United StatesSecurities and Exchange CommissionWashington, D.C. 20549




Form 10-Q


(Mark One)

X
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2008__
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the transition period from __________ to __________Commission file number:     000-32669




Heartland Oil and Gas Corp.(Name of small business issuer as specified in its charter)




Nevada

91-1918326(State or other jurisdiction ofincorporation or organization)

(I.R.S. EmployerIdentification No.)




PO Box 277Jacksboro, TX 76458(Address of principal executive offices)




Issuer's Telephone Number:      214-888-0300Securities registered under Section 12(b) of the Exchange Act: NoneSecurities registered under Section 12(g) of the Exchange Act: Common Stock, par value $.001 per share.


Indicate by check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepast 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject such filing requirements forthe past 90 days. Yes  X   No  _Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company.See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer  _
Accelerated filer  _Non-accelerated filer  __
Smaller reporting company X


Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes __   No  XAs of May 1, 2008, the number of shares of common stock, $0.001 par value, outstanding was 42,207,720.Transitional Small Business Disclosure Format (check one): Yes ___  	No X








HEARTLAND OIL AND GAS CORP.Form 10-QFor the Quarterly Period Ended March 31, 2008Table of Contents




PagePART I

Financial Information

3Item 1.

Financial Statements

3Unaudited Consolidated Balance Sheets

3Unaudited Consolidated Statements of Operations

4Unaudited Consolidated Statement of Changes in Stockholders' Equity (Deficit)

5Unaudited Consolidated Statements of Cash Flows

6Notes to Consolidated Financial Statements (Unaudited)

7Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operation

27Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29Item 4.

Controls and Procedures

29PART II

Other Information

30Item 1.

Legal Proceedings

30Item 1A.

Risk FactorsItem 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30Item 3.

Defaults Upon Senior Securities

31Item 4.

Submission of Matters to a Vote of Security Holders

31Item 5.

Other Information

31Item 6.

Exhibits

31Signatures

33











PART I - Financial InformationItem 1.     Financial StatementsHeartland Oil and Gas Corp.Balance Sheet




March 31, 2008

December 31, 2007Assets

Unaudited

AuditedCurrent assets:Cash

$   1,315

$   1,319Gas sales receivable

347,356

294,087Oil inventory

66,265

84,091Prepaid expense and other current assets

98,880

115,040Total current assets

513,816

494,537Oil and gas property-full cost methodUnproved, undeveloped

105,880

535,686Proved, developed properties, full cost method, net of
accumulateddepletion of $662,662 and $387,136, respectively

4,302,131

4,355,646Pipeline and facilities, net of accumulated depreciation of$404,614 and $354,450, respectively

3,591,115

3,399,1777,999,126

8,290,509Other property and equipment, net of accumulateddepreciation of $81,421 and $138,871, respectively

27,553

38,761Other assets:Due from UPDA, parent entity

217,004

175,399Notes receivable from Catlin Oil and Gas, Inc., a wholly-ownedsubsidiary of  parent entity, including accrued interest
receivableof $13,315 and $8,329, respectively

413,315

408,329630,319

583,728Total Assets

$   9,170,814

$   9,407,535Liabilities and Stockholders' (Deficit)Current liabilities:Cash overdraft

$   23,193

$   60,411Accounts payable and accrued liabilities

1,160,907

735,408Due to Aztec, Inc a wholly-owned subsidiary of UPDA

827,301

926,930Due to Geer Tank Truck, Inc., a wholly-ownedsubsidiary of Continental Fuels, Inc. a subsidiary of
UPDA

89,271

-Notes and loans payable:Short-term promissory note payable to parent entity- UPDA,
including accrued interest payable of $90,875 and $45,438,
respectively

3,725,875

3,680,438Convertible debt due to parent entity/company
officer/shareholder, including accrued interest payable of $11,228 and $5,793,
respectively
226,228

220,793Other related party relationships

52,367

51,370Other

52,367

51,370Other advances received from parent entity/Company
officer/shareholder

108,500

-Total current liabilities

6,266,009

5,726,720Long-term asset retirement obligation

764,161

732,416Long-term promissory note payable to parent entity-UPDA,
including interest payable of $78,993 and $39,496, respectively

3,238,716

3,199,219Total Liabilities

10,268,886

9,658,355Stockholders' deficit:B Series convertible Preferred Stock - $0.001 par value,
5,000,000 sharesauthorized, 4,756,000 shares issued and outstanding

4,756

4,756Common stock - $0.001 par value, 100,000,000 shares
authorized,42,207,720 and 29,707,720 shares issued, and
outstanding atMarch 31, 2008 and December 31, 2007, repectively

42,208

29,708Common stock - $0.001 par value to be issued of 11,700,000 and24,200,000 shares, respectively

11,700

24,200Additional paid-in capital

59,983,359

59,983,359Accumulated deficit

(61,140,095)

(60,292,843)Total stockholders' deficit

(1,098,072)

(250,820)Total liabilities and stockholders' deficit

$   9,170,814

$   9,407,535




See accompanying notes.




2






Heartland Oil and Gas Corp.Statement of Operations(Unaudited)




Three Months

Three MonthsEnded

EndedMarch 31, 2008

March 31, 2007Oil & natural gas sales
$   521,982

$   110,520Compression & transportation revenue
25,292

5,824Total revenue
547,274

116,344Operating expenseLease operating expenses and production tax
319,669

74,522Exploration expense, expired leases
429,806

23,159Depreciation, depletion & accretion
167,110

97,923Share based compensation
-

8,437Salaries and related benefits
173,343

134,379General and administrative
237,391

61,797Total operating expense
1,327,319

400,217Loss from operations
(780,045)

(283,873)Interest expense,including $6,296,446 in 2007 resulting from
discount onnotes arising from the
exchange of preferred stock for convertible debt
(92,577)

(6,296,446)Interest income
4,986

3Loss on sale of fixed assets
(6,816)

-Gain on sale of leases
27,200

-Net loss
$    (847,252)

$    (6,580,316)Basic & diluted net loss per common share
$    (0.02)

$    (1.41)Weighted-average number of common shares outstanding
36,715,962

4,673,701




See accompanying notes.




3






Heartland Oil and Gas Corp.Stockholders' (Deficit) Equity Statement







Common
Common Shares
PreferredShares
To Be Issued
SharesBalance, December 31, 2006
4,673,701
-
-Acquisition of Company common stock by UPDA:Shares issued to UPDA at par value
5,063,176
-
-Cash consideration paid by UPDA for shares issued
-
-
-Offering costs paid in cash related to Companycommon stock issued to
UPDA
-
-
-Common stock issued to pay additional offering costsrelated to Company
common stock issued to UPDA
33,333
-
-Offering costs paid in stock related toCompany common stock
issued to UPDA
-
-
-Stock based facilitation fees incurred to former debt holderSDS Capital &
Baystar in conjunction with UPDA's acquisitionof convertible
promissory notes payable of the Company-see Note 8
542,800
-
-Conversion of convertible promissory note payable acquired
byFive Star coincident to
UPDA acquisition of the Company converted& to be converted
into Company common stock by FiveStar-see Note
8
19,025,000
24,200,000
4,756,000Company Common Stock issued to finance UPDA's60%-owned Catlin Oil
and Gas, Inc., subsidiary'sPalo Pinto acquisition (See Note 8)
369,710
-
-Issuance of stock options as compensation
-
-
-Net loss
-
-
-Balance, December 31, 2007
29,707,720
24,200,000
4,756,000Additional conversion of convertible promissory note payableacquired by Five Star coincident to UPDA acquisition
of the Companyconverted & to be converted into Company common
stock by Five Star-see Note 8
12,500,000
(12,500,000)
-Net loss
-
-
-Balance, March 31, 2008
42,207,720
11,700,000
4,756,000











Common
Common Stock
Preferred
Additional
AccumulatedStock
To Be Issued
Stock
Paid-In Capital
Deficit
TotalBalance, December 31, 2006
$   4,674
$   -
$   -
$   51,257,921
$  (46,415,936)
$   4,846,659Acquisition of Company common stock by UPDA:Shares issued to UPDA at par value
5,063
-
-
(5,063)
-
-Cash consideration paid by UPDA for shares issued
-
-
-
1,000,000
-
1,000,000Offering costs paid in cash related to Companycommon stock issued to UPDA
-
-
-
(50,000)
-
(50,000)Common stock issued to pay additional offering costsrelated to Company common stock issued to
UPDA
33
-
-
29,967
-
30,000Offering costs paid in stock related toCompany common stock issued to UPDA
-
-
-
(30,000)
-
(30,000)Stock based facilitation fees incurred to former debt holderSDS Capital & Baystar in conjunction with UPDA's
acquisitionof convertible promissory notes payable of the
Company-see Note 8
543
-
-
895,077
-
895,620Conversion of convertible promissory note payable acquired
byFive Star coincident to UPDA acquisition of the
Company converted& to be converted into Company common stock by Five
Star-see Note 8
19,025
24,200
4,756
6,437,019
-
6,485,000Company Common Stock issued to finance UPDA's60%-owned Catlin Oil
and Gas, Inc., subsidiary'sPalo Pinto acquisition (See Note 8)
370
-
-
399,630
-
400,000Issuance of stock options as compensation
-
-
-
48,808
-
48,808Net loss
-
-
-
-
(13,876,907)
(13,876,907)Balance, December 31, 2007
$   29,708
$   24,200
$   4,756
$   59,983,359
$  (60,292,843)
$   (250,820)Additional conversion of convertible promissory note payableacquired by Five Star coincident to UPDA acquisitionof the Company converted & to be converted intoCompany common stock by Five Star-see Note
8
12,500
(12,500)
-
-
-
-Net loss
-
-
-
-
(847,252)
(847,252)Balance, March 31, 2008
$   42,208
$   11,700
$   4,756
$   59,983,359
$    (61,140,095)
$    (1,098,072)






See accompanying notes.




