Heartland Oil & Gas 10QSB 2003 Q2 Quarterly report (small business)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMarch 31, 2003

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period

Commission file number000-32669

HEARTLAND OIL AND GAS CORP.
(Exact name of small business issuer as specified in its charter)

Nevada
(State or other jurisdiction of incorporation or organization) 91-1918326
(I.R.S. Employer Identification No.)

Suite 1500, 885 West Georgia Street
Vancouver, British Columbia, Canada V6C 3E8
(Address of principal executive offices)

604.693.0177

(Issuer's telephone number)

Suite 500, 231 Water Street
Vancouver, British Columbia, Canada V6B 1B8
(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes [X]     No [ ]

 2

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.     Yes [ ]     No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

20,212,429 common shares outstanding as at May 5, 2003

Transitional Small Business Disclosure Format (Check one):      Yes [X]     No [ ]

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

Our unaudited financial statements as of March 31, 2003 and for the three month periods ended March 31, 2003 and 2002 form part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.

DISCLOSURE

To: The Shareholders of Heartland Oil and Gas Corp.

It is the opinion of management that the interim financial statements for the quarter ended March 31, 2003 include all adjustments necessary in order to ensure that the financial statements are not misleading.

Vancouver, British Columbia
Date: May 15, 2003

Per: /s/ Richard Coglon
Richard Coglon
President and Director of Heartland Oil and Gas Corp.

3

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARY
(formerly Adriatic Holdings Limited)
(A Development Stage Company)

BALANCE SHEETS

		March 31, 2003 (Unaudited)		December 31, 2002 (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	872,841	$	86,475
Prepaid expenses		15,204		4,341
Total current assets		888,045		90,816
OIL AND GAS PROPERTIES, unproven (Note 2)		2,187,020		2,150,084
EQUIPMENT, net of accumulated depreciation of $423		5,629		3,041
TOTAL ASSETS	$	3,080,694	$	2,243,941
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	46,821	$	64,256
Due to related parties (Note 5)		20,951		14,078
Convertible debentures (Note 5)		442,508		435,000
Total current liabilities		510,280		513,334
LONG-TERM DEBT
Convertible debenture - related party (Note 5)		239,238		235,399
TOTAL LIABILITIES		749,518		748,733
SHAREHOLDERS' EQUITY(Note 3)
Common stock - $0.001 per value, 100,000,000 shares authorized,
20,272,429 and 19,582,429 shares issued and outstanding, respectively		20,272		19,582
Additional paid-in capital		2,923,481		1,957,771
Deficit accumulated during the development		(612,577)		(482,145)
		2,331,176		1,495,208
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	3,080,694	$	2,243,941

The accompanying notes are an integral part of these statements

SEE ACCOMPANYING NOTES

4

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARY
(formerly Adriatic Holdings Limited)
(A Development Stage Company)

STATEMENTS OF OPERATIONS

		Three Months Ended March 31, 2003 (Unaudited)		Three Months Ended March 31, 2002 (Audited)		Period from Inception (August 11, 2000) Through March 31, 2003 (Unaudited)
REVENUE	$	-	$	-	$	-
EXPENSES
Professional fees		42,039		15,905		120,961
Management fees (Note 5)		11,000		6,000		57,000
Interest expense		3,839		11,567		48,646
Stock based compensation		-		-		219,600
Travel and promotion		24,615		-		54,504
Office rent		6,707		-		6,707
Consulting (Note 5)		8,253		6,954		39,935
General and administrative		33,979		7,354		66,579
Total operating expenses		130,432		47,780		613,932
Loss from operations		(130,432)		(47,780)		(613,932)
OTHER INCOME
Interest income		-		170		1,355
NET LOSS	$	(130,432)	$	(47,610)	$	(612,577)
BASIC AND DILUTED NET LOSS
PER COMMON SHARE	$	(0.01)	$	(0.01)
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARE OUTSTANDING		19,685,873		11,332,429
*Less than $0.01 per share

The accompanying notes are an integral part of these statements

SEE ACCOMPANYING NOTES

 5

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARY
(formerly Adriatic Holdings Limited)
(A Development Stage Company)

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

PERIOD FROM INCEPTION (AUGUST 11, 2000) TO MARCH 31, 2003

		Common Shares		Stock Amount		Additional Paid-in Capital		Deficit Accumulated During the Development Stage
INCEPTION, August 11, 2000	$	-	$	-	$	-	$	-
Common stock issued at $0.005 per share		10,000,000		10,000		10,000		-
Common stock issued at $0.35 per share		1,332,429		1,332		465,018		-
Net loss		-		-		-		(10,004)
BALANCES, December 31, 2000		11,332,429		11,332		505,018		(53,591)
Net loss		-		-		-		(43,587)
BALANCES, December 31, 2001		11,332,429		11,332		505,018		(53,591)
Common stock issued at $0.50 per share		880,000		880		439,120		-
Recapitalization (Note 1)		7,090,000		7,090		402,313		-
Common stock issued at $1.40 per share		280,000		280		391,720		-
Issuance of stock
warrants as compensation		-		-		219,600		-
Net loss		-		-		-		(428,554)
BALANCES, December 31, 2002		19,582,429		19,582		1,957,771		(482,145)
Common stock issued at $1.40 per share		690,000		690		965,710		-
Net loss		-		-		-		(130,432)
BALANCES, March 31, 2003	$	20,272,429	$	20,272	$	2,923,481	$	(612,577)

The accompanying notes are an integral part of these statements.

