **$**
            **(160**
            **)**





**(1)**
            Metal
                sales, revenue and costs for the first nine months of 2007 does not
                include January and February 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 September*** **30, 2008 Compared to the Three Months Ended September 30,
      2007**




**Revenue
      from the Sale of Minerals.**




Revenue
      for the three months ended September 30, 2008 increased 8% to $12.8 million
      from
      $11.9 million for the same period in 2007. The increase in revenue is mainly
      due
      to the higher gold prices and a 54% increase in gold production for the quarter
      as compared to the same period last year. Increased gold revenues were partially
      offset by significantly lower prices for zinc and lead.




38


**Operating
      Expenses.**




*Direct
      Operating Costs.* Direct
      operating costs, which include mining costs, processing costs and smelting
      and
      refining charges, for the three months ended September 30, 2008 increased 37%
      to
      $10.0 million  from
      $7.3  million
      for the  three
      months ended September 30, 2007. This increase is a result of 21% higher
      treatment charges and increased cost per ton of mining which increased 70%
      from
      $1.86 per ton up to $3.16 per ton as a direct result of increased 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 September 30, 2008 and 2007, respectively.




*General
      and Administrative Expenses.* General
      and administrative expenses were $0.8 million  and
      $0.9
      million for the three months ended September 30, 2008 and 2007, respectively.




*Accretion
      Expense - Accrued Site Closure Costs.* Accrued
      accretion expense was $0.2 million  for
      the
      three  months
      ended September 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 $0.6 million for the three months ended
      September 30, 2008 compared to $0.3 million for the three months ended September
      30, 2007.





*Exploration
      and Business Development Expense.* Expenses
      for exploration and development were $0.8 million and $0.3 million for the
      three
      months ended September 30, 2008 and 2007, respectively. The expenses for the
      third quarter of 2008 consisted of exploration related expenses at our Huizopa
      Project of $0.6 million and exploration expenses of $0.2 million, mainly
      drilling expenses, at an adjacent property to the Black Fox Project, known
      as
      Grey Fox. The increase in the costs for the third quarter 2008 was mainly a
      result of the drilling campaign undertaken at the Huizopa project.




*Total
      Operating Expenses* .
      As a
      result of these expense components, our total operating expenses increased
      34%
      to $11.6 million for the three months ended September 30, 2008, from $8.6
      million for the three months ended September 30, 2007.




**Other
      Income (Expenses).**




*Interest
      Income and Interest Expense.* We
      realized interest income of $0.1 million and incurred interest expense of $1.1
      million during the three months ended September 30, 2008 compared to $0.1
      million in interest income and $1.6 million in interest expense during the
      three
      months ended September 30, 2007. The decrease in interest expense is primarily
      the result of retiring the Series 2004-B convertible debentures in December
      2007.




**Net
      Income.**




For
      the
      three months ended September 30, 2008,  we
      recorded net income of $0.5 million, or $0.00 per share, as  compared
      to net income of $2.1 million, or $0.01 per share, for the three months ended
      September 30, 2007.




***Nine*** **Months Ended September 30, 2008 Compared to the Nine Months Ended September
      30,
      2007**




**Revenue
      from the Sale of Minerals.**




Revenue
      for the nine months ended September 30, 2008 increased 40% to $38.7
      million  from
      $27.6 million for the same period in 2007.  The
      increase in revenue is due to higher gold prices in 2008 and a 65% increase
      in
      gold production. Some of the increase in production is attributable to the
      fact
      that for 2008 we have nine months of milling (less the three-week period during
      which the mill was shut down to repair the ball mill in the second quarter),
      compared to seven months of milling in 2007 (milling resumed at Montana Tunnels
      on March 1, 2007).




39


**Operating
      Expenses.**




*Direct
      Operating Costs.* Direct
      operating costs, which includes mining costs, processing costs and smelting
      and
      refining charges, for the nine months ended September 30, 2008 increased 56%
      to
      $28.5 million from $18.3 million for the nine months ended September 30, 2007.
      This increase is a result of 62% higher treatment charges and increased cost
      per
      ton of mining which increased 64% from $1.93 per ton up to $3.17 per ton as
      a
      direct result of increased costs of consumables such as diesel
      fuel.