4








Heartland Oil & Gas Corp.Statement of Cash Flows(Unaudited)




Three months ended

Three months endedMarch 31, 2008

March 31, 2007Cash flow used in operating activitiesNet loss
$    (847,252)

$    (6,580,316)Adjustments to reconcile net loss to net cash used in operating
activity:Accretion of asset retirement obligation
10,971

4,974Gain on sale of leases
(27,200)

-Loss on abandonment of fixed assets
6,816

-Interest expense resulting from discount on notes arising from
theexchange of preferred stock for convertible debt
-

6,416,446Share-based compensation
-

8,437Depreciation,depletion and amortization
156,139

92,949Exploration expense, expired Leases
429,806

23,159Interest income added to note receivable balances due from:Catlin Oil
and Gas, Inc.
(4,986)

-Interest
expense added to notes and loans payable balances due to:Promissory
note payable to parent entity- UPDA
45,437

-Long-term
promissory note payable to parent entity-UPDA
39,497

-parent
entity/company officer/shareholder
5,435

-Other
related party relationships
997

-Other
997

-Changes in operating asset and liabilitiesDecrease (increase) in gas sales receivable
(53,269)

2,443Decrease in oil inventory
17,826

-Decrease in prepaid expense and other current assets
16,160

37,944Increase (decrease) in accounts payable andaccrued liabilities
425,499

(66,963)Decrease in due to Aztec, Inc a wholly-owned subsidiary
of UPDA
(99,629)

-Increase in due to Geer Tank Truck, Inc., a
wholly-ownedsubsidiary of Continental Fuels, Inc. a subsidiary of
UPDA
89,271

-Net cash provided by (used in) operating activities
212,515

(60,927)Cash flow used in investing activitiesPurchase of pipeline and facilities
(92,217)

(5,488)Acquisition and exploration of oil and gas
property
(177,179)

(30,018)Advances made to parent entity and its UPDA-O
subsidiary
(41,605)

-Proceeds from sale of oil and gas leases
27,200

-Net cash used in investing activities
(283,801)

(35,506)Cash flow from financing activitiesDecrease in cash overdraft
(37,218)

-Proceeds of loans from parent entity/company
officer/shareholder
108,500

-Advance received from buyer on sale of majority
interest in Company
-

80,000Net cash provided by financing activities
71,282

80,000Net decrease in cash
(4)

(16,433)Cash beginning of period
1,319

75,724Cash end of period
$   1,315

$   59,291Supplementary disclosures of cash flow informationCash paid during the period for:Income taxes
$   -

$   -Interest paid
$   -

$   -




See accompanying notes.




5




Heartland Oil & Gas Corp.Financial Statement Notes


Note 1-Organization, Operations and Significant Accounting PoliciesOrganizationHeartland Oil and Gas Corp. (the "Company") was incorporated in Nevada on July 9, 1998. Our principal business is exploration and development ofoil and gas property in the United States. Through December 31, 2005, we were in the exploration stage and had not generated significant revenuefrom operations. We first sold natural gas in February 2006; therefore we are no longer an exploration stage company.On April 19, 2007 there was a sale of a 52% interest in the Company's common stock to Universal Property Development and AcquisitionCorporation ("UPDA"). After adjusting the previous quarter's issuance to UPDA for the July 25, 2007 1-for-10 reverse stock split and throughsubsequent transactions, UPDA's interest has increased to 77% as of March 31, 2008.We have incurred recurring losses from operations and have accumulated a deficit of $61,140,095 since inception. At March 31, 2008, we hadnegative working capital. Since inception, we have funded operations through the issuance of capital stock and debt. We plan to continue raisingadditional funds through future equity or debt financing until we achieve profitable operations.Significant Accounting PoliciesPrinciples of ConsolidationThe consolidated financial statements include the financial position and operating activities of Heartland Oil and Gas Corp. (HOCG) and its 100%owned subsidiaries Heartland Oil and Gas, Inc., Heartland Gas Gathering, LLC and Heartland International. All inter-company balances have beeneliminated in consolidation.Foreign Currency TranslationOur functional currency is the U.S. dollar. In those instances where we have foreign currency transactions, we translate the financial statements toU.S. dollars in accordance with Statement 52 of the Financial Accounting Standards Board (FASB),Foreign Currency Translation. We translatemonetary assets and liabilities denominated in foreign currencies using the exchange rate prevailing at the balance sheet date. We include gains andlosses arising on translation or settlement of foreign-currency-denominated transactions or balances in the determination of income. Our primaryforeign currency transactions are in Canadian dollars. We have not entered into derivative instruments to offset the impact of foreign currencyfluctuations.Basic and Diluted Net Income (Loss) Per ShareBasic and diluted net loss per share information for all periods is presented under the requirements of SFAS No. 128, Earnings Per Share. Basic lossper share is calculated by dividing the net loss attributable to common stockholders by the weighted-average common shares outstanding during theperiod. Diluted loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average common sharesoutstanding. The dilutive effect of preferred stock, warrants and options convertible into an aggregate of approximately 119,760,000 and 0 ofcommon shares as of March 31, 2008 and 2007 respectively, are not included because the inclusion of such would be anti-dilutive for all periodspresented.Oil and Gas PropertyWe utilize the full cost method to account for our oil and gas property. Accordingly, we capitalize all cost associated with acquisition, explorationand development of oil and gas reserves, including such cost as leasehold acquisition cost, capitalized interest cost relating to unproved property,geological expenditures, tangible and intangible development cost including direct internal cost to the full cost pool.

6






Heartland Oil & Gas Corp.Financial Statement Notes


Note 1-Organization, Operations and Significant Accounting Policies (cont.)Oil and Gas Property (cont.)We have depleted the capitalized cost, including estimated future cost to develop the reserves and estimated abandonment cost, net of salvage, on theunits-of-production method using estimates of proved reserves. We do not amortize cost of unproved property and major development projectsincluding capitalized interest, if any, until the property begins to produce. If we determine the future exploration of unproved property to beuneconomical, we add the amount of such property to the capitalized cost to be amortized.We apply a ceiling test to the capitalized cost in the full cost pool, in accordance with the provisions of SEC Regulation S-X, Rule 4-10 (c) (4),Limitation on capitalized costs. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future netrevenue from proved reserves, based on current economic and operating conditions. Specifically, we compute the ceiling test so that capitalized cost,less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: (A) The present value ofestimated future net revenue computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extentprovided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheetpresented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed usinga discount factor of ten percent and assuming continuation of existing economic conditions; plus (B) the cost of property not being amortized; plus(C) the lower of cost or estimated fair value of unproved properties included in the costs being amortized; less (D) income tax effects related todifferences between the book and tax basis of the property.For unproved property, we exclude from capitalized cost subject to depletion all cost directly associated with the acquisition and evaluation ofunproved property until we determine whether or not proved reserves can be assigned to the property. Until we make such a determination, we assessthe property at least annually to ascertain whether impairment has occurred, in accordance with FASB Statement 144,Accounting for Impairment ofLong-Lived Assets. In assessing impairment we consider factors such as historical experience and other data such as primary lease terms of theproperty, average holding periods of unproved property, geographic and geologic data, and market values of comparable unproved property beingbought and sold by other parties. We recognize an impairment loss only if the carrying amount of an unproved property is not recoverable from itsundiscounted cash flow. We measure an impairment loss as the difference between the carrying amount and the fair value of the asset. We add theamount of impairment assessed to the cost to be amortized subject to the ceiling test.We account for sales of proved and unproved property as adjustments of capitalized cost with no gain or loss recognized, unless such adjustmentswould significantly alter the relationship between capitalized cost and proved reserves of oil and gas, in which case we record the gain or loss in theoperations statement.Property and EquipmentProperty and equipment includes office furniture & equipment and gathering and surface facilities. We record property and equipment at cost. Weprovide depreciation for office furniture & equipment on a straight line basis at annual rates ranging from 20 percent to 50 percent per annum, and forgathering and surface facilities on a straight-line basis over 20 years.Long-Lived AssetsIn accordance with FASB Statement 144,Accounting for the Impairment or Disposal of Long-Lived Assets, we review the carrying value ofintangible assets and other long-lived assets, such as other properties and equipment, on a regular basis for the existence of facts or circumstancesthat may suggest impairment. We recognize impairment when the sum of the expected undiscounted future cash flow is less than the carrying amountof the asset. We measure impairment losses, if any, as the excess of the carrying amount of the asset over its estimated fair value. No provision forimpairment is required at March 31, 2008 and December 31, 2007.

7






Heartland Oil & Gas Corp.Financial Statement Notes


Note 1-Organization, Operations and Significant Accounting Policies (cont.)Income TaxWe account for income tax in accordance with FASB Statement 109,Accounting for Income Taxes. Under the asset and liability method of Statement109, we record deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax ratesin effect for the year in which those temporary differences are expected to be recovered or settled.Effective January 1, 2007, the Company adopted Financial Accounting Standard Board Interpretation No. 48 Accounting for Uncertainty in IncomeTaxes ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordancewith SFAS Statement No. 109 Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attributes for the financialstatement recognition and measurement of a tax position taken or expected to be taken in tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting interim period, disclosure and transition. There were no adjustments required upon adoption of FIN48.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenue and expenses during the reporting period. We believe that the estimates we utilize inpreparing the financial statements are prudent and reasonable. Actual results may differ from these estimates.Financial Instruments and Concentration of Credit RiskWe carry substantially all of our assets and liabilities at fair value or contracted amounts that approximate fair value. We make estimates of fair valueat a specific point in time, based on relative market information and information about the financial instrument, specifically, the value of theunderlying financial instrument. Assets that we record at fair value are primarily cash and other assets, which we carry at contracted amounts thatapproximate fair value. Our liabilities consist of short term liabilities we record at contracted amounts that approximate fair value. Financialinstruments that potentially subject us to concentrations of credit risk consist primarily of cash in excess of the federally insured amount of $100,000.To date, we have not incurred a loss relating to this concentration of credit risk.Stock-Based PaymentEffective January 1, 2006, we account for stock-based compensation based on the fair value of the options at the grant date as provided by FASBStatement 123(R), Stock-Based Compensation. We record compensation expense for all share-based awards granted, and for awards modified,repurchased or cancelled. We will recognize compensation expense for outstanding awards for which the requisite service had not been rendered asof January 1, 2006, over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under FASBStatement 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 ofthe 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 anemployee 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 ofcommon stock to key employees and consultants. The options granted under the plan vest over four years except as stated otherwise in the individualgrants, and are for a term not exceeding 10 years.For the three months ended March 31, 2008 and 2007, we expensed the fair value of options granted to non-employees, employees, officers anddirectors.

8






Heartland Oil & Gas Corp.Financial Statement Notes


Note 1-Organization, Operations and Significant Accounting Policies (cont.)Stock-Based Payment (cont.)Assumptions used to determine compensation expense are determined as follows:

.
Expected term is determined using a weighted average of the contractual term of the award;




.
Expected volatility of award grants is measured using the weighted average of historical daily changes in the market price of the Company's common stock over the expected term of the award;




·   .
Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and




·   .
Forfeitures are based on the history of cancellations of awards granted and management's analysis of potential forfeitures.


The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions, arefully transferable, and are not subject to trading restrictions or blackout periods. In addition, option valuation models require the input of highlysubjective assumptions, including the expected stock price volatility. Because our employee stock options have characteristics significantly differentfrom those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, it is our opinionthat the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.Major CustomersFor the three months ended March 31, 2008, one customer, Enbridge Marketing (U.S.) LP, was responsible for purchasing 100% of our natural gassales.Asset Retirement ObligationsWe account for asset retirement obligations in accordance with the provisions of Statement 143 "Accounting for Asset Retirement Obligations".Statement 143 requires us to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligationassociated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets.We recognize asset retirement obligations related to our oil and gas property.ReclassificationsWe have reclassified certain data in the financial statements of the prior periods to conform to the current period presentation.Recent Accounting PronouncementsIn December 2007, the FASB issued SFAS No.160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No.51".  SFAS No.160 requires that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, andpresented in the consolidated statement of financial position within equity, in the amount of consolidated net income attributable to the parent and tothe noncontrolling interest on the face of the consolidated statement of income, and that Entities provide sufficient disclosures that clearly identifyand distinguish between the interests of the parent and the interests of the noncontrolling owners.  SFAS No.160 is effective for fiscal years,beginning on or after December 15, 2008 and cannot be applied earlier.In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(revised 2007), "Business Combinations," ("FASB141R").  This standard requires that entities recognize the assets acquired, liabilities assumed, contractual contingencies and contingent considerationmeasured at their fair value at the acquisition date for any business combination consummated after the effective date.  It further requires thatacquisition-related costs are to be recognized separately from the acquisition and expensed as incurred.  FASB 141R is effective for fiscal yearsbeginning after December 15, 2008.

