Unassociated Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

R           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

OR

£           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number:  001-31593

APOLLO GOLD CORPORATION
(Exact name of registrant as specified in its charter)

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

5655 South Yosemite St., Suite 200
Greenwood Village, Colorado 80111-3220
(Address of principal executive offices)  (Zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes R       No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes £       No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large Accelerated Filer £
Accelerated Filer £
Non-Accelerated Filer £ (do not check if a smaller
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 August 11, 2009, there were 261,422,224 common shares of Apollo Gold Corporation outstanding.
 


 

 
 
TABLE OF CONTENTS
 
     
Page
       
PART I    FINANCIAL INFORMATION
4
 
 
   
 
4
       
   
5
   
6
   
7
   
8
   
9
       
 
38
 
46
 
47
       
PART II    OTHER INFORMATION
47
       
 
47
 
48
 
48
 
48
 
48
 
49
 
49
   
51
       
   
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 expenditures, and exploration and development efforts.  Forward-looking statements can be identified by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “continue,” or the negative of such terms, or other comparable terminology.  These statements include comments regarding:
 
 
·
plans for 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;

 
2

 

 
·
estimates of future production at Black Fox;
 
·
our ability to reschedule quarterly principal payments under the Black Fox project finance facility;
 
·
our ability to meet our repayment obligations under the Black Fox project finance facility;
 
·
plans for and our ability to finance exploration at our Huizopa and Grey Fox properties;
 
·
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, without limitation, 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;
 
·
the establishment and estimates of mineral reserves and resources;
 
·
daily production, mineral recovery rates and mill throughput rates;
 
·
total production costs;
 
·
cash operating costs;
 
·
total cash costs;
 
·
grade of ore mined and milled from Black Fox and cash flows derived therefrom;
 
·
anticipated expenditures for development, exploration, and corporate overhead;
 
·
timing and issue of permits, including permits necessary to conduct phase II of open pit mining at Black Fox;
 
·
expansion plans for existing properties;
 
·
estimates of closure costs and reclamation liabilities;
 
·
our ability to obtain financing to fund our estimated expenditure and capital requirements;
 
·
factors impacting our results of operations; and
 
·
the impact of adoption of new accounting standards.

These forward looking statements are subject to numerous risks, uncertainties and assumptions including: unexpected changes in business and economic conditions, including the recent significant 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.

 
3

 
 
ACCOUNTING PRINCIPLES, REPORTING CURRENCY AND OTHER INFORMATION
 
Apollo Gold Corporation prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada and publishes its financial statements in United States dollars.  This Quarterly Report on Form 10-Q should be read in conjunction with our condensed consolidated financial statements and related notes included in this quarterly report, as well as our annual financial statements for the fiscal year ended December 31, 2008 included in our Annual Report on Form 10-K.  Certain prior period figures have been reclassified to conform to the current period presentation.  In particular, for the three and six months ended June 30, 2008, $1.4 million and $2.0 million, respectively, that were recorded as cash inflows from investing activities have been reclassified to operating activities in connection with proceeds from the sale of derivative contracts.
 
Unless stated otherwise, all dollar amounts are expressed in United States dollars.
 
References to “we,” “our,” “us,” the “Company” or “Apollo” mean Apollo Gold Corporation and its consolidated subsidiaries, or to any one or more of them, as the context requires.
 
NON-GAAP FINANCIAL INFORMATION
 
In this Quarterly Report on Form 10-Q, Apollo uses the terms “cash operating costs,” “total cash costs” and “total production costs,” each of which are considered non-GAAP financial measures as defined in the United States Securities and Exchange Commission Regulation S-K Item 10 and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.  These terms are used by management to assess performance of individual operations and to compare Apollo’s performance to other gold producers.
 
The term “cash operating costs” is used on a per ounce of gold basis.  Cash operating costs per ounce is equivalent to direct operating cost, as found on the Consolidated Statements of Operations, less production royalty expenses and mining taxes but includes by-product credits for payable silver, 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
 
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)
   
June 30,
2009
   
December 31,
 2008
 
ASSETS
     
CURRENT
     
Cash and cash equivalents
  $ 1,834     $ 3,097  
Restricted cash
    4,499       10,000  
Accounts receivable and other
    3,062       3,134  
Derivative instruments (Note 5)
    469       552  
Prepaids
    697       546  
Inventories (Note 6)
    7,733       4,154  
Total current assets
    18,294       21,483  
Derivative instruments (Note 5)
    1,773        
Long-term investments (Note 7)
    1,094       1,081  
Property, plant and equipment
    137,533       95,881  
Deferred stripping costs
          1,052  
Restricted certificates of deposit
    21,590       12,030  
Other long-term assets
    107       103  
TOTAL ASSETS
  $ 180,391     $ 131,630  
LIABILITIES
               
