UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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


SECURITIES
EXCHANGE ACT OF 1934





For the
quarterly period ended March 31, 2009





OR





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


SECURITIES
EXCHANGE ACT OF 1934





Commission
File Number:  001-31593





APOLLO
GOLD CORPORATION


(Exact
name of registrant as specified in its charter)





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





5655
South Yosemite St., Suite 200


Greenwood
Village, Colorado 80111-3220


(Address
of principal executive offices)  (Zip code)





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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


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


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





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 May 8,
2009, there were 233,811,195 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 March 31, 2009 and as of December 31,
      2008
            
            5Condensed Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Three
      Months Ended March 31, 2009 and 2008
            
            6Condensed Consolidated
      Statements of Shareholders’ Equity for the Year ended December 31, 2008
      and the Three Months Ended March 31, 2009
            
            7Condensed Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2009 and
      2008
            
            8Notes to the Condensed
      Consolidated Financial Statements
            
            9ITEM 2.
            
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            
            33ITEM 3.
            
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK
            
            40ITEM 4.
            
            CONTROLS AND
      PROCEDURES
            
            41PART II
            
            OTHER
      INFORMATION
            
            42ITEM 1.
            
            LEGAL
      PROCEEDINGS
            
            42ITEM 2.
            
            UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF PROCEEDS
            
            42ITEM 3.
            
            DEFAULTS UPON SENIOR
      SECURITIES
            
            42ITEM 4.
            
            SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY HOLDERS
            
            42ITEM 5.
            
            OTHER
      INFORMATION
            
            42ITEM 6.
            
            EXHIBITS
            
            42INDEX TO EXHIBITS
            
            44Certification
      of CEO Pursuant to Section 302Certification
      of CFO Pursuant to Section 302Certification
      of CEO and CFO Pursuant to Section 906




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 expenditure, and exploration and development
efforts.  Forward-looking statements can be identified by the use of
words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “intends,” “continue,” or the negative of such terms,
or other comparable terminology.  These statements include comments
regarding:




·
            plans
      for 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;


·
            estimates
      of future production and the timing of gold pours at Black
      Fox;


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




2




·
            our
      ability to finance exploration at
Huizopa;


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


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


·
            future
      financing of projects, including the financing required for the M Pit
      expansion at Montana Tunnels;


·
            costs
      associated with placing the Montana Tunnels mine and mill on care and
      maintenance and the decision to undertake the M Pit
    expansion;


·
            liquidity
      to support operations and debt
repayment;


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


·
            the
      establishment and estimates of mineral reserves and
    resources;


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


·
            total
      production costs;


·
            cash
      operating costs;


·
            total
      cash costs;


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


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


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


·
            expansion
      plans for existing properties;


·
            estimates
      of closure costs;


·
            estimates
      of environmental liabilities;


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


·
            factors
      impacting our results of operations;
and


·
            the
      impact of adoption of new accounting
standards.





These
forward looking statements are subject to numerous risks, uncertainties and
assumptions including: unexpected changes in business and economic
conditions, including the recent significant deterioration in global financial
and capital markets; significant increases or decreases in gold and zinc
prices; changes in interest and currency exchange rates 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.  We disclaim any obligation to update forward
looking statements, whether as a result of new information, future events or
otherwise.




ACCOUNTING
PRINCIPLES, REPORTING CURRENCY AND OTHER INFORMATION




Apollo
Gold Corporation prepares its consolidated financial statements in accordance
with accounting principles generally accepted in Canada and publishes its
financial statements in United States dollars.  This Quarterly Report
on Form 10-Q should be read in conjunction with our condensed consolidated
financial statements and related notes included in this quarterly report, as
well as our annual financial statements for the fiscal year ended
December 31, 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, for the three
months ended March 31, 2008, $0.5 million that was recorded as cash inflows from
investing activities has been reclassified to operating activities in connection
with proceeds from the sale of derivative contracts.




3




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




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




NON-GAAP
FINANCIAL INFORMATION




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




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




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




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




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




PART I --- FINANCIAL INFORMATION




ITEM
      1.
            FINANCIAL STATEMENTS




These
condensed consolidated financial statements should be read in conjunction with
the financial statements, accompanying notes and other relevant information
included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 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)





March
      31,
                2009
            
            
            December
      31,
                2008ASSETSCURRENTCash
      and cash equivalents
            
            $
            5,192
            
            
            $
            3,097Derivative
      instruments (Note 5)
            
            
            –
            
            
            
            552Restricted
      cash
            
            
            1,477
            
            
            
            10,000Accounts
      receivable and other
            
            
            3,478
            
            
            
            3,134Prepaids
            
            
            1,120
            
            
            
            546Inventories
      (Note 6)
            
            
            1,729
            
            
            
            4,154Total
      current assets
            
            
            12,996
            
            
            
            21,483Long-term
      investments (Note 7)
            
            
            1,036
            
            
            
            1,081Property,
      plant and equipment
            
            
            117,975
            
            
            
            95,881Deferred
      stripping costs
            
            
            184
            
            
            
            1,052Restricted
      certificates of deposit
            
            
            15,473
            
            
            
            12,030Other
      long-term assets
            
            
            103
            
            
            
            103TOTAL
      ASSETS
            
            $
            147,767
            
            
            $
            131,630LIABILITIESCURRENTAccounts
      payable
            
            $
            12,922
            
            
            $
            13,827Accrued
      liabilities
            
            
            1,718
            
            
            
            1,449Property
      and mining taxes payable
            
            
            1,089
            
            
            
            1,146Derivative
      instruments (Note 5 and Note 8(b))
            
            
            3,600
            
            
            
            –Current
      portion of debt (Note 8(a))
            
            
            24,001
            
            
            
            20,636Convertible
      debentures (Note 9)
            
            
            3,827
            
            
            
            3,356Total
      current liabilities
            
            
            47,157
            
            
            
            40,414Accrued
      long-term liabilities
            
            
            323
            
            
            
            316Derivative
      instruments (Note 5 and Note 8(b))
            
            
            14,266
            
            
            
            –Debt
      (Note 8(a))
            
            
            12,501
            
            
            
            1,012Convertible
      debentures
            
            
            –
            
            
            
            4,571Accrued
      site closure costs
            
            
            11,569
            
            
            
            10,563Future
      income tax liability
            
            
            362
            
            
            
            447Deferred
      gain (Note 4)
            
            
            97
            
            
            
            552TOTAL
      LIABILITIES
            
            
            86,275
            
            
            
            57,875Continuing
      operations (Note 1)Commitments
      and contingencies (Note 14)SHAREHOLDERS’
      EQUITYShare
      capital (Note 10)
            
            
            191,562
            
            
            
            188,927Equity
      component of convertible debentures
            
            
            584
            
            
            
            1,987Debenture
      note warrants
            
            
            –
            
            
            
            2,234Contributed
      surplus
            
            
            35,175
            
            
            
            21,683Deficit
            
            
            (165,829
            )
            
            
            (141,076
            )TOTAL
      SHAREHOLDERS’ EQUITY
            
            
            61,492
            
            
            
            73,755TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            147,767
            
            
            $
            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 endedMarch
      31,2009
            
            
            2008Revenue
      from sale of minerals
            
            $
            7,370
            
            
            $
            15,902Operating
      expensesDirect
      operating costs
            
            
            8,403
            
            
            
            9,061Depreciation
      and amortization
            
            
            311
            
            
            
            404General
      and administrative expenses
            
            
            932
            
            
            
            929Accretion
      expense – accrued site closure costs
            
            
            181
            
            
            
            177Amortization
      of deferred gain
            
            
            (455
            )
            
            
            (555
            )Exploration
      and business development
            
            
            227
            
            
            
            7569,599
            
            
            
            10,772Operating
      (loss) income
            
            
            (2,229
            )
            
            
            5,130Other
      income (expenses)Interest
      income
            
            
            47
            
            
            
            126Interest
      expense (Note 11)
            
            
            (1,027
            )
            
            
            (1,148
            )Debt
      transaction costs (Note 8(a) and (c))
            
            
            (1,811
            )
            
            
            –Loss
      on modification of convertible debentures (Note 9)
            
            
            (1,969
            )
            
            
            –Realized
      gains on derivative contracts
            
            
            368
            
            
            
            518Unrealized
      losses on derivative contracts
            
            
            (18,418
            )
            
            
            (855
            )Foreign
      exchange loss and other
            
            
            97
            
            
            
            (117
            )(Loss)
      income before income taxes
            
            
            (24,942
            )
            
            
            3,654Income
      taxes (Note 12)
            
            
            189
            
            
            
            –Net
      (loss) income and comprehensive (loss) income for the
    period
            
            $
            (24,753
            )
            
            $
            3,654Basic
      and diluted net (loss) income per share (Note 13)
            
            $
            (0.11
            )
            
            $
            0.02Basic
      weighted-average number of shares outstanding
            
            
            226,459
            
            
            
            159,336Diluted
      weighted-average number of shares outstanding (Note 13)
            
            
            226,459
            
            
            
            165,023




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)





EquityComponent
      of
            
            
            DebentureNumber
      of
            
            
            Share
            
            
            Convertible
            
            
            Note
            
            
            ContributedShares
            
            
            Capital
            
            
            Debentures
            
            
            Warrants
            
            
            Surplus
            
            
            Deficit
            
            
            Total(U.S.
      dollars and shares in thousands)Balance,
      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))
            
            
            2,833
            
            
            
            499
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            499Expiration
      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
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            182
            
            
            
            –
            
            
            
            182Net
      loss and comprehensive loss
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (24,753
            )
            
            
            (24,753
            )Balance,
      March 31, 2009
            
            
            233,311
            
            
            $
            191,562
            
            
            $
            584
            
            
            $
            –
            
            
            $
            35,175
            
            
            $
            (165,829
            )
            
            $
            61,492




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 endedMarch
      31,2009
            
            
            2008Operating
      activitiesNet
      (loss) income for the period
            
            $
            (24,753
            )
            
            $
            3,654Items
      not affecting cash:Depreciation
      and amortization
            
            
            311
            
            
            
            404Amortization
      of deferred stripping costs
            
            
            868
            
            
            
            1,058Stock-based
      compensation
            
            
            182
            
            
            
