Unassociated Document
 


 
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 June 30, 2006

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one).

Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No þ

At August 4, 2006, there were 121,396,859 common shares of Apollo Gold Corporation outstanding.
 





TABLE OF CONTENTS

   
 Page
PART I     FINANCIAL INFORMATION
 
4
   
ITEM 1.
 
FINANCIAL STATEMENTS (Unaudited)
 
4
           
 
       
Condensed Consolidated Balance Sheets - As of June 30, 2006 and as of December 31, 2005
 
5
       
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005
 
6
       
Condensed Consolidated Statements of Shareholders’ Equity for the Year ended December 31, 2005 and the Six Months Ended June 30, 2006
 
7
       
Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2006 and 2005
 
8
       
Notes to the Condensed Consolidated Financial Statements
 
9
           
 
   
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
23
   
ITEM 3.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
30
   
ITEM 4.
 
CONTROLS AND PROCEDURES
 
31
PART II     OTHER INFORMATION
 
33
   
ITEM 1.
 
LEGAL PROCEEDINGS
 
33
   
ITEM 1A.
 
RISK FACTORS
 
33
   
ITEM 2.
 
UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
 
33
   
ITEM 3.
 
DEFAULTS UPON SENIOR SECURITIES
 
33
   
ITEM 4.
 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
33
   
ITEM 5.
 
OTHER INFORMATION
 
34
   
ITEM 6.
 
EXHIBITS
 
34
INDEX TO EXHIBITS
 
34
       
Certification of CEO Pursuant to Section 302
 
Exhibit 31.1
       
Certification of CFO Pursuant to Section 302
 
Exhibit 31.2
       
Certification of CEO and CFO Pursuant to Section 906
 
Exhibit 32.1
 
STATEMENTS REGARDING FORWARD LOOKING INFORMATION
 
This Quarterly Report on Form 10-Q contains forward looking statements as defined in the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, business prospects, plans, objectives, goals, strategies, future events, capital 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:
 
·  
the Company’s future focus on Black Fox;
 
 
2

 
 
·  
our ability to effectively remediate the east wall instability problems at the Montana Tunnels mine;
 
·  
our ability to bring the Montana Tunnels mine back into production;
 
·  
future financial contributions by Elkhorn Tunnels, LLC, our joint venture partner in respect of the Montana Tunnels mine;
 
·  
the establishment and estimates of mineral reserves and resources;
 
·  
production and production costs;
 
·  
cash operating costs;
 
·  
total cash costs;
 
·  
grade;
 
·  
feasibility studies;
 
·  
remediation efforts;
 
·  
expenditures;
 
·  
exploration;
 
·  
permits;
 
·  
expansion plans;
 
·  
plans for Black Fox and Huizopa;
 
·  
closure costs;
 
·  
cash flows;
 
·  
future financing;
 
·  
liquidity;
 
·  
estimates of environmental liabilities;
 
·  
our ability to obtain future financing to fund our estimated expenditure and capital requirements;
 
·  
factors impacting our results of operations;
 
·  
application of Sarbanes-Oxley 404 reporting requirements and our ability to meet those reporting requirements; and
 
·  
the impact of adoption of new accounting standards.
 
These forward looking statements are subject to numerous risks, uncertainties and assumptions including: additional operational and remediation problems at the Montana Tunnels mine; the failure of Elkhorn Tunnels, LLC to make the expected contributions under the joint venture in respect of the Montana Tunnels mine; unexpected changes in business and economic conditions; metallurgy, processing, access, availability of materials, equipment, supplies and water; determination of reserves; changes in project parameters; costs and timing of development of new reserves; results of current and future exploration activities; results of pending and future feasibility studies; 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, 2005 under the heading “Risk Factors.” We disclaim any obligation to update forward looking statements, whether as a result of new information, future events or otherwise.
 
3

 
ACCOUNTING PRINCIPLES, REPORTING CURRENCY AND OTHER INFORMATION
 
Apollo Gold Corporation prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada and publishes its financial statements in United States dollars. This Quarterly Report on Form 10-Q should be read in conjunction with our 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, 2005 included in our Annual Report on Form 10-K. Certain classifications have been made to the prior period financial statements to conform with the current period presentation.
 
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
 
Cash operating, total cash and total production costs are non-GAAP financial measures and are used by management to assess performance of individual operations as well as a comparison to other gold producers. We have included cash operating costs information to provide investors with information about the cost structure of our mining operations.
 
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.
 
4

 
PART I    FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
These 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, 2005 filed with the Securities and Exchange Commission on March 31, 2006.
 
