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, 2009





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
              
              (I.R.S.
      Employer Identification No.)incorporation
      or organization)





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 has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes £       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
                  
                  Smaller
      Reporting Company Rreporting
      company)





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 9, 2009, there were 263,950,927 common shares of Apollo Gold
Corporation outstanding.








TABLE
OF CONTENTS




PagePART
      I             
      FINANCIAL INFORMATION
              4ITEM 1.
              FINANCIAL
      STATEMENTS (Unaudited)
              4Condensed Consolidated Balance Sheets - As of
      September 30, 2009 and as of December31, 2008
              5Condensed Consolidated Statements of
      Operations and Comprehensive Income (Loss) for the Three and Nine Months
      Ended September 30, 2009 and 2008
              6Condensed Consolidated Statements of
      Shareholders’ Equity for the Year ended December 31, 2008 and the Nine
      Months Ended September 30, 2009
              7Condensed Consolidated Statements of Cash
      Flows for the Three and Nine Months Ended September 30, 2009 and
      2008
              8Notes to the Condensed Consolidated Financial
      Statements
              9ITEM 2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              37ITEM 3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              44ITEM 4.
              CONTROLS
      AND PROCEDURES
              45PART
      II             OTHER
      INFORMATION
              46ITEM 1.
              LEGAL
      PROCEEDINGS
              46ITEM 1A.
              RISK
      FACTORS
              46ITEM 2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              47ITEM 3.
              DEFAULTS
      UPON SENIOR SECURITIES
              47ITEM 4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
              47ITEM 5.
              OTHER
      INFORMATION
              47ITEM 6.
              EXHIBITS
              47INDEX TO EXHIBITS
              49Certification
      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 the development of and production at the Black Fox project including,
      without limitation, the timing of the development of the underground mine
      at Black Fox, the commissioning of the new conveyor, the recommissioning
      of the high pressure screen system and the expansion of the tailing dam
      water management system;


·
            estimates
      of future production at Black Fox;


·
            our
      ability to reschedule quarterly principal payments under the Black Fox
      project finance facility;


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


·
            plans
      for and our ability to finance exploration at our Huizopa, Grey Fox, and
      Pike River properties;


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


·
            future
      financing of projects;


·
            completion
      of the sale of Montana Tunnels Mining,
Inc.;


·
            liquidity
      to support operations and debt
repayment;


·
            the
      establishment and estimates of mineral reserves and
    resources;


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


·
            total
      production costs;


·
            cash
      operating costs;


·
            total
      cash costs;


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


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


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


·
            expansion
      plans for existing properties;


·
            estimates
      of closure costs and reclamation
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 changes in global financial and
capital markets; significant increases or decreases in gold and zinc
prices; changes in interest and currency exchange rates including the LIBOR
rate; timing and amount of production; unanticipated changes in grade of ore;
unanticipated recovery or production problems; changes in operating costs;
operational problems at our mining properties; metallurgy, processing, access,
availability of materials, equipment, supplies and water; determination of
reserves; costs and timing of development of new reserves; results of current
and future exploration and development activities; results of current and future
exploration activities; results of future feasibility studies; joint venture
relationships; political or economic instability, either globally or in the
countries in which we operate; local and community impacts and issues; timing of
receipt of government approvals; accidents and labor disputes; environmental
costs and risks; competitive factors, including competition for property
acquisitions; availability of external financing at reasonable rates or at all;
and the factors discussed in our Annual Report on Form 10-K for the year ended
December 31, 2008 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.  Except as required by securities law, 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, 2008 included in our Annual Report on Form 10-K.  Certain
prior period figures have been reclassified to conform to the current period
presentation.  In particular, (1) the assets and liabilities of Montana
Tunnels Mining, Inc, (“MTMI”) as of December 31, 2008 and the results of MTMI’s
operations and cash flows for the three and nine months ended September 30, 2008
have been reclassified as discontinued operations and (2) for the three and nine
months ended September 30, 2008, $1.6 million and $3.5 million, respectively,
that were presented as cash inflows from investing activities have been
reclassified to operating activities in connection with proceeds from the sale
of derivative contracts.




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.




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 and accretion on accrued site closure
costs.




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, 2008 filed with the Securities and Exchange Commission on
March 27, 2009.


4


APOLLO
GOLD CORPORATION


CONDENSED CONSOLIDATED BALANCE SHEETS


(In
thousands of U.S. dollars)


(Unaudited)




September
      30,
                  2009
              
              
              December
      31,
                  2008ASSETSCURRENTCash
      and cash equivalents
              
              $
              4,499
              
              
              $
              3,085Restricted
      cash
              
              
              4,209
              
              
              
              10,000Accounts
      receivable and other
              
              
              1,313
              
              
              
              1,974Derivative
      instruments (Note 5)
              
              
              1,579
              
              
              
              552Prepaids
              
              
              1,123
              
              
              
              435Inventories
      (Note 6)
              
              
              8,658
              
              
              
              –Current
      assets of discontinued operations (Note 4)
              
              
              1,301
              
              
              
              5,437Total
      current assets
              
              
              22,682
              
              
              
              21,483Derivative
      instruments (Note 5)
              
              
              4,765
              
              
              
              –Long-term
      investments (Note 7)
              
              
              1,093
              
              
              
              1,081Property,
      plant and equipment
              
              
              135,634
              
              
              
              88,226Restricted
      certificates of deposit
              
              
              14,533
              
              
              
              3,821Other
      long-term assets
              
              
              116
              
              
              
              103Non-current
      assets of discontinued operations (Note 4)
              
              
              14,552
              
              
              
              16,916TOTAL
      ASSETS
              
              $
              193,375
              
              
              $
              131,630LIABILITIESCURRENTAccounts
      payable
              
              $
              11,010
              
              
              $
              12,607Accrued
      liabilities
              
              
              2,246
              
              
              
              640Derivative
      instruments (Note 5)
              
              
              8,559
              
              
              
              –Current
      portion of debt (Note 8(a))
              
              
              25,798
              
              
              
              19,435Convertible
      debentures
              
              
              4,475
              
              
              
              3,356Current
      liabilities of discontinued operations (Note 4)
              
              
              1,145
              
              
              
              4,376Total
      current liabilities
              
              
              53,233
              
              
              
              40,414Accrued
      long-term liabilities
              
              
              337
              
              
              
              316Derivative
      instruments (Note 5)
              
              
              22,471
              
              
              
              –Debt
      (Note 8(a))
              
              
              41,852
              
              
              
              968Convertible
      debentures
              
              
              –
              
              
              
              4,571Accrued
      site closure costs
              
              
              5,096
              
              
              
              1,398Future
      income tax liability
              
              
              427
              
              
              
              447Non-current
      liabilities of discontinued operations (Note 4)
              
              
              9,708
              
              
              
              9,761TOTAL
      LIABILITIES
              
              
              133,124
              
              
              
              57,875Continuing
      operations (Note 1)Commitments
      and contingencies (Note 11)SHAREHOLDERS’
      EQUITYShare
      capital (Note 10)
              
              
              202,363
              
              
              
              188,927Equity
      component of convertible debentures
              
              
              584
              
              
              
              1,987Debenture
      note warrants
              
              
              –
              
              
              
              2,234Contributed
      surplus
              
              
              35,855
              
              
              
              21,683Deficit
              
              
              (178,551
              )
              
              
              (141,076
              )TOTAL
      SHAREHOLDERS’ EQUITY
              
              
              60,251
              
              
              
              73,755TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              193,375
              
              
              $
              131,630





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


5


APOLLO
GOLD CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)


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


(Unaudited)





Three
      months ended
                  September
      30,
              
              
              Nine
      months ended
                  September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Revenue
      from sale of minerals
              
              $
              19,131
              
              
              $
              –
              
              
              $
              23,840
              
              
              $
              –Operating
      expensesDirect
      operating costs
              
              
              11,420
              
              
              
              –
              
              
              
              13,454
              
              
              
              –Depreciation
      and amortization
              
              
              3,207
              
              
              
              26
              
              
              
              4,466
              
              
              
              80General
      and administrative expenses
              
              
              1,084
              
              
              
              826
              
              
              
              3,112
              
              
              
              2,914Accretion
      expense – accrued site closure costs
              
              
              147
              
              
              
              –
              
              
              
              216
              
              
              
              –Exploration
      and business development
              
              
              550
              
              
              
              754
              
              
              
              1,079
              
              
              
              2,51116,408
              
              
              
              1,606
              
              
              
              22,327
              
              
              
              5,505Operating
      income (loss)
              
              
              2,723
              
              
              
              (1,606
              )
              
              
              1,513
              
              
              
              (5,505
              )Other
      income (expenses)Interest
      income
              
              
              57
              
              
              
              62
              
              
              
              135
              
              
              
              181Interest
      expense (Note 11)
              
              
              (3,094
              )
              
              
              (1,098
              )
              
              
              (5,505
              )
              
              
              (3,053
              )Debt
      transaction costs (Note 8(a) and (c))
              
              
              –
              
              
              
              (70
              )
              
              
              (1,821
              )
              
              
              (70
              )Loss
      on modification of debentures (Note 9)
              
              
              –
              
              
              
              –
              
              
              
              (1,969
              )
              
              
              –Realized
      (losses) gains on derivative contracts
              
              
              (1,435
              )
              
              
              1,556
              
              
              
              (1,559
              )
              
              
              3,506Unrealized
      losses on derivative contracts
              
              
              (10,196
              )
              
              
              (763
              )
              
              
              (25,238
              )
              
              
              (1,496
              )Foreign
      exchange gain (loss) and other
              
              
              226
              
              
              
              (283
              )
              
              
              565
              
              
              
              (508
              )Loss
      from continuing operations before income taxes
              
              
              (11,719
              )
              
              
              (2,202
              )
              
              
              (33,879
              )
              
              
              (6,945
              )Income
      taxes (Note 12)
              
              
              –
              
              
              
              (32
              )
              
              
              189
              
              
              
              (95
              )Loss
      from continuing operations
              
              
              (11,719
              )
              
              
              (2,234
              )
              
              
              (33,690
              )
              
              
              (7,040
              )(Loss)
      income from discontinued operations (Note 4)
              
              
              (2,269
              )
              
              
              2,782
              
              
              
              (3,785
              )
              
              
              9,913Net
      (loss) income and comprehensive income (loss) for the
    period
              
              $
              (13,988
              )
              
              $
              548
              
              
              $
              (37,475
              )
              
              $
              2,873Loss
      per share from continuing operationsBasic
      and diluted
              
              $
              (0.04
              )
              
              $
              (0.01
              )
              
              $
              (0.14
              )
              
              $
              (0.04
              )Net
      (loss) earnings per shareBasic
      and diluted (Note 10)
              
              $
              (0.05
              )
              
              $
              0.00
              
              
              $
              (0.16
              )
              
              $
              0.02Weighted-average
      number of shares outstandingBasic
              
              
              257,165
              
              
              
              199,748
              
              
              
              239,455
              
              
              
              173,374Diluted
      (Note 10)
              
              
              257,165
              
              
              
              199,914
              
              
              
              239,455
              
              
              
              175,052





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)




Number
      of
                              Shares
                            
                            
                            Share
                              Capital
                            
                            
                            Equity
                              Component
                              of
                              Convertible
                              Debentures
                            
                            
                            Debenture
                              Note
                              Warrants
                            
                            
                            Contributed
                              Surplus
                            
                            
                            Deficit
                            
                            
                            TotalBalance,
      December 31, 2007
                            
                            
                            156,248
                            
                            
                            $
                            166,424
                            
                            
                            $
                            2,238
                            
                            
                            $
                            2,292
                            
                            
                            $
                            14,591
                            
                            
                            $
                            (142,672
                            )
                            
                            $
                            42,873Shares
      issued for services
                            
                            
                            650
                            
                            
                            
                            351
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            351Units
      issued for cash and related compensation warrants
                            
                            
                            40,806
                            
                            
                            
                            14,885
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            3,247
                            
                            
                            
                            –
                            
                            
                            
                            18,132Flow-through
      shares issued for cash and related compensation warrants
                            
                            
                            20,000
                            
                            
                            
                            8,028
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            104
                            
                            
                            
                            –
                            
                            
                            
                            8,132Warrants
      issued for services
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            2,907
                            
                            
                            
                            –
                            
                            
                            
                            2,907Warrants
      exercised
                            
                            
                            3,272
                            
                            
                            
                            1,463
                            
                            
                            
                            –
                            
                            
                            
                            (58
                            )
                            
                            
                            (1
                            )
                            
                            
                            –
                            
                            
                            
                            1,404Conversion
      of debentures
                            
                            
                            1,884
                            
                            
                            
                            834
                            
                            
                            
                            (251
                            )
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            583Income
      tax benefits renounced in connection with issuance of flow-through
      shares
                            
                            
                            –
                            
                            
                            
                            (3,058
                            )
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            (3,058
                            )Stock-based
      compensation
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            835
                            
                            
                            
                            –
                            
                            
                            
                            835Net
      income and comprehensive income
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            1,596
                            
                            
                            
                            1,596Balance,
      December 31, 2008
                            
                            
                            222,860
                            
                            
                            
                            188,927
                            
                            
                            
                            1,987
                            
                            
                            
                            2,234
                            
                            
                            
                            21,683
                            
                            
                            
                            (141,076
                            )
                            
                            
                            73,755Shares
      issued for services (Note 10(a)(ii and iii))
                            
                            
                            5,173
                            
                            
                            
                            1,553
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            1,553Shares
      issued in settlement of interest (Note 9)
                            
                            
                            2,445
                            
                            
                            
                            772
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            772Warrants
      issued for services (Notes 8(a) and 10(a)(ii and iii))
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            9,089
                            
                            
                            
                            –
                            
                            
                            
                            9,089Warrants
      exercised (Note 10(a)(i))
                            
                            
                            4,833
                            
                            
                            
                            851
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            851Shares
      issued for cash and related compensation warrants (Note
      10(a)(iv))
                            
                            
                            26,111
                            
                            
                            
                            10,449
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            294
                            
                            
                            
                            –
                            
                            
                            
                            10,743Expiration
      of note warrants
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            (2,234
                            )
                            
                            
                            2,234
                            
                            
                            
                            –
                            
                            
                            
                            –Redemption
      of debentures
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            (1,987
                            )
                            
                            
                            –
                            
                            
                            
                            1,987
                            
                            
                            
                            –
                            
                            
                            
                            –Equity
      component of convertible debentures (Note 9)
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            584
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            584Income
      tax benefits renounced in connection with issuance of flow-through
      shares
                            
                            
                            –
                            
                            
                            
                            (189
                            )
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            (189
                            )Stock-based
      compensation
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            568
                            
                            
                            
                            –
                            
                            
                            
                            568Net
      loss and comprehensive loss
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            –
                            
                            
                            
                            (37,475
                            )
                            
                            
                            (37,475
                            )Balance,
      September 30, 2009
                            
                            
                            261,422
                            
                            
                            $
                            202,363
                            
                            
                            $
                            584
                            
                            
                            $
                            –
                            
                            
                            $
                            35,855
                            
                            
                            $
                            (178,551
                            )
                            
                            $
                            60,251


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
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Operating
      activitiesNet
      (loss) income for the period
                
                $
                (13,988
                )
                
                $
                548
                
                
                $
                (37,475
                )
                
                $
                2,873Loss
      (income) from discontinued operations for the period
                
                
                2,269
                
                
                
                (2,782
                )
                
                
                3,785
                
                
                
                (9,913
                )Items
      not affecting cash:Depreciation
      and amortization
                
                
                3,208
                
                
                
                26
                
                
                
                4,466
                
                
                
                80Stock-based
      compensation
                
                
                212
                
                
                
                225
                
                
                
                568
                
                
                
                607Shares
      and warrants issued for services and payment of interest
                
                
                –
                
                
                
                –
                
                
                
                4,020
                
                
                
                –Accretion
      expense – accrued site closure costs
                
                
                147
                
                
                
                –
                
                
                
                216
                
                
                
                –Interest
      expense – amortization of debt discount
                
                
                1,158
                
                
                
                –
                
                
                
                1,627
                
                
                
                –Interest
      expense – accretion of convertible debentures
                
                
                337
                
                
                
                1,017
                
                
                
                1,619
                
                
                