CURRENT
               
Accounts payable
  $ 11,482     $ 13,827  
Accrued liabilities
    1,861       1,449  
Property and mining taxes payable
    883       1,146  
Derivative instruments (Note 5 and Note 8(b))
    3,708        
Current portion of debt (Note 8(a))
    22,798       20,636  
Convertible debentures
    4,138       3,356  
Total current liabilities
    44,870       40,414  
Accrued long-term liabilities
    330       316  
Derivative instruments (Note 5 and Note 8(b))
    13,024        
Debt (Note 8(a))
    44,411       1,012  
Convertible debentures
          4,571  
Accrued site closure costs
    14,079       10,563  
Future income tax liability
    393       447  
Deferred gain (Note 4)
          552  
TOTAL LIABILITIES
    117,107       57,875  
                 
Continuing operations (Note 1)
               
Commitments and contingencies (Note 11)
               
                 
SHAREHOLDERS’ EQUITY
               
Share capital (Note 10)
    191,914       188,927  
Equity component of convertible debentures
    584       1,987  
Debenture note warrants
          2,234  
Contributed surplus
    35,349       21,683  
Deficit
    (164,563 )     (141,076 )
TOTAL SHAREHOLDERS’ EQUITY
    63,284       73,755  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 180,391     $ 131,630  

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

 
5

 

APOLLO GOLD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(U.S. dollars and shares in thousands, except per share amounts)
(Unaudited)

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Revenue from sale of minerals
  $ 7,558     $ 10,019     $ 14,928     $ 25,921  
Operating expenses
                               
Direct operating costs
    5,044       9,469       13,447       18,530  
Depreciation and amortization
    1,417       355       1,728       759  
General and administrative expenses
    1,096       1,159       2,028       2,088  
Accretion expense – accrued site closure costs
    250       178       431       355  
Amortization of deferred gain
    (97 )     (369 )     (552 )     (924 )
Exploration and business development
    302       1,001       529       1,757  
      8,012       11,793       17,611       22,565  
Operating (loss) income
    (454 )     (1,774 )     (2,683 )     3,356  
Other income (expenses)
                               
Interest income
    38       83       85       209  
Interest expense (Note 8)
    (1,434 )     (1,021 )     (2,461 )     (2,169 )
Debt transaction costs (Note 8(a) and (c))
    (10 )           (1,821 )      
Loss on modification of debentures (Note 9)
                (1,969 )      
Realized (losses) gains on derivative contracts
    (492 )     1,432       (124 )     1,950  
Unrealized (losses) gains on derivative contracts
    3,376       122       (15,042 )     (733 )
Foreign exchange gain (loss) and other
    242       (108 )     339       (225 )
Income (loss) before income taxes
    1,266       (1,266 )     (23,676 )     2,388  
Income taxes (Note 12)
          (63 )     189       (63 )
Net income (loss) and comprehensive income (loss) income for the period
  $ 1,266     $ (1,329 )   $ (23,487 )   $ 2,325  
                                 
Basic net income (loss) per share (Note 10)
  $ 0.01     $ (0.01 )   $ (0.10 )   $ 0.01  
Diluted net income (loss) per share (Note 10)
  $ 0.00     $ (0.01 )   $ (0.10 )   $ 0.01  
                                 
Basic weighted-average number of shares outstanding
    234,162       161,169       230,453       160,252  
Diluted weighted-average number of shares
    289,454       161,169       230,453       165,885  

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

 
6

 

APOLLO GOLD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(U.S. dollars and shares in thousands)
(Unaudited)

   
Number of
Shares
   
Share
Capital
   
Equity
Component
of
Convertible
Debentures
   
Debenture
Note
Warrants
   
Contributed
Surplus
   
Deficit
   
Total
 
   
(U.S. dollars and shares in thousands)
                   