9






Heartland Oil & Gas Corp.Financial Statement Notes


Note 1-Organization, Operations and Significant Accounting Policies (cont.)Recent Accounting Pronouncements (cont.)The Company does not anticipate that the adoption of SFAS No. 141R and No. 160 will have an impact on the Company's overall results ofoperations or financial position, unless the Company makes a business acquisition in which there is a noncontrolling interest.In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110, "Use of a Simplified Method in DevelopingExpected Term of Share Options" ("SAB 110").  SAB 110 expresses the current view of the staff that it will accept a company's election to use thesimplified method discussed in Staff Accounting Bulletin 107, Share Based Payment, ("SAB 107"), for estimating the expected term of "plainvanilla" share options regardless of whether the company has sufficient information to make more refined estimates.  SAB 110 became effective forthe Company on January 1, 2008.  The adoption of SAB 110 is not expected to have a material impact on the Company's financial position.In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No.159, "The Fair Value Option for Financial Assets andFinancial Liabilities - Including an amendment of FASB Statement No.115". SFAS No.159 permits entities to choose to measure eligible financialinstruments and other items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which thefair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument butonly upon the entire instrument - not portions of the instrument. Unless a new election date occurs, the fair value option is irrevocable. SFAS No.159is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The Company does not expect that the adoption ofSFAS No. 159 will have a material effect on the Company's consolidated financial statements.In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". The statement standardizes the definition of fair value, establishesa framework for measuring in generally accepted accounting principles and sets forth the disclosures about fair value measurements. SFAS No. 157is effective for the beginning of an entity's fiscal year that begins after November 15, 2007. The Company does not expect SFAS No. 157 will have amaterial effect on its financial statements.In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASBStatement No. 133." Constituents have expressed concerns that the existing disclosure requirements in FASB Statement No. 133, Accounting forDerivative Instruments and Hedging Activities, do not provide adequate information about how derivative and hedging activities affect an entity'sfinancial position, financial performance, and cash flows. SFAS No. 161 requires enhanced disclosures about an entity's derivative and hedgingactivities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years andinterim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparativedisclosures for earlier periods at initial adoption. The adoption of FASB 161 is not expected to have a material impact on the Company's financialposition.In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." The current GAAP hierarchy, as setforth in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69, The Meaning of Present Fairly inConformity With Generally Accepted Accounting Principles, has been criticized because (1) it is directed to the auditor rather than the entity, (2) it iscomplex, and (3) it ranks FASB Statements of Financial Accounting Concepts. The FASB believes that the GAAP hierarchy should be directed toentities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented inconformity with GAAP. Accordingly, the FASB concluded that the GAAP hierarchy should reside in the accounting literature established by theFASB and is issuing this Statement to achieve that result. This Statement is effective 60 days following the SEC's approval of the Public CompanyAccounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples. The adoption of FASB 162 is not expected to have a material impact on the Company's financial position.

10






Heartland Oil & Gas Corp.Financial Statement Notes


Note 2- Basis of PresentationInterim Financial StatementsIn the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring accruals)necessary to present fairly the Company's financial position as of March 31, 2008 and the results of its operations, changes in stockholders' deficit,and cash flows for the three months periods ended March 31, 2008 and 2007, respectively. Although management believes that the disclosures inthese consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosuresnormally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States ofAmerica have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission.The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the fullyear ending December 31, 2008. The accompanying consolidated financial statements should be read in conjunction with the more detailedconsolidated financial statements, and the related footnotes thereto, filed with the Company's Annual Report on Form 10-KSB for the year endedDecember 31, 2007 filed on April 15, 2008.Going-Concern StatusWe have incurred significant losses since inception. As of March 31, 2008, we have an accumulated deficit of $61,140,095 and a net loss for thecurrent period of $847,252. At March 31, 2008, we had limited financial resources.  Our continuation is dependent upon our ability to raise additionalcapital, to exploit our mineral holdings, and to generate sufficient revenue from our planned operations to enable us to attain and maintain profitableoperations.  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. Obtainingcommercial 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 uswhen 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 timelybasis, 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 suchevent, we would be forced to scale down or perhaps even cease our operations.Note 3-Oil and Gas PropertiesUndeveloped PropertiesWe own and operate nearly 645,000 acres in two areas in eastern Kansas: the south block, located on the Cherokee basin, where we have establishedreserves and production; and the north block, located in the Forest City basin, where we hold significant leases which expire between 2008 and 2012.

Undeveloped Acreage
March 31, 2008

December 31, 2007Beginning Balance
$
535,686

$
1,688,889Acquisition of undeveloped acreage
-

7,554Less expired leases (A)
(429,806)

(1,160,757)Total undeveloped properties
$
105,880

$
535,686(A) 45 Leases located in Kansas in 2008




11






Heartland Oil & Gas Corp.Financial Statement Notes


Note 3-Oil and Gas Properties (cont.)Developed Properties, Cherokee basinOur developed properties are located on an approximately 29,000 acre leasehold position located in the Cherokee basin, primarily in Linn and Miamicounties, Kansas. We have 45 wells in four batteries producing gas across a 12 mile area of the Cherokee basin. From east to west, these areas arenamed Jake (12 wells), Lancaster (26 wells), Osawatomie (4 wells), and Beagle (3 wells). In June 2007 we commenced a drilling program to furtherdevelop the Lancaster and Jake pilots. Ten wells were drilled in the Lancaster area during the second half of 2007 and 7 of them were completed inthe fourth quarter and are connected and producing at this time.  An additional 11 wells were drilled in Jake area in the second half of 2007, all ofthese wells remain shut-in awaiting pipeline connection. We have a significant acreage position in the Cherokee basin and are negotiating pipelinerights-of-way in and between these producing areas.

Developed Properties
March 31, 2008

December 31, 2007Beginning Balance
$
4,355,646

$
792,504Additions related to wells transferred from Catlin Oil and GasSubsidiary of UPDA

-


5,780,910Acquisition, exploration, drilling and lease and well equipment

222,011

2,228,714Less accumulated depletion
(275,526)

(387,136)Less impairment costs
-

(4,059,346)Total developed properties
$
4,302,131

$
4,355,646


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

Pipeline and MarketingPipeline and facilities
March 31, 2008

December 31, 2007Beginning Balance
$
3,399,177

$
2,521,670Additions related to wells transferred from Catlin Oil and Gassubsidiary of UPDA

-


989,631Acquisition of equipment
242,102

41,629Less depreciation
(50,164)

(153,753)Total pipeline and facilities
$
3,591,115

$
3,399,177




12




Heartland Oil & Gas Corp.Financial Statement Notes


Note 4- Related Party Notes Receivable and Matters Related to ThemRelationship with AztecThe Company incurred approximately $2,100,000 of costs that have been capitalized into Proved, Developed Oil and Gas Property Assets at March31, 2008. During the three months ended March 31, 2008, the Company paid $0 in cash towards those costs.As ofMarch 31, 2008, Heartland hasrecorded $1,032,294 in accounts payable and accrued liabilities net of a $19,000 credit between the Company and Aztec. During three months endedMarch 31, 2008 and the year ended December 31, 2007, the Company was Aztec's sole customer.On March 1, 2008, Aztec Well Services, Inc ("Aztec") and the Company entered into a Master Service Agreement in which Aztec shall furnish allpersonnel and equipment to operate all compressor stations, dehydration systems and amine plants at a cost of $250 per month for each. Heartlandwill pay all dues and fees related to the operation of these plants such as fuel, electricity, etc. This agreement shall run from March 1, 2008 throughFebruary 28, 2009.On March 1, 2008, Aztec Well Services, Inc ("Aztec") and the Company entered into a Lease Operating Agreement Contract in which Aztec shallfurnish all personnel and equipment to operate all wells for total cost of $360 per well per month. This includes daily inspections of each well withmeter reading and all incident documentation. This contract shall run from March 1, 2008 through February 28, 2009.Note Receivable CatlinNote Receivable Catlin consists of a promissory note, dated August 1, 2007, received by the Company from Catlin Oil & Gas, Inc. ("Catlin"), asubsidiary of UPDA, in exchange for the Company issuing shares of its common stock in connection with the acquisition by UPDA of certain assets.The value of the shares of common stock so issued by us was valued at $400,000. This unsecured Note Receivable Catlin bears interest at 5% perannum, with principal and interest receivable in full by or before August 1, 2010. The notes receivable balance of $413,315 at March 31, 2008includes accrued interest income earned of $13,315 to that date.As further discussed in Note 5, in October 2007, Catlin transferred certain of its oil and gas property assets to the Company. Underlying assets thatremain in the Catlin subsidiary of UPDA consists principally of idle drilling rigs, a small storage facility and building located in Jacksboro, Texas.Note 5- Transfer of the Oil & Gas Assets of Catlin Oil & Gas, Inc. (a subsidiary of UPDA)On March 6, 2008 (the "Closing Date"), the Company closed an asset purchase transaction pursuant to the terms and conditions of the AssetPurchase Agreement (the "APA") by and between Universal Property Development and Acquisition Corporation ("UPDA") and its subsidiary CatlinOil & Gas, Inc. ("Catlin") (the "Sellers"), whereby the Company acquired certain oil and gas related assets (the "Assets") of the Sellers that weretransferred to the Company at their then historical cost basis of Catlin for financial statement purposes on the Effective Date of $6,794,723 (the"Purchase Price"). The APA was dated as of August 15, 2007 and the assets were effectively transferred as of October 1, 2007 (the "Effective Date").As of October 1, 2007, under the terms and conditions of the APA, the Company purchased and the Sellers sold all of the rights, title and interest ofthe Sellers in certain assets that consisted of right, title and interest in the oil and gas leases located in Palo Pinto County, Texas, wells, the permitsthat relate to the wells and the properties, equipment and contracts as they relate to the leases and equipment (the "Palo Pinto Assets").Below is a summary of the Palo Pinto Asset transferred to the Company by Catlin:

Developed Properties included within Oil and Gas Properties
$5,780,910Pipeline and Facilities
989,631Other
24,182$6,794,723




In consideration for the Palo Pinto Assets transferred by Catlin the Company issued two promissory notes to UPDA in the aggregate amount of$6,794,723 (See Note 6).