                2,787Interest
      paid on convertible debentures
                
                
                –
                
                
                
                –
                
                
                
                (567
                )
                
                
                (1,016
                )Unrealized
      losses on derivative instruments
                
                
                10,196
                
                
                
                763
                
                
                
                25,238
                
                
                
                1,496Foreign
      exchange (gain) loss and other
                
                
                (397
                )
                
                
                392
                
                
                
                (708
                )
                
                
                605Income
      taxes
                
                
                –
                
                
                
                –
                
                
                
                (189
                )
                
                
                –Net
      change in non-cash operating working capital items (Note
    12)
                
                
                4,349
                
                
                
                (769
                )
                
                
                1,878
                
                
                
                (1,282
                )Discontinued
      operations
                
                
                389
                
                
                
                1,396
                
                
                
                1,334
                
                
                
                10,013Net
      cash provided by operating activities
                
                
                7,880
                
                
                
                816
                
                
                
                5,812
                
                
                
                6,250Investing
      activitiesProperty,
      plant and equipment expenditures
                
                
                (14,114
                )
                
                
                (22,718
                )
                
                
                (54,560
                )
                
                
                (26,184
                )Restricted
      certificate of deposit and other assets
                
                
                812
                
                
                
                (382
                )
                
                
                (3,252
                )
                
                
                (1,958
                )Discontinued
      operations
                
                
                (5
                )
                
                
                (911
                )
                
                
                (14
                )
                
                
                (2,272
                )Net
      cash used in investing activities
                
                
                (13,307
                )
                
                
                (24,011
                )
                
                
                (57,826
                )
                
                
                (30,414
                )Financing
      activitiesProceeds
      on issuance of shares and warrants
                
                
                10,742
                
                
                
                25,611
                
                
                
                10,742
                
                
                
                25,611Proceeds
      from exercise of warrants
                
                
                –
                
                
                
                –
                
                
                
                851
                
                
                
                1,404Proceeds
      from debt
                
                
                –
                
                
                
                5,150
                
                
                
                66,534
                
                
                
                6,105Payments
      of debt
                
                
                (550
                )
                
                
                (2,076
                )
                
                
                (23,047
                )
                
                
                (7,456
                )Discontinued
      operations
                
                
                (634
                )
                
                
                1,026
                
                
                
                (1,175
                )
                
                
                662Net
      cash provided by financing activities
                
                
                9,558
                
                
                
                29,711
                
                
                
                53,905
                
                
                
                26,326Effect
      of exchange rate changes on cash and cash equivalents
                
                
                (568
                )
                
                
                (379
                )
                
                
                (477
                )
                
                
                (423
                )Net
      increase in cash and cash equivalents
                
                
                3,563
                
                
                
                6,137
                
                
                
                1,414
                
                
                
                1,739Cash
      and cash equivalents, beginning of period
                
                
                936
                
                
                
                148
                
                
                
                3,085
                
                
                
                4,546Cash
      and cash equivalents, end of period (Note 12)
                
                $
                4,499
                
                
                $
                6,285
                
                
                $
                4,499
                
                
                $
                6,285SUPPLEMENTAL
      CASH FLOW INFORMATIONInterest
      paid
                
                $
                1,619
                
                
                $
                90
                
                
                $
                4,094
                
                
                $
                1,592Income
      taxes paid
                
                $
                10
                
                
                $
                63
                
                
                $
                35
                
                
                $
                63




See Note
12 for additional supplemental cash flow information.





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




8




APOLLO
GOLD CORPORATION
 Notes to the Condensed Consolidated Financial
Statements
 Nine
month period ended September 30, 2009
 (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 flow
generated by the Montana Tunnels joint venture (Note 4) and the Black Fox
mine.  The Company’s ability to continue as a going concern is dependent on
its ability to continue to issue debt and/or equity securities, and/or continue
to generate cash flow from the Black Fox mine.  Currently, the Company is
in discussions with the Banks under the Project Facility (See Note 8(a))
regarding rescheduling the quarterly repayment installments to better reflect
the expected cash flows from production at Black Fox over the term of the
loan.




As of September 30, 2009, the Company
has a working capital deficiency of $30.6 million and an accumulated deficit of
$178.6 million.  In addition, as at September 30, 2009, the Company held
cash and cash equivalents of $4.5 million and had current debt obligations of
$30.3 million consisting of (1) the current portion of the project financing
facility of $23.4 million due in quarterly installments beginning on December
31, 2009 (Note 8(a)), (2) the outstanding principal of the Series 2007-A
convertible debentures of $4.5 million due in February 2010 (Note 9), and (3)
$2.4 million for other current debt.  Additionally, as of September 30,
2009, the Company has committed to make capital expenditures of approximately
$1.2 million for the continued development of Black Fox (Note 14(a)). 
Based on the current cash balance, the projected cash flows from Black Fox and
assuming the successful rescheduling of the quarterly installment payments of
the Project Facility, the Company expects to have sufficient funds to (1) meet
its current debt obligations (after debt rescheduling), (2) fund the capital
commitments for the development of Black Fox, and (3) fund corporate
expenditures.





If the
Company is unable to generate sufficient cash flow from Black Fox, unable to
reschedule the quarterly installment payments under the Project Facility and/or
secure additional financing, 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 byproduct metals, as well as related activities including
the exploration and development of potential mining properties and acquisition
of mining claims.  Apollo owns Black Fox, an open pit mine and mill located
near Matheson in the Province of Ontario, Canada (“Black Fox”).  Mining of
ores at Black Fox began in March 2009, milling operations commenced in April
2009, and commercial production commenced in late May 2009.  Exploration
properties adjacent to the Black Fox mine include the Grey Fox and Pike River
properties.




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




3.
            SIGNIFICANT
      ACCOUNTING POLICIES




These
unaudited consolidated interim financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (“Canadian
GAAP”) and except as described in Note 18, 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, 2008, except as disclosed in
(a) 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,
2008.


9


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


3.
            SIGNIFICANT
      ACCOUNTING POLICIES (continued)




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.  Certain prior period figures have been reclassified to conform to
the current period presentation.  In particular, (1) the assets and
liabilities of Montana Tunnels Mining, Inc, (“MTMI”) as of December 31, 2008 and
the results of MTMI’s operations and cash flows for the three and nine months
ended September 30, 2008 have been reclassified as discontinued operations and
(2) for the three and nine months ended September 30, 2008, $1.6 million and
$3.5 million, respectively, that were presented as cash inflows from investing
activities have been reclassified to operating activities in connection with
proceeds from the sale of derivative contracts.




(a)
            Changes
      in accounting policies




Effective
January 1, 2009, the Company adopted Handbook Section 3064, Goodwill and Intangible
Assets, which replaces Section 3062, and establishes revised standards
for recognition, measurement, presentation and disclosure of goodwill and
intangible assets.  Concurrent with the introduction of this standard, the
CICA restricted the application of EIC 27, Revenues and Expenditures in the
Pre-operating Period (“EIC 27”).  The adoption of Section 3064 on
January 1, 2009, did not have a material impact on the Company’s financial
condition or operating results.





In
January 2009, the CICA issued EIC-173, Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities, which requires the Company to
consider its own credit risk as well as the credit risk of its counterparty when
determining the fair value of financial assets and liabilities, including
derivative instruments.  The accounting treatments provided in EIC-173 have
been applied in the preparation of these financial statements and as required
have been applied retrospectively without restatement of prior periods. 
The adoption of this standard did not have a material impact on the valuation of
financial assets or liabilities.





4.
            DISCONTINUED
      OPERATIONS (MONTANA TUNNELS)




During
the third quarter of 2009, the Company adopted a plan to dispose of Montana
Tunnels Mining, Inc., a previously reportable segment, which includes
the Montana Tunnels and Diamond Hill mines.  The Montana Tunnels mine, a
50% joint venture (“Montana Tunnels”), is an open pit mine and mill that
produced gold dore and lead-gold and zinc-gold concentrates, located in the
State of Montana.  Montana Tunnels was placed under care and maintenance on
April 30, 2009.  The Diamond Hill mine, also located in the State of
Montana, is currently under care and maintenance.  On September 30, 2009,
the Company signed a letter of intent to sell MTMI to the current 50% joint
venture partner, Elkhorn Goldfields, Inc., for cash of $5.0 million, payable in
installments through May 2010, and a 4% net smelter royalty on future production
at Montana Tunnels up to a maximum of $4.0 million.  The consummation of
the sale is subject to negotiation of definitive documents relating to the sale
and payment of the $5.0 million cash purchase price.  As of September 30,
2009, the Company recorded an impairment of $1.6 million on the net assets of
MTMI.




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


10


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


4.
            DISCONTINUED
      OPERATIONS (MONTANA TUNNELS)
(continued)





September
      30,
                    2009
                
                
                December
      31,
                    2008ASSETSCash
      and cash equivalents
                
                $
                428
                
                
                $
                12Other
      non-cash current assets
                
                
                873
                
                
                
                5,425Current
      assets of discontinued operations
                
                
                1,301
                
                
                
                5,437Property,
      plant and equipment
                
                
                7,062
                
                
                
                7,655Deferred
      stripping costs
                
                
                –
                
                
                
                1,052Restricted
      certificates of deposit and other
                
                
                9,080
                
                
                
                8,209Less:  Impairment
                
                
                (1,590
                )
                
                
                –Non-current
      assets of discontinued operations
                
                
                14,552
                
                
                
                16,916Total
      assets of discontinued operations
                
                
                15,853
                
                
                
                22,353LIABILITIESCurrent
      liabilities of discontinued operations
                
                
                1,145
                
                
                
                4,376Debt
      and other long-term liabilities
                
                
                –
                
                
                
                44Accrued
      site closure costs
                
                
                9,708
                
                
                
                9,165Deferred
      gain
                
                
                –
                
                
                
                552Non-current
      liabilities of discontinued operations
                
                
                9,708
                
                
                
                9,761Total
      liabilities of discontinued operations
                
                
                10,853
                
                
                
                14,137Net
      assets of discontinued operations
                
                $
                5,000
                
                
                $
                8,216





Three
      months ended
                    September
      30,
                
                
                Nine
      months ended
                    September
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue
      from sale of minerals
                
                $
                –
                
                
                $
                12,764
                
                
                $
                10,219
                
                
                $
                38,685Direct
      operating costs
                
                
                381
                
                
                
                9,978
                
                
                
                11,794
                
                
                
                28,508Depreciation
      and amortization
                
                
                115
                
                
                
                380
                
                
                
                584
                
                
                
                1,085Accretion
      expense – accrued site closure costs
                
                
                181
                
                
                
                177
                
                
                
                543
                
                
                
                532Amortization
      of deferred gain
                
                
                –
                
                
                
                (560
                )
                
                
                (552
                )
                
                
                (1,484
                )Impairment
                
                
                1,590
                
                
                
                –
                
                
                
                1,590
                
                
                
                –2,267
                
                
                
                9,975
                
                
                
                13,959
                
                
                
                28,641Operating
      (loss) income
                
                
                (2,267
                )
                
                
                2,789
                
                
                
                (3,740
                )
                
                
                10,044Interest
      income
                
                
                –
                
                
                
                38
                
                
                
                7
                
                
                
                128Interest
      expense
                
                
                (2
                )
                
                
                (45
                )
                
                
                (52
                )
                
                
                (259
                )(Loss)
      income from discontinued operations
                
                $
                (2,269
                )
                
                $
                2,782
                
                
                $
                (3,785
                )
                
                $
                9,913(Loss)
      earnings per share from discontinued operationsBasic
      and diluted
                
                $
                (0.01
                )
                
                $
                0.01
                
                
                $
                (0.01
                )
                
                $
                (0.06
                )


11


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


5.
            DERIVATIVE
      INSTRUMENTS




Fair
value of derivative instruments consists of:




September
      30, 2009
                          
                          
                          December
      31, 2008Cost
                              Basis
                          
                          
                          Unrealized
                              Gain
      (Loss)
                          
                          
                          Fair
                              Value
                          
                          
                          Cost
                              Basis
                          
                          
                          Unrealized
                              Gain
      (Loss)
                          
                          
                          Fair
      ValueAssetsCanadian
      dollar purchase contracts (Note 8(b))
                          
                          $
                          –
                          
                          
                          $
                          6,344
                          
                          
                          $
                          6,344
                          
                          
                          $
                          –
                          
                          
                          $
                          –
                          
                          
                          $
                          –Gold,
      silver and lead contracts
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          552
                          
                          
                          
                          552Less:  Current
      portion
                          
                          
                          –
                          
                          
                          
                          (1,579
                          )
                          
                          
                          (1,579
                          )
                          
                          
                          –
                          
                          
                          
                          (552
                          )
                          
                          
                          (552
                          )Long-term
      portion
                          
                          $
                          –
                          
                          
                          $
                          4,765
                          
                          
                          $
                          4,765
                          
                          
                          $
                          –
                          
                          
                          $
                          –
                          
                          
                          $
                          –LiabilitiesGold
      forward sales contracts (Note 8(b))
                          
                          $
                          –
                          
                          
                          $
                          (31,030
                          )
                          
                          $
                          (31,030
                          )
                          
                          $
                          –
                          
                          
                          $
                          –
                          
                          
                          $
                          –Less:  Current
      portion
                          
                          
                          –
                          
                          
                          
                          8,559
                          
                          
                          
                          8,559
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Long-term
      portion
                          
                          $
                          –
                          
                          
                          $
                          (22,471
                          )
                          
                          $
                          (22,471
                          )
                          
                          $
                          –
                          
                          
                          $
                          –
                          
                          
                          $
                          –





On
February 20, 2009, the Company entered into a $70.0 million project financing
agreement (the “Project Facility”) with two banks (the “Banks”) relating to
Black Fox (Note 8(a)).  As required by the terms of the Project Facility,
the Company entered into a derivative program covering a portion of the
Company’s forecasted gold sales and forecasted Canadian dollar operating costs,
with the Banks acting as counterparties.





The
original derivative program included gold forward sales of 250,430 ounces,
representing approximately 60% of the Company’s forecasted sales beginning in
May 2009 and continuing over the four year term of the Project Facility. 
The weighted average price of the sales program is $876 per ounce of gold. 
During the nine months ended September 30, 2009, the Company realized a $2.4
million loss on the settlement of gold futures contracts covering 29,123 ounces
of gold.





The
original foreign exchange derivative program was for the Canadian dollar
equivalent of $58 million over a period covering the four year term of the
Project Facility which began April 2009.  The program represents
approximately 30% of the Company’s forecasted Canadian dollar operating costs
beginning in May 2009 and continuing over the four year term of the
Facility.  The weighted average exchange rate for the program is Cdn$1.21
per $1.  During the nine months ended September 30, 2009, the Company
realized gains of $0.4 million for the settlement of the Canadian dollar
equivalent of $5.3 million foreign exchange contracts.





