Form 10-QSB

10QSB 1 d10qsb.htm FORM 10-QSB Form 10-QSB

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-QSB

Quarterly Report pursuant to Section 13 or 15(D)

of the Securities Exchange Act of 1934

For the quarter ended June 30, 2007

Commission file number 000-32669

Heartland Oil and Gas Corp.


Incorporated in Nevada		IRS ID No. 91-1918326

1625 Broadway, Suite 1480

Denver, Colorado 80202

Telephone: (303) 405-8450

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 past 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.

The registrant is a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

The registrant is not a shell company (as defined in Rule 12b-2 of the Exchange Act).

Heartland had 10,313,017 shares of common stock outstanding as of July 30, 2007.

Item 1.

Financial Statements

Heartland Oil and Gas Corp.

Balance Sheet


	June 30, 2007			Dec 31, 2006
	Unaudited			Audited
Assets

Current assets:
Cash	$	19,969		$	75,724
Gas sales receivable		45,100			43,952
Deferred offering cost		—			10,000
Prepaid expense and other current assets		268,449			129,423
Notes receivable		595,322			—

Total current assets		928,840			259,099


Oil and gas property and equipment:
Unproved, undeveloped (Note 3)		1,661,058			1,688,889
Proved, developed properties, full cost method, net of accumulated depletion of $259,451 and $175,842, respectively		961,406			792,504
Pipeline and facilities, net of accumulated depreciation of $268,893 and $200,697, respectively		2,464,403			2,521,670

Other property and equipment, net of accumulated depreciation of $121,439 and $122,715, respectively		46,401			94,271

Total Assets	$	6,062,108		$	5,356,433


Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable and accrued liabilities	$	391,657		$	214,180
Notes payable to related parties (Note 4)
Convertible notes		6,485,000			—
Other notes		100,000			68,554

Total current liabilities		6,976,657			282,734

Long-term asset retirement obligation (Note 5)		236,963			227,040

Total liabilities		7,213,621			509,774

Stockholders’ (deficit) equity:
Common stock - $0.001 par value, 100,000,000 shares authorized, 97,701,010 shares issued, and outstanding at June 30, 2007 and 46,737,013 shares issued, and outstanding at December 31, 2006 (Note 9)		97,702			46,737
Additional paid-in capital		52,134,031			51,215,858
Accumulated deficit		(53,383,245	)		(46,415,936	)

Total stockholders’ (deficit) equity		(1,151,512	)		4,846,659

Total liabilities and stockholders’ (deficit) equity	$	6,062,108		$	5,356,433

See accompanying notes.

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Heartland Oil and Gas Corp.

Operations Statement

(Unaudited)


	Three Months Ended June 30, 2007			Three Months Ended June 30, 2006			Six Months Ended June 30, 2007			Six Months Ended June 30, 2006
Revenue, natural gas sales	$	119,190		$	112,734		$	229,710		$	168,449
Revenue, compression and transportation		6,023			4,566			11,847			10,252

Total revenue		125,213			117,300			241,558			178,701


Expense
Lease operating exp. and production tax		113,430			149,072			187,953			213,947
Exploration expense, expired leases		15,895			8,906			39,054			124,365
Depreciation, depletion and accretion		94,270			115,157			192,193			201,780
Share based compensation		10,701			101,383			19,138			232,952
General and administrative expense		278,460			338,429			474,635			729,875

Total operating expense		512,756			712,947			912,973			1,502,919

Loss From Operations		(387,543	)		(595,647	)		(671,416	)		(1,324,218	)
Interest income		2,370			2,830			2,373			12,281
Interest expense		(1,820	)		—			(6,298,266	)		—


Net Loss	$	(386,993	)	$	(592,817	)	$	(6,967,309	)	$	(1,311,937	)


Basic And Diluted Net Loss Per Common Share	$	(0.00	)	$	(0.01	)	$	(0.12	)	$	(0.03	)


Basic And Diluted Weighted Average Number of Common Shares Outstanding		60,231,450			46,737,000			60,231,450			46,737,000

See accompanying notes.

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Heartland Oil and Gas Corp.

Stockholders’ (Deficit) Equity Statement


	Common Shares	Common Stock		Additional Paid-In Capital			Accumulated deficit			Total
Balance, December 31, 2005	46,737,013	$	46,737	$	46,220,873		$	(44,959,966	)	$	1,307,644


Gain on preferred stock extinguishment	—		—		4,067,986			—			4,067,986
Shareholder loan discount	—		—		532,013			—			532,013
Issuance of stock options as compensation	—		—		394,986			—			394,986
Net loss	—		—		—			(1,455,970	)		(1,455,970	)

Balance, December 31, 2006	46,737,013	$	46,737	$	51,215,858		$	(46,415,936	)		4,846,659

Acquisition of Heartland stock by UPDA	50,631,764		50,632		(50,632	)		—			—
Acquisition of Heartland stock by UPDA	—		—		1,000,000			—			1,000,000
Costs of acquisition (ECS)	—		—		(50,000	)		—			(50,000	)
Costs of acquisition (ECS)	333,333		333		(30,000	)		—			(29,667	)
Costs of acquisition (ECS) – value of stock	—		—		29,667			—			29,667
Issuance of stock options as compensation	—		—		19,138			—			19,138
Net loss	—		—		—			(6,967,309	)		(6,967,309	)

Balance, June 30, 2007	97,702,110	$	97,702	$	52,134,031		$	(53,383,245	)	$	(1,151,512	)

See accompanying notes.

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Heartland Oil & Gas Corp.

Cash Flow Statement

(Unaudited)


	Six Months Ended June 30, 2007			Six Months Ended June 30, 2006
Cash Flow Used In Operating Activities

Net loss	$	(6,967,309	)	$	(1,311,937	)

Adjustments to reconcile net loss to net cash used in operating activities:
Asset retirement obligation		9,923			9,177
Loss on disposal of assets		—			4,353
Interest expense resulting from discount on notes arising from the exchange of preferred stock for convertible debt (Note 4)		6,416,446			—
Share-based compensation		19,138			232,952
Depreciation, depletion and amortization		182,270			192,603
Exploration expense, abandoned leases		39,054			124,365

Changes in operating asset and liabilities
Increase in other current assets		(54,147	)		(37,662	)
Decrease (increase) in prepaid expense		(76,029	)		52,291
Increase (decrease) in accounts payable and accrued liabilities		177,478			(88,136	)
Well plugging cost paid		—			(462,926	)

Net cash used in operating activity		(253,176	)		(1,284,920	)


Cash Flow Used In Investing Activities
Acquisition and exploration of oil and gas property		(263,733	)		(228,412	)
Purchase of pipeline and facilities		(10,929	)		(298,617	)
Proceeds from sale of equipment		17,405			173,315

Net cash used in investing activities		(257,257	)		(353,714	)


Cash Flow From Financing Activity
Increase (decrease) in due to related parties		(495,322	)		475,000
Issuance of conversion right to related party		—			25,000
Additional paid-in capital		1,000,000			—
Share issue costs		(50,000	)		—

Net cash provided by financing activities		454,678			500,000

Net Decrease in Cash		(55,755	)		(1,138,634	)
Cash, beginning of period		75,724			2,126,156

Cash, end of period	$	19,969		$	987,522

See accompanying notes.

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Note 1—Organization, Operations and Significant Accounting Policies

Organization

Heartland Oil and Gas Corp. was incorporated in Nevada on July 9, 1998. Our principal business is exploration and development of oil and gas property in the United States. Through December 31, 2005, we were in the exploration stage and had not generated significant revenue from operations. We first sold natural gas in February 2006; therefore we are no longer an exploration stage company.

We have incurred recurring losses from operations and have accumulated a deficit of $53,383,245 since inception. At June 30, 2007, we had negative working capital. Since inception, we have funded operations through the issuance of capital stock and debt. We plan to continue raising additional funds through future equity or debt financing until we achieve profitable operations.