SEE ACCOMPANYING NOTES

6

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARY
(formerly Adriatic Holdings Limited)
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended March 31, 2003 (Unaudited)		Three Months Ended March 31, 2002 (Audited)		Period from Inception (August 11, 2000) Through March 31, 2003 (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(130,432)	$	(47,610)	$	(612,577)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Accrued interest		11,348		11,150		25,237
Stock options issued as compensation		-		-		219,600
Depreciation, depletion and amortization		364		-		423
Decrease (increase) in exploration advance		-		6,719		-
Increase in prepaid expenses		(10,864)		(2,078)		(15,180)
(Decrease) increase in accounts payable
and accrued expenses		(17,435)		(109,766)		46,821
Net cash (used in) provided by operating activities		(147,019)		(141,585)		(335,676)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment		(2,952)		-		(6,052)
Acquisition and exploration of oil and gas properties		(36,936)		(104,258)		(2,187,020)
Net cash (used in) provided by investing activities		(39,888)		(104,258)		(2,193,072)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in due to related parties		6,873		3,000		242,431
Recapitalization, net of $15,896 cash received		-		-		393,808
Proceeds from notes and loan payable		-		70,000		-
Repayment of loan payable		-		(50,000)		-
Proceeds from issuance of common stock		476,400		-		1,824,750
Proceeds from share subscriptions		490,000		390,000		490,000
Proceeds from long-term debt		-		-		450,600
Net cash (used in) provided by financing activities		973,273		413,000		3,401,589
NET INCREASE (DECREASE) IN CASH		786,366		167,157		872,841
CASH, beginning of period		86,475		10,755		-
CASH, beginning of period	$	872,841	$	177,912	$	872,841

The accompanying notes are an integral part of these statements

7 

SEE ACCOMPANYING NOTES

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARIES
(formerly Adriatic Holdings Limited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization, Business and Going Concern

On April 10, 2002, Adriatic Holdings Limited ("Adriatic") entered into a letter of intent to acquire all of the shares of Heartland Oil and Gas Inc., a Nevada corporation ("Heartland"). Heartland was incorporated in the State of Nevada on August 11, 2000 and its principal business activity consists of exploration and development of oil and gas properties in the United States to determine whether they contain economically recoverable resources. The Company is currently in the development stage and has not generated significant revenues from its operations. Effective September 17, 2002, the acquisition of Heartland by Adriatic was completed through the issuance of one share of Adriatic common stock for each share of Heartland outstanding. At the time of the acquisition, Adriatic had 7,240,000 shares of common stock outstanding. Adriatic issued 12,212,429 shares of common stock to the shareholders of Heartland, and as a result, the Company had 19,452,429 shares of common stock outstan ding immediately after the acquisition. As part of the exchange agreement, Adriatic changed its name to Heartland Oil & Gas Corp.

The consolidated financial statements include the accounts of Adriatic since the date of the reverse acquisition (September 17, 2002) and the historical accounts of its wholly owned subsidiary, Heartland Oil and Gas Inc. (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has accumulated a deficit at March 31, 2003 of $612,577. The ability of the Company to continue operations is contingent upon attaining profitable operations and obtaining additional debt and/or equity capital to fund its operations. In September 2002, the Board of Directors approved a private offering of common stock of up to 2,000,000 units (each unit consisting of one warrant and one share of common stock) at a price of $1.40 per unit, for proceeds of up to $2,800,000.

Since the September 25, 2002 announcement of a "Regulation S" private placement of 2,000,000 units, the company has issued 690,000 shares at $1.40 for gross proceeds of $966,000.

Subsequent to the quarter ended March 31, 2003, Heartland announced on April 16, 2003 that it has closed its earlier announced Reg S offering of 1,000,000 units at $1.50 per unit for total gross proceeds of $1,400,000. Proceeds from the offering are being used to advance the drilling of the Company's already initiated first five well pilot project, to acquire additional acreage and for general working capital

Basis of Presentation

The accompanying consolidated financial statements of the Company are unaudited and include, in the opinion of management, all normal recurring adjustments necessary to present fairly the consolidated balance sheet as of March 31, 2003, and the related statements of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These consolidated financial statements should be read in conjunction with Heartland's audited financial statements and the related notes thereto included in the Company's Form 10-KSB filed with the Commission on March 29, 2003.

8

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARIES
(formerly Adriatic Holdings Limited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1 -ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES(continued)

Oil and Gas Properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Under this method, all costs of acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, geological expenditures, tangible and intangible development costs and direct internal costs, are capitalized as incurred. As of March 31, 2003, the Company has no properties with proven and probable reserves. Should the Company have properties with proven reserves, the cost of these oil and gas properties will be depleted and charged to operations using the unit-of-production method based on the ratio of current production to proved oil and gas reserves as estimated by independent engineering consultants.

Costs directly associated with the acquisition and evaluation of unproved properties are excluded from the depletion computation until it is determined whether or not proved reserves can be assigned to the properties or whether impairment has occurred. If the results of a quarterly assessment indicate that the properties are impaired, the amount of the impairment along with the costs of drilling exploratory dry holes and geological and geophysical costs that cannot be directly associated with specific unevaluated properties are charged to operations for the period. The Company has not recorded any impairment charges through March 31, 2003. Should the Company have properties with proven reserves, the costs are added to the capitalized costs subject to depletion.

Internal costs not directly associated with acquisition, exploration and development activities are expensed as incurred. No internal costs are capitalized as of March 31, 2003.

Cash Equivalents

For purposes of the statement of cash flows, the Company considers cash held at banks and all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted the disclosure only provisions of SFAS 123. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock.

 9

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARIES
(formerly Adriatic Holdings Limited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES(continued)

Stock-Based Compensation

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services".

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset.