Settlements
of the remaining gold forward sales contracts and Canadian dollar foreign
exchange contracts as of September 30, 2009 are as follows (table not in
thousands):





Gold
      Forward Sales Contracts
              
              
              Canadian
      Dollar Foreign Exchange ContractsYear
      of Settlement
              
              Gold
      Ounces
              
              
              Average
      Contract
                  Price
      Per Ounce
              
              
              Pay
      US Dollars
                  (Millions)
              
              
              Exchange
      Rate
                  (Cdn$/USD)
              
              
              Purchase
                  Canadian
      Dollars
                  (Millions)2009
              
              
              24,509
              
              
              $
              876
              
              
              $
              2.8
              
              
              $
              1.21
              
              
              $
              3.42010
              
              
              54,261
              
              
              $
              876
              
              
              $
              13.4
              
              
              $
              1.21
              
              
              $
              16.32011
              
              
              54,704
              
              
              $
              876
              
              
              $
              16.1
              
              
              $
              1.21
              
              
              $
              19.52012
              
              
              73,458
              
              
              $
              876
              
              
              $
              16.3
              
              
              $
              1.21
              
              
              $
              19.72013
              
              
              14,523
              
              
              $
              876
              
              
              $
              4.1
              
              
              $
              1.21
              
              
              $
              4.9221,455
              
              
              
              
              
              
              $
              52.7
              
              
              
              
              
              
              $
              63.8




12


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


5.
            DERIVATIVE
      INSTRUMENTS (continued)





The
Company did not apply hedge accounting to these transactions.  As a result,
the Company accounts for these derivative instruments as investments and records
the changes in unrealized gains and losses in the consolidated statement of
operations each period.  The fair value of these derivatives is recorded as
an asset or liability at each balance sheet date as follows:





Asset
      Derivatives
                
                
                Liability
      DerivativesSeptember
      30, 2009
                
                
                December
      31, 2008
                
                
                September
      30, 2009
                
                
                December
      31, 2008Derivatives
      not designated
                  as
      hedging instruments:
                
                Balance
                    Sheet
                    Location
                
                
                Fair
                    Value
                
                
                Balance
                    Sheet
                    Location
                
                
                Fair
                    Value
                
                
                Balance
                    Sheet
                    Location
                
                
                Fair
                    Value
                
                
                Balance
                    Sheet
                    Location
                
                
                Fair
                    ValueGold
      forward contracts
                
                
                n/a
                
                
                $
                –
                
                
                Derivative
      instruments
                
                
                $
                54
                
                
                Derivative
      instruments
                
                
                $
                31,030
                
                
                
                n/a
                
                
                $
                –Silver
      forward contracts
                
                
                n/a
                
                
                
                –
                
                
                Derivative
      instruments
                
                
                
                139
                
                
                
                n/a
                
                
                
                –
                
                
                
                n/a
                
                
                
                –Lead
      forward contracts
                
                
                n/a
                
                
                
                –
                
                
                Derivative
      instruments
                
                
                
                359
                
                
                
                n/a
                
                
                
                –
                
                
                
                n/a
                
                
                
                –Canadian
      dollar foreign exchange contracts
                
                Derivative
      instruments
                
                
                
                6,344
                
                
                
                n/a
                
                
                
                –
                
                
                
                n/a
                
                
                
                –
                
                
                
                n/a
                
                
                
                –Total
      derivatives
                
                
                
                
                
                $
                6,344
                
                
                
                
                
                
                $
                552
                
                
                
                
                
                
                $
                31,030
                
                
                
                
                
                
                $
                –




6.
            INVENTORIES




Inventories
consist of:


September
      30,
                2009
              
              
              December
      31,
                2008Doré
      inventory
              
              $
              2,851
              
              
              
              –In-circuit
      gold inventory
              
              
              3,607
              
              
              
              –Stockpiled
      ore inventory
              
              
              1,933
              
              
              
              –Materials
      and supplies
              
              
              267
              
              
              
              –$
              8,658
              
              
              $
              –





Other
information related to inventories is:




Three
      months ended
                  September
      30,
              
              
              Nine
      months ended
                  September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Inventories
      recognized as an expense in direct operating costs
              
              $
              11,420
              
              
              $
              –
              
              
              $
              13,454
              
              
              $
              –Expenses
      related to the write down of the carrying value of inventories to net
      realizable value
              
              
              530
              
              
              
              –
              
              
              
              530
              
              
              
              –





7.
            LONG-TERM
      INVESTMENTS




The
Company acquired auction rate securities (“ARS”) in 2007, which are recorded in
long-term investments, with a face value of $1.5 million.  The Company has
recorded an other than temporary impairment on its ARS, within foreign exchange
gain and other in the consolidated statement of operations, representing a loss
of $0.01 million for the nine months ended September 30, 2009, and losses of
$0.1 million and $0.3 million for the three and nine months ended September 30,
2008, respectively.  As such, no amounts have been recorded in other
comprehensive income.  The adjusted cost basis and fair value of ARS at
September 30, 2009 and December 31, 2008 are $1.1 million and $1.1 million,
respectively.  See Note 16(g).  The ARS are pledged as collateral for
a $0.9 million margin loan.




13


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


8.
              BLACK
      FOX PROJECT FINANCING
FACILITY




(a)
            Financing
      Agreement




On
February 20, 2009, the Company entered into a $70.0 million project financing
agreement (the “Project Facility”) with two banks (the “Banks”) relating to
Black Fox.  By June 2, 2009, the Company had borrowed the total amount of
the $70.0 million available under the Project Facility.  On February 23,
2009, the Company used $15.0 million of the proceeds from the Project Facility
to repay the $15.0 million bridge facility entered into on December 10, 2008
(the “Bridge Facility”) and has utilized the remaining $55.0 million to complete
the development of Black Fox and to provide for certain agreed corporate
expenditures.





The terms
of the Project Facility include:  (i) a commitment by the Banks to lend to
the Company up to $70.0 million available for drawdown between February 20, 2009
and June 30, 2009; (ii) interest on the outstanding principal amount accruing at
a rate equal to the London interbank offered rate (“LIBOR”) plus 7% per annum
and payable in monthly installments commencing March 31, 2009 (currently the
LIBOR rate is the one-month rate but the LIBOR rate used may be monthly,
quarterly or such other period as may be agreed to by the Banks and the
Company); (iii) scheduled repayment of the principal amount in unequal quarterly
amounts originally scheduled to commence September 30, 2009 (see paragraph below
for discussion regarding rescheduling of quarterly payments) with the final
repayment no later than March 31, 2013; and (iv) an arrangement fee of $3.5
million, which was paid by the Company to the Banks in cash on February 23,
2009.  The average monthly LIBOR rate charged to the Company during the
three and nine months ended September 30, 2009 was 0.3% and 0.4%,
respectively.





Borrowings under the Project Facility
are secured by substantially all of the Company’s assets, including the Black
Fox Project, and the common stock of its subsidiaries.  The Project
Facility contains various financial and operational covenants that impose
limitations on the Company which include, among other requirements, the
following:  maintenance of certain financial coverage ratios and minimum
project ore reserves, satisfaction of a minimum tangible net worth test, and the
operation of Black Fox in compliance with an agreed cash flow budgeting and
operational model.  In addition, the Black Fox Project is subject to a
completion test that must be satisfied by March 31, 2010.  As at September
30, 2009, the Company was in compliance with the various financial covenants of
the Project Facility. However, as a result of lower than planned gold
production, during the third quarter of 2009 a “review event” as defined in the
Project Facility was triggered.  The occurrence of a review event allows
the Banks to review the Project Facility and determine if they wish to continue
with the Project Facility.  On September 28, 2009, the Banks agreed to
defer (i) the first scheduled repayment of $9,300,000 due on September 30, 2009
under the Project Facility and (ii) the requirement to fund the associated debt
service reserve account also due on September 30, 2009, which, in accordance
with the terms of the Project Facility, requires a reserve amount equal to, at
all times after initial funding, the greater of $5,000,000 or the aggregate
repayment amount due on the next repayment date.  This deferral will enable
the Banks and the Company to complete an ongoing technical review of the Black
Fox project with the objective of rescheduling the quarterly repayment
installments under the Project Facility.  If the Company is not able to
satisfactorily reschedule the quarterly repayment installments, then the payment
of $9,300,000 and the reserve account funding obligation, each originally due on
September 30, 2009, must be satisfied on the earlier to occur of (i) the
completion of the Bank’s technical review process of the Black Fox mine and (ii)
December 31, 2009.


14


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


8.
            BLACK
      FOX PROJECT FACILITY (continued)




In
consideration for providing the financing, the Banks were issued an aggregate of
34,836,111 warrants (“Banks’ Compensation Warrants”) at an exercise price of
$0.201 (Cdn$0.252) per share (subject to anti-dilution adjustments) that expire
on February 20, 2013.  The Banks’ Compensation Warrants are in addition to
the





The
Company recorded a $10.9 million discount on the Project Facility, comprised of
the $3.5 million arrangement fee and the $7.4 million fair value of the Banks’
Compensation Warrants, which discount will be accreted over the life of the loan
using the effective interest method and charged to interest expense.  The
accreted interest from the date of loan origination through May 24, 2009 (the
date on which Black Fox entered commercial production) was capitalized to Black
Fox.  Additionally, the Company recorded $0.6 million of debt transaction
costs that were expensed immediately.





The drawn
amounts on the Project Facility as of September 30, 2009 are repayable by the
Company as shown in the table below.  Amounts due on the Project Facility
are included within current and long-term portion of debt, which balance
includes notes payable, leases payable and other debt, as follows:





2009
                      
                      $
                      15,300
                      (1)2010
                      
                      
                      13,8002011
                      
                      
                      10,2002012
                      
                      
                      24,5002013
                      
                      
                      6,200Principle
      balance of Project Facility
                      
                      
                      70,000Less
      unamortized debt discount
                      
                      
                      (8,577
                      )Total
      of project facility included within debt on the balance
    sheet
                      
                      
                      61,423Less
      current portion
                      
                      
                      (23,374
                      )Long-term
      portion
                      
                      $
                      38,049(1)
      See above for discussion of potential rescheduling of quarterly
      payments.





(b)
            Additional
      Debt Transaction Costs Resulting from the Project
  Facility




Under the
terms of a previously existing engagement letter between the Company and a
certain financial advisory services firm (the “Firm”) pursuant to which the Firm
agreed to provide financial advisory services to the Company, the Project
Facility constituted an “alternative transaction” that required the Company to
compensate the Firm by issuing to it 2,172,840 common shares and 2,567,901
common share purchase warrants exercisable for a two year period at an exercise
price of $0.205 (Cdn$0.256).  In addition, the Company was required to
compensate the Firm for related financial advisory services by issuing to it
1,000,000 common shares of the Company.  The Company recorded debt
transaction costs of $1.2 million comprised of $0.8 million for the common
shares issued to the Firm and $0.4 million for the warrants issued to the
Firm.  The warrants were assigned a fair value of $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 80%, an expected life of the
warrants of two years, and an annual risk-free rate of 1.2%.




15


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)




9.
              CONVERTIBLE
      DEBENTURES




On February 19, 2009, the Company
reached an agreement with the largest holder (the “Large Holder”) of its Series
2007-A convertible debentures (the “2007 Debentures”) to extend the maturity
date of the $4.3 million principal amount of the 2007 Debentures held by the
Large Holder from February 23, 2009 to February 23, 2010 (the “Extended
Debentures”).





The Large
Holder owned $4.3 million principal amount of the 2007 Debentures as of December
31, 2008 and February 23, 2009 (on which $0.8 million of interest was accrued as
of February 23, 2009) and 8,580,000 of warrants issued in connection with the
2007 Debentures (the “2007 Debenture Warrants).  The Company and the Large
Holder also agreed that the Company shall have the option to repay on February
23, 2009 the $0.8 million of accrued interest on the Large Holder’s 2007
Debentures in either common shares of the Company or cash.  On February 23,
2009, the Company repaid the $0.8 million of accrued interest on the large
Holder’s 2007 Debentures by issuing 2,444,765 common shares of the
Company.  In consideration for the foregoing, the Company agreed to (i)
issue 2,000,000 common shares of the Company to the Large Holder on February 23,
2009 (the “Large Holder Shares”), (ii) extend the expiration date of the
8,580,000 2007 Debenture Warrants issued to the Large Holder to March 4, 2010
(the “Large Holder Warrants”) and (iii) reduce the exercise price of the Large
Holder Warrants from $0.50 to $0.25.





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





The
Company recorded a loss on modification of convertible debentures of $2.0
million comprised of $0.6 million for the Large Holder Shares, $1.3 million for
the Large Holder Warrants and $0.1 million for administrative costs.  The
Large Holder Warrants were assigned a fair value of $1.3 million, using an
option pricing model with the following assumptions:  no dividends are
paid, a volatility of the Company’s share price of 97%, an expected life of the
warrants of one year, and an annual risk-free rate of 1.2%.





The
Extended Debentures bear interest at a rate of 18% per annum and are convertible
into common shares of the Company at $0.50 per common share.  The 2007
Debentures are convertible, at the option of the holder, at any time prior to
maturity into common shares of the Company at a price of $0.50 per common
share.





The
Company has the option to force conversion of the 2007 Debentures under certain
circumstances.  The Extended Debentures are classified as a compound
financial instrument for accounting purposes.





On the
date of extension of the Extended Debentures, the $4.3 million principal was
allocated to the relative fair values of the Debentures ($3.7 million) and the
holder’s option to convert the principal balance into common shares ($0.6
million) (the “Conversion Option”).  The $3.7 million fair value of the
Extended Debentures is classified as a liability, while the $0.6 million
allocated to the Conversion Option is classified as a separate component within
shareholders’ equity.





Over
their one-year term, the Extended Debentures are accreted to their face value
through a periodic charge to accretion expense with a corresponding credit to
the liability component.  The accretion expense is based on the effective
interest method.  For the three and nine months ended September 30, 2009,
the Company recorded accretion expense of $0.3 million and $0.7 million,
respectively, related to the Extended Debentures, which is included in interest
expense.




16


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


10.
              SHARE
      CAPITAL




(a)
            Shares
      issued in 2009




(i)           For
the nine months ended September 30, 2009, there were 4,833,332 shares issued
upon exercise of warrants for proceeds of $0.9 million.  Each warrant
exercised had an exercise price of $0.176.




(ii)           On
February 20, 2009, the Company issued to a Firm (see Note 8(b)) 3,172,840 common
shares of the Company and 2,567,901 common share purchase warrants exercisable
for a two year period at an exercise price of $0.204 (Cdn$0.256) for services
rendered.




(iii)           On
February 23, 2009, the Company issued 2,444,765 common shares of the Company for
payment of the $0.8 million of accrued interest on the Large Holder’s 2007
Debentures (see Note 9).  In addition, the Company issued 2,000,000 common
shares of the Company in consideration for extending the 2007 Debentures and
extended the expiration date of 8,580,000 warrants from February 23, 2009 to
March 4, 2010 and reduced the exercise price of these warrants from $0.50 to
$0.25.




(iv)           On
July 15, 2009, the Company completed a private placement of 12,221,640 common
shares at Cdn$0.45 per share and 13,889,390 flow-through common shares at
Cdn$0.54 per share for net proceeds of $10.7 million (Cdn$12.0 million) after
cash issuance costs of $0.9 million.  The Company intends to use the
proceeds from the sale of the flow-through common shares to fund exploration
expenses at its Black Fox mine and its Grey Fox property.  Further, the
Company intends to use the proceeds from the sale of the common shares for
working capital and general corporate purposes.  In connection with the
private placement the Company issued 1,566,662 compensation warrants to purchase
common shares of the Company at an exercise price of Cdn$0.45 per share that
expire on July 15, 2011.  The compensation warrants were assigned a fair
value of $0.3 million, using an option pricing model with the following
assumptions: no dividends are paid, a volatility of the Company’s share price of
80%, an expected life of the warrants of two years, and an annual risk-free rate
of 1.2%.




(b)
            Warrants




A summary
of information concerning outstanding warrants at September 30, 2009 is as
follows:




Number
      of Warrants
                  and
      Shares Issuable
                  upon
      ExerciseBalance,
      December 31, 2008
              
              
              91,277,374Warrants
      issued
              
              
              38,970,674Warrants
      exercised
              
              
              (4,833,333
              )Warrants
      expired
              
              
              (9,725,927
              )Balance,
      September 30, 2009
              
              
              115,688,788





The
following table summarizes outstanding warrants as at September 30,
2009:


17


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


10.
            SHARE
      CAPITAL (continued)





Date
      Issued
                
                Number
      of Warrants
                    and
      Shares Issuable
                    upon
      Exercise
                
                
                Exercise
      Price
                
                Expiry
      DateExercisable
      in US$November
      8, 2006
                
                
                2,677,436
                
                
                
                0.176
                
                November
      8, 2009 (1)November
      8, 2006
                
                
                1,168,174
                
                
                
                0.50
                
                November
      8, 2009 (2)February
      23, 2007
                
                
                8,580,000
                
                
                
                0.25
                
                March
      4, 201012,425,610Exercisable
      in Cdn$August
      21, 2008
                
                
                1,020,000
                
                
                
                0.50
                
                February
      21, 2010December
      31, 2008
                
                
                255,000
                
                
                
                0.30
                
                December
      31, 2010February
      20, 2009
                
                
                2,567,901
                
                
                
                0.256
                
                February
      20, 2011July
      15, 2009
                
                
                1,566,662
                
                
                
                0.45
                
                July
      15, 2011July
      24, 2008
                
                
                20,403,250
                
                
                
                0.65
                
                July
      24, 2011December
      10, 2008
                
                
                42,614,254
                
                
                
                0.221
                
                December
      10, 2012February
      20, 2009
                
                
                34,836,111
                
                
                
                0.252
                
                February
      20, 2013103,263,178115,688,788(1)
      2,343,603 of these warrants were exercised prior to expiration and the
      remaining 333,833 expired unexercised.
                  (2)
      185,100 of these warrants were exercised prior to expiration and the
      remaining 983,074 expired
unexercised.