13






Heartland Oil & Gas Corp.Financial Statement Notes


Note 6-Notes and Loans PayableConvertible debt due parent entity/company officer/shareholderAs of March 31, 2008 and December 31, 2007, the amount due consists of the following:

Terms and to Whom Payable
March 31, 2008

December 31, 2007As of December 31, 2007 , the Company borrowed$215,000 on a note bearing 8% interest, payable to Kamal Abdallah, President of UPDA. At March 31, 2008 and December 31, 2007, this note has an outstanding balance payable on demand, including accrued interest of$11,228 and $5,793, respectively. Mr. Abdallah has the option to convert amounts due under the notes into common stock of the Companyat rate of $0.25 per share.
$
226,228

$
220,793


Parent entity -UPDAAs of March 31, 2008 and December 31, 2007, the amount due consists of the following:

Terms and to Whom Payable
March 31, 2008

December 31, 2007A short-term Promissory Note in the original amount of $3,635,000 arising out of the transfer of Catlin Oil and Gas assets described in Note 5. The Note is due and payable in one lump sum payment on June 30, 2008. The Company shall pay interest on the unpaid principal amount of the Note, until such principal amount shall be paid in full, at the rate of 5% per annum. At March 31, 2008 and December 31, 2007, this loan, which is payable on demand, has an outstanding balance including accrued interest of$90,875 and $45,438, respectively.
$
3,725,875

$
3,680,438A long-term Promissory Note in the original amount of $3,159,723 arising out of the same transfer of Catlin Oil and Gas assets described under the short-term promissory note, with the principal amount being due and payable in one lump sum payment on July 16, 2010. The Company shall pay interest on the unpaid principal amount of Note, until such principal amount shall be paid in full, at the rate of 5% per annum. At March 31, 2008 and December 31, 2007, this loan, which is payable on demand, has an outstanding balance including accrued interest of $78,993 and$39,496, respectively.

3,238,716


3,199,219Total
$
6,964,591

$
6,879,657




14




Heartland Oil & Gas Corp.Financial Statement Notes


Note 6-Notes and Loans Payable (cont.)The maturities of the UPDA loans at March 31, 2008 are as follows:

Years Ending March 31,
Amounts2009
$
3,725,8752010

-2011

3,238,716$
6,964,591




Other related party relationshipsAs of March 31, 2008 and December 31, 2007, the amount due consists of the following:

Terms and to Whom Payable
March 31, 2008

December 31, 2007


A loan payable in the amount of $50,000 to Triple Crown Consulting, a minority owner in the Canyon Creek Oil and Gas, Inc. UPDA subsidiary, with interest accrued at 8% per annum. At March 31, 2008 and December 31, 2007, this loan, which is payable on demand, has an outstanding balance including accrued
$


$interest of $2,367 and $1,370, respectively.

52,367


51,370Total
$
52,367

$
51,370


Other notes and loans payableAs of March 31, 2008 and December 31, 2007, notes payable to related parties consist of the following:

Terms and to Whom Payable
March 31, 2008

December 31, 2007A loan payable in the amount of $50,000 to RAKJ Holdings, Inc. with interest accrued at 8% per annum. At March 31, 2008 and December 31, 2007, this loan, which is payable on demand, has an outstanding balance including accrued interest of $2,367 and $1,370, respectively. The shareholders of RAKJ Holdings, Inc. also provided a pledge of collateral in the form of a certificate of deposit for a line of credit to Continental Fuels, Inc., a subsidiary
$


$of UPDA.

52,367


51,370Total
$
52,367

$
51,370




15




Heartland Oil & Gas Corp.Financial Statement Notes


Note 6-Notes and Loans Payable (cont.)Other advances received from Parent entity/Company officer/shareholderAs of March 31, 2008 and December 31, 2007, notes payable to related parties consist of the following:

Terms and to Whom Payable
March 31, 2008

December 31, 2007These short-term advances received from Kamal Abdallah between January and March of 2008 were converted on April 1, 2008 into a formal promissory note payable  to him on demand,
$


$bearing interest at 6% per annum

108,500


-Total
$
108,500

$
-


Conversion of notes to related parties into common stockOn 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 ofconvertible senior secured promissory notes (the "Notes"). The Notes mature on the earlier of March 28, 2007 or the date of any subsequentfinancing in which we issue equity securities or other securities that could result in the issuance of equity securities (the "Maturity Date"), have nointerest rate and reflect the full Note Principal Amount. The Notes are secured by all of our assets, except that the Payees have agreed to releasesecurity 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 MaturityDate.On March 28, 2007, we and the Payees extended the due date of the Notes to April 4, 2007. On April 4, 2007 the Notes were again extended toApril 16, 2007.   All these Notes were subsequently transferred to UPDA and Five Star Partners LLP as described below.Except in the case of a Qualified Financing, the Notes were convertible into common stock on the Maturity Date. At the Maturity Date, the Payeeshad the option to convert the Note Principal Amount into common stock at a conversion price of $0.04 per share. In a Qualified Financing, thePayees would convert approximately 81% of the Note Principal Amount into the additional securities issued in the Qualified Financing on the sameprice 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 did not invest a total of at least $2,000,000 in the Qualified Financing, then the Payees would not have the right to convertthe Note Principal Amount into the Qualified Financing. In this event, the Bridge Amount would be converted into the securities issued in theQualified Financing on the same price and terms as the other investors in the Qualified Financing and the Series B Amount would automatically beconverted into a new preferred stock having substantially similar terms as our Series B Preferred Stock, except that the rights contained in ArticleXIII of our Certificate of Designation, Preferences and Rights relating to the Series B Preferred Stock (the "Certificate") would be deleted. AQualified Financing is defined in the Notes as our issuance of new securities in an amount of at least $15,000,000.

16




Heartland Oil & Gas Corp.Financial Statement Notes


Note 6-Notes and Loans Payable (cont.)In addition, pursuant to the Notes, the Payees agreed to forbear collection of any liquidated damages or other amounts we owed under theRegistration Rights Agreement dated October 1, 2004, if any, and to waive payment of any such amounts if we completed a Qualified Financing,regardless of whether the Payees participated in the Qualified Financing. Also, the Payees waived their right to declare a Redemption Event under theCertificate, 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 Notescontained customary negative covenants, including a covenant that we were not to incur additional indebtedness, and the Notes contain customaryevents of default.In issuing the Notes and underlying common stock to the Payees, we relied on the exemption from registration under Section 4(2) of the SecuritiesAct of 1933, as amended.Generally accepted accounting principles (GAAP), as described in Issue 96-19 of the Emerging Issues Task Force (EITF) of the FASB, characterizethe above exchange of redeemable preferred stock for the convertible Notes as an extinguishment of the redeemable preferred stock. The Notes are tobe 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 resultedin a gain of $1,299,958, which we recorded during the year ended December 31, 2006.GAAP, as described in EITF Issue 00-27, paragraph 7, and EITF 98-5, paragraph 6, provides that if the conversion feature of the Notes is beneficialto 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 topaid-in capital. At issuance the Notes were convertible into common stock at a rate of four cents per share. The common stock traded for nine centsper share on September 29, 2006, the closing date of the exchange. Therefore the conversion had an intrinsic value of five cents per share. Atissuance the Notes were convertible into 157,500,000 common shares. Therefore the conversion feature had an intrinsic value of $7,875,000, whichis in excess of the total proceeds received in exchange for the Notes. The accounting described above is summarized as:

Initial Series B Preferred Stock

$
6,000,0000Classification adjustment prior to 12/31/06


(400,042
)Book value, Series B Preferred, 12/31/06 and 9/28/06


5,599,958September 29, 2006 Bridge Financing


300,000Preliminary book value of notes at 9-29-06 conversion


5,899,958Fair value of notes determined by independent valuation firm, 9-29-06, classified as an addition to additional paid-in capital on the conversion


(4,600,000
)Gain on conversion

$
1,299,958Initial carrying value of the Notes at 9/29/06

$
1Interest accreted @ 9.08728% per day:Through 12-31-06


3,553Balance, 12-31-06


3,554Interest accreted @ 9.088728% per day for the quarter ended 3-31-2007


6,296,446Total interest accretion over 180 day life of the notes

$
6,300,000


Pursuant to the sale of a 52% interest in the Company's common stock to Universal Property Development and Acquisition Corporation on April 19,2007, these Notes were transferred to UPDA and Five Star as described below.Acquisition of the Notes by UPDA and Five StarOn April 20, 2007, UPDA closed a note purchase transaction (the "Note Purchase") pursuant to the terms and conditions of a Note PurchaseAgreement, dated April 19, 2007, between UPDA as the buyer and SDS Capital Group SPC, Ltd. and Baystar Capital II, L.P. (together the "Sellers")whereby UPDA purchased four million seven hundred fifty-six thousand dollars ($4,756,000) in face amount of the Notes for an aggregate purchaseprice of $1,500,000 in cash and 26,260,504 restricted shares of the common stock of UPDA. Five Star Partners LLC ("Five Star") purchased onemillion seven hundred twenty-nine thousand ($1,729,000) in face amount of Notes.

17




Heartland Oil & Gas Corp.Financial Statement Notes


Note 6-Notes and Loans Payable (cont.)The Notes did not pay interest but were convertible into shares of our common stock based on a conversion price of $0.04 per share. Under the termsof this conversion provision, the Notes acquired by UPDA were convertible into 118,900,000 shares of our common stock. The Notes acquired byFive Star were convertible into 43,225,000 shares of our common stock. In the event of a full conversion of the Notes to shares of our common stock,UPDA would hold an aggregate of 123,963,176 shares of our common stock.As a condition to the closing of the Note Purchase, and in exchange for UPDA and Five Star's agreement to extend the maturity date of the Notesfrom April 16, 2007 to December 31, 2007, we executed consents to the transfer of the Notes to UPDA and Five Star and the assignment by theSellers of their security interests under an existing security agreement covering the Notes to UPDA and Five Star. UPDA entered into a second loanagreement with Sheridan for $3,250,000 on August 16, 2007, which is discussed in Note 10.On January 31, 2007 we borrowed $185,000 on non-interest bearing notes, of which $127,500 was received from SDS Capital Group, SPC Ltd. and$57,500 was received from Baystar Capital II, L.P. $65,000 of these funds, plus interest of $1,820 was used to pay off the December 7, 2006 note toSDS Capital Group SPC, Ltd. The maturity date of the new notes was March 28, 2007; however on March 27, 2007 both lenders extended the notesto April 4, 2007. On April 4, 2007 the notes were again extended to April 16, 2007.  Pursuant to the sale of a 52% interest in the Company's commonstock to Universal Property Development and Acquisition Corporation on April 19, 2007, these notes were assigned to UPDA and were incorporatedinto the $4,756,000 notes described above.On September 26, 2007, the Company and UPDA agreed to revise the terms of the Notes held by UPDA. Pursuant to the revised terms, UPDAagreed to convert the entire $4,756,000 face amount of the Notes held by them into 4,756,000 shares of our newly created Series B ConvertiblePreferred stock.During the third quarter of 2007, Five Star presented $1,729,000 in face amount of Notes to the Company for conversion into 43,225,000 shares ofcommon stock. Pursuant to the terms of the agreement described in Note 10, the Company issued 19,025,000 shares of its common stock to Five Staras of December 31, 2007, with the remaining 24,200,000 shares to be issued in the future.