                                           
Balance, December 31, 2007
    156,248     $ 166,424     $ 2,238     $ 2,292     $ 14,591     $ (142,672 )   $ 42,873  
Shares issued for services
    650       351                               351  
Units issued for cash and related compensation warrants
    40,806       14,885                   3,247             18,132  
Flow-through shares issued for cash and related compensation warrants
    20,000       8,028                   104             8,132  
Warrants issued for services
                            2,907             2,907  
Warrants exercised
    3,272       1,463             (58 )     (1 )           1,404  
Conversion of debentures
    1,884       834       (251 )                       583  
Income tax benefits renounced in connection with issuance of flow-through shares
          (3,058 )                             (3,058 )
Stock-based compensation
                            835             835  
Net income and comprehensive income
                                  1,596       1,596  
Balance, December 31, 2008
    222,860       188,927       1,987       2,234       21,683       (141,076 )     73,755  
                                                         
Shares issued for services (Note 10(a)(ii and iii))
    5,173       1,553                               1,553  
Shares issued in settlement of interest (Note 9)
    2,445       772                               772  
Warrants issued for services (Notes 8(a) and 10(a)(ii and iii))
                            9,089             9,089  
Warrants exercised (Note 10(a)(i))
    4,833       851                               851  
Expiration of note warrants
                      (2,234 )     2,234              
Redemption of debentures
                (1,987 )           1,987              
Equity component of convertible debentures (Note 9)
                584                         584  
Income tax benefits renounced in connection with issuance of flow-through shares
          (189 )                             (189 )
Stock-based compensation
                            356             356  
Net loss and comprehensive loss
                                  (23,487 )     (23,487 )
Balance, June 30, 2009
    235,311     $ 191,914     $ 584     $     $ 35,349     $ (164,563 )   $ 63,284  

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

 
7

 

APOLLO GOLD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Operating activities
                       
Net income (loss) for the period
  $ 1,266     $ (1,329 )   $ (23,487 )   $ 2,325  
Items not affecting cash:
                               
Depreciation and amortization
    1,417       355       1,728       759  
Amortization of deferred stripping costs
    184       704       1,052       1,762  
Stock-based compensation
    174       240       356       382  
Shares and warrants issued for services and payment of interest
                4,020        
Accretion expense – accrued site closure costs
    250       178       431       355  
Interest expense – amortization of debt discount
    469             469        
Interest expense – accretion of convertible debentures
    312       877       1,282       1,770  
Interest paid on convertible debentures
                (567 )     (1,016 )
Amortization of deferred gain
    (97 )     (369 )     (552 )     (924 )
Unrealized (gains) losses on derivative instruments
    (3,376 )     (122 )     15,042       733  
Foreign exchange (gain) loss and other
    (328 )     160       (290 )     215  
Income taxes
                (189 )      
Net change in non-cash operating working capital items (Note 12)
    (3,009 )     3,468       (477 )     (779 )
Net cash (used in) provided by operating activities
    (2,738 )     4,162       (1,182 )     5,582  
                                 
Investing activities
                               
Property, plant and equipment expenditures
    (18,589 )     (2,388 )     (40,455 )     (3,644 )
Restricted certificate of deposit and other assets
    (9,144 )     (2,183 )     (4,064 )     (2,759 )
Net cash used in investing activities
    (27,733 )     (4,571 )     (44,519 )     (6,403 )
                                 
Financing activities
                               
Proceeds from exercise of warrants
    352             851       1,404  
Proceeds from debt
    28,500       955       66,534       955  
Payments of debt
    (1,834 )     (2,782 )     (23,038 )     (5,744 )
Net cash provided by (used in) financing activities
    27,018       (1,827 )     44,347       (3,385 )
                                 
Effect of exchange rate changes on cash and cash equivalents
    95       (30 )     91       (44 )
                                 
Net decrease in cash and cash equivalents
    (3,358 )     (2,266 )     (1,263 )     (4,250 )
Cash and cash equivalents, beginning of period
    5,192       2,868       3,097       4,852  
Cash and cash equivalents, end of period (Note 12)
  $ 1,834     $ 602     $ 1,834     $ 602  
                                 
SUPPLEMENTAL CASH FLOW INFORMATION
                               
Interest paid
  $ 1,550     $ 114     $ 2,475     $ 1,502  
Income taxes paid
  $     $     $ 25     $  

See Note 12 for additional supplemental cash flow information.

