**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-QSB**

** **

**x**                              QuarterlyReport under Section 13 or 15(d) of the Securities Exchange Act of 1934 for thequarterly period ended September 30, 2006.

** **

**o**                                 Transitionreport under Section 13 or 15(d) of the Exchange Act

 

**Commission File Number0-50834**

** **

**Apollo Drilling, Inc.**

**(Formerly Siam Imports, Inc)**

(Exact name of registrant as specified in its charter)

 

| **Nevada**                         |   | **73-1668122**       |
|------------------------------------|--------|----------------------|
| (State or other  jurisdiction      |   | (I.R.S. Employer     |
| of incorporation  or organization) |   | Identification  No.) |

 

| **3001 Knox Street, Suite 403**           |   |       |
|-------------------------------------------|--------|------------|
| **Dallas,  TX**                           |   | **75205**  |
| (Address of  principal executive offices) |   | (Zip Code) |

 

Registrant’s telephone number, including area code:  **214-389-9800**

** **

**None**

Former Name, Address and Fiscal Year, if Changed SinceLast Report

 

Check whether the issuer: (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes x No o

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act)

Yes oNo  x

At November 20 2006, there were 175,140,000 shares ofour common stock issued and outstanding.

 

 

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TABLE OF CONTENTS
| PART I: FINANCIAL  INFORMATION |                                                            |
|--------------------------------|-----------------------------------------------------------------|
|                           |                                                            |
| Item  1.                       | Financial  Statements                                           |   |
|                           |                                                            |   |
| Item 2.                        | Management’s Discussion and Analysis or Plan of  Operation |   |
|                           |                                                            |   |
| Item 3.                        | Controls and Procedures                                         |   |
|                           |                                                            |   |
| PART  II: OTHER INFORMATION    |                                                            |
|                           |                                                            |   |
| Item 1.                        | Legal Proceedings                                               |   |
|                           |                                                            |   |
| Item 2.                        | Unregistered  Sales of Equity Securities and Use of Proceeds    |   |
|                           |                                                            |   |
| Item 3                         | Defaults Upon  Senior Securities                                |   |
|                           |                                                            |   |
| Item 4.                        | Submission of  matters to a Vote of Security Holders            |   |
|                           |                                                            |   |
| Item 5.                        | Other Information                                               |   |
|                           |                                                            |   |
| Item 6.                        | Exhibits                                                        |   |
|                           |                                                            |   |
| Signatures                     |                                                            |

 

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

The financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, pursuant to such rules and regulations for interim financial statements. Management believes the disclosures made are adequate to make the information not misleading and recommends that these unaudited interim financial statements be read in conjunction with the audited financial statements and notes included in our Form 10K-SB as of December 31, 2005, which can be found on the SEC Website at www.sec.gov under SEC File Number 000-50834.  The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year.

 

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**APOLLO DRILLING, INC.BALANCE SHEET**
| ** **                                                                                                                    | ** ** | **Unaudited  as of  Sep 30, 06** | ** ** | **Audited  as of  Dec 31, 05** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ASSETS                                                                                                                        |       |                                            |       |                                          |       |
| Current Assets                                                                                                                |       |                                            |       |                                          |       |
| Cash                                                                                                                          |       | $                                               | 64,170     |                                          | $          | 58 |   |
| Inventory                                                                                                                     |       | 451,500                                         |       | —                                        |       |
| Deposits,  Advances, Prepaids                                                                                                 |       | 48,248                                          |       | —                                        |       |
| Total Current  Assets                                                                                                         |       | 563,918                                         |       | 58                                            |       |
| Fixed Assets                                                                                                                  |       | 1,725,994                                       |       |                                          |       |
| Total Long-Term  Assets                                                                                                       |       | 1,725,994                                       |       | —                                        |       |
| TOTAL ASSETS                                                                                                                  |       | $                                               | 2,289,912  |                                          | $          | 58 |   |
|                                                                                                                          |       |                                            |       |                                          |       |
| LIABILITIES &  EQUITY                                                                                                     |       |                                            |       |                                          |       |
| Current  Liabilities                                                                                                          |       |                                            |       |                                          |       |
| Accounts Payable                                                                                                              |       |                                            |       |                                          |       |
| Accounts Payable—trade                                                                                                   |       | 159,463                                         |       | —                                        |       |
| Loan Payable—related  party                                                                                              |       | 2,359                                           |       | 2,359                                         |       |
| Notes Payable                                                                                                                 |       | 1,000,000                                       |       | —                                        |       |
| Total Current  Liabilities                                                                                                    |       | $                                               | 1,161,822  |                                          | $          | 2,359 |   |
| Equity                                                                                                                        |       |                                            |       |                                          |       |
| Common Stock  (25,000,000 shares authorized, 24,250,000 shares issued and outstanding at  9-30-06, and 8,000,000 at 12-31-05) |       | 24,250                                          |       | 8,000                                         |       |
| Additional  Paid-in-Capital                                                                                                   |       | 2,546,296                                       |       | 68,000                                        |       |
| Retained  Earnings                                                                                                            |       | (1,442,456                                      | )          | (78,301                                       | )          |
| Total Equity                                                                                                                  |       | 1,128,090                                       |       | (2,301                                        | )          |
| TOTAL LIABILITIES &  EQUITY                                                                                               |       | $                                               | 2,289,912  |                                          | $          | 58 |   |