The accompanying financial statements are unaudited and include, in our opinion, all adjustments, consisting of only normal recurring adjustments, necessary for fair presentation. The financial statements should be read in conjunction with our audited financial statements and the related notes included in our Form 10KSB for the year ended December 31, 2006. The accompanying financial statements are interim financial statements prepared in accordance with accounting principles generally accepted in the United States and are stated in U.S. dollars.

Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial position and operating activities of Heartland Oil and Gas Corp. (HTOG) and its 100% owned subsidiaries Heartland Oil and Gas, Inc., Heartland Gas Gathering, LLC and Heartland International. All inter-company balances have been eliminated in consolidation.

Foreign Currency Translation

Our functional currency is the U.S. dollar. In those instances where we have foreign currency transactions, we translate the financial statements to U.S. dollars in accordance with Statement 52 of the Financial Accounting Standards Board (FASB), Foreign Currency Translation. We translate monetary assets and liabilities denominated in foreign currencies using the exchange rate prevailing at the balance sheet date. We include gains and losses arising on translation or settlement of foreign-currency-denominated transactions or balances in the determination of income. Our primary foreign currency transactions are in Canadian dollars. We have not entered into derivative instruments to offset the impact of foreign currency fluctuations.

Basic and Diluted Net Income (Loss) Per Share

We compute net income (loss) per share in accordance with FASB Statement 128, Earnings per Share. Statement 128 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. We compute basic EPS by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, we use the average stock price for the period in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is antidilutive.

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Oil and Gas Property

We utilize the full cost method to account for our oil and gas property. Accordingly, we capitalize all cost associated with acquisition, exploration and development of oil and gas reserves, including such cost as leasehold acquisition cost, capitalized interest cost relating to unproved property, geological expenditures, tangible and intangible development cost including direct internal cost to the full cost pool.

We have depleted the capitalized cost, including estimated future cost to develop the reserves and estimated abandonment cost, net of salvage, on the units-of-production method using estimates of proved reserves. We do not amortize cost of unproved property and major development projects including capitalized interest, if any, until the property begins to produce. If we determine the future exploration of unproved property to be uneconomical, we add the amount of such property to the capitalized cost to be amortized.

We apply a ceiling test to the capitalized cost in the full cost pool, in accordance with the provisions of SEC Regulation S-X, Rule 4-10 (c) (4), Limitation on capitalized costs. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future net revenue from proved reserves, based on current economic and operating conditions. Specifically, we compute the ceiling test so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: (A) The present value of estimated future net revenue computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus (B) the cost of property not being amortized; plus (C) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; less (D) income tax effects related to differences between the book and tax basis of the property.

For unproved property, we exclude from capitalized cost subject to depletion all cost directly associated with the acquisition and evaluation of unproved property until we determine whether or not proved reserves can be assigned to the property. Until we make such a determination, we assess the property at least annually to ascertain whether impairment has occurred, in accordance with FASB Statement 144, Accounting for Impairment of Long-Lived Assets. In assessing impairment we consider factors such as historical experience and other data such as primary lease terms of the property, average holding periods of unproved property, geographic and geologic data, and market values of comparable unproved property being bought and sold by other parties. We recognize an impairment loss only if the carrying amount of an unproved property is not recoverable from its undiscounted cash flow. We measure an impairment loss as the difference between the carrying amount and the fair value of the asset. We add the amount of impairment assessed to the cost to be amortized subject to the ceiling test.

We account for sales of proved and unproved property as adjustments of capitalized cost with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized cost and proved reserves of oil and gas, in which case we record the gain or loss in the operations statement.

Property and Equipment

Property and equipment includes office furniture & equipment and gathering and surface facilities. We record property and equipment at cost. We provide depreciation for office furniture & equipment on a straight line basis at annual rates ranging from 20 percent to 50 percent per annum, and for gathering and surface facilities on a straight-line basis over 20 years.

Long-Lived Assets

In accordance with FASB Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we review the carrying value of intangible assets and other long-lived assets, such as other properties and equipment, on a regular basis for the existence of facts or circumstances that may suggest impairment. We recognize impairment when the sum of the expected undiscounted future cash flow is less than the carrying amount of the asset. We measure impairment losses, if any, as the excess of the carrying amount of the asset over its estimated fair value.

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Income Tax

We account for income tax in accordance with FASB Statement 109, Accounting for Income Taxes. Under the asset and liability method of Statement 109, we record deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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. We believe that the estimates we utilize in preparing the financial statements are prudent and reasonable. Actual results may differ from these estimates.

Financial Instruments and Concentration of Credit Risk

We carry substantially all of our assets and liabilities at fair value or contracted amounts that approximate fair value. We make estimates of fair value at a specific point in time, based on relative market information and information about the financial instrument, specifically, the value of the underlying financial instrument. Assets that we record at fair value are primarily cash and other assets, which we carry at contracted amounts that approximate fair value. Our liabilities consist of short term liabilities we record at contracted amounts that approximate fair value. Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash in excess of the federally insured amount of $100,000. To date, we have not incurred a loss relating to this concentration of credit risk.

Stock-Based Compensation

Effective January 1, 2006, we account for stock-based compensation based on the fair value of the options at the grant date as provided by FASB Statement 123(R), Stock-Based Compensation. We record compensation expense for all share-based awards granted, and for awards modified, repurchased or cancelled. We will recognize compensation expense for outstanding awards for which the requisite service had not been rendered as of January 1, 2006, over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under FASB Statement 123, adjusted for expected forfeitures. We have adopted Statement 123(R) using a modified prospective application. Prior to January 1, 2006 we recognized employee compensation expense for our stock options plan using the intrinsic value method of accounting. Under the terms of the intrinsic value method, compensation expense was the excess, if any, of the quoted market price of the stock at the grant date, over the amount an employee must pay to acquire the stock. Under our Amended 2005 Stock Option Plan, we may grant up to a maximum of 4,000,000 shares of common stock to key employees and consultants. The options granted under the plan vest over four years except as stated otherwise in the individual grants, and are for a term not exceeding 10 years.

For the six month periods ended June 30, 2007 and 2006, we expensed the fair value of options granted to non-employees, employees, officers and directors.

Major Customers

For the six months ended June 30, 2007, one customer, Enbridge Marketing (U.S.) LP, was responsible for purchasing 100% of our natural gas sales.

Asset Retirement Obligations

We account for asset retirement obligations in accordance with the provisions of Statement 143 “Accounting for Asset Retirement Obligations”. Statement 143 requires us to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. We recognize asset retirement obligations related to our oil and gas property.

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Reclassifications

We have reclassified certain data in the financial statements of the prior periods to conform to the current period presentation.

Recent Accounting Pronouncements:

In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” that applies to all voluntary changes in accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, this Statement requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, this Statement requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable. SFAS 154 will be effective for the Company for fiscal year ended December 31, 2007. The Company does not anticipate that the adoption of SFAS No. 154 will have an impact on the Company’s overall results of operations or financial position.

In February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140,” that allows a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement (new basis) event, on an instrument-by-instrument basis, in cases in which a derivative would otherwise have to be bifurcated. It also eliminates the exemption from applying Statement 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not anticipate that the adoption of SFAS No. 155 will have an impact on the Company’s overall results of operations or financial position.

In March 2006, the FASB issued SFAS 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140,” that applies to the accounting for separately recognized servicing assets and servicing liabilities. This Statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. An entity should adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006. The Company does not anticipate that the adoption of SFAS No. 156 will have an impact on the Company’s overall results of operations or financial position.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. The Interpretation clarifies the way companies are to account for uncertainty in income tax reporting and filing and prescribes a consistent recognition threshold and measurement attribute for recognizing, derecognizing, and measuring the tax benefits of a tax position taken, or expected to be taken, on a tax return. The Interpretation is effective for fiscal years beginning after December 15, 2006, although early adoption is possible. The Company does not plan to adopt early and the Company is currently in the process of evaluating the impact, if any, the adoption of the Interpretation will have on the 2007 financial statements.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. The adoption of SFAS No. 157 will not have an impact on the Company’s overall results of operations or financial position.