            142Shares
      and warrants issued for services and payment of interest
            
            
            4,020
            
            
            
            –Accretion
      expense – accrued site closure costs
            
            
            181
            
            
            
            177Accretion
      expense – convertible debentures
            
            
            970
            
            
            
            893Interest
      paid on convertible debentures
            
            
            (567
            )
            
            
            (1,016
            )Amortization
      of deferred gain
            
            
            (455
            )
            
            
            (555
            )Unrealized
      losses on derivative instruments
            
            
            18,418
            
            
            
            855Other
            
            
            38
            
            
            
            55Income
      taxes
            
            
            (189
            )
            
            
            –Net
      change in non-cash operating working capital items (Note
    15)
            
            
            2,532
            
            
            
            (4,247
            )Net
      cash provided by operating activities
            
            
            1,556
            
            
            
            1,420Investing
      activitiesProperty,
      plant and equipment expenditures
            
            
            (21,866
            )
            
            
            (1,256
            )Restricted
      cash and certificates of deposit
            
            
            5,080
            
            
            
            (576
            )Net
      cash used in investing activities
            
            
            (16,786
            )
            
            
            (1,832
            )Financing
      activitiesProceeds
      from exercise of warrants
            
            
            499
            
            
            
            1,404Proceeds
      from debt
            
            
            38,034
            
            
            
            –Repayments
      of debt
            
            
            (21,204
            )
            
            
            (2,962
            )Net
      cash provided by (used in) financing activities
            
            
            17,329
            
            
            
            (1,558
            )Effect
      of exchange rate changes on cash
            
            
            (4
            )
            
            
            (14
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            2,095
            
            
            
            (1,984
            )Cash
      and cash equivalents, beginning of period
            
            
            3,097
            
            
            
            4,852Cash
      and cash equivalents, end of period
            
            $
            5,192
            
            
            $
            2,868SUPPLEMENTAL
      CASH FLOW INFORMATIONInterest
      paid
            
            $
            925
            
            
            $
            1,388Income
      taxes paid
            
            $
            25
            
            
            $
            –




See Note
15 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
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




1.
            CONTINUING
      OPERATIONS




These
condensed consolidated financial statements are prepared on the basis of a going
concern which assumes that Apollo Gold Corporation (“Apollo” or the “Company”)
will realize its assets and discharge its liabilities in the normal course of
business for the foreseeable future.  To date the Company has funded
its operations through issuance of debt and equity securities and cash generated
by the Montana Tunnels joint venture (Note 4).  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 generate cash flow from the Black Fox
mine.




As of March 31, 2009, the Company has a
working capital deficiency of $34.2 million and an accumulated deficit of $165.8
million.  In addition, as at March 31, 2009, the Company held cash and
cash equivalents of $5.2 million and had current debt obligations of $27.8
million consisting of (1) the current portion of the project financing facility
of $19.7 million due in quarterly installments beginning on September 30, 2009
(Note 8(a)), (2) the current portion of the outstanding principal of the Series
2007-A convertible debentures of $3.8 million due in February 2010 (Note 9), and
(3) $4.3 million for other current debt.  Additionally, as of March
31, 2009, the Company has committed to make capital expenditures of
approximately $14.0 million for the development of Black Fox (Note 14(a)) and
has committed to post $5.1 million (Cdn$6.4 million) cash for environmental
bonding at Black Fox (Note 14(b)).  Based on the current cash balance,
projected cash flows from Black Fox, which the Company expects to commence
production of gold in the second quarter of 2009, and amounts available for
drawdown under the $70 million financing facility, the Company expects to have
sufficient funds to (1) repay the $27.8 million current debt obligations listed
above, (2) fund the capital commitments for the development of Black Fox, and
(3) fund corporate expenditures.





If the
Company is unable to utilize all of the $70.0 million financing facility or
generate sufficient cash flow from the activities listed above or is otherwise
unable to generate cash flow from Black Fox, it may be unable to continue as a
going concern and material adjustments would be required to the carrying value
of assets and liabilities and balance sheet classifications used.




2.
            NATURE
      OF OPERATIONS




Apollo is
engaged in gold mining including extraction, processing, refining and the
production of other co-product metals, as well as related activities including
exploration and development.  Apollo owns Black Fox, an open pit mine
and mill located near Matheson in the Province of Ontario, Canada (the “Black
Fox Project”).  Mining of ores at the Black Fox Project began in March
2009 and milling operations commenced in April 2009.




The
Company is the operator of the Montana Tunnels mine, which is a 50% joint
venture with Elkhorn Tunnels, LLC (“Elkhorn”).  The Montana Tunnels
mine is an open pit mine and mill located in the State of Montana that produced
gold dore and lead-gold and zinc-gold concentrates.  As of April 30,
2009, the Montana Tunnels mine and mill were placed under care and
maintenance.  The Company also owns the Diamond Hill mine, which is
also located in the State of Montana and is currently under care and
maintenance.




Apollo
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.




9


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)
  3.
              SIGNIFICANT
      ACCOUNTING POLICIES




(a)           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
(b)
below.  Certain information and note disclosures normally included in
consolidated financial statements prepared in accordance with Canadian GAAP have
been omitted.  These interim financial statements should be read
together with the Company’s audited financial statements for the year ended
December 31, 2008.




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, for the three months ended March 31,
2008, $0.5 million that was recorded as cash inflows from investing activities
has been reclassified to operating activities in connection with proceeds from
the sale of derivative contracts.




(b)
            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.





4.
            MONTANA
      TUNNELS JOINT VENTURE




On July
28, 2006, Apollo entered into a JV Agreement with Elkhorn in respect of the
Montana Tunnels mine (the “Mine”).  Elkhorn contributed $13 million in
return for a 50% interest in the Mine and Montana Tunnels Mining, Inc. (“MTMI”)
contributed all of its assets and liabilities related to the Mine into the joint
venture for a 50% interest in the Mine.




Elkhorn
received 55% and Apollo received 45% of the positive free cash flow, as defined
in the JV agreement, from the Mine until July 8, 2008 when Elkhorn had received
cash flow of $13 million (at which time Apollo had received $10.6
million).  Since July 8, 2008, Apollo receives 60% and Elkhorn 40% of
the positive free cash flow from the Mine, until both parties have received an
equal amount (at which time Apollo and Elkhorn will have each received $17.7
million).  Thereafter, the sharing will be 50/50.




Apollo
accounts for its 50% interest in the Montana Tunnels joint venture using the
proportionate consolidation method.  As of December 31, 2006, the
Company recorded a deferred gain on the transfer of assets and liabilities to
the joint venture of $3.8 million.  The deferred gain is amortized
using the units-of-production method over the expected life of the operation
based on the estimated recoverable gold equivalent
ounces.  Amortization of the deferred gain was $0.5 million and $0.6
million for the three months ended March 31, 2009 and 2008,
respectively.




10




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




4.
            MONTANA
      TUNNELS JOINT VENTURE (continued)





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





March
      31,
                2009
            
            
            December
      31,
                2008Cash
      and cash equivalents
            
            $
            547
            
            
            $
            12Other
      non-cash current assets
            
            
            3,114
            
            
            
            5,3233,661
            
            
            
            5,335Property,
      plant and equipment
            
            
            7,325
            
            
            
            7,647Deferred
      stripping costs
            
            
            184
            
            
            
            1,052Restricted
      certificates of deposit
            
            
            7,593
            
            
            
            7,587Total
      assets
            
            $
            18,763
            
            
            $
            21,621Current
      liabilities
            
            $
            3,625
            
            
            $
            4,361Accrued
      site closure costs
            
            
            8,673
            
            
            
            8,503Total
      liabilities
            
            $
            12,298
            
            
            $
            12,864





Apollo’s
50% share of the results of operations and cash flows of the Montana Tunnels
joint venture for the three months ended March 31, 2009 and 2008 is as
follows:





March
      31,
                2009
            
            
            March
      31,
                2008Revenue
      from sale of minerals
            
            $
            7,370
            
            
            $
            15,902Direct
      operating costs
            
            
            8,402
            
            
            
            9,059Depreciation
      and amortization
            
            
            300
            
            
            
            379Accretion
      expense – accrued site closure costs
            
            
            170
            
            
            
            1658,872
            
            
            
            9,603Operating
      (loss) income
            
            
            (1,502
            )
            
            
            6,299Interest
      income
            
            
            7
            
            
            
            52Interest
      expense
            
            
            (29
            )
            
            
            (112
            )(Loss)
      income before income taxes
            
            $
            (1,524
            )
            
            $
            6,239Net
      cash provided by operating activities
            
            $
            1,207
            
            
            $
            4,824Net
      cash used in investing activities
            
            $
            (7
            )
            
            $
            (677
            )Net
      cash used in (provided by) financing activities
            
            $
            (667
            )
            
            $
            (4,139
            )





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




11


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




5.
              DERIVATIVE
      INSTRUMENTS




Fair
value of derivative instruments consists of:




March
      31, 2009
            
            
            December
      31, 2008Cost
                Basis
            
            
            Unrealized
      Gain (Loss)
            
            
            FairValue
            
            
            Cost
                Basis
            
            
            Unrealized
      Gain (Loss)
            
            
            FairValueAssetsGold,
      silver and lead contracts
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            552
            
            
            $
            552LiabilitiesGold
      forward sales contracts (Note 8(b))
            
            $
            –
            
            
            $
            (16,106
            )
            
            $
            (16,106
            )
            
            $
            –
            
            
            $
            –
            
            
            $
            –Canadian
      dollar purchase contracts (Note 8(b))
            
            
            –
            
            
            
            (1,760
            )
            
            
            (1,760
            )
            
            
            –
            
            
            
            –
            
            
            
            ––
            
            
            
            (17,866
            )
            
            
            (17,866
            )
            
            
            –
            
            
            
            –
            
            
            
            –Current
      portion
            
            
            –
            
            
            
            (3,600
            )
            
            
            (3,600
            )
            
            
            –
            
            
            
            –
            
            
            
            –$
            –
            
            
            $
            (14,266
            )
            
            $
            (14,266
            )
            
            $
            –
            
            
            $
            –
            
            
            $
            –





6.
            INVENTORIES




Inventories
consist of:




March
      31,
              2009
            
            
            December
      31,
              2008Concentrate
      inventory
            
            $
            386
            
            
            $
            373Doré
      inventory
            
            
            –
            
            
            
            21Stockpiled
      ore inventory
            
            
            699
            
            
            
            2,983Materials
      and supplies
            
            
            644
            
            
            
            777$
            1,729
            
            
            $
            4,154





Inventories
recognized as an expense in direct operating costs during the three months ended
March 31, 2009 and 2008 were $6.5 million and $6.4 million, respectively. 
Expenses related to the write down of the carrying value of inventories to net
realizable value was $1.0 million and $nil for the three months ended March 31,
2009 and 2008, respectively.