*Depreciation
      and Amortization* *.*  Depreciation
      and amortization expenses were $1.2 million and $1.0 million for the nine months
      ended September 30, 2008 and 2007, respectively.




*General
      and Administrative Expenses.* General
      and administrative expenses were $2.9 million  and
      $2.9
      million for the nine months ended September 30, 2008 and 2007, respectively.




*Accretion
      Expense - Accrued Site Closure Costs.* Accrued
      accretion expense was $0.5 million  for
      the
      nine months ended September 30, 2008 compared to $0.4 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 $1.5 million for the nine months ended
      September 30, 2008 and $0.8 million for the nine months ended September 30,
      2007.





*Exploration
      and Business Development Expense.* Expenses
      for exploration and development, consisting of exploration related expenses
      at
      our exploration properties, totaled $2.5 million and $2.0 million for the nine
      months ended September 30, 2008 and 2007, respectively. The increase is due
      primarily to increased exploration activity at the Huizopa
      property.




*Total
      Operating Expenses* .
      As a
      result of these expense components, our total operating expenses increased
      43%
      to $34.1 million for the nine months ended September 30, 2008, compared to
      $23.8
      million for the six months ended September 30, 2007.




**Other
      Income (Expenses).**




*Interest
      Income and Interest Expense.* We
      realized interest income of $0.3 million and incurred interest expense of $3.3
      million during the nine months ended September 30, 2008 compared to $0.5 million
      in interest income and $4.2 million in interest expense during the nine months
      ended September 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 $0.1 million of financing costs during the nine months ended September
      30, 2008. Financing costs of $0.5 million for the nine months ended September
      30, 2007 were in connection with the convertible debentures issued in February
      2007.




**Net
      Income (Loss).**




For
      the
      nine months ended September 30, 2008, we recorded net income of $2.9 million,
      or
      $0.02 per share, as compared to a net loss of $0.1 million, or $0.00 per share,
      for the nine months ended September 30, 2007.




**MATERIAL
      CHANGES IN LIQUIDITY AND CAPITAL RESOURCES**




To
      date,
      we have funded our operations primarily through issuances of debt and equity
      securities and cash generated by the Montana Tunnels joint venture. At September
      30, 2008, we had cash of $7.6 million, compared to cash of $4.9 million at
      December 31, 2007. The increase in cash since December 31, 2007 is primarily
      the
      result of financing cash inflows of $26.3 million and operating cash inflows
      of
      $3.8 million, partially offset by investing cash out flows of $26.9 million
      and
      a $0.4 million reduction in cash due to the effect of exchange rate changes
      on
      cash.




During
      the nine months ended September 30, 2008, net cash used in investing activities
      totaled $26.9 million. Capital expenditures for property, plant and equipment
      of
      $26.5 million include $26.2 million for the further development of the Black
      Fox
      Project and $0.3 million spent at Montana Tunnels. Included in the Black Fox
      capital expenditures is $20.6 million for the purchase of the Black Fox mill
      complex. Other investing activities include cash outflows of $2.9 million for
      the funding of the Montana Tunnels reclamation liability and $1.0 million for
      additional bonding for the future reclamation at Black Fox. Additionally, there
      were cash inflows of $3.5 million from settlement of lead and zinc derivative
      contracts.




40


During
      the nine months ended September 30, 2008, cash provided by financing activities
      was $26.3 million. Net proceeds on issuance of shares and warrants were $25.6
      million which consists of (1) $18.1 million for the Unit Offering completed
      July
      24, 2008 and (2) $7.5 million for the Flow-through Offering completed August
      21,
      2008. Proceeds from loans of $7.2 million are comprised of (1) $5.2 million
      for
      an extension on an existing debt facility, (2) $1.0 million for an equipment
      lease and (3) funding from a margin loan of $1.0 million that is secured by
      long-term investments - the $1.5 million face value auction rate securities.
      Payments of notes payable accounted for cash outflows of $7.8 million. Also,
      cash inflows of financing activities included the exercise of 3.3 million
      warrants at an average exercise price of $0.43 per common share for proceeds
      of
      $1.4 million.