 

See accompanying notes to Financial Statements.

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**APOLLO DRILLING, INC.STATEMENTS OF OPERATIONS**
| ** **                                                      | ** ** | **Three months  ended  Sep 30, 06** | ** ** | **Three months  ended  Sep 30, 05** | ** ** | **Nine months  ended  Sep 30, 06** | ** ** | **Nine months  ended  Sep 30, 05** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| Revenue                                                         |       | $                                                  | —     |                                               | $          | —                                            |       | $                                                 | —     |   | $ | — |   |
|                                                            |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Cost of Goods Sold                                              |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Rentals                                                         |       | 5,000                                              |       |                                               |       | 5,000                                             |       |                                              |       |
| Welding                                                         |       | 3,195                                              |       |                                               |       | 3,195                                             |       |                                              |       |
| Drill Pipe                                                      |       |                                               |       | —                                             |       | 1,450                                             |       | —                                            |       |
| Total Cost of  Sales                                            |       | 8,195                                              |       |                                               |       | 9,645                                             |       |                                              |       |
| Operating Expenses                                              |       |                                               |       |                                               |       |                                              |       |                                              |       |
| General and  Administrative                                     |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Consulting Fees                                                 |       | 312,330                                            |       | —                                             |       | 937,391                                           |       | —                                            |       |
| Commissions                                                     |       | 30,000                                             |       | —                                             |       | 30,000                                            |       | —                                            |       |
| Payroll Expenses                                                |       | 21,500                                             |       |                                               |       | 21,500                                            |       |                                              |       |
| Origination/Bank  Fees                                          |       | 106,215                                            |       | —                                             |       | 116,292                                           |       | —                                            |       |
| Insurance                                                       |       | 102,696                                            |       | —                                             |       | 125,519                                           |       | —                                            |       |
| Travel                                                          |       | 6,677                                              |       | —                                             |       | 8,084                                             |       | —                                            |       |
| Professional  Fees                                              |       | 38,206                                             |       | —                                             |       | 47,911                                            |       | 7,280                                             |       |
| Office Supplies                                                 |       | 325                                                |       | —                                             |       | 422                                               |       | —                                            |       |
| Investor  Relations                                             |       | 1,067                                              |       | —                                             |       | 2,394                                             |       | —                                            |       |
| Printing                                                        |       | 1,321                                              |       | —                                             |       | 3,105                                             |       | —                                            |       |
| Registration/Filing  Fees                                       |       | 214                                                |       | —                                             |       | 214                                               |       | —                                            |       |
| Office Rent                                                     |       | 5,000                                              |       | —                                             |       | 5,000                                             |       |                                              |       |
| Contract  Services                                              |       | 11,245                                             |       | —                                             |       | 23,235                                            |       | —                                            |       |
| Other G&A  Expenses                                         |       | 1,392                                              |       | 1,172                                              |       | 1,615                                             |       | 4,972                                             |       |
| Total G&A  Expense                                          |       | 638,188                                            |       | 1,172                                              |       | 1,322,682                                         |       | 12,252                                            |       |
|                                                            |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Losses from Operations                                          |       | (646,383                                           | )          | (1,172                                             | )          | (1,332,327                                        | )          | (12,252                                           | )          |
|                                                            |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Other Income (Expenses)                                         |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Other Expense                                                   |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Miscellaneous  Expense                                          |       | —                                             |       | —                                             |       | 571                                               |       | 76                                                |       |
| Interest Expense                                                |       | 28,750                                             |       | —                                             |       | 31,238                                            |       | —                                            |       |
| Total Other Expense                                             |       | 28,750                                             |       | —                                             |       | 31,809                                            |       | 76                                                |       |
|                                                            |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Losses before provision  for income taxes and minority interest |       | (675,133                                           | )          | (1,172                                             | )          | (1,364,136                                        | )          | (12,328                                           | )          |
|                                                            |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Provision from income  taxes                                    |       | —                                             |       | —                                             |       | —                                            |       | —                                            |       |
|                                                            |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Net Loss                                                        |       | $                                                  | (675,133   | )                                                  | $          | (1,172                                            | )          | $                                                 | (1,364,136 | ) | $ | (12,328 | ) |
|                                                            |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Basic and diluted loss  per common share                        |       | $                                                  | (0.03      | )                                                  | $          | (0.01                                             | )          | $                                                 | (0.09      | ) | $ | (0.01 | ) |
|                                                            |       |                                               |       |                                               |       |                                              |       |                                              |       |
| Basic and diluted weighted average common share outstanding     |       | 24,236,413                                         |       | 1,800,000                                          |       | 15,251,809                                        |       | 1,800,000                                         |       |

