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United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

Quarterly Report under Section 13 or 15(D) of the Securities Exchange Act of 1934

For the
quarter ended September 30, 2006

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 has 46,737,013 shares of common stock outstanding as of October 30, 2006



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|Item 1. | Financial Statements.
|------- | ---------------------

Heartland Oil and Gas Corp.

Balance Sheet



|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ----------- | - | ------------ | - | ----------- | -
|                                                                                                                                                                                                             |  | Sep 30, 2006 |             |   | Dec 31, 2005 |  
|                                                                                                                                                                                                             |  | (unaudited)  |             |   |              |  
|Assets                                                                                                                                                                                                       |  |              |             |   |              |   |             |  
|Current assets:                                                                                                                                                                                              |  |              |             |   |              |   |             |  
|Cash and cash equivalents                                                                                                                                                                                    |  | $            | 377,495     |   |              | $ | 2,126,156   |  
|Prepaid expense                                                                                                                                                                                              |  |              | 66,273      |   |              |   | 145,658     |  
|Other current assets                                                                                                                                                                                         |  |              | 35,389      |   |              |   | 3,849       |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Total current assets                                                                                                                                                                                         |  |              | 479,157     |   |              |   | 2,275,663   |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Oil and gas property-full cost method                                                                                                                                                                        |  |              |             |   |              |   |             |  
|Unproved                                                                                                                                                                                                     |  |              | 1,703,428   |   |              |   | 1,776,322   |  
|Proved                                                                                                                                                                                                       |  |              | 1,200,984   |   |              |   | 1,316,102   |  
|Pipeline and facilities                                                                                                                                                                                      |  |              | 2,721,917   |   |              |   | 2,405,773   |  
|Accumulated depreciation for pipeline and facilities                                                                                                                                                         |  |              | (165,758    | ) |              |   | (73,617     | )
|Investment in Heartland International Oil Corp. (Note 5)                                                                                                                                                     |  |              |            |   |              |   | 4,105,500   |  
|Impairment of Heartland International Oil Corp. (Note 5)                                                                                                                                                     |  |              |            |   |              |   | (4,105,500  | )
|Other property and equipment, net of accumulated depreciation of $107,798 and $85,984, respectively                                                                                                          |  |              | 107,722     |   |              |   | 160,797     |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Total Assets                                                                                                                                                                                                 |  | $            | 6,047,450   |   |              | $ | 7,861,039   |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                                                         |  |              |             |   |              |   |             |  
|Current liabilities:                                                                                                                                                                                         |  |              |             |   |              |   |             |  
|Accounts payable                                                                                                                                                                                             |  | $            | 100,092     |   |              | $ | 282,297     |  
|Convertible notes due to related parties (Note 4)                                                                                                                                                            |  |              | 1           |   |              |   |            |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Total current liabilities                                                                                                                                                                                    |  |              | 100,093     |   |              |   | 282,297     |  
|Long-term asset retirement obligation                                                                                                                                                                        |  |              | 222,157     |   |              |   | 671,140     |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Total Liabilities                                                                                                                                                                                            |  |              | 322,250     |   |              |   | 953,437     |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Series B Convertible Redeemable Preferred Stock - $0.001 par value, 5,000,000 shares authorized, -0- and 3,529,412 shares issued and
outstanding, respectively (liquidation preference: $6,000,000) (Note 4) |  |              |            |   |              |   | 5,599,958   |  
|Stockholders equity:                                                                                                                                                                                        |  |              |             |   |              |   |             |  
|Common stock - $0.001 par value, 100,000,000 shares authorized, 46,737,013 shares issued, and outstanding at September 30, 2006 and
December 31, 2005                                                        |  |              | 46,737      |   |              |   | 46,737      |  
|Additional paid-in capital                                                                                                                                                                                   |  |              | 51,146,497  |   |              |   | 46,220,873  |  
|Accumulated deficit                                                                                                                                                                                          |  |              | (45,468,034 | ) |              |   | (44,959,966 | )
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Total stockholders equity                                                                                                                                                                                   |  |              | 5,725,200   |   |              |   | 1,307,644   |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                                   |  | $            | 6,047,450   |   |              | $ | 7,861,039   |  
|                                                                                                                                                                                                             |  |              |             |   |              |   |             |  

See accompanying notes.



