UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-QSB
   x
              QUARTERLY REPORT UNDER SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
      PERIOD ENDED MARCH 31, 2008
 
 o
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the transition period from   to
 
 Commission
File Number: 333-121034
 
  Jayhawk Energy,
Inc.
 (Exact
name of small business issuer as specified in its charter)
 
 Colorado
              20-0990109(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)
 
 370
      Interlocken Blvd, Suite 400,
      Broomfield CO 80021(Address
      of principal executive offices)
 
 (303) 327-1571(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 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 May 15, 2008, there were
42,573,953 shares of the issuer's $.001 par value common stock issued and
outstanding.
  Transitional
Small Business Disclosure format (check one):  o
Yes   x No
  1
 Table of Contents
 
 JAYHAWK ENERGY, INC.
 
 Quarterly
Report on Form 10-QSB for the
 Quarterly
Period Ending March 31, 2008
 
 Table of
Contents
  
 PART
      I. FINANCIAL INFORMATION
              Page NumberItem
      1.  Financial StatementsBalance
      Sheets:March
      31, 2008 (Unaudited) and September 30, 2007
              3Statements of
      Operations:Three Months Ended March 31, 2008 and 2007
    (Unaudited)
              4Statements of Cash
      Flows:Three Months Ended March 31, 2008 and 2007
      (Unaudited)
              5Notes to Unaudited Financial
      Statements:March 31, 2008
              6-14Item 2.  Management
      Discussion and Analysis
              15Item
      3.  Controls and
      Procedures
              21PART
      II. OTHER INFORMATIONItem
      4.  Legal
      Proceedings
              22Item
      5.  Unregistered
      Sales of Equity Securities and Use of Proceeds
              22Item
      6.  Defaults
      Upon Senior Securities
              22Item
      7.  Submission
      of Matters to a Vote of Security Holders
              22Item
      8.  Other
      Information
              22Item
      9.  Exhibits
              22Signatures
              23
 2
 Table of Contents
 
 PART I - FINANCIAL INFORMATION
 
 Item 1.  Financial
Statements
 
 JAYHAWK
ENERGY, INC.
 Balance
Sheet
  (Unaudited)
      Quarter Ended
                  March
      31,
                
                
                Year
      Ended September 30,2008
                
                
                2007AssetsCash
      and cash equivalents
                
                $
                281,581
                
                
                $
                525,117Accounts
      receivable
                
                
                106,219
                
                
                
                —Prepaids
      and other current assets
                
                
                8,626
                
                
                
                —Total
      current assets
                
                
                396,426
                
                
                
                525,117Proved
      and unproved oil & gas property, net of $99,045 and $0 in depletion
      and $15,997 and $0 in leasehold amortization respectively
                
                
                8,095,141
                
                
                
                2,200,000Equipment,
      net of $34,211 and $0 accumulated depreciation
respectively
                
                
                1,256,739
                
                
                
                573Total
      assets
                
                $
                9,748,306
                
                
                $
                2,725,690Liabilities
      And Stockholders’ EquityAccounts
      payable
                
                $
                58,383
                
                
                $
                40,000Taxes
      payable
                
                
                3,247
                
                
                
                1,539Total
      current liabilities
                
                
                61,630
                
                
                
                41,539Stockholders’
      equityPreferred
      stock, $.001 par value; 10,000,000 shares authorized; none
      outstanding
                
                
                —
                
                
                
                —Common
      stock, $.001 par value; 200,000,000 shares authorized; 40,624,052 and
      36,882,659 shares issued and outstanding respectively
                
                
                40,624
                
                
                
                36,883Additional
      paid-in capital
                
                
                9,337,370
                
                
                
                2,904,981Stock
      issuance obligation
                
                
                900,000
                
                
                
                —Accumulated
      deficit
                
                
                (591,318
                )
                
                
                (257,713
                )Total
      stockholders’ equity
                
                
                9,686,676
                
                
                
                2,684,151Total
      liabilities and stockholders’ equity
                
                $
                9,748,306
                
                
                $
                2,725,690
 See
accompanying notes to unaudited financial statements.
  3
 Table of Contents
  JAYHAWK ENERGY, INC.
 Statement
of Operations
 (Unaudited)
  Three
      Months Ended
                