 

SeeAccompanying Notes to Financial Statements

 

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**APOLLO DRILLING, INC.STATEMENTS OF CASH FLOWS**
| ** **                                                                   | ** ** | **Nine Months  ended   Sep 30, 06** | ** ** | **Nine Months  ended  Sep 30, 05** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------|------------|
| Cash flow from  Operating Activities:                                        |       |                                                    |       |                                              |       |
| Net Loss                                                                     |       | $                                                       | (1,364,136 | )                                                 | $          | (12,328 | ) |
|                                                                         |       |                                                    |       |                                              |       |
| Non Cash  Expenses                                                           |       | $                                                       |       |                                              |       |   |
| Depreciation                                                                 |       | 135                                                     |       | —                                            |       |
| Amortization                                                                 |       | 800                                                     |       | —                                            |       |
| Non Cash Stock  Expense                                                      |       | 800,000                                                 |       | —                                            |       |
|                                                                         |       |                                                    |       |                                              |       |
| Adjustments to  reconcile net loss to net cash used by operating activities: |       |                                                    |       |                                              |       |
|                                                                         |       |                                                    |       |                                              |       |
| (Increase)  Decrease in inventory                                            |       | (451,500                                                | )          | —                                            |       |
| (Increase)  Decrease in deposits, prepaids, advances                         |       | 85,092                                                  |       | —                                            |       |
| Increase  (Decrease) in accounts payable                                     |       | 100,200                                                 |       | (628                                              | )          |
| Increase  (Decrease) in affiliated company payable                           |       | (15,903                                                 | )          | —                                            |       |
| Net cash used by  operating activities                                       |       | $                                                       | (845,312   | )                                                 | $          | (12,956 | ) |
|                                                                         |       |                                                    |       |                                              |       |
| Cash flow from  Investing Activities:                                        |       |                                                    |       |                                              |       |
| Cash acquired in  acquisition                                                |       | $                                                       | 3,924      |                                              | $          | — |   |
| Purchase of  property and equipment                                          |       | (344,500                                                | )          | —                                            |       |
| Net cash used by  investing                                                  |       | $                                                       | (340,576   | )                                                 | $          | — |   |
|                                                                         |       |                                                    |       |                                              |       |
| Cash flow from  Financing Activities:                                        |       |                                                    |       |                                              |       |
| Increase in net  borrowings                                                  |       | $                                                       | 1,000,000  |                                              | $          | — |   |
| Change in  investments                                                       |       | —                                                  |       | —                                            |       |
| Issuance of  common stock                                                    |       | 250,000                                                 |       | —                                            |       |
| Net cash  provided by financing activities                                   |       | $                                                       | 1,250,000  |                                              | $          | — |   |
|                                                                         |       |                                                    |       |                                              |       |
| Net Increase (Decrease)  in cash                                             |       | 64,112                                                  |       | (12,956                                           | )          |
| Cash at beginning of  period                                                 |       | 58                                                      |       | 13,036                                            |       |
| Cash at end of period                                                        |       | $                                                       | 64,170     |                                              | $          | 80 |   |
| Interest paid                                                                |       | 9,688                                                   |       | -0-                                               |       |
| Taxes paid                                                                   |       | -0-                                                     |       | -0-                                               |       |

 

See accompanying notes to financial statements

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APOLLO DRILLING, INC.NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES

Description of business and history — Apollo Drilling, Inc., (formerly Siam Imports, Inc.), (hereinafter referred to as the “Company” or “Apollo Drilling”) was incorporated in the State of Nevada on May 27, 2003. The Company was formed to engage in the importation and distribution of SE Asian gifts and decorative items to the North American marketplace.