2



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Heartland Oil and Gas Corp.

Operations Statement

(unaudited)



|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|-------------------------------------------------------------------------------- |  | ---------------------- | ---------- | - | ------------------------ | - | ----------- | --------------------------- |  | - | --------------------------- | - |  | - | ----------- | -
|                                                                                 |  | QuarterEndedSep 30 06 |            |   | Quarter Ended Sep 30
05 |   |             | Nine MonthsEnded Sep 30 06 |  |   | Nine MonthsEnded Sep 30 05 |  
|Natural gas sales                                                                |  | $                      | 101,411    |   |                          | $ |            |                             |  | $ | 269,860                     |   |  | $ |            |  
|Compression & transportation revenue                                             |  |                        | 44,405     |   |                          |   |            |                             |  |   | 113,325                     |   |  |   |            |  
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Total revenue                                                                    |  |                        | 145,816    |   |                          |   |            |                             |  |   | 383,186                     |   |  |   |            |  
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Operating expense                                                                |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Gas production                                                                   |  |                        | 108,007    |   |                          |   |            |                             |  |   | 306,881                     |   |  |   |            |  
|Compression and transportation                                                   |  |                        | 38,281     |   |                          |   |            |                             |  |   | 96,950                      |   |  |   |            |  
|Production tax                                                                   |  |                        | 7,705      |   |                          |   |            |                             |  |   | 22,778                      |   |  |   |            |  
|Impairment of oil and gas property                                               |  |                        |           |   |                          |   | 21,386,249  |                             |  |   |                            |   |  |   | 31,644,786  |  
|Impairment loss on Heartland International Oil Corp. (Note 5)                    |  |                        |           |   |                          |   | 4,105,500   |                             |  |   |                            |   |  |   | 4,105,500   |  
|Exploration expense                                                              |  |                        | 12,259     |   |                          |   | 19,028      |                             |  |   | 136,625                     |   |  |   | 37,706      |  
|Depreciation, depletion & accretion                                              |  |                        | 112,903    |   |                          |   | (9,302      | )                           |  |   | 314,682                     |   |  |   | 110,174     |  
|General and administrative                                                       |  |                        | 367,922    |   |                          |   | 512,475     |                             |  |   | 1,330,748                   |   |  |   | 1,751,761   |  
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Total operating expense                                                          |  |                        | 647,077    |   |                          |   | 26,013,950  |                             |  |   | 2,208,664                   |   |  |   | 37,649,927  |  
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Operating loss                                                                   |  |                        | (501,261   | ) |                          |   | (26,013,950 | )                           |  |   | (1,825,478                  | ) |  |   | (37,649,927 | )
|Other income-interest                                                            |  |                        | 5,171      |   |                          |   | 29,252      |                             |  |   | 17,452                      |   |  |   | 97,690      |  
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Net loss before extraordinary gain                                               |  |                        | (496,090   | ) |                          |   | (25,984,698 | )                           |  |   | (1,808,026                  | ) |  |   | (37,552,237 | )
|Extraordinary gain on exchange of preferred stock for convertible notes (Note 4) |  |                        | 1,299,958  |   |                          |   |            |                             |  |   | 1,299,958                   |   |  |   |            |  
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Net income (loss)                                                                |  | $                      | 803,868    |   |                          | $ | (25,984,698 | )                           |  | $ | (508,068                    | ) |  | $ | (37,552,237 | )
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Basic & diluted net (loss) per common share before extraordinary gain            |  | $                      | (0.01      | ) |                          | $ | (0.56       | )                           |  | $ | (0.04                       | ) |  | $ | (0.80       | )
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Basic & diluted net income (loss) per common share                               |  | $                      | 0.02       |   |                          | $ | (0.56       | )                           |  | $ | (0.01                       | ) |  | $ | (0.80       | )
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  
|Basic & diluted weighted average common shares outstanding                       |  |                        | 46,737,013 |   |                          |   | 46,737,013  |                             |  |   | 46,737,013                  |   |  |   | 46,737,013  |  
|                                                                                 |  |                        |            |   |                          |   |             |                             |  |   |                             |   |  |   |             |  