During
      the third quarter of 2008, Apollo spent $23.7 million on the development of
      the
      Black Fox Project including $20.6 million on the purchase of the Black Fox
      mill
      complex and $1.0 million on additional bonding. Current estimates are that
      an
      additional $50 million of capital, including $6.5 million in additional bonding,
      is required to complete the project. As of the end the third quarter of 2008
      Apollo had capital commitments associated with Black Fox amounting to $9.8
      million and, subsequent to September 30, 2008, we have made commitments for
      an
      addition $22.3 million in capital expenditures associated with the development
      of Black Fox. At Montana Tunnels, mining of the L Pit is scheduled to cease
      at
      the end of November 2008 and milling of stockpiled ore is scheduled to continue
      into the second quarter of 2009 and at current prices will produce a positive
      cash flow for the benefit of Apollo until the cessation of milling. There are
      no
      capital commitments at Montana Tunnels within the net twelve months unless
      Apollo and its JV partner, Elkhorn, decide to develop the M Pit project, a
      decision for which has not been made. If no decision on the M Pit has been
      made
      before we complete milling stockpiled ore in the second quarter 2009, then
      the
      mill will be placed on care and maintenance. The current estimate of the
      reclamation liability for the L Pit and the Montana Tunnels site is $18.5
      million which as at the date this report was prepared is covered by $16.0
      million in cash in a trust account plus collateralized land valued at $3.2
      million (Apollo’s share of the liability, cash in trust and collateralized land
      is 50% of these amounts). Therefore, in summary, no further capital expenditures
      at Montana Tunnels will be required unless the M Pit is developed.




Management
        has performed a limited review to assess whether there are facts and
        circumstances that indicate potential impairment of the Montana Tunnels joint
        venture. Management has considered the expected future gold, silver, lead
        and
        zinc prices and cost structures, and concluded that there was no indication
        of a
        potential impairment for the Montana Tunnels joint venture as of September
        30,
        2008. However, the ongoing challenging conditions in the financial markets,
        the
        commodity markets, and the related uncertainty about the future business
        environment make an assessment of the mid-to-long term performance by using
        estimates and assumptions extremely difficult. The Company’s annual mineral
        property impairment test will be performed for the year ending December 31,
        2008, as part of the review of the reserves, resources and status of the
        Montana
        Tunnels joint venture and financial plans to be determined. The continuation
        of
        the global liquidity crisis, the commodity market volatility and its wider
        implications for the operating environment of the Company’s mining operation
        could result in an impairment of mineral properties in the future.


We
        estimate that with our September 30, 2008 cash balance of $7.6 million and
        the
        projected cash flows from the Montana Tunnels mine joint venture, we will
        not
        have sufficient funds to (1) fund the balance of the 2008 work programs for
        the
        continued development of Black Fox Project, including the capital commitments
        discussed in the immediately preceding paragraph, (2) fund $0.3 million for
        exploration at Huizopa, (3) repay the $7.4 million outstanding principal
        amount
        of convertible debentures due February 2009 (plus accrued interest of $1.3
        million) and (4) fund corporate overhead. We
        are
        therefore currently considering our financing options to fund the capital
        development of the Black Fox Project and to fund these items. O n
        May 5,
        2008, we announced that Apollo had retained Macquarie Bank Ltd. and RMB
        Resources, Inc. as joint arrangers and underwriters for a proposed debt facility
        to fund development capital for the Black Fox Project. 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. Our ability
        to
        issue debt and/or equity securities may be negatively affected by the current
        volatile economic financial market conditions which could significantly increase
        issuance costs or we may be unable to issue debt or equity securities at
        all.
        There can be no assurance that we will be successful in generating adequate
        funding for planned capital expenditures, environmental remediation and
        reclamation expenditures, exploration expenditures and to repay the convertible
        debentures. As discussed in Note 1 “Continuing Operations” to the attached
        condensed consolidated financial statements, if we are unable to generate
        sufficient cash flow by issuing debt and/or equity securities, we 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.