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In September 2006, the Financial Accounting Standards Board (“FASB”) the issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires companies to report the funded status of their defined benefit pension and other postretirement benefit plans on their balance sheets as a net liability or asset as of December 31, 2006. The new standard does not address the accounting treatment for pension and postretirement benefits in the income statement. This will have no impact on the Company’s results of operations or financial position.

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure eligible financial instruments and other items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument but only upon the entire instrument—not portions of the instrument. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not anticipate that the adoption of SFAS No. 159 will have an impact on the Company’s overall results of operations or financial position.

Note 2—Going Concern

We have incurred significant losses since inception and had no revenue from inception to December 31, 2005. We sold natural gas for the first time in February 2006. As of June 30, 2007 we have an accumulated deficit of $53,383,245 and a net loss for the six months of $6,967,309. At June 30, 2007, we had limited financial resources. Our continuation is dependent upon our ability to raise additional capital, to exploit our mineral holdings, and to generate sufficient revenue from our planned operations to enable us to attain and maintain profitable operations.

The issuance of additional equity securities by us could result in significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, if those loans would be available, would increase our liabilities and future cash commitments.

We cannot assure that we will be able to obtain further funds required for our continued operations, that additional financing will be available to us when needed or, if available, that we can obtain it on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we may be unable to conduct our operations as planned, and we may not be able to meet our other obligations as they become due. In such event, we would be forced to scale down or perhaps even cease our operations.

Note 3—Oil and Gas Properties

Undeveloped Properties

We own and operate nearly 582,000 acres in two areas in northeast Kansas: the south block, located on the Cherokee basin, where we have established reserves and production; and the north block, located in the Forest City basin, where we hold significant leases which expire between 2007 and 2012.


Undeveloped Acreage	Six Months Ended June 30, 2007			Year Ended December 31, 2006
Beginning Balance	$	1,688,889		$	1,776,322
Acquisition of undeveloped acreage		7,554			63,732
Less expired leases		(35,385	)		(151,165	)

Total undeveloped properties	$	1,661,058		$	1,688,889

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Developed Properties, Cherokee basin

Our developed properties focus on approximately 100,000 acre leasehold position located in the Cherokee basin, primarily in Linn and Miami counties. We have 24 wells in four batteries producing gas across a 12 mile area. From east to west, these areas are named Jake (1 well), Lancaster (16 wells), Osawatomie (4 wells), and Beagle (3 wells). In June, 2007 we commenced a drilling program to further develop the Lancaster and Jake pilots. Six wells were drilled during the second quarter and are awaiting completion and pipeline hook-up in the Lancaster area. We have a dominant acreage position and are negotiating pipeline rights-of-way in and between these producing areas.


Developed Properties	Six Months Ended June 30, 2007			Year Ended December 31, 2006
Beginning Balance	$	792,504		$	1,316,102
Acquisition, exploration, drilling and lease and well equipment		252,511			322,595
Less accumulated depletion		(83,609	)		(175,842	)
Less plugging and abandonment costs		—			(228,064	)
Less impairment costs		—			(442,287	)

Total developed properties	$	961,406		$	792,504

Pipeline and Marketing

In July 2005 we signed contracts with a subsidiary of Enbridge Energy Partners, L.P. to initiate gas sales from our Lancaster coalbed methane battery located near Paola, Kansas. While the gas price is variable, we expect to realize a wellhead price approximating 75 percent of NYMEX price or mid-continent gas posting. We have competed construction of the pipeline. We began selling methane from our Lancaster battery in February, 2006.

Cost associated with our pipeline and facilities:


Pipeline and facilities	Six Months Ended June 30, 2007			Year Ended December 31, 2006
Beginning Balance	$	2,521,670		$	2,332,155
Acquisition of equipment		10,929			316,595
Less depreciation		(68,196	)		(127,080	)

Total pipeline and facilities	$	2,464,403		$	2,521,670

Note 4—Notes Payable to Related Parties

Convertible notes

On September 29, 2006, we completed (i) a $300,000 (the “Bridge Amount”) bridge financing from SDS Capital Group, Ltd. and Baystar Capital II, L.P. (collectively, the “Payees”) and (ii) the repurchase of all outstanding Series B Preferred Stock with a principal amount of $6,000,000 (the “Series B Amount” and collectively with the Bridge Amount, the “Note Principal Amount”) from the Payees in consideration of the issuance of convertible senior secured promissory notes (the “Notes”). The Notes mature on the earlier of March 28, 2007 or the date of any subsequent financing in which we issue equity securities or other securities that could result in the issuance of equity securities (the “Maturity Date”), have no interest rate and reflect the full Note Principal Amount. The Notes are secured by all of our assets, except that the Payees have agreed to release security interests in assets located in the following Kansas counties in the event of a sale of those assets: Atchison, Brown, Doniphan, Jackson, Jefferson, Leavenworth, Nemaha and

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Pottawatomie. We may prepay the Note Principal Amount in full and in cash at any time prior to the Maturity Date. On March 28, 2007, we and the Payees extended the due date of the Notes to April 4, 2007. On April 4, 2007 the Notes were again extended to April 16, 2007. (See Note 9.—Subsequent Events below)

Except in the case of a Qualified Financing, the Notes are convertible into common stock on the Maturity Date. At the Maturity Date, the Payees have the option to convert the Note Principal Amount into common stock at a conversion price of $0.04 per share. In a Qualified Financing, the Payees will convert approximately 81% of the Note Principal Amount into the additional securities issued in the Qualified Financing on the same price and terms as the other investors in the Qualified Financing with the remaining balance of the Note Principle Amount being cancelled; provided, however, that if the Payees do not invest a total of at least $2,000,000 in the Qualified Financing, then the Payees will not have the right to convert the Note Principal Amount into the Qualified Financing. In this event, the Bridge Amount will be converted into the securities issued in the Qualified Financing on the same price and terms as the other investors in the Qualified Financing and the Series B Amount will automatically be converted into a new preferred stock having substantially similar terms as our Series B Preferred Stock, except that the rights contained in Article XIII of our Certificate of Designation, Preferences and Rights relating to the Series B Preferred Stock (the “Certificate”) will be deleted. A Qualified Financing is defined in the Notes as our issuance of new securities in an amount of at least $15,000,000.

In addition, pursuant to the Notes, the Payees agreed to forbear collection of any liquidated damages or other amounts we owe under the Registration Rights Agreement dated October 1, 2004, if any, and to waive payment of any such amounts if we complete a Qualified Financing, regardless of whether the Payees participate in the Qualified Financing. Also, the Payees waived their right to declare a Redemption Event under the Certificate, if any, through September 29, 2006.

Because of the preferred stock, exchanged for the Notes, SDS Capital Group Ltd. and BayStar Capital II L.P. are related parties to us. The Notes contain customary negative covenants, including a covenant that we are not to incur additional indebtedness, and the Notes contain customary events of default.

In issuing the Notes and underlying Common Stock to the Payees, we relied on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

Generally accepted accounting principles (GAAP), as described in Issue 96-19 of the Emerging Issues Task Force (EITF) of the FASB, characterize the above exchange of redeemable preferred stock for the convertible Notes as an extinguishment of the redeemable preferred stock. The Notes are to be recorded at fair value. The fair value of the Notes is to be used to record an extraordinary gain or loss on the extinguishment of the preferred stock. We engaged a qualified valuation firm, which determined that the fair value of the Notes was $4,600,000 on September 29, 2006. This value resulted in a gain of $1,299,958, which we recorded during the year ended December 31, 2006.