Advertising Costs

Advertising costs are expensed as incurred.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management believes that the estimates utilized in the preparation of the consolidated financial statements are prudent and reasonable. Actual results could differ from these estimates.

10

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARIES
(formerly Adriatic Holdings Limited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES(continued)

Fair Value of Financial Instruments

Substantially all of the Company's assets and liabilities are carried at fair value or contracted amounts that approximate fair value. Estimates of fair value are made at a specific point in time, based on relative market information and information about the financial instrument, specifically, the value of the underlying financial instrument. Assets that are recorded at fair value consist largely of cash and other assets, which are carried at contracted amounts that approximate fair value. Oil and gas properties are valued as discussed above. The Company's liabilities consist of short term liabilities and notes payable recorded at contracted amounts that approximate fair value.

Net Loss Per Share of Common Stock

Net loss per share of common stock is based on the weighted average number of shares of common stock outstanding, giving effect to the outstanding shares of Adriatic as if they were issued on the date of the reverse acquisition as discussed above. Common stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive.

Recent Accounting Pronouncements

In June 2001, the FASB issued Statement of Financial Accounting Standard No. 141 ("SFAS 141"), "Business Combinations" and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 requires all business combinations to be accounted for using the purchase method of accounting and is effective for all business combinations initiated after June 30, 2001. SFAS 142 requires goodwill to be tested for impairment under certain circumstances, and written off when impaired, rather than being amortized as previous standards required. SFAS 142 is effective for fiscal years beginning after December 15, 2001, with early application permitted for companies with fiscal years beginning after March 15, 2001, provided that the first interim period financial statements have not been previously issued. The adoption of SFAS 141 and 142 did not have an effect on the Company's financial position or results of operations.

In August 2001, the FASB issued Statement of Financial Accounting Standard No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement removes goodwill from the scope of SFAS 121, and requires long-lived assets to be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 144 did not have an effect on the Company's financial position or results of operations.

11

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARIES
(formerly Adriatic Holdings Limited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 2 - OIL AND GAS PROPERTIES, UNPROVED

The total costs incurred and excluded from amortization are summarized as follows:

		Acquisition Costs		Exploration Costs		Total
Costs incurred during periods ended:
March 31, 2003	$	29,724	$	7,212	$	36,936
December 31, 2002		917,003		-		917,003
December 31, 2001		506,253		591,875		1,098,128
December 31, 2000		110,000		24,953		134,953
Totals	$	1,562,980	$	624,040	$	2,187,020

NOTE 3 - SHAREHOLDERS' EQUITY

On September 11, 2000, the Company completed a private placement of 10,000,000 common shares at a price of $0.005 per share for proceeds of $50,000. On October 20, 2000 and November 21, 2000 the Company completed additional private placements of 356,429 and 976,000 common shares at $0.35 per share for proceeds of $466,350.

In April 2002, prior to the reverse acquisition with Adriatic (see Note 1), the Company completed a private placement of 880,000 shares of common stock at $0.50 per share for proceeds of $440,000. On September 17, 2002, the Company completed its reverse acquisition with Adriatic by Adriatic issuing 12,212,429 to the shareholders of Heartland.

In October 2002, the Company commenced a private placement of units (one common share and one common stock purchase warrant exercisable at a price of $1.75 per share until August 31, 2004) at a price of $1.40 per unit. As of December 31, 2002, the Company sold 280,000 units for proceeds of $392,000.

In March 2003, the Company sold 690,000 units at $1.40 for proceeds of $966,000.

Subsequent to the quarter ended March 31, 2003, Heartland announced on April 6, 2003 that it has closed its earlier announced Reg S offering of 1,000,000 units at $1.40 per unit for total gross proceeds of $1,400,000. Proceeds from the offering are being used to advance the drilling of the Company's already initiated first five well pilot project, to acquire additional acreage and for general working capital.

As of March 31, 2003, none of the warrants had been exercised.

12

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARIES
(formerly Adriatic Holdings Limited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 4 - STOCK OPTIONS

On December 3, 2001, the Company's Board of Directors adopted the 2002 Officer, Director, Consultant and Advisor Stock Compensation Plans (the "Plan"), stock option plans. The aggregate number of shares of common stock that may be granted by the Company will not exceed a maximum of 1,600,000 shares during the period of the Plan. The Plan shall terminate upon the earlier of December 31, 2012 or the issuance of all shares granted under the Plan. The option prices per share are determined by the Board of Directors when the stock option is granted.

If for any reason a recapitalization, sale or merger of the Company occurs, all shares subject to the stock option Plan shall be immediately adjusted proportionally. The Board of Directors may amend the Plan at any time. Certain amendments require stockholders' approval.

Information with respect to all options is as follows:

		Compensation Plan	Other Options and Warrants		Exercise Price Range		Weighted Average Exercise Price		Weighted Average Remaining Life
Balances at December 31,			-			$
2000		500 000		$	0.35		0.35		4.92 years
	Granted	-	-		-		-
	Forfeited	-	-		-		-
Balances at December 31,
2001		500 000	-		0.35		0.35		4.92 years
	Granted	670 000	280 000		0.50 - 1.75		.87
	Forfeited	-	-		-		-
Balances at December 31,
2002		1 170 000	280 000	$	0.35 - 1.75	$	0.69		3.58 years
Number of options
exercisable
at December 31, 2001		500 000	-	$	0.35	$	0.35		4.92 years
Number of options
exercisable at
December 31, 2002		680 000	280 000	$	0.35 - 0.50	$	0.79		3.58 years
Number of options
exercisable at
March 31, 2003		680 000	280 000	$	0.35 - 0.50	$	0.79	$	3.33 years

 13

HEARTLAND OIL & GAS CORP.
AND SUBSIDIARIES
(formerly Adriatic Holdings Limited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