                
                Six
      Months EndedMarch
      31,
                
                
                March
      31,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenue
                
                $
                258,557
                
                
                $
                —
                
                
                $
                258,557
                
                
                $
                —Operating
      expensesExploration
      and production
                
                
                100,802
                
                
                
                —
                
                
                
                100,802
                
                
                
                —Depreciation
      and depletion
                
                
                149,224
                
                
                
                —
                
                
                
                149,253
                
                
                
                —General
      and administrative
                
                
                224,148
                
                
                
                —
                
                
                
                349,764
                
                
                
                —Gross
      margin
                
                
                (215,617
                )
                
                
                —
                
                
                
                (341,262
                )
                
                
                —Other
      incomeInterest
      income
                
                
                4,720
                
                
                
                —
                
                
                
                7,658
                
                
                
                —Total
      other income
                
                
                4,720
                
                
                
                —
                
                
                
                7,658
                
                
                
                —Loss
      from continuing operations before income tax
                
                
                (210,897
                )
                
                
                —
                
                
                
                (333,604
                )
                
                
                —Income
      tax expense
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Deferred
      tax benefit
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Loss
      from continuing operations
                
                $
                (210,897
                )
                
                $
                —
                
                
                $
                (333,604
                )
                
                $
                —Revenues
      from discontinued operations
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                242Expenses
      from discontinued operations
                
                
                —
                
                
                
                44,790
                
                
                
                —
                
                
                
                54,189Loss
      from discontinued operations
                
                
                —
                
                
                
                (44,790
                )
                
                
                —
                
                
                
                (53,947
                )Net
      loss and total comprehensive loss
                
                $
                (210,897
                )
                
                $
                (44,790
                )
                
                $
                (333,604
                )
                
                $
                (53,947
                )Basic
      and diluted loss per share
                
                $
                (0.01
                )
                
                $
                —
                
                
                $
                (0.01
                )
                
                $
                —Basic
      and diluted weighted average shares outstanding
                
                
                38,955,641
                
                
                
                66,000,000
                
                
                
                37,919,150
                
                
                
                90,000,000
  See
accompanying notes to unaudited financial statements.
  4
 Table of Contents
  JAYHAWK ENERGY, INC.
 Statement
of Cash Flows
 (Unaudited)
  Six
      Months EndedMarch
      31,2008
              
              
              2007Cash
      flow from operating activities:Net
      loss
              
              $
              (333,604
              )
              
              $
              (53,947
              )Adjustments
      to reconcile net income to net cash used in operating
      activities:Depreciation
              
              
              149,253
              
              
              
              —Changes
      in operating assets and liabilities:Receivables
              
              
              (106,219
              )
              
              
              —Prepaids
      & other assets
              
              
              (8,626
              )
              
              
              —Accounts
      payable & other liabilities
              
              
              20,091
              
              
              
              6,391Net
      cash provided by (used in) operating activities
              
              $
              (279,105
              )
              
              $
              (47,556
              )Cash
      flow from investing activities:Proved
      and unproved oil and gas property additions
              
              
              (3,630,183
              )
              
              
              —Purchase
      of equipment
              
              
              (1,234,248
              )
              
              
              —Net
      cash used in investing activities
              
              $
              (4,864,431
              )
              
              $
              —Cash
      flow from financing activities:Proceeds
      from the sale of common stock
              
              
              4,900,000
              
              
              
              —Net
      cash provided by financing activities:
              
              
              4,900,000
              
              
              
              —Net
      decrease in cash and equivalents
              
              
              (243,536
              )
              
              
              (47,556
              )Cash
      and equivalents at beginning of period
              
              
              525,117
              
              
              
              47,901Cash
      and equivalents at end of period
              
              $
              281,581
              
              
              $
              345Supplemental
      Disclosure of Cash Flow and Non-cash Investing and Financing
      Activity:Income
      tax paid
              
              $
              —
              
              
              $
              —Interest
      paid
              
              $
              —
              
              
              $
              —Non
      cash:Property
      purchased with common stock
              
              $
              2,380,000
              
              
              $
              —Equipment
      purchased with common stock
              
              $
              56,130
              
              
              $
              —
  See
accompanying notes to unaudited financial statements.
  5
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  Note 1 – Nature of Operations and Summary of Significant
Accounting Policies
 