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 loss and other in the consolidated statement of operations, of $0.05
million and $0.10 million for the three months ended March 31, 2009 and 2008,
respectively, and as such, no amounts have been recorded in other comprehensive
income.  The adjusted cost basis and fair value of ARS at March 31,
2009 and December 31, 2008 are $1.0 million and $1.1 million,
respectively. See Note 16(g).  The ARS are pledged as collateral
for a $0.9 million margin loan.




12


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; 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 million project financing
agreement (the “Project Facility”) with two banks (the “Banks”) relating to the
Black Fox Project.  As of March 31, 2009, the Company had borrowed
$41.5 million of the $70 million available under the Project
Facility.  The Company used $15 million of the proceeds from the
Project Facility to repay the $15.0 million bridge facility entered into on
December 10, 2009 (the “Bridge Facility”) on February 23, 2009, and intends to
draw the full $70 million and use $55 million to complete the development of the
Black Fox Project and to provide for up to $7.0 million in agreed corporate
expenditures.  As of May 8, 2009, the Company had borrowed $58.0
million of the Project Facility.





The terms
of the Project Facility include:  (i) a commitment by the Banks to
lend to the Company up to $70 million available for drawdown between February
20, 2009 and June 30, 2009; (ii) interest on the outstanding principal amount
accruing at a rate equal to the London interbank offered rate (“LIBOR”) plus 7%
per annum and payable in monthly installments commencing March 31, 2009
(interest is currently payable monthly but 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 commencing
September 30, 2009 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 months ended March 31, 2009 was
0.5%.





Borrowings under the Project Facility
are secured by substantially all of the Company’s assets, including the Black
Fox Project, and the 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 reserves, satisfaction of a minimum tangible net worth test, the
operation of the Black Fox project in compliance with an agreed cash flow
budgeting and operational model.  As at March 31, 2009, the Company
was in compliance with the various financial and operational covenants of the
Project Facility.





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 42,614,254 common share purchase warrants issued to the Banks in
connection with the Bridge Facility.  The Banks’ Compensation Warrants
were assigned a fair value of $7.4 million, using an option pricing model with
the following assumptions:  no dividends are paid, a volatility of the
Company’s share price of 81%, an expected life of the warrants of four years,
and an annual risk-free rate of 1.9%.





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 for the three months ended March 31,
2009 was capitalized to the Black Fox Project.  Additionally, the
Company recorded $0.6 million of debt transactions costs that were expensed
immediately.





The drawn
amounts on the Project Facility as of March 31, 2009 are repayable by the
Company as shown in the table below.  The amounts due on the Project
Facility at March 31, 2009 are included within current and long-term portion of
debt, which balance includes notes payable, leases payable and other
debt.


13




APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Three
month period ended March 31, 2009


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


(Unaudited)




8.
            BLACK
      FOX PROJECT FINANCING FACILITY
(continued)





2009
      (9 months)
            
            $
            15,3002010
            
            
            13,8002011
            
            
            10,2002012
            
            
            2,200Amount
      drawn on facility
            
            
            41,500Less
      unamortized debt discount
            
            
            (10,675
            )Total
      of project facility included within debt on the balance
    sheet
            
            
            30,825Less
      current portion
            
            
            (19,700
            )Long-term
      portion
            
            $
            11,125





(b)
            Derivative
      Program in Connection with the Project
Facility




As a part
of the Project Facility, the Company and the Banks have entered into a
derivative program covering both gold sales and part of the Company’s Canadian
dollar operating costs (Note 5).  The Company has entered into a
250,430 ounce gold forward sales program which will be allocated across the four
year term of the Project Facility.  The weighted average price of the
sales program is $876 per ounce of gold.  The foreign exchange
derivative program will be for the Canadian dollar equivalent of $58 million
over a period covering the four year term of the Project
Facility.  Settlements of gold forward sales contracts and Canadian
dollar foreign exchange contracts are as follows (table not in
thousands):





Gold
      Forward Sales Contracts
            
            
            Canadian
      Dollar Foreign Exchange ContractsYear
      of Settlement
            
            Gold
      Ounces
            
            
            Average
      Contract Price
            
            
            Pay
      USDollars
                (Millions)
            
            
            ExchangeRate(Cdn$/USD)
            
            
            Purchase
      Canadian Dollars
                (Millions)2009
            
            
            53,484
            
            
            $
            876.06
            
            
            $
            8.1
            
            
            $
            1.21
            
            
            $
            9.82010
            
            
            54,261
            
            
            $
            876.06
            
            
            $
            13.4
            
            
            $
            1.21
            
            
            $
            16.32011
            
            
            54,704
            
            
            $
            876.06
            
            
            $
            16.1
            
            
            $
            1.21
            
            
            $
            19.52012
            
            
            73,458
            
            
            $
            876.06
            
            
            $
            16.3
            
            
            $
            1.21
            
            
            $
            19.72013
            
            
            14,523
            
            
            $
            876.06
            
            
            $
            4.1
            
            
            $
            1.21
            
            
            $
            4.9250,430
            
            
            
            
            
            
            $
            58.0
            
            
            
            
            
            
            $
            70.2





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 statement of income
each period.  The fair value of these derivatives is recorded as an
asset or liability at each balance sheet date (see Note 5).





(c)
            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%.




14


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; 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.  Upon the election by the
Company to pay the accrued interest in common shares, the number of common
shares is calculated by dividing the accrued interest owed by the US dollar
equivalent of the volume weighted average market price of the Company’s common
shares as quoted on the Toronto Stock Exchange during the five-day period ending
February 23, 2009.  In consideration for the foregoing, the Company
agreed to (i) issue 2,000,000 common shares of the Company to the Large Holder
on February 23, 2009 (the “Large Holder Shares”), (ii) extend the expiration
date of the 8,580,000 2007 Debenture Warrants issued to the Large Holder to
March 4, 2010 (the “Large Holder Warrants”) and (iii) reduce the exercise price
of the Large Holder Warrants from $0.50 to $0.25.





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





The terms
and conditions of the $3.1 million aggregate principal amount of 2007 Debentures
and 2007 Debenture Warrants not owned by the Large Holder were not amended and
remained unchanged and principal and $0.6 million interest 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.  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 months ended March 31, 2009,
the Company recorded accretion expense of $0.1 million related to the Extended
Debentures, which is included in interest expense.




15


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)


10.
              SHARE
      CAPITAL




(a)
            Shares
      issued in 2009




(i)           For
the three months ended March 31, 2009, there were 2,833,333 shares issued upon
exercise of warrants for proceeds of $0.5 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(c)) 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 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.




(b)
            Warrants




The
following table summarizes outstanding warrants as at March 31,
2009:




Date
      Issued
            
            Number
      of Warrants and Shares Issuable upon Exercise
            
            
            Exercise
      Price
            
            Expiry
      DateExercisable
      in US$November
      8, 2006
            
            
            4,666,666
            
            
            
            0
            .176
            
            November
      8, 2009November
      8, 2006
            
            
            1,178,944
            
            
            
            0
            .50
            
            November
      8, 2009February
      23, 2009
            
            
            8,580,000
            
            
            
            0
            .25
            
            March
      4, 201014,425,610Exercisable
      in Cdn$October
      31, 2007
            
            
            372,727
            
            
            
            0
            .55
            
            April
      30, 2009 (1)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
      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, 2013102,069,243116,494,853




(1) These
warrant expired unexercised on April 30, 2009.
  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.




16




APOLLO
GOLD CORPORATION


Notes
to the Condensed Consolidated Financial Statements


Three
month period ended March 31, 2009


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


(Unaudited)




10.
            SHARE
      CAPITAL (continued)




(c)
              Options






Number
      of
                Common
                Shares
            
            
            Weighted
                Average
                Exercise
                Price
      Per ShareBalance,
      December 31, 2008
            
            
            8,281,309
            
            
            $
            0.77Options
      granted
            
            
            3,238,567
            
            
            
            0.32Options
      forfeited
            
            
            (1,350
            )
            
            
            1.36Balance,
      March 31, 2009
            
            
            11,518,526
            
            
            $
            0.64





The
following table summarizes information concerning outstanding and exercisable
stock options at March 31, 2009:




Options
      Outstanding
            
            
            Options
      ExercisableNumber
                Outstanding
            
            Expiry
      Date
            
            Weighted
      Average
                Exercise
                Price
      Per Share
            
            
            Weighted
      Average
                Remaining Contractual Life (in
      years)
            
            
            Number
                Exercisable
            
            
            Weighted
      Average
                Exercise
                Price
      Per Share100,000
            
            September
      1, 2011
            
            $
            0.46
            
            
            
            2.4
            
            
            
            100,000
            
            
            $
            0.46676,700
            
            February
      18, 2013
            
            
            2.24
            
            
            
            3.9
            
            
            
            676,700
            
            
            
            2.24260,000
            
            March
      10, 2014
            
            
            2.05
            
            
            
            4.9
            
            
            
            260,000
            
            
            
            2.0525,000
            
            May
      19, 2014
            
            
            1.44
            
            
            
            5.1
            
            
            
            25,000
            
            
            
            1.4420,200
            
            August
      10, 2014
            
            
            0.95
            
            
            
            5.4
            
            
            
            20,200
            
            
            
            0.951,159,750
            
            March
      10, 2015
            
            
            0.65
            
            
            
            5.9
            
            
            
            1,159,750
            
            
            
            0.65100,000
            
            August
      4, 2015
            
            
            0.27
            
            
            
            6.3
            
            
            
            100,000
            
            
            
            0.27300,000
            
            December
      12, 2015
            
            
            0.20
            
            
            