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

 
8

 

APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2009
(Stated in U.S. dollars; tabular amounts in thousands except share and per share data)
(Unaudited)
 
1.
CONTINUING OPERATIONS
 
These condensed consolidated financial statements are prepared on the basis of a going concern which assumes that Apollo Gold Corporation (“Apollo” or the “Company”) will realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  To date the Company has funded its operations through issuance of debt and equity securities and cash 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.  Currently, the Company is in discussions with the Banks under the Project Facility (See Note 8(a)) regarding the possibility of rescheduling the quarterly repayment installments, which are scheduled to commence September 30, 2009, to better reflect the expected cash flows from production at Black Fox for the next twelve months.
 
As of June 30, 2009, the Company has a working capital deficiency of $26.6 million and an accumulated deficit of $164.6 million.  In addition, as at June 30, 2009, the Company held cash and cash equivalents of $1.8 million and had current debt obligations of $26.9 million consisting of (1) the current portion of the project financing facility of $19.8 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 $4.1 million due in February 2010 (Note 9), and (3) $3.0 million for other current debt.  Additionally, as of June 30, 2009, the Company has committed to make capital expenditures of approximately $4 million for the development of Black Fox (Note 14(a)).  Based on the current cash balance, the successful rescheduling of the quarterly installment payments of the Project Facility, and the projected cash flows from Black Fox and the Cdn$13.0 million equity financing completed on July 16, 2009 (See Note 19), the Company expects to have sufficient funds to (1) repay the $26.9 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 generate sufficient cash flow from Black Fox or unable to reschedule the quarterly installment payments under the Project Facility, 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 the exploration and development of potential mining properties and acquisition of mining claims.  Apollo owns Black Fox, an open pit mine and mill located near Matheson in the Province of Ontario, Canada (“Black Fox”).  Mining of ores at the Black Fox Project began in March 2009, milling operations commenced in April 2009, and commercial production commenced in late May 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
Six month period ended June 30, 2009
(Stated in U.S. dollars; tabular amounts in thousands except share and per share data)
(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 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 and six months ended June 30, 2008, $1.4 million and $2.0 million, respectively, that were as recorded as cash inflows from investing activities have been reclassified to operating activities in connection with proceeds from the sale of derivative contracts.
 
(a)
Changes in accounting policies
 
Effective January 1, 2009, the Company adopted Handbook Section 3064, Goodwill and Intangible Assets, which replaces Section 3062, and establishes revised standards for recognition, measurement, presentation and disclosure of goodwill and intangible assets.  Concurrent with the introduction of this standard, the CICA restricted the application of EIC 27, Revenues and Expenditures in the Pre-operating Period (“EIC 27”).  The adoption of Section 3064 on January 1, 2009, did not have a material impact on the Company’s financial condition or operating results.

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

4.
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.

 
10

 

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

4. 
MONTANA TUNNELS JOINT VENTURE (continued)
 
Apollo accounts for its 50% interest in the Montana Tunnels joint venture using the proportionate consolidation method.  As of December 31, 2006, the Company recorded a deferred gain on the transfer of assets and liabilities to the joint venture of $3.8 million.  The deferred gain was 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 $0.1 million and $0.6 million for the three and six months ended June 30, 2009 and $0.4 million and $0.9 million for the three and six months ended June 30, 2008, respectively.
 
As of April 30, 2009, Montana Tunnels was placed under care and maintenance.  Associated property, plant and equipment depreciable on a straight-line basis continue to be depreciated, while property, plant and equipment depreciable on a units-of-production basis have ceased being depreciated in conjunction with the cessation of production.

Apollo’s 50% share of the assets and liabilities of the Montana Tunnels joint venture is as follows:
   
June 30,
2009
   
December 31,
 2008
 
Cash and cash equivalents
  $ 898     $ 12  
Other non-cash current assets
    1,422       5,323  
      2,320       5,335  
Property, plant and equipment
    7,164       7,647  
Deferred stripping costs
          1,052  
Restricted certificates of deposit
    7,587       7,587  
Total assets
  $ 17,071     $ 21,621  
                 
Current liabilities
  $ 1,642     $ 4,361  
Accrued site closure costs
    8,842       8,503  
Total liabilities
  $ 10,484     $ 12,864  