 Nature
of Operations
 
 JayHawk
Energy, Inc. (“the Company” or “we” or “our” or “us”) is engaged in the
exploration, acquisition, development, production and sale of natural gas, crude
oil and natural gas liquids primarily from conventional reservoirs within North
America.  We incorporated in Colorado on April 5, 2004 (inception) as
Bella Trading Company, Inc., and were originally formed to offer traditional
ethnic and contemporary jewelry, imported from Nepal and Thailand. During the
second quarter ending June 30, 2007, we changed management and entered the oil
and gas business, and ceased all activity in the retail jewelry industry. On
June 21, 2007, we changed our name to JayHawk Energy, Inc.  Our
principal offices are in Broomfield, Colorado.  The accompanying
financial statements for the periods of March 31, 2008 and 2007 are presented in
accordance with generally accepted accounting principles in the United States of
America (“US GAAP”).
 
 The
Company has devoted its efforts principally to the raising of capital,
organizational infrastructure development, and the acquisition of oil and gas
properties for the purpose of future extraction of resources. As shown in the
accompanying financial statements, we have incurred operating losses since
inception and previously incurred a loss on our discontinued retail jewelry
business. As of March 31, 2008, we have limited financial resources until such
time that we are able to generate substantial positive cash flow from
operations. These factors raise substantial doubt about our ability to continue
as a going concern. Our ability to achieve and maintain profitability and
positive cash flow is dependent upon our ability to locate profitable mineral
properties, generate revenue from our planned business operations, and control
exploration cost. We plan to fund our future operation by joint venturing,
obtaining additional financing, and attaining additional commercial production.
However, there is no assurance that we will be able to obtain additional
financing from investors or private lenders, or that additional commercial
production can be attained.
 
 Basis
of presentation
 
 The
accompanying interim condensed financial statements of the Company have been
prepared pursuant to the rules of the Securities and Exchange Commission (the
“SEC”) for quarterly reports on Form 10-QSB and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These condensed financial statements and notes herein are unaudited,
but in the opinion of management, include all the adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
Company’s financial position, results of operations, and cash flows for the
periods presented. These condensed financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company’s Form 10-KSB for the year ended September 30, 2007 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.
 
 Cash and Cash
Equivalents
 
 We
consider all highly liquid debt instruments purchased with maturity of three
months or less to be cash equivalents.
  6
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  Property
and Equipment
  Property
and equipment is recorded at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the related assets as
follows:
  Furniture
and fixtures:  5 years
 Software:
 3 to 10 years (depending on software)
 Computer and office equipment:  3 to 5 years (depending on
equipment)
 Field
equipment:  1 to 30 years (depending on equipment)
 
 The cost
of maintenance and repairs is charged to expense in the period incurred.
Expenditures that increase the useful lives of assets are capitalized and
depreciated over the remaining useful lives of the assets. When items are
retired or disposed of, the cost and accumulated depreciation are removed from
the accounts and any gain or loss is included in income.
  Investment
in Oil and Gas Properties
 
 Wefollow the
successful-efforts method of accounting for oil and gas property as defined
under Statement of Financial Accounting Standards No. 19, Financial Accounting
and Reporting by Oil and Gas Producing Companies (“FAS 19”). Under this method
of accounting, we capitalize all property acquisition cost and cost of
exploratory and development wells when incurred, pending determination of
whether the well has found proved reserves. If an exploratory well does not find
proved reserves, we charge to expense the cost of drilling the well. We include
exploratory dry hole cost in cash flow from investing activities within the cash
flow statement. We capitalize the cost of development wells whether productive
or nonproductive. We had no exploratory well cost that had been suspended for
one year or more as of March 31, 2008.
 