NOTE 5- CONVERTIBLE DEBENTURES AND RELATED PARTY TRANSACTIONS

On May 6, 2002, Adriatic issued a convertible debenture to an unrelated party in the amount of $435,000, bearing interest at 7%, and principal and interest due December 1, 2003. The convertible debenture is convertible at the option of the debenture holder into units (consisting of one share of common stock and one warrant to purchase one share of common stock) at $1.00 per unit. The Company has accrued interest on the debenture through March 31, 2003 of $7,508. All accrued and unpaid interest is to be forgiven by the debenture holder if the debenture is converted. This debenture was considered to have an embedded beneficial conversion feature because the conversion price was less than the quoted market price at the time of the issuance. Accordingly, the beneficial conversion feature was valued separately and the intrinsic value, essentially interest, was recorded as a charge to operations in the amount of $108,750 with a corresponding credit to additional paid-in capital. This transaction occurred before the acquisition of Heartland by Adriatic and therefore, is not included in the accompanying statements of operations.

Amounts due to related parties on the accompanying balance sheet as of March 31, 2003, are $20,951. This amount due to related parties represents non-interest bearing advances from directors and shareholders, with no fixed terms of repayment.

During the three months ended March 31, 2003, the Company paid or accrued $11,000 in management fees and $6,000 in consulting fees to directors of the Company.

In October 2002, the Company converted a $200,000 note payable plus accrued interest into a convertible debenture in the amount of $222,448 bearing interest at 7% per annum and is due on December 31, 2004. The debenture is convertible on a dollar for dollar basis into a unit (one share of common stock and one common stock purchase warrant, exercisable at $2.00 per share), at the option of the holder, at any time commencing on January 1, 2003 until maturity. At March 31, 2003 the outstanding balance under this obligation was $239,238 which included $16,790 in accrued interest.

NOTE 6 - ADDITIONAL EVENTS

Subsequent to the quarter ended March 31, 2003, Heartland announced on April 16, 2003 that it has closed its earlier announced Reg S offering of 1,000,000 units at $1.40 per unit for total gross proceeds of $1,400,000. Proceeds from the offering are being used to advance the drilling of the Company's already initiated first five well pilot project, to acquire additional acreage and for general working capital.

In addition, to evidence their ongoing commitment to the Company's continued growth, the directors have individually agreed to enter into a "lock up" agreement with the Company, whereby notwithstanding the earlier announced S-8 filing, the directors have agreed to waive all rights to sell any shares issuable under their respective incentive option agreement until January 1, 2004.

 14

Item 2. Management's Discussion and Analysis or Plan of Operation.

FORWARD-LOOKING STATEMENTS

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

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

As used in this quarterly report, the terms "we", "us", "our" and "Heartland" mean Heartland Oil and Gas Corp., unless otherwise indicated. All dollar amounts refer to US dollars unless otherwise indicated. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.

General

General Overview

We are an oil and gas company engaged in the exploration for and development of Coal Bed Methane in the "Soldier Creek Prospect" located in the Forest City Basin of northeast Kansas. Our "Soldier Creek" project encompasses approximately 165,000 acres of prospective frontier coal bed methane (CBM) Lands. Our subsidiary, Heartland Oil and Gas Inc., holds the leases and operates the project.

Corporate History

Our company, Heartland Oil and Gas Corp., was incorporated in the State of Nevada on July 9, 1998, under the name Adriatic Holdings Ltd.

On September 17, 2002 we acquired all of the issued and outstanding stock of Heartland Oil and Gas Inc., a private Nevada Corporation, from its stockholders in exchange for 12,212,429 shares of our common stock. As a result, the former stockholders of Heartland Oil and Gas Inc. own a majority of our outstanding stock. Therefore, for accounting purposes, Heartland Oil and Gas Inc. was deemed to have acquired Adriatic Holdings Ltd. Heartland Oil and Gas Inc. survives as our wholly-owned subsidiary. Heartland Oil and Gas Inc. is an oil and gas exploration company that has under lease approximately 165,000 acres in central Kansas where three test gas wells have been drilled.

As part of the share exchange we changed our name, effective November 4, 2002, to "Heartland Oil and Gas Corp.", and increased the authorized common stock of our company from 25,000,000 to 100,000,000 with a par value of $0.001 per share.

We have not been involved in any bankruptcy, receivership or similar proceeding.

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Our Current Business

On April 10, 2002 we entered into a letter of intent to acquire all of the shares of Heartland Oil and Gas Inc., a private Nevada corporation and on September 17, 2002 we acquired all of the issued and outstanding stock of Heartland Oil and Gas Inc. from its stockholders in exchange for 12,212,429 shares of our common stock. As a result, the former stockholders of Heartland Oil and Gas Inc. own a majority of our outstanding stock. Therefore, for accounting purposes, Heartland Oil and Gas Inc. was deemed to have acquired Adriatic Holdings Ltd. Heartland Oil and Gas Inc. survives as our wholly-owned subsidiary.

Heartland Oil and Gas Inc. is an exploration stage oil and gas company engaged in the exploration for and development of Coal Bed Methane in the "Soldier Creek Prospect" located in the Forest City Basin of northeast Kansas. Pursuant to several Oil and Gas Leases entered into with various parties, our "Soldier Creek" project encompasses approximately 165,000 acres of prospective frontier CBM Lands. Heartland Oil and Gas Inc. holds the leases for the lands and operates the project. The expiration dates for the leases range from dates in 2004 through 2007. Certain of the leases may be extended upon the exercise of options on the leases. For the years ending December 31, 2003, 2004 and 2005 we will be required to pay approximately $19,000 per year on the leases.