Apollo’s 50% share of the results of operations and cash flows of the Montana Tunnels joint venture is as follows:
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Revenue from sale of minerals
  $ 2,849     $ 10,019     $ 10,219     $ 25,921  
Direct operating costs
    3,007       9,467       11,409       18,526  
Depreciation and amortization
    169       326       469       705  
Accretion expense – accrued site closure costs
    169       164       339       329  
      3,345       9,957       12,217       19,560  
Operating (loss) income
    (496 )     62       (1,998 )     6,361  
Interest income
          38       7       90  
Interest expense
    (21 )     (102 )     (50 )     (214 )
(Loss) income before income taxes
  $ (517 )   $ (2 )   $ (2,041 )   $ 6,237  
                                 
Net cash provided by operating activities
  $ 628     $ 3,987     $ 1,835     $ 8,811  
Net cash used in investing activities
  $ (2 )   $ (684 )   $ (9 )   $ (1,361 )
Net cash used in by financing activities
  $ (273 )   $ (3,164 )   $ (940 )   $ (7,303 )

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
Six month period ended June 30, 2009
(Stated in U.S. dollars; tabular amounts in thousands except share and per share data)
(Unaudited)

5.
DERIVATIVE INSTRUMENTS
 
Fair value of derivative instruments consists of:
 
   
June 30, 2009
   
December 31, 2008
 
   
Cost
Basis
   
Unrealized
Gain (Loss)
   
Fair
Value
   
Cost
Basis
   
Unrealized
Gain (Loss)
   
Fair
Value
 
Assets
                                   
Canadian dollar purchase contracts (Note 8(b))
  $     $ 2,242     $ 2,242     $     $     $  
Gold, silver and lead contracts
                            552       552  
Less:  Current portion
          (469 )     (469 )           (552 )     (552 )
Long-term portion
  $     $ 1,773     $ 1,773     $     $     $  
Liabilities
                                               
Gold forward sales contracts (Note 8(b))
  $     $ (16,732 )   $ (16,732 )   $     $     $  
Less:  Current portion
          3,708       3,708                    
Long-term portion
  $     $ (13,024 )   $ (13,024 )   $     $     $  

6.
INVENTORIES
 
Inventories consist of:
 
   
June 30,
2009
   
December 31,
 2008
 
Concentrate inventory
  $     $ 373  
Doré inventory
    2,137       21  
In-circuit gold inventory
    1,260        
Stockpiled ore inventory
    3,619       2,983  
Materials and supplies
    717       777  
    $ 7,733     $ 4,154  

Other information related to inventories is:
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Inventories recognized as an expense in direct operating costs
  $ 4,371     $ 6,973     $ 10,915     $ 13,339  
Expenses related to the write down of the carrying value of inventories to net realizable value
    -       15       1,029       15  

7.
LONG-TERM INVESTMENTS
 
The Company acquired auction rate securities (“ARS”) in 2007, which are recorded in long-term investments, with a face value of $1.5 million.  The Company has recorded an other than temporary impairment on its ARS, within foreign exchange gain and other in the consolidated statement of operations, representing a loss of $0.01 million for the six months ended June 30, 2009, and losses of $0.1 million and $0.2 million for the three and six months ended June 30, 2008, respectively.  As such, no amounts have been recorded in other comprehensive income.  The adjusted cost basis and fair value of ARS at June 30, 2009 and December 31, 2008 are $1.1 million and $1.1 million, respectively. See Note 16(g).  The ARS are pledged as collateral for a $0.9 million margin loan.
 

 
12

 

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

8.
BLACK FOX PROJECT FINANCING FACILITY
 
(a)
Financing Agreement
 
On February 20, 2009, the Company entered into a $70.0 million project financing agreement (the “Project Facility”) with two banks (the “Banks”) relating to Black Fox.  As of June 30, 2009, the Company had borrowed the total amount of the $70 million available under the Project Facility.  On February 23, 2009, the Company used $15.0 million of the proceeds from the Project Facility to repay the $15.0 million bridge facility entered into on December 10, 2008 (the “Bridge Facility”) and has utilized the remaining $55.0 million to complete the development of Black Fox and to provide for certain agreed corporate expenditures.

The terms of the Project Facility include:  (i) a commitment by the Banks to lend to the Company up to $70.0 million available for drawdown between February 20, 2009 and June 30, 2009; (ii) interest on the outstanding principal amount accruing at a rate equal to the London interbank offered rate (“LIBOR”) plus 7% per annum and payable in monthly installments commencing March 31, 2009 (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 and six months ended June 30, 2009 was 0.4% and 0.4%, respectively.