5


APOLLO GOLD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
(Unaudited)

   
June 30,
2006
 
December 31,
2005
 
ASSETS
     
CURRENT
     
Cash and cash equivalents
 
$
2,980
 
$
127
 
Accounts receivable
   
178
   
2,638
 
Prepaids
   
81
   
400
 
Inventories
   
1,564
   
1,708
 
Total current assets
   
4,803
   
4,873
 
Property, plant and equipment
   
43,754
   
40,045
 
Restricted certificates of deposit
   
7,030
   
17,043
 
Deferred financing costs
   
425
   
584
 
TOTAL ASSETS
 
$
56,012
 
$
62,545
 
 
LIABILITIES
             
CURRENT
             
Accounts payable
 
$
1,449
 
$
6,802
 
Accrued severance and other liabilities
   
1,826
   
1,841
 
Notes payable
   
160
   
596
 
Property and mining taxes payable
   
963
   
1,172
 
Total current liabilities
   
4,398
   
10,411
 
Accrued severance
   
370
   
383
 
Notes payable
   
62
   
75
 
Convertible debenture
   
7,105
   
6,601
 
Accrued site closure costs
   
13,470
   
12,634
 
TOTAL LIABILITIES
   
25,405
   
30,104
 
               
Continuing operations (Note 1)
             
               
SHAREHOLDERS’ EQUITY
             
Share capital (Note 5)
   
152,738
   
148,295
 
Issuable common shares
   
231
   
231
 
Equity component of convertible debentures
   
1,809
   
1,809
 
Note warrants
   
1,086
   
781
 
Contributed surplus
   
10,750
   
10,561
 
Deficit
   
(136,007
)
 
(129,236
)
TOTAL SHAREHOLDERS’ EQUITY
   
30,607
   
32,441
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
56,012
 
$
62,545
 
 
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
 
6

 
APOLLO GOLD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)

   
Three months ended
June 30,
 
Six months ended
June 30,
 
   
2006
 
2005
 
2006
 
2005
 
Revenue from sale of minerals
 
$
3,667
 
$
10,581
 
$
9,805
 
$
22,913
 
Operating expenses
                         
Direct operating costs
   
3,587
   
12,622
   
10,745
   
26,111
 
Depreciation and amortization
   
377
   
614
   
958
   
1,334
 
General and administrative expenses
   
1,167
   
1,216
   
2,283
   
2,866
 
Stock-based compensation
   
81
   
152
   
189
   
354
 
Accretion expense - accrued site closure costs
   
237
   
197
   
474
   
394
 
Exploration and business development
   
249
   
318
   
600
   
558
 
(Gain) loss on sale of property, plant and equipment
   
(2
)
 
-
   
5
   
(1,365
)
     
5,696
   
15,119
   
15,254
   
30,252
 
Operating loss
   
(2,029
)
 
(4,538
)
 
(5,449
)
 
(7,339
)
Other income (expenses)
                         
Interest income
   
88
   
69
   
154
   
173
 
Interest expense
   
(613
)
 
(485
)
 
(1,213
)
 
(1,193
)
Foreign exchange loss and other
   
(14
)
 
(7
)
 
(13
)
 
(33
)
Loss from continuing operations for the period
   
(2,568
)
 
(4,961
)
 
(6,521
)
 
(8,392
)
Loss from discontinued operations for the period (Note 4)
   
-
   
(1,538
)
 
(250
)
 
(2,355
)
Net loss for the period
 
$
(2,568
)
$
(6,499
)
$
(6,771
)
$
(10,747
)
                           
Basic and diluted net loss per share from:
                         
Continuing operations
 
$
(0.02
)
$
(0.05
)
$
(0.06
)
$
(0.09
)
Discontinued operations
   
-
   
(0.02
)
 
-
   
(0.02
)
   
$
(0.02
)
$
(0.07
)
$
(0.06
)
$
(0.11
)
                           
Basic and diluted weighted-average number of shares outstanding
   
121,396,859
   
98,777,880
   
119,182,529
   
96,828,366
 
 
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
 
7


 
APOLLO GOLD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands of U.S. dollars)
(Unaudited)
 
   
Share Capital
 
Issuable
 
Equity Component of
                 
   
Number
of Shares
 
Amount
 
Common
Shares
 
Convertible Debentures
 
Note Warrants
 
Contributed
Surplus
 
Deficit
 
Total
 
Balance, December 31, 2004
   
90,973,120
 
$
141,795
 
$
231
 
$
1,815
 
$
781
 
$
9,627
 
$
(107,028
)
$
47,221
 
Units issued for cash
   
4,199,998
   
2,587
   
-
   
-
   
-
   
194
   
-
   
2,781
 
Shares issued for increase in Huizopa interest
   
1,000,000
   
410
   
-
   
-
   
-
   
-
   
-
   
410
 
Shares issued for cash
   
10,000,000
   
3,183
   
-
   
-
   
-
   
-
   
-
   
3,183
 
Conversion of convertible debentures
   
33,333
   
23
   
-
   
(6
)
 