**MATERIAL
      CHANGES IN CONTRACTUAL OBLIGATIONS**




On
      July
      1, 2008, Montana Tunnels Mining, Inc. entered into a $5.15 million extension
      of
      an existing debt facility with RMB. We also entered into certain derivative
      contracts for gold, silver, lead and zinc as a requirement of the this extended
      debt facility. See Notes 8 and 18(a) to the attached condensed consolidated
      financial statements for a discussion of the outstanding balance of this
      extended debt facility and status of the related derivative
      contracts.




41


In
      connection with the purchase of the Black Fox mill complex completed on July
      28,
      2008, we will be required to post a bond of Cdn$1.2 million by July 28, 2009
      to
      replace the existing bond put in place by St Andrew.




See
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations - Background and Recent Developments - Black Fox - Commitments” for a
      discussion of capital and lease commitments.




**MATERIAL
      CHANGES IN OFF BALANCE SHEET ARRANGEMENTS**




None.




**ENVIRONMENTAL**




The
      Company’s current environmental liabilities are at Montana Tunnels and Black
      Fox. As of September 30, 2008, we have accrued $10.3 million related to
      reclamation, an increase of $0.9 million from December 31, 2007. These
      liabilities are covered by a combination of surety bonds, restricted cash and
      property totaling $19.7 million (Apollo’s share is $10.3 million) at September
      30, 2008. We have accrued the present value of management’s estimate of the
      future liability as of September 30, 2008.




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




**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 17 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.





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.





42


**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 currencies, 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.




43


**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 September 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 September 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.  In
        addition, we have included additional risk factors relating to the scheduled
        cessation of mining activities at the Montana Tunnels mine in November 2008
        and
        the maturity of our Series 2007-A convertible debentures due February 23,
        2009.




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





Approximately
      60.1 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 $0.60. 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.





44


**Future
      share sales and issuances could impair our share price.**





If
      Apollo
      Gold’s shareholders sell substantial amounts of our common shares, the market
      price of our common shares could decrease. Apollo Gold has 219,860,257 common
      shares outstanding as of November 10, 2008. 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.





**Mining
        of ore at our Montana Tunnels mine is scheduled to cease in November
        2008.**





On
        October 22, 2008, we announced that, as at the end of November 2008, we will
        have completed mining of ore from the Montana Tunnels open pit operation
        as
        permitted by our current “L Pit” permit. Upon completion of ore mining at the
        Montana Tunnels mine, we anticipate that we will have a stockpile of over
        two
        million tons of ore, which we believe is sufficient feed for the Montana
        Tunnels
        mill to continue to produce zinc-gold and lead-gold concentrates for
        approximately five more months. We have applied for the necessary permits
        to
        expand the current pit, which expansion plan is referred to as the “M Pit
        project,” and is awaiting the necessary approvals. The permits for the M Pit
        project would allow us to begin a 12 month pre-stripping program that would
        cost
        approximately $70 million, during which time no ore would be produced. We
        are
        not currently engaged in discussions with financing sources for our $35 million
        share of the financing costs. The decision to proceed with the M Pit project
        must be agreed to by both Apollo and Elkhorn Tunnels, LLC, our joint venture
        partner at the mine. We and our joint venture partner have not yet made a
        production decision on the M Pit project and such decision will depend, among
        other things, on the following factors:





·  receipt
        of the necessary permits for the M Pit project;


·  securing
        financing for the $70 million; and


·  prices
        of
        gold, silver, lead and zinc and available smelter terms.





The
        Montana Tunnels mine is our only source of revenue and cash flow at this
        time.
        If we are unable to pursue the M Pit expansion, we will no longer have any
        revenues or cash flow once the stockpiled ore at the Montana Tunnels mine
        has
        been processed, which stockpile we expect to exhaust in April or May 2009.
        In
        addition, if we are able to pursue the M Pit expansion, we expect that the
        pre-stripping program will take approximately 12 months, during which time
        no
        ore will be produced. As a result, there will be a period of time after the
        ore
        stockpiles from the L Pit have been exhausted and prior to production from
        the M
        Pit (which period we expect would be a minimum of six months but could be
        substantially longer) during which we will have no revenue or cash
        flow.