See accompanying notes.



3



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Heartland Oil and Gas Corp.

Cash Flow Statement

(unaudited)



|                                                                                                                |  |                               |            |   |                               |   |             |  
|--------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | - | ----------------------------- | - | ----------- | -
|                                                                                                                |  | Nine MonthsEnded Sep 30, 2006 |            |   | Nine MonthsEnded Sep 30, 2005 |  
|Cash flow used in operating activity                                                                            |  |                               |            |   |                               |   |             |  
|Net loss                                                                                                        |  | $                             | (508,068   | ) |                               | $ | (37,552,237 | )
|Adjustments to reconcile net loss to net cash used in operating activity:                                       |  |                               |           |   |                               |   |            |  
|Extraordinary gain on exchange of preferred stock for convertible notes (Note 4)                                |  |                               | (1,299,958 | ) |                               |   |             |  
|Accretion expense                                                                                               |  |                               | (13,943    | ) |                               |   | 24,552      |  
|Loss on disposal of assets                                                                                      |  |                               | 3,136      |   |                               |   |             |  
|Share-based payment                                                                                             |  |                               | 325,625    |   |                               |   | 514,212     |  
|Depreciation and depletion                                                                                      |  |                               | 300,739    |   |                               |   | 85,621      |  
|Abandoned Leases                                                                                                |  |                               | 136,625    |   |                               |   |             |  
|Impairment on oil and gas property                                                                              |  |                               |           |   |                               |   | 31,682,492  |  
|Impairment loss on Heartland Intl. Oil Corp.                                                                    |  |                               |           |   |                               |   | 4,105,500   |  
|(Increase) in other assets                                                                                      |  |                               | (31,539    | ) |                               |   | (5,796      | )
|Decrease in prepaid expense                                                                                     |  |                               | 79,385     |   |                               |   | 274,762     |  
|(Decrease) in accounts payable and accrued liabilities                                                          |  |                               | (182,206   | ) |                               |   | (469,481    | )
|(Increase) in ARO - plugging cost                                                                               |  |                               |           |   |                               |   | (6,575      | )
|Well plugging cost paid                                                                                         |  |                               | (435,040   | ) |                               |   |            |  
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Net cash used in operating activity                                                                             |  |                               | (1,625,244 | ) |                               |   | (1,346,950  | )
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Cash flow used in investing activity                                                                            |  |                               |            |   |                               |   |             |  
|Purchase of property and equipment                                                                              |  |                               | (324,804   | ) |                               |   | 10,480      |  
|Acquisition and exploration of oil and gas property                                                             |  |                               | (272,408   | ) |                               |   | (3,876,176  | )
|Proceeds from sale of equipment                                                                                 |  |                               | 173,795    |   |                               |   |             |  
|Investment in Heartland Intl. Oil Corp.                                                                         |  |                               |           |   |                               |   | (4,105,500  | )
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Net cash used in investing activity                                                                             |  |                               | (423,417   | ) |                               |   | (7,971,196  | )
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Cash flow from financing activity                                                                               |  |                               |            |   |                               |   |             |  
|Decrease in notes payable                                                                                       |  |                               |           |   |                               |   | (10,520     | )
|Cash contribution on exchange of prefd stock for convertible notes                                             |  |                               | 300,000    |   |                               |   |            |  
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Net cash (used in) provided by financing activity                                                               |  |                               | 300,000    |   |                               |   | (10,520     | )
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Net (decrease) in cash                                                                                          |  |                               | (1,748,661 | ) |                               |   | (9,328,665  | )
|Cash beginning of period                                                                                        |  |                               | 2,126,156  |   |                               |   | 13,081,221  |  
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Cash end of period                                                                                              |  | $                             | 377,495    |   |                               | $ | 3,752,556   |  
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Non-cash financing transactions:                                                                                |  |                               |            |   |                               |   |             |  
|Retirement of preferred shares on exchange for convertible notes (Note 4)                                       |  | $                             | (5,599,958 | ) |                               | $ |            |  
|                                                                                                                |  |                               |            |   |                               |   |             |  
|Credit to Additional Paid-in Capital for fair value of convertible notes issued in exchange for preferred stock |  | $                             | 4,599,999  |   |                               | $ |            |  
|                                                                                                                |  |                               |            |   |                               |   |             |  