Heartland Oil and Gas Inc. signed a letter agreement dated August 25, 2000 with Topeka-Atchinson Gas & Illuminating LLC, whereby Heartland Oil and Gas Inc. engaged Topeka-Atchinson Gas & Illuminating LLC to identify three exploration areas within the Forest City Basin and to provide a detailed budget in writing for the anticipated cost of a one-well exploration program for each exploration area and a four-well pilot program. In consideration Heartland Oil and Gas Inc. advanced a non-refundable deposit of $20,000 to Topeka-Atchinson Gas & Illuminating LLC. The letter agreement provides for:

- within 60 days of receipt of the deposit, Heartland Oil and Gas Inc. was to advise of its intention to proceed with the exploration program;

- if Heartland Oil and Gas Inc. elected to proceed with the exploration program, then within 60 days from the date of the start of the last desorption test from coal, Heartland Oil and Gas Inc. could elect to proceed further with an initial 3-well exploration program; and

- within 60 days from the completion of drilling in the three exploration areas, Heartland Oil and Gas Inc. has the election to proceed with a pilot program or to drill a further test well in an additional exploration area.

Topeka-Atchinson Gas & Illuminating LLC is entitled to receive a 3% gross over-riding royalty, on an 8/8th basis, on all oil and gas leases acquired by Heartland Oil and Gas Inc. within certain areas in the Forest City Basin.

The Soldier Creek area was chosen when a privately funded, proprietary analysis of historical drilling logs from previous drilling of deeper hydrocarbon targets revealed the existence of significant coal beds to the North and West of where CBM production was currently being successfully developed. This analysis also indicated that the coal bed thickness at Soldier Creek was more than four times greater than the coal beds being exploited nearby. Further adding to the area's potential, was its proximity to a ready market and gas pipelines.

During September and October 2001 Heartland Oil and Gas Inc. drilled three test wells to test the relative coal thickness, permeability and porosity. The results, which were analyzed by Holditch Reservoir Technologies, a subsidiary of Schlumberger, compelled us to embark on a land acquisition program with the objective of acquiring enough acreage to develop several thousand CBM wells. As of March 15, 2003, we have entered into lease agreements covering approximately 165,000 acres covering the CBM fairway. This acreage is held under leases which have terms of between 3 and 5 years.

The Engelke well was drilled by or on behalf of Heartland Oil and Gas Inc. in the fall of 2001 and encountered 57 feet of coal. The Engelke well was logged and tested for permeability and was cased as a potential coal bed producer.

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The data from the various wells drilled was sent to Schlumberger's Holditch Reservoir Technologies for input into their "Coal GAS Simulator" program.

With the results from our economic modeling, we decided to begin aggressively acquiring acreage, concentrating on the North Engelke area, which mapping shows to be the thickest part of the basin. Coal thicknesses here are up to 4 times thicker than in the Cherokee basin to the south, where there are active coal bed methane operations. Many of the coals in the Cherokee basin are present at Engelke, but Engelke also has many more coal seams. Of our existing 165,000 acres under lease, approximately 140,000 are in the Engelke area.

In deciding to expand our Soldier Creek Prospect, we considered the following factors:

- Major gas lines exist (El Paso owned ANR Pipeline Co. runs directly through our gas leases) and have available capacity translating to access to markets.

- The Forest City area's flat, sparsely populated marginal ranch or farmland makes transportation and access less expensive, minimizing surface access costs.

- Known gas coals that are already established from conventional drilling, thereby reducing exploration and development risk.

- Surplus of equipment and very competitive environment further reduces drilling and completion costs.

- The abundance of depleted wells simplifies and reduces cost of water disposal from dewatering coals, as wastewater is re-injected into depleted wells.

- As full-scale development is implemented, drilling, completing, and operating costs should drop, further enhancing the project's economics.

- The area also contains a number of black shales, which are not included in the reserve and economic calculations but which generally will add to the amount of recoverable gas.

In February, 2003 we announced the commencement of our first coal bed methane pilot program on our acreage in the Forest City Basin, which program consists of four new wells surrounding our Engelke 16-18 discovery well. This program is in the final planning stages and the wells are expected to be drilled in the summer of 2003.

The Coal Bed Methane Industry

During the past decade coal bed methane (CBM) has emerged as a viable source of natural gas compared to the late 1980s when there was no significant production outside of the still dominant San Juan Basin, in northwestern New Mexico, and the Black Warrior Basin in Alabama and Mississippi. As noted in USGS Fact Sheet FS-123-00 of October 2000, CBM production accounted for 7% of US natural gas production or approximately 3.6 billion cubic feet (Bcf) of gas per day or an annual 1.35 trillion cubic feet (Tcf) of gas from over 14,000 producing wells.

We believe the success of CBM developments has been largely the result of improved drilling and completion techniques, better hydraulic fracture designs and significant cost reductions as a result of highly dependable gas content and CBM reservoir performance analysis. Also aiding this sector's growth is the apparent shortage of quality domestic conventional exploration and development projects. In comparison, the total "unconventional" CBM resource across America's 25 basins (lower US) is estimated to be roughly 720 trillion cubic feet (Tcf)of which 12% or 81 Tcf is considered technically recoverable. We also believe that propelling the CBM production growth is its relatively low finding and development costs. CBM fields are often found where deeper conventional oil and gas reservoirs have already been developed, therefore, considerable exploration-cost-reducing geologic information is often readily available. This available geological information, combined with CBM re servoirs' comparatively shallow locations, reduces finding and developing costs.