-
   
-
   
-
   
17
 
Engagement fee shares and warrants
   
350,000
   
100
   
-
   
-
   
-
   
143
   
-
   
243
 
Completion fee shares
   
900,000
   
197
   
-
   
-
   
-
   
-
   
-
   
197
 
Stock-based compensation
   
-
   
-
   
-
   
-
   
-
   
597
   
-
   
597
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
-
   
(22,208
)
 
(22,208
)
Balance, December 31, 2005
   
107,456,451
   
148,295
   
231
   
1,809
   
781
   
10,561
   
(129,236
)
 
32,441
 
Units issued for cash
   
11,650,000
   
3,488
   
-
   
-
   
-
   
-
   
-
   
3,488
 
Shares issued for 2005 stock-based compensation
   
2,290,408
   
955
   
-
   
-
   
-
   
-
   
-
   
955
 
Reduction of exercise price of Note Warrants (Note 5(b))
   
-
   
-
   
-
   
-
   
305
   
-
   
-
   
305
 
Stock-based compensation
   
-
   
-
   
-
   
-
   
-
   
189
   
-
   
189
 
Net loss
   
-
   
-
   
-
   
-
   
-
   
-
   
(6,771
)
 
(6,771
)
Balance, June 30, 2006
   
121,396,859
 
$
152,738
 
$
231
 
$
1,809
 
$
1,086
 
$
10,750
 
$
(136,007
)
$
30,607
 
 
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
 
8

 
APOLLO GOLD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
 
   
Three months ended
June 30,
 
Six months ended
June 30,
 
   
2006
 
2005
 
2006
 
2005
 
Operating activities
                         
Loss from continuing operations for the period
 
$
(2,568
)
$
(4,961
)
$
(6,521
)
$
(8,392
)
Items not affecting cash:
                         
Depreciation and amortization
   
377
   
614
   
958
   
1,334
 
Amortization of deferred financing costs
   
79
   
79
   
159
   
159
 
Reduction in exercise price of Note Warrants (Note 5(b))
   
-
   
-
   
305
   
-
 
Stock-based compensation
   
81
   
152
   
189
   
354
 
Accretion expense - accrued site closure costs
   
237
   
197
   
474
   
394
 
Accretion expense - convertible debenture
   
258
   
209
   
504
   
629
 
(Gain) loss on sale of property, plant and equipment
   
(2
)
 
-
   
5
   
(1,365
)
Other
   
18
   
-
   
31
   
-
 
Net change in non-cash operating working capital items
   
162
   
551
   
(1,713
)
 
1,639
 
Discontinued operations
   
-
   
1,476
   
(250
)
 
486
 
Net cash used in operating activities
   
(1,358
)
 
(1,683
)
 
(5,859
)
 
(4,762
)
                           
Investing activities
                         
Property, plant and equipment expenditures
   
(987
)
 
(1,658
)
 
(4,432
)
 
(3,699
)
Proceeds from disposal of property, plant and equipment
   
2
   
1,991
   
92
   
1,991
 
Restricted certificate of deposit and other assets
   
(540
)
 
(439
)
 
10,013
   
(851
)
Discontinued operations
   
-
   
2,220
   
-
   
1,321
 
Net cash (used in) provided by investing activities
   
(1,525
)
 
2,114
   
5,673
   
(1,238
)
                           
Financing activities
                         
Proceeds on issuance of shares
   
-
   
3,183
   
3,488
   
5,944
 
Payments of notes payable
   
(92
)
 
(328
)
 
(449
)
 
(564
)
Discontinued operations
   
-
   
(935
)
 
-
   
(1,390
)
Net cash (used in) provided by financing activities
   
(92
)
 
1,920
   
3,039
   
3,990
 
                           
Net (decrease) increase in cash
   
(2,975
)
 
2,351
   
2,853
   
(2,010
)
Cash and cash equivalents, beginning of period
   
5,955
   
2,525
   
127
   
6,886
 
Cash and cash equivalents, end of period
 
$
2,980
 
$
4,876
 
$
2,980
 
$
4,876
 
                           
SUPPLEMENTAL CASH FLOW INFORMATION
                         
Interest paid
 
$
275
 
$
303
 
$
550
 
$
625
 
Income taxes paid
 
$
-
 
$
-
 
$
-
 
$
-
 
 
During the three months ended June 30, 2005, the company issued 1,000,000 shares to Argonaut Mines LLC (“Argonaut”) in connection with the restructuring of the Huizopa interest in Mexico. Share capital and property, plant and equipment both increased by $410 as a result of this transaction.
 