See accompanying notes.



4



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Heartland Oil and Gas Corp.

Financial Statement Notes

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.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Heartland Oil and Gas Corp. and its wholly owned entities. We have eliminated all significant
intercompany balances and transactions in consolidation.

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 December 31, 2005, Form 10-K/A
(Amendment No. 2). 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.

Share-Based Payment

Effective January 1, 2006, we account for
share-based payment based on the fair value of the options at the grant date as provided by FASB Statement 123(R), Share-Based Payment. 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 period ended September 30, 2006, we expensed the fair value of options
granted to non-employees, employees, officers and directors. For the period ended September 30, 2005 we expensed the fair value of options granted to non-employees and disclosed the pro forma fair value of options granted to employees, officers
and directors.



5



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Had we measured compensation cost based on the fair value of the options at the grant date for the quarter ended
September 30, 2005, consistent with the method prescribed by Statement 123, our net loss and loss per common share would have been increased to the pro forma amounts indicated below:



|                                                                                                                                            |  |                                  |             |   |                                      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----------- | - | ------------------------------------ | - | ----------- | -
|                                                                                                                                            |  | Quarter ended September 30, 2005 |             |   | Nine months ended September 30, 2005 |  
|Net loss, as reported                                                                                                                       |  | $                                | (25,984,698 | ) |                                      | $ | (37,552,237 | )
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                                  | 119,454     |   |                                      |   | 514,212     |  
|Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax
effects |  |                                  | (265,465    | ) |                                      |   | (932,671    | )
|                                                                                                                                            |  |                                  |             |   |                                      |   |             |  
|Pro forma net loss                                                                                                                          |  | $                                | (26,130,709 | ) |                                      | $ | (37,970,696 | )
|                                                                                                                                            |  |                                  |             |   |                                      |   |             |  
|Loss per share:                                                                                                                             |  |                                  |             |   |                                      |   |             |  
|Basic and diluted earnings (loss) per common share                                                                                          |  |                                  |             |   |                                      |   |             |  
|As reported                                                                                                                                 |  | $                                | (0.56       | ) |                                      | $ | (0.80       | )
|                                                                                                                                            |  |                                  |             |   |                                      |   |             |  
|Pro forma                                                                                                                                   |  | $                                | (0.56       | ) |                                      | $ | (0.81       | )
|                                                                                                                                            |  |                                  |             |   |                                      |   |             |  

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that
have no vesting restrictions, are fully transferable, and are not subject to trading restrictions or blackout periods. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price
volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, it is our opinion that
the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.

Reclassifications

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

Note 2 - Going Concern

We have incurred significant losses since inception
and had no revenue from inception to December 31, 2005. At September 30, 2006, we have 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. We sold natural gas for the first time in February, 2006.

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.