During the quarter ended March 31, 2008, Five Star converted another part of its $1,729,000 in face amount of Notes into 12,500,000 shares ofcommon stock.  Pursuant to the terms of the agreement described in Note 6, the Company has issued an aggregate of 31,525,000 shares of itscommon stock to Five Star as of March 31, 2008, with the remaining 11,700,000 shares to be issued in the future.Note 7-Asset Retirement ObligationsWe account for asset retirement obligations in accordance with the provisions of Statement 143 "Accounting for Asset Retirement Obligations".Statement 143 requires us to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligationassociated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets.We recognize asset retirement obligations related to our oil and gas property.

March 31, 2008

December 31, 2007Beginning asset retirement obligations
$
732,416

$
227,040Additions related to wells transferred from Catlin Oil and Gas subsidiary of UPDA (See Note 5)
20,774

469,915Accretion
10,971

35,461Total asset retirement obligations
$
764,161

$
732,416




18




Heartland Oil & Gas Corp.Financial Statement Notes


Note 8-Sale of Common Stock, Stock Options and WarrantsOptionsA summary of the changes in our common share purchase options is below:

March 31, 2008

December 31,2007Weighted Average


Weighted Average ExerciseNumber
Exercise Price

Number
PriceBalance, beginning of year
308,500
$
3.80

372,500
$
6.10Granted
-

-

130,000
1.40Exercised
-

-Forfeited / Expired
-

-

(194,000)

(6.50)Balance, end of period
308,500
$
3.80

308,500
$
3.80


Additional information regarding options outstanding at March 31, 2008 is:

Outstanding

ExercisableNumber

Outstanding Weighted average remaining contractual life

Weighted average exercise

Vested Number of

Exerciseof shares

(years)

price

shares

prices$0.00-$1.00
285,500

5.72

$2.80

285,500

$2.80$1.01-$2.00
23,000

7.00

$16.00

23,000

$16.00308,500

5.82

$6.10

308,500

$6.10


Acquisition of Our Common Stock by UPDAPursuant to the terms of a Stock Purchase Agreement dated April 19, 2007, by and between the Company and UPDA, a Nevada corporation, UPDAagreed to purchase a total of 5,063,176 shares (the "Shares") of our common stock in a private transaction with the Company for an aggregatepurchase price of $1,000,000 in cash (the "Stock Sale"). The Stock Sale closed on April 20, 2007 (the "Closing Date"), through the payment byUPDA of the aggregate purchase price and the transfer of the Shares by us to UPDA.



As of April 10, 2007, and prior to the closing of the Stock Sale, we had 4,673,701 shares of common stock issued and outstanding. As a result of theclosing of the Stock Sale on April 20, 2007, UPDA owned 5,063,176 of the 9,736,878 shares of our common stock that were outstanding after suchclosing. Therefore, as of April 20, 2007, UPDA owned 52% of our issued and outstanding common stock. The Stock Sale constituted a change ofcontrol transaction for us as UPDA owns a majority of our outstanding voting securities. Therefore, UPDA has the voting power to pass actionsrequiring shareholder approval and has the voting power to control the election of directors to our board of directors.On April 23, 2007, subsequent to the closing of the Stock Sale, 333,333 shares of common stock were issued to Energy Capital Solutions. Thecompany entered into a letter agreement with Energy Capital Solutions (ECS) on May 31, 2006, with a document date of May 30, 2006. Thecompany extended this agreement with a First Amendment dated January 29, 2007. Under the terms of these agreements, ECS was eligible to receive4% of the transaction proceeds in cash and 3% of the transactions proceeds in equity or Heartland stock according to the terms and timeline of thePotential Investor.The Company was obligated under a series of employment offering letters, issued well prior to UPDA's acquisition of control of the Companydescribed above, to provide severance pay to certain key employees for a six month period after a change in the control of the Company and amaterial change in position has occurred. These employment obligations totaled approximately $60,000. As of March 31, 2008 all of the obligationsunder these employment letters were paid.



19




Heartland Oil & Gas Corp.Financial Statement Notes


Note 8-Sale of Common Stock, Stock Options and Warrants (Continued)Unregistered Sales of Equity SecuritiesPursuant to the terms and conditions of the Note Purchase transaction whereby UPDA and Five Star acquired the Notes, the Registrant approved theissuance of an aggregate of 542,800 shares of its common stock to SDS and Baystar as part of the consideration in that transaction. Therefore, onJuly 27, 2007, the Registrant issued 373,446 shares of common stock to SDS and 169,354 shares to Baystar. The Company incurred a non-cashcharge, based on the trading price of its Common Stock on the date of issuance, for facilitation fees incurred to these former convertible debt holdersof $895,620 coincident to the change in control of the Company that resulted from UPDA's acquisition of 52% of the Company's common stock.The shares of common stock issued to SDS and Baystar are restricted shares and were issued in a transaction exempt from the registrationrequirements of the Securities Act of 1933, as amended (the "Securities Act") pursuant to Section 4(2) of the Securities Act and Rule 506 ofRegulation D there under and the Registrant affixed appropriate legends to the stock certificates so issued. The shares issued to SDS and Baystar aresubject to Rule 144 under the Securities Act and therefore generally cannot be resold for a period of twelve months from the date of issuance. Nogeneral solicitations were made in connection with the transaction, and prior to making any offer or sale, the Registrant had reasonable grounds tobelieve and believed that SDS and Baystar were capable of evaluating the merits and risks of the investment and were able to bear the economic riskof the investment.On July 31, 2007, the Company and Five Star, the holder of an aggregate of $1,729,000 of our outstanding Notes, agreed to amend the conversionterms of those Notes. Pursuant to the terms and conditions agreed to by the parties, the Company agreed to allow for the conversion of the Notes intoshares of the Company's common stock at their stated rate of $0.04 per common share. As a condition to this agreement, Five Star agreed that itcould not thereafter demand payment of the principal amount of the Notes in cash and agreed to not hold at any time more than 9.9% of theoutstanding common stock of the Company. Furthermore, Five Star agreed to invest a minimum of $2,500,000 in the Company through theacquisition of additional shares of the Company's common stock from the Company at prices equal to the closing price of the Company's commonstock on the day prior to purchase, or $.85 per share, whichever amount is greater. Five Star agreed to forego the repayment of the Notes in cash andto invest the additional $2,500,000 in exchange for the Company's agreement to maintain the $.04 per share conversion price of the Notes after theeffective date of the 1 for 10 July 25, 2007 reverse stock split.As a result, the Notes held by Five Star remained convertible into 43,225,000 of our common stock after the effective date of the 1 for 10 July 25,2007 reverse stock split. Five Star agreed to make this additional investment in the Company by or before December 31, 2007. Five Star has not asyet invested any of the $2,500,000 it is required to invest per the amended terms of the Notes.On September 26, 2007, the Company and UPDA agreed to revise the terms of the Notes held by UPDA. Pursuant to the revised terms, UPDAagreed to convert the entire $4,756,000 face amount of Notes held by them into 4,756,000 shares of our newly created Series B Convertible PreferredStock.The above transactions are recordable as conversions of debt instruments into equity instruments in accordance with EITF No. 06-6, entitled"Debtor's Accounting for a Modification (or Exchange) of Convertible Debt Instruments." The difference in shares received as consideration versusthe pre-split share amounts (for Five Star: 43,225,000 shares versus 4,322,500 shares, and for UPDA: 118,900,000 versus 11,890,000 shares ofcommon stock, assuming full conversion of UPDA's preferred shares) multiplied by the July 25, 2007 post-split value of $1.40 per share amounts to$204,277,500 (Five Star: $54,463,500; and UPDA: $148,814,000). Under EITF 06-6 this amount would normally be required to be recorded in theCompany's Financial Statements as a charge in the Statement of Operations as interest expense, with a corresponding credit to additional paid-incapital. However, EITF No. 98-5, entitled"Accounting for Convertible Securities with Beneficial Conversion Feature or Contingently AdjustableConversion Rations," further limits the amount to be recorded to the consideration received by the Company. Five Star purchased its $1,729,000 inface amount of Notes directly from SDS and Bay Star. The Company received no fresh cash proceeds from the transfer of these Notes from SDS andBay Star to Five Star. The Company also received no fresh cash proceeds from the transfer of $4,756,000 in face amount of Notes from SDS and BayStar to UPDA.





20




Heartland Oil & Gas Corp.Financial Statement Notes


Note 8-Sale of Common Stock, Stock Options and Warrants (cont.)Unregistered Sales of Equity Securities (cont.)Accordingly, since the Company received no fresh proceeds from either Five Star or UPDA from the transfer of the Notes to these entities, theCompany has no amounts to be recorded for interest expense and a corresponding credit to additional paid-in capital related to these transactions.During the third quarter of 2007, Five Star presented $1,729,000 in face amount of Notes to the Company for conversion into 43,225,000 shares ofcommon stock. Pursuant to the terms of the agreement described above, the Company issued 19,025,000 shares of its common stock to Five Star in2007.  During the quarter ended March 31, 2008, the Company issued Five Star an additional 12,500,000 shares of common stock, with theremaining 11,700,000 shares to be issued in the future. The shares of common stock issued to Five Star are restricted shares and were issued in atransaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof and Rule 506 of Regulation D thereunder. The shares issued to Five Star are subject to Rule 144 under the Securities Act and therefore generally cannot be resold for a period of twelvemonths from the date of issuance. However, the outstanding Notes of the Registrant converted by Five Star have been fully paid and outstanding for aperiod in excess of two years from the date of their issuance by the Registrant. No additional consideration is payable upon the conversion of theNotes to shares of our common stock. While the shares of common stock to be issued upon conversion of the Notes are restricted shares, the holdersof the shares issued upon conversion may request the removal of any restrictive legends that would be attached thereto in accordance with theprovisions of Rule 144(k) under the Securities Act of 1933, as amended. The removal of any restrictive legends from the shares of common stockissued on conversion of the Notes will be dictated by the provisions of Rule 144(k).Designation and issuance of our Series B Convertible Preferred SharesOn September 26, 2007, the Company and UPDA agreed to revise the terms of the Notes held by UPDA. Pursuant to the revised terms, UPDAagreed to convert the entire $4,756,000 face amount of the Notes held by them into 4,756,000 shares of our newly created Series B ConvertiblePreferred stock. Therefore, the conversion rate of the Notes converted by UPDA was one share of Series B preferred stock for each one dollar ofNotes converted. The 4,756,000 shares of Series B Convertible Preferred Stock were issued to UPDA on September 30, 2007 and all of the Notesheld by UPDA were surrendered to the Company for cancellation. The shares of Series B Convertible Preferred Stock held by UPDA are convertiblein to 118,900,000 shares of the Company's common stock and UPDA has the right to vote the shares of Series B Preferred stock on an "asconverted" basis in any matters for which the holders of our common stock are entitled to vote.Pursuant to the Certificate of Designations, Preferences and Rights for Series B Convertible Preferred Stock filed by the Company, the Companyauthorized 5,000,000 shares of Series B Convertible Preferred Stock, par value $0.001 per share, for issuance. Each share of the Series B ConvertiblePreferred Stock is convertible into twenty-five (25) shares of the Company's common stock. Each share of the Series B Convertible Preferred Stockhas a liquidation preference over our common stock up to a maximum of one (1) dollar per preferred share. The shares of Series B ConvertiblePreferred Stock have the right to vote on an "as converted" basis in any matters for which the holders of our common stock are entitled to vote.Company common shares issued to accommodate Catlin asset purchase from third partiesOn July 1, 2007, Catlin Oil and Gas Inc. entered a Purchase and Sale Agreement with Jilpetco Inc., Petro Pro, PKC Energy and Jed Miesner for theacquisition of the Palo Pinto Assets. The purchase price was $3,600,000 together with 12,500,000 shares of UPDA restricted common stock and4,000,000 restricted shares of  the Company's common stock. The number of shares of UPDA common ctock and the number of shares of theCompany's common stock issued was adjusted as of the date of closing to reflect a total payment of $800,000 in UPDA common stock and $400,000in the Company's common stock. The Company's shares were issued on September 14, 2007 in exchange for a long-term promissory note receivablefrom Catlin for $400,000. See "Note 4-Related Party Notes Receivable" above for a description of the Catlin note receivable.The Palo Pinto Assets were subsequently transferred from Catlin to the Company as described in Note 5 above.

