UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q   xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011.  oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from   to  Commission File Number: 000-53311  JayHawk Energy, Inc. (Exact name of small business issuer as specified in its charter)  Colorado20-0990109(State or other jurisdiction
of incorporation or organization)(I.R.S. Employer
Identification No.)  6240 E. Seltice Way, Suite C, Post Falls, Idaho 83854(Address of principal executive offices)  (208) 667-1328(Issuers Telephone Number)   Indicate by check mark whether the issuer (1) has 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.   x Yes   o No  Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  Large accelerated fileroAccelerated fileroNon-accelerated filer (Do not check if a smaller reporting company)oSmaller reporting companyx  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes   x 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 practical date.  As of August 12, 2011, there were 57,141,614 shares of the issuer's $.001 par value common stock issued and outstanding.       1    JAYHAWK ENERGY, INC.  Quarterly Report on Form 10-Q for the Quarterly Period Ending June 30, 2011  TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets:June 30, 2011(Unaudited) and September 30,20103ConsolidatedStatements of Operations:ThreeandNine MonthsEndedJune 30, 2011and 2010(Unaudited)4Consolidated Statements of Cash Flows:Three and Nine Months Ended June 30, 2011 and 2010 (Unaudited)5Condensed Notes to Consolidated Unaudited Financial Statements:June 30, 20116Item 2. Management Discussion and Analysis19Item 3. Quantitative and Qualitative Disclosures About Market Risk22Item 4. Controls and Procedures22PART II. OTHER INFORMATIONItem 1. Legal Proceedings22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds22Item 3. Defaults Upon Senior Securities22Item 4. Submission of Matters to a Vote of Security Holders22Item 5. Other Information22Item 6. Exhibits22Signatures23               2    PART I - FINANCIAL INFORMATION Item 1. Financial Statements       JayHawk Energy, Inc.Consolidated Balance SheetsJune 30, 2011September 30, 2010Assets(Unaudited)Current AssetsCash and cash equivalents$                      48,872$                      56,280Trade accounts receivable, less allowance for doubtful accounts of $niland $nil at March 31, 2011 and September 30, 2010, respectively (Note 3)46,655225,415Other current assets9,5924,344Total Current Assets105,119286,039Plant, Property and EquipmentUnproved oil and gas properties, net of allowances for impairment  of $1,474,000and accumulated amortization of $898,971 and $693,403 at June 30, 2011and September 30, 2010, respectively  (Note 4).1,853,0882,126,445Proved and developed oil & gas properties, net allowances for impairment of $811,339and accumulated DD&A of  $2,391,176 and $2,027,269 at June 30, 2011and September 30, 2010, respectively  (Note 5)5,960,7986,647,808Computers, office equipment, furniture and leasehold improvements, net of allowancefor depreciation of $34,288 and $25,296, respectively10,62319,616Net Plant, Property and Equipment7,824,5098,793,869Other Long-Term Assets  (Note 6)107,00056,900Total Assets$                 8,036,628$                 9,136,808Liabilities and Stockholders' EquityCurrent LiabilitiesAccounts payable$                    388,877$                 1,101,847Due to other working and royalty interests70,521135,385Other payables, interest & taxes accrued133,581178,358Note payable in less than one year (Note 7)168,765227,914Total Current Liabilities761,7451,643,504Long Term Liabilities  (Note 8)1,297,1881,161,074Total Liabilities2,058,9332,804,578Commitments and Contingencies (Note 15)--Stockholders' Equity (Deficit)Preferred Stock, $.001 par value; 10,000,0000 shares authorized, no shares issuedand outstanding.--Common Stock, $.001 par value; 200,000,000 shares authorized; 55,913,845 shares issuedand outstanding at June 30, 2011 and 48,980,326 shares issuedand outstanding at September 30, 2010 (Note 9)56,23748,980Additional paid-in capital18,777,05117,108,319Accumulated deficit(12,855,593)(10,825,069)Total Stockholders' Equity5,977,6956,332,230Total Liabilities and Stockholders' Equity$                 8,036,628$                 9,136,808The accompanying notes are an integral part of these consolidated financial statements           3     JayHawk Energy, Inc.Consolidated Statements of Operations (Unaudited)Three months endedNine months endedJune 30,June 30,2011201020112010RevenueOil sales$          45,379$        145,786$        195,794$        908,993Gas sales7,35313,83728,29456,504Total Gross Revenues52,732159,623224,087965,497Costs and Operating ExpensesProduction costs-North Dakota19,84384,38788,264199,150Production costs-Kansas3,3487,4726,31523,417Depreciation, depletion, amortization and asset impairment expense201,097217,396578,467740,191General and administrative183,314286,225675,757721,388Other expense313,426219,125905,8092,178,711Total Costs and Expenses721,028814,6052,254,6123,862,857Loss from continuing operations before income tax(668,296)(654,982)(2,030,524)(2,897,360)Provision for income taxes----Deferred tax benefit----Net loss from continuing operations(668,296)(654,982)(2,030,524)(2,897,360)Net loss and total comprehensive loss$       (668,296)$       (654,982)$    (2,030,524)$    (2,897,360)Basic and diluted loss per share (Note 10)$             (0.01)$             (0.01)$             (0.04)$             (0.06)Basic and diluted weighted average number shares outstanding54,712,32848,853,42152,134,83747,026,085The accompanying notes are an integral part of these consolidated financial statements   4     JayHawk Energy, Inc.Statements of Consolidated Cash Flows (Unaudited)For the nine months ended June 30, 2011For the nine months ended June 30, 2010CASH FLOWS FROM OPERATING ACTIVITIESNet loss from operations$               (2,030,524)$               (3,351,509)Adjustments to reconcile net loss to net cash used:by operating activities:Depreciation, depletion, amortization and impairment578,467740,190Accretion in annual asset retirement obligations11,61910,563Amortization of discount on note payable and debt conversion expense606,4762,062,911Common stock issued in lieu of interest78,71271,393Common stock issued in consideration for services35,66728,570Loss of sale of assets102,875-Stock options expense159,858-Non-cash loss on write-off of Girard, Kansas assets-78,137(Increase) Decrease in accounts receivable, net178,760203,014(Increase) Decrease in other current assets(5,248)(4,335)(Increase) Decrease in long-term assets(50,100)(1,800)Increase (Decrease) in accounts payable(582,884)1,351,504Increase (decrease) in accruals and other current liabilities(33,641)(224,044)Net cash used by operating activities(949,963)964,594CASH FLOWS FROM INVESTING ACTIVITIESProved oil and gas property additions-(1,898,435)Unproved oil and gas property additions(48,445)-Sale of 42.5 percent interest in Girard gas properties250,000Proceeds from sale of assets170,000-Net cash used by operating activities121,555(1,648,435)CASH FLOWS FROM FINANCING ACTIVITIESBorrowings with note payable500,0001,500,000Proceeds from sale of common stock321,000-Net cash provided by financing activities821,0001,500,000NET (DECREASE) IN CASH AND CASH EQUIVALENTS(7,408)816,159CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR56,2805,658CASH AND CASH EQUIVALENTS AT END OF YEAR$                      48,872$                    821,817Supplemental Disclosure of Cash Flows and Non-cash Investing and Financing Activity:Income taxes paid$                             -$                             -Interest paid with common stock37,5006,250Accrued payables paid with common stock38,500-Common stock issued for reduction of note payable533,500-Non-cash investing & financing offset adjustment to account payable balance189,234-The accompanying notes are an integral part of these consolidated financial statements    5    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011  NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Nature of Operations JayHawk Energy, Inc. (the Company or JayHawk) and its wholly owned subsidiary, is engaged in the acquisition, exploration, development, production and sale of natural gas, crude oil and natural gas liquids primarily from conventional reservoirs within North America.  The Company incorporated in Colorado on April 5, 2004 as Bella Trading Company, Inc.  