            6.7
            
            
            
            300,000
            
            
            
            0.20125,000
            
            March
      28, 2016
            
            
            0.65
            
            
            
            7.0
            
            
            
            125,000
            
            
            
            0.65200,000
            
            May
      23, 2016
            
            
            0.53
            
            
            
            7.2
            
            
            
            200,000
            
            
            
            0.53108,000
            
            August
      10, 2016
            
            
            0.48
            
            
            
            7.4
            
            
            
            108,000
            
            
            
            0.4840,000
            
            November
      9, 2016
            
            
            0.32
            
            
            
            7.6
            
            
            
            40,000
            
            
            
            0.322,940,246
            
            February
      6, 2017
            
            
            0.57
            
            
            
            7.9
            
            
            
            2,940,246
            
            
            
            0.5749,825
            
            May
      23, 2017
            
            
            0.46
            
            
            
            8.4
            
            
            
            24,913
            
            
            
            0.462,098,988
            
            March
      27, 2018
            
            
            0.66
            
            
            
            9.0
            
            
            
            1,049,494
            
            
            
            0.6621,250
            
            August
      12, 2018
            
            
            0.37
            
            
            
            9.4
            
            
            
            –
            
            
            
            –55,000
            
            November
      11, 2018
            
            
            0.15
            
            
            
            9.6
            
            
            
            –
            
            
            
            –3,238,567
            
            March
      31, 2019
            
            
            0.32
            
            
            
            10.0
            
            
            
            –
            
            
            
            –11,518,526
            
            
            
            $
            0.64
            
            
            
            8.1
            
            
            
            7,129,303
            
            
            $
            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:




March
      31, 2009
            
            March
      31, 2008Risk-free
      interest rate
            
            1.9%
            
            2.9%Dividend
      yield
            
            0%
            
            0%Volatility
            
            78%
            
            61%Expected
      life in years
            
            6
            
            6Weighted
      average grant-date fair value of stock options
            
            $
      0.22
            
            $
      0.39




17




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)


11.
            INTEREST
      EXPENSE




Interest
expense consists of:




March
      31,
                2009
            
            
            March
      31,
                2008Accretion
      on convertible debentures
            
            $
            970
            
            
            $
            893Capital
      leases and other
            
            
            57
            
            
            
            255$
            1,027
            
            
            $
            1,148





For the
three months ended March 31, 2009, the Company recorded capitalized interest of
$0.8 million.





12.
            INCOME
      TAXES




The
Company recorded a tax benefit of $0.2 million for the three months ended March
31, 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 did not record a recovery for income
taxes for the period ended March 31, 2008 as the net loss carry forwards are
fully offset by a valuation allowance.





13.
            EARNINGS
      (LOSS) PER SHARE




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




Earnings
(loss) used in determining EPS are presented below for the three months ended
March 31.




2009
            
            
            2008Net
      (loss) income
            
            $
            (24,753
            )
            
            $
            3,654Weighted
      average number of shares outstanding, basic
            
            
            226,458,505
            
            
            
            159,335,903Dilutive
      securities:Options
            
            
            –
            
            
            
            559,341Warrants
            
            
            –
            
            
            
            5,127,349Weighted
      average number of shares outstanding, diluted
            
            
            226,458,505
            
            
            
            165,022,593Basic
      and diluted earnings (loss) income per share
            
            $
            (0.11
            )
            
            $
            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
            
            
            36,486,837
            
            
            
            5,540,249Average
      exercise price of OWNI
            
            $
            0.55
            
            
            $
            1.02Shares
      issuable for convertible debentures excluded from calculation of EPS
      because their effect would have been anti-dilutive
            
            
            8,580,000
            
            
            
            15,304,200Average
      conversion price of anti-dilutive convertible securities
            
            $
            0.50
            
            
            $
            0.50





Due to a
net loss for the three months March 31, 2009, an additional 27.0 million
warrants and stock options were excluded from the EPS computation because their
effect would have been anti-dilutive.




18




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)





14.
            COMMITMENTS
      AND CONTINGENCIES




(a)
            Commitments
      for the Development of Black Fox




The
Company had entered into a number of contractual commitments related to the
development of Black Fox.  As of March 31, 2009, these commitments
totaled approximately $14 million and are expected to become due within the next
12 months.




(b)
            Environmental




As of
March 31, 2009, the Company had commitments to post $4.1 million (Cdn$5.2) for
the benefit of the Ministry of Northern Development and Mines to cover estimated
costs of site reclamation at Black Fox.  The amounts are scheduled to
be posted as follows: (1) $2.7 million (Cdn$3.4 million) in April 2009 and (2)
$1.4 million (Cdn$1.8 million) in May 2009.  The Cdn$3.4 million was
posted as scheduled in April 2009.




In
addition to the Cdn$5.2 million commitments for bonding discussed in the above
paragraph, upon acquisition of the mill at Black Fox in July 2008, the Company
committed to replace the $1.0 million (Cdn$1.2 million) bond posted by St Andrew
Goldfields Ltd. by July 28, 2009.  When the existing bond is replaced,
the cash on deposit will be released to Apollo and Apollo will be required to
pay $1.0 million (Cdn$1.2 million) to St Andrew Goldfields Ltd.




15.
            SUPPLEMENTAL
      CASH FLOW INFORMATION




(a)
            Net
      changes in non-cash operating working capital items for the three months
      ended March 31 are:




2009
            
            
            2008-(Increase)
      decrease in:Accounts
      receivable and other
            
            $
            (344
            )
            
            $
            (2,018
            )Prepaids
            
            
            8
            
            
            
            244Inventories
            
            
            2,425
            
            
            
            (1,918
            )Increase
      (decrease) in:Accounts
      payable
            
            
            226
            
            
            
            (692
            )Accrued
      liabilities
            
            
            275
            
            
            
            (16
            )Property
      and mining taxes payable
            
            
            (58
            )
            
            
            153$
            2,532
            
            
            $
            (4,247
            )





(b)
            Components
      of cash and cash equivalents are:




March
      31,
              2009
            
            
            March
      31,
              2008Cash
            
            $
            5,192
            
            
            $
            1,142Short-term
      investments
            
            
            –
            
            
            
            1,726$
            5,192
            
            
            $
            2,868




19




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)


15.
            SUPPLEMENTAL
      CASH FLOW INFORMATION (continued)




(c)
              Non-cash
      transactions for the three months ended March 31
  are:


2009
            
            
            2008Increase
      in prepaid assets due to financing a portion of the Company’s insurance
      program via the issuance of notes payable
            
            
            582
            
            
            
            –Increase
      in property, plant and equipment due to assets acquired via issuance of
      notes payable
            
            
            633
            
            
            
            –Increase
      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
            
            
            –
            
            
            
            481Increase
      in share capital and a decrease in future income tax assets upon
      renouncement of expenditures in connection with a flow-through share
      offering completed in October 2007
            
            
            –
            
            
            
            1,165





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
market risk, credit risk, liquidity risk, currency risk, interest rate risk and
commodity risk.  Where material, these risks are reviewed and
monitored by the Board of Directors.





(a)
            Capital
      Risk Management




The Company manages its capital to
ensure that it will be able to continue as a going concern while maximizing the
return to shareholders through the optimization of its debt and equity balance.
The Company’s overall strategy remains unchanged from 2008.





The capital structure of the Company
consists of debt, convertible debentures and equity attributable to common
shareholders, comprising issued share capital, equity component of convertible
debentures, 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.




20




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)
  16.
              FAIR
      VALUE OF FINANCIAL INSTRUMENTS
(continued)




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 year ended December 31, 2008.  Apollo continues to
maintain a portion of its investments in ARS, which are floating rate securities
that are marketed by financial institutions with
auction reset dates at 28 day intervals to provide short-term
liquidity.  All ARS were rated AAA when purchased, pursuant to
Apollo’s investment policy at the time.  Auction rate securities are
no longer permitted to be purchased under the Company’s current investment
policy.  Beginning in August 2007, a number of auctions began to fail
and the Company is currently holding ARS with a par value of $1.5 million which
currently lack liquidity.  All of Apollo’s ARS have continued to make
regular interest payments.  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.




(c)
            Liquidity
      Risk




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





Trade payables and accrued liabilities
are paid in the normal course of business typically according to their
terms.  The Company ensures that there are sufficient committed loan
facilities to meet its short-term business requirements, taking into account its
anticipated cash flows from operations and its holdings of cash and cash
equivalents.  At March 31, 2009, the Company is in compliance with its
debt covenants.  The Company’s overall liquidity risk has not changed
significantly from the prior year.





(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 months ended March 31, 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 $0.1 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 (Note 8(a)), the Company entered
into certain option contracts.  See Note 8(b) for
details.





(e)
            Interest
      Rate Risk




The Company is exposed to interest rate
risk on its outstanding borrowings and short-term investments.  As of
March 31, 2009, the Company’s significant outstanding borrowings consist of
$41.5 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 rate charged to the Company on the Project Facility during the three
months ended March 31, 2009 was 0.5%.  The Company monitors its
exposure to interest rates and has not entered into any derivative contracts to
manage this risk.  The weighted average interest rate paid by the
Company during the first quarter of 2009 on its outstanding borrowings
was 9.4%.




21




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




16.
              FAIR
      VALUE OF FINANCIAL INSTRUMENTS
(continued)


For the three months ended March 31,
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 the
quarter.





(f)
            Commodity
      Price Risk




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




On February 20, 2009, in order to meet
certain loan criteria of the Project Facility (Note 8(a)), the Company entered
into certain gold forward sales contracts.  See Note 8(b) 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 5) are valued
using a probability-weighted discounted cash flow valuation.  The Company’s
valuation of the ARS investments considers possible cash flows and probabilities
forecasted under certain potential scenarios. Each scenario’s cash flow is
multiplied by the probability of that scenario occurring.  The major inputs
included in the valuation are: (i) maximum contractual ARS interest rate, (ii)
probability of passing auction/early redemption at each auction, (iii)
probability of failing auction at each auction, (iv) probability of default at
each auction, (v) severity of default, and (vi) discount rate.  Changes in
these assumptions to reasonably possible alternative assumptions would not
significantly affect the Company’s results.