In
addition, 2,448,390 units issued to placement agents on July 24, 2008 (the
“Agents’ Units”) are outstanding.  Each Agents’ Unit is exercisable at
Cdn$0.60 for four years into one common share of the Company and one- half of
one warrant (the 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.




(c)
            Options




A summary of information concerning
outstanding fixed stock options at September 30, 2009 is as
follows:




Number
      of
                  Common
                  Shares
              
              
              Weighted
                  Average
                  Exercise
                  Price
      Per
                  ShareBalance,
      December 31, 2008
              
              
              8,281,309
              
              
              $
              0.77Options
      granted
              
              
              3,731,807
              
              
              
              0.34Options
      forfeited
              
              
              (401,745
              )
              
              
              0.53Balance,
      September 30, 2009
              
              
              11,611,371
              
              
              $
              0.64





The
following table summarizes information concerning outstanding and exercisable
stock options at September 30, 2009:




18


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


10.
            SHARE
      CAPITAL (continued)




Options
      Outstanding
                  
                  
                  Options
      ExercisableNumber
                      Outstanding
                  
                  Expiry
      Date
                  
                  Weighted
                      Average
                      Exercise
                      Price
      Per
                      Share
                  
                  
                  Weighted
                      Average
                      Remaining
                      Contractual
      Life
                      (in
      years)
                  
                  
                  Number
                      Exercisable
                  
                  
                  Weighted
                      Average
                      Exercise
                      Price
      Per
                      Share100,000
                  
                  September
      1, 2011
                  
                  $
                  0.46
                  
                  
                  
                  1.9
                  
                  
                  
                  100,000
                  
                  
                  $
                  0.46675,100
                  
                  February
      18, 2013
                  
                  
                  2.24
                  
                  
                  
                  3.4
                  
                  
                  
                  675,100
                  
                  
                  
                  2.24260,000
                  
                  March
      10, 2014
                  
                  
                  2.05
                  
                  
                  
                  4.4
                  
                  
                  
                  260,000
                  
                  
                  
                  2.0525,000
                  
                  May
      19, 2014
                  
                  
                  1.44
                  
                  
                  
                  4.6
                  
                  
                  
                  25,000
                  
                  
                  
                  1.4420,200
                  
                  August
      10, 2014
                  
                  
                  0.95
                  
                  
                  
                  4.9
                  
                  
                  
                  20,200
                  
                  
                  
                  0.951,158,250
                  
                  March
      10, 2015
                  
                  
                  0.65
                  
                  
                  
                  5.4
                  
                  
                  
                  1,158,250
                  
                  
                  
                  0.65100,000
                  
                  August
      4, 2015
                  
                  
                  0.27
                  
                  
                  
                  5.8
                  
                  
                  
                  100,000
                  
                  
                  
                  0.27300,000
                  
                  December
      12, 2015
                  
                  
                  0.20
                  
                  
                  
                  6.2
                  
                  
                  
                  300,000
                  
                  
                  
                  0.20125,000
                  
                  March
      28, 2016
                  
                  
                  0.65
                  
                  
                  
                  6.5
                  
                  
                  
                  125,000
                  
                  
                  
                  0.65200,000
                  
                  May
      24, 2016
                  
                  
                  0.53
                  
                  
                  
                  6.7
                  
                  
                  
                  200,000
                  
                  
                  
                  0.53108,000
                  
                  August
      10, 2016
                  
                  
                  0.48
                  
                  
                  
                  6.9
                  
                  
                  
                  108,000
                  
                  
                  
                  0.4820,000
                  
                  November
      9, 2016
                  
                  
                  0.32
                  
                  
                  
                  7.1
                  
                  
                  
                  20,000
                  
                  
                  
                  0.322,810,064
                  
                  February
      6, 2017
                  
                  
                  0.57
                  
                  
                  
                  7.4
                  
                  
                  
                  2,810,064
                  
                  
                  
                  0.5721,250
                  
                  August
      13, 2017
                  
                  
                  0.46
                  
                  
                  
                  7.9
                  
                  
                  
                  21,250
                  
                  
                  
                  0.461,973,950
                  
                  March
      27, 2018
                  
                  
                  0.66
                  
                  
                  
                  8.5
                  
                  
                  
                  986,975
                  
                  
                  
                  0.6621,250
                  
                  August
      12, 2018
                  
                  
                  0.37
                  
                  
                  
                  8.9
                  
                  
                  
                  10,625
                  
                  
                  
                  0.3730,000
                  
                  November
      11, 2018
                  
                  
                  0.15
                  
                  
                  
                  9.1
                  
                  
                  
                  –
                  
                  
                  
                  –3,200,067
                  
                  March
      31, 2019
                  
                  
                  0.32
                  
                  
                  
                  9.5
                  
                  
                  
                  –
                  
                  
                  
                  –297,740
                  
                  May
      6, 2019
                  
                  
                  0.45
                  
                  
                  
                  9.6
                  
                  
                  
                  –
                  
                  
                  
                  –165,500
                  
                  August
      11, 2019
                  
                  
                  0.44
                  
                  
                  
                  9.9
                  
                  
                  
                  –
                  
                  
                  
                  –11,611,371
                  
                  
                  
                  $
                  0.64
                  
                  
                  
                  7.6
                  
                  
                  
                  6,920,464
                  
                  
                  $
                  0.79





(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:





Nine
      months ended
                  September
      30,2009
              
              
              2008Risk
      free interest rate
              
              
              1.9
              %
              
              
              2.9
              %Dividend
      yield
              
              
              0
              %
              
              
              0
              %Volatility
              
              
              77
              %
              
              
              73
              %Expected
      life in years
              
              
              6
              
              
              
              6Weighted
      average grant-date fair value of stock options
              
              $
              0.23
              
              
              $
              0.44









19


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


11.
            INTEREST
      EXPENSE




Interest
expense consists of:




Three
      months ended
                  September
      30,
              
              
              Nine
      months ended
                  September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Accretion
      on convertible debentures
              
              $
              337
              
              
              $
              1,017
              
              
              $
              1,619
              
              
              $
              2,787Amortization
      of debt discount – Project Facility
              
              
              1,158
              
              
              
              –
              
              
              
              1,627
              
              
              
              –Capital  leases,
      Project Facility and other
              
              
              1,599
              
              
              
              81
              
              
              
              2,259
              
              
              
              266$
              3,094
              
              
              $
              1,098
              
              
              $
              5,505
              
              
              $
              3,053





For the
nine months ended September 30, 2009, the Company recorded capitalized interest
of $1.8 million, respectively.





12.
            INCOME
      TAXES




The
Company recorded a tax benefit of $0.2 million for the nine month period ended
September 30, 2009 due to the issuance of flow-through shares but recorded no
other recovery for income taxes as the net loss carry forwards are fully offset
by a valuation allowance.





The
Company recorded income tax expense of $0.03 million and $0.10 million for the
three and nine month period ended September 30, 2008 for alternative minimum
taxes resulting on its income from U.S. operations.  There was no other
income tax expense recorded during the nine month period ended September 30,
2008, as additional taxable income was offset by recoveries of prior tax
losses.





13.
            EARNINGS
      (LOSS) PER SHARE




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




Earnings
used in determining earnings per share are presented below.


20


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


13.
            EARNINGS
      (LOSS) PER SHARE (continued)




Three
      months ended
                          September
      30,
                        
                        
                        Nine
      months ended
                          September
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Net
      (loss) income
                        
                        $
                        (13,988
                        )
                        
                        $
                        548
                        
                        
                        $
                        (37,475
                        )
                        
                        $
                        2,873Weighted
      average number of shares, basic
                        
                        
                        257,164,991
                        
                        
                        
                        199,747,625
                        
                        
                        
                        239,455,750
                        
                        
                        
                        173,373,528Dilutive
      securities:Options
                        
                        
                        –
                        
                        
                        
                        166,106
                        
                        
                        
                        –
                        
                        
                        
                        284,577Warrants
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        1,394,042Convertible
      debentures
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –Weighted
      average number of shares, diluted
                        
                        
                        257,164,991
                        
                        
                        
                        199,913,731
                        
                        
                        
                        239,455,750
                        
                        
                        
                        175,052,147Basic
      net earnings (loss) per share
                        
                        $
                        (0.05
                        )
                        
                        $
                        0.00
                        
                        
                        $
                        (0.16
                        )
                        
                        $
                        0.02Diluted
      net earnings (loss) per share
                        
                        $
                        (0.05
                        )
                        
                        $
                        0.00
                        
                        
                        $
                        (0.16
                        )
                        
                        $
                        0.02Options
      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
                        
                        
                        32,990,638
                        
                        
                        
                        59,815,346
                        
                        
                        
                        32,990,638
                        
                        
                        
                        31,847,962Average
      exercise price of OWNI
                        
                        $
                        0.64
                        
                        
                        $
                        0.60
                        
                        
                        $
                        0.64
                        
                        
                        $
                        0.69Shares
      issuable for convertible debentures excluded from calculation of EPS
      because their effect would have been anti-dilutive
                        
                        
                        8,580,000
                        
                        
                        
                        14,876,200
                        
                        
                        
                        8,580,000
                        
                        
                        
                        14,876,200Average
      conversion price of anti-dilutive convertible securities
                        
                        $
                        0.50
                        
                        
                        $
                        0.50
                        
                        
                        $
                        0.50
                        
                        
                        $
                        0.50




Due to a
net loss for the three and nine month periods ended September 30, 2009, an
additional 96.8 million warrants and stock options were excluded from the EPS
computation because their effect would have been anti-dilutive.




14.
            COMMITMENTS
      AND CONTINGENCIES




The
Company had entered into a number of contractual commitments related to the
development of Black Fox.  As of September 30, 2009, these commitments
totaled approximately $1.2 million and are expected to become due within the
next 12 months.




21


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)




15.
            SUPPLEMENTAL
      CASH FLOW INFORMATION




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




Three
      months ended
                  September
      30,
              
              
              Nine
      months ended
                  September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008(Increase)
      decrease in:Accounts
      receivable and other
              
              $
              317
              
              
              $
              470
              
              
              $
              (52
              )
              
              $
              (664
              )Prepaids
              
              
              (227
              )
              
              
              (41
              )
              
              
              97
              
              
              
              249Inventories
              
              
              (1,728
              )
              
              
              –
              
              
              
              (8,658
              )
              
              
              –Increase
      (decrease) in:Accounts
      payable
              
              
              5,250
              
              
              
              (1,082
              )
              
              
              8,863
              
              
              
              492Accrued
      liabilities
              
              
              737
              
              
              
              (116
              )
              
              
              1,628
              
              
              
              (1,359
              )$
              4,349
              
              
              $
              (769
              )
              
              $
              1,878
              
              
              $
              (1,282
              )





(b)
            Components
      of cash and cash equivalents are:




Sept.
      30,
                  2009
              
              
              Sept.
      30,
                  2008Cash
              
              $
              4,499
              
              
              $
              5,250Cash
      equivalents
              
              
              –
              
              
              
              1,035Cash
      and cash equivalents
              
              $
              4,499
              
              
              $
              6,285





(c)
            Non-cash
      transactions




Three
      months ended
                  September
      30,
              
              
              Nine
      months ended
                  September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Increase
      in property, plant and equipment due to assets acquired via issuance of
      notes payable
              
              $
              47
              
              
              $
              –
              
              
              $
              4,086
              
              
              $
              –Increase
      in prepaid assets due to financing a portion of the Company’s insurance
      program via the issuance of notes payable
              
              
              203
              
              
              
              416
              
              
              
              785
              
              
              
              416Increase
      in contributed surplus for the issuance of warrants to the Banks in
      connection with the Project Facility (Note 8(a)) and a corresponding
      decrease in debt for the debt discount
              
              
              –
              
              
              
              –
              
              
              
              7,395
              
              
              
              –Increase
      in share capital and reduction in convertible debentures due to the
      conversion of Series 2007-A convertible debentures into common shares of
      the Company
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              621Increase
      in share capital  and a decrease in future income tax assets upon
      renouncement of expenditures in connection with a flow-through share
      offering completed in October 2007
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              1,165Increases
      in financial statement components related to the acquisition of the Black
      Fox Mill:Equity
      due to the issuance of common shares for services rendered related to
      acquisition financing costs
              
              
              –
              
              
              
              351
              
              
              
              –
              
              
              
              351Accrued
      site closure costs due to the assumption of a related reclamation
      liability
              
              
              –
              
              
              
              1,210
              
              
              
              –
              
              
              
              1,210Increase
      in future income tax liability
              
              
              –
              
              
              
              447
              
              
              
              –
              
              
              
              447


22
 APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)
  16.
              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 2008.





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 cash, restricted certificates of
deposit, derivative instruments and auction rate securities in the ordinary
course of business.  Cash and cash equivalents, restricted cash, restricted
certificates of deposit, derivative instruments and auction rate securities are
placed with high-credit quality financial institutions.  The Company sells
its metal production exclusively to large international organizations with
strong credit ratings.  The balance of trade receivables owed to the
Company in the ordinary course of business is not significant.  The
carrying value of accounts receivable approximates fair value due to the
relatively short periods to maturity on these instruments.  Therefore, the
Company is not exposed to significant credit risk.  Overall, the Company’s
credit risk has not changed significantly from 2008.




The Company assesses quarterly whether
there has been an impairment of the financial assets of the Company.  Other
than disclosed in Note 7 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, 2009.  Apollo continues to maintain a portion of
its investments in ARS, which are floating rate securities that are marketed by
financial institutions with auction reset dates at 28 day intervals to provide
short-term liquidity.  All ARS were rated AAA when purchased, pursuant to
Apollo’s investment policy at the time.  Auction rate securities are no
longer permitted to be purchased under the Company’s current investment
policy.  Beginning in August 2007, a number of auctions began to fail and
the Company is currently holding ARS with a par value of $1.5 million which
currently lack liquidity.  All of Apollo’s ARS have continued to make
regular interest payments.  The current rating by Standard and Poor on
Apollo’s ARS is A.  If uncertainties in the credit and capital markets
persist or Apollo’s ARS experience further downgrades, the Company may incur
additional impairments, which may continue to be judged other than
temporary.  Apollo believes that the current illiquidity of its ARS will
not have a material impact on Apollo’s financial condition.





The Company’s maximum exposure to
credit risk is represented by the carrying amount on the balance sheet of cash
and cash equivalents, trade receivables, restricted cash, restricted
certificates of deposit, derivative instruments and auction rate
securities.  There are no material financial assets that the Company
considers to be past due.


23


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


16.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS
(continued)





(c)
            Liquidity
      Risk




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





Trade payables and accrued liabilities
are paid in the normal course of business typically according to their
terms.  The Company ensures that there are sufficient committed loan
facilities to meet its short-term business requirements, taking into account its
anticipated cash flows from operations and its holdings of cash and cash
equivalents.  As of September 30, 2009, the Company has borrowed $70.0
million against a Project Facility (See Note 8(a)). At September 30, 2009, the
Company is in compliance with its financial debt covenants.  See Note 8(a)
for a discussion of the occurrence of a “review event,” the deferral of the $9.3
million quarterly repayment due September 30, 2009 and the possibility of
restructuring the installment payments associated with the Project Facility.





(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, restricted
certificates of deposit and accounts payable.  For the three and nine
months ended September 30, 2009, 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 $0.2 million and $0.4 million,
respectively, for a 10% increase or decrease in the Canadian
dollar.





On
February 20, 2009, in order to meet certain loan criteria of the Project
Facility , the Company entered into certain forward option contracts to purchase
Canadian dollars.  See Note 5 for details.