During the second quarter ending June 30, 2007, the Company changed management and entered the oil and gas business, and ceased all activity in retail jewelry.  On June 21, 2007, the Company changed its name to JayHawk Energy, Inc.  Since then, the Company has devoted its efforts principally to the raising of capital, organizational infrastructure development, the acquisition of oil and gas properties and exploration activities.  To date, the Company has acquired three main properties, the Uniontown in Kansas, the Crosby in North Dakota, and Girard in Kansas.  The Company also formed a wholly owned subsidiary to transport natural gas in Kansas called Jayhawk Gas Transportation Company.  This is the basis for which financial statements are consolidated. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation -These consolidated financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission (the SEC) and do not include all of the information and disclosures required by accounting principles generally accepted in the United States ("U.S. GAAP") for complete financial statements.  These consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the results for the periods reported.  All such adjustments are of a normal recurring nature unless disclosed otherwise.  JayHawk reports on operations using a fiscal year end of September 30.  This report on Form 10-Q is for the third quarter of the fiscal year to end September 30, 2011, the quarter ending June 30, 2011, and comparable quarter ended June 30, 2010.  These financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto, included in the Companys Form 10-K for the year ended September 30, 2010 as filed with the SEC.  Interim operating results are not necessarily indicative of operating results for any future interim period or for the full year. Going Concern As shown in the accompanying financial statements,  the Company has incurred operating losses since inception.  As of June 30, 2011, the Company has limited financial resources with which to achieve the objectives and obtain profitability and positive cash flows.  Achievement of the Company's objectives will be dependent upon the ability to obtain additional financing, to locate profitable mineral properties and generate revenue from current and planned business operations, and control costs.  JayHawk  plans to fund its future operations by joint venturing, obtaining additional financing from investors, and attaining additional commercial production.  However, there is no assurance that the Company will be able to achieve these objectives, therefore doubt about its ability to continue as a going concern exists. Joint Venture Operations In instances where the Companys oil and gas activities are conducted jointly with others, the Companys accounts reflect only its proportionate interest in such activities. Use of estimates -The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods.  A change in accounting estimate is accounted for prospectively over the current and future years. Income or loss per common share -Basic income per share is calculated based on the weighted average number of common shares outstanding.  Diluted income per share assumes exercise of stock options and warrants and conversion of convertible debt and preferred securities, and preferred securities, provided the effect is not antidilutive.  As each of the two fiscal periods covered by these financial statements reflects net losses from operations, all of the warrants have an anti-dilutive effect on per common share amounts. Revenue and Cost Recognition - The Company uses the sales method of accounting for oil and gas revenues. Under this method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers. The volume sold may differ from the volumes the Company may be entitled to, based on JayHawk's  individual interest in the property.  Periodically, imbalances between production and nomination volumes can occur for various reasons.  In cases where imbalances have occurred, a production imbalance   6    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011   NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) receivable or liability will be recorded.  Costs associated with production are expensed in the period in which they are incurred. Revenue Source -All of the Companys direct operating revenues originate from oil production from its property in Crosby, North Dakota or from natural gas production from its property in Girard Kansas. Each revenue stream is sold to a single customer through month to month contracts.  While this creates a customer concentration, there are alternate buyers of the production in the event the sole customer is unable or unwilling to purchase. Cash equivalents -The Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents. Property, plant and equipment -JayHawk follows the method of accounting for oil and gas property as promulgated in Accounting Standards Codification (ASC) topic 932, Extractive Activities  Oil and Gas.  Under this method of accounting, costs to acquire mineral interests in oil and natural gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells, are capitalized.  Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs and costs of carrying and retaining unproved properties are expensed. JayHawk Energy calculates depletion, depreciation and amortization (DD&A) of capitalized cost of proved oil and gas properties on a field-by-field basis using the units-of-production method based upon proved reserves. In computing DD&A the Company will take into consideration restoration, dismantlement and abandonment cost and the anticipated proceeds from equipment salvage.  When applicable, JayHawk will apply the provisions of ASC topic 410, Accounting for Asset Retirement Obligations, which provides guidance on accounting for dismantlement and abandonment cost (see Note 9). Support equipment and other property, plant and equipment related to oil and gas production are depreciated on a straight-line basis over their estimated useful lives which range from 5 to 35 years.  Property, plant and equipment unrelated to oil and gas producing activities is recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, which range from 3 to 25 years. Impairment of Long-Lived Assets -The Company evaluates its long-term assets annually for impairment or when circumstances or events occur that may impact the fair value of the assets.  The fair value of  property is primarily evaluated based upon the present value of expected revenues directly associated with those assets.  An impairment loss would be recognized if the carrying amount of a capitalized asset is not recoverable and exceeds its fair value. Management believes that there have not been any circumstances that have warranted the recognition of losses due to the impairment of long-lived assets as of June 30, 2011. Sales of Producing and Non-producing Property- The Company accounts for the sale of a partial interest in a proved property as normal retirement. The Company recognizes no gain or loss as long as this treatment does not significantly affect the unit-of-production depletion rate. JayHawk recognizes a gain or loss for all other sales of producing properties and include the gain or loss in the results of operations.  The Company accounts for the sale of a partial interest in an unproved property as a recovery of cost when substantial uncertainty exists as to recovery of the cost applicable to the interest retained. A gain on the sale is recognized to the extent that the sales price exceeds the carrying amount of the unproved property. The Company recognizes a gain or loss for all other sales of non-producing properties and include the gain or loss in the results of operations. Asset Retirement Obligation- The Company follows ASC topic 410, Accounting for Asset Retirement Obligations, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.  The associated asset retirement costs will be capitalized as part of the carrying amount of the long-lived asset.  The carrying value of a property associated with the capitalization of an asset retirement cost will be included in proved oil and gas property in the balance sheets.  The future cash outflows for oil and gas property associated with settling the asset retirement obligations will be accrued in the balance sheets, and will be excluded from ceiling test calculations.  