6



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Note 3  Asset Retirement Obligation



|                                      |  |                                   |          |   |                            |   |        
|------------------------------------- |  | --------------------------------- | -------- | - | -------------------------- | - | -------
|                                      |  | Nine MonthsEndedSeptember 30,2006 |          |   | Year EndedDecember 31,2005
|Beginning asset retirement obligation |  | $                                 | 671,140  |   |                            | $ | 562,619
|Site reclamation cost paid            |  |                                   | (462,926 | ) |                            |   |       
|Liabilities incurred                  |  |                                   |         |   |                            |   | 65,758 
|Accretion                             |  |                                   | 13,943   |   |                            |   | 42,763 
|                                      |  |                                   |          |   |                            |   |        
|Total asset retirement obligation     |  | $                                 | 222,157  |   |                            | $ | 671,140
|                                      |  |                                   |          |   |                            |   |        

Note 4 - Related Party Transactions

We borrowed $500,000 on a non-interest bearing note on June 30, 2006, payable to SDS Capital Group SPC, Ltd., one of our two preferred stockholders. The note matured and was repaid on August 31, 2006.

Exchange of Preferred Stock for 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 Pottawatomie. We may prepay the Note Principal Amount in full and in cash at any time prior to
the Maturity Date.

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. We currently do not have authorized unissued common stock sufficient to complete a Qualifying Financing with a common stock offering, or to convert the
Notes into common stock. Therefore we will likely require stockholder approval of a change in the authorization for and/or structure of our securities to allow for sufficient shares to be issued to meet the commitments in the Notes.

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 Noteholders, we relied
on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.



7



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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 an extraordinary
gain of $1,299,958, which we recorded.

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 is credited to additional
paid-in capital. We assigned an initial carrying value to the Notes of $1. We will accrete interest on the Notes up to their $6,300,000 face value over the 180 day life of the Notes.

Other

We entered into management consulting agreements dated October 1, 2004, as amended, with a director for the
payment of management fees of $7,500CAD per month, and with our former President for the payment of $16,666 per month, respectively. The contract with our former President was terminated on December 31, 2005 and the management consulting
agreement was terminated on September 30, 2006. We entered into a consulting agreement for services on an hourly basis with our contract CFO. For the nine months ending September 30, 2006, he was paid $89,613 for services rendered.

Effective January 1, 2006, we approved the payment of directors fees for non-employee directors at the rate of $200 per hour. During the nine
months ended September 30, 2006 and September 30, 2005, we incurred $168,308 and $221,112, respectively, in management and consulting fees to our directors and officers. We incurred $16,303 in directors fees for the nine months ended
September 30, 2006.

Note 5  Investment in Heartland International Oil Corp.

One of our wholly-owned subsidiaries entered into a joint venture agreement with the Far East International Petroleum Company (FEIPCO) on April 20, 2005, to establish a joint venture to drill, case
and complete oil wells in the area known to the parties as West Qurnah and North Rumailia fields, Republic of Iraq. As part of the joint venture agreement, we provided approximately $4.1 million to FEIPCO and our then current Chief Executive Officer
provided approximately $585,000 from his personal holding company, Fort Scott Energy Co. to the joint venture for initial construction cost. In September 2005 we received a notice from FEIPCO terminating the joint venture agreement and claiming that
$1,600,000 is owed as part of the joint venture. We have conducted a due diligence investigation of FEIPCO and the merits of these claims. We sent correspondence denying any liability to FEIPCO with respect to the claims asserted and will vigorously
defend any arbitration or other legal action based upon such claims. In March 2006 we requested additional information from FEIPCO. We have received no response to the request and have received no communication from FEIPCO since October 2005. To our
knowledge, FEIPCO has not commenced a legal action; accordingly, we have concluded that the likelihood of a further loss on this matter is remote. At September 30, 2005, we fully impaired the investment. At September 30, 2006, we closed
out the impairment against the investment.