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





17.
            SEGMENTED
      INFORMATION




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




22




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




17.
              SEGMENTED
      INFORMATION (continued)


Amounts
as at March 31, 2009 are as follows:





Montana
                Tunnels
            
            
            Black
                Fox
            
            
            Corporate
                and
      Other
            
            
            TotalCash
      and cash equivalents
            
            $
            547
            
            
            $
            1,662
            
            
            $
            2,983
            
            
            $
            5,192Other
      non-cash current assets
            
            
            3,081
            
            
            
            1,877
            
            
            
            2,846
            
            
            
            7,8043,628
            
            
            
            3,539
            
            
            
            5,829
            
            
            
            12,996Long-term
      investments
            
            
            –
            
            
            
            –
            
            
            
            1,036
            
            
            
            1,036Property,
      plant and equipment
            
            
            7,333
            
            
            
            107,610
            
            
            
            3,032
            
            
            
            117,975Deferred
      stripping costs
            
            
            184
            
            
            
            –
            
            
            
            –
            
            
            
            184Restricted
      certificates of deposit
            
            
            8,216
            
            
            
            7,249
            
            
            
            8
            
            
            
            15,473Other
      long-term assets
            
            
            –
            
            
            
            103
            
            
            
            –
            
            
            
            103Total
      assets
            
            $
            19,361
            
            
            $
            118,501
            
            
            $
            9,905
            
            
            $
            147,767Current
      liabilities
            
            $
            3,297
            
            
            $
            31,929
            
            
            $
            11,931
            
            
            $
            47,157Derivative
      instruments
            
            
            –
            
            
            
            –
            
            
            
            14,266
            
            
            
            14,266Debt
      and other long-term liabilities
            
            
            18
            
            
            
            12,483
            
            
            
            323
            
            
            
            12,824Accrued
      site closure costs
            
            
            9,346
            
            
            
            2,223
            
            
            
            –
            
            
            
            11,569Future
      income tax liability
            
            
            –
            
            
            
            362
            
            
            
            –
            
            
            
            362Deferred
      gain
            
            
            97
            
            
            
            –
            
            
            
            –
            
            
            
            97Total
      liabilities
            
            $
            12,758
            
            
            $
            46,997
            
            
            $
            26,520
            
            
            $
            86,275





Amounts
at December 31, 2008 are as follows:





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




23




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)


17.
            SEGMENTED
      INFORMATION (continued)




Amounts
for the three months ended March 31, 2009 and 2008 are as follows:




Three
      months ended March 31, 2009Montana
                Tunnels
            
            
            Black
                Fox
            
            
            Corporate
                and
      Other
            
            
            TotalRevenue
      from sale of minerals
            
            $
            7,370
            
            
            $
            –
            
            
            $
            –
            
            
            $
            7,370Direct
      operating costs
            
            
            8,403
            
            
            
            –
            
            
            
            –
            
            
            
            8,403Depreciation
      and amortization
            
            
            301
            
            
            
            –
            
            
            
            10
            
            
            
            311General
      and administrative expenses
            
            
            –
            
            
            
            –
            
            
            
            932
            
            
            
            932Accretion
      expense – accrued site closure costs
            
            
            181
            
            
            
            –
            
            
            
            –
            
            
            
            181Amortization
      of deferred gain
            
            
            (455
            )
            
            
            –
            
            
            
            –
            
            
            
            (455
            )Exploration
      and business development
            
            
            –
            
            
            
            64
            
            
            
            163
            
            
            
            2278,430
            
            
            
            64
            
            
            
            1,105
            
            
            
            9,599Operating
      income (loss)
            
            
            (1,060
            )
            
            
            (64
            )
            
            
            (1,105
            )
            
            
            (2,229
            )Interest
      income
            
            
            7
            
            
            
            –
            
            
            
            40
            
            
            
            47Interest
      expense
            
            
            (29
            )
            
            
            –
            
            
            
            (998
            )
            
            
            (1,027
            )Debt
      transaction costs
            
            
            –
            
            
            
            (572
            )
            
            
            (1,239
            )
            
            
            (1,811
            )Loss
      on modification of convertible debentures
            
            
            –
            
            
            
            –
            
            
            
            (1,969
            )
            
            
            (1,969
            )Realized
      gains on derivative contracts
            
            
            –
            
            
            
            –
            
            
            
            368
            
            
            
            368Unrealized
      losses on derivative contracts
            
            
            –
            
            
            
            –
            
            
            
            (18,418
            )
            
            
            (18,418
            )Foreign
      exchange loss and other
            
            
            –
            
            
            
            –
            
            
            
            97
            
            
            
            97Loss
      before income taxes
            
            $
            (1,082
            )
            
            $
            (636
            )
            
            $
            (23,224
            )
            
            $
            (24,942
            )Investing
      activitiesProperty,
      plant and equipment
      expenditures
            
            $
            –
            
            
            $
            21,866
            
            
            $
            –
            
            
            $
            21,866




Three
      months ended March 31, 2008Montana
                Tunnels
            
            
            Black
                Fox
            
            
            Corporate
                and
      Other
            
            
            TotalRevenue
      from sale of minerals
            
            $
            15,902
            
            
            $
            –
            
            
            $
            –
            
            
            $
            15,902Direct
      operating costs
            
            
            9,061
            
            
            
            –
            
            
            
            –
            
            
            
            9,061Depreciation
      and amortization
            
            
            378
            
            
            
            –
            
            
            
            26
            
            
            
            404General
      and administrative expenses
            
            
            –
            
            
            
            –
            
            
            
            929
            
            
            
            929Accretion
      expense – accrued site closure costs
            
            
            177
            
            
            
            –
            
            
            
            –
            
            
            
            177Amortization
      of deferred gain
            
            
            (555
            )
            
            
            –
            
            
            
            –
            
            
            
            (555
            )Exploration
      and business development
            
            
            –
            
            
            
            25
            
            
            
            731
            
            
            
            7569,061
            
            
            
            25
            
            
            
            1,686
            
            
            
            10,772Operating
      income (loss)
            
            
            6,841
            
            
            
            (25
            )
            
            
            (1,686
            )
            
            
            5,130Interest
      income
            
            
            52
            
            
            
            –
            
            
            
            74
            
            
            
            126Interest
      expense
            
            
            (112
            )
            
            
            –
            
            
            
            (1,036
            )
            
            
            (1,148
            )Realized
      gains on derivative contracts
            
            
            –
            
            
            
            –
            
            
            
            518
            
            
            
            518Unrealized
      losses on derivative contracts
            
            
            –
            
            
            
            –
            
            
            
            (855
            )
            
            
            (855
            )Foreign
      exchange loss and other
            
            
            –
            
            
            
            –
            
            
            
            (117
            )
            
            
            (117
            )Income
      before income taxes
            
            $
            6,781
            
            
            $
            (25
            )
            
            $
            (3,102
            )
            
            $
            3,654Investing
      activitiesProperty,
      plant and equipment
      expenditures
            
            $
            80
            
            
            $
            1,176
            
            
            $
            –
            
            
            $
            1,256




24




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; 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 March 31, 2009 and December 31, 2008 and for the
three months ended March 31, 2009 and 2008.




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




THIS
SPACE INTENTIONALLY LEFT BLANK




25




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)


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




Mar
      31, 2009
            
            
            Dec
      31,
              2008Total
      assets in accordance with Canadian GAAP
            
            $
            147,767
            
            
            $
            131,630Bank
      indebtedness
            
            
            –
            
            
            
            (742
            )Debt
      transactions costs (a)
            
            
            16
            
            
            
            –Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
            
            
            (12,298
            )
            
            
            (12,864
            )Impairment
      of property, plant and equipment, and change in depreciation and
      amortization(b)(ii)
            
            
            (1,572
            )
            
            
            (1,617
            )Deferred
      stripping costs (b)(iii)
            
            
            (184
            )
            
            
            (1,052
            )Black
      Fox development costs(c)
            
            
            (29,159
            )
            
            
            (29,159
            )Convertible
      debentures (d)
            
            
            –
            
            
            
            66Total
      assets in accordance with U.S. GAAP
            
            $
            104,570
            
            
            $
            86,262





Total
      liabilities in accordance with Canadian GAAP
            
            $
            86,275
            
            
            $
            57,875Bank
      indebtedness
            
            
            –
            
            
            
            (742
            )Debt
      transactions costs (a)
            
            
            (556
            )
            
            
            –Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
            
            
            (12,298
            )
            
            
            (12,864
            )Deferred
      gain (b)(i)
            
            
            (97
            )
            
            
            (552
            )Convertible
      debentures (d)
            
            
            468
            
            
            
            118Income
      taxes related to flow-through share issuance (e)
            
            
            –
            
            
            
            73Warrants
      treated as liabilities under EITF 07-5 (h)
            
            
            21,058
            
            
            
            –Total
      liabilities in accordance with U.S. GAAP
            
            $
            94,850
            
            
            $
            43,908





Total
      shareholders’ equity in accordance with Canadian GAAP
            
            $
            61,492
            
            
            $
            73,755Debt
      transactions costs (a)
            
            
            572
            
            
            
            –Deferred
      gain (b)(i)
            
            
            97
            
            
            
            552Impairment
      of property, plant and equipment, and change in depreciation and
      amortization(b)(ii)
            
            
            (1,572
            )
            
            
            (1,617
            )Deferred
      stripping costs (b)(iii)
            
            
            (184
            )
            
            
            (1,052
            )Black
      Fox development costs (c)
            
            
            (29,159
            )
            
            
            (29,159
            )Convertible
      debentures (d)
            
            
            (468
            )
            
            
            (52
            )Income
      taxes related to flow-through share issuance (e)
            
            
            –
            
            
            
            (73
            )Warrants
      treated as liabilities under EITF 07-5 (h)
            
            
            (21,058
            )
            
            
            –Total
      shareholders’ equity in accordance with U.S. GAAP
            
            $
            9,720
            
            
            $
            42,354


Total
      shareholders’ equity and liabilities in accordance with U.S.
      GAAP
            
            $
            104,570
            
            
            $
            86,262





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





Mar
      31,2009
            
            
            Dec
      31,
              2008Share
      capital
            
            $
            192,275
            
            
            $
            189,451Note
      warrants
            
            
            –
            
            
            