On May 12, 2006, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Apollo Resources International, Inc., a Utah corporation (“Apollo”). Pursuant to the Agreement, the Company has purchased from Apollo all of Apollo’s ownership in Apollo Drilling, LLC, a Texas limited liability company, representing a controlling interest in the Company. The Company is now focused on providing contract drilling services to oil and natural gas exploration and production companies. The assets of the Company are comprised of one fully operational drilling rig, two disassembled, partial drilling rigs that require refurbishment, and inventory of drill pipe, and spare equipment. The Company’s drilling rigs are capable of drilling to depths of up to 6,500 feet. The Company plans to acquire additional rigs and maintain a high utilization rate for the rigs, through the negotiation and execution of contracts for drilling services. The Company is considered a development stage company in accordance with Statement of Financial Accounting Standards No. 7.

The current demand for drilling services (and related equipment) in the oil and natural gas industry is greater than the supply. The number of available drilling rigs in the U.S. today is approximately half of the number available only twenty years ago. Yet oil and natural gas commodity prices are substantially higher than they were twenty years ago. Because of these conditions, the Company anticipates that it will be able to successfully place all of its rigs, as they come on-line, under multi-well drilling contracts, and gain a presence in the contract drilling market. Currently, the Company has one contract for drilling services.

In the Texas and Oklahoma markets, there is presently a 6-8 month wait for drilling rig services. The Company has received a number of inquiries about the availability of its drilling rigs, and it is anticipated that the level of interest in the Company’s services will be high.

The Company employs competent, experienced personnel that have extensive drilling operations and management experience. These employees are also knowledgeable about, and committed to safety and regulatory compliance.

As the Company acquires additional rigs and brings them on-line, the areas of operation will grow to include Oklahoma, Texas, New Mexico, Arizona, and Utah. Apollo holds an interest in energy assets in each of these states. Consequently, it is anticipated that the Company’s relationship with Apollo will enable the Company to maximize rig utilization.

The Company will not rely exclusively upon Apollo for its business, as the Company intends to acquire much of its work as a third party driller for non-affiliated oil and gas operators. The Company does anticipate, however, that it will be able to provide drilling services to Apollo during periods where the rigs are not committed to non-affiliated clients.

The Company may bargain its drilling services for opportunities to participate in oil and gas production from the wells which it drills for its non-affiliated clients.

Basis of Presentation — The May 12, 2006 transaction for the Company to acquire Apollo Drilling, LLC was recorded using the carryover basis of accounting using the guidance in statement of Financial Accounting Standards No. 141. The Company treated Apollo Drilling, LLC as a predecessor entity in the June 30, 2006 10-QSB per the guidance in Rule 405 of 

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Regulation C. The definitions of a predecessor company set forth in Rule 405 of Regulation C, which explains that when an entity succeeds to substantially all of the business operations of an acquired entity, and the operations prior to the transaction are insignificant relative to the operations assumed or acquired, the entity acquired would typically be characterized as a predecessor entity.

Governmental/Environmental Regulations — The Company’s operations are subject to stringent federal, state and local laws and regulations governing the protection of the environment and human health and safety. Several of these laws and regulations relate to the disposal of hazardous oilfield waste and restrict the types, quantities and concentrations of such regulated substances that can be released into the environment. Several of these laws and regulations also require removal and remedial action and other cleanup under certain circumstances, often regardless of fault. Planning, implementation and maintenance of protective measures are required in order to prevent accidental discharges. The Company may be subjected to penalties and other cleanup requirements as a result of spills of oil, natural gas liquids, drilling fluids and other substances. Handling, storage and disposal of both hazardous and non-hazardous wastes are also subject to these regulatory requirements. In addition, drilling operations are often conducted in or near ecologically sensitive areas, which are subject to special protective measures and which may expose the Company to additional operation costs and liabilities for accidental discharges of oil, natural gas, drilling fluids, contaminated ware or other substances of for noncompliance with other aspects of applicable laws and regulations.