21




Heartland Oil & Gas Corp.Financial Statement Notes


Note 8-Sale of Common Stock, Stock Options and Warrants (cont.)Changes to Our Board of DirectorsOn January 28, 2008, the Company and the Company's CEO Steven A. Fall mutually agreed to his resignation from all the positions held by Mr. Fallin the Company. On the same day, Mr. Fall also entered into an Agreement and General Release ("Agreement") with the Company whereas theCompany accepted the resignation of Mr. Fall as Chief Executive Officer, President and a director of the Company on February 1, 2008, thetermination date. In the Agreement the Company agreed that for a period up to and including March 31, 2008, it shall continue to pay Mr. Fall'ssalary, and his medical and dental insurance premiums. The Company also agreed to pay $16,000 to Mr. Fall, subject to his giving his best effort tocontinue to assist the Company as necessary in the completion of any and all reports as required by the SEC and /or other governmental entities orregulatory bodies.



22






Heartland Oil & Gas Corp.Financial Statement Notes


Note 9-Income TaxAt March 31, 2008, we had approximately $47,744,000 in pretax US federal and state net operating loss carryforwards, expiring through 2028. Weincurred portions of such net operating loss carryforwards prior to September 17, 2002, our reverse acquisition date. As such, we anticipatelimitations to the use of these carryforwards under Internal Revenue Code Section 382. We provide for deferred tax arising from temporarydifferences in the book and tax carrying amounts of assets and liabilities. Temporary differences arise primarily from differences in reporting stock-based compensation, intangible drilling and completion cost and oil and gas impairment expense. We have fully reserved the deferred tax assets thatarise from such operating loss carryforwards and temporary differences of approximately $18,382,000 at March 31, 2008, in the accompanyingfinancial statements as follows.

March 31, 2008Net operating loss deduction

$
18,382,000Valuation Allowance

(18,382,000)Net Deferred Tax Asset

$
-


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




March 31, 2008Federal statutory tax rate


34.00%State Tax Rate


4.50%Effective Tax Rate


38.50%Valuation Allowance


-38.50%Net Effective Tax Rate


-


Note 10-Other Related Party TransactionsUPDA Relationship to Former and Current Convertible Debt Holders of the CompanyOn April 6, 2007 UPDA entered into a Loan Agreement with Sheridan Asset Management ("Sheridan") in which Sheridan agreed to lend theCompany $3,635,000 with an original issue discount of $908,750 based upon a 29.12% yield to maturity ("the Note"). The Company's use of the$2,726,250 net proceeds from the subscription amount was (a) $1,000,000 to acquire 52% of Heartland Oil and Gas's ("Heartland") outstandingcommon stock (the "Stock Sale"), (b) $1,500,000 for the note purchase transaction (the "Note Purchase"), $100,000 was used to pay the originatorfee to the lender and closing costs, and the remainder was used by Heartland for working capital. This note is pursuant to the loan agreement datedApril 6, 2007. The $3,635,000 note was to mature on April 6, 2008, but as discussed further below in this footnote it was not repaid by UPDA at itsmaturity date. As discussed below under "Secured Sheridan Borrowing By UPDA And Its Subsidiaries Under Second Loan Agreement WithRestrictive Covenant," on May 1, 2008, UPDA entered into a Forbearance Agreement with Sheridan, pursuant to which Sheridan agreed not toexercise its rights under the Loan Documents that would have arisen as a result of that Registrant's non-payment of the principal amount on April 6,2008.On April 6, 2007, UPDA issued Sheridan a warrant to purchase 2,234,382 fully paid and nonassessable shares of its common stock for an exerciseprice of $.5483, pursuant to the Loan Agreement dated April 6, 2007. The warrant expires on April 6, 2012.On April 6, 2007, in connection with UPDA's agreement with Sheridan, the Company and its subsidiaries have pledged all their assets to secure theamounts due to Sheridan. In addition, Kamal Abdallah, Chairman and CEO and Christopher McCauley, Secretary and a board member, haveprovided the lender with personal guarantees. The 5,063,176 shares of Heartland common stock that are now owned by UPDA have also beenpledged as collateral for the amounts due to Sheridan.On April 20, 2007 UPDA closed the Note Purchase with SDS Capital Group and Bay Star Capital (together the "Sellers") in which UPDA purchased$4,756,000 in outstanding promissory notes of Heartland for an aggregate purchase price of $1,500,000 and 26,260,504 restricted shares of commonstock of UPDA. During April 2007, UPDA issued the 26,260,504 shares of its common stock to SDS Capital and Bay Star Capital.

23




Heartland Oil & Gas Corp.Financial Statement Notes


Note 10-Other Related Party Transactions (cont.)UPDA Relationship to Former and Current Convertible Debt Holders of the Company (cont.)Five Star currently holds 165 shares of UPDA's Class B Convertible Preferred Stock convertible into 3,300,000 shares of Common Stock of UPDA.



Readers of the Company's current consolidated financial statements herein should consult the most recent Form 10QSB and 10KSB on file with theSEC for a better understanding of the Company's current financial status.Secured Sheridan Borrowing By UPDA And Its Subsidiaries Under Second Loan Agreement With Restrictive Covenant.On August 16, 2007, UPDA and its UPDA-O, Heartland, Catlin, Canyon Creek, and Aztec subsidiaries entered into a second Loan Agreement withSheridan (the "Holder") for $3,250,000. The proceeds of the loan were used by UPDA's wholly owned subsidiary, Catlin Oil & Gas, Inc., tocomplete the Palo Pinto acquisition. UPDA was the primary borrower under the terms and conditions of this Loan Agreement. The Companyexecuted a Subsidiary Guarantee and Security Agreement in connection with this loan.The outstanding Principal Amount under the Loan shall be due and payable by UPDA, in thirty-six (36) consecutive equal installments in the amountof $90,278, due on each Settlement Date. UPDA shall pay interest on the unpaid Principal Amount of the Loan, from August 15, 2007 until suchprincipal amount shall be paid in full, at the rate of 15% per annum. In addition to the 15% per annum interest payable by UPDA to the Holder,UPDA shall pay to the Holder interest at the rate of 5% per annum, on the principal amount outstanding from time to time hereunder ("PIKAmount") on the Maturity Date. Kamal Abdallah, Chairman and CEO and Christopher McCauley, a Director and Secretary have provided the lenderwith personal guarantees.The Senior Secured Promissory Note dated August 16, 2007 under this second loan agreement contains certain negative covenants to be met byUPDA and the Company, which include: limitations on dividends and distribution and repurchase of Company common stock other than distributionto the Company by its wholly owned subsidiary; limits on sale, transfer and disposal of Company assets except for sale by UPDA of the Palo Pintoand other Catlin assets to the Company pursuant to the terms of a purchase agreement; issuance of more than $250,000 in fair value at any time incommon stock or securities exchangeable for, convertible into or exercisable for common stock of the Company; incur any capital expense in excessof $500,000; consummate any merger or acquisition except on terms satisfactory to Sheridan; maintenance by the Company of a cash flow coverageratio (See Note 5) . The promissory note imposes certain negative covenants on the Company related to and requiring lender approval: merger oracquisition activities or management changes. Other covenants to be met by the Company include minimum net worth and earnings before interest,taxes and depreciation ("EBITDA"). The promissory note also contains provisions relating to change in Company control as well as minimum networth.At March 31, 2008, UPDA and its subsidiaries had aggregate debt due Sheridan under acquisition related term and revolving notes payable of$5,847,067 excluding acquisition related notes payable that are owed at that date by UPDA's Continental Fuels Inc. subsidiary of $4,130,983 toSheridan that require separate loan compliances by Continental.  The secured Sheridan borrowings by Continental and matters relating to loan itsloan compliance thereof are described in detail in Note 14.Pursuant to the above, on May 1, 2008, UPDA entered into a Forbearance Agreement with Sheridan, pursuant to which Sheridan agreed not toexercise its rights under the Loan Documents, for the $3,635,000 note payable discussed above, that would have arisen as a result of that Registrant'snon-payment of the principal amount on April 6, 2008.  Pursuant to the Forbearance Agreement, Sheridan agreed to extend the due date of the TermLoan to November 1, 2008, as long as UPDA continues to satisfy the terms and conditions of that agreement. Among other things, the ForbearanceAgreement required the borrower, UPDA, to pay Sheridan accrued interest of $50,347 outstanding at April 30, 2008, and to pay accrued and unpaidinterest outstanding on the note on the first day of each calendar month during the Forbearance Term commencing on June 1, 2008. The agreementalso requires the borrower to pay $100,000 a month towards principals on the first day of each calendar month during the Forbearance Termcommencing on June 1, 2008. In addition the borrower is required to pay a Forbearance fee of $500,000 on November 1, 2008. Interest accruableunder the Forbearance Agreement is chargeable at a rate of 20% per annum. Finally, the borrower required to demonstrate to the lender timelyfulfillment of oil and gas production milestone established in a schedule made part of the agreements.