Note 6  Earnings per Share

All of our outstanding options and warrants have exercise prices substantially above the market price of our common stock from January 1 through September 30, 2006. Therefore none of our options or warrants
are included in the computation of diluted weighted average shares outstanding, so our basic and diluted weighted average shares outstanding are the same for the quarter and nine months ended September 30, 2006.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

This discussion reports material changes from December 31, 2005, through September 30, 2006, 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 2005 Amended Form 10-K.

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 in this report and in our 2005 annual report on Form 10-K, 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.

Changes in Business

Heartland Oil and Gas Corp. is an oil and gas company primarily engaged in exploration, development, and sale of Coal Bed Methane (CBM) in the Bourbon Arch of northeast 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, holds our interest in nearly 1 million acres and operates
our project areas in northeast Kansas.

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 production battery on the Bourbon Arch. We initiated 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 250 mcfgpd net of fuel gas, shrinkage, and carbon dioxide extraction. 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.

Natural Gas Sales Data (Lancaster):



|                                   |  |            |  |               |      |               |   |        
|---------------------------------- |  | ---------- |  | ------------- | ---- | ------------- | - | -------
|                                   |  | MCF Volume |  | Average Price |      | Total Revenue
|Quarter ended March 31, 2006       |  | 10,440     |  | $             | 5.34 |               | $ | 55,715 
|Quarter ended June 30, 2006        |  | 18,295     |  | $             | 6.16 |               |   | 112,734
|Quarter ended September 30, 2006   |  | 18,748     |  | $             | 5.41 |               |   | 101,411
|                                   |  |            |  |               |      |               |   |        
|Year to Date at September 30, 2006 |  | 47,483     |  | $             | 5.68 |               | $ | 269,860

Liquidity and Capital Resources

On September 29, 2006, we borrowed $300,000 for 180 days from two preferred shareholders, and exchanged the preferred stock for convertible notes as described in financial statement Note 4. As explained in Note
4, we recorded the debt on the convertible notes at $1. However, over the 180 day life of the notes we will accrete interest on the notes, taking the recorded obligation on the notes from $1 initially to the $6,300,000 face value of the notes.

We require additional funds to implement our growth strategy in our gas exploration operations and to continue operation. These funds may be raised
through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. We may not be able to obtain such funds. If we are not able to raise these funds



9



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within the next 90 days, we will have to significantly reduce the scope of our operations or cease operations entirely. This would result in substantial
losses for our investors.

As of September 30, 2006 we had approximately $379,000 of working capital. Over the next twelve months we intend to use all
available funds to develop our Lancaster Prospect as shown below:



|                                                     |  |   |           
|---------------------------------------------------- |  | - | ----------
|Estimated Expenditures During the Next Twelve Months |  |   |           
|General and Administrative                           |  | $ | 1,350,000 
|Oil and Gas                                          |  |   |           
|New leases                                           |  |   | 50,000    
|New drilling                                         |  |   | 13,000,000
|Gathering and Pipelines                              |  |   | 2,000,000 
|Lease Operating Expense                              |  |   | 1,350,000 
|                                                     |  |   |           
|Total                                                |  | $ | 17,750,000
|                                                     |  |   |           

The activity described above requires additional capital. We may not be able to raise adequate capital. Should we
not be able to do so within the next 90 days, we will have to significantly reduce the scope of our operations or cease operations entirely.

Our total
liabilities at September 30, 2006 were $322,250, compared to $953,437 at December 31, 2005.

We have no significant off-balance sheet
arrangements other than the $6,300,000 convertible notes. (Note 4)

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 additional financing for ongoing operations. 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

We had no revenue, production tax, transportation
expense or lease operating expense prior to February 2006. During the quarter ended September 30, 2006, we sold $101,411 of natural gas and earned $44,405 of gas gathering fees. Production tax and transportation expense for the same period was
$45,986. The total volume for the quarter was 18,748 mcf at an average price of $5.41. Lease operating expense for the quarter was $108,007.

We incurred
$367,922 of general and administrative expense in the 2006 quarter and $512,475 in the 2005 quarter. The reduction was due to lower professional and consulting fees.