The federal Clean Water Act, as amended by the Oil Pollution Act, the federal Clean Air Act, the federal Resource Conservation and Recovery Act, CERCLA (Comprehensive Environmental Response, Compensation and Liability Act), the Safe Drinking Water Act, OSHA (Occupational Safety and Health Administration) and their state counterparts and similar statutes are the primary vehicles for imposition of such requirements and for civil, criminal and administrative penalties and other sanctions for violation of their requirements. The OSHA hazard communication standard, the Environmental Protection Agency “community right-to-know” regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require the Company to organize and report information about the hazardous materials used in operations to employees, state and local government authorities and local citizens. In addition, CERCLA and similar state statutes impose strict liability, without regard to fault or the legality of the original conduct, on certain classes of persons who are considered responsible for the release or threatened release of hazardous substances into the environment. These persons include the current owner or operator of a facility where a release has occurred, the owner or operator of a facility at the time a release occurred and companies that disposed of or arranged for the disposal of hazardous substances found at a particular site. This liability may be joint and several. Such liability, which may be imposed for the conduct of others as well as for conditions others have caused, includes the cost of removal and remedial action as well as damages to natural resources. Few defenses exist to the liability imposed by environmental law and regulations. It is also not uncommon for third parties to file broad claims, against multiple parties, for personal injury and property damage caused by substances released into the environment.

The Company intends to operate in full compliance with all industry standard, recommended drilling practices, so as to limit expenditures related to environmental concerns. The Company is in the process of purchasing insurance from insurers of recognized financial responsibility, against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company is engaged, and will not commence activities until such insurance is in place.

Going concern — The Company incurred net losses of approximately $1,442,456 from the period of May 27, 2003 (Date of Inception) through September 30, 2006, raising substantial doubt about the Company’s ability to continue as a going concern. The Company plans to acquire additional rigs and maintain a high utilization rate for the rigs, through the negotiation and execution of contracts for drilling services. The Company will seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.

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The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company’s plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Use of estimates — The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

2. PROPERTY AND EQUIPMENT

As of September 30, 2006, the Company owns $1,689,641 of equipment. This amount is comprised of one fully operation drilling rig, two disassembled partial drilling rigs that require refurbishment and spare equipment. The Company acquired all of this equipment as a result of the May 12, 2006 purchase of ownership in Apollo Drilling, LLC.

3. STOCKHOLDER’S EQUITY

6,200,000 common shares were issued to MAC Partners, LP on November 29, 2005 for $31,000 of consulting services.

The company has reclassed 24,800 from common stock at year end to 24,800 in additional paid in capital. There was no effect on the earnings per share in this reclassification. All adjustments have been made in order to present a fair and accurate presentation of the financials.

13,700,000 common shares were issued to Apollo Resources International, Inc. on May 12, 2006 pursuant to the purchase agreement of ownership in Apollo Drilling, LLC.

May 15, 2006, MAC Partners, LP sold 6,200,000 common shares to Apollo Resources International, Inc.

May 15, 2006, Dennis Eldjarnson and Debbie Eldjarnson each sold their respective 500,000 common shares to MAC Partners, LP.

300,000 common shares were issued to BMI Consulting, Inc. on June 5, 2006 for $300,000 of consulting services.

2,000,000 common shares where issued to Nite Capital on June 29, 2006 for $500,000 worth of services.

250,000 common shares were issued to Mammoth Corporation on July 6, 2006 for $250,000 in cash.

4. LOAN FROM STOCKHOLDER

As of September 30, 2006, there is a total of $2,359 that has been forwarded by Dennis Eldjarnson, the former president, to the Company with no specific repayment terms. This loan is non-interest bearing.

5. RELATED PARTY TRANSACTIONS

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As of September 30, 2006, there is a total of $2,359 that has been forwarded by Dennis Eldjarnson, the former president, to the Company with no specific repayment terms. This is non-interest bearing.

The Company has $75,000 in related party accounts payable as of September 30, 2006. This payable was acquired in the May 12, 2006 purchase of ownership in Apollo Drilling, LLC from Apollo Resources International, Inc. for 13,700,000 common shares of Apollo Drilling, Inc.  This related party payable was paid in full on November 8, 2006.

As of September 30, 2006, the Company has an outstanding note payable to First Capital dba FCC. This note is collateralized by the Company’s fully operational and two partial drilling rigs.

6. STOCK OPTIONS

As of September 30, 2006, the Company does not have any stock options outstanding, nor does it have any written or verbal agreements for the issuance or distribution of stock options at any point in the future.

7. LITIGATION

As of September 30, 2006, the Company is not aware of any current or pending litigation which may affect the Company’s operations.