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Coal Bed Methane

Natural gas normally consists of 80% or more methane with the balance comprising such hydrocarbons as butane, ethane and propane. In some cases it may be sour. That is, it may contain minute quantities of highly poisonous hydrogen sulfide. CBM is, as a rule, a sweet gas consisting of 95% methane and thus is normally of pipeline quality. CBM is considered an unconventional natural gas resource because it does not rely on 'conventional' trapping mechanisms, such as a fault or anticline, or stratigraphic traps. Instead CBM is "adsorbed" or attached to the molecular structure of the coals - an efficient storage mechanism as CBM coals can contain as much as seven times the amount of gas typically stored in a conventional natural gas reservoir such as sandstone or shale. The adsorbed CBM is kept in place as a result of a pressure equilibrium often from the presence of water. Thus the production of CBM in many cases requires the dewatering of the coals to be exploited. This process usually re quires the drilling of adjacent wells and from 6 to 36 months to complete. CBM production typically has a low rate of production decline and a long economic life of from 10 to 40 years.

The principal sources of CBM are either biogenic, producing a dry gas which is generated from bacteria in organic matter, typically at depths less than 1000 feet, or thermogenic, which is a deeper wet gas, formed when organic matter is broken down by temperature and pressure.

The three main factors that determine whether or not gas can be economically recovered from coal beds are: the gas content of the coals; the permeability or flow characteristics of the coals; and, the thickness of the coal beds. Gas content is measured in terms of standard cubic feet (Scf) per ton and varies widely from 430 Scf per ton in the deep (2,000 to 3,500 feet) San Juan, New Mexico thermogenic coals, and only 60 Scf per ton for the shallow (300 to 700 feet deep) Powder River, Wyoming biogenic coals. The San Juan coals are considered to have the industry's highest permeability. All CBM coals must have relatively high permeability, as the ability of gas to easily travel to the borehole is essential to economic CBM production. The thickness of coal beds from which CBM is economically being produced varies from as little as a few feet in some areas of the gas rich (300 Scf) Raton Basin to as much as 75 net coal bed thickness at the relatively gas poor Powder River. CBM productio n in the Cherokee/Forest City Basins has historically been economic from coal seams only a few feet thick.

The following discussion of our plan of operations for the three months ended March 31, 2003 and 2002 should be read in conjunction with our most recent audited annual financial statements, which form part of our annual report on Form 10-KSB filed on April 1, 2003, the unaudited interim financial statements forming part of this quarterly report, and, in each case, the notes thereto.

Plan of Operations

Cash Requirements

Over the twelve month period ending March 31, 2004, we will require additional funds to implement our growth strategy in the gas exploration operations. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable.

Over the next twelve months we intend to use all available funds to continue our ongoing lease acquisition program and to expand on the exploration and development of our Soldier Creek Prospect, as follows:

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Estimated Funding Required During the Next Twelve Months

General and Administrative			$240,000
Acreage
	Rentals	19,114
Operations
	Acquire and work-over water disposal well	70,000
	Compete Engelke well	65,000
	Drill and complete 4 new pilot wells	685,000
	Lease Operating Expense	84,000
Offering Expenses		236,886
Total		$1,400,000

Currently we have $67,772 in current liabilities and an outstanding convertible debenture with a face value of $435,000 bearing interest at 7% per annum. The convertible debenture is due December 1, 2003 and is convertible into common stock of our company at $1.00 per share at the holder's option. Our financial statements report an accumulated loss of $612,577 for the fiscal period ended March 31, 2003. For the three month period ended March 31, 2003 we report a net loss of $130,432.

We have suffered recurring losses from operations. The continuation of our company as a going concern is dependent upon our company attaining and maintaining profitable operations and raising additional capital. Management's plans in this regard is to raise additional capital through an equity offering. We are currently offering 2,000,000 units consisting of 1 common share and 1 warrant to purchase 1 share at $1.75. The units are being offered at $1.40 per share. We have only sold 1,000,000 units to date from that offering. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should we discontinue operations.

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual consolidated financial statements of or the year ended December 31, 2002, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our consolidated financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further financing, a successful program of acquisition and exploration, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.

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Product Research and Development

Our business plan is focused on a strategy for maximizing the long-term exploration and development of our Soldier Creek Prospect, Kansas USA. To date, execution of our business plan has largely focused on acquiring prospective Coal Bed Methane (CBM) leases and drilling three initial test wells on this acreage from which to establish a going forward exploration and development plan.

During the past three years we spent $616,828 on drilling and exploration costs on our Soldier Creek Prospect.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment over the twelve months ending March 31, 2004.

Employees

Currently there are no full time employees and two part-time employees who are also officers of our company. We do not expect any material changes in the number of employees over the next 12 month period. We do and will continue to outsource contract employment as needed. However, if we are successful in our initial and any subsequent drilling programs we may retain additional employees.

RISK FACTORS

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

Those forward-looking statements also involve certain risks and uncertainties. Factors, risks and uncertainties that could cause or contribute to such differences include those specific risks and uncertainties discussed below and those discussed in our Form 10-KSB Annual Report for the year ended December 31, 2002. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document.

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

We have a limited operating history which raises substantial doubt about our ability to continue as a going concern.

Our company has a limited operating history and must be considered in the development stage. The success of the company is significantly dependent on a successful drilling, completion and production program. Our company's operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. No assurance can be given that we may be able to operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. There can be no assurance that our business plan will prove successful, and no assurance that we may be able to operate profitably, if at all.

Because of the early stage of development and the nature of our business, our securities are considered highly speculative.

Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of its development. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas. Accordingly, we have not generated any revenues nor have we realized a profit from our operations to date and

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there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue our business operations.

A portion of our interest in our properties may be lost if we are unable to obtain significant additional financing.