            2,234Contributed
      surplus
            
            
            44,972
            
            
            
            48,241Deficit
            
            
            (227,527
            )
            
            
            (197,572
            )Total
      shareholders’ equity in accordance with U.S. GAAP
            
            $
            9,720
            
            
            $
            42,354




26




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; 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 net (loss) income and net (loss) income per share would be
adjusted as follows:





Three
      months ended
                March
      31,2009
            
            
            2008Net
      (loss) income for the period, based on Canadian GAAP
            
            $
            (24,753
            )
            
            $
            3,654Debt
      transaction costs (a)
            
            
            572
            
            
            
            (53
            )Amortization
      of deferred gain (b)(i)
            
            
            (455
            )
            
            
            (555
            )Change
      in depreciation of property, plant and equipment (b)(ii)
            
            
            44
            
            
            
            53Capitalized
      deferred stripping and amortization (b)(iii)
            
            
            868
            
            
            
            1,058Black
      Fox development costs (c)
            
            
            –
            
            
            
            (1,195
            )Convertible
      debentures (d)
            
            
            168
            
            
            
            (1,330
            )Warrants
      treated as liabilities under EITF 07-5 (h)
            
            
            (4,753
            )
            
            
            –Income
      taxes (f)
            
            
            (116
            )
            
            
            628Net
      (loss) income for the period based on U.S. GAAP
            
            $
            (28,425
            )
            
            $
            2,260Comprehensive
      (loss) income based on U.S. GAAP
            
            $
            (28,425
            )
            
            $
            2,260Basic
      and diluted net (loss) income per share in accordance with U.S.
      GAAP
            
            $
            (0.13
            )
            
            $
            0.01





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





Three
      months ended
                March
      31,2009
            
            
            2008Cash
      provided by operating activities based on Canadian GAAP
            
            $
            1,556
            
            
            $
            1,420Debt
      transaction costs (a)
            
            
            572
            
            
            
            –Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
            
            
            (1,207
            )
            
            
            (4,824
            )Black
      Fox development costs (c)
            
            
            –
            
            
            
            (1,195
            )Cash
      used in operating activities based on U.S. GAAP
            
            
            921
            
            
            
            (4,599
            )Cash
      used in investing activities based on Canadian GAAP
            
            
            (16,786
            )
            
            
            (1,832
            )Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
            
            
            7
            
            
            
            677Black
      Fox development costs (c)
            
            
            –
            
            
            
            1,195Restricted
      cash for Canadian flow-through expenditures (e)
            
            
            3,825
            
            
            
            745Cash
      (used in) provided by investing activities based on U.S.
    GAAP
            
            
            (12,954
            )
            
            
            785Cash
      provided by (used in) financing activities based on Canadian
      GAAP
            
            
            17,329
            
            
            
            (1,558
            )Debt
      transaction costs (a)
            
            
            (572
            )
            
            
            –Equity
      accounting for investment in Montana Tunnels joint venture
      (b)(i)
            
            
            667
            
            
            
            4,139Cash
      provided by financing activities based on U.S. GAAP
            
            
            17,424
            
            
            
            2,581Effect
      of exchange rate changes on cash
            
            
            (4
            )
            
            
            (14
            )Net
      cash inflow (outflow) in accordance with U.S. GAAP
            
            
            5,387
            
            
            
            (1,247
            )(Bank
      indebtedness) cash, beginning of period in accordance with U.S.
      GAAP
            
            
            (742
            )
            
            
            1,334Cash,
      end of period in accordance with U.S. GAAP
            
            $
            4,645
            
            
            $
            87


27


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




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





(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 $0.6 million reduction in debt and a
$0.6 million reduction in deficit have been recorded as at March 31,
2009.




(b)
            Montana
      Tunnels




(i)
              Joint
      venture




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




(ii)
            Impairment
      of property, plant and equipment




Under
Canadian GAAP, write-downs for impairment of property, plant and equipment are
determined using current proven and probable reserves and mineral resources
expected to be converted into mineral reserves.  In 2002, under U.S.
GAAP, write-downs were determined using current proven and probable reserves
only and did not include mineral resources expected to be converted in to
mineral reserves.  Accordingly, for U.S. GAAP purposes, an impairment
of property, plant and equipment and an adjustment to the related depreciation
has been recorded.




(iii)
            Deferred
      stripping costs




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




(c)
            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 March 31, 2009.




28




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




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


(d)
            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.




(e)
            Derivative
      instruments




The
following additional tabular presentation of derivative instruments is required
by U.S. GAAP under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”) and SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”).





There
were no derivatives designated as hedging instruments under SFAS 133 at either
March 31, 2009 or December 31, 2008.  There were no differences in
classification or valuation of derivative instruments between U.S. GAAP and
Canadian GAAP at either March 31, 2009 or December 31, 2008.  Refer to
Notes 5 and 8(b) for further discussion of derivative instruments.




Asset
      Derivatives
            
            
            Liability
      DerivativesMarch
      31, 2009
            
            
            December
      31, 2008
            
            
            March
      31, 2009
            
            
            December
      31, 2008Balance
      Sheet Location
            
            
            Fair
      Value
            
            
            Balance
      Sheet Location
            
            
            Fair
      Value
            
            
            Balance
      Sheet Location
            
            
            Fair
      Value
            
            
            Balance
      Sheet Location
            
            
            Fair
      ValueDerivatives
      not designated as hedging instruments under SFAS 133Gold
      forward contracts
            
            
            n/a
            
            
            $
            –
            
            
            Derivative
      instruments
            
            
            $
            54
            
            
            Derivative
      instruments
            
            
            $
            16,106
            
            
            
            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
      currency forward contracts
            
            
            n/a
            
            
            
            –
            
            
            
            n/a
            
            
            
            –
            
            
            Derivative
      instruments
            
            
            $
            1,760
            
            
            
            n/a
            
            
            
            –Total
      derivatives
            
            
            
            
            
            $
            –
            
            
            
            
            
            
            $
            552
            
            
            
            
            
            
            $
            17,866
            
            
            
            
            
            
            $
            –





(f)
            Flow-through
      common shares




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




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




29




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




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




Also,
notwithstanding whether there is a specific requirement to segregate the funds,
the flow-through funds which are unexpended at the consolidated balance sheet
dates are considered to be restricted and are not considered to be cash or cash
equivalents under U.S. GAAP.  As at March 31, 2009, the Company had no
unexpended flow-through funds (December 31, 2008 – $3.8 million).




(g)
            Income
      taxes




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




Under
current conditions and expectations, the Company does not foresee any
significant changes in unrecognized tax benefits that would have a material
impact on the Company’s financial statements.  The Company and/or one
of its subsidiaries are subject to the following material taxing
jurisdictions:  United States and Canada.  The Company is
generally not subject to examinations that could create a tax liability for tax
years before 2004 by the Internal Revenue Service and before 2001 by Revenue
Canada.  The Company recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses.  The Company has no accrued interest or penalties related to
uncertain tax positions as of March 31, 2009.




(h)
            Changes
      in accounting pronouncements




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(“SFAS 141(R)”).  SFAS 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired.  SFAS 141(R) also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business
combination.  The provisions of SFAS 141(R) were adopted January
1, 2009.  The adoption of SFAS 141(R) had no impact on the Company’s
financial position, results of operations, or cash flows.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an Amendment of Accounting Research Bulletin
No. 51 (“SFAS 160”).  SFAS 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated.  SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners.  The provisions of SFAS 160 were adopted January 1,
2009.  The adoption of SFAS 160 had no impact on the Company’s
financial position, results of operations, or cash flows.




30




APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)




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


In
February 2008, the FASB staff issued FSP No. 157-2 “Effective Date of FASB
Statement No. 157” (“FSP FAS 157-2”).  FSP FAS 157-2 delayed the
effective date of FAS 157 for nonfinancial assets and


nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least
annually).  The provisions of FSP FAS 157-2 were adopted January 1,
2009.  The adoption of SFAS 160 had no impact on the Company’s
financial position, results of operations, or cash flows.





In March
2008, the FASB issued SFAS 161.The new standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows.  The provisions of SFAS 161 were adopted
January 1, 2009.  The adoption of SFAS 161 had no impact on the
Company’s financial position, results of operations, or cash flows.





In May
2008, the FASB issued FASB Staff Positions (FSP) APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (including Partial Cash
Settlements)”.  This FSP clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants.  Additionally, this
FSP specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods.  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 FSP APB 14-1 had no impact on the Company’s financial
position, results of operations, or cash flows.





In June
2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities(“FSP EITF 03-6-1”). The FSP addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share under the two-class method described in SFAS No. 128,
“Earnings Per Share”.  The provisions of FSP EITF 03-6-1 were adopted
January 1, 2009.  The adoption of FSP EITF 03-6-1 had no impact on the
Company’s financial position, results of operations, cash flows, or earnings per
share data.





In June
2008, the EITF reached consensus on Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock
(“EITF 07-5”).  EITF 07-5 clarifies the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which would qualify as a scope exception under FASB Statement
No. 133, Accounting for
Derivative Instruments and Hedging Activities
(“FAS 133”).  The provisions of EITF 07-5 were adopted
January 1, 2009.





Under
EITF 07-5, an equity-linked financial instrument (or embedded feature) would not
be considered indexed to the entity’s own stock if the strike price is
denominated in a currency other than the issuer’s functional
currency.  As of March 31, 2009 and January 1, 2009, the Company had
109.2 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 warrants) (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 FAS
133.  The warrants thereby must be accounted for separately as
derivative instruments, rather than as equity
instruments.  Accordingly, for U.S. GAAP purposes, the Company
has assessed the fair value of these warrants as of January 1, 2009 and recorded
a reduction in contributed surplus of $6.7 million, an increase in opening
deficit of $1.5 million and an $8.2 million increase in
liabilities.  As of March 31, 2009, the Company has assessed the fair
value of these warrants and recorded cumulative adjustments as follows, a
reduction in contributed surplus of $14.8 million, an increase in deficit of
$6.3 million and a $21.1 million increase in liabilities.
  31


APOLLO
GOLD CORPORATION
 Notes
to the Condensed Consolidated Financial Statements
 Three
month period ended March 31, 2009
 (Stated
in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except
share and per share data)
 (Unaudited)


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




These
warrants were fair valued at January 1 and March 31, 2009 using an option
pricing model with the following assumptions (in respective terms where
assumptions varied between dates):  no dividends are paid, weighted
average volatily of the Company’s share price of 81%, weighted average expected
lives of the warrants of 3.2 and 3.3 years, and weighted average annual
risk-free rate of 1.4%.