8. SUBSEQUENT EVENTS

On September 25, 2006, the Board of Directors approved the following corporate actions by written consent, which became effective in October, in lieu of a meeting pursuant to Section 78.320 of the Nevada General Corporation Law:

Thereincorporation merger of our company pursuant to which we will merge with andinto Apollo Drilling, Inc., a Delaware corporation formed for such purposes,which will result in:

·                    a change ofdomicile of the company from the State of Nevada to the State ofDelaware;

·                    the changeof the corporate name to “Apollo Drilling, Inc.”;

·                    the right toreceive seven (7) shares of common stock, par value $0.001 per share, of ApolloDrilling for each one (1) share of our common stock, par value $0.001 pershare, owned as of the effective time of the reincorporation merger;

·                    the personspresently serving as executive officers and directors serving in their samerespective positions with Apollo Drilling;

·                    the adoptionof a new Certificate of Incorporation under the laws of the State of Delaware,pursuant to which our authorized capital stock will be changed from 25,000,000shares of authorized capital stock, all of which are common stock, par value$0.001 per share, to 515,000,000 shares of authorized capital stock, consistingof 500,000,000 shares of common stock, par value $0.001 per share, and15,000,000 shares of “blank check” preferred stock, par value $0.001 per share,with the right conferred upon the Board of Directors to set the dividend,voting, conversion, liquidation and other rights, as well as thequalifications, limitations and restrictions, with respect to the preferredstock as the Board of Directors may determine from time to time; and

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·                    the adoptionof new Bylaws under the laws of the State of Delaware.

On October 9, 2006, the company regretfully announced the passing of Mr. George G. Lowrance, it’s Chief Executive Officer and Chairman of it’s Board of Directors.  Effective October 13, Mr. Dennis McLaughlin was appointed Chairman of the Board and interim Chief Executive Officer.

Effective November 10, 2006, the company entered into a Drilling Services Agreement with MexTex Operating Company.  The agreement calls for the Company to contract it’s first drilling rig and workover equipment to MexTex for a term of two years at a standard rate of $15,000 per day.  The rig recently completed three commercial gas wells for MexTex pursuant to an interim short term day rate contract.

9. ACQUISITIONS

On May 12, 2006 the Company acquired a 100% interest in Apollo Drilling, LLC, a Texas limited liability company, in exchange for 13,700,000 shares of the Company’s common stock, as discussed in the June 30, 2006 10-QSB.

No additional acquisitions have been planned or are in progress at September 30, 2006.

The following is a condensed balance sheet disclosing the actual carrying values of Apollo Drilling, LLC’s assets and liabilities at the date of acquisition.

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APOLLO DRILLING, LLCBALANCE SHEET - UNAUDITEDMay 12, 2006
| ASSETS                          |   |      |      |
|---------------------------------|--------|-----------|-----------|
| Current Assets                  |   |      |      |
| Checking/Savings                |   |      |      |
| Cash in Bank                    |   | $         | 3,943     |   |
| Total  Checking/Savings         |   | 3,943     |      |
| Other Current  Assets           |   |      |      |
| Deposits                        |   | 134,140   |      |
| Total Other  Current Assets     |   | 134,140   |      |
| Total Current  Assets           |   | 138,083   |      |
| Long Term Assets                |   |      |      |
| Fixed Assets                    |   | 1,381,629 |      |
| Total Long Term  Assets         |   | 1,381,629 |      |
| TOTAL ASSETS                    |   | $         | 1,519,712 |   |
|                            |   |      |      |
| LIABILITIES &  DEFICIT      |   |      |      |
| Liabilities                     |   |      |      |
| Current  Liabilities            |   |      |      |
| Accounts Payable                |   |      |      |
| Accounts Payable  - trade       |   | 166       |      |
| Accounts Payable  - Affiliate   |   | $         | 1,585,879 |   |
| Total Accounts  Payable         |   | 1,586,045 |      |
| Total Current  Liabilities      |   | 1,586,045 |      |
| Total  Liabilities              |   | 1,586,045 |      |
| Deficit                         |   |      |      |
| Accumulated  Deficit            |   | (66,333   | )         |
| Total Deficit                   |   | (66,333   | )         |
| TOTAL LIABILITIES & DEFICIT |   | $         | 1,519,712 |   |

 

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The following represent the approximate pro-forma effect assuming the acquisition with Apollo Drilling, LLC had occurred on January 1, 2006, the beginning of the Company’s current fiscal year.