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
 
9


APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
1.    CONTINUING OPERATIONS
 
These 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 (i) issuance of debt and equity securities, (ii) the sale of the Florida Canyon Mine (an open pit heap leach operation located in the State of Nevada), the Standard Mine (an open pit heap leach operation situated 8 kilometers south of the Florida Canyon Mine) and four exploration properties located near the Florida Canyon Mine (collectively, the “Nevada Assets”) in November 2005 to Jipangu, Inc. (“Jipangu”) plus (iii) the sale of other surplus assets. The Company’s ability to continue as a going concern is dependent on its ability to continue to issue debt and equity securities and/or generate cash flow from Montana Tunnels.
 
The Company estimates that with its current period end cash balance of $3.0 million, it will not have sufficient funds to finance the current work programs at the Black Fox development project (the “Black Fox Project”) and the Huizopa exploration project (the “Huizopa Project”), as well as corporate overhead. Therefore, the Company is exploring financing opportunities to further develop and construct the Black Fox Project and continue its exploration program at the Huizopa Project. Apollo may raise funds from the sale of debt or equity securities, which may include Canadian flow-through financing to further fund exploration activities at the Black Fox Project. The availability, amount, terms and timing of this financing are not certain at this time.
 
If the Company is unable to secure additional financing and/or generate cash flow from Montana Tunnels, 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 of mineral deposits principally in North America. The Company currently owns the Montana Tunnels mine, an open pit mine and mill located in the State of Montana. Mining in the open pit was suspended in October 2005 due to pit wall instability. Following the suspension of the open pit mine operations the mill produced gold doré and lead-gold and zinc-gold concentrates from low grade ore stockpiles until it was placed on care and maintenance on May 12, 2006. On July 28, 2006, the Company entered into a joint venture agreement with Elkhorn Tunnels, LLC (“Elkhorn”), an affiliate of Calim Private Equity LLC (“Calim”), in respect of the Montana Tunnels mine. With the expected financial contributions from Elkhorn in connection with the joint venture, the Company believes that it will be able to remediate the pit wall instability and recommence and mill operations in early 2007 (see Note 9). The Company also owns the Diamond Hill mine, currently on care and maintenance, also located in the State of Montana. In connection with the joint venture agreement that the Company entered into with Elkhorn in respect of the Montana Tunnels mine, the Company entered into an option agreement with Elkhorn Goldfields Inc. (“EGI”), an affiliate of Elkhorn, pursuant to which the Company granted EGI an option to purchase the Diamond Hill mine for $800,000.
 
Apollo has a development property, the Black Fox Project, which is located near the Township of Matheson in the Province of Ontario, Canada. Apollo also owns Mexican subsidiaries which own or have the right to acquire concessions at the Huizopa Project, located in the Sierra Madres in Chihuahua, Mexico.
 
10

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
3.    SIGNIFICANT ACCOUNTING POLICIES
 
These unaudited consolidated interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and except as described in Note 8, 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, 2005. 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, 2005.
 
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 of the comparative figures have been reclassified to conform to the current period presentation.
 
4.    DISCONTINUED OPERATIONS
 
In November 2005, the Company sold the Nevada Assets to Jipangu for $14.0 million in cash. The assets, liabilities and results of operations of the Montana Tunnels mine were included in discontinued operations in the financial statements as of and for the three month period ended March 31, 2006. As of June 30, 2006, the Montana Tunnels mine no longer meets the requirements of an asset held for sale; therefore, the assets, liabilities and results of operations of the Montana Tunnels mine have been reclassified to continuing operations for the current and prior periods.
 
The following tables present summarized financial information related to discontinued operations:
 
11

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
4.     DISCONTINUED OPERATIONS (continued)
 
   
Three months ended
June 30,
 
Six months ended
June 30,
 
   
2006
 
2005
 
2006
 
2005
 
Revenue from sale of minerals 
 
$
-
 
$
4,733
 
$
-
 
$
8,095
 
Direct operating costs 
   
-
   
4,059
   
-
   
7,893
 
Depreciation and amortization 
   
-
   
263
   
-
   
777
 
Accretion expense 
   
-
   
240
   
-
   
457
 
Royalty expenses 
   
-
   
78
   
-
   
166
 
Exploration and business development 
   
-
   
189
   
-
   
189
 
Gain on sale of property, plant and equipment 
   
-
   
(3,146
)
 
-
   
(3,615
)
Impairment 
   
-
   
4,564
   
-
   
4,564
 
 
   
-
   
6,247
   
-
   
10,431
 
Operating loss 
   
-
   
(1,514
)
 
-
   
(2,336
)
Interest expense 
   
-
   
(24
)
 
-
   
(57
)
Realized and unrealized gain on commodity contracts 
   
-
   
-
   
-
   
38
 
Loss on disposal of discontinued operations 
   
-
   
-
   
(250
)
 
-
 
Loss from discontinued operations for the period
 
$
-
 
$
(1,538
)
$
(250
)
$
(2,355
)

Results of discontinued operations for the six months ended June 30, 2006 includes a $250,000 additional loss on disposal of the Nevada Assets.