GAAP, as described in EITF Issue 00-27, paragraph 7, and EITF 98-5, paragraph 6, provides that if the conversion feature of the Notes is beneficial to the holder (has intrinsic value), which it is, the intrinsic value is recorded as a reduction of the carrying amount of the Notes and an addition to paid-in capital. The Notes are convertible into common stock at a rate of four cents per share. The common stock traded for nine cents per share on September 29, 2006, the closing date of the exchange. Therefore the conversion has an intrinsic value of five cents per share. The Notes are convertible into 157,500,000 common shares. Therefore the conversion feature has an intrinsic value of $7,875,000, which is in excess of the total proceeds received in exchange for the Notes. Therefore the full fair value of the Notes was credited to additional paid-in capital during the year December 31, 2006 in conjunction with recognition of the 1,299,958 gain on the conversion. We assigned an initial carrying value to the Notes of $1. We accreted interest on the Notes up to their $6,300,000 face value over the 180 day life of the Notes. Interest expense of $6,296,446 resulting from accreting the notes from a $1 value has been recorded for the six months ended June 30, 2007 related to these notes.

The accounting described above is summarized as:


Initial Series B Preferred Stock	$	6,000,000
Classification adjustment prior to 12/31/06		(400,042	)


Book value, Series B Preferred, 12/31/06 and 9/28/06		5,599,958
September 29, 2006 Bridge Financing		300,000


Preliminary book value of notes at 9-29-06 conversion		5,899,958
Fair value of notes determined by independent valuation firm, 9-29-06, classified as an addition to additional paid-in capital on the conversion		(4,600,000	)


Gain on conversion	$	1,299,958


Initial carrying value of the Notes at 9/29/06	$	1
Interest accreted @ 9.08728% per day:
Through 12-31-06		3,553
Balance, 12-31-06		3,554
Interest accreted @ 9.088728% per day for the quarter ended 3-31-2007		6,296,446


Total interest accretion over 180 day life of the notes	$	6,300,000

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Pursuant to the sale of a 52% interest in the Company’s common stock to Universal Property Development and Acquisition Corporation on April 19, 2007, these notes are now held by UPDA and have been extended to December 31, 2007.

Acquisition of Our Promissory Notes by UPDA

On April 20, 2007, UPDA also closed a note purchase transaction (the “Note Purchase”) pursuant to the terms and conditions of a Note Purchase Agreement, dated April 19, 2007, between UPDA as the buyer and SDS Capital Group SPC, Ltd. and Baystar Capital II, L.P. (together the “Sellers”) whereby UPDA purchased four million seven hundred fifty-six thousand dollars ($4,756,000) in face amount of our outstanding Convertible Senior Secured Promissory Notes (the “Notes”) for an aggregate purchase price of $1,500,000 in cash and 26,260,504 restricted shares of the common stock of UPDA. Note 3 to these financial statements above describes our issuance of the Notes (therein also defined as the Notes) to the Sellers on September 29, 2006.

The Notes do not pay interest but are convertible into shares of our common stock based on a conversion price of $0.04 per share. Under the terms of this conversion provision, the Notes acquired by UPDA are convertible into 118,900,000 shares of our common stock. In the event of a full conversion of the Notes to shares of our common stock, UPDA would hold an aggregate of 169,531,764 shares of our common stock.

As a condition to the closing of the Note Purchase, and in exchange for UPDA’s agreement to extend the maturity date of the Notes from April 16, 2007 to December 31, 2007, we executed consents to the transfer of the Notes to UPDA and the assignment by the Sellers of their security interests under an existing security agreement covering the Notes to UPDA.

Other Notes

On December 7, 2006 we also borrowed $65,000 on a note bearing 18% interest, payable to SDS Capital Group SPC, Ltd., one of our two preferred stockholders. The maturity date of the note is March 28, 2007 and the note was subsequently repaid on January 31, 2007.

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March 27, 2007 both lenders extended the notes to April 4, 2007. On April 4, 2007 the notes were again extended to April 16, 2007. Pursuant to the sale of a 52% interest in the Company’s common stock to Universal Property Development and Acquisition Corporation on April 19, 2007, these notes are now held by UPDA and have been extended to December 31, 2007. (See Note 4.)

On June 7, 2007 we borrowed $100,000 on a note bearing 8% interest, payable to Kamal Abdallah. The note is payable on demand.

Note 5—Asset Retirement Obligations


	Six Months Ended June 30, 2007		Year Ended December 31, 2006
Beginning asset retirement obligations	$	227,040	$	671,140
Additions related to new property		—		—

Plugging and well-site restoration of 64 wells		—		(462,926	)
Liabilities incurred		—		—
Accretion		9,923		18,826

Total asset retirement obligations	$	236,963	$	227,040

Note 6—Sale of Common Stock, Stock Options and Warrants

Options

A summary of the changes in our common share purchase options is below:


	June 30, 2007					December 31, 2006
	Number		Weighted Average Exercise Price			Number		Weighted Average Exercise Price
Balance, beginning of year	3,725,000		$	.61		4,805,000		$	.84
Granted	1,300,000		$	.14		—
Exercised
Forfeited / Expired	(1,940,000	)	$	(.65	)	(1,080,000	)	$	(1.34	)
Balance, end of period	3,085,000		$	.38		3,725,000		$	.61

Additional information regarding options outstanding at June 30, 2007 is:


	Outstanding				Exercisable
	Number of shares	Weighted average remaining contractual life (years)	Weighted average exercise price		Vested Number of shares	Exercise prices
$ 0.00 - $ 1.00	2,855,000	5.72	$	0.28	2,855,000	$	0.28
$ 1.01 - $ 2.00	230,000	7.00	$	1.60	230,000	$	1.60
	3,085,000	5.82	$	0.61	3,085,000	$	0.61

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Warrants

Below is a summary of our warrant activity:


	Warrants		Exercise Price			Expiration Dates
Outstanding at December 31, 2006	497,653		$	3.84		2007
Expired during the six months ended June 30, 2007	(497,653	)	$	(3.84	)
Outstanding at June 30, 2007	—		$

Acquisition of Our Common Stock by UPDA

Pursuant to the terms of a Stock Purchase Agreement dated April 19, 2007, by and between us and Universal Property Development and Acquisition Corporation, a Nevada corporation (“UPDA”), UPDA agreed to purchase a total of 50,631,764 shares (the “Shares”) of our common stock in a private transaction with the company for an aggregate purchase price of $1,000,000 in cash (the “Stock Sale”). The Stock Sale closed on April 20, 2007 (the “Closing Date”), through the payment by UPDA of the aggregate purchase price and the transfer of the Shares by us to UPDA.

On April 23, 2007, subsequent to the closing of the Stock Sale, 333,333 shares of common stock were issued to Energy Capital Solutions. The company entered into a letter agreement with Energy Capital Solutions (ECS) on May 31, 2006, with a document date of May 30, 2006. The company extended this agreement with a First Amendment dated January 29, 2007. Under the terms of these agreements, ECS was eligible to receive 4% of the transaction proceeds in cash and 3% of the transactions proceeds in equity or Heartland stock according to the terms and timeline of the Potential Investor.

The Stock Sale constitutes a change of control transaction for us as UPDA now owns a majority of our outstanding voting securities. Therefore, UPDA has the voting power to pass actions requiring shareholder approval and has the voting power to control the election of directors to our board of directors.

The Company is obligated under a series of employment offering letters, issued well prior to the UPDA Company common stock acquisition described above, to provide severance pay to certain key employees for a six month period after a change in the control of the Company and a material change in position has occurred. These employment obligations total approximately $60,000.