The asset retirement obligation will consist of costs related to the plugging of wells and removal of facilities and equipment on its oil and gas properties (see Note 8).  7    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011   NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Tax and Accounting for Uncertainty - Income taxes are determined using the liability method in accordance with ASC Topic 740.  Deferred tax assets and liabilities are recognized for the 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 the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. ASC Topic 740 recognizes that the ultimate deductibility of positions taken or expected to be taken on tax returns is often uncertain.  It provides guidance on when tax positions claimed by an entity can be recognized and guidance on the dollar amount at which those positions are recorded.  In order to recognize the benefits associated with a tax position taken the entity must conclude that the ultimate allowability of the deduction is more likely than not.  If the ultimate allowability of the tax position exceeds 50% (more likely than not), the benefit associated with the position is recognized at the largest dollar amount that has more than a 50% likelihood of being realized upon ultimate settlement.  Differences between tax positions taken in a tax return and recognized in accordance with the guidance will generally result in (1) an increase in income taxes currently payable or a reduction in an income tax refund receivable or (2) an increase in a deferred tax liability or a decrease in a deferred tax asset, or both (1) and (2). Stock Options Granted to Employees and Non-employees -The Company follows financial accounting standards that require the measurement of the value of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.  For employees, directors and officers, the fair value of the awards are expensed over the vesting period.  The current vesting period for all options ranges from twelve to thirty-six months.  Non-employee stock-based compensation is granted at the Board of Directors discretion to award select consultants for exceptional performance.  Prior to issuance of the awards, the Company was not under any obligation to issue the stock options.  Subsequent to the award, the recipient was not obligated to perform any services.  Therefore, the fair value of these options was expensed on the grant date, which was also the measurement date. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment.  In addition, judgment is also required in estimating the amount of share-based awards that are expected to be forfeited.  If actual results differ significantly from these estimates, stock-based compensation expense and results of operations could be materially impacted. Short term benefits and compensated absences - Wages, salaries, bonuses and social security contributions are recognized as an expense in the year in which the associated services are rendered by employees. Short term accumulating compensated absences such as paid annual leave are recognized when services are rendered by employees that increase their entitlement to future compensated absences. The Company has not accrued compensated absences because the amount cannot be reasonably estimated. NOTE 3 - TRADE ACCOUNTS RECEIVABLE  At June 30, 2011 trade accounts receivable represents those amounts the Company is owed for its oil and gas production delivered during the month of June 2011 and amounts due from other working interests for their respective percentages of joint operating costs and drilling costs.  Amounts receivable for June oil deliveries of $35,475 were received in July 2011.  Amounts receivable for June natural gas deliveries, $3,560 were also received in July 2011.  Specifically, trade accounts receivable are detailed as follows:  June 30, 2011September 30, 2010Due for crude oil delivered in June 2011 and September 2010$                      35,475$                    193,297Due for natural gas delivered in June 2011 and September 20103,5606,533Due from joint operating agreement working interests7,62025,585TOTAL:$                      46,655$                    225,415  8    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011     NOTE 4 - UNPROVED PROPERTIES The total of JayHawk's investment in unproved properties at June 30, 2011 and September 30, 2010 consists of the following capitalized costs respectively: NameJune 30, 2011September 30, 2010Kansas Uniontown Project$                 2,494,479$                 2,494,479Less: allowance for impairment(1,474,000)(1,474,000)Less: accumulated amortization(293,375)(256,487)Net investment in Uniontown Project727,105763,992Kansas Girard Project1,653,4441,652,284Less: accumulated amortization(582,206)(436,916)Net investment in Girard Project1,071,2381,215,368North Dakota Project78,135147,085Less: accumulated amortization(23,390)-Net investment in North Dakota Project54,745147,085Total Unproved Oil and Gas Properties$                 1,853,088$                 2,126,445 As discussed in Note 2, the Company amortizes lease bonuses paid to acquire specific acreage over the life of the lease, generally three years, through the lease expiration date. NOTE 5 - PROVED AND DEVELOPED OIL & GAS PROPERTIES The capitalized cost, net of depreciation, depletion and amortization (DD&A) of the proved oil and gas properties was $5,960,798 at June 30, 2011, and $6,647,808 at September 30, 2010.  These net capitalized costs are comprised of the following; detailed by property: June 30, 2011September 30, 2010Crosby, North Dakota PropertiesProved Reserves$                 2,357,753$                 2,357,753Field Equipment1,200,2471,224,580Capitalized Drilling Costs1,630,6401,929,410Less Allowance for Impairment(811,339)(811,339)Less Accumulated DD&A(1,839,959)(1,608,152)Net Capitalized Costs2,537,3423,092,252Girard, Kansas PropertiesField Equipment705,903705,903Capitalized Drilling Costs662,899662,899Less Accumulated DD&A(175,379)(130,364)Net Capitalized Costs1,193,4221,238,438JayHawk Gas TransportationField Equipment2,605,8712,605,871Less Accumulated DD&A(375,837)(288,753)Net Capitalized Costs2,230,0342,317,118Total Proved Oil and Gas Properties$                 5,960,798$                 6,647,808  9    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011    NOTE 5 - PROVED AND DEVELOPED OIL & GAS PROPERTIES (CONTINUED) Ceiling Test The Company has performed ceiling tests to determine that the carrying amounts in its financial statements do not exceed the net present value of the reserve estimates for the respective properties, of Crosby, North Dakota and Girard, Kansas.  For the Girard properties management determined that the net values reflected in the financial statements did not exceed the net discounted present value of the reserves estimated by the independent reserve engineers. Impairment of Crosby Project:  JayHawk periodically reviews and assesses its proved properties to determine whether or not they have been impaired.  A property is considered impaired if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.  The carrying amount of a long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  The impairment loss shall be measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value.  Based upon estimates provided by independent reserve engineers, Management has determined an impairment of $811,339 exists on the Crosby property. The impairment allowance was established to approximate the write-down of the impairment loss for the period ending September 30, 2010. Note 6  Other Long-Term Assets Other assets consists of various deposits.  Detail is disclosed in the following table: June 30, 2011September 30, 2010Rental Security Deposit$            1,500$             1,500Bond Deposit - State of Kansas5,5005,400Bond Deposit - State of North Dakota100,00050,000Total$        107,000$           56,900  NOTE 7 - NOTES PAYABLE IN LESS THAN ONE YEAR On September 1, 2010 the Company entered into a short-term promissory note with a vendor for its balance of accounts payable.  The initial principal balance of $272,373 is due and payable in six (6) equal payments of $46,729 including interest at a rate of 12% per annum.  The balance at June 30, 2011 of $59,012 including accrued interest was renegotiated and is due and payable in five (5) equal payments of $28,000 at a rate of 10% per annum.  