5.    SHARE CAPITAL
 
(a)      Shares issued in 2006
 
(i)  On January 26, 2006, the Company completed a private placement of 11,650,000 units with Jipangu at Cdn$0.35 per unit for proceeds of $3.5 million. Each unit consists of one common share of the Company and 0.17167 of a warrant for a total of 2,000,000 warrants, with each whole warrant exercisable for two years at Cdn$0.39 for one common share of the Company.
 
(ii)  On February 27, 2006, the Company issued 2,290,398 common shares of the Company at Cdn$0.48 per share to officers of the Company, as approved by the Company’s Board of Directors in December 2005. In connection with this, the Company announced on January 23, 2006 that the number of executive officers would be reduced from seven to three, effective February 18, 2006 and the Company entered into severance agreements with the four departing officers pursuant to which an aggregate of 1,187,175 common shares were issued to the officers as part of their severance. Also on January 23, 2006, the Company entered into amended employment agreements with the three remaining executive officers pursuant to which the officers agreed to reduce their base salaries by an aggregate of $170,000 per annum in exchange for an aggregate of 1,103,223 common shares.
 
12

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
5.     SHARE CAPITAL (continued)
 
(b)       Warrants
 
The following summarizes outstanding warrants as at June 30, 2006:
 
Date Issued
 
Number of Warrants
 
Number of Shares
 
Exercise Price
 
Expiry Date
 
           
Exercisable in US$
     
October 19, 2004
   
1,000,000
   
1,000,000
 
$
0.80
   
October 19, 2006
 
November 4, 2004
   
1,400,133
   
1,400,133
   
0.80
   
November 4, 2006
 
December 31, 2004
   
6,224,999
   
6,224,999
   
1.00
   
December 31, 2006
 
November 4, 2004
   
5,013,600
   
5,013,600
   
0.40
   
November 4, 2007
 
November 4, 2004
   
240,000
   
240,000
   
0.80
   
November 4, 2007
 
November 4, 2004
   
1,396,000
   
1,396,000
   
0.80
   
November 4, 2007
 
January 7, 2005
   
3,149,998
   
3,149,998
   
1.00
   
January 7, 2007
 
     
18,424,730
   
18,424,730
         
 
 
 
               
Exercisable in Cdn$
       
December 23, 2002
   
3,000,000
   
3,000,000
   
Cdn $                          3.25
   
December 23, 2006
 
June 30, 2005
   
1,250,000
   
1,250,000
   
Cdn $                          0.40
   
June 30, 2007
 
January 26, 2006
   
2,000,000
   
2,000,000
   
Cdn $                          0.39
   
January 26, 2008
 
     
6,250,000
   
6,250,000
             
     
24,674,730
   
24,674,730
             

In addition, 1,250,000 broker compensation warrants were issued and were immediately exercisable on January 7, 2005. Each broker compensation warrant is exercisable at $0.75 into one equity unit comprised of one common share of the Company and 0.75 of a share purchase warrant, with each whole share purchase warrant exercisable into one common share of the Company at $1.00 per common share. The broker compensation warrants expire on January 7, 2007. The share purchase warrants are exercisable for two years from the date of issue.

On January 6, 2006, the Company agreed to reduce the exercise price on 5,013,600 warrants issued as attachments to the convertible debentures (“Debentures”) in November 2004 from $0.80 to $0.40 per common share. The reduction in exercise price was in consideration for pledging the Company’s Black Fox property to The Canada Trust Company (the “Secured Party”) as substitute collateral for the Debentures, which were previously secured by an $11.0 million restricted cash deposit. The Secured Party is trustee for the holders of the Debentures. The reduction in the exercise price was effective January 16, 2006, and applies to all warrants attached to the Debentures except for the 240,000 warrants held by the Company’s insiders, which remain exercisable at $0.80 per common share. The Company recorded an additional cost of $305,000 as a result of this reduction of the exercise price.
 