Changes to the Our Board of Directors

As a condition to the closing of the Stock Sale, Messrs. Robert Poley, John Martin and Todd Mackintosh resigned as members of our board of directors on April 20, 2007. Mr. Philip Winner remained as the sole member of our board of directors. Mr. Winner, as the remaining board member, has appointed Messrs. Kamal Abdallah and Christopher McCauley to fill two of the vacancies on the board of directors, effective no earlier than ten (10) days after the date on which our Information Statement on Schedule 14f-1 was filed with the Commission and mailed to all holders of record of our common stock. The appointment of Messrs. Abdallah and McCauley to our board of directors became effective on May 13, 2007.

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On July 27, 2007, Mr. Philip Winner resigned his position on the board of directors and, the board of directors of the Registrant approved the appointment of Mr. Steven A. Fall to the Registrant’s board of directors to fill a vacancy thereon. Mr. Fall is also the Registrant’s Interim President.

On July 27, 2007, the board of directors of the Registrant approved the appointment of Mr. Kamal Abdallah as the Chairman of the Registrant’s board of directors. On July 27, 2007, the board of directors of the Registrant appointed Mr. Christopher McCauley to the position of Secretary of the Registrant.

Issuance of Options by Our Board of Directors

On April 17, 2007, the board of directors of the Company authorized 1,300,000 options to be granted to certain directors and key employees. The options have an exercise price of $.14 per share and a three-year term. The options vested on the date of issuance. Mr. Philip Winner was granted 500,000 options and Mr. Robert Poley, Mr. Todd Mackintosh and Mr. John Martin were granted 166,667, 166,667, and 166,666 options respectively. The remaining 300,000 options were granted to key employees.

Note 7—Income Tax

At June 30, 2007, we had approximately $39,600,000 in pretax US federal and state net operating loss carryforwards, expiring through 2026. We incurred portions of such net operating loss carryforwards prior to September 17, 2002, our reverse acquisition date. As such, we anticipate limitations to the use of these carryforwards under Internal Revenue Code Section 382. We provide for deferred tax arising from temporary differences in the book and tax carrying amounts of assets and liabilities. Temporary differences arise primarily from differences in reporting stock-based compensation, intangible drilling and completion cost and oil and gas impairment expense. We have fully reserved the deferred tax assets that arise from such operating loss carryforwards and temporary differences of approximately $(15,246,000) at June 30, 2007, in the accompanying financial statements as follows.


	June 30,2007
Net operating loss deduction	$	15,246,000
Valuation Allowance		(15,246,000	)
Net Deferred Tax Asset	$	—

Reconciliation of the differences between the statutory tax rate and the effective tax rate is:


	June 30, 2007
Federal statutory tax rate	34.0	%
State Tax Rate	4.5	%
Effective Tax Rate	38.5	%
Valuation Allowance	(38.5	)%
Net Effective Tax Rate	—

Note 8—Other Related Party Transactions

Consulting Agreements

We entered into management consulting agreements dated October 1, 2004, as amended, with a director for the payment of management fees of $7,500 CAD per month, for the three months ended June 30, 2006, he was paid $19,892 USD for management services under the terms of that agreement. For the six months ended June 30, 2006 he was paid $39,357 USD for management services. The management consulting agreement was terminated on September 30, 2006.

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We entered into a consulting agreement for services on an hourly basis with our contract CFO. For the three months ended June 30, 2007 and June 20, 2006, he was paid $7,365 and $25,847, respectively, for services rendered under this agreement. For the six months ended June 30, 2007 and June 30, 2006 he was paid $13,465 and $57,782, respectively. He resigned his position on April 23, 2007.

Effective January 1, 2006, we approved the payment of director’s fees for non-employee directors at the rate of $200 per hour. For the three months ended June 30, 2007 and June 20, 2006, we incurred $2,341 and $25,847, respectively, for director’s fees. For the six months ended June 30, 2007 and June 30, 2006 we incurred $4,810 and $13,310, respectively. All non-employee directors resigned their positions on April 23, 2007.

Note 9—Subsequent Events

Reverse Stock Split

On June 19, 2007, the board of directors of Heartland Oil and Gas Corp. (the “Company”) approved the adoption of a proposed Amendment to the Articles of Incorporation of the Company to: (a) increase the number of authorized shares of common stock, par value $.001 per share (the “common stock”), of the Company from 100,000,000 shares to 900,000,000 shares, (b) increase the number of authorized shares of preferred stock, par value $.001 per share (the “preferred stock”), of the Company from 5,000,000 shares to 100,000,000 shares, and (c) effect a one for ten (1:10) reverse split of the Company’s common stock, subject to approval by a majority of the Company’s stockholders.

On June 19, 2007, the holders of a majority of the outstanding shares of our common stock approved the Amendment to the Articles of Incorporation in writing. The authorization of the Amendment to the Articles of Incorporation by the board of directors and the stockholders was effective July 18, 2007.

The financial statements presented as of June 30, 2007 do not reflect the change in the number of shares as a result of the stock split on July 25, 2007.

Appointment of Directors and Officers

Directors

The following biography describes the business experience of Mr. Fall:

Steven A. Fall – Director and Interim President

Mr. Fall, 57, started his professional career as an exploration geologist with Exxon Company USA where he explored for regional trends along the Gulf Coast and managed onshore projects for Columbia Gas Development. Mr. Fall also served as Vice President of Perryman Oil and Gas and was a partner with Aleco Oil and Gas where he created, marketed, and drilled in-house prospects and evaluated outside projects for the company. After working as an independent geologist for 6 years, Mr. Fall became district manager of EB Co. Mr. Fall’s most recent work included a position as a business development manager for Wellspring Partners. Mr. Fall has previously consulted for such companies as Exxon, Texaco, Chevron, Pennzoil, Marathon, Merit Energy, Hilcorp, Bass Enterprises, Pennzenergy, and Mueller Engineering. Mr. Fall received his Bachelors and Masters degree in geology from Texas A&M University and continued his education with the American Association of Petroleum Geologists (AAPG) and Houston Geological Society (HGS) were he focused his studies in 3D seismic and basin analysis.

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Registrant’s Board of Directors

The Board of Directors of the Registrant currently consists of three members, Mr. Kamal Abdallah, Mr. Christopher McCauley and Mr. Steven A. Fall.

Officers

On July 27, 2007, the board of directors of the Registrant appointed Mr. Christopher McCauley to the position of Secretary of the Registrant.

No director, executive officer, promoter or control person of the Registrant has, within the last five years: (i) had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (ii) been convicted in a criminal proceeding or is currently subject to a pending criminal proceeding (excluding traffic violations or similar misdemeanors); (iii) been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (iv) been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission (the “Commission”) or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Unregistered Sales of Equity Securities

Pursuant to the terms and conditions of the Note Purchase Agreement dated April 19, 2007 by and between Universal Property Development and Acquisitions Corporation (“UPDA”), SDS Capital Group SPC, Ltd. (“SDS), Baystar Capital II, L.P. (“Baystar”), and the Registrant, whereby UPDA acquired certain outstanding promissory notes of the Registrant from SDS and Baystar, and agreed to amend the terms of those notes, on July 27, 2007 the Registrant approved the issuance of an aggregate of 542,800 shares of its common stock to SDS and Baystar as part of the consideration in that transaction. Therefore, on July 27, 2007, the board of directors of the Registrant approved the issuance of 373,446 shares of common stock to SDS and 169,354 shares to Baystar.

The shares of common stock issued to SDS and Baystar are restricted shares and were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D there under and Registrant affixed appropriate legends to the stock certificates so issued. The shares issued to SDS and Baystar are subject to Rule 144 under the Securities Act and therefore generally cannot be resold for a period of twelve months from the date of issuance. No general solicitations were made in connection with the transaction, and prior to making any offer or sale, the Registrant had reasonable grounds to believe and believed that SDS and Baystar were capable of evaluating the merits and risks of the investment and were able to bear the economic risk of the investment.