 We
expense as incurred geological and geophysical cost and the cost of carrying and
retaining unproved property. We will provide depletion, depreciation and
amortization (DD&A) of capitalized cost of proved oil and gas property on a
field-by-field basis using the units-of-production method based upon proved
reserves. In computing DD&A we will take into consideration restoration,
dismantlement and abandonment cost and the anticipated proceeds from equipment
salvage. When applicable, we will apply the provisions of Statement of Financial
Accounting Standards No. 143, Accounting for Asset Retirement Obligations, which
provides guidance on accounting for dismantlement and abandonment
cost.
  We review
our long-lived assets for impairment when events or changes in circumstances
indicate that an impairment may have occurred. In the impairment test we compare
the expected undiscounted future net revenue on a field-by-field basis with the
related net capitalized cost at the end of each period. Should the net
capitalized cost exceed the undiscounted future net revenue of a property, we
will write down the cost of the property to fair value, which we will determine
using discounted future net revenue. We will provide an impairment allowance on
a property-by-property basis when we determine that the unproved property will
not be developed.
  Impairment
of Unproved (Non-Producing) Property
 
 Unproved
properties will be assessed periodically, to determine whether or not they have
been impaired. We will provide an impairment allowance on unproved property at
any time we determine that a property will not be developed. At March 31, 2008,
we consider our current property to be economically and operationally viable, in
accordance with FAS 19.  In determining that there was no impairment
of the unproved property, we considered such factors as our commitment to bring
the project into production, the cost being incurred to develop the project, and
others.
  7
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  Sales
of Producing and Non-producing Property
 
 We
account for the sale of a partial interest in a proved property as normal
retirement. We recognize no gain or loss as long as this treatment does not
significantly affect the unit-of-production depletion rate. We recognize a gain
or loss for all other sales of producing properties and include the gain or loss
in the results of operations.  We account 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. We recognize a gain on the sale to the extent that the sales price
exceeds the carrying amount of the unproved property. We recognize 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
 
 We follow
the Statement of Financial Accounting Standards (“SFAS”) No. 143, “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.  Our 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.  The asset retirement liability
will be allocated to operating expenses using a systematic and rational method.
At March 31, 2008, there was no asset retirement obligation and accretion
expense because a
reasonable estimate of fair value cannot be made at this
time.
  Use
of Estimates
 
 The
preparation of financial statements in conformity with U.S. GAAP requires us to
make certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Although these estimates are based
on the knowledge of current events and actions that we may undertake in the
future, they may ultimately differ from actual results.  Included in
these estimates are assumptions about allowances for valuation of deferred tax
assets. Accounts receivable are stated after evaluation as to their
collectability and an appropriate allowance for doubtful accounts is provided
where considered necessary. The provision for asset retirement obligation,
depletion, as well as our impairment assessment on our oil and gas properties
and other long lived assets are based on estimates and by their nature, these
estimates are subject to measurement uncertainty and the effect on the financial
statements of changes in these estimates, in future periods, could be
significant.
 
 Revenue
Recognition
 
 We use
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 we are entitled to,
based on our 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 receivable or liability will be recorded.  Costs associated
with production are expensed in the period in which they are
incurred.
  8
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  Income
Tax
 
 Income
taxes are determined using the liability method in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
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.
  Net
Loss per Common Share
 
 We have
adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Statement 128 requires the reporting of basic and diluted earnings/loss per
share. We calculate basic loss per share by dividing 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 inception-to-date period ended
March 31, 2008, all weighted average shares outstanding have been calculated
reflecting the stock split retroactively through
inception.  Additionally, all of our warrants have an anti-dilutive
effect on per common share amounts.
  New
Accounting Pronouncements
 
 Accounting for Uncertainty in Income
Taxes.In June 2006, the FASB issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an
interpretation of FASB Statement No. 109, “Accounting for Income Taxes”.
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Interpretation requires that the
Company recognize in the financial statements, the impact of a tax position, if
that position is more likely than not of being sustained on audit, based on the
technical merits of the position. FIN 48 also provides guidance on recognition,
classification, interest and penalties, accounting in interim periods and
disclosure. FIN 48 is effective for fiscal years beginning after December 15,
2006, and we adopt these new requirements as of the beginning of fiscal
2008, with the cumulative effect of the change in accounting principle recorded
as an adjustment to the opening balance of deficit. We have evaluated the impact
of FIN 48 on our financial statements, and have concluded that the Company has
not taken any tax positions that would be less than likely of being sustained
upon audit.
  Fair Value Measurements. In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements”
(“FAS 157”), which defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years, and is
applicable beginning in the first quarter of 2008. We have evaluated FAS
157, and do not consider it to have an impact on our financial
statements.
  9
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  The Fair Value Option for Financial
Assets and Financial Liabilities. In February 2007, the FASB issued
FAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – Including an amendment of FASB Statement No. 115”, (“FAS
159”) which permits entities to choose to measure many financial instruments and
certain other items at fair value at specified election dates. A business entity
is required to report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
This statement is expected to expand the use of fair value measurement. FAS 159
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years, and is
applicable beginning in the first quarter of 2008. We have evaluated FAS
159, and do not consider it to have an impact on our financial
statements.
 