24




Heartland Oil & Gas Corp.Financial Statement Notes


Note 11 - Commitments and ContingenciesLease AgreementsOn December 14, 2007, UPDA entered into a Lease Termination Agreement (the "Agreement") with R. M. Crowe Property Management, LP (the"Landlord") to terminate of the lease on the office space located in Suite 285 of 12603 Southwest Freeway Building, Stafford, Texas 77477. On thatsame day, we entered into an Office Lease (the "Lease") with the same Landlord on new office space in the same building. The new Lease is forspace in the building consisting of approximately 4,744 rentable square feet, commonly referred to as Suite 420. The Lease has a term of fifty-eightmonths, beginning on January 1, 2008.Lease Agreements (cont.)Under the above lease agreement, at March 31, 2008 the Company's future commitments are as follows:

Years Ending March 31,

Amounts2009
$
85,3922010

85,3922011

85,3922012

85,3922013 and after

49,812$
391,380




Note 12 -Litigation - Dispute Concerning Location of Company CompressorOn September 6, 2007, the Company's Motion for Conversion to Chapter 60 and for Trial Continuance came on for hearing in the District Court ofMiami County, Kansas and was granted. The trial scheduled for September 6, 2007 was rescheduled. This is an action file by plaintiffs seeking toevict Heartland from the land on which its compressor is located in Kansas. In consideration of this on-going case in Kansas, the Company hasalready located a new site to which the Company can move these facilities at nominal expenses should that becomes necessary.On March 27, 2008, a former employee filed a petition against Heartland Oil & Gas Corporation, a wholly owned subsidiary of the Company,alleging that it had breached its employment contract with him.  In addition to attorneys' fees, the former employee is seeking $99,650, which isderived from the remainder of his base salary, his annual cash bonus and his out of pocket expenses.  Heartland believes the suit is without merit andintends to vigorously defend itself.  Toward that end, the Company filed an answer denying the allegations asserted in the suit.Beginning March 31, 2008, a three day court trial was conducted relative to the Kansas litigation regarding the action filed by plaintiffs seeking toevict the Company from the land on which its compressor is located in Kansas. During the trial, the Court reviewed evidence and heard testimonyfrom various witnesses and made rulings on several legal issues. At the conclusion of the trial, the Court directed counsel for each of the parties tosubmit proposed findings of fact and conclusions of law by or before April 23, 2008, after which time the Court will render its final decision on thecase.  No final decision by the Court has as yet been rendered.Note 13- Sale of Royalty Interest/LeasesOn January 10, 2008, the Company entered into a sale of certain interest in leases in Nemaha County, Kansas with Noble Petroleum, Inc. for total of$27,200 based on $10 per acre for the leases. The Company also retains and expects a one thirty second (1/32) over-riding royalty interest of oil, gasand mineral revenues which the Company leases to Noble Petroleum, Inc. The Company's cost of these leases had been written off in a prior year.

25




Heartland Oil & Gas Corp.Financial Statement Notes


Note 14- Subsequent EventsSecured Sheridan Borrowing by Continental Subsidiary of UPDA Under Loan Agreement with Restrictive Covenants.As discussed in Note 10, above, as of May 1, 2008, UPDA entered into a Forbearance Agreement with Sheridan, pursuant to which Sheridan agreednot to exercise its rights under the Loan Documents that would have arisen as a result of the Registrant's non-payment of the principal amount onApril 6, 2008.  Pursuant to the Forbearance Agreement, Sheridan agreed to extend the due date of the Term Loan to November 1, 2008, as long asUPDA continues to satisfy the terms and conditions of that agreement.

26






Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations


This discussion reports material changes from December 31, 2007 through March 31, 2008, as well as other information. We encourage the reader toalso read Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-KSB for theperiod ended December 31, 2007. Factors that could cause or contribute to such difference include, but are not limited to; those discussed below andelsewhere in this quarterly report, particularly in the section entitled "Risks Related To Our Business".Forward Looking StatementsThis quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Thesestatements relate to future events or to our future financial performance. In some cases, you can identify forward-looking statements by terminologysuch as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of theseterms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors,including the risks enumerated in the section entitled "Risk Factors", that may cause our actual results or the actual results in our industry, of ourlevels of activity, performance or achievement to be materially different from any future results, levels of activity, performance or achievementsexpressed 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-lookingstatements to conform these statements to actual results.Overview and OutlookHeartland Oil and Gas Corp. is engaged in the exploration, development, production and sales of coal bed methane from its approximately 645,000acre eastern Kansas leasehold position. The acreage is located in two areas in northeast Kansas, primarily in Linn and Miami Counties, located on thenorthern edge of the Cherokee basin, and the Forest City basin.Capital ExpendituresSubject to obtaining financing, we plan to spend approximately $15 million in capital expenditures in the next twelve months. See Liquidity andCapital Resources, below. These expenditures will be directed toward developing existing proved and probable reserves on the Cherokee basin,constructing additional pipelines, and evaluating new project areas. Approximately 90% of the capital budget is focused on attempting to convertprobable and possible reserves into proved reserves.We project that our capital program for the this year will allow us to create value by drilling 100 wells and installing 14.5 miles of transportationlines and associated facilities necessary to support the drilling program and to hook up currently stranded gas, compared to the 2007 program inwhich we drilled 21 wells. We have currently secured the necessary pipeline rights of way to achieve this program. Successes may also encourage theinitiation of additional discretionary projects.We are trying to obtain adequate financing so we can develop our Cherokee basin project into a nucleus for future growth. We cannot assure that wewill be able to obtain such financing. Without it, we will have to cease operations.Appraisal, Evaluation and Exploitation ActivitySince 2003, we have been active in assembling significant acreage positions which we believe are prospective for finding and developing commercialquantities of hydrocarbons.Development ActivityCherokee basinLancaster battery  The Lancaster battery includes 25 producing wells, one shut in well awaiting connection, one disposal well, and associatedproduction and water disposal facilities. The wells are drilled on 40 and 80 acre spacing. With the completion of the 5.5 mile gas gathering andprocessing plant in late 2006, we established production, proved reserves, and cash flow from our Lancaster battery. Lancaster is currently producing500 Mcfgpd.  Currently sales is approximately 380 Mcfgpd net of fuel gas, shrinkage, and carbon dioxide extraction.Beagle, Jake and Osawatomie batteries We are currently venting approximately 17 gross Mcfgpd from three other multi-well production batteries onthe Cherokee basin. Including Lancaster, each battery is separated by approximately three miles, and thus defines a potential project covering at least12 miles along the Cherokee basin. In August 2005 we drilled and completed two wells at Beagle and one well at Jake. In the second half of 2007 wehave drilled 11 more wells in the Jake battery. We intend to put these fourteen wells, along with five wells originally drilled and completed byEvergreen Resources (one at Beagle and four at Osawatomie) into production if we are able to access financing necessary to do so.We plan to invest approximately $15 million on the Cherokee basin. Of the $15 million, we expect $13 million will be directed toward a 100 well,160 acre development drilling program targeting shallow (600 to 800 foot drill depth) Pennsylvanian reservoirs of the Cherokee and MarmatonGroups and $2 million will be invested in pipelines and infrastructure necessary to support development drilling and to hook up stranded gas fromJake, Beagle, and Osawatomie batteries.

27








Results of Operations for the Three Months Ended March 31, 2008 and 2007.Revenue and operating expenseDuring the three months ended March 31, 2008 and 2007, we sold $521,982 and $110,520 of natural gas, earned $25,292 and $5,824 in compressionand transportation revenue, respectively. The increase in revenues was the result of the acquisition of Jack and Palo Pinto leases and increasedproduction from our leases.  The total volume for the three months ended March 31, 2008 and 2007 was 53,670 and 17,161 Mcf at an average priceof $9.24 and $6.44, respectively. Lease operating expenses and production tax were $319,669 and $74,522, respectively.Exploration expense, expired leases for the three months ended March 31, 2008 and 2007 was $429,806 and $23,159, respectively, an increase of$406,647. Depreciation, depletion and accretion expensefor the three months ended March 31, 2008 and 2007 was $167,110 and $97,923,respectively, an increase of $69,187. The increase in depreciation, depletion and accretion was a result of the acquisition of Jack and Palo Pintoleases and increased production from our leases.Share based compensation was none and $8,437 for the three months ended March 31, 2008 and 2007, respectively. The decrease of $8,437 occurredbecause no shares were issued for compensation in 2008.Salaries and related benefits was $173,343 and $134,379 for the three months ended March 31, 2008 and 2007, respectively.Other general and administrative expense for the three months ended March 31, 2008 and 2007 was $237,391 and $61,797, respectively, an increaseof $175,594 . This change was due in part to an increase in our legal and accounting fees. Legal and accounting fees were $96,598 for the threemonths ended March 31, 2008.Interest expense for the three months ended March 31, 2008 and 2007 was $92,577 and $6,296,446, respectively, a decrease of $6,203,869.  Thischange was due to the effect of the conversion of $6,300,000 of Preferred stock to convertible debt in the first quarter of 2007.Interest income for the three months ended March 31, 2008 and 2007 was $4,986 and $3, respectively.  The increase of $4,983 was due to interest onnotes receivable outstanding in 2008 that were not outstanding in 2007.Gain on sale of leases for the three months ended March 31, 2008 and 2007 was $27,200 and none, respectively.  The increase was due to the sale ofinterest in leases to Noble Petroleum, Inc in 2008.Loss on abandonment of fixed assets for the three months ended March 31, 2008 and 2007 was $6,816 and none, respectively.Net loss for the three months ended March 31, 2008 and 2007 was $847,252 and $6,580,316, respectively.  The decrease of $5,733,064 was mainlydue to the interest expense that resulted from the effect of the conversion of $6,300,000 of Preferred stock to convertible debt in the first quarter of2007.Operation PlanAssuming additional financing and the repayment or restructuring of our debt, for the next 12 months, we plan to sell gas from Lancaster, and seekfinancing necessary to initiate drilling operations and hook up currently venting wells at Jake, Beagle, and Osawatomie. Based on geologicalmapping, pipelines, and leasehold position, we have defined a 100 well drilling program on our acreage and have obtained substantially all of thepipeline right of ways required to build the gathering system to tie in both the 100 well programs and the currently venting gas to existing sales linesand processing facilities.We have no drilling obligations or commitments, and, except for regulatory requirements, all activity is discretionary.Liquidity and Capital ResourcesCash RequirementsThe Company has incurred recurring operating losses since its inception, and as of March 31, 2008 had an accumulated deficit of approximately$61,140,095 and had insufficient capital to fund all of its obligations. These conditions raise substantial doubt about the Company's ability tocontinue as a going concern. The financial statements do not include any adjustments to reflect the possible future effect of the recoverability andclassification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.Three months ended March 31, 2008 compared to the three months ended March 31, 2007.Operating ActivitiesAs shown in the consolidated financial statements, at March 31, 2008, the Company had cash on hand of $1,315, compared to $59,291 at March 31,2007. Net cash provided by operating activities was $212,515 for the three months ended March 31, 2008. We had a net loss of $847,252. We hadnon-cash charges that included $10,971 due to accretion of the asset retirement obligation, $6,816 loss on abandonment of fixed assets, $429,806 ofexploration expense for expired leases, $156,139 of depreciation, depletion or amortization, $4,986 of interest income related to the note receivablefrom Catlin, and $92,363 of interest expense resulting from various notes and loans payable. In addition, changes in operating assets and liabilitiestotaled $395,858 for the three months ended March 31, 2008.