(e)
            Interest
      Rate Risk




The Company is exposed to interest rate
risk on its outstanding borrowings and short-term investments.  As of
September 30, 2009, the Company’s significant outstanding borrowings consist of
$70.0 million of the Project Facility (Note 8(a)) and the Extended Debentures
which have an aggregate $4.3 million face value (Note 9).  Amounts
outstanding under the Project Facility accrue interest at a floating rate based
on LIBOR plus 7.0% and the Extended Debentures have a stated rate of 18%. 
The average monthly LIBOR rates charged to the Company on the Project Facility
during the three and nine month period ended September 30, 2009 were 0.3% and
0.3%, respectively.  The Company monitors its exposure to interest rates
and has not entered into any derivative contracts to manage this risk.  The
weighted average interest rates paid by the Company on its outstanding
borrowings during the three and nine month period ended September 30, 2009 were
7.2% and 7.7%, respectively.





For the three and nine month period
ended September 30, 2009, a 100 basis point increase or decrease in interest
rates would not have had a significant impact on the amount of interest expense
recorded during those periods.


24


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)


16.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS
(continued)





(f)
            Commodity
      Price Risk




The Company’s principal business
includes the sale of gold.  Revenues, earnings and cash flows from the sale
of gold are sensitive to changes in market prices, over which the Company has
little or no control.  The Company has the ability to address its
price-related exposures through the limited use of options, future and forward
contracts.




On February 20, 2009, in order to meet
certain loan criteria of the Project Facility, the Company entered into certain
gold forward sales contracts.  See Note 5 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, with the exception of auction rate
securities.  The Company’s ARS investments (see Note 7) are valued using a
probability-weighted discounted cash flow valuation.  The Company’s
valuation of the ARS investments considers possible cash flows and probabilities
forecasted under certain potential scenarios. Each scenario’s cash flow is
multiplied by the probability of that scenario occurring.  The major inputs
included in the valuation are: (i) maximum contractual ARS interest rate, (ii)
probability of passing auction/early redemption at each auction, (iii)
probability of failing auction at each auction, (iv) probability of default at
each auction, (v) severity of default, and (vi) discount rate.  Changes in
these assumptions to reasonably possible alternative assumptions would not
significantly affect the Company’s results.




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





17.
            SEGMENTED
      INFORMATION




Apollo
operates the Black Fox mine and mill 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.  MTMI, which was
previously presented as a reportable segment, has been reported as discontinued
operations (Note 4).  The accounting policies for these segments are the
same as those followed by the Company as a whole.


25




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Nine
month period ended September 30, 2009
 (Stated
in U.S. dollars; tabular amounts in thousands except share and per share
data)
 (Unaudited)





17.
            SEGMENTED
      INFORMATION (continued)





Amounts
as at September 30, 2009 are as follows:





Black
                      Fox
                  
                  
                  Corporate
                      andOther
                  
                  
                  TotalCash
      and cash equivalents
                  
                  $
                  3,428
                  
                  
                  $
                  1,071
                  
                  
                  $
                  4,499Other
      non-cash current assets
                  
                  
                  10,619
                  
                  
                  
                  6,263
                  
                  
                  
                  16,88214,047
                  
                  
                  
                  7,334
                  
                  
                  
                  21,381Derivative
      instruments
                  
                  
                  –
                  
                  
                  
                  4,765
                  
                  
                  
                  4,765Long-term
      investments
                  
                  
                  –
                  
                  
                  
                  1,093
                  
                  
                  
                  1,093Property,
      plant and equipment
                  
                  
                  132,621
                  
                  
                  
                  3,013
                  
                  
                  
                  135,634Restricted
      certificates of deposit
                  
                  
                  14,525
                  
                  
                  
                  8
                  
                  
                  
                  14,533Other
      long-term assets
                  
                  
                  116
                  
                  
                  
                  –
                  
                  
                  
                  116Total
      assets of continuing operations
                  
                  $
                  161,309
                  
                  
                  $
                  16,213
                  
                  
                  $
                  177,522Current
      liabilities
                  
                  $
                  12,172
                  
                  
                  $
                  39,916
                  
                  
                  $
                  52,088Derivative
      instruments
                  
                  
                  –
                  
                  
                  
                  22,471
                  
                  
                  
                  22,471Debt
      and other long-term liabilities
                  
                  
                  3,164
                  
                  
                  
                  39,025
                  
                  
                  
                  42,189Accrued
      site closure costs
                  
                  
                  5,096
                  
                  
                  
                  –
                  
                  
                  
                  5,096Future
      income tax liability
                  
                  
                  427
                  
                  
                  
                  –
                  
                  
                  
                  427Total
      liabilities of continuing operations
                  
                  $
                  20,859
                  
                  
                  $
                  101,412
                  
                  
                  $
                  122,271





Amounts
at December 31, 2008 are as follows:





Black
                    Fox
                
                
                Corporate
                    andOther
                
                
                TotalCash
      and cash equivalents
                
                $
                214
                
                
                $
                2,871
                
                
                $
                3,085Other
      non-cash current assets
                
                
                9,805
                
                
                
                3,156
                
                
                
                12,96110,019
                
                
                
                6,027
                
                
                
                16,046Long-term
      investments
                
                
                –
                
                
                
                1,081
                
                
                
                1,081Property,
      plant and equipment
                
                
                85,183
                
                
                
                3,043
                
                
                
                88,226Restricted
      certificates of deposit
                
                
                3,813
                
                
                
                8
                
                
                
                3,821Other
      long-term assets
                
                
                103
                
                
                
                –
                
                
                
                103Total
      assets of continuing operations
                
                $
                99,118
                
                
                $
                10,159
                
                
                $
                109,277Current
      liabilities
                
                $
                26,925
                
                
                $
                9,113
                
                
                $
                36,038Debt
      and other long-term liabilities
                
                
                967
                
                
                
                4,888
                
                
                
                5,855Accrued
      site closure costs
                
                
                1,398
                
                
                
                –
                
                
                
                1,398Future
      income tax liability
                
                
                447
                
                
                
                –
                
                
                
                447Total
      liabilities of continuing operations
                
                $
                29,737
                
                
                $
                14,001
                
                
                $
                43,738


26


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





17.
            SEGMENTED
      INFORMATION (continued)





Amounts
for the three and nine month periods ended September 30, 2009 and 2008,
respectively, are as follows:





Three
      months ended September 30, 2009Black
      Fox
                
                
                Corporate
                    and
      Other
                
                
                TotalRevenue
      from sale of minerals
                
                $
                19,131
                
                
                $
                –
                
                
                $
                19,131Direct
      operating costs
                
                
                11,420
                
                
                
                –
                
                
                
                11,420Depreciation
      and amortization
                
                
                3,198
                
                
                
                9
                
                
                
                3,207General
      and administrative expenses
                
                
                –
                
                
                
                1,084
                
                
                
                1,084Accretion
      expense – accrued site closure costs
                
                
                147
                
                
                
                –
                
                
                
                147Exploration
      and business development
                
                
                340
                
                
                
                210
                
                
                
                55015,105
                
                
                
                1,303
                
                
                
                16,408Operating
      (loss) income
                
                
                4,026
                
                
                
                (1,303
                )
                
                
                2,723Interest
      income
                
                
                –
                
                
                
                57
                
                
                
                57Interest
      expense
                
                
                (2,752
                )
                
                
                (342
                )
                
                
                (3,094
                )Realized
      losses on derivative contracts
                
                
                –
                
                
                
                (1,435
                )
                
                
                (1,435
                )Unrealized
      gains on derivative contracts
                
                
                –
                
                
                
                (10,196
                )
                
                
                (10,196
                )Foreign
      exchange gain and other
                
                
                (1
                )
                
                
                227
                
                
                
                226Loss
      from continuing operations before income taxes
                
                $
                1,273
                
                
                $
                (12,992
                )
                
                $
                (11,719
                )Investing
      activitiesProperty,
      plant and equipment expenditures
                
                $
                14,114
                
                
                $
                –
                
                
                $
                14,114




Nine months ended September
      30, 2009Black Fox
                        
                        
                        Corporate
                          andOther
                        
                        
                        TotalRevenue
      from sale of minerals
                        
                        $
                        23,840
                        
                        
                        $
                        –
                        
                        
                        $
                        23,840Direct
      operating costs
                        
                        
                        13,454
                        
                        
                        
                        –
                        
                        
                        
                        13,454Depreciation
      and amortization
                        
                        
                        4,436
                        
                        
                        
                        30
                        
                        
                        
                        4,466General
      and administrative expenses
                        
                        
                        –
                        
                        
                        
                        3,112
                        
                        
                        
                        3,112Accretion
      expense – accrued site closure costs
                        
                        
                        216
                        
                        
                        
                        –
                        
                        
                        
                        216Exploration
      and business development
                        
                        
                        452
                        
                        
                        
                        627
                        
                        
                        
                        1,07918,558
                        
                        
                        
                        3,769
                        
                        
                        
                        22,327Operating
      (loss) income
                        
                        
                        5,282
                        
                        
                        
                        (3,769
                        )
                        
                        
                        1,513Interest
      income
                        
                        
                        –
                        
                        
                        
                        135
                        
                        
                        
                        135Interest
      expense
                        
                        
                        (3,850
                        )
                        
                        
                        (1,655
                        )
                        
                        
                        (5,505
                        )Debt
      transaction costs
                        
                        
                        (582
                        )
                        
                        
                        (1,239
                        )
                        
                        
                        (1,821
                        )Loss
      on modification of convertible debentures
                        
                        
                        –
                        
                        
                        
                        (1,969
                        )
                        
                        
                        (1,969
                        )Realized
      losses on derivative contracts
                        
                        
                        –
                        
                        
                        
                        (1,559
                        )
                        
                        
                        (1,559
                        )Unrealized
      losses on derivative contracts
                        
                        
                        –
                        
                        
                        
                        (25,238
                        )
                        
                        
                        (25,238
                        )Foreign
      exchange gain and other
                        
                        
                        –
                        
                        
                        
                        565
                        
                        
                        
                        565Loss
      from continuing operations before income taxes
                        
                        $
                        850
                        
                        
                        $
                        (34,729
                        )
                        
                        $
                        (33,879
                        )Investing
      activitiesProperty,
      plant and equipment expenditures
                        
                        $
                        54,560
                        
                        
                        $
                        –
                        
                        
                        $
                        54,560




27


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





17.
            SEGMENTED
      INFORMATION (continued)


Three
      months ended September 30, 2008Black
      Fox
                        
                        
                        Corporate
                          and
      Other
                        
                        
                        TotalDepreciation
      and amortization
                        
                        $
                        –
                        
                        
                        $
                        26
                        
                        
                        $
                        26General
      and administrative expenses
                        
                        
                        –
                        
                        
                        
                        826
                        
                        
                        
                        826Exploration
      and business development
                        
                        
                        167
                        
                        
                        
                        587
                        
                        
                        
                        754167
                        
                        
                        
                        1,439
                        
                        
                        
                        1,606Operating
      income (loss)
                        
                        
                        (167
                        )
                        
                        
                        (1,439
                        )
                        
                        
                        (1,606
                        )Interest
      income
                        
                        
                        –
                        
                        
                        
                        62
                        
                        
                        
                        62Interest
      expense
                        
                        
                        –
                        
                        
                        
                        (1,098
                        )
                        
                        
                        (1,098
                        )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
                        )Loss
      from continuing operations before income taxes
                        
                        $
                        (167
                        )
                        
                        $
                        (2,035
                        )
                        
                        $
                        (2,202
                        )Investing
      activitiesProperty,
      plant and equipment expenditures
                        
                        $
                        21,644
                        
                        
                        $
                        –
                        
                        
                        $
                        21,644
  Nine
      months ended September 30, 2008Black
      Fox
                  
                  
                  Corporate
                    and
      Other
                  
                  
                  TotalDepreciation
      and amortization
                  
                  $
                  –
                  
                  
                  $
                  80
                  
                  
                  $
                  80General
      and administrative expenses
                  
                  
                  –
                  
                  
                  
                  2,914
                  
                  
                  
                  2,914Exploration
      and business development
                  
                  
                  217
                  
                  
                  
                  2,294
                  
                  
                  
                  2,511217
                  
                  
                  
                  5,288
                  
                  
                  
                  5,505Operating
      income (loss)
                  
                  
                  (217
                  )
                  
                  
                  (5,288
                  )
                  
                  
                  (5,505
                  )Interest
      income
                  
                  
                  –
                  
                  
                  
                  181
                  
                  
                  
                  181Interest
      expense
                  
                  
                  –
                  
                  
                  
                  (3,053
                  )
                  
                  
                  (3,053
                  )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
                  )Loss
      from continuing operations before income taxes
                  
                  $
                  (217
                  )
                  
                  $
                  (6,728
                  )
                  
                  $
                  (6,945
                  )Investing
      activitiesProperty,
      plant and equipment expenditures
                  
                  $
                  26,493
                  
                  
                  $
                  42
                  
                  
                  $
                  26,535


28


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





18.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP




The
Company prepares its consolidated financial statements in accordance with
Canadian GAAP.  The following adjustments and/or additional disclosures
would be required in order to present the financial statements in accordance
with U.S. GAAP and with practices prescribed by the U.S. Securities and Exchange
Commission at September 30, 2009 and December 31, 2008 and for the three and
nine months ended September 30, 2009 and 2008.




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





Sept 30,
                    2009
                  
                  
                  Dec 31,
                    2008Total
      assets in accordance with Canadian GAAP
                  
                  $
                  193,375
                  
                  
                  $
                  131,630Bank
      indebtedness
                  
                  
                  –
                  
                  
                  
                  (742
                  )Debt
      transaction costs (a)
                  
                  
                  36
                  
                  
                  
                  –Black
      Fox Project (b)
                  
                  
                  (28,494
                  )
                  
                  
                  (29,159
                  )Convertible
      debentures (c)
                  
                  
                  –
                  
                  
                  
                  66Discontinued
      operations (f)
                  
                  
                  (10,974
                  )
                  
                  
                  (15,533
                  )Total
      assets in accordance with U.S. GAAP
                  
                  $
                  153,943
                  
                  
                  $
                  86,262Total
      liabilities in accordance with Canadian GAAP
                  
                  $
                  133,124
                  
                  
                  $
                  57,875Bank
      indebtedness
                  
                  
                  –
                  
                  
                  
                  (742
                  )Debt
      transactions costs (a)
                  
                  
                  (485
                  )
                  
                  
                  –Convertible
      debentures (c)
                  
                  
                  232
                  
                  
                  
                  118Income
      taxes related to flow-through share issuance (d)
                  
                  
                  869
                  
                  
                  
                  73Warrants
      treated as liabilities under EITF 07-5 (g)
                  
                  
                  34,354
                  
                  
                  
                  –Discontinued
      operations (f)
                  
                  
                  (10,136
                  )
                  
                  
                  (13,416
                  )Total
      liabilities in accordance with U.S. GAAP
                  
                  $
                  157,958
                  
                  
                  $
                  43,908Total
      shareholders’ equity in accordance with Canadian GAAP
                  
                  $
                  60,251
                  
                  
                  $
                  73,755Debt
      transactions costs (a)
                  
                  
                  521
                  
                  
                  
                  –Black
      Fox Project (b)
                  
                  
                  (28,494
                  )
                  
                  
                  (29,159
                  )Convertible
      debentures (c)
                  
                  
                  (232
                  )
                  
                  
                  (52
                  )Income
      taxes related to flow-through share issuance (d)
                  
                  
                  (869
                  )
                  
                  
                  (73
                  )Warrants
      treated as liabilities under EITF 07-5 (h)
                  
                  
                  (34,354
                  )
                  
                  
                  –Discontinued
      operations (f)
                  
                  
                  (838
                  )
                  
                  
                  (2,117
                  )Total
      shareholders’ (deficit) equity in accordance with U.S.
GAAP
                  
                  $
                  (4,015
                  )
                  
                  $
                  42,354Total
      shareholders’ (deficit) equity and liabilities in accordance with U.S.
      GAAP
                  
                  $
                  153,943
                  
                  
                  $
                  86,262




29


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





18.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)





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





Sept.
      30, 2009
                
                
                Dec
      31,
                  2008Share
      capital
                
                $
                202,207
                
                
                $
                189,451Note
      warrants
                
                
                –
                
                
                
                2,234Contributed
      surplus
                
                
                45,359
                
                
                
                48,241Deficit
                
                
                (251,581
                )
                
                
                (197,572
                )Total
      shareholders’ (deficit) equity in accordance with U.S.
GAAP
                
                $
                (4,015
                )
                