Borrowings under the Project Facility are secured by substantially all of the Company’s assets, including the Black Fox Project, and the 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, and the operation of Black Fox in compliance with an agreed cash flow budgeting and operational model.  In addition, the Black Fox Project is subject to a completion test that must be satisfied by October 31, 2009.  As at June 30, 2009, the Company was in compliance with the various financial covenants of the Project Facility.    For the three-month period ended July 31, 2009, gold production was less than 80% of the agreed amount with the banks involved with the Project Facility which triggered a “review event” as defined in the Project Facility agreement.  The occurrence of a review event triggers the ability of the banks to review the Project Facility and determine if they wish to continue with the Project Facility.  Although the occurrence of the “review event” triggers the foregoing rights of the Banks under the Project Facility, the Banks have informed the Company that they continue to support Black Fox and management of the Company is confident that the Banks will not seek a termination of the Project Facility as a result of the occurrence of the review event.  The Company is taking appropriate steps to improve grade control and is engaged in constructive discussions with the Banks regarding resolving any issues related to the review event including rescheduling of the quarterly debt repayment installments, beginning September 30, 2009, to better reflect the expected cash flows from production at Black Fox for the next twelve months.

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%.

 
13

 

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

8. 
BLACK FOX PROJECT FACILITY (continued)

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

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

2009
  $ 15,300  
2010
    13,800  
2011
    10,200  
2012
    24,500  
2013
    6,200  
Principle balance of Project Facility
    70,000  
Less unamortized debt discount
    (9,736 )
Total of project facility included within debt on the balance sheet
    60,264  
Less current portion
    (19,794 )
Long-term portion
  $ 40,470  

(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 a portion of both the Company’s gold sales and its Canadian dollar operating costs (Note 5).  The Company entered into a 250,430 ounce gold forward sales program which is allocated across the four year term of the Project Facility which began May 2009.  The weighted average price of the sales program is $876 per ounce of gold.  The foreign exchange derivative program is for the Canadian dollar equivalent of $58 million over a period covering the four year term of the Project Facility which began April 2009.  Settlements of the remaining gold forward sales contracts and Canadian dollar foreign exchange contracts as of June 30, 2009 are as follows (table not in thousands):

   
Gold Forward Sales Contracts
   
Canadian Dollar Foreign Exchange Contracts
 
Year of Settlement
 
Gold Ounces
   
Average Contract
Price Per Ounce
   
Pay US Dollars
 (Millions)
   
Exchange Rate
(Cdn$/USD)
   
Purchase
Canadian Dollars
 (Millions)
 
2009
    44,357     $ 876     $ 5.6     $ 1.21     $ 6.8  
2010
    54,261     $ 876     $ 13.4     $ 1.21     $ 16.3  
2011
    54,704     $ 876     $ 16.1     $ 1.21     $ 19.5  
2012
    73,458     $ 876     $ 16.3     $ 1.21     $ 19.7  
2013
    14,523     $ 876     $ 4.1     $ 1.21     $ 4.9  
      241,303             $ 55.5             $ 67.2  

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

 
14

 

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

8. 
BLACK FOX PROJECT FACILITY (continued)

(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%.
 
9.
CONVERTIBLE DEBENTURES
 
On February 19, 2009, the Company reached an agreement with the largest holder (the “Large Holder”) of its Series 2007-A convertible debentures (the “2007 Debentures”) to extend the maturity date of the $4.3 million principal amount of the 2007 Debentures held by the Large Holder from February 23, 2009 to February 23, 2010 (the “Extended Debentures”).

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

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

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

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

 
15

 

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

9. 
CONVERTIBLE DEBENTURES (continued)

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

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

Over their one-year term, the Extended Debentures are accreted to their face value through a periodic charge to accretion expense with a corresponding credit to the liability component.  The accretion expense is based on the effective interest method.  For the three and six months ended June 30, 2009, the Company recorded accretion expense of $0.3 million and $0.4 million, respectively, related to the Extended Debentures, which is included in interest expense.
 
10.
SHARE CAPITAL
 
(a)
Shares issued in 2009
 
(i)           For the six months ended June 30, 2009, there were 4,833,332 shares issued upon exercise of warrants for proceeds of $0.9 million.  Each warrant exercised had an exercise price of $0.176.
 
(ii)           On February 20, 2009, the Company issued to a Firm (see Note 8(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 the expiration date of 8,580,000 warrants from February 23, 2009 to March 4, 2010 and reduced the exercise price of these warrants from $0.50 to $0.25.
 