The final payment of  $3,965 is due September 8, 2011. The note is secured by the Burner, Jenks and Knudsen wells in North Dakota. On March 10, 2011 the Company entered into a short-term promissory note with a vendor for its balance of accounts payable.  The principal balance of $146,905 is due and payable in five (5) equal payments of $29,768 beginning on March 15, 2011 including interest at a rate of 5.25% per annum.  The balance at June 30, 2011 is $117,780.  The final payment  is due July 15, 2011. The note is secured by the Burner, Jenks and Knudsen wells in North Dakota. On April 28, 2011 the Company entered into a short-term promissory note with a vendor for its balance of accounts payable.  The principal balance of $107,230 is due and payable in four (4) equal payments of $21,446 beginning on April 28, 2011 including interest at a rate of 5.25% per annum.   The final payment of $22,869  is due August 28, 2011. The note is secured by the Burner, Jenks and Knudsen wells in North Dakota. NOTE 8 - LONG-TERM LIABILITIES Long-term liabilities at June 30, 2011 are comprised of an asset retirement obligation of $166,548 and convertible debentures of $880,640, net of discounts for the imputed fair value of common stock purchase warrants attached to the debentures and the imputed fair value of the conversion feature of the debentures.  The composition of long-term liabilities existing at June 30, 2011 and September 30, 2010 is reflected in the following table:   10    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011  NOTE 8 - LONG-TERM LIABILITIES (CONTINUED) June 30, 2011September 30, 2010Asset retirement obligation$        166,548$         154,928Investment in Joint Venture Girard250,000250,000Long-term notes (debentures) payable face value1,466,5001,497,000Less: Unamortized discount(s)Imputed fair value of common stock purchase warrants(306,858)(285,887)Imputed fair value of beneficial conversion feature(279,001)(454,967)Total long-term liabilities$     1,297,188$      1,161,074  During the year ended September 30, 2010, the Company issued 10% convertible debentures with a face value of $1,500,000.  The first tranche of the total financing, with a face value of $900,000, was issued during the first quarter end December 31, 2009.  In April 2010, additional debentures with a face value of $600,000 were issued.  All of the debentures have a two year maturity and were issued with attached common stock purchase warrants.  The effective interest rate on the debentures is 10% per annum.  Interest of $38,251 was expensed and is included in "Other expense" on the Consolidated Statements of Operations for the three months and nine ended June 30, 2011.  Interest accrued at quarter end of $38,251 is included on the Consolidated Balance Sheets  in "Other payables, interest and taxes accrued". The debentures are convertible at any time after the original issue date into a number of shares of the Companys common stock, determined by dividing the amount to be converted by a conversion price of $0.12 per share or an aggregate of 8,054,167 shares.  Additionally, the attached common share purchase warrants, expire 42 months from the original issue date and permit the holders two exercisable options.  The warrant were exercisable by purchase of the Companys common stock for cash at an exercise price of $0.45, or alternatively, in a cashless exercise, the number of shares being determined in accordance with a predetermined formula based on the Companys then current stock price. During the second quarter ended June 30, 2010, the holders of the debentures and the common stock purchase warrants associated with the first $900,000 issuance, exercised all 3,000,000 warrants to acquire 2,111,388 shares of the Companys common stock in two separate cashless exercises on January 6 and January 27.  Warrants attached to the debentures issued in April 2010  ($600,000 face amount) total 2,000,000 and remain to be exercised at the election of the debenture holders at an exercise price of $0.12 per share. During the quarter ending December 31, 2010, the Company entered into a Securities Purchase Agreement with certain institutional investors wherein the Company agreed to sell and the purchasers agreed to purchase $500,000 of Secured Convertible Debentures (Debentures).  The Debentures provide for interest to be paid quarterly, at the rate of 10% per annum, and are due two years from the date of this initial closing. The Debentures are secured by a lien on the Companys assets, including its properties in North Dakota but not including certain assets of the Company in Kansas.  The Debentures are convertible at any time after the original issue date into a number of shares of the registrants common stock, determined by dividing the amount to be converted by a conversion price of $0.12 per share, or an aggregate of 4,166,667 shares.  In addition to the Debentures the purchasers were issued an aggregate of 1,805,556 common share purchase warrants, each having a term of 42 months, expiring April of 2014, and giving the purchasers the right to purchase JayHawks common shares at an exercise price of $0.45 per share. The debentures are secured by all assets of the Company except those specifically excluded in the agreement which include all Kansas properties and related assets.     11    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011   NOTE 8 - LONG-TERM LIABILITIES (CONTINUED) In accordance with ASC Topic 470, the Company allocated the proceeds to detachable warrants and convertible instruments based upon their relative fair values of the debt instrument without the warrants and the warrants themselves at the time of issuance.  The fair value of the warrants was determined following the guidance of ASC Topic 718; using the Black-Scholes option model (using a risk free interest rate of .06%, volatility of 99.3%, exercise price of $0.30, current market values of $0.43 and $0.70 per share and an expected life of 3.5 years) with the value allocated to the warrants reflected in Stockholders Equity and a debt discount. Based upon the respective fair values as of the original agreement dates of the December 2009 and April 2010 debentures, $1,500,000 was allocated to discounts associated with the common stock purchase warrants and the beneficial conversion features.  Giving effect to the monthly amortization of the discount, the exercise of all purchase warrants associated with the first $600,000 tranche, and the conversion of $533,500 in principal conversion, $391,915 of the discount remains to be amortized over the remaining life of the debentures.  This $391,915 consists of the remaining unamortized imputed fair value of the common stock purchase warrants of $191,645 and imputed fair value of the beneficial conversion feature of $200,270.  These amounts are and will continue to be amortized over the remaining life of the underlying convertible debentures. The Company also allocated the proceeds associated with the October 26, 2010 debenture financing to detachable warrants and convertible instruments based upon their relative fair values of the debt instrument without the warrants and the warrants themselves at the time of issuance.  The fair value of the warrants was determined following the guidance of ASC Topic 718; using the Black-Scholes option model (using a risk free interest rate of 2.63%, volatility of 288.24%, exercise price of $0.45, current market values of $0.18 per share and an expected life of 3.5 years) with the value allocated to the warrants reflected in Stockholders Equity and a debt discount.  Based upon the respective fair values as of the original agreement dates $487,004 was allocated to discounts associated with the common stock purchase warrants and the beneficial conversion features.  Giving effect to the monthly amortization of the discount, $324,669 of the discount remains to be amortized over the remaining life of the debentures.  This $324,669 consists of the remaining unamortized imputed fair value of the common stock purchase warrants of $162,335 and imputed fair value of the beneficial conversion feature of $162,334.  