Apollo Drilling, Inc.PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITEDFor the Nine Months Ended September 30, 2006
| ** **                                                      | ** ** | **AD INC**                 | ** ** | **AD LLC**          | ** ** | ** **      | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------|------------|
| ** **                                                      | ** ** | **Nine months ended** | ** ** | **Consolidated**         | ** ** |
| ** **                                                      | ** ** | **Sep 30, 06**        | ** ** | **Sep 30, 06** | ** ** | **Sep 30** | ** ** |
| Revenue                                                         |       |                            |       |                     |       |            |       |
| Revenue                                                         |       | $                               | —     |                     | $          | —          |       | $ | — |   |
|                                                            |       |                            |       |                     |       |            |       |
| Cost of Sales                                                   |       | $                               | —     |                     | $          | 9,645           |       | $ | 9,645 |   |
|                                                            |       |                            |       |                     |       |            |       |
| Operating Expenses                                              |       |                            |       |                     |       |            |       |
| Consulting Fees                                                 |       | $                               | 805,000    |                     | $          | 132,391         |       | $ | 937,391 |   |
| Commissions                                                     |       | —                          |       | 80,000                   |       | 80,000          |       |
| Payroll Expenses                                                |       |                            |       | 21,500                   |       | 21,500          |       |
| Bank Charges                                                    |       | 31                              |       | 116,303                  |       | 116,334         |       |
| Insurance                                                       |       | —                          |       | 125,519                  |       | 125,519         |       |
| Travel                                                          |       | —                          |       | 8,084                    |       | 8,084           |       |
| Professional Fees                                               |       | —                          |       | 58,786                   |       | 58,786          |       |
| Supplies                                                        |       | —                          |       | 422                      |       | 422             |       |
| Investor  Relations                                             |       | —                          |       | 2,560                    |       | 2,560           |       |
| Printing                                                        |       | —                          |       | 3,355                    |       | 3,355           |       |
| Office Rent                                                     |       | —                          |       | 5,000                    |       | 5,000           |       |
| Registration/Filing  Fees                                       |       | —                          |       | 214                      |       | 214             |       |
| Contract  Services                                              |       | —                          |       | 28,235                   |       | 28,235          |       |
| Other                                                           |       | 9                               |       | 1,606                    |       | 1,615           |       |
| Total Expense                                                   |       | 805,040                         |       | 583,975                  |       | 1,389,015       |       |
|                                                            |       |                            |       |                     |       |            |       |
| Losses from Operations                                          |       | (805,040                        | )          | (583,975                 | )          | (1,389,015      | )          |
|                                                            |       |                            |       |                     |       |            |       |
| Other Income (Expenses)                                         |       |                            |       |                     |       |            |       |
| Other Expense                                                   |       |                            |       |                     |       |            |       |
| Miscellaneous  Expense                                          |       | —                          |       | 571                      |       | 571             |       |
| Interest Expense                                                |       | —                          |       | 31,238                   |       | 31,238          |       |
| Total Other  Expense                                            |       | —                          |       | 31,809                   |       | 31,809          |       |
|                                                            |       |                            |       |                     |       |            |       |
| Losses before provision  for income taxes and minority interest |       | (805,040                        | )          | (625,429                 | )          | (1,430,469      | )          |
|                                                            |       |                            |       |                     |       |            |       |
| Provision from income  taxes                                    |       | —                          |       | —                   |       | —          |       |
|                                                            |       |                            |       |                     |       |            |       |
| Net Loss                                                        |       | $                               | (805,040   | )                        | $          | (625,429        | )          | (1,430,469 | ) |

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion should be read in conjunction with the information contained in the audited financial statements and notes thereto set forth in our Annual Report on Form 10-KSB for the year ended December 31, 2005, which can be found in its entirety on the SEC website at www.sec.gov.

Note Regarding Forward-Looking Statements

The statements contained in this Form 10-QSB that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and  Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as anticipate, expect, intend, plan, will, the Company believes, management believes and similar words or phrases. The forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties and assumptions. Our actual results could differ materially from results anticipated in these forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

Overview

We are a development stage company and have not yet generated any revenues, but we expect to begin active drilling operations in October 2006. We may need to raise additional capital in the future through equity or debt financings or capitalize on other business opportunities in order to continue operations. There can be no assurance that we will be able to raise additional financing on favorable terms or that we will generate any interest in our proposed operations sufficient to provide the funds we require to continue with our current business plans.

Results of Operations

Three Months Ended September 30, 2006 compared to Three Months Ended September 30, 2005

We have not yet generated any revenues.