(b)
Warrants
 
A summary of information concerning outstanding warrants at June 30, 2009 is as follows:
 
   
Number of Warrants
and Shares Issuable
upon Exercise
 
Balance, December 31, 2008
    91,277,374  
Warrants issued
    37,404,012  
Warrants exercised
    (4,833,333 )
Warrants expired
    (9,725,927 )
Balance, June 30, 2009
    114,122,126  
 
The following table summarizes outstanding warrants as at June 30, 2009:

 
16

 

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

10. 
SHARE CAPITAL (continued)

Date Issued
 
Number of Warrants
and Shares Issuable
upon Exercise
   
Exercise Price
 
Expiry Date
         
Exercisable in US$
   
November 8, 2006
    2,666,666       0.176  
November 8, 2009
November 8, 2006
    1,178,944       0.50  
November 8, 2009
February 23, 2007
    8,580,000       0.25  
March 4, 2010
      12,425,610            
           
Exercisable in Cdn$
   
August 21, 2008
    1,020,000       0.50  
February 21, 2010
December 31, 2008
    255,000       0.30  
December 31, 2010
February 20, 2009
    2,567,901       0.256  
February 20, 2011
July 24, 2008
    20,403,250       0.65  
July 24, 2011
December 10, 2008
    42,614,254       0.221  
December 10, 2012
February 20, 2009
    34,836,111       0.252  
February 20, 2013
      101,696,516            
      114,122,126            
 

In addition, 2,448,390 units issued to placement agents on July 24, 2008 (the Agents’ Units) are outstanding.  Each Agents’ Unit is exercisable at Cdn$0.60 for four years into one common share of the Company and one- half of one warrant (the Agents’ Warrant), with each whole Agents’ Warrant exercisable into one common share of the Company at Cdn$0.78.  The Agent’s Units and Agents’ Warrants expire on July 24, 2012.
 
(c)
Options
 
A summary of information concerning outstanding fixed stock options at June 30, 2009 is as follows:
 
   
Number of
Common
Shares
   
Weighted
Average
Exercise
Price Per
Share
 
Balance, December 31, 2008
    8,281,309     $ 0.77  
Options granted
    3,566,307       0.33  
Options forfeited
    (78,600 )     0.49  
Balance, June 30, 2009
    11,769,016     $ 0.64  

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

 
17

 

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

10. 
SHARE CAPITAL (continued)

Options Outstanding
   
Options Exercisable
 
Number
Outstanding
 
Expiry Date
 
Weighted
Average
Exercise
Price Per
Share
   
Weighted
Average
Remaining
Contractual Life
(in years)
   
Number
Exercisable
   
Weighted
Average
Exercise
Price Per
Share
 
100,000
 
September 1, 2011
  $ 0.46       2.2       100,000     $ 0.46  
676,700
 
February 18, 2013
    2.24       3.7       676,700       2.24  
260,000
 
March 10, 2014
    2.05       4.7       260,000       2.05  
25,000
 
May 19, 2014
    1.44       4.9       25,000       1.44  
20,200
 
August 10, 2014
    0.95       5.1       20,200       0.95  
1,159,750
 
March 10, 2015
    0.65       5.7       1,159,750       0.65  
100,000
 
August 4, 2015
    0.27       6.1       100,000       0.27  
300,000
 
December 12, 2015
    0.20       6.5       300,000       0.20  
125,000
 
March 28, 2016
    0.65       6.7       125,000       0.65  
200,000
 
May 24, 2016
    0.53       6.9       200,000       0.53  
108,000
 
August 10, 2016
    0.48       7.1       108,000       0.48  
20,000
 
November 9, 2016
    0.32       7.4       20,000       0.32  
2,922,746
 
February 6, 2017
    0.57       7.6       2,922,746       0.57  
49,825
 
August 13, 2017
    0.46       8.1       24,913       0.46  
2,077,738
 
March 27, 2018
    0.66       8.7       1,038,869       0.66  
21,250
 
August 12, 2018
    0.37       9.1              
55,000
 
November 11, 2018
    0.15       9.4              
3,220,067
 
March 31, 2019
    0.32       9.8              
327,740
 
May 6, 2019
    0.45       9.9              
11,769,016
      $ 0.64       7.9       7,081,178     $ 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:

   
Six months ended June
30,
 
   
2009
   
2008
 
Risk free interest rate
    1.9 %     2.9 %
Dividend yield
    0 %     0 %
Volatility
    78 %     73 %
Expected life in years
    6       6  
Weighted average grant-date fair value of stock options
  $ 0.22     $ 0.44  