These amounts are and will continue to be amortized over the remaining life of the underlying convertible debentures. Long term notes (debentures) will mature as follows: Year ending September 30,2011$                  -20121,466,5002013-2014-2015-$     1,466,500 NOTE 9 - ASSET RETIREMENT OBLIGATION In the period in which an asset retirement obligation is incurred or becomes reasonably estimable, the Company recognizes the fair value of the liability if there is a legal obligation to dismantle the asset and reclaim or remediate the property at the end of its useful life. The Company estimates the timing of the asset retirement based on an economic life determined by reference to similar properties and/or reserve reports.  The liability amounts are based on future retirement cost estimates and incorporate many assumptions such as expected economic recoveries of oil and gas, time to abandonment, future inflation rates and the adjusted risk-free rate of interest. When the liability is initially recorded, the Company capitalizes the cost by increasing the related property balances. This initial capitalized cost is depreciated or depleted over the useful life of the asset. The Company has identified potential asset retirement obligations at the Girard, Kansas and Crosby, North Dakota operating sites.  These retirement obligations are determined based on the estimated cost to comply with abandonment regulations established by the  12    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011   NOTE 9 - ASSET RETIREMENT OBLIGATION (CONTINUED) Kansas Corporation Commission and the State of North Dakota.  The Company's engineers have estimated the cost, in today's dollars, an assumed inflation rate of 1.5%.  The anticipated future cost of remediation efforts in North Dakota, and Kansas, are $204,685, and $281,547, respectively.  These amounts were discounted back at an assumed interest rate of 10%, to arrive at a net present value of the obligation. The amount of the annual increase in the obligation is charged to "accretion expense" and for  the year ending September 30, 2011, is computed to be $15,493. The ending balance of the asset retirement obligation at June 30, 2011 is $166,548.  The asset retirement obligation is included in the Balance Sheet classification "Long-term Liabilities."  The following table summarizes the change in the asset retirement obligation since the beginning of the fiscal year ending September 30, 2010: June 30, 2011September 30, 2010Beginning balance$                    154,928$                    140,844Liabilities incurred--Liabilities settled--Accretion expense11,62014,084Revision to estimated cash flows--Totals$                    166,548$                    154,928 NOTE 10 - COMMON STOCK Issuances and Private Placements:  The following transactions reflect issuances of shares of the Companys common stock and are presented by date of completion in chronological order.  Transactions described as private placements were completed in reliance upon that certain exemption from the registration and prospectus delivery requirements of the Securities Act of 1933, which exemption is specified by the provisions of Section 5 of that act and Regulation S. Three Months Ending June 30, 2011 April 13, 2011 - The Company closed on a private placement offering, pursuant to Rule 506 of the Securities Act of 1933, in the amount of $321,000 (the Offering).  Under the terms of this Offering, the Company issued 2,675,000 shares of its common stock at $0.12 per share.  No warrants are associated with this Offering and the shares being issued are restricted and cannot be resold except pursuant to registration or an exemption from registration.  The Company's Chief Executive Officer, purchased $144,000 or 44.9% of the Offering. April 13, 2011 - The Company issued 649,564 shares of  common stock in lieu of paying interest with cash, to holders of  10% convertible debentures described in Note 8.  The interest totaled $77,948 and was converted to shares at a price of $0.12 per common share. May 3, 2011 -The Company issued 166,667 shares of common stock to one of the holders of a 10% convertible debentures, in agreement with the terms thereof referenced above in Note 8, who elected to convert the principal amount of $20,000  to 166,667 shares.  These shares were all valued at $0.12 per share. May 6, 2011 - 120,422 shares of common stock were issued to a member of the Board of Directors in lieu of cash payment for services provided.  These shares were valued at $0.1246 per share; with the fair value of the aggregate issuance approximating the value of the services rendered of $15,000. May 12, 2011 -The Company issued 416,667 shares of common stock to one of the holders of a 10% convertible debentures, in agreement with the terms thereof referenced above in Note 8, who elected to convert the principal amount of $50,000  to 416,667  13    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011   NOTE 10 - COMMON STOCK (CONTINUED) shares.  These shares were all valued at $0.12 per share. May 25, 2011 -The Company issued 423,034 shares of common stock to one of the holders of a 10% convertible debentures, in agreement with the terms thereof referenced above in Note 8, who elected to convert the principal amount of $50,000 plus accrued interest of $764  to 423,034 shares.  These shares were all valued at $0.12 per share. May 31, 2011 -The Company issued 166,667 shares of common stock to one of the holders of a 10% convertible debentures, in agreement with the terms thereof referenced above in Note 8, who elected to convert the principal amount of $20,000  to 166,667 shares.  These shares were all valued at $0.12 per share. June 30, 2011 -The Company issued 323,132 shares of common stock to the Board of Directors in lieu of cash payment for services provided.  These shares were valued at $.1246; with the fair value of the aggregate issuance of $40,250 approximating the value of the services provided. NOTE 11 - STOCK BASED COMPENSATION  The Companys board of directors approved a stock option plan on August 11, 2009.   The purpose of the Plan is to provide employees and consultants of the Corporation and its Subsidiaries with an increased incentive to make significant and extraordinary contributions to the long-term performance and growth of the Corporation and its Subsidiaries, to join the interests of employees and consultants with the interests of the shareholders of the Corporation, and to facilitate attracting and retaining employees and consultants of exceptional ability.    The total number of shares available for grant under the terms of the Plan is 4,000,000.  The stock option exercise price shall be the fair market value of the share at the date of issuance, but may be changed by the Board of Directors or designee from time to time.  The stock options are non-transferable and shall expire not more than five (5) years from the date of the granting.  The Company recognizes compensation expense using the straight-line method of amortization.  Historically, the Company has issued new shares to satisfy exercises of stock options and the Company expects to issue new shares to satisfy any future exercises of stock options.  During the year ended September 30, 2010, the Company granted  2,790,000 stock options to employees, contractors, board members and consultants exercisable at a price of $0.20 per share until September 2015.  At June 30, 2011, the Company had 2,790,000 options granted and outstanding.  The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the assumptions noted in the following table.  Expected volatilities are based on historical volatility of the Companys stock.  The Company uses historical data to estimate option volatility within the Black-Scholes model.  The expected term of options granted represents the period of time that options granted are expected to be outstanding, based upon past experience and future estimates and includes data from the Plan.  The risk-free rate for periods within the expected term of the option is based upon the U.S. Treasury yield curve in effect at the time of grant.  The Company currently does not foresee the payment of dividends in the near term. Changes in the subjective input assumptions can materially affect the fair value estimate and, therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Companys stock options          14    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011   NOTE 11 - STOCK BASED COMPENSATION (CONTINUED)  The fair value of the stock options granted was estimated using the Black-Scholes option-pricing model and is amortized over the vesting period of the underlying options.  