(i)
            Recently
      issued accounting pronouncements




In April
2009, the FASB issued FSP No. FAS 107-1, Interim Disclosures about Fair Value
of Financial Instruments.  FSP 107-1 requires disclosures about
fair value of financial instruments for interim reporting periods as well as in
annual financial statements.  FSP 107-1 will be effective for the
Company for the quarter ending June 30, 2009.  The adoption of FSP
107-1 will not have an impact on the Company’s financial position and results of
operations.





19.
            SUBSEQUENT
      EVENT




On April
30, 2009, milling operations at the Montana Tunnels mine ceased and the mine and
mill were placed under care and maintenance at that time.




32




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 a 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, lead, and zinc production.  Total cash
costs is equivalent to cash operating costs plus production royalties and mining
taxes.  The term “total production costs” is equivalent to total cash
costs plus non-cash costs including depreciation and
amortization.  See “Reconciliation of Cash Operating and Total
Production Costs Per Ounce” below.  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, for the three months ended March 31,
2008, $0.5 million that was recorded as cash inflows from investing activities
has 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, refining
and the production of other co-product metals, as well as related activities
including exploration and development of mineral deposits principally in North
America.  We own Black Fox, an open pit mine and mill located in the
Province of Ontario, Canada (the “Black Fox project”).  The Black Fox
project consists of an open pit mine site situated seven miles east of Matheson
and a mill complex 12 miles west of Matheson.  Mining of ores from the
open pit at the Black Fox project began in March 2009 and milling operations
commenced in April 2009.  The Black Fox project also includes an
underground mine, of which we expect will commence mining operations in
2011.




We are
the operator of the Montana Tunnels mine, which is a 50% joint venture with
Elkhorn Tunnels, LLC (“Elkhorn”).  The Montana Tunnels mine is an open
pit mine and mill located near Helena, Montana, which produced gold doré and
lead-gold and zinc-gold concentrates.  The Montana Tunnels mine ceased
milling operations on April 30, 2009 and we placed the mine and mill on care and
maintenance at that time.




We also own Mexican subsidiaries which
own concessions at the Huizopa exploration property located in the Sierra Madres
in Chihuahua, Mexico.





Black
Fox





We commenced open pit operations at the
Black Fox project with the first blast on March 18, 2009 and as of May 1, 2009,
we had mined 240,000 tonnes of material of which 75,000 tonnes was
ore.  16,000 tonnes of this ore has been crushed and transported to
the Black Fox mill located 26 kilometers west of the mine site.





The commissioning of the upgraded mill,
with the exception of the new ball mill, commenced in mid April utilizing an
existing low grade ore stockpile and it has progressed steadily throughout the
month of April.  During the first week of May 2009, the new ball mill
was brought online and we are now processing normal grade ores from the Black
Fox open pit.  We expect the throughput rate will be slowly increased
towards our primary objective of 1,500 tonnes of ore per day by the end of May
as previously forecast.  The first gold pour and sales are scheduled
to occur prior to the end of May 2009.




33




Capital expenditures for the three
months ended March 31, 2009 were approximately $22 million, which included (1)
$13 million towards the cost of upgrading the Black Fox mill to increase its
throughput rate from 1,100 tonnes per day to 2,000 tonnes per day, (2) $3
million for contract pond and road construction at the mine site and (3)
capitalized expenditures of $6 million including contract pre-stripping of the
open pit.





On
February 20, 2009, we entered into a $70 million project debt facility agreement
(“Project Facility”) with Macquarie Bank Ltd. and RMB Australia Holdings Limited
(“the Banks”).  See “Material Changes in Liquidity” below for a
detailed discussion of the Project Facility.





As a part
of the Project Facility, we entered into a hedging program with the Banks
covering both gold sales and part of our Canadian dollar operating costs. 
Specifically, we have entered into a 250,430 ounce gold forward sales program
which will be allocated across the four year term of the Project Facility.
 The weighted average price of the sales program is $876 per ounce of
gold.  We entered into a program to purchase Cdn$70.2 million for the
equivalent of US$58 million, at an exchange rate of US$1 = Cdn$1.21, over a
period covering the four year term of the Project Facility.





Montana
Tunnels





During
the first quarter 2009, the mill processed 1,086,163 tons of ore, which had been
stockpiled as of December 31, 2008, at an average throughput of 12,100 tons per
day for the quarter.  As at March 31, 2009, the ore stockpile sitting
alongside the mill was sufficient for the mill to operate through April 30,
2009.  Payable production in the first quarter was 7,700 ounces of
gold, 99,000 ounces of silver, 2,392,000 pounds of lead and 8,185,000 pounds of
zinc.  Apollo’s share of this production is 50%.




Grade:
              
              
              
              Recoveries:Gold
      ounces per ton
              
              0.0105
              
              Gold
              
              75.63%Silver
      ounces per ton
              
              0.1611
              
              Silver
              
              76.75%Lead
      %
              
              0.1600
              
              Lead
              
              89.86%Zinc
      %
              
              0.5360
              
              Zinc
              
              85.17%




Total
cash costs for the first quarter 2009 on a by-product basis were $1,217 per
ounce of gold and on a co-product basis they were $1,083 per ounce of gold,
$16.87 per ounce of silver, $0.68 per lb of lead and $0.63 per lb of
zinc.  For the first quarter 2009, the higher cash costs per ounce of
gold on a by-product basis compared to the first quarter 2008 are mainly the
result of a 59% reduction in by-product credits due to a 58% decline in realized
zinc prices and a 49% decrease in realized lead prices combined with a 44%
decline in lead production.





The
Montana Tunnels mine ceased milling operations on April 30, 2009 and we placed
the mine and mill on care and maintenance at that time.





We
have received all necessary permits to expand the current pit, which
expansion plan we refer to as the M Pit project.  The M Pit project
would involve a 12 month pre-stripping program that would cost approximately $70
million, during which time no ore would be produced.  We are not
currently engaged in discussions with financing sources for our estimated $35
million share of the financing costs.  The decision to proceed with
the M Pit project must be agreed to by both Apollo and Elkhorn.  We
and our joint venture partner have not yet made a production decision on the M
Pit project and such decision will depend, among other things, on securing
financing for the $70 million and the prices of gold, silver, lead and zinc and
available smelter terms.





Huizopa
Project




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




34




Production
& Metals Price Averages




The table
below summarizes our share of production of gold, silver and other metals, as
well as average metal prices and other key statistics, for each period
indicated:





Three
      months ended
                March
      31,
                2009
            
            
            Three
      months ended
              March 31,
              2008Metal
      Sales:Gold
      (ounces)
            
            
            3,865
            
            
            
            6,933Silver
      (ounces)
            
            
            49,649
            
            
            
            85,048Lead
      (pounds)
            
            
            1,195,994
            
            
            
            2,124,695Zinc
      (pounds)
            
            
            4,092,730
            
            
            
            4,431,797Total
      revenue ($millions)
            
            $
            7.4
            
            
            $
            15.9Total
      cash and production costs on a by-product basis:Total
      cash costs per ounce of gold
            
            $
            1,217
            
            
            $
            (3
            )Total
      production costs per ounce of gold
            
            $
            1,295
            
            
            $
            132Total
      cash costs on a co-product basis:Total
      cash costs per ounce of gold
            
            $
            1,083
            
            
            $
            561Total
      cash costs per ounce of silver
            
            $
            16.87
            
            
            $
            8.20Total
      cash costs per pound of lead
            
            $
            0.68
            
            
            $
            0.81Total
      cash costs per pound of zinc
            
            $
            0.63
            
            
            $
            0.62Average
      metal prices:Gold
      - London bullion mkt. ($/ounce)
            
            $
            909
            
            
            $
            927Silver
      - London bullion mkt. ($/ounce)
            
            $
            12.61
            
            
            $
            17.68Lead
      - LME ($/pound)
            
            $
            0.53
            
            
            $
            1.31Zinc
      - LME ($/pound)
            
            $
            0.52
            
            
            $
            1.10





RECONCILIATION
OF CASH OPERATING AND TOTAL PRODUCTION COSTS PER OUNCE




($
      in thousands)
            
            Three
      months ended
                March
      31,
                2009
            
            
            Three
      months
                ended
                March
      31,
                2008Gold
      ounces sold
            
            
            3,865
            
            
            
            6,933Direct
      operating costs
            
            $
            8,402
            
            
            $
            9,059Less: 
      Mining taxes, royalty expenses
            
            
            327
            
            
            
            491By-product
      credits
            
            
            3,698
            
            
            
            9,079Cash
      operating cost
            
            
            4,377
            
            
            
            (511
            )Cash
      operating cost per ounce of gold
            
            $
            1,132
            
            
            $
            (74
            )Cash
      operating costs
            
            
            4,377
            
            
            
            (511
            )Add: 
      Mining taxes, royalty expenses
            
            
            327
            
            
            
            491Total
      cash costs
            
            
            4,704
            
            
            
            (20
            )Total
      cash cost per ounce of gold
            
            $
            1,217
            
            
            $
            (3
            )Total
      cash costs
            
            
            4,704
            
            
            
            (20
            )Add: 
      Depreciation & amortization (operations only)
            
            
            300
            
            
            
            934Total
      production costs
            
            
            5,004
            
            
            
            914Total
      production cost per ounce of gold
            
            $
            1,295
            
            
            $
            132




35




MATERIAL
CHANGES IN RESULTS OF OPERATIONS




Three
Months Ended March 31, 2009 Compared to the Three Months Ended March 31,
2008




Revenue
from the Sale of Minerals




Revenue
for the three months ended March 31, 2009 decreased 54% to $7.4 million
from $15.9 million for the same period in 2008.  Decreased production
levels and lower prices of lead, zinc and silver contributed to the lower
revenues in the first quarter of 2009 compared to 2008.