During the quarter and nine months ended September 30, 2006, we incurred an extraordinary non-cash gain of $1,299,958 on the exchange of the Series B redeemable convertible preferred stock for $6,300,000
face value of notes payable convertible into common stock. See financial statement Note 4.

During the nine months ended September 30, 2006, we sold
$269,860 of natural gas and earned $113,325 of gas gathering fees. Production taxes and transportation expense were $119,728. We sold 47,483 mcf of gas at an average price of $5.68. We incurred $306,881 of lease operating expense for our wells and
gas gathering facilities.

In the nine months ended September 30, 2006 we incurred $1,330,748 for general and administrative expense; in the same 2005
period we incurred $1,751,761. Office rent for the 2006 period was $60,800 and for the 2005 period was $172,020. This reduction in expense was due to relocating the Kansas field office to a more economic location and lowering the rental expense in
Vancouver. We incurred $79,041 in travel expense for the 2006 period compared to $166,875 for the 2005 period. The higher 2005 expense was for travel associated with the FEIPCO joint venture described below in Part II, Item 1.



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For the nine months ended September 30, 2006 and 2005, we recorded depreciation, depletion and accretion expense of
$314,682 and $110,174, respectively. This increase was primarily due to $160,000 of depletion recorded for 2006 period. There was no depletion in the 2005 period because we sold no natural gas prior to February 2006.

Impairment Expense

For the quarter ended September 30, 2006, we
incurred $12,259 exploration expense for leases expiring in the southern Bourbon Arch area; for the same 2005 quarter we incurred $19,028 for leases expiring in the same area. During the 2005 quarter we recorded impairment expense of $17,505,249 for
oil and gas leases and wells that were abandoned in the Forest City Basin and an impairment of $3,881,000 for southern oil and gas leases and wells in the Bourbon Arch area. In the 2005 quarter we incurred a $4,105,500 impairment for the FEIPCO
joint venture described below in Part II, Item 1.

For the nine months ended September 30, 2005, we incurred impairment expense of $31,644,786.
The September 30, 2005 impairment occurred primarily from the Engleke/Soldier Creek pilots and the BTA pilot projects located on our northern acreage. We had implemented a completion program in the Engleke/Soldier Creek and BTA pilot projects.
These completions resulted in no sustainable or commercial production from the wells tested. Therefore, in June 2005 we shut in these wells and plugged and abandoned them during the first quarter of 2006.

Capital Expenditures

Subject to obtaining financing, we plan to spend
approximately $15 million in capital expenditures in the next twelve months. These expenditures will be directed toward developing existing proved and probable reserves on the Bourbon Arch, constructing additional pipelines, and evaluating new
project areas. Approximately 90% of the capital budget is focused on attempting to convert probable and possible reserves into proved reserves.

We project
that our capital program for the next twelve months will allow us to create value by drilling 100 wells and installing 14.5 miles of transportation lines and associated facilities necessary to support the drilling program and to hook up currently
stranded gas, compared to the 2005 program in which we drilled 11 wells and installed 5.5 miles of pipeline and associated gas processing facilities. If successful, we believe we can achieve a gross production rate of 3 to 4 mmcfgpd from the Bourbon
Arch project. We have currently secured the necessary pipeline rights of way to achieve this program. Successes may also encourage the initiation of additional discretionary projects.

We are trying to obtain adequate financing so we can develop our Bourbon Arch project into a nucleus for future growth. We cannot assure that we will be able to obtain such financing. Without it, we will have to cease
operations.



|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 September 30, 2006.
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.