 Note
2 – Unproved Property
 
 Uniontown
Project, Kansas
 
 On July
25, 2007, we acquired the Uniontown project for a total of
$2,200,000, consisting of mineral leases that include approximately 35,000
gross acres in Bourbon County, Kansas within the Cherokee basin, and are leased
for the development of coal-bed methane and conventional oil and gas reserves.
Wells within the leased area were drilled by previous operators with mud logs
and cores taken to identify coal properties and gas contents.  There
have been at least 11 gas bearing coals identified within the Cherokee Group
from depths of 250 – 750 feet, with typical thicknesses of 1 to 4 feet, yielding
total net coal thickness ranges from 20 to 38 feet.  Gas contents have
been measured between 22 – 124 scf/ton.  No production tests have yet
been conducted.
 
 Girard
Project, Kansas
 
 Adjacent
to the Uniontown project, is the Girard Project in Crawford County Kansas, which
we acquired on March 31, 2008.  With the acquisition of the Girard
project, we now hold over 55,000 acres in the Bourbon and Crawford counties of
Kansas for the purchase price of $1,000,000 in cash and 1,000,000 shares of our
common stock. Included in the acreage is a 16 mile gas pipeline we acquired from
Galaxy Energy, Inc., along with 34 wells, 7 of which are tied-in to the
pipeline.  Our entire position and drill targets in the 55,000 acres
can be tied into our 100% owned 16 mile pipeline. This pipeline is tied into a 2
million cubic ft sales pipeline and allows for substantial growth.
 
 Our first
step will be to dewater the 7 tied-in wells, and then connect the additional 27
wells on our way to maximizing production in this area.  These assets
combined with our Uniontown project provide over 4,100 drilling locations with a
net interest of 100% to JayHawk Energy, significantly expanding our South
Eastern sector asset base as a 'core area' with the acreage positions adjacent
to each other.
 
 On March
14, 2008, we executed a Purchase and Sale Agreement with Missouri Gas Partners
LLP, pursuant to which we will acquire certain oil, gas and mineral rights and
interests and other related operating assets located in Crawford and Bourbon
Counties, Kansas in exchange for $140,006 in cash and 286,550 shares of the
Company’s common stock which is to be issued in December 2008. The land base in
this acquisition is contiguous to the “Galaxy Energy Inc” acquisition as
described above.
 
 Subject
to financing we plan to drill a minimum of 48 new wells in this area in the next
twelve months, and tie in approximately 30 completed wells, as acquired in the
last 3 months.
  10
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  Note
3 – Proved Property
 
 Candak
Project, North Dakota
 
 On
January 16, 2008, we acquired the Candak project from JED Oil (USA)
Inc.  Located in the Williston Basin of North Dakota, the Candak
Property provides stable production of light crude oil of approximately 65bbls
daily from 5 existing wells.
 
 Along
with the acquisition of the 5 existing wells, we acquired a 15,500-acre land
position including tangible assets for a total purchase price of $3,500,000.
This acreage is located in a highly active area by other operators in the
Williston Basin play in North Dakota, and across the border into Canada.
Candak’s stable production from its low well count and significant undeveloped
land base places the Company in a high potential growth position to develop the
light oil play.
 
 Subject
to financing we are planning on drilling 2-3 more wells in the next twelve
months as well as implementing a water flood program.
 
 Note 4 – Commitments and
Contingencies
  There is
no pending litigation or proceeding involving any director or officer of the
Company for which indemnification is being sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.
Accordingly, no provision has been made in these financial
statements.
 
 On July
15, 2007, we subleased an office space for $800 per month for the term of one
year. We believe this office space and facilities are sufficient to meet our
present needs, and do not anticipate any difficulty securing alternative or
additional space, as needed, on terms acceptable to us.
 