On July 31, 2007, the Registrant and Five Star Partner’s, LLC (“Five Star”), the holder of an aggregate of $1,729,000 of the outstanding Convertible Senior Secured Promissory Notes (the “Notes”) of the Registrant, agreed to amend the terms of those Notes. Pursuant to the terms and conditions agreed to by the parties, the Registrant agreed to allow for the conversion of the Notes into shares of the Registrant’s common stock at their stated rate of $0.04 per conversion share. As a condition to this agreement, Five Star has agreed to not hold at any time more than 9.9% of the outstanding common stock of the Registrant. Five Star further agreed that it could not hereinafter demand payment of the principal amount of the Notes in cash. Furthermore, Five Star agreed to invest a minimum of $2,500,000 in the Registrant through the acquisition of additional shares of the Registrant’s common stock from the Registrant at prices equal to the closing price of the Registrant’s common stock on the day prior to purchase, or $.85 per share, whichever amount is greater. Five Star agreed to make this additional investment in the Registrant by or before December 31, 2007.

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The outstanding Notes of the Registrant are restricted securities, however they have been fully paid and outstanding for a period in excess of two years from the date of their issuance by the Registrant. No additional consideration is payable upon the conversion of the Notes to shares of our common stock. While the shares of common stock to be issued upon conversion of the Notes are restricted shares, the holders of the shares issued upon conversion may request the removal of any restrictive legends that would be attached thereto in accordance with the provisions of Rule 144(k) under the Securities Act of 1933, as amended. The removal of any restrictive legends from the shares of common stock issued on conversion of the Notes will be dictated by the provisions of Rule 144(k).

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion reports material changes from December 31, 2006 through June 30, 2007, as well as other information. We encourage the reader to also read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-KSB for the period ended December 31, 2006.

Forward Looking Statements

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or to our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks enumerated in the section entitled “Risk Factors”, that may cause our actual results or the actual results in our industry, of our levels of activity, performance or achievement to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Overview and Outlook

Heartland Oil and Gas Corporation is an oil and gas company primarily engaged in exploration, development, and sale of Coal Bed Methane (“CBM”) in the Cherokee basin and Forest City basin of northeast Kansas. Heartland Oil and Gas Corporation holds our interest in nearly 1 million acres in eastern Kansas. We incorporated in Nevada in 1998. Heartland Gas Gathering LLC, our wholly-owned affiliate, is responsible for gas sales and operation of our pipeline and associated facilities. Heartland Oil and Gas, Inc., our wholly-owned subsidiary, operates our project areas in eastern Kansas.

Our website is located at http://heartlandoilandgas.com. The website can be used to access recent news releases and Securities and Exchange Commission (SEC) filings, our Annual Report, Proxy Statement, Board committee charters, code of business conduct and ethics, and other items of interest. SEC filings, including supplemental schedules and exhibits, can also be accessed free of charge through the SEC website at http://www.sec.gov. The information on our website, other links contained in our website and our website are not incorporated into this Report.

By the end of 2005 we contracted to sell our gas and committed funds to construct a 5.5 mile gas gathering line and processing plant to initiate gas sales from Lancaster, our largest battery. We initiated continuous gas sales in February 2006. Gas from the other three batteries is being vented while awaiting pipeline hook-up. A battery is a well or group of wells and associated production facilities in one general area.

Lancaster is currently producing approximately 300 thousand cubic feet of gas per day (“Mcfgpd”). Sales average approximately 225 Mcfgpd net of fuel gas, shrinkage, dehydration, and carbon dioxide extraction necessary to get the gas to sales quality. After processing, the gas delivered to the sales line averages 1006 million British thermal units per thousand cubic feet. The system and facilities are sized to support production growth from Lancaster, the adjacent batteries currently venting gas, and future development drilling between existing project areas. The adjacent batteries are currently venting approximately 200 Mcfgpd.

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Liquidity and Capital Resources

At June 30, 2007, we owed $6,485,000 to two lenders. The original maturity date of the notes of March 28, 2007 was extended to April 16, 2007. On April 23, 2007 these notes were sold by the two lenders to UPDA and a shareholder of UPDA. As a condition to the closing of the Note Purchase, and in exchange for the extension of the maturity date of the Heartland Notes to December 31, 2007, the Registrant executed consents to the transfer of the Heartland Notes to UPDA and Five Star and the assignment by the Sellers of their security interests under an existing security agreement covering the Heartland Notes to UPDA.

On April 23, 2007, the Registrant completed the sale of 50,631,764 shares of its common stock to Universal Property Development and Acquisition Corporation, a Nevada Corporation (“UPDA”), in a private transaction with gross proceeds to the Registrant from the sale equaling $1,000,000 (the “Stock Sale”). The Stock Sale was pursuant to the terms and conditions of a Stock Purchase Agreement, dated April 19, 2007, between the Registrant and UPDA.

We have incurred recurring losses from operations. Our continuation is dependent upon a successful program of acquisition and exploration, and achieving a profitable level of operations. We will need to raise approximately $10 million additional financing to execute our business plan. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining loans, assuming those loans would be available, would increase our liabilities and future cash commitments. We cannot assure that we will be able to obtain further funds we desire for our continuing operations or, if available, that funds can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we would cease our operations.

Results of Operations for the Periods Ended June 30, 2007 and 2006.

Revenue

Natural Gas Sales

Natural gas sales for the three months ended June 30, 2007 were $119,190 compared to sales of $112,734 for the three months ended June 30, 2006. This increase of $6,456 was the result of higher prices. Natural gas sales for the six months ended June 30, 2007 were $229,710 compared to sales of $168,449 for the six months ended June 30, 2006. This increase of $61,261 was the result of higher prices and higher volume. We had our first production on February 18, 2006 therefore, the six months ended June 30, 2006 represents only 173 days of production, versus 181 days of production for 2007.


	Three Months Ended							Six Months Ended
	June 30, 2007		June 30, 2006		(Decrease) Increase			June 30, 2007		June 30, 2006		(Decrease) Increase
MCF Volume		17,711		18,295		(584	)		34,872		28,735		6,137
Average Price	$	6.73	$	6.16	$	.57		$	6.59	$	5.86	$	.73
Total Revenue	$	119,190	$	112,734	$	6,456		$	229,710	$	168,449	$	61,261

Compression and transportation revenue

Compression and transportation revenue represents the fees charged to our royalty owners for their proportionate share of these costs; the revenue and fees associated with Heartland Oil and Gas Corp. have been eliminated on consolidation. Compression and transportation revenue for three months ended June 30, 2007 and June 30, 2006 was $6,023 and $4,565, respectively. Compression and transportation revenue for six months ended June 30, 2007 and June 30, 2006 was $11,848 and $10,251, respectively.

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Operating expense


	Three Months Ended				Six Months Ended
	June 30, 2007		June 30, 2006		June 30, 2007		June 30, 2006
Direct expense	$	113,430	$	149,072	$	187,953	$	213,947
Exploration expense, expired leases		15,895		8,906		39,054		124,365
Depreciation, depletion & accretion		94,270		115,157		192,193		201,780
Share based compensation		10,701		101,383		19,138		232,952
General and administrative		278,460		338,429		474,635		729,875

Total operating expense	$	512,756	$	712,947	$	912,973	$	1,502,919

Direct expense is the cost associated with operating producing wells and production taxes associated with the gas sales. Direct expense for the three months ended June 30, 2007 was $113,430, a decrease of $35,641 from $149,072 for the three months ended June 30, 2006. This decrease was due to lower workover costs incurred during the three months ended June 30, 2007. Direct expense for the six months ended June 30, 2007 was $187,953, a decrease of $25,993 from the same period ended June 30, 2006 or $213,947. This decrease was attributable, in part, to lower workover costs on the producing wells for the six months ended June 30, 2007.

Exploration expense represents the cost of expired leases. The cost of expired leases for the three months ended June 30, 2007 was $15,895, as compared to a cost of $8,906 for the three months ended June 30, 2006. The cost of expired leases for the six months ended June 30, 2007 was $39,054, as compared to a cost of $124,365 for the six months ended June 30, 2006. The higher costs in 2006 were the result of more leases expiring in that six month period.