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Any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that
the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

There have
been no changes in internal control over financial reporting that occurred during the quarter that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

Part II - Other Information



|Item 1. | Legal Proceedings
|------- | -----------------

One of our wholly-owned subsidiaries entered
into a joint venture agreement with the Far East International Petroleum Company (FEIPCO) on April 20, 2005, to establish a joint venture to drill, case and complete oil wells in the area known to the parties as West Qurnah and
North Rumailia fields, Republic of Iraq. As part of the joint venture agreement, we provided approximately $4.1 million to FEIPCO and our then current Chief Executive Officer provided approximately $585,000 from his personal holding company, Fort
Scott Energy Co. to the joint venture for initial construction cost. In September 2005 we received a notice from FEIPCO terminating the joint venture agreement and claiming that $1,600,000 is owed as part of the joint venture. We have conducted a
due diligence investigation of FEIPCO and the merits of these claims. We sent correspondence denying any liability to FEIPCO with respect to the claims asserted and will vigorously defend any arbitration or other legal action based upon such claims.
In March 2006 we requested additional information from FEIPCO. We have received no response to the request and have received no communication from FEIPCO since October 2005. To our knowledge, FEIPCO has not commenced a legal action; accordingly, we
have concluded that the likelihood of a further loss on this matter is remote.

We are not involved as a plaintiff in any other material proceedings or
pending litigation. We know of no material, active or pending legal proceedings against us. 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 Amended Form 10-K
Annual Report for the year ended December 31, 2005. 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.

Risks Related To Our Business

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



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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 totalling $44,959,966 from inception to December 31, 2005. We have cumulative net losses of $45,468,034 from inception to September 30, 2006. As of
September 30, 2006 we have $379,000 of working capital. Additional capital will be required to maintain ongoing operations.

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 have 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.

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 will be 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. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the
development stage. 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.

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;
| | - |  | ---------------------------------------



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| |  |  | 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.

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 Forest City 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 Forest City basin and the presence of these competitors could adversely affect our
ability to acquire additional leases.



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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 preclosing 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.

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



15



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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.

Two of our directors and our former CEO reside outside the United States. As a result it may be difficult for investors to enforce within the United States any
judgments obtained against those directors or the officer

Two of our directors and our former CEO are nationals and/or residents of countries other
than the United States, and all or a substantial portion of such persons assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on those directors or officer, or enforce within
the United States or Canada any judgments obtained against those directors or officer, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be
effectively prevented from pursuing remedies under U.S. federal securities laws against them. In addition, investors may not be able to commence an action in a Canadian court predicated upon the civil liability provisions of the securities laws of
the United States.

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.



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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
September 29, 2006, we completed (i) a bridge financing totaling $300,000 (the Bridge Amount) 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 for 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 Pottawatomie. We may prepay the Note Principal Amount in full and in cash at any time prior to the Maturity
Date.

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 the 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 the issuance
of new securities totaling at least $15,000,000. We currently do not have authorized unissued common stock sufficient to complete a Qualified Financing with a common stock offering, or to convert the Notes into common stock. Therefore we will likely
require stockholder approval of a change in the authorization for and/or structure of our securities to allow for sufficient shares to be issued to meet the commitments in the Notes.

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.

SDS Capital Group Ltd. and BayStar Capital II L.P. are related parties to us.

The Notes contain customary negative covenants, including a covenant not to incur additional indebtedness, and the Notes contain customary events of default.

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



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

None.



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|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

None.



|Item 5. | Other Information.
|------- | ------------------

None



|Item 6. | Exhibits.
|------- | ---------



|              |  |                                                                                                                                                                                                                           
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                               
|10.18         |  | Form of Convertible Senior Secured Promissory Note*                                                                                                                                                                       
|              | 
|10.19         |  | Form of Security Agreement between the Payees and Heartland Oil and Gas Corp.*                                                                                                                                            
|              | 
|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)) **

---

|* | Incorporated by reference to our current report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2006.
|- | ---------------------------------------------------------------------------------------------------------------------------------



|** | 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.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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: November 29, 2006 |  |  |  | /s/ Philip S. Winner                                        
|                        |  |  |  | Philip S. Winner                                            
|                        |  |  |  | Chairman of the Board, Chief Executive Officer and President



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