                $
                42,354





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




Three
      months ended
                    September
      30,
                
                
                Nine
      months ended
                    September
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Loss
      from continuing operations for the period, based on Canadian
      GAAP
                
                $
                (11,719
                )
                
                $
                (2,234
                )
                
                $
                (33,690
                )
                
                $
                (7,040
                )Debt
      transaction costs (a)
                
                
                (36
                )
                
                
                (53
                )
                
                
                521
                
                
                
                (160
                )Black
      Fox Project (b)
                
                
                439
                
                
                
                –
                
                
                
                665
                
                
                
                (2,332
                )Convertible
      debentures (c)
                
                
                127
                
                
                
                287
                
                
                
                404
                
                
                
                (810
                )Warrants
      treated as liabilities under EITF 07-5 (h)
                
                
                (4,174
                )
                
                
                –
                
                
                
                (17,756
                )
                
                
                –Income
      taxes related to flow-through share issuance (d)
                
                
                –
                
                
                
                –
                
                
                
                (116
                )
                
                
                628(Loss)
      from continuing operations for the period, based on U.S.
    GAAP
                
                
                (15,363
                )
                
                
                (2,000
                )
                
                
                (49,972
                )
                
                
                (9,714
                )(Loss)
      income from discontinued operations for the period, based on Canadian
      GAAP
                
                
                (2,269
                )
                
                
                2,782
                
                
                
                (3,785
                )
                
                
                9,913Adjustments
      related to discontinued operations (f)
                
                
                720
                
                
                
                560
                
                
                
                1,279
                
                
                
                1,490(Loss)
      income from discontinued operations for the period, based on U.S.
      GAAP
                
                
                (1,549
                )
                
                
                3,342
                
                
                
                (2,506
                )
                
                
                11,403Net
      (loss) income and comprehensive (loss) income for the period based on U.S.
      GAAP
                
                $
                (16,912
                )
                
                $
                1,342
                
                
                $
                (52,478
                )
                
                $
                1,689Basic
      and diluted net  (loss) income per share in accordance with U.S.
      GAAP
                
                $
                (0.07
                )
                
                $
                0.01
                
                
                $
                (0.22
                )
                
                $
                0.01




30


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





18.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)




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




Three
      months ended
                    September
      30,
                
                
                Nine
      months ended
                    September
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Cash
      provided by operating activities based on Canadian GAAP
                
                $
                7,880
                
                
                $
                816
                
                
                $
                5,812
                
                
                $
                6,250Debt
      transaction costs (a)
                
                
                –
                
                
                
                –
                
                
                
                572
                
                
                
                –Black
      Fox Project (b)
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (2,332
                )Discontinued
      operations (f)
                
                
                (637
                )
                
                
                114
                
                
                
                (1,189
                )
                
                
                (1,610
                )Cash
      provided by operating activities based on U.S. GAAP
                
                
                7,243
                
                
                
                930
                
                
                
                5,195
                
                
                
                2,308Cash
      used in investing activities based on Canadian GAAP
                
                
                (13,307
                )
                
                
                (24,011
                )
                
                
                (57,826
                )
                
                
                (30,414
                )Black
      Fox Project (b)
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                2,332Restricted
      cash for Canadian flow-through expenditures (e)
                
                
                (6,589
                )
                
                
                (7,243
                )
                
                
                (2,762
                )
                
                
                (4,634
                )Discontinued
      operations (f)
                
                
                5
                
                
                
                911
                
                
                
                14
                
                
                
                2,272Cash
      used in investing activities based on U.S. GAAP
                
                
                (19,891
                )
                
                
                (30,343
                )
                
                
                (60,574
                )
                
                
                (30,444
                )Cash
      provided by financing activities based on Canadian GAAP
                
                
                9,558
                
                
                
                29,711
                
                
                
                53,905
                
                
                
                26,326Debt
      transaction costs (a)
                
                
                –
                
                
                
                –
                
                
                
                (572
                )
                
                
                –Discontinued
      operations (f)
                
                
                634
                
                
                
                (1,026
                )
                
                
                1,175
                
                
                
                (662
                )Cash
      provided by financing activities based on U.S. GAAP
                
                
                10,192
                
                
                
                28,685
                
                
                
                54,508
                
                
                
                25,664Effect
      of exchange rate changes on cash
                
                
                (568
                )
                
                
                (379
                )
                
                
                (477
                )
                
                
                (423
                )Net
      cash outflow in accordance with U.S. GAAP
                
                
                (3,024
                )
                
                
                (1,107
                )
                
                
                (1,348
                )
                
                
                (2,895
                )Cash
      (bank indebtedness), beginning of period under U.S. GAAP
                
                
                934
                
                
                
                (454
                )
                
                
                (742
                )
                
                
                1,334Bank
      indebtedness, end of period under U.S. GAAP
                
                $
                (2,090
                )
                
                $
                (1,561
                )
                
                $
                (2,090
                )
                
                $
                (1,561
                )





(a)
            Debt
      transaction costs




Under
Canadian GAAP, the Company expenses debt transaction costs when they are
incurred.  Under U.S. GAAP, debt transaction costs are capitalized and
amortized over the term of the related debt.  Accordingly, for U.S. GAAP
purposes, cumulative adjustments of a $0.5 million reduction in debt and a $0.5
million reduction in deficit have been recorded as at September 30,
2009.




(b)
            Black
      Fox Project




Effective
April 2008, under U.S. GAAP, mining development costs at the Black Fox Project
are capitalized as they are under Canadian GAAP.  Prior to April 2008,
mining development costs at the Black Fox Project were expensed as incurred
under U.S. GAAP.  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, 2009.  Effective May 2009, the Black Fox Project commenced
commercial production under both Canadian and U.S. GAAP.  As a result of
the $29.2 million difference described above, adjustments to inventories;
property, plant and equipment, and the related amortization of development costs
have been recorded.




(c)
            Convertible
      debentures




Under
Canadian GAAP, the Extended Debentures were recorded as a compound financial
instrument.  Under U.S. GAAP, the Extended Debentures are treated as a
liability.


31


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





18.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)





(d)
            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 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.  The Company had $6.6 million and $3.8 million
in unexpended flow-through funds at September 30, 2009 and December 31, 2008,
respectively.




(e)
            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.  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.  U.S. GAAP
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 the Canada Revenue Agency.  The Company
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses.  The Company has not accrued
interest or penalties related to uncertain tax positions as of September 30,
2009.




(f)
            Discontinued
      Operations - Montana Tunnels




Under
both Canadian GAAP and U.S. GAAP, the Company has presented its joint venture
interest in the Montana Tunnels mine (“MTM”) as a discontinued operation (Note
4).  Prior to classifying MTM as a discontinued operation, presentation of
the joint venture interest under Canadian GAAP utilized the proportionate
consolidation method, whereas under U.S. GAAP, the Company would have accounted
for MTM using the equity method.  Adjustments to reconcile between Canadian
GAAP and U.S. GAAP reflect the differing entries required to reclassify to
discontinued operations a proportionately consolidated entity (MTM under
Canadian GAAP) versus an equity method entity (MTM under U.S. GAAP).  The
adjustments also consider historical Canadian and U.S. GAAP differences,
including (1) a 2002 impairment on property, plant and equipment under U.S. GAAP
that was not recognized under Canadian GAAP, (2) differing accounting related to
stripping costs, and (3) differing gains recognized upon the Company’s transfer
of its interest in MTM to the joint venture.


32


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





18.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)




(g)
            Adoption
      of recently issued accounting
pronouncements




In June
2009, the FASB established the FASB Accounting Standards Codification (“ASC”) as
the single source of authoritative GAAP to be applied by nongovernmental
entities.  The ASC is a new structure which took existing accounting
pronouncements and organized them by accounting topic. Relevant authoritative
literature issued by the Securities and Exchange Commission (“SEC”) and select
SEC staff interpretations and administrative literature was also included in the
ASC. All other accounting guidance not included in the ASC is
non-authoritative.  The ASC was effective for the Company’s interim
quarterly period beginning July 1, 2009.  The adoption of the ASC did not
have an impact on the Company’s consolidated financial position, results of
operations or cash flows.




In
September 2006, the ASC guidance for fair value measurements and disclosure was
updated to define fair value, establish a framework for measuring fair value,
and expand disclosures about fair value measurements.  This guidance does
not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting
pronouncements.  The provisions of the updated guidance were adopted
January 1, 2008.  In February 2008, the FASB staff issued an update to
the guidance which delayed the effective date for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. The Company adopted the updated
guidance for the Company’s nonfinancial assets and liabilities measured at fair
value on a nonrecurring basis on January 1, 2009.




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
7).  The adoption of updated guidance did not have a material impact on the
Company’s financial position, results of operations or cash flows.




In
October 2008, the guidance was further updated to provide guidance on how the
fair value of a financial asset is to be determined when the market for that
financial asset is inactive.  The guidance states that determining fair
value in an inactive market depends on the facts and circumstances, requires the
use of significant judgment and, in some cases, observable inputs may require
significant adjustment based on unobservable data. Regardless of the valuation
technique used, an entity must include appropriate risk adjustments that market
participants would make for nonperformance and liquidity risks when determining
fair value of an asset in an inactive market.  The guidance was effective
upon issuance.  The Company has incorporated the principles of updated
guidance in determining the fair value of financial assets when the market for
those assets is not active, specifically its auction rate
securities.




In April
2009, the guidance was further updated to provide additional guidance on
determining fair value when the volume and level of activity for the asset or
liability have significantly decreased and identifying circumstances that
indicate when a transaction is not orderly.  The provisions of this updated
guidance were adopted April 1, 2009.  The adoption of the guidance did not
have an impact on the Company’s fair value measurements.


33


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





18.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)





The ASC
guidance for fair value measurements and disclosure establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3 measurements).  The
three levels of the fair value hierarchy are described below:


Level 1
              Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities;




Level 2
              Quoted
      prices in markets that are not active, or inputs that are observable,
      either directly or indirectly, for substantially the full term of the
      asset or liability;




Level 3
              Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (supported by little or no
      market activity).




The
Company’s derivative instruments (see Note 5 and Note 8(b)) and auction rate
securities (see Note 7) represent those financial assets and liabilities
measured at fair value by level within the fair value hierarchy.  As
required by the guidance, assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement.




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




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




In
December 2007, the ASC guidance for business combinations was updated to provide
new guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any noncontrolling interest in the acquiree.
The updated guidance also provides disclosure requirements to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination.  The provisions of the updated guidance were adopted
January 1, 2009.  The adoption had no impact on the Company’s financial
position, results of operations, or cash flows.




In
December 2007, the ASC guidance for noncontrolling interests was updated to
establish 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.  The
guidance also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners.  The provisions of the updated guidance were adopted
January 1, 2009.  The adoption had no impact on the Company’s financial
position, results of operations, or cash flows.




In March
2008, the ASC guidance for derivatives and hedging was updated for enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and the related hedged items are accounted for, and how
derivative instruments and the related hedged items affect an entity’s financial
position, financial performance and cash flows.  The provisions of the
updated guidance were adopted January 1, 2009.  The adoption had no impact
on the Company’s financial position, results of operations, or cash
flows.


34


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





18.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)




In May
2008, the ASC guidance for convertible debt instruments was updated.  The
guidance was updated to specify that issuers of convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement)
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.  As the Company has had no
convertible debt instruments that could be settled in cash upon conversion,
whether in full or partially, the adoption of the adopted guidance had no impact
on the Company’s financial position, results of operations, or cash
flows.




In June
2008, the ASC guidance for share-based payment transactions was updated. 
The guidance was updated to address whether instruments granted in share-based
payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings
per share under the two-class method described in ASC guidance for earning per
share disclosures.  The provisions of the updated guidance were adopted
January 1, 2009.  The adoption of the guidance had no impact on the
Company’s financial position, results of operations, cash flows, or earnings per
share data.




In June
2008, the ASC guidance for derivatives and hedging when accounting for contracts
in an entity’s own equity was updated to clarify the determination of whether an
instrument (or embedded feature) is indexed to an entity’s own stock which would
qualify as a scope exception from hedge accounting.  The provisions of the
updated guidance were adopted January 1, 2009.




Under the
guidance, an equity-linked financial instrument (or embedded feature) would not
be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional currency.  As
of September 30, 2009 and January 1, 2009, the Company had 108.4 million and
74.6 million outstanding warrants to purchase common shares of the Company,
respectively, that were either (a) denominated in a currency (Canadian dollars)
other than its functional currency (US dollars) or (b) subject to a potential
strike-price adjustment (the warrants issued November 8, 2006 currently
exercisable at $0.176) (see Note 10).  As such, these warrants are not
considered to be indexed to the Company’s own stock, which precludes the
warrants from meeting the scope exception under the guidance.  The warrants
thereby are accounted for separately as derivative instruments, rather than as
equity instruments.  Accordingly, for U.S. GAAP purposes, the Company
assessed the fair value of these warrants as of January 1, 2009 and recorded a
reduction in contributed surplus of $6.94 million, an increase in opening
deficit of $1.53 million and an $8.47 million increase in liabilities.  As
of September 30, 2009, the Company has assessed the fair value of these warrants
and recorded cumulative adjustments as follows: a reduction in contributed
surplus of $15.1 million, an increase in deficit of $19.3 million and a $34.4
million increase in liabilities.




These
warrants were fair valued at January 1 and September 30, 2009 using an option
pricing model with the following assumptions:  no dividends are paid,
weighted average volatilities of the Company’s share price of 81% and 80%,
weighted average expected lives of the warrants of 3.2 and 2.8 years, and
weighted average annual risk-free rates of 1.4% and 1.7%,
respectively.




In April
2009, the ASC guidance for interim disclosures about fair value of financial
instruments was updated to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements.  The guidance was also updated to
require those disclosures in summarized financial information at interim
reporting periods. The provisions of the updated guidance were adopted April 1,
2009.  The adoption had no impact on the Company’s financial position,
results of operations, or cash flows.


35


APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Nine
month period ended September 30, 2009


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


(Unaudited)





18.
            DIFFERENCES
      BETWEEN CANADIAN AND U.S. GAAP
(continued)




In May
2009, the ASC guidance for subsequent events was updated to establish accounting
and reporting standards for events that occur after the balance sheet date but
before financial statements are issued or are available to be issued.  This
guidance became effective for the Company on June 30, 2009. The
Company reviewed events for inclusion in the financial statements through
November 16, 2009, the date that the accompanying financial statements were
issued.




(h)
            Recently
      issued accounting pronouncements




In
June 2009, the ASC guidance for consolidation accounting was updated to
require an entity to perform a qualitative analysis to determine whether the
enterprise’s variable interest gives it a controlling financial interest in a
variable interest entity (“VIE”).  This analysis identifies a primary
beneficiary of a VIE as the entity that has both of the following
characteristics: i) the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance and ii) the obligation to
absorb losses or receive benefits from the entity that could potentially be
significant to the VIE.  The updated guidance also requires ongoing
reassessments of the primary beneficiary of a VIE.  The provisions of the
updated guidance are effective for the Company’s fiscal year beginning
January 1, 2010.  We do not expect the adoption of this guidance to
have an impact on our consolidated financial position, results of operations or
cash flows.





In August
2009, the ASC guidance for fair value measurements and disclosure was updated to
further define fair value of liabilities. This update provides clarification for
circumstances in which: (i) a quoted price in an active market for the identical
liability is not available, (ii) the liability has a restriction that prevents
its transfer, and (iii) the identical liability is traded as an asset in an
active market in which no adjustments to the quoted price of an asset are
required. The updated guidance is effective for the Company’s interim reporting
period beginning October 1, 2009. The Company is evaluating the potential impact
of adopting this guidance on the Company’s consolidated financial position,
results of operations and cash flows.


36


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
‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ contained in our Annual Report on Form 10-K for the year ended
December 31, 2008 as well as with the consolidated financial statements and
related notes and the other information appearing elsewhere in this
report.  As used in this report, unless the context otherwise indicates,
references to ‘‘we,’’ ‘‘our,’’ “us,” the “Company” or ‘‘Apollo’’ refer to Apollo
Gold Corporation and its subsidiaries collectively.  The financial
statements in this Form 10-Q have been prepared in accordance with generally
accepted accounting principles in Canada (Canadian GAAP).  For
reconciliation to GAAP in the United States (U.S. GAAP), see Note 18 to the
consolidated financial statements set forth above.