The assumptions used to calculate the fair value are as follows: Year Ended September 30, 2010Dividend yield-Expecteed volatility99.30%Risk free interest rate1.43%Expected life (years)5 years   A summary of the status of the Companys nonvested stock options outstanding at June 30, 2011 is presented as follows: Number of shares under optionsWeighted Average Exercise Price Per ShareWeighted Average Fair ValueAggregate Intrinsic ValueBalance outstanding, September 30, 2009-$                   -$                   -$                   -Forfeited----Exercised----Granted2,790,0000.20558,000438,873Balance outstanding, September 30, 20102,790,0000.20558,000$         438,873Forfeited----Exercised----Granted----Balance outstanding, June 30, 20112,790,000$               0.20$         558,000$         438,873  As of June 30, 2011, there was $78,455 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan.  That cost is expected to be recognized over a weighted-average period of  .6  years.  The total fair value of options vested at June 30, 2011 was $206,852. NOTE 12 - SHARE PURCHASE WARRANTS When warrants to purchase common stock at a specified exercise price are sold the proceeds received are allocated between the value of the stock and the value of the warrants.  To make this allocation,  the Black-Scholes option pricing model is utilized.  This is a subjective exercise involving the use of various estimates, including the risk-free interest rate, the option or contract life, and the expected volatility of the underlying security. In conjunction with the issuance of the $500,000 note payable, described in Note 8, 55,335 warrants were issued for services provided in execution of the debentures.  The warrants were valued at $9,456 using the Black-Scholes option pricing model with the following assumptions:  risk free interest rate of 0.067, volatility of 99%, exercise price of $0.28, current market price of $0.45 per share and an expected life of 3.5 years.  The warrants were expensed in the period ending June 30, 2011 and included in "Other expense" on the Consolidated Statement of Operation.     15    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011  NOTE 12 - SHARE PURCHASE WARRANTS (CONTINUED) A summary of the Company's share purchase warrants outstanding at June 30, 2011 is presented as follows: Broker WarrantsBroker Warrant Exercise PriceShare Purchase WarrantsWarrant Exercise PriceBalance, September 30, 2010166,000$                   0.452,000,000$                   0.45Granted55,335$                   0.182,777,778$                   0.18Exercised--Forfeited--Balance, June 30, 2011221,3354,777,778 NOTE 13 - LOSS PER COMMON SHARE The Company follows ASC 260, Earnings Per Share which requires the reporting of basic and diluted earnings/loss per share.  We calculate basic loss per share by dividing the net loss by the weighted average number of outstanding common shares during the period.  We calculate diluted loss per share by dividing net loss by the weighted average number of outstanding common shares, including all potentially dilutive securities during the period.  For the periods ending June 30, 2011 and September 30, 2010 the weighted average number of shares was 52,134,837 and 47,512,481, respectively.  Additionally, all of the outstanding options and warrants have an anti-dilutive effect on the per common share amounts. NOTE 14 - RELATED PARTY TRANSACTIONS On July 1, 2008, the Company subleased office space for $1,500 per month from Marlin Property Management, LLC an entity owned by the spouse of JayHawk Energy's CEO.  The Company believes this office space and facilities are sufficient to meet the Company's present needs, and do not anticipate any difficulty securing alternative or additional space, as needed, on terms acceptable to the Company.  In April 2009, the Company renegotiated the monthly payment to $1,000 per month. Effective October 1, 2010, lease payments returned to the previous amount of $1,500 per month. Accordingly, our commitment to make these lease payments for the fiscal year ending September 30, 2011 is $18,000. NOTE 15 - INCOME TAX The Company follows the guidance of Topic 740, Income Taxes, to account for income taxes, which requires the establishment of deferred tax assets and liabilities for the recognition of future deductions or taxable amounts and operating loss and tax credit carry forwards. Deferred federal income tax expense or benefit is recognized as a result of the change in the deferred tax asset or liability during the year using the currently enacted tax laws and rates that apply to the period in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce deferred tax assets to the amounts that will more likely than not be realized.  Additionally, the Company follows the guidance provided by ASC Topic 740 which recognizes that the ultimate deductibility of positions taken or expected to be taken on a tax return is often uncertain.  It provides guidance on when tax positions claimed by an entity can be recognized (See Note 2, Summary of Significant Accounting Policies  Income Tax Accounting for Uncertainty).  The Company's provision for income taxes reflects the U.S. federal income taxes calculated at the maximum federal corporate statutory rate of 34%, U.S. state taxes calculated at the statutory rate of 4.15% net of any federal income tax benefit calculated at their combined rates of 19.15% net of any U.S. federal income tax benefits. These rates are the Company's effective tax rates. At June 30, 2011, the Company has available for federal income tax purposes a net operating loss carry-forward of approximately $7,626,500, expiring at various times from 2025 through 2028 that may be used to offset future taxable income. Therefore, the Company has provided no provision for income tax.  The computation and reconciliation with the operating losses from inception is  16    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011   NOTE 15 - INCOME TAX (CONTINUED) disclosed in the following table for the fiscal years ending September 30, 2007 through 2010 and the nine months ending June 30, 2011: Nine months ended June 30, 20112007200820092010CumulativeNet operating loss before taxes:$   (257,713)$   (3,128,342)$   (2,277,632)$   (5,161,381)$        (2,030,524)$ (12,855,592)Add back temporary differences:Allowance for impairment-1,474,000-811,339-2,285,339Excess depreciation and amortization-129,106370,776--499,882Expenses not deducted currently--102,804200,560159,858463,222Add back permanent differences:------Accretion and amortization of note--discount--522,248759,146635,9821,917,376Other40,0004,154750--44,904Net operating loss to carry-forward$   (217,713)$   (1,521,082)$   (1,281,054)$   (3,390,336)$        (1,234,685)$   (7,644,870) Deferred tax assets have been recognized for this net operating loss carry-forward of approximately $1,210,000 at June 30, 2011.  This has been calculated using effective tax rates of 34%.  We have not recorded a benefit from the net operating loss carryforward because realization of the benefit is uncertain and, therefore, a valuation allowance of $2,593,010 has been provided for the deferred tax assets. The following table reports the carry forward by year and the related deferred tax assets by year from April 5, 2004 (inception) through June 30, 2011: Tax Year EndNOL Carry-forwardDeferred Tax AssetSeptember 30, 2006 (from inception)$                 32,433$                   11,027September 30, 2007185,28062,995September 30, 20081,521,082517,168September 30, 20091,281,054435,558September 30, 20103,390,3361,152,714September 30, 2011 (to date)1,234,685419,793Total available$            7,644,870$              2,599,256Less: Valuation Allowance(2,599,256)Net Deferred Tax Asset$                          -  The Company analyzed its tax positions taken on it Federal and State tax returns for the open tax years ending September 30, 2007, 2008, 2009 and 2010.  The Company determined that there are no uncertain tax positions and that the Company should prevail upon examination by the taxing authorities. At June 30, 2011, the Company has net operating loss carry forwards of $7,626,500, which expire in the years 2026 to 2031.  The change in the allowance account from September 30, 2010 to June 30, 2011 was $413,547. Although the Company believes its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in the tax provisions.  Ultimately, the actual tax benefits to be realized will be based on future taxable earnings levels, which are difficult to predict. The Company may be assessed penalties and interest related to the underpayment of income taxes.  