Depreciation, depletion and accretion expense for the three months ended June 30, 2007 was $94,270, compared to $115,157 for the three months ended June 30, 2006. During the six months ended June 30, 2007 and June 30, 2006, the expense was $192,193 and $201,780, respectively. The decrease in expense is due to a reduction in depletion expense.

Share based compensation for the three months ended June 30, 2007 was $10,701, compared to $101,383 for the three months ended June 30, 2006. During the six months ended June 30, 2007 and June 30, 2006, the expense was $19,138 and $232,952 respectively. The decrease occurred because there were no new options issued during the period of June 10, 2005 to April 25, 2007.

General and administrative expenses for the three months ended June 30, 2007 was $278,460, compared to $338,429 for the three months ended June 30, 2006. The decrease was a result of reduced labor cost in the amount of $5,081 and overall streamlining and reduction of expenses in the amount of $48,883. During the six months ended June 30, 2007 and June 30, 2006, the expense was $474,635 and $729,875, respectively. The decrease was a result of reduced labor cost in the amount of $135,520. An additional reduction in overall administrative expenses resulted in a savings of $119,720.

Interest Income

Interest income for the three months ended June 30, 2007 and June 30, 2006 was $2,370 and $2,830, respectively. For six months ended June 30, 2007 interest income was $2,373 and for the six months ended June 30, 2006 it was $12,281. This decrease was the result of the drop in our cash position during the same time period.

Interest expense

Interest expense for the three months ended June 30, 2007 was $1,820 compared to no interest expense for the three months ended June 30, 2006. Interest expense for the six months ended June 30, 2007 was $6,298,266 compared to no interest expense for the three months ended June 30, 2006. Interest expense in the amount of $6,296,446 resulted from the effect of the conversion of $6.3 million of Preferred stock to convertible debt. The value of the debt on the date of conversion was $1 with the balance being accreted up to the face value of $6.3 million over 180 days, principally during the three months ended March 31, 2007.

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

We conduct no hedging activity. We have no derivative contracts.

Item 4.

Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report, being June 30, 2007. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s chief executive officer and chief financial officer. Based upon that evaluation, our company’s chief executive officer and chief financial officer concluded that our company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our company’s president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.

Part II—Other Information

Item 1.

Legal Proceedings

We are not involved as a plaintiff in any material proceedings or pending litigations. We know of no active, pending or threatened legal proceedings against us which would be material to our operations or financial condition. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 1A.

Risk Factors

Much of the information included in this registration statement includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Those forward-looking statements also involve certain risks and uncertainties. Factors, risks and uncertainties that could cause or contribute to such differences include those specific risks and uncertainties discussed below and those discussed in our Form 10-KSB Annual Report for the year ended December 31, 2006. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document.

Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below.

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Risks Related To Our Business

Our debt matures on December 31, 2007, if we are not able to repay or restructure our debt on the maturity date or shortly thereafter, our lenders will foreclose on our assets and we will cease all operations.

At June 30, 2007, we owed $6,485,000 principal amount of promissory notes to two lenders. The original maturity date of the notes of March 28, 2007 has been extended to December 31, 2007. On April 20, 2007 these notes were purchased by UPDA and Five Star Partners who are the current note holders. If the current note holders do not convert the Notes to shares of common stock prior to maturity, and if we are unable to reach a definitive agreement on any alternative transaction, we will need to repay this debt, or the lenders will foreclose on our assets and we will cease operations. We currently do not have the funds to repay this debt.

We have had negative cash flow from operations and if we are not able to obtain further financing our business operations will fail.

To date we have had negative cash flow from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash requirements and have incurred net losses totaling $6,967,309 for the six months ended June 30, 2007 and $1,455,970 for the year ended December 31, 2006. We have cumulative net losses of $53,383,245 from inception to June 30, 2007. As of June 30, 2007 we had negative working capital. To continue our operations, we need additional financing. We will also need new capital to pay for the continued exploration and development of our properties. Such outside capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available if necessary to meet these continuing development costs or, if the capital is available, it may not be on terms acceptable to us. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we will be unable to continue our business, the result of which would be that our stockholders would lose some or all of their investment.

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because our operations have been primarily financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

If we issue additional shares in the future this will result in dilution to our existing stockholders.

Our Certificate of Incorporation authorizes the issuance of 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. Our board of directors has the authority to issue additional shares up to the authorized capital stated in the certificate of incorporation. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. Given our current stock price and our capital requirements, if we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders.

We have a limited operating history and if we are not successful in continuing to grow our business, we may have to scale back or even cease our ongoing business operations.

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We have a limited history of revenues from operations and have limited tangible assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history and must be considered in the development stage. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our company’s operations are subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

Acreage expirations

Typical of an oil and gas lease, our leases have an expiration date. If our leases are not drilled prior to expiration, our leases will terminate. We have the option to renew much of our acreage, but that will require additional capital.

Actual quantities of recoverable oil and gas reserves and future cash flow from those reserves, future production, oil and gas prices, revenue, taxes, development expenditures and operating expenses most likely will vary from estimates.

Estimating accumulations of oil and gas is complex. The process relies on interpretations of available geologic, geophysical, engineering and production data. The extent, quality and reliability of this data can vary. The process also requires certain economic assumptions, such as oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds, some of which are mandated by the SEC. The accuracy of a reserve estimate is a function of:

•

quality and quantity of available data;

•

interpretation of that data; and

•

accuracy of various mandated economic assumptions.

Any significant variance could materially affect the quantities and present value of our reserves. In addition, we may adjust estimates of proved reserves to reflect production history, results of development and exploration and prevailing oil and gas prices.

In accordance with SEC requirements, we base the estimated discounted future net cash flow from proved reserves on prices and costs on the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs as of the date of the estimate.

The loss of key personnel could adversely affect our business. We depend to a large extent on the efforts and continued employment of our executive Management team and other key personnel.

The loss of the services of these or other key personnel could adversely affect our business, and we do not maintain key man insurance on the lives of any of these persons. Our drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract and retain experienced geologists, engineers, landmen and other professionals. Competition for many of these professionals is intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.

As many of our properties are in the exploration and development stage we cannot assure that we will establish commercial discoveries on those properties.

Exploration for economic reserves of oil and gas is subject to a number of risk factors. Many properties that are explored are ultimately not developed into producing oil and/or gas wells. Many of our properties are in the exploration and development stage and are without proved reserves of oil and gas.

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The potential profitability of oil and gas ventures depends upon factors beyond our control.

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.

Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.

Competition in the oil and gas industry is high. We cannot assure that we will be successful in acquiring leases we wish to acquire.

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage in the Cherokee basin. This acreage may not become available or if it is available for leasing, that we may not be successful in acquiring the leases. There are other competitors that have operations in the Cherokee basin and the presence of these competitors could adversely affect our ability to acquire additional leases.

Acquisitions are subject to the uncertainties of evaluating recoverable reserves and potential liabilities.

We expect that our future growth will be dependent in part on acquisitions. Successful acquisitions require an assessment of a number of factors, many of which are beyond our control. These factors include recoverable reserves, exploration potential, future oil and natural gas prices, operating costs, production taxes and potential environmental and other liabilities. Such assessments are inexact and their accuracy is inherently uncertain. In connection with our assessments, we perform a review of properties which we believe is generally consistent with industry practices. However, such a review will not reveal all existing or potential problems. In addition, our review may not allow us to become sufficiently familiar with the properties, and we do not always discover structural, subsurface and environmental problems that may exist or arise. Our review prior to signing a definitive purchase agreement may be even more limited.

