Apollo Solar Energy, Inc. (“the Company”) develops and manufactures high purity metals and compounds for use in the field of national defense, navigation, spaceflight and the electronic industry. In addition, the Company is developing semiconductor, photoelectrical, photoconductive and photovoltaic basic materials for thin film solar cells.

The company entered into various exclusive contractual arrangements on April 10, 2009 with Sichuan Xinju Mineral Resources Development Corporation (“XMR”, or the VIE), and certain of its shareholders who collectively own 51.6619% of the VIE. Among other things, these agreements granted to our wholly-owned subsidiary a first option to purchase the exploration rights related to the Dashuigou area mine and the mining rights related to that certain tellurium and bismuth mine in Shimian Majiagou Additionally, the VIE and certain of its shareholders who collectively own 51.6619% of the VIE granted to our wholly-owned subsidiary an exclusive right to purchase all of the products produced from XMR’s mining business for a specified period of time. The Company considered the terms of its interest in XMR and determined that it was a VIE in accordance with ASC 810-10-55 and that it should be consolidated with the Company.

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, its equity method investment (see Note 5) and XMR, a Variable Interest Entity (“VIE”). All significant inter-company transactions and balances among the Company, its subsidiaries and the VIE are eliminated upon consolidation.

The Company’s functional currency is the Chinese Renminbi (“RMB”); however, the accompanying financial statements have been translated and presented in United States Dollars (“USD”).

Certain amounts of prior years were reclassified to conform with current year presentation.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has a working capital deficiency of $9,168,206, did not generate cash from its operations, and has had operating losses for past two years. In addition, approximately $8.5 million of the Company's loans will be due in 2015. The current cash and inventory level will not be sufficient to support the Company's normal operation and repayment of the loans. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management plans to increase its marketing in order to generate more revenues and to reduce certain other operating expenses. Accordingly, for our next fiscal year, we anticipate our cash flow from operations will improve. Nevertheless, the Company anticipates that its current cash position will be insufficient to support the Company's operations at current capacity for the next twelve month period and, therefore, will need to seek additional financing of its operations. We may rely on bank borrowing as well as capital issuances and loans from existing shareholders. We are actively exploring various proposals and alternatives in order to secure sources of financing and improve our financial position. We may raise such additional capital through the issuance of our equity securities, which may result in significant dilution to our current investors. We are also exploring potential strategic partnerships, which could provide a capital infusion to the Company.

On July 8, 2013, the Company entered into an Equity Transfer Agreement to sell its interest in Hefei Huirun Energy & Technology Co., Ltd. (“Hefei Huirun”).

Consideration received	$	646,151
Net assets of Hefei Huirun		(32,933	)
Gain on disposition of subsidiary	$	613,218

Accordingly, the Company has accounted for Hefei Huirun as a discontinued operation. The consolidated financial statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. The following table summarized the operating result of the discontinued operations for the years ended December 31, 2013:

		Year Ended December 31, 2013
Revenue	$	825,683

Cost of goods sold		(679,856	)

Gross profit/loss		145,827

Operating expenses		158,616
Operating loss before income tax		(12,789	)

Net loss	$	(12,789	)