Such assessments would be treated as a provision of income tax expense on the Company's financial statements.  Through the period ended June 30, 2011, no income tax expense has been realized as a result of the Company's operations and no income tax penalties and interest have been accrued related   17    JAYHAWK ENERGY, INC. Condensed Notes to the Consolidated Financial Statements (Unaudited) For the Nine Months ended June 30, 2011  NOTE 15 - INCOME TAX (CONTINUED) to uncertain tax positions.  The Company files income tax returns in the U.S. federal jurisdiction and in the State of Idaho.  These filings are subject to a three year statute of limitations.  The Company's evaluation of income tax positions included the fiscal years ended September 30, 2010, 2009, 2008 and 2007 which could be subject to agency examinations as of June 30, 2011.  No filings are currently under examination.  No adjustments have been made to reduce the Company's estimated income tax benefit at fiscal year end.  Any valuations relating to these income tax provisions will comply with U.S. generally accepted accounting principles.  NOTE 16 - SUBSEQUENT EVENTS July 8, 2011 - The Company issued 404,637 shares of  common stock in lieu of paying interest with cash, to holders of  10% convertible debentures described in Note 8.  The interest totaled $38,251 and was converted to 404,637 shares at a price of $0.0945 per common share. August 5, 2011 -The Company issued 500,000 shares of common stock to one of the holders of a 10% convertible debentures, in agreement with the terms thereof referenced above in Note 8, who elected to convert the principal amount of $60,000 to 500,000 shares.  These shares were all valued at $0.12 per share.   18      Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations   Results of Operations for the three months ended June 30, 2011 and 2010  Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and supplemental information presented in our Annual Report for the period ending September 30, 2010, on Form 10-K, and the Forms 8-K and Forms 10-Q issued in the periods subsequent to September 30, 2010.  Certain sections of Management's Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements concerning trends or events potentially affecting our business.  These statements typically contain words such as "anticipates," "believes," "estimates," "expects," "plans," "probable," "should," "could," "would," or similar words indicating that future outcomes are uncertain.  In accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not all such factors, which could cause future outcomes to differ materially from those set forth in the forward-looking statements.  Oil and Gas Properties During the year ending September 30, 2010, JayHawk drilled two vertical wells on the Crosby property in order to develop the Mississippian reservoir further within the pool.  The wells exhibited marginal production potential after attempts to stimulate flow and are currently shut-in.  The Jenks #1 well has been identified as a good candidate for use as a pool water disposal well and will help to reduce operating expense and possibly generate disposal revenue.  The Knudsen #1 well is located on the land in which the Company has Bakken drilling rights. Potential exists to re-enter the Knudsen well to drill out a horizontal leg into the Bakken formation.  Activity in the Bakken has been moving northward from developed fields in Mountrail and McKenzie Counties to the south.  Recent drilling into the Bakken shale  formation and the underlying Three Forks shale have yielded promising production results within 10 miles of the Crosby pool.  The Company is also looking at strategies to redeploy redundant production equipment on the property in order to streamline the production system and to increase overall efficiency. During the three months ended June 30, 2011, the Crosby area experienced record rainfall, flooding and severe weather conditions.  This had an adverse effect on oil production and the ability of the Company to deliver inventory to its oil marketer.  The loss of volume was offset somewhat by strengthening per barrel prices in the marketplace.  During the period, gas production remained stable at JayHawks Girard Kansas Coal Bed Methane project.  The area is operated under a Joint Venture Agreement with WHL Midcon LLC wherein WHL continued to assume JayHawks share of operating expenses while it contemplates exercise of its option to acquire a further 42.5% of the Girard project. Revenues For the three months ending June 30, 2011 and 2010, oil revenues reported as JayHawk's net working interest were $52,732 and $159,623 respectively.  The comparative volume of oil and gas delivered and the average prices received during each of the two respective three month periods of 2011 and 2010, are disclosed in the following table: VolumesAverage PricesGross Revenue201120102011201020112010Oil Sales (in barrels)1,0134,528$             90.11$             64.20$           91,280$         290,695Gas Sales (in thousand cubic feet)2,9237,973$               3.69$               4.3312,43722,333Total Gross Receipts103,717313,028Less:working & royalty interests(46,327)(139,187)Less:severance taxes(4,658)(14,218)Net Revenues to JayHawk$         52,732$       159,623  Volumes of oil delivered during the three month period ending June 30, 2011 are considerably lower than the same period in 2010 due to production operations being adversely impacted by weather conditions during the 2011 period.  Flooding and ongoing rain showers limited oil deliveries due to road closures resulting from weight load restrictions mandated by state and local governments. The irregular unseasonable rains and subsequent effect on roads in the area surrounding JayHawk's oil production wells continue to impact production but management believes normal operations will resume during the quarter ending September 30, 2011.  Oil Revenues As commented in Note 2 of the Condensed Notes to Consolidated Financial Statements above, the Company recognizes revenues only to the extent of its net working interest, which is the remainder after deduction of the outside working and royalty interests and the deduction of severance and production taxes.   19      For the three month period ending June 30, 2011, JayHawk sold a gross 1,013 Bbls.  Field prices (after delivery charges) fluctuated from a low of $83.80 to a high of $97.45 during the three month period ending June 30, 2011  This production was sold at average prices of $90.11/Bbl.  During the comparable period ending June 30, 2010 the quarterly sales volumes were 4,528 Bbls.  Average prices received per barrel of crude oil were $64.20  for the three months ending June 30, 2010.  Gas Revenues  During the first quarter ending December 31, 2009, the Company entered into an agreement whereby 42.5 percent of the gas revenues generated from the Girard properties were assigned to a joint venture partner in exchange for $250,000 plus assumption of operating expenses and the incurring of field activity totaling an additional $250,000.  Prices received for our gas production continue to be volatile.  During the three months ending June 30, 2011, they have fluctuated between a low of $3.98 per mcf. and a high of $4.83 per mcf.  Production and Operating Expenses Total operating expenses for the three months ended June 30, 2011 and 2010 were $721,028 and $814,605, respectively.  The expenses are segregated as follows: Quarter End June 30, 2010Quarter EndJune 30, 2011Crosby, NDGirard, KSG&ATotalTotalDirect Regional Costs$        19,843$          3,348$                   -$         23,191$             91,859Depreciation, depletion and amortization93,493104,6072,997201,097217,396General and administrative expenses--183,314183,314286,225Other net (income) and expense104,5052,250206,670313,426219,125Totals$       217,841$       110,205$       392,982$      721,028$          814,605   Total production expenses for the North Dakota oil operations were $23,191 for the three months ended June 30, 2011.  These expenses are 4.4% less as a percentage of revenue than incurred in the comparative periods ending June 30, 2010.  Other expense increased over the comparable period due to a loss of $102,514 on the sale of equipment no longer utilized in production and sold as surplus to generate cash flow.  