Operating expenses were $646,383 for the three months ended September 30, 2006, as compared to $1,172 for the three months ended September 30, 2005. The increase in the operating expenses is a result of the Company changing its business focus to drilling and preparing the drilling rigs for operation.

Net loss was $675,133 or $0.03 per share for the three months ended September 30, 2006, as compared to net loss of $1,172 or $0.01 per share for the three months ended September 30, 2005. The increase deficit is a result of the Company changing its business focus to drilling and preparing the rigs for operation.

Nine Months Ended September 30, 2006 compared to Nine Months Ended September 30, 2005

We are a development stage company and have not yet generated any revenue.

Operating expenses were $1,332,327 for the nine months ended September 30, 2006, as compared to $12,252 for the nine months ended September 30, 2005. The increase in the operating expenses is a result of the Company changing its business focus to drilling and preparing the drilling rigs for operation.

Net loss was $1,364,136 or $0.09 per share for the nine months ended September 30, 2006, as compared to net loss of $12,328 or $0.01 per share for the nine months ended September 30, 2005. The increased deficit is a result of the Company changing its business focus to drilling and preparing the rigs for operation.

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Liquidity and Capital Resources

Cash used in operating activities was $845,312 for the nine months ended September 30, 2006, compared to $12,956 for the nine months ended September 30, 2005. The increase is primarily related to the Company’s net loss related to changing its business focus to drilling and preparing the rigs for operation.

Net cash used in investing activities was $340,576 for the nine months ended September 30, 2006, compared to $0 for the nine months ended September 30, 2005. This increase is a result of the company acquiring Apollo Drilling, LLC and purchasing fixed assets.

Net cash provided by financing activities was $1,000,000 for the nine months ended September 30, 2006, compared to $0 for the nine months ended September 30, 2005. This increase is the result of a note payable will be used to help refurbish the drilling equipment and begin operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements or contractual or commercial commitments.

Critical Accounting Policies

The financial statements and accompanying notes included herein were prepared in accordance with generally accepted accounting principles. Preparing financial statements requires our Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are affected by management’s application of accounting policies. These important accounting policies include the successful efforts method of accounting for property and equipment, revenue recognition, accounting for income taxes, accounting for environmental matters, and foreign currency translation.

We also apply SFAS No. 128, Earnings Per Share, for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in our earnings.

ITEM 3. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared.

Additionally, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date. 

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We have not identified any significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.

 

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Reports on Form 8-K
| Date of Filing     | ** ** | **Subject**                                                                                             |
|--------------------|------------|---------------------------------------------------------------------------------------------------------|
| May 19, 2006       |       | Departure of Directors or Principal Officers;  Election of Directors; Appointment of Principal Officers |
| May 19, 2006       |       | Completion of Acquisition or Disposition of Assets                                                      |
| September 25, 2006 |       | Departure of Directors or Principal Officers;  Election of Directors; Appointment of Principal Officers |
| October 9, 2006    |       | Departure of Directors or Principal Officers;  Election of Directors; Appointment of Principal Officers |
| October 17, 2006   |       | Material Modification to Rights of Security Holders                                                     |
| November 10, 2006  |       | Entry into a Material Definitive Agreement                                                              |

 
| Exhibits     | ** ** | ** **                                                                                                                                            |
|--------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit 10.1 |       | Term Loan and Joinder Agreement                                                                                                                       |
| Exhibit 31.1 |       | Certification of Chief Executive officer pursuant to  Rule 13a-14(a) under the Securities Act on 1934.                                                |
| Exhibit 31.2 |       | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) under the Securities Act on 1934.                                                |
| Exhibit 32.1 |       | Certification of Chief Executive Officer pursuant to  18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley  Act of 2002  |
| Exhibit 32.2 |       | Certification of Chief Financial Officer pursuant to  18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |

 

Schedule 14C Information
| Date of Filing | ** ** | **Subject**                      |
|----------------|------------|----------------------------------|
| September 25   |       | Reincorporation Merger Agreement |

 

 

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**SIGNATURES**

Pursuant to the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

APOLLO DRILLING, INC.,a Nevada corporation (Registrant)
|                           | By:    | /s/ Dennis McLaughlin               |
|---------------------------|--------|-------------------------------------|
|                      |   | Dennis McLaughlin, CEO and Director |
|                      |   |                                |
|                      |   |                                |
|                      | By:    | /s/ Robert Nelson                   |
|                      |   | Robert Nelson, CFO and Director     |
| Dated: November  20, 2006 |   |                                |

 

 

 

 

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