We generally are not entitled to contractual indemnification for pre-closing liabilities, including environmental liabilities, on acquisitions. Often, we acquire interests in properties on an “as is” basis with limited remedies for breaches of representations and warranties. If material breaches are discovered by us prior to closing, we could require adjustments to the purchase price or if the claims are significant, we or the seller may have a right to terminate the agreement. We could, however, fail to discover breaches or defects prior to closing and incur significant unknown liabilities, including environmental liabilities, or experience losses due to title defects, for which we would have limited or no contractual remedies or insurance coverage.

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There are risks in acquiring producing properties, including difficulties in integrating acquired properties into our business, additional liabilities and expenses associated with acquired properties, diversion of Management attention, and costs of increased scope, geographic diversity and complexity of our operations.

Increasing our reserve base through acquisitions is an important part of our business strategy. Our failure to integrate acquired businesses successfully into our existing business, or the expense incurred in consummating future acquisitions, could result in our incurring unanticipated expenses and losses. In addition, we may have to assume cleanup or reclamation obligations or other unanticipated liabilities in connection with these acquisitions. The scope and cost of these obligations may ultimately be materially greater than estimated at the time of the acquisition.

In connection with future acquisitions, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant Management attention and financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Possible future acquisitions could result in our incurring additional debt, contingent liabilities and expenses, all of which could have a material adverse effect on our financial condition and operating results.

Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on us.

Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays, or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

Exploration and production activity is subject to certain environmental regulations which may prevent or delay our operations.

In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.

We believe that our operations comply, in all material respects, with all applicable environmental regulations. However, we are not fully insured against all possible environmental risks.

Exploratory drilling involves many risks. We may become liable for pollution or other liabilities which may have an adverse effect on our financial position.

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure

or which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

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Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.

Our stock is a penny stock. The U.S. Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors” as defined in Regulation D promulgated under the Securities Act of 1933, as amended. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

NASD sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

On January 31, 2007 we borrowed $185,000 on non-interest bearing notes, of which $127,500 was received from SDS Capital Group, SPC Ltd. and $57,500 was received from Baystar Capital II, L.P.. $65,000 of these funds, plus interest of $1,820 was used to pay off the December 7, 2006 note to SDS Capital Group SPC, Ltd. The maturity date of the new notes was March 28, 2007; however on March 27, 2007 both lenders extended the notes to April 4, 2007. On April 4, 2007 the notes were again extended to April 16, 2007. Pursuant to the sale of a 52% interest in the Company’s common stock to Universal Property Development and Acquisition Corporation on April 19, 2007, these notes are now held by UPDA and have been extended to December 31, 2007. (See Note 4)

Sale of Our Common Stock to UPDA

On April 20, 2007, we completed the sale of 50,631,764 shares of our common stock to Universal Property Development and Acquisition Corporation, a Nevada Corporation (“UPDA”), in a private transaction with gross proceeds to us from the sale equaling $1,000,000 (the “Stock Sale”). The Stock Sale was pursuant to the terms and conditions of a Stock Purchase Agreement, dated April 19, 2007, between us and UPDA. UPDA is an accredited investor (as defined in Rule 501 of Regulation D). The purchase price of the Stock Sale was paid in cash.

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The shares of common stock issued in the Stock Sale are restricted shares and were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(2) of the Securities Act. The shares issued in the Stock Sale are subject to Rule 144 under the Securities Act and therefore generally cannot be resold for a period of twelve months from the date of purchase. No general solicitations were made in connection with the Stock Sale, and prior to making any offer or sale, the Registrant had reasonable grounds to believe and believed that UPDA was capable of evaluating the merits and risks of the investment and was able to bear the economic risk of the investment.

As of April 10, 2007, and prior to the closing of the Stock Sale, we had 46,737,013 shares of common stock issued and outstanding. As a result of the closing of the Stock Sale on April 20, 2007, UPDA owned 50,631,764 of the 97,368,777 shares of our common stock that were outstanding after such closing. Therefore, as of April 20, 2007, UPDA owned 52% of our issued and outstanding common stock. The Stock Sale constitutes a change of control transaction for us as UPDA now owns a majority of our outstanding voting securities. Therefore, UPDA has the voting power to pass actions requiring shareholder approval and has the voting power to control the election of directors to our board of directors.

Use of Proceeds

The net proceeds from the Stock Sale was $950,000 in cash. The net proceeds from the Stock Sale to were used to fund our general operations, pay for our 2006 audit, pay for a “roll-off” director and executive officer insurance policy and to pay costs associated with our recent drilling program.

Item 3.

Defaults upon Senior Securities.

None.

Item 4.

Submission of Matters to a Vote of Security Holders.

Reverse Stock Split

Item 5.

Other Information.

Acquisition of Our Promissory Notes by UPDA

On April 20, 2007, UPDA closed a note purchase transaction (the “Note Purchase”) pursuant to the terms and conditions of a Note Purchase Agreement, dated April 19, 2007, between UPDA as the buyer and SDS Capital Group SPC, Ltd. and Baystar Capital II, L.P. (together the “Sellers”) whereby UPDA purchased four million seven hundred fifty-six thousand dollars ($4,756,000) in face amount of our outstanding Convertible Senior Secured Promissory Notes (the “Heartland Notes”) for an aggregate purchase price of $1,500,000 in cash and 26,260,504 restricted shares of the common stock of UPDA.

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The Heartland Notes do not pay interest but are convertible into shares of our common stock based on a conversion price of $0.04 per share. Under the terms of this conversion provision, the Heartland Notes acquired by UPDA are convertible into 118,900,000 shares of our common stock. In the event of a full conversion of the Heartland Notes to shares of our common stock, UPDA would hold an aggregate of 169,531,764 shares of our common stock.

As a condition to the closing of the Note Purchase, and in exchange for UPDA’s agreement to extend the maturity date of the Heartland Notes from April 16, 2007 to December 31, 2007, we executed consents to the transfer of the Heartland Notes to UPDA and the assignment by the Sellers of their security interests under an existing security agreement covering the Heartland Notes to UPDA.

Changes to the Our Board of Directors

Issuance of Options by Our Board of Directors

Item 6.

Exhibits.


Exhibit Number		Description
3.1		Articles of Incorporation. Incorporated by reference to our Form SB-2 Registration Statement filed with the Securities and Exchange Commission on October 23, 2001.

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3.2		Bylaws of Adriatic Holdings Ltd. Incorporated by reference to our Form SB-2 Registration Statement filed with the Securities and Exchange Commission on October 23, 2001.

3.3		Certificate of Amendment to Articles of Incorporation effective November 4, 2002. Incorporated by reference to our Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2002.

3.4		Certificate of Amendment to Articles of Incorporation effective December 10, 2003. Incorporated by reference to our Form SB-2 Registration Statement filed with the Securities and Exchange Commission on November 15, 2004.

3.5		Certificate of Designation for shares of Series A Convertible Preferred Stock, effective December 18, 2003. Incorporated by reference to our Form SB-2 Registration Statement filed with the Securities and Exchange Commission on February 17, 2004.

3.6		Certificate of Designation for shares of Series B Convertible Preferred Stock, effective October 1, 2004. Incorporated by reference to our Form SB-2 Registration Statement filed with the Securities and Exchange Commission on November 15, 2004.

3.7		Certificate of Amendment to Articles of Incorporation effective July 18, 2007. Incorporated by reference to our Form 14C Definitive Information Statement filed with the Securities and Exchange Commission on July 3, 2007.

4.1		2005 Stock Option Plan. Incorporated by reference to our Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2005.

31.1		Certification of Chief Executive Officer (pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended) **

31.2		Certification of Chief Financial Officer (pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended) **

32.1#		Certification of Chief Executive Officer (pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)) **

32.2#		Certification of Chief Financial Officer (pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)) **

**	Filed herewith

This certification “accompanies” the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, Heartland has duly caused this report to be signed on its behalf by the undersigned authorized officer.


		HEARTLAND OIL AND GAS CORP.
		(Registrant)

Date: August 14, 2007		/s/ Steven A. Fall
		Chief Executive Officer and President

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