13

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
5.     SHARE CAPITAL (continued)
 
(c)         Options
 
A summary of information concerning outstanding stock options at June 30, 2006 is as follows:

   
Fixed Stock Options
 
Performance-based
Stock Options
 
   
Number of
Common
Shares
 
Weighted
Average
Exercise
Price
 
Number of
Common
Shares
 
Weighted
Average
Exercise
Price
 
Balances, December 31, 2005
   
3,874,100
 
$
1.15
   
1,794,582
 
$
0.80
 
Options granted
   
325,000
   
0.58
   
-
   
-
 
Options cancelled
   
(317,900
)
 
1.08
   
(254,061
)
 
0.80
 
Balances, June 30, 2006
   
3,881,200
 
$
1.11
   
1,540,521
 
$
0.80
 

(i)
Fixed stock option plan
 
The Company has a stock option plan that provides for the granting of options to directors, officers, employees and service providers of the Company.
 
The following table summarizes information concerning outstanding and exercisable fixed stock options at June 30, 2006:
 
Options Outstanding
 
Options Exercisable
 
Number
Outstanding
 
Expiry Date
 
Weighted Average
Exercise
Price per Share
 
Number
Exercisable
 
Weighted Average
Exercise
Price per Share
 
889,500
   
February 18, 2013
 
$
2.24
   
889,500
 
$
2.24
 
100,000
   
November 13, 2013
   
1.67
   
100,000
   
1.67
 
261,000
   
March 10, 2014
   
2.05
   
261,000
   
2.05
 
125,000
   
May 19, 2014
   
1.44
   
125,000
   
1.44
 
23,600
   
August 10, 2014
   
0.95
   
11,800
   
0.95
 
1,707,100
   
March 10, 2015
   
0.65
   
1,103,550
   
0.65
 
50,000
   
April 6, 2015
   
0.39
   
50,000
   
0.39
 
100,000
   
August 4, 2015
   
0.27
   
-
   
-
 
300,000
   
December 12, 2015
   
0.20
   
-
   
-
 
125,000
   
March 28, 2016
   
0.65
   
62,500
   
0.65
 
200,000
   
May 23, 2016
   
0.53
   
-
   
-
 
3,881,200
       
$
1.11
   
2,603,350
 
$
1.41
 

(ii)
Performance-based stock option plan
 
As of June 30, 2006 the 1,540,521 performance-based stock options exercisable at $0.80 were fully vested and have an expiry date of June 25, 2007.
 
14

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
5.     SHARE CAPITAL (continued)
 
(d)         Stock-based compensation
 
The fair value of each option granted is estimated at the time of grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows:

   
Six months ended June 30,
 
   
2006
 
2005
 
Risk free interest rate
   
4.2
%
 
3.7
%
Dividend yield
   
0
%
 
0
%
Volatility
   
89
%
 
73
%
Expected life in years
   
5
   
5
 

6.          INCOME TAXES
 
The Company did not record a recovery for income taxes for the period ended June 30, 2006 as the net loss carry forwards are fully offset by a valuation allowance.

7.          SEGMENTED INFORMATION
 
Apollo operates the Montana Tunnels mine 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 Nevada Assets have been reported as discontinued operations (see Note 4). The accounting policies for these segments are the same as those followed by the Company as a whole.
 
Amounts as at June 30, 2006 are as follows:
 
   
Montana Tunnels
 
Black
Fox
 
Corporate
and Other
 
Total
 
Cash and cash equivalents
 
$
43
 
$
39
 
$
2,898
 
$
2,980
 
Other non-cash current assets
   
1,674
   
61
   
88
   
1,823
 
     
1,717
   
100
   
2,986
   
4,803
 
Property, plant and equipment
   
13,003
   
29,454
   
1,297
   
43,754
 
Restricted certificates of deposit
   
6,425
   
605
   
-
   
7,030
 
Deferred financing costs
   
-
   
-
   
425
   
425
 
Total assets
 
$
21,145
 
$
30,159
 
$
4,708
 
$
56,012
 
                           
Current liabilities
 
$
2,145
 
$
210
 
$
2,043
 
$
4,398
 
Accrued severance
   
-
   
-
   
370
   
370
 
Notes payable and convertible debenture
   
-
   
62
   
7,105
   
7,167
 
Accrued site closure costs
   
13,108
   
362
   
-
   
13,470
 
Total liabilities
 
$
15,253
 
$
634
 
$
9,518
 
$
25,405
 
15

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
7.    SEGMENTED INFORMATION (continued)

Amounts as at December 31, 2005 are as follows:

   
Montana Tunnels
 
Black
Fox
 
Corporate
and Other
 
Total
 
Cash and cash equivalents
 
$
8
 
$
15
 
$
104
 
$
127
 
Other non-cash current assets
   
4,218
   
100
   
428
   
4,746
 
     
4,226
   
115
   
532
   
4,873
 
Property, plant and equipment
   
13,917
   
24,794
   
1,334
   
40,045
 
Restricted certificates of deposit
   
5,465
   
581
   
10,997
   
17,043
 
Deferred financing costs
   
-
   
-
   
584
   
584
 
Total assets
 
$
23,608
 
$
25,490
 
$
13,447
 
$
62,545
 
                           
Current liabilities
 
$
5,444
 
$
221
 
$
4,746
 
$
10,411
 
Accrued severance
   
-
   
-
   
383
   
383
 
Notes payable and convertible debenture
   
-
   
66
   
6,610
   
6,676
 
Accrued site closure costs
   
12,634
   
-
   
-
   
12,634
 
Total liabilities
 
$
18,078
 
$
287
 
$
11,739
 
$
30,104
 

Amounts for the three and six month periods ended June 30, 2006 and 2005, respectively, are as follows:
 
   
Three months ended June 30, 2006
 
   
Montana Tunnels
 
Black Fox
 
Corporate and Other
 
Total
 
Revenue from sale of minerals
 
$
3,667
 
$
-
 
$
-
 
$
3,667
 
Direct operating costs
   
3,587
   
-
   
-
   
3,587
 
Depreciation and amortization
   
351
   
-
   
26
   
377
 
General and administrative expenses
   
-
   
-
   
1,167
   
1,167
 
Stock-based compensation
   
-
   
-
   
81
   
81
 
Accretion expense - accrued site closure costs
   
237
   
-
   
-
   
237
 
Exploration and business development and other
   
-
   
-
   
247
   
247
 
     
4,175
   
-
   
1,521
   
5,696
 
Operating loss
   
(508
)
 
-
   
(1,521
)
 
(2,029
)
Interest income
   
63
   
-
   
25
   
88
 
Interest expense
   
(9
)
 
-
   
(604
)
 
(613
)
Foreign exchange loss and other
   
-
   
-
   
(14
)
 
(14
)
Loss from continuing operations
 
$
(454
)
$
-
 
$
(2,114
)
$
(2,568
)
Investing activities
                         
Property, plant and equipment expenditures
 
$
-
 
$
871
 
$
116
 
$
987
 
 
 
16

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)

 
7.    SEGMENTED INFORMATION (continued)

   
 Six months ended June 30, 2006
 
   
Montana Tunnels
 
Black Fox
 
Corporate and Other
 
Total
 
Revenue from sale of minerals
 
$
9,805
 
$
-
 
$
-
 
$
9,805
 
Direct operating costs
   
10,745
   
-
   
-
   
10,745
 
Depreciation and amortization
   
901
   
-
   
57
   
958
 
General and administrative expenses
   
-
   
-
   
2,283
   
2,283
 
Stock-based compensation
   
-
   
-
   
189
   
189
 
Accretion expense - accrued site closure costs
   
474
   
-
   
-
   
474
 
Exploration and business development and other
   
-
   
-
   
605
   
605
 
     
12,120
   
-
   
3,134
   
15,254
 
Operating loss
   
(2,315
)
 
-
   
(3,134
)
 
(5,449
)
Interest income
   
114
   
-
   
40
   
154
 
Interest expense
   
(18
)
 
-
   
(1,195
)
 
(1,213
)
Foreign exchange loss and other
   
-
   
-
   
(13
)
 
(13
)
Loss from continuing operations
 
$
(2,219
)
$
-
 
$
(4,302
)
$
(6,521
)
Investing activities
                         
Property, plant and equipment expenditures
 
$
-
 
$
4,316
 
$
116
 
$
4,432
 

   
Three months ended June 30, 2005
 
   
Montana Tunnels
 
Black Fox
 
Corporate and Other
 
Total
 
Revenue from sale of minerals
 
$
10,581
 
$
-
 
$
-
 
$
10,581
 
Direct operating costs
   
12,622
   
-
   
-
   
12,622
 
Depreciation and amortization
   
582
   
-
   
32
   
614
 
General and administrative expenses
   
-
   
-
   
1,216
   
1,216
 
Stock-based compensation
   
-
   
-
   
152
   
152
 
Accretion expense
   
197
   
-
   
-
   
197
 
Exploration and business development
   
-
   
-
   
318
   
318
 
     
13,401
   
-
   
1,718
   
15,119
 
Operating loss
   
(2,820
)
 
-
   
(1,718
)
 
(4,538
)
Interest income
   
-
   
-
   
69
   
69
 
Interest expense
   
(15
)
 
-
   
(470
)
 