Our ability to continue exploration and, if warranted, development of our properties will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, a portion of our interest in our properties may be lost to exploration partners or our properties may be lost entirely. We have limited financial resources and limited cash flow from operations and we are dependent for funds on our ability to sell our common shares, primarily on a private placement basis. There can be no assurance that we will be able to obtain financing on that basis in light of factors such as the market demand for our securities, the state of financial markets generally and other relevant factors. The method of financing employed by us to date results in increased dilution to the existing shareholders each time a private placement is conducted.

We anticipate that we may need to obtain additional bank financing or sell additional debt or equity securities in future public or private offerings. There can be no assurance that additional funding will be available to us for exploration and development of our projects or to fulfil our obligations under any applicable agreements. Although historically we have announced additional financings to proceed with the development of some of our previous properties, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of our projects with the possible loss of such properties.

Due to the losses incurred since inception, our stockholders' deficiencies and lack of revenues, there is substantial doubt about our ability to continue as a going concern.

There is substantial doubt about our ability to continue as a going concern due to the losses incurred since inception, our stockholders' deficiency, and lack of revenues.

There can be no assurance that, if required, any such financing will be available upon terms and conditions acceptable to us, if at all. Our inability to obtain additional financing in a sufficient amount when needed and upon terms and conditions acceptable to us could have a materially adverse effect upon our company. Although we believe that we have funds sufficient to meet our immediate needs, we require further funds to finance the development of our company. There can be no assurance that such funds will be available or available on terms satisfactory to us. If additional funds are raised by issuing equity securities, further dilution to existing or future shareholders is likely to result. If adequate funds are not available on acceptable terms when needed, we may be required to delay, scale back or eliminate the development of our company. Inadequate funding could also impair our ability to compete in the marketplace, which may result in the dissolution of our company.

We will require substantial funds to enable us to decide whether our properties contain commercial oil and gas deposits and whether they should be brought into production, and if we cannot raise the necessary funds we may never be able to realize the potential of our properties.

Our decision as to whether our properties contain commercial oil and gas deposits and should be brought into production will require substantial funds and depend upon the results of exploration programs and feasibility studies and the recommendations of duly qualified engineers, geologists, or both. This decision will involve consideration and evaluation of several significant factors including but not limited to: (1) costs of bringing a property into production, including exploration and development work, preparation of production feasibility studies, and construction of production facilities; (2) availability and costs of financing; (3) ongoing costs of production; (4) market prices for the oil and gas to be produced; (5) environmental compliance regulations and restraints; and (6) political climate, governmental regulation and control. If we are unable to raise the funds necessary to properly evaluate our properties, then we may not be able to realize any potential of our properties .

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We have obtained title reports, but our properties may be subject to prior unregistered agreements, native land claims or transfers which have not been recorded or detected through title searches, resulting in a possible claim against any future revenues generated by such properties.

We have obtained title reports with respect to our oil and gas properties and believe our interests are valid and enforceable; however, these reports do not guarantee title against all possible claims. The properties may be subject to prior unregistered agreements, native land claims or transfers which have not been recorded or detected through title research. Additionally, the land upon which we hold oil and gas leases may not have been surveyed; therefore, the precise area and location of such interests may be subject to challenge. If the interests in our properties is challenged, we may have to expend funds defending any such claims and may ultimately lose some or all of any revenues generated from the properties if we lose our interest in such properties.

Our accounts are subject to currency fluctuations which may materially affect our financial position and results.

We maintain our accounts in US and Canadian currencies and are therefore subject to currency fluctuations and such fluctuations may materially affect our financial position and results. We do not engage in currency hedging activities.

We may not be able to manage the significant strains that future growth may place on our administration infrastructure, systems and controls.

In the event our properties commence production, we could experience rapid growth in revenues, personnel, complexity of administration and in other areas. There can be no assurance that we will be able to manage the significant strains that future growth may place on our administrative infrastructure, systems, and controls. If we are unable to manage future growth effectively, our business, operating results and financial condition may be materially adversely affected.

The loss of Richard Coglon and Donald Sharpe would have an adverse impact on future development and could impair our ability to succeed.

We are dependent on our ability to hire and retain highly skilled and qualified personnel, including our President, Mr. Coglon, and Mr. Donald Sharpe, one of our directors. We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms. We do not have key man insurance on any of our employees. The loss of service of any of our key personnel could have a material adverse effect on our operations or financial condition.

Our management currently engages in other oil and gas businesses and, as a result, conflicts could arise.

In addition to their interest in our company, our management currently engages, and intends to engage in the future, in the oil and gas business independently of our company. As a result, conflicts of interest between us and management of our company might arise.

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

Our shares of common stock are subject to rules promulgated by the Securities and Exchange Commission relating to "penny stocks," which apply to companies whose shares are not traded on a national stock exchange or on the NASDAQ system, trade at less than $5.00 per share, or who do not meet certain other financial requirements specified by the Securities and Exchange Commission. These rules require brokers who sell "penny stocks" to persons other than established customers and "accredited investors" to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in the such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of common stock and may affect the secondary market for our shares of common stock. These rules could also hamper our ability to raise funds in the primary market for our shares of common stock.

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Since our shares are thinly traded, and trading on the OTC Bulletin Board may be sporadic because it is not an exchange, stockholders may have difficulty reselling their shares.

Our shares of common stock are currently publicly traded on the OTC Bulletin Board service of the National Association of Securities Dealers, Inc. The trading price of our shares of common stock has been subject to wide fluctuations. Trading prices of our shares of common stock may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our shares of common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of our shares of common stock, regardless of our operating performance.

In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management's attention and resources.

If plans to phase-out the OTC Bulletin Board are implemented, we may not qualify for listing on the proposed Bulletin Board Exchange or any other marketplace, in which event investors may have difficulty buying and selling our securities.