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 Consolidated Statements of Operations, less
production royalty expenses and mining taxes but includes by-product credits for
payable silver production.  Total cash costs are 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 and accretion on accrued site closure
costs.  See “Reconciliation of Cash Operating and Total Production Costs
per Ounce” below.  References in this Form 10-Q to “$” are to United States
dollars.  Canadian dollars are indicated by the symbol “Cdn$”.




Certain
prior period figures have been reclassified to conform to the current period
presentation.  In particular, (1) the assets and liabilities of Montana
Tunnels Mining, Inc, (“MTMI”) as of December 31, 2008 and the results of MTMI’s
operations and cash flows for the three and nine months ended September 30, 2008
have been reclassified as discontinued operations and (2) for the three and nine
months ended September 30, 2008, $1.6 million and $3.5 million, respectively,
that were presented as cash inflows from investing activities have been
reclassified to operating activities in connection with proceeds from the sale
of derivative contracts.




BACKGROUND
AND RECENT DEVELOPMENTS




We are
principally engaged in gold mining including extraction, processing, and
refining , as well as related activities including the exploration and
development of potential mineral properties and acquisition of mining claims
principally in North America.  We own Black Fox, an open pit and
underground mine and mill located in the Province of Ontario, Canada (“Black
Fox”).  The Black Fox mine site is situated seven miles east of Matheson
and the mill complex is twelve miles west of Matheson.  Mining of ores from
the open pit began in March 2009 and milling operations commenced in April
2009.  Underground mining at Black Fox is expected to commence in
2010.




During
the third quarter of 2009, the Company adopted a plan to dispose of Montana
Tunnels Mining, Inc., which includes the Montana Tunnels and Diamond Hill
mines.  The Montana Tunnels mine, a 50% joint venture (“Montana Tunnels”),
is an open pit mine and mill that produced gold dore and lead-gold and
zinc-gold concentrates, located in the State of Montana.  Montana Tunnels
was placed under care and maintenance on April 30, 2009.  The Diamond Hill
mine, also located in the State of Montana, is currently under care and
maintenance.  On September 30, 2009, the Company signed a letter of intent
to sell MTMI to the current 50% joint venture partner, Elkhorn Goldfields, Inc.,
for cash of $5.0 million payable in installments through May 2010 and a 4% net
smelter royalty on future production at Montana Tunnels up to a maximum of $4.0
million.  The consummation of the sale is subject to negotiation of
definitive documents relating to the sale and payment of the $5.0 million cash
purchase price.  As of September 30, 2009, the Company recorded an
impairment of $0.7 million on the net assets of MTMI.




We also own Mexican subsidiaries which
own an 80 percent interest in the Huizopa Project joint venture, (20 percent
Minas de Coronado, S. de R.L. de CV), an early stage exploration project located
in the Sierra Madres in Chihuahua, Mexico.


37


Black
Fox





During the third quarter of 2009, we
mined 1,644,000 tonnes of material of which 217,000 tonnes was gold
ore.  The Black Fox mill processed 160,900 tonnes of ore
(1,749 tonnes per day), at a grade of 4.05 grams per tonne, achieving
a recovery rate of 94%, for total gold production of 19,718 ounces. We
custom milled an additional 62,600 tonnes of lower grade ore, at a grade of 1.51
grams per tonne at a recovery rate of 92% for additional gold
production of 2,760 gold ounces. Therefore, total gold produced was 22,478
ounces during the third quarter.  Gold ounces sold during the third quarter
of 2009 were 19,848 ounces.  All gold sold was against the forward sales
contracts at a realized price of $875 per ounce.  The total cash cost per
ounce of gold for the quarter was $575.  Black Fox is scheduled to complete
the overall mill site upgrade project in the fourth quarter of 2009 with the
commissioning of the new conveyor and the recommissioning of the high pressure
screen system this December.  An expanded tailings dam water management
system will also be completed in the fourth quarter of 2009.  Gold
production in the fourth quarter of 2009 is estimated to be approximately the
same as the third quarter of 2009.





As at
September 30, 2009, we were in compliance with the various operational covenants
of the Project Facility.  However, as a result of lower than planned gold
production, during the third quarter of 2009 a “review event” as defined in the
Project Facility was triggered.  The occurrence of a review event allows
the Banks to review the Project Facility and determine if they wish to continue
with the Project Facility.  On September 28, 2009, the Banks agreed to
defer (i) the first scheduled repayment of $9,300,000 due on September 30, 2009
under the Project Facility and (ii) the requirement to fund the associated debt
service reserve account also due on September 30, 2009, which, in accordance
with the terms of the Project Facility, requires a reserve amount equal to, at
all times after initial funding, the greater of $5,000,000 or the aggregate
repayment amount due on the next repayment date.  This deferral will enable
the Banks and the Company to complete an ongoing technical review of the Black
Fox project with the objective of rescheduling the quarterly repayment
installments under the Project Facility.  If we are not able to
satisfactorily reschedule the quarterly repayment installments, then the payment
of $9,300,000 and the reserve account funding obligation, each originally due on
September 30, 2009, must be satisfied on the earlier to occur of (i) the
completion of the Bank’s technical review process of the Black Fox mine and (ii)
December 31, 2009.





Capital expenditures for the three and
nine months ended September 30, 2009 were approximately $14 million and $55
million, respectively.  Expenditures during the third quarter 2009 included
(1) $13 million towards the cost of upgrading the Black Fox mill to increase its
capacity and throughput rate and (2) $1 million related to the purchase of
the Pike River exploration property that lies between the Black Fox mine and the
Grey Fox exploration property.





Huizopa
Project




On July
7, 2009, we filed a Canadian National Instrument 43-101 for the Huizopa
project.  This 43-101 more fully describes the property and the drilling
results from our 2008 drilling program, but does not contain any resources or
reserves.


38


METAL
SALES & METAL PRICE AVERAGES




BLACK
FOX




The table
below summarizes metal sales of gold and silver at the Black Fox mine, as well
as other key statistics, for the three months and from inception of commercial
production to the period ended September 30, 2009:




Three
      months
                        ended
                        September
      30, 2009
                    
                    
                    From
      inception to the
                        period
      ended
                        September
      30, 2009Metal
      sales:Gold
      (ounces)
                    
                    
                    19,848
                    
                    
                    
                    24,891Silver
      (ounces)
                    
                    
                    1,040
                    
                    
                    
                    1,040Total
      revenue ($millions)
                    
                    $
                    19.1
                    
                    
                    $
                    23.8Production
      – Gold (ounces)
                    
                    
                    22,478
                    
                    
                    
                    31,194Average
      realized price per ounce of gold
                    
                    $
                    875
                    
                    
                    $
                    875Total
      cash and production costs:Total
      cash costs per ounce of gold
                    
                    $
                    575
                    
                    
                    $
                    540Total
      production costs per ounce of gold
                    
                    $
                    743
                    
                    
                    $
                    727





RECONCILIATION
OF CASH OPERATING AND TOTAL PRODUCTION COSTS PER OUNCE




BLACK
FOX





($
      in thousands, except per ounce of gold data)
                    
                    Three
      months
                        ended
      September 30,
                        2009
                    
                    
                    From
      inception to the
                        period
                        ended
      September 30,
                        2009Gold
      ounces sold
                    
                    
                    19,848
                    
                    
                    
                    24,891Direct
      operating costs
                    
                    $
                    11,420
                    
                    
                    $
                    13,454Less: 
      Mining taxes, royalty expenses
                    
                    
                    –
                    
                    
                    
                    –By-product credits
                    
                    
                    (17
                    )
                    
                    
                    (17
                    )Cash
      operating cost
                    
                    
                    11,403
                    
                    
                    
                    13,437Cash
      operating cost per ounce of gold
                    
                    $
                    575
                    
                    
                    $
                    540Cash
      operating costs
                    
                    
                    11,403
                    
                    
                    
                    13,437Add:  
      Mining taxes, royalty expenses
                    
                    
                    –
                    
                    
                    
                    –Total
      cash costs
                    
                    
                    11,403
                    
                    
                    
                    13,437Total
      cash cost per ounce of gold
                    
                    $
                    575
                    
                    
                    $
                    540Total
      cash costs
                    
                    
                    11,403
                    
                    
                    
                    13,437Add:  
      Depreciation & amortization
                    
                    
                    3,198
                    
                    
                    
                    4,436Add:  
      Accretion on accrued site closure costs
                    
                    
                    147
                    
                    
                    
                    216Total
      production costs
                    
                    
                    14,748
                    
                    
                    
                    18,089Total
      production cost per ounce of gold
                    
                    $
                    743
                    
                    
                    $
                    727





MATERIAL
CHANGES IN RESULTS OF OPERATIONS




Three
Months Ended September 30, 2009 Compared to the Three Months Ended September 30,
2008




Revenue
from the Sale of Minerals.




Revenue
for the three months ended Sept 30, 2009 was $19.1 million from sales of 19,848
ounces of gold and 1,040 ounces of silver from Black Fox.  Black Fox began
production in May 2009 so there were no revenues in the prior
year.


39


Operating
Expenses.




Direct Operating Costs.Direct operating costs at Black Fox, which include mining costs and
processing costs, for the three months ended September 30, 2009 were $11.4
million.  The Black Fox mine commenced commercial production in May 2009
and therefore there were no direct operating costs in 2008.





Depreciation and
Amortization.  Depreciation and amortization expenses were $3.2
million and $0.03 million for the three months ended September 30, 2009 and
2008, respectively.  Depreciation and amortization expenses at Black Fox,
which only commenced commercial production in May 2009, were $3.2
million.




General and Administrative
Expenses.General and administrative expenses were $1.1 million and
$0.8 million for the three months ended September 30, 2009 and 2008,
respectively.  The increase is due primarily to a $0.2 million reduction in
management fees collected from the Montana Tunnels joint venture as a result of
the mine being placed on care and maintenance on April 30, 2009.




Accretion Expense – Accrued Site
Closure Costs.Accrued accretion expense at Black Fox was $0.1
million for the three months ended September 30, 2009.   The Black Fox
mine commenced production in May 2009 and therefore these costs were capitalized
in 2008.





Exploration and Business Development
Expense.  Expenses for exploration and development, consisting of
drilling and related land expenses totaled $0.6 million and $0.8 million for the
three months ended September 30, 2009 and 2008, respectively.  The 2009
expenses are mostly from increased drilling activity at our Grey Fox property
and the 2008 expenses related to exploration activity at our Huizopa
project.




Total Operating
Expenses.  As a result of these expense components, our total
operating expenses increased to $16.4 million for the three months ended
September 30, 2009, from $1.6 million for the three months ended September 30,
2008.




Other
Income (Expenses).




Interest Income and Interest
Expense.We realized $0.1 million in interest income and interest
expense of $3.1 million during the three months ended September 30, 2009
compared to $0.1 million in interest income and $1.1 million in interest expense
during the three months ended September 30, 2008.  The interest expense
during the three months ended September 30, 2009 includes $1.2 million for the
amortization of debt discount on the Project Facility.




Realized (Losses) Gains on
Derivative Contracts.Realized losses on derivative contracts of
$1.4 million for the three months ended September 30, 2009 are comprised of (1)
a $1.7 million loss realized for settlement of gold futures contracts of which
19,848 gold ounces were delivered into the forward sales contracts and (2)
realized gains of $0.3 million for the settlement of Canadian dollar foreign
exchange contracts maturing during the quarter.  For the three months ended
September 30, 2008, we realized gains of $1.6 million for the settlement of lead
and zinc contracts.





Unrealized Losses on Derivative
Contracts.Unrealized losses on derivative contracts of $10.2
million for the three months ended September 30, 2009 are comprised of (1) an
unrealized loss of $14.3 million for the change in value recorded for gold
forward sales contracts held as of September 30, 2009 and (2) an unrealized gain
of $4.1 million for the change in value of Canadian dollar foreign exchange
contracts held as of September 30, 2009.  Both the gold forward sales
contracts and Canadian dollar foreign exchange contracts were entered into on
February 20, 2009 in connection with the Project Facility.





(Loss)
Income from Discontinued Operations.




For the
three months ended September 30, 2009, we recorded a loss from discontinued
operations of $2.3 million, as compared to income of $2.8 million, for the three
months ended September 30, 2008.  The Montana Tunnels mine was placed on
care and maintenance on April 30, 2009 and was in full operation during the
third quarter of 2008.  As of September 30, 2009, we recorded an impairment
of $1.6 million upon classifying Montana Tunnels as a discontinued
operation.


40


Net
(Loss) Income for the Period.




For the
three months ended September 30, 2009, we recorded net loss of $14.0 million, or
$0.05 per share, as compared to net income of $0.5 million, or $0.00 per share,
for the three months ended September 30, 2008.  The change between periods
is the result of the items discussed above.




Nine
Months Ended September 30, 2009 Compared to the Nine Months Ended September 30,
2008




Revenue
from the Sale of Minerals.




Revenue
for the nine months ended Sept 30, 2009 was $23.8 million from sales of 24,891
ounces of gold and 1,040 ounces of silver from Black Fox.  Black Fox began
production in May 2009 so there were no revenues in the prior year.




Operating
Expenses.




Direct Operating Costs.Direct operating costs at Black Fox, which include mining costs and
processing costs, for the nine months ended September 30, 2009 were $13.5
million.  The Black Fox mine commenced commercial production in May 2009
and therefore there were no direct operating costs in 2008.





Depreciation and
Amortization.  Depreciation and amortization expenses were $4.5
million and $0.1 million for the nine months ended September 30, 2009 and 2008,
respectively.  Depreciation and amortization expenses at Black Fox, which
only commenced commercial production in May 2009, were $4.4
million.




General and Administrative
Expenses.General and administrative expenses were $3.1 million and
$2.9 million for the nine months ended September 30, 2009 and 2008,
respectively.




Accretion Expense – Accrued Site
Closure Costs.Accrued accretion expense at Black Fox was $0.2
million for the nine months ended September 30, 2009.  The Black Fox mine
commenced production in May 2009 and therefore these costs were capitalized in
2008.





Exploration and Business Development
Expense.  Expenses for exploration and development, consisting of
drilling and related land expenses totaled $1.1 million and $2.5 million for the
nine months ended September 30, 2009 and 2008, respectively.  The 2009
expenses are mostly from increased drilling activity at our Grey Fox property
and the 2008 expenses primarily related to exploration activity at our Huizopa
project.




Total Operating
Expenses.  As a result of these expense components, our total
operating expenses increased to $22.3 million for the nine months ended
September 30, 2009, from $5.5 million for the nine months ended September 30,
2008.




Other
Income (Expenses).




Interest Income and Interest
Expense.We realized interest income of $0.1 million and interest
expense of $5.5 million during the nine months ended September 30, 2009 compared
to $0.2 million in interest income and $3.1 million in interest expense during
the nine months ended September 30, 2008.  The interest expense during the
nine months ended September 30, 2009 includes $1.6 million for the amortization
of debt discount on the Project Facility.  Additionally, interest of $1.8
million was capitalized for the development of the Black Fox project, which
included $0.7 million of amortization of the debt discount on the Project
Facility.




Debt Transaction Costs.During the nine months ended September 30, 2009, we recorded debt
transaction costs of $1.8 million.  The $1.8 million costs are comprised of
(1) $0.6 million for legal and other administrative costs associated with the
Project Facility and (2) $1.2 million related to the issuance of common shares
and warrants issued to a financial advisory services firm for services (See Note
8(b) to the financial statements for further details).





Loss on Modification of
Debentures.  During the nine months ended September 30, 2009, we
recorded a loss on modification of debentures of $2.0 million which took place
in the first quarter.  The $2.0 million loss is in connection with the
issuance of shares and extension of and lowering the exercise price of existing
warrants in connection with the one year extension of $4.3 million face value
Series 2007-A convertible debentures.


41





Realized (Losses) Gains on
Derivative Contracts.Realized losses on derivative contracts of
$1.6 million for the nine months ended September 30, 2009 are comprised of (1) a
$2.4 million loss realized for settlement of gold futures contracts covering
29,123 ounces of gold., (2) realized gains of $0.4 million for the settlement of
Canadian dollar foreign exchange contracts and (3) realized gains of $0.4
million for the settlement of gold, silver and lead contracts that matured in
the first quarter.  For the nine months ended September 30, 2008, we
realized gains of $3.5 million for the settlement of lead and zinc
contracts.