All other expenses decreased over the prior year as a result of ongoing cost-cutting initiatives.  The Knudsen and Jenks wells have been taken offline and will remain offline for the foreseeable future during the aforementioned conversion to a water disposal and the contemplated horizontal drill site.  These wells were producing significant unanticipated volumes of water.  Consequently, associated operating expenses on the Knudsen and Jenks wells have been minimized. As well, overall oil volume and associated revenue has decreased from the prior year by a similar percentage.  Also, the comparable three month period during the first quarter 2010, included several weeks of negligible production activities due to unfavorable weather conditions.  Relative to the Companys Kansas natural gas activities, throughout the three month period ending June 30, 2011, in accordance with the joint operating agreement, the joint venture partner has paid the majority of all costs associated with those operations.  This accounts for the reduction in production costs reflected between the comparable three month period ending June 30, 2011 and 2010.  Production Expenses include direct costs and expenses such as field labor, fuel, power, well repair and maintenance, and saltwater disposal.  The direct production expenses are reported net of amounts charged to our non-operating partners for their working interest share of applicable costs and expenses.  General and Administrative Expenses include the cost of head office administration and the salaries and wages paid senior management and administrative staff.  A comparative analysis of the general and administrative expense for the three month period ending June 30, 2011 and 2010 is provided in the following table: Period End June 30, 2011Period End June 30, 2010Three MonthsSix MonthsThree MonthsSix MonthsCompensation and payroll taxes$           57,541$         222,388$         104,680$         203,637Salary deferral and stock option expense53,286222,85865,697133,490Legal, professional and consulting fees26,10272,12452,521-Audit and public company expense24,74485,46727,16053,961Office and other corporate general and administrative21,64172,92018,50544,075Total$         183,314$         675,757$         268,563$         435,163   20      Management has taken appropriate and necessary actions to reduce general and administrative expenses and will continue to seek further cost reductions.  Total general and administrative expense has decreased $85,249 (31.7%) during the three month period ending June 30, 2011 compared to the prior year. Overall expenses have decreased over the prior year for the comparable quarter ending June 30 as a result of staff attrition and reduction or deferral of management salaries.  For the six months ending June 30, 2011, general and administrative expenses incurred for the corporate office and management increased primarily as a result of stock option expense of $159,858 incurred which was not in effect during the comparable period ending June 30, 2010.  Other net (income) expense  for the three month period ending June 30, 2011 and 2010, are detailed below.  Interest expense, discount amortization, financing costs and the non-cash costs of debt conversion are more fully discussed in Note 7 to the Condensed Notes to the Financial Statements.  Period End June 30, 2011Period End June 30, 2010Three MonthsNine monthsThree MonthsNine monthsNet interest and financing costs$           69,347$         210,685$           34,468$           97,831Debt conversion expense---1,466,978Debenture discount amortization and expense--138,178595,934Loss of sale of equipment102,875102,875Accretion of convertible note payable191,600635,982--Accretion of asset retirement obligation3,87311,6203,52110,563All other miscellaneous (income) & expense(54,270)(55,352)42,9587,405Total$         313,426$         905,809$         219,125$      2,178,711  Net interest and financing costs are higher for the three months ending June 30, 2011 compared to the same period ending June 30, 2010 primarily as a result of the Company carrying a larger debt load.  Debenture discount amortization and debt conversion expense are directly related to the associated increase in long-term liabilities and conversion of a portion of the debt during the three months ended June 30, 2011, whereas during the comparable three months ending June 30, 2010, the company did not carry a debt load for the majority of the period.  The Company also sold underutilized equipment at a loss of $102,875 in order to bolster cash flow and satisfy current obligations.  Cash Flows, Liquidity and Capital Resources  As of June 30, 2011 current assets totaled $105,119 consisting of cash, $48,872, accounts receivable, $46,655, and prepaid expenses, $9,592.  At the same time the Company's current liabilities were $761,745  This working capital shortage impairs the Company's ability to continue operating as a going concern.  Future success and independence will be dependent upon the Company's ability to obtain sufficient additional financing and upon achieving profitable future operations.  At this time there is no assurance that the Company will be able to achieve these objectives.  Several significant vendors have agreed to extended payment terms, further improving cash flow which should be assisted by improving seasonal weather in North Dakota coupled with increased oil production and strong oil prices.  Net cash used by operating activitiestotaled $949,963 for the nine months ending June 30, 2011, compared to $964,594 provided by operating activities for the nine month period ending June 30, 2010.  During the nine month period end June 30, 2011 accounts payable decreased by $582,884 as emphasis on reducing expenses and several significant trade vendors were negotiated to multiple month payment terms as discussed in Note 7 to the Consolidated Financial Statements.  Net cash provided by investing activities totaled $121,555 during the nine months ending June 30, 2011 as compared use of  $1,148,435 in the same period ending June 30, 2010.  Cash in the amount of $321,000 was provided by financing activities during the nine months ending June 30, 2011 as a result of proceeds from the sale of common stock, included purchase of $144,000 of common shares by the Companys Chief Executive Officer.  During the comparable period ending June 30, 2010, $1,500,000 was provided by financing activities.  Also see Note 8, Long-term Liabilities, in the Condensed Notes to Consolidated Financial Statements.  The net change in cash is the sum of cash used in operating activities and provided by investing and financing activities, or a net total of $7,408 which is the decrease in the Company's cash balance of $56,280 existing at September 30, 2010, to the cash balance at June 30, 2011 of $48,872.  21      Off-Balance Sheet Arrangements  We have no off-balance sheet arrangements

..  Item 3. Quantitative and Qualitative Disclosures About Market Risk  We have no investments, trading or non-trading, that would be sensitive to market risk.  Item 4. Controls and Procedures  (a) Evaluation of disclosure controls and procedures -. In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)).  Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.  Based on its evaluation, and in light of the previously-identified material weaknesses in internal control over financial reporting, as of September 30. 2010, described in the 2010 Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2011, our  disclosure controls and procedures were not effective.  (b) Changes in internal controls  There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  There has been no progress towards remediating our previously disclosed material weakness due to the lack of funding.  PART II  OTHER INFORMATION  Item 1. Legal Proceedings.  None.  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.  None.  Item 3.  Defaults Upon Senior Securities  None.  Item 4.  Submission of Matters to Vote of Security Holders  None.  Item 5.  Other Information  None.  Item 6.  Exhibits  31.1          Rule 13a - 14(a) / 15d - 14(a) Certification of CEO  32.1          Section 1350 Certification of CEO   22            SIGNATURES  In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  JayHawk Energy, Inc.,
a Colorado corporationDate: August 16, 2011By:/s/ Lindsay E. GorrillLindsay E. Gorrill
Principal Executive Officer,
President and a Director   23