**We
        do not currently have and may not be able to raise the funds necessary to
        explore and develop our Black Fox and Huizopa properties or conduct the M
        Pit
        expansion at Montana Tunnels and our ability to raise funds may be affected
        by
        recent significant deterioration in global financial and capital
        markets.**





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





In
        addition, during September and October 2008, the U.S. financial market indexes
        experienced steep declines and the available supply of credit generally
        tightened following, among other things, the placement of mortgage lenders
        Fannie Mae and Freddie Mac into conservatorship of the Federal Housing Finance
        Agency, the announcement that Lehman Brothers Holdings Inc. would file for
        bankruptcy protection, the proposed sale of Merrill Lynch & Co., the U.S.
        government’s emergency loan to ensure American International Group and the
        closing of Washington Mutual by the U.S. Office of Thrift Supervision. In
        light
        of these developments, concerns by investors regarding the stability of the
        U.S.
        financial system could result in less favorable commercial financing terms,
        including higher interest rates or costs and tighter operating covenants,
        thereby preventing Apollo from completing the contemplated financing of its
        properties.





45


**Our
        current cash balances together with expected cash flow from the Montana Tunnels
        mine will not be sufficient to repay the Series 2007-A convertible debentures
        which are due on February 23, 2009.**





On
        February 23, 2007, we sold $8.6 million aggregate principal amount of Series
        2007-A convertible debentures. Each $1,000 principal amount of convertible
        debentures is convertible at any time at the option of holder into 2,000
        common
        shares at a price per share of $0.50. The convertible debentures mature on
        February 23, 2009 and, at maturity, the holder will have the option to receive
        repayment of the convertible debentures in full, with interest, or to convert
        to
        common shares at a price of $0.50 per share (subject to adjustment upon the
        occurrence of stock splits, stock dividends and similar events). As of November
        10, 2008, the price of a share of our common stock on the American Stock
        Exchange was $0.15, significantly below the $0.50 conversion price of the
        convertible debentures. If the price of our common stock is not excess of
        $0.50
        upon the maturity of the convertible debentures, we expect that the holders
        of
        the convertible debentures will demand repayment of the principal amount
        and
        accrued but unpaid interest. As of November 10, 2008, convertible debentures
        with an aggregate principal amount of $7.4 million were outstanding. Based
        on
        our current cash balances together with expected cash flows from the Montana
        Tunnels mine, we do not believe we will have sufficient cash to repay the
        convertible debentures at maturity. We are currently considering our financing
        options to repay the convertible debentures. There can be no assurance that
        we
        will be successful in obtaining financing for repayment of the convertible
        debentures or if, we are successful, that the terms will be
        acceptable.





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




We
      acquired auction rate securities in 2007 with a face value of $1.5 million.
      The
      securities were marketed by financial institutions with auction reset dates
      at
      28 day intervals to provide short-term liquidity. All such auction rate
      securities were rated AAA when purchased, pursuant to Apollo’s investment
      policy. Beginning in August 2007, a number of auctions failed and there is
      no
      assurance that auctions for the auction rate securities in our investment
      portfolio, which currently lack liquidity, will succeed. An auction failure
      means that the parties wishing to sell their securities could not do so as
      a
      result of a lack of buying demand. As at September 30, 2008, Apollo’s auction
      rate securities held an adjusted cost basis and fair value of $1.2 million
      based
      on liquidity impairments to these securities and, during the second quarter
      of
      2008, were downgraded to a AA rating. Uncertainties in the credit and capital
      markets could lead to further downgrades of Apollo’s auction rate securities
      holdings and additional impairments. Furthermore, as a result of auction
      failures, our ability to liquidate and fully recover the carrying value of
      our
      auction rate securities in the near term may be limited or not
      exist.





**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**




None.




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




None.




46


**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





47





**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:
              November
                  13, 2008
              
              /s/*R.
                  David Russell*R.
                  David Russell, President andChief
                  Executive OfficerDate:
              November
                  13, 2008
              
              /s/*Melvyn
                  Williams*Melvyn
                  Williams,Chief
                  Financial Officer and Senior Vice President Finance and Corporate
                  Development




48


**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








49