Unrealized Losses on Derivative
Contracts.Unrealized losses on derivative contracts of $25.2
million for the nine months ended September 30, 2009 are comprised of (1) an
unrealized loss of $31.0 million for the fair value recorded for gold forward
sales contracts held as of September 30, 2009, (2) an unrealized gain of $6.3
million for the fair value of Canadian dollar foreign exchange contracts held as
of September 30, 2009 and (3) a $0.5 million loss for the change in value
recorded for gold, silver and lead contracts held at the beginning of the year
which matured during the first quarter.  Both the gold forward sales
contracts and Canadian dollar foreign exchange contracts were entered into on
February 20, 2009 in connection with the Project Facility.





(Loss)
Income from Discontinued Operations.




For the
nine months ended September 30, 2009, we recorded a loss from discontinued
operations of $3.8 million, as compared to income of $9.9 million for the nine
months ended September 30, 2008.  The Montana Tunnels mine was placed on
care and maintenance on April 30, 2009 and was in full operation during most of
2008.  As of September 30, 2009, we recorded an impairment of $1.6 million
upon classifying Montana Tunnels as a discontinued operation.




Net
(Loss) Income for the Period.




For the
nine months ended September 30, 2009, we recorded a net loss of $37.5 million,
or $0.16 per share, as compared to net income of $2.9 million, or $0.02 per
share, for the nine months ended September 30, 2008.  The change between
periods is the result of the items discussed above.




MATERIAL
CHANGES IN LIQUIDITY




To date,
we have funded our operations primarily through issuances of debt and equity
securities and cash generated by discontinued operations (Montana
Tunnels).  At September 30, 2009, we had cash of $4.5 million, compared to
cash of $3.1 million at December 31, 2008.  The increase in cash since
December 31, 2008 is primarily the result of operating cash inflows of $5.8
million and financing cash inflows of $53.9 million, mostly offset by investing
cash outflows of $57.8 million.




During
the nine months ended September 30, 2009, net cash used in investing activities
totaled $57.8 million.  Capital expenditures for property, plant and
equipment of $54.6 million were for the development of Black Fox.  Cash
outflows for restricted cash and certificates of deposit of $3.3 million were
comprised of an inflow of $5.8 million being released from restricted cash upon
meeting certain requirements of our lenders which were offset by a $9.0 million
increase in our environmental bonding posted for Black Fox
reclamation.




During
the nine months ended September 30, 2009, cash provided by financing activities
was $53.9 million.  Cash inflows of financing activities included (1) the
$70.0 million Project Facility ($70.0 million less the arrangement fee of $3.5
million), (2) $10.7 million of net proceeds from the private placement completed
on July 15, 2009 and (3) the exercise of 4.8 million warrants at an exercise
price of $0.176 per common share for proceeds of $0.9 million.  These
inflows were partially offset by cash outflows for repayment of debt of $23.0
million which included the repayment of a $15.0 million bridge
facility.




As at
September 30, 2009, we were in compliance with the various operational covenants
of the Project Facility.  However, as a result of lower than planned gold
production, during the third quarter of 2009 a “review event” as defined in the
Project Facility was triggered.  The occurrence of a review event allows
the Banks to review the Project Facility and determine if they wish to continue
with the Project Facility.  On September 28, 2009, the Banks agreed to
defer (i) the first scheduled repayment of $9,300,000 due on September 30, 2009
under the Project Facility and (ii) the requirement to fund the associated debt
service reserve account also due on September 30, 2009, which, in accordance
with the terms of the Project Facility, requires a reserve amount equal to, at
all times after initial funding, the greater of $5,000,000 or the aggregate
repayment amount due on the next repayment date.  This deferral will enable
the Banks and the Company to complete an ongoing technical review of the Black
Fox project with the objective of rescheduling the quarterly repayment
installments under the Project Facility.  If we are not able to
satisfactorily reschedule the quarterly repayment installments, then the payment
of $9,300,000 and the reserve account funding obligation, each originally due on
September 30, 2009, must be satisfied on the earlier to occur of (i) the
completion of the Bank’s technical review process of the Black Fox mine and (ii)
December 31, 2009.


42


We
estimate that with our September 30, 2009 cash balance of $4.5 million, the
projected cash flows from Black Fox and assuming the successful rescheduling of
the quarterly installment payments of the Project Facility, we will have
sufficient funds to (1) fund the remainder of the 2009 work programs for the
continued development of Black Fox, (2) fund planned exploration activities, (3)
repay the debt obligations due in 2009 and (4) fund corporate
overhead.




MATERIAL
CHANGES IN CONTRACTUAL OBLIGATIONS




Not
applicable.




MATERIAL
CHANGES IN OFF BALANCE SHEET ARRANGEMENTS




On
September 30, 2009, we signed a letter of intent to sell MTMI to the current 50%
joint venture partner, Elkhorn Goldfields, Inc., for cash of $5.0 million
payable in installments through May 2010 and a 4% net smelter royalty on future
production at Montana Tunnels up to a maximum of $4.0 million.  The
consummation of the sale is subject to negotiation of definitive documents
relating to the sale and payment of the $5.0 million cash purchase
price.




At
September 30, 2009, we had no other existing off-balance sheet arrangements, as
defined under SEC rules, that have or are reasonably likely to have a material
current or future effect on our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources.




ACCRUED
RECLAMATION COSTS




As of
September 30, 2009, we have accrued $14.8 million related to reclamation
obligations at our Black Fox and Montana Tunnels properties, an increase of $4.2
million from December 31, 2008.  These liabilities are covered by a
combination of surety bonds, restricted certificates of deposit and property
totaling $21.6 million at September 30, 2009.  We have accrued the present
value of management’s estimate of these liabilities as of September 30,
2009.




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 18 of our interim financial
statements.




CRITICAL
ACCOUNTING ESTIMATES AND POLICIES




The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect 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, 2008 and to the changes in accounting policies
described below.




Transition
to United States generally accepted accounting principles





During the year ended December 31,
2008, the Company initiated a plan to transition from accounting principles
generally accepted in Canada (“Canadian GAAP”) to accounting principles
generally accepted in the United States (“US GAAP”), as allowable under both
Canadian and US securities laws.  The transition is anticipated to be
retroactive and effective for the three years ending December 31, 2009, with
initial presentation of the consolidated financial statements prepared in
accordance with US GAAP to be filed with our Annual Report on Form 10-K for the
fiscal year ending December 31, 2009.  We have developed and implemented a
US GAAP change-over plan.  Towards this end we have retained qualified
professional personnel to oversee and effect the conversion process.  The
plan takes into consideration, among other things:




43




•
              Changes
      in note disclosures;
 •
              Information
      technology and data system
requirements;
 •
              Disclosure
      controls and procedures, including investor relations and external
      communications plans related to the US GAAP
  conversion;
 •
              Financial
      reporting expertise requirements, including training of personnel;
      and
 •
              Impacts
      on other business activities that may be influenced by GAAP measures, such
      as performance measures and debt
covenants.




Note 18
of the consolidated financial statements highlights those key areas likely to be
impacted by changes in accounting policy.





CHANGES
IN ACCOUNTING POLICIES




Effective
January 1, 2009, the Company adopted Handbook Section 3064, Goodwill and Intangible
Assets, which replaces Section 3062, and establishes revised standards
for recognition, measurement, presentation and disclosure of goodwill and
intangible assets.  Concurrent with the introduction of this standard, the
CICA restricted the application of EIC 27, Revenues and Expenditures in the
Pre-operating Period (“EIC 27”).  The adoption of Section 3064 on
January 1, 2009, did not have a material impact on the Company’s financial
condition, operating results.





In
January 2009, the CICA issued EIC-173, Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities, which requires the Company to
consider its own credit risk as well as the credit risk of its counterparty when
determining the fair value of financial assets and liabilities, including
derivative instruments.  The accounting treatments provided in EIC-173 have
been applied in the preparation of these financial statements and as required
have been applied retrospectively without restatement of prior periods. 
The adoption of this standard did not have a material impact on the valuation of
financial assets or liabilities.




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, changes in foreign currency exchange rates, commodity
price fluctuations and equity price risk.




Interest
Rate Risk




As of
September 30, 2009, the Company had $70.0 million principal outstanding on the
Project Facility.  The terms of the Project facility include interest on
the outstanding principal amount accruing at a rate equal to LIBOR plus 7% per
annum and interest being repayable in monthly installments (currently the LIBOR
rate is the one-month rate but the LIBOR rate used may be monthly, quarterly or
such other period as may be agreed to by the Banks and us).  We estimate
that given the expected outstanding debt during 2009, a one percent change in
interest rates would affect our annual interest expense by $0.5 million. 
See Note 16(e) to our financial statements above for more information regarding
our interest rate risk.




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




Foreign
Currency Exchange Rate Risk




While the
majority of our transactions are denominated in U.S. dollars, certain purchases
of labor, operating supplies and capital assets are denominated in Canadian
dollars and Mexican pesos.  The appreciation of non-US dollar currencies
against the US dollar increases the costs of goods and services purchased in
non-US dollar, which can adversely impact our net income and cash flows. 
Conversely, a depreciation of non-US dollar currencies against the US dollar
usually decreases the costs of goods and services purchased in US dollar
terms.  We have entered into the forward purchase of Canadian dollars at an
exchange rate with the US dollar of Cdn$1.21=US$1.0 for Cdn$ equivalent of US$58
million over a four year period which commenced in April 2009.  See Notes
8(b) and 16(d) to our financial statements above for more information regarding
our foreign currency exchange rate risk and how we manage that
risk.


44


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




Commodity
Price Risk




The
profitability of the Company’s operations will be dependent upon the market
price of gold. Gold prices fluctuate widely and are affected by numerous factors
beyond the control of the Company. The level of interest rates, the rate of
inflation, the world supply of gold and the stability of exchange rates can all
cause significant fluctuations in prices. Such external economic factors are in
turn influenced by changes in international investment patterns, monetary
systems and political developments. The price of gold has fluctuated widely in
recent years, and future price declines could cause some projects to become
uneconomic, thereby having a material adverse effect on the Company’s business
and financial condition.  We have entered into derivative contracts to
protect the selling price for gold.  At September 30, 2009, the remaining
contracts cover 221,455 ounces at an average price of $876 per ounce over the
period through May 2013.  See Notes 8(b) and 16(f) to our financial
statements above for more information regarding our commodity price risk and how
we manage that risk.  We may in the future more actively manage our
exposure through additional commodity price risk management
programs.




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




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




Equity
Price Risk




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




ITEM 4.
            CONTROLS
      AND PROCEDURES




Disclosure
Controls and Procedures




We
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, or Exchange Act) as of September 30,
2009.  This evaluation was conducted under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer.  Based upon this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of September 30, 2009, our
disclosure controls and procedures were effective to provide reasonable
assurance that information required to be disclosed by us in reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the rules and forms of the SEC.  We
also concluded that our disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed in the
reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required
disclosure.


45


Changes
in Internal Control




There has
been no change in our internal control over financial reporting during the
quarter ended September 30, 2009, 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




On
September 4, 2009, Joe Green and companies owned or controlled by him, including
a Mexican company named Minas de Coronado, S. de R.L. de C.V., with whom the
Company’s Mexican subsidiary, Minera Sol de Oro, S.A. de C.V., has a joint
venture relationship at the Huizopa exploration project in the State of Sonora,
Mexico, filed a complaint against the Company in the United States District
Court for the District of Nevada.  In that complaint, Mr. Green alleges,
among other things, that the Company and Minera Sol de Oro have breached various
agreements and alleged fiduciary duties and have failed to recognize Minas de
Coronado’s right to a 20% joint venture interest in the Huizopa exploration
project, and asks the Court to undo the parties’ 80/20 joint venture arrangement
and compel the return of the Huizopa exploration project properties to Mr.
Green’s companies.  The Company believes that the claims in the complaint
are without merit, and intends to vigorously defend itself against those
claims.




ITEM 1A. RISK FACTORS





Item 1A
of our Annual Report on Form 10-K for the year ended December 31, 2008 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. Those risk factors have
been supplemented in this Quarterly Report on Form 10-Q to provide updated
information, as set forth below.





We
may not be able to successfully consummate the sale of Montana Tunnels Mining,
Inc. under the Montana Tunnels letter of intent.





On
September 30, 2009, we entered into a letter of intent with Elkhorn Goldfields
Inc. pursuant to which Elkhorn Goldfields Inc. agreed to purchase all of the
outstanding capital stock of Montana Tunnels Mining, Inc., our indirect wholly
owned subsidiary which is the owner of the Montana Tunnels open pit mine and
mill (a 50/50 joint venture with Elkhorn Tunnels LLC, an affiliate of Elkhorn
Goldfields Inc.), the Diamond Hill mine and mill and assets ancillary
thereto.  However, while the Montana Tunnels letter of intent is binding
and requires Elkhorn Goldfields Inc. to make installment payments of $5.0
million and pay a 4% net smelter royalty on future production at Montana Tunnels
up to a maximum of $4.0 million, the Montana Tunnels letter of intent still
requires the negotiation and execution of definitive agreements related to the
sale of Montana Tunnels Mining, Inc.  Further, the Montana Tunnels letter
of intent provides that it may be terminated if Elkhorn Goldfields Inc. fails to
make any of the scheduled payments required thereunder.  Therefore, we can
provide no assurance that the sale of Montana Tunnels Mining, Inc. will be
successfully completed or that we will receive the purchase price payable under
the Montana Tunnels letter of intent.





A
“review event” has occurred under our Black Fox project facility, which could
result in the Banks requiring repayment of all amounts outstanding thereunder if
we are unable to reschedule the quarterly repayments, including the $9,300,000
repayment that was due September 30, 2009.





Gold
production for the three-month period ended July 31, 2009 was less than 80% of
the amount projected to be produced in the “cash flow model” (as defined in the
Project Facility provided to the Banks under the Project Facility.  As a
result, a “review event” (as defined in the Project Facility) was triggered
under the Project Facility and we notified the Banks of such occurrence in July
2009.  The occurrence of a review event triggers the ability of the Banks
to review the Project Facility and determine if they wish to continue with the
Project Facility.  On September 28, 2009, the Banks agreed to defer (i) the
first scheduled repayment of $9,300,000 due on September 30, 2009 under the
Project Facility and (ii) the requirement to fund the associated debt service
reserve account also due on September 30, 2009, which, in accordance with the
terms of the Project Facility, requires a reserve amount equal to, at all times
after initial funding, the greater of $5,000,000 or the aggregate repayment
amount due on the next repayment date.  This deferral will enable the Banks
and our company to complete an ongoing technical review of the Black Fox project
with the objective of rescheduling the quarterly repayment installments under
the Project Facility.  As a result of the deferral, the payment of
$9,300,000 and the reserve account funding obligation, each originally due on
September 30, 2009, now must be satisfied on the earlier to occur of (i) the
completion of the Bank’s technical review process of the Black Fox mine and (ii)
December 31, 2009.  There is no guaranty that we will be able to (i)
satisfactorily resolve the technical review currently being conducted by the
Banks with respect to Black Fox   and (ii) successfully
reschedule the quarterly repayment installments under the Project Facility
including the funding of the deferred reserve account funding
obligation.  If we are unable to satisfactorily restructure our
repayment obligations with the Banks, we may not be able to meet our obligations
under the Project Facility which would result in a material default
thereunder.  Any such default under the Project Facility may result in
the Banks foreclosing on our assets which could force us to seek protection
under applicable bankruptcy laws and, accordingly, would materially impair the
value of our common shares.


46





The risks
described above and in our Annual Report on Form 10-K are not the only risks
facing us.  Additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition and/or operating results.





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.




ITEM 6.
            EXHIBITS




Exhibit No.
              
              Title of Exhibit31.1
              
              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 CORPORATIONDate:
      November 16, 2009
                    /s/
      R. David RussellR.
      David Russell, President andChief
      Executive OfficerDate:
      November 16, 2009
                    /s/
      Melvyn WilliamsMelvyn
      Williams,Chief
      Financial Officer and Senior Vice President Finance and Corporate
      Development




48





Index to Exhibits





Exhibit No.
              
              Title of Exhibit31.1
              
              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