28


Net cash used in operating activities was $60,927 for the three months ended March 31, 2007. We had a net loss of $6,580,316. We had non-cashcharges that included $6,416,446 of interest expense resulting from discount on notes arising from the exchange of preferred stock for convertibledebt, $92,949 of depreciation, depletion and amortization, $8,437 related to share based compensation, $23,159 of exploration expense for expiredleases and $4,974 of accretion of asset retirement obligation. In addition, changes in operating assets and liabilities totaled $26,576 for the threemonths ended March 31, 2007.Investing ActivitiesCash flows used in investing activities was $283,801 during the three months ended March 31, 2008. It primarily consisted of $92,217 for purchaseof pipeline and facilities, $177,179 of acquisition and exploration of oil and gas property, and $27,200 from proceeds from sale of oil and gas leases;less $41,605 advances made to parent entity and its UPDA-O subsidiary.Cash flows used in investing activities was $35,506 during the three months ended March 31, 2007. It primarily consisted of $30,018 of cashproceeds from the acquisition and exploration of oil and gas property and $5,488 for purchase of pipeline and facilities.Financing ActivitiesThe cash flows provided by financing activities of $71,282 during the three months ended March 31, 2008, consisted of $37,218 decrease in cashoverdraft, $108,500 from proceeds of loans from parent entity/company officer/shareholder.The cash flows provided by financing activities of $80,000 during the three months ended March 31, 2007, consisted of an $80,000 advance receivedfrom buyer on the sale of the majority interest in the Company.We had losses of $847,252 for the three months ended March 31, 2008.While we expect to raise the additional financing in the future, there can be no guarantee that we will be successful.We have no significant off-balance sheet arrangements.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk


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

Item 4.
Controls and Procedures


Evaluation of Disclosure Controls and ProceduresThe Company's Chief Executive Officer and acting Chief Financial Officer has evaluated the effectiveness of the Company's disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ending March 31, 2008 covered by thisquarterly report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and acting Chief Financial Officer has concluded that, as ofthe end of such period, the Company's disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) underthe Exchange Act. This conclusion by the Company's Chief Executive Officer and acting Chief Financial Officer does not relate to reporting periodsafter March 31, 2008.Management's Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accountingprinciples generally accepted in the United States of America.The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted inthe United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

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Management, under the supervision of the Company's Chief Executive Officer and acting Chief Financial Officer, conducted an evaluation of theeffectiveness of internal control over financial reporting based on the framework inInternal Control-Integrated Framework  issued by theCommittee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company's internalcontrol over financial reporting was not effective as of March 31, 2008 under the criteria set forth in the inInternal Control-Integrated Framework.A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonablepossibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timelybasis.   Management has determined that material weaknesses exist due to a lack of segregation of duties, resulting from the Company's limitedresources.This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control overfinancial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of theSEC that permit us to provide only management's report in this Quarterly Report on Form 10-Q.Changes in Internal Control Over Financial ReportingNo change in the Company's internal control over financial reporting occurred during the quarter ended March 31, 2008, that materially affected, oris reasonably likely to materially affect, the Company's internal control over financial reporting.Part II-Other Information

Item 1.
Legal Proceedings


On September 6, 2007, the Company's Motion for Conversion to Chapter 60 and for Trial Continuance came on for hearing in the District Court ofMiami County, Kansas and was granted. The trial scheduled for September 6, 2007 was rescheduled. This is an action file by plaintiffs seeking toevict Heartland from the land on which its compressor is located in Kansas. In consideration of this on-going case in Kansas, the Company hasalready located a new site to which the Company can move these facilities at nominal expenses should that becomes necessary.Beginning March 31, 2008, a three day court trial was conducted relative to the Kansas litigation regarding the action filed by plaintiffs seeking toevict the Company from the land on which its compressor is located in Kansas. During the trial, the Court reviewed evidence and heard testimonyfrom various witnesses and made rulings on several legal issues. At the conclusion of the trial, the Court directed counsel for each of the parties tosubmit proposed findings of fact and conclusions of law by or before April 23, 2008, after which time the Court will enter its final decision on thecase.On March 27, 2008, a former employee filed a petition against Heartland Oil & Gas Corporation, a wholly owned subsidiary of the Company,alleging that it had breached its employment contract with him.  In addition to attorneys' fees, the former employee is seeking $99,650, which isderived from the remainder of his base salary, his annual cash bonus and his out of pocket expenses.  Heartland believes the suit is without merit andintends to vigorously defend itself.  Toward that end, the Company filed an answer denying the allegations asserted in the suit.  As of April 9, 2008,there have been no material developments in this case.

Item 1A.
Risk Factors


Item 1A. "Risk Factors" of our Annual Report on Form 10-KSB for the year ended December 31, 2007 includes a detailed discussion of our riskfactors. There have been no significant changes to our risk factors as set forth in our 2007 Form 10-KSB.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.


On July 31, 2007, the Company and Five Star Partners, LLP ("Five Star"), the holder of an aggregate of $1,729,000 of our outstanding Notes, agreedto amend the conversion terms of those Notes. Pursuant to the terms and conditions agreed to by the parties, the Company agreed to allow for theconversion of the Notes into shares of the Company's common stock at their stated rate of $0.04 per common share.  Pursuant to this amendment, theNotes held by Five Star were convertible into an aggregate of 43,225,000 shares of the Company's common stock. During the 2007 fiscal year, theCompany issued an aggregate of 19,025,000 shares of common stock to Five Star pursuant to this conversion provision. During the fiscal quarterended March 31, 2008, the Company issued an additional 12,500,000 shares of common stock to Five Star pursuant to this conversion provision.The shares of common stock issued to Five Star, as described above, were restricted shares and cannot be resold unless they are subsequentlyregistered pursuant to the Securities Act of 1933, as amended, or such sale is pursuant to a valid exemption from such registration. The transactionsreferred to above did not involve an underwriter or placement agent and there were no underwriter's discounts or commissions, or placement agentfees or commissions, paid in connection with the transaction. The transactions referred to above were exempt transactions in accordance with theprovisions of Section 4(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering. We did notengage in any public solicitations in connection with the above transactions.

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Item 3.
Defaults Upon Senior Securities.


None.

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


None

Item 5.
Other Information.


None



Item 6.
Exhibits.ExhibitNumber
Description2.1
Purchase and Sale Agreement, entered into as of August 15, 2007, by and between Heartland Oil and Gas Corp., a Nevada corporation, as the purchaser and Universal Property Development and Acquisition Corporation, a Nevada corporation and Catlin Oil & Gas, Inc., its subsidiary, as the Sellers.  Incorporated by reference to Exhibit 2.1 to our Form 8-K filed with the Securities and Exchange Commission on March 7, 2008.3.1
Articles of Incorporation. Incorporated by reference to our Form SB-2 Registration Statement filed with the Securities and Exchange Commission on October 23, 2001.3.2
Amended and Restated Bylaws. Incorporated by reference to our current report on Form 8-K filed with the Securities and Exchange Commission on March 24, 2006.3.3
Certificate of Amendment to Articles of Incorporation effective November 4, 2002. Incorporated by reference to our Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2002.3.4
Certificate of Amendment to Articles of Incorporation effective December 10, 2003. Incorporated by reference to our Form SB-2 Registration Statement filed with the Securities and Exchange Commission on November 15, 2004.3.5
Certificate of Designation for shares of Series A Convertible Preferred Stock, effective December 18, 2003. Incorporated by reference to our Form SB-2 Registration Statement filed with the Securities and Exchange Commission on February 17, 2004.3.6
Certificate of Designation for shares of Series B Convertible Preferred Stock, effective September 26, 2007.  Incorporated by reference to Exhibit 4.1 to our Form 8-K filed with the Securities and Exchange Commission on October 11, 2007.4.1
2005 Stock Option Plan. Incorporated by reference to our Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2005.10.1
Form of Oil and Gas Lease. Incorporated by reference to our Form 10-KSB filed with the Securities and Exchange Commission on April 1, 2003.10.2
Stock Purchase Agreement, entered into as of April 19, 2007, by and between Heartland Oil and Gas, Corp., a Nevada corporation and Universal Property Development & Acquisition Corporation, a Nevada corporation. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed with the Securities and Exchange Commission on April 23, 2007.10.3
Form of Oil and Gas Lease with Option. Incorporated by reference to our Form 10-KSB/A filed with the Securities and Exchange Commission on October 22, 2003.10.4
Promissory Note of Heartland Oil and Gas Corp., a Nevada corporation, in the principal amount of $3,635,000. Incorporated by reference to Exhibit 10.1 to our Form 8-K filed with the Securities and Exchange Commission on March 7, 2008.10.5
Promissory Note of Heartland Oil and Gas Corp., a Nevada corporation, in the principal amount of $3,250,000. Incorporated by reference to Exhibit 10.2 to our Form 8-K filed with the Securities and Exchange Commission on March 7, 2008.10.6
Amended and Restated Security Agreement, dated as of August 16, 2007, by and between Universal Property Development and Acquisition Corporation, a Nevada corporation, each of its subsidiaries, Kamal Abdallah, Christopher McCauley and Sheridan Asset Management, LLC, a Delaware limited liability company. Incorporated by reference to Exhibit 10.6 to our Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2008.




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10.7
Amended and Restated Subsidiary Guarantee, dated as of August 16, 2007, in favor of Sheridan Asset Management LLC, as executed by each of the subsidiaries of Universal Property Development and Acquisition Corporation, a Nevada corporation. Incorporated by reference to Exhibit 10.7 to our Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2008.10.8
Form of Common Stock Purchase Warrant, with an issue date of August 17, 2007, for the purchase of 937,140 shares of the common stock of HTOG issued to Sheridan Asset Management, LLC, a Delaware limited liability company. Incorporated by reference to Exhibit 10.8 to our Form 10-KSB filed with the Securities and Exchange Commission on April 15, 2008.10.9 #
Master Service Agreement between Heartland Oil and Gas Corp. and Aztec Well Services Inc. dated March 1, 2008.10.10 #
Lease Operating Agreement between Heartland Oil and Gas Corp. and Aztec Well Services Inc. dated March 1, 2008.21.1#
List of Subsidiaries.31.1 #*
Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2 #*
Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1 #*
Certificate of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 #*
Certificate of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


____________________________

#
Filed herewith.*
This certification "accompanies" this Quarterly Report, is not deemed filed with the SEC and is not to be incorporated by reference into any of our filings 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-K), 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 theundersigned authorized officer.

HEARTLAND OIL AND GAS CORP.(Registrant)Date: May 20, 2008

/S/    Kamal AbdallahKamal AbdallahChief Executive Officer and President




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