We understand that in 2003, subject to approval of the Securities and Exchange Commission, the NASDAQ Stock Market intends to phase-out the OTC Bulletin Board, and replace it with the "Bulletin Board Exchange" or "BBX". As proposed, the BBX will include an electronic trading system to allow order negotiation and automatic execution. The NASDAQ Stock Market has indicated its belief that the BBX will bring increased speed and reliability to trade execution, as well as improve the overall transparency of the marketplace. Specific criteria for listing on the BBX have not yet been finalized, and the BBX may provide for listing criteria which we do not meet. If the OTC Bulletin Board is phased-out and we do not meet the criteria established by the BBX, there may be no market on which our securities may be included. In that event, shareholders may have difficulty reselling any of the shares they own.

Investors' interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.

Our constating documents authorize the issuance of 100,000,000 shares of common stock, each with a par value of $0.001. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors' interests in our company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change in our control.

Risks Relating to the Industry

As our properties are in the exploration and development stage there can be no assurance that we will establish commercial discoveries on our properties.

Exploration for economic reserves of oil and gas is subject to a number of risk factors. While the rewards to an investor can be substantial if an economically viable discovery is made, few of the properties that are explored are ultimately developed into producing oil and/or gas wells. Our properties are in the exploration and development stage only and are without proven reserves of oil and gas. There can be no assurance that we will establish commercial discoveries on any of our properties.

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

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic,

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international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.

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

Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring the leases.

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. There can be no assurance that the necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage in the Forest City basin. There is no assurance that this acreage will become available or if it is available for leasing, that we will be successful in acquiring the leases. There are other competitors that have operations in the Forest City basin and the presence of these competitors could adversely affect our ability to acquire additional leases.

The marketability of nature resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.

The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

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

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

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Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.

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

We believe that our operations comply, in all material respects, with all applicable environmental regulations.

Our operating partners maintain insurance coverage customary to the industry; however, it is not fully insured against all environmental risks.

Risks Associated with Drilling

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

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labour, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.

There is no assurance that the laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, will not be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.

The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect the Company. Any or all of these situations may have a negative impact on one or more of the Company's ability to operate and/or its profitably.

Item 3. Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out in evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer. Based upon that evaluation, the Company's President and Chief Executive Officer concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure

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that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer as appropriate, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 2. Changes in Securities.

On February 7, 2003 we issued seventy thousand units to one investor, each unit comprised of one common share and one non-transferable share purchase warrant, each such warrant entitling the holder to acquire a further common share in the capital stock of our company on or before August 31, 2004 at a price of $1.75 per share. These funds were received by our company prior to December 31, 2002. We relied on the provisions of Regulation S promulgated under the Securities Act of 1933, as amended, for issuance of the units.

On March 10, 2003 we issued four hundred thousand units to one investor, each unit comprised of one common share and one non-transferable share purchase warrant, each such warrant entitling the holder to acquire a further common share in the capital stock of our company on or before August 31, 2004 at a price of $1.75 per share. We relied on the provisions of Regulation S promulgated under the Securities Act of 1933, as amended, for issuance of the units.

During the quarter ended March 31, 2003 we sold another two hundred and ninety units to one investor, each unit comprised of one common share and one non-transferable share purchase warrant, each such warrant entitling the holder to acquire a further common share in the capital stock of our company on or before August 31, 2004 at a price of $1.275 per share, but the common shares and warrants were not issued until after the quarter ended March 31, 2003.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K.

Reports of Form 8-K

On February 27, 2003 we filed a current report on Form 8-K announcing that the name of our company changed to Heartland Oil and Gas Corp.

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Consolidated Financial Statements Filed as a Part of the Quarterly Report

Our consolidated financial statements include:

Balance Sheets

Statements of Operations

Statements of Cash Flows

Statements of Stockholders' Equity

Notes to the Financial Statements

Exhibits Required by Item 601 of Regulation S-B

Exhibit Number/Description

Exhibit
Number Description

3.1* Articles of Incorporation (1)

3.2* Bylaws of Adriatic Holdings Ltd. (1)

3.3* Certificate of Amendment to Articles of Incorporation effective November 4, 2002 (2)

10.1* Share Exchange between Adriatic Holdings Ltd., Heartland Oil and Gas Inc. and the shareholders of Heartland Oil and Gas Inc., dated July 31, 2002 (3)

10.2* Form of Oil and Gas Lease (4)

21.1* Heartland Oil and Gas Inc., a company incorporated pursuant to the laws of the State of Nevada

99.1** Section 906 Certifications under Sarbanes-Oxley Act of 2002

* Previously filed

** Filed herewith

(1) Incorporated by reference to the company's Form SB-2 Registration Statement filed with the Securities and Exchange Commission on October 23, 2001.

(2) Incorporated by reference to the company's Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2002.

(3) Incorporated by reference to the company's Form 8-K filed with the Securities and Exchange Commission on October 2, 2002.

(4) Incorporated by reference to the company's Form 10-KSB filed with the Securities and Exchange Commission on April 1, 2003.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HEARTLAND OIL AND GAS CORP.

By: /s/ Richard Coglon
Richard Coglon, President, Chief Executive Officer and Director
(Principal Executive Officer)
May 15, 2003

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CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard Coglon, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Heartland Oil and Gas Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

By: /s/ Richard Coglon
Signature: Richard Coglon
President and Chief Executive Officer
(Principal Executive Officer)

29

CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Knight, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Heartland Oil and Gas Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

By: /s/ Robert Knight
Signature: Robert Knight
Secretary and Chief Financial Officer
(Principal Financial Officer)