 
18

 

APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2009
(Stated in U.S. dollars; tabular amounts in thousands except share and per share data)
(Unaudited)
 
11.
INTEREST EXPENSE
 
Interest expense consists of:
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Accretion on convertible debentures
  $ 312     $ 877     $ 1,282     $ 1,770  
Amortization of debt discount – Project Facility
    469             469        
Capital leases, Project Facility and other
    653       144       710       399  
    $ 1,434     $ 1,021     $ 2,461     $ 2,169  

For the three and six months ended June 30, 2009, the Company recorded capitalized interest of $1.0 million and $1.8 million, respectively.

12.
INCOME TAXES
 
The Company recorded a tax benefit of $0.2 million for the six month period ended June 30, 2009 due to the issuance of flow-through shares but recorded no other recovery for income taxes as the net loss carry forwards are fully offset by a valuation allowance.

The Company recorded income tax expense of $0.1 million for the three and six month period ended June 30, 2008 for alternative minimum taxes resulting on its income from U.S. operations.  There was no other income tax expense recorded during the six month period ended June 30, 2008, as additional taxable income was offset by recoveries of prior tax losses.

13.
EARNINGS (LOSS) PER SHARE
 
Basic earnings per share (“EPS”) is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated to reflect the dilutive effect of exercising outstanding warrants and stock options by applying the treasury stock method.
 
Earnings used in determining earnings per share are presented below.

 
19

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

13.           EARNINGS (LOSS) PER SHARE (continued)

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Net income (loss)
  $ 1,266     $ (1,329 )   $ (23,487 )   $ 2,325  
Weighted average number of shares, basic
    234,161,561       161,168,592       230,452,859       160,252,248  
Dilutive securities:
                               
Options
    947,780                   549,662  
Warrants
    45,764,734                   5,083,533  
Convertible debentures
    8,580,000                    
Weighted average number of shares, diluted
    289,454,075       161,168,592       230,452,859       165,885,443  
Basic net income (loss) per share
  $ 0.01     $ (0.01 )   $ (0.10 )   $ 0.01  
Diluted net income (loss) per share
  $ 0.00     $ (0.01 )   $ (0.10 )   $ 0.01  
                                 
Options 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
   
33,103,283
      5,540,249       33,124,533       5,513,999  
Average exercise price of OWNI
  $ 0.60     $ 1.02     $ 0.59     $ 1.02  
Shares issuable for convertible debentures excluded from calculation of EPS because their effect would have been anti-dilutive
          14,876,200       8,580,000       14,876,200  
Average conversion price of anti-dilutive convertible securities
    n/a     $ 0.50     $ 0.50     $ 0.50  

Due to a net loss for the six month period ended June 30, 2009, an additional 95.2 million warrants and stock options were excluded from the EPS computation because their effect would have been anti-dilutive.  Also, due to a net loss for the three month period ended June 30, 2008, an additional 31.1 million warrants and stock options were excluded from the EPS computation because their effect would have been anti-dilutive.
 
14.
COMMITMENTS AND CONTINGENCIES
 
The Company had entered into a number of contractual commitments related to the development of Black Fox.  As of June 30, 2009, these commitments totaled approximately $4 million and are expected to become due within the next 12 months.

 
20

 

APOLLO GOLD CORPORATION
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2009
(Stated in U.S. dollars; tabular amounts in thousands except share and per share data)
(Unaudited)
 
15.
SUPPLEMENTAL CASH FLOW INFORMATION
 
(a)
Net changes in non-cash operating working capital items are:
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
(Increase) decrease in:
                       
Accounts receivable and other
  $ 417     $ 1,579     $ 73     $ (439 )
Prepaids
    423       179       431       423  
Inventories
    (6,004 )     282       (3,579 )     (1,636 )
Increase (decrease) in:
                               
Accounts payable
    2,208       2,416       2,434       1,724  
Accrued liabilities
    152       (1,146 )     427       (1,162 )
Property and mining taxes payable
    (205 )     158       (263 )     311  
    $ (3,009 )   $ 3,468     $ (477 )   $ (779 )

(b)
Components of cash and cash equivalents are:
 
   
June 30,
2009
   
June 30,
2008
 
Cash
  $ 1,834     $ 174  
Cash equivalents
          428