Operating
Expenses




Direct Operating
Costs.Direct operating costs, which includes mining costs,
processing costs and smelting and refining charges at the Montana Tunnels mine,
for the three months ended March 31, 2009 decreased 7% to $8.4 million from $9.1
million for the three months ended March 31, 2008.  This decrease is
result of lower production in the first quarter of 2009 compared to the first
quarter of 2008.




Depreciation and
Amortization.  Depreciation and amortization expenses were $0.3
million and $0.4 million for the three months ended March 31, 2009 and 2008,
respectively.




General and Administrative
Expenses.General and administrative expenses were $0.9
million and $0.9 million for the three months ended March 31, 2009 and 2008,
respectively.




Accretion Expense – Accrued Site
Closure Costs.Accrued accretion expense was $0.2 million for
the three months ended March 31, 2009 compared to $0.2 million for the same
period in 2008.





Amortization of Deferred
Gain.Amortization of deferred gain relating to the transfer
of assets and liabilities to Montana Tunnels joint venture was $0.5 million for
the three months ended March 31, 2009 compared to $0.6 million for the same
period in 2008.





Exploration and Business Development
Expense.Expenses for exploration and development, consisting
of drilling and related land expenses mainly at our Huizopa project in Mexico,
totaled $0.2 million and $0.8 million for the three months ended March 31, 2009
and 2008, respectively.  The lower expenditures in 2009 were a direct
result of lower exploration activity in Mexico.




Total Operating
Expenses.  As a result of these expense components, our total
operating expenses decreased 11% to $9.6 million for the three months ended
March 31, 2009, from $10.8 million for the three months ended March 31,
2008.




Other
Income (Expenses)




Interest Income and Interest
Expense.We realized interest income of $0.1 million and
interest expense of $1.0 million during the three months ended March 31, 2009
compared to $0.1 million in interest income and $1.1 million in interest expense
during the three months ended March 31, 2008.  Additionally, interest
of $0.8 million was capitalized for the development of the Black Fox project,
which included $0.2 million of accretion on the debt discount for the Project
Facility.




Debt Transaction
Costs.During the three months ended March 31, 2009, we
recorded debt transaction costs and loss on modification of debt 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(c) to the financial
statements for further details).





Loss on Modification of Convertible
Debentures.  During the three months ended March 31, 2009, we
recorded a loss on modification of convertible debentures of $2.0
million.  The $2.0 million loss is in connection with the issuance of
shares and warrants in for the one year extension of $4.3 million face value
Series 2007-A convertible debentures.





Unrealized Losses on Derivative
Contracts.Unrealized losses on derivative contacts of $18.4
million for the three months ended March 31, 2009 are comprised of (1) a $0.5
million loss for the change in value recorded for gold, silver and lead
contracts held as of December 31, 2008 that matured during the quarter, (2) a
$16.1 million loss recorded for the fair value of gold forward sales contracts
as of March 31, 2009 that were entered into on February 20, 2009 in connection
with the Project Facility and (3) a $1.8 million loss recorded for the fair
value of Canadian dollar contracts as of March 31, 2009 that were entered into
on February 20, 2009 also in connection with the Project Facility.




36




Net
Income (Loss)




As a
result of the foregoing, the Company recorded a net loss of $24.8 million, or
($0.11) per share, for the three months ended March 31, 2009, as compared to net
income of $3.7 million, or $0.02 per share, for the three months ended March 31,
2008.




MATERIAL
CHANGES IN LIQUIDITY




To date,
we have funded our operations primarily through issuances of debt and equity
securities and cash generated by the Montana Tunnels joint
venture.  At March 31, 2009, we had cash of $5.2 million, compared to
cash of $2.9 million at December 31, 2008.  The increase in cash since
December 31, 2008 is primarily the result of financing cash inflows of $17.3
million and operating cash inflows of $1.6 million, partially offset by
investing cash outflows of $16.8 million.




During
the three months ended March 31, 2009, net cash used in investing activities
totaled $16.7 million.  Capital expenditures for property, plant and
equipment of $21.9 million were for the development of the Black Fox
project.  Cash inflows for restricted cash and certificates of deposit
of $5.1 million were comprised of $10.0 million being release from restricted
cash upon meeting certain requirements of our lenders which were offset by (1) a
$1.7 million increase in restricted cash due to the balance of cash in a
restricted account controlled by the Banks as of March 31, 2009 and (2) a $3.2
million increase in our environmental bonding posted during the quarter for
Black Fox reclamation.




During
the three months ended March 31, 2009, cash provided by financing activities was
$17.3 million.  Cash inflows of financing activities included
drawdowns of the $38.0 million Project Facility ($41.5 million less the
arrangement fee of $3.5 million) and the exercise of 2.8 million warrants at an
exercise price of $0.176 per common share for proceeds of $0.5
million.  These inflows were partially offset by cash outflows for
repayment of debt of $21.2 million which included the repayment of a $15.0
bridge facility.




We
estimate that with our March 31, 2009 cash balance of $5.2 million, the
projected cash flows from Black Fox and the utilization of the undrawn amounts
of the $70.0 million 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 $0.5 million of exploration at Huizopa, (3) repay $15.3 million
principal due in 2009 on the Project Facility and (4) fund corporate
overhead.




Black
Fox $70 Million Project Facility





The
Project Facility refinanced a $15 million bridge facility (the “Bridge
Facility”) entered into on December 10, 2008.  Under the Project
Facility agreement, we may borrow up to $70 million from the Banks at any time
between February 20, 2009 and June 30, 2009, after which time any undrawn
portion of the $70 million commitment will be cancelled and will no longer
be available for drawdown.  The Project Facility requires us to use
proceeds from the facility only for: (i) the funding of the development,
construction and operation of our Black Fox project; (ii) the funding of certain
fees and costs due under the Project Facility and certain related project
agreements; (iii) corporate expenditures of up to $7 million as approved by the
Banks in our corporate budget ($3.7 million of which was used to repay the
February 2007 convertible debentures, and interest thereon, not held by RAB
Special Situation (Master) Fund Limited (“RAB”)); (iv) repayment of $15.3
million principal and interest under the Bridge Facility and (v) any other
purpose that the Banks approve.




37




The
Project Facility was subject to an arrangement fee of $3.47 million, which was
paid upon the initial drawdown under the Project Facility, and a commitment fee
equal to 1% per annum calculated on a daily basis on the average monthly balance
of the undrawn commitment, which is payable in arrears on March 31, 2009 and
June 30, 2009.  Amounts borrowed under the Project Facility bear
interest at the London interbank offered rate (“LIBOR”) plus 7% per annum and
interest is payable monthly commencing March 31, 2009 and in accordance
with the applicable interest period (currently monthly but may be monthly,
quarterly or such other period agreed to by the Banks and us).  Once
fully drawn, the $70 million principal amount is repayable by us in accordance
with the following schedule:




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





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




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




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





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




38




As at March 31, 2009, the Company was
in compliance with the various financial and operational covenants of the
Project Facility.





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





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





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





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




MATERIAL
CHANGES IN CONTRACTUAL OBLIGATIONS




Not
applicable.




MATERIAL
CHANGES IN OFF BALANCE SHEET ARRANGEMENTS




At March
31, 2009, we had no 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.




39




ENVIRONMENTAL




The
Company’s current environmental liabilities are at Montana Tunnels and Black
Fox.  As of March 31, 2009, we have accrued $11.6 million related to
reclamation, an increase of $1.0 million from December 31,
2008.  These liabilities are covered by a combination of surety bonds,
restricted certificates of deposit and property totaling $17.3 million at March
31, 2009.  We have accrued the present value of management’s estimate
of the environmental liabilities as of March 31, 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 principals requires management to make a variety of estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.




For other
critical accounting policies, please refer to those disclosed in our 10-K filing
for the year ended December 31, 2008 and to the changes in accounting policies
described below.




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.





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
March 31, 2009, the Company had $41.5 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 repayable in monthly installments (interest is currently payable
monthly but 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.




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




Foreign
Currency Exchange Rate Risk




While the
majority of our transactions are denominated in U.S. dollars, certain purchases
of labor, operating supplies and capital assets are denominated in Canadian
dollars and Mexican pesos.  The appreciation of non-US dollar
currencies against the US dollar increases the costs of goods and services
purchased in non-US dollar terms, which can adversely impact our net income and
cash flows.  Conversely, a depreciation of non-US dollar currencies
against the US dollar usually decreases the costs of goods and services
purchased in US dollar terms.  We have entered into the forward
purchase of Canadian dollars at an exchange rate with the US dollar of
Cdn$1.21=US$1.0 for Cdn$ equivalent of US$58 million over a four year period
commencing April 2009.




40




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





Commodity
Price Risk




The
profitability of the Company’s operations will be dependent upon the market
price of gold.  Gold prices fluctuate widely and are affected by
numerous factors beyond the control of the Company.  The level of
interest rates, the rate of inflation, the world supply of gold and the
stability of exchange rates can all cause significant fluctuations in
prices.  Such external economic factors are in turn influenced by
changes in international investment patterns, monetary systems and political
developments.  The price of gold has fluctuated widely in recent
years, and future price declines could cause some projects to become uneconomic,
thereby having a material adverse effect on the Company’s business and financial
condition.  We have entered into derivative contracts to protect the
selling price for gold.  These contracts cover 250,430 ounces at an
average price of $876 per ounce over a four year period commencing May
2009.  We may in the future more actively manage our exposure through
additional commodity price risk management programs.




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




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





Equity
Price Risk




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




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




41




Changes
in Internal Control




There has
been no change in our internal control over financial reporting during the
quarter ended March 31, 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




None.




ITEM
      1A.
            RISK
      FACTORS




In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in ‘‘Risk Factors’’ in our Annual Report on Form
10-K for the year ended December 31, 2008, which could materially affect our
business, financial condition and/or future results.  The risks
described 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




42




SIGNATURES




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




APOLLO GOLD
      CORPORATIONDate:
      May 15, 2009
              
              /s/ R.
      David RussellR.
      David Russell, President andChief
      Executive Officer




Date:
      May 15, 2009
              
              /s/ Melvyn
      WilliamsMelvyn
      Williams,Chief
      Financial Officer and Senior Vice President Finance and Corporate
      Development


43




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




44