(485
)
Foreign exchange loss and other
   
-
   
-
   
(7
)
 
(7
)
Loss from continuing operations
 
$
(2,835
)
$
-
 
$
(2,126
)
$
(4,961
)
Investing activities
                         
Property, plant and equipment expenditures
 
$
60
 
$
1,519
 
$
489
 
$
2,068
 
 
 
17

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
7.    SEGMENTED INFORMATION (continued)

   
Six months ended June 30, 2005
 
   
Montana Tunnels
 
Black Fox
 
Corporate and Other
 
Total
 
Revenue from sale of minerals
 
$
22,913
 
$
-
 
$
-
 
$
22,913
 
Direct operating costs
   
26,111
   
-
   
-
   
26,111
 
Depreciation and amortization
   
1,270
   
-
   
64
   
1,334
 
General and administrative expenses
   
-
   
-
   
2,866
   
2,866
 
Stock-based compensation
   
-
   
-
   
354
   
354
 
Accretion expense
   
394
   
-
   
-
   
394
 
Exploration and business development
   
-
   
-
   
558
   
558
 
Gain on sale of property, plant and equipment
   
(1,365
)
 
-
   
-
   
(1,365
)
     
26,410
   
-
   
3,842
   
30,252
 
Operating loss
   
(3,497
)
 
-
   
(3,842
)
 
(7,339
)
Interest income
   
-
   
-
   
173
   
173
 
Interest expense
   
(38
)
 
-
   
(1,155
)
 
(1,193
)
Foreign exchange loss and other
   
-
   
-
   
(33
)
 
(33
)
Loss from continuing operations
 
$
(3,535
)
$
-
 
$
(4,857
)
$
(8,392
)
Investing activities
                         
Property, plant and equipment expenditures
 
$
91
 
$
3,489
 
$
529
 
$
4,109
 

8.          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 for the three and six month periods ended June 30, 2006 and 2005.
 
Material variances between financial statement items under Canadian GAAP and the amounts determined under U.S. GAAP are as follows:
 
Consolidated Balance Sheet
June 30, 2006
 
   
Property
Plant
and
Equipment
 
Deferred
Financing
 
Convertible
Debenture
 
Share
Capital
 
Equity
Component of
Convertible
Debentures
 
Contributed
Surplus
 
Deficit
 
As at June 30, 2006, Canadian GAAP
 
$
43,754
 
$
425
 
$
7,105
 
$
152,738
 
$
1,809
 
$
10,750
 
$
(136,007
)
Impairment of property, plant and equipment, and change in depreciation and amortization(a)
   
(4,077
)
 
-
   
-
   
-
   
-
   
-
   
(4,077
)
Black Fox development costs(b)
   
(21,276
)
 
-
   
-
   
-
   
-
   
-
   
(21,276
)
Convertible debenture(c)(i)
   
-
   
165
   
1,158
   
(1
)
 
(1,809
)
 
123
   
694
 
Convertible debenture(c)(ii)
   
-
   
-
   
-
   
-
   
-
   
20,675
   
(20,675
)
Flow-through common shares
   
-
   
-
   
-
   
(238
)
 
-
   
-
   
238
 
As at June 30, 2006, U.S. GAAP
 
$
18,401
 
$
590
 
$
8,263
 
$
152,499
 
$
-
 
$
31,548
 
$
(181,103
)
 
 
18

 
APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2006
(Stated in U.S. dollars; tabular amounts in thousands)
(Unaudited)
 
8.    DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP (continued)

Consolidated Balance Sheet
December 31, 2005

   
Property
Plant
and
Equipment
 
Deferred
Financing
 
Convertible
Debenture
 
Share
Capital
 
Equity
Component of
Convertible
Debentures
 
Contributed
Surplus
 
Deficit
 
As at December 31, 2005, Canadian GAAP
 
$
40,045
 
$
584
 
$
6,601
 
$
148,295
 
$
1,809
 
$
10,561
 
$
(129,236
)
Impairment of property, plant and equipment, and change in depreciation and amortization(a)
   
(4,260
)
 
-
   
-
   
-
   
-
   
-
   
(4,260
)
Black Fox development costs(b)
   
(19,181
)
 
-
   
-
   
-
   
-
   
-
   
(19,181
)
Convertible debenture(c)(i)
   
-
   
227
   
1,512
   
(1
)
 
(1,809
)
 
123
   
401
 
Convertible debenture(c)(ii)
   
-
   
-
   
-
   
-
   
-
   
20,675
   
(20,675
)
Flow-through common shares
   
-
   
-
   
-
   
(238
)
 
-
   
-
   
238
 
As at December 31, 2005, U.S. GAAP
 
$
16,604</