 On March
24, 2008, we leased an office in Girard, Kansas for $1000 per month for two
years.  This office was leased for the purpose of moving our Girard
project forward.  We believe this office space and facilities are
sufficient to meet our present needs, and do not anticipate any difficulty
securing alternative or additional space, as needed, on terms acceptable to
us.
 
 Note
5 – Common Stock
 
 Increase in Authorized Shares.
On June 21, 2007, we increased the authorized number of shares of common stock
from 50,000,000 shares to 200,000,000 shares.  The changes became
effective with the filing of a Certificate of Amendment to our Articles of
Incorporation with the Colorado Secretary of State.  Our purpose in
increasing its authorized common stock was to allow flexibility in future
financings and stock issuances. Shareholders holding a majority of our
outstanding common stock approved those actions at a meeting of shareholders on
June 21, 2007, held in accordance with the relevant sections of the Colorado
Revised Statutes.
 
 Stock
Split.  Effectuated after the increase in authorized shares,
our Board of Directors approved a 15 for 1 stock split of the issued and
outstanding common stock to be effectuated through the issuance of 14 shares for
each share of common stock outstanding as of the record date.  Our
intent of the stock split is to increase the marketability and liquidity of our
common stock. The pay date was June 25, 2007 for shareholders of record on June
21, 2007.  After the split, the total number of our issued and
outstanding shares of common stock was 90,000,000 shares.  Our common
stock remains at $.001 par value. All share and per share information in
these financial statements have been presented on a retroactive basis as if the
stock split took place at the beginning of all periods
presented.
  11
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  Private Placements. On July
25, 2007 concurrent with the execution of the Asset Purchase and Sale Agreement
of our Uniontown Project in Bourbon County, Kansas, we completed a private
placement for gross proceeds of approximately $2,882,659. The Private Placement
was 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.  Specifically, we sold 2,882,659 Units at a purchase price of $1.00
per Unit, each Unit consisting of (a) one share of common stock, $.001 par value
per share and (b) one warrant which will provide to the holder the right to
purchase one share of our common stock at a purchase price of $1.00 and which
shall expire in two years.  Approximately 562,679 of the Units of the
Private Placement were issued to Berrigan Portfolio, Inc. to repay the principal
and interest accrued as of July 25, 2007, on the promissory note dated April 12,
2007, between us and Berrigan Portfolio, Inc. and 20,000 of the Units were
issued to Berrigan Portfolio, Inc. to repay approximately $20,000 that Berrigan
paid on our behalf.
 
 Additionally
on July 25, 2007, Sara Preston, our former officer and director, agreed to have
56,000,000 shares of her common stock cancelled in exchange for $20,000, in
addition to the remaining inventory of our former jewelry business valued at
approximately $1,500.
 
 Concurrent
with the execution of the Purchase and Sale Agreement of our Candak project in
North Dakota, on January 16, 2008, we completed a private placement of
approximately $4,000,000 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.  Specifically, we sold 2,666,667 Units at a purchase
price of $1.50 per Unit, each Unit consisting of (a) one share of common stock,
$.001 par value per share and (b) one warrant which will provide to the holder
the right to purchase one share of the Registrant’s common stock at a purchase
price of $1.60 and which shall expire one year from the date that the Registrant
accepts the subscription.
 
 Share Purchase
Warrants.  In connection with the private placements mentioned
above, we issued 2,882,659 and 2,666,667 (for a total of 5,549,326) warrants as
part of the units sold.  The warrants are exercisable into an equal
number of common shares for a two-year and one-year period expiring on July 25,
2009 and January 16, 2009, at an exercise price of $1.00 and $1.60 per common
share, respectively. We assigned a fair value of the warrants of $1,557,415 and
$1,759,884 based on a Black-Scholes option model and the following weighted
average assumptions as at the date of grant:
 
 Risk-free
interest rate – 4.74% and 2.86%, respectively
 Expected
and contractual life – 2 years and 1 year, respectively
 Expected
volatility – 99.34% and 104.29%, respectively
 Expected
dividend yield – Nil and Nil, respectively
 
 The fair
value of the warrants was allocated to the recipients based on the percentage of
the proceeds due to each party in relation to the total proceeds
received.
  March
      31,
                
                
                September
      30,2008
                
                
                2007Shares
      of common stock issued and outstanding
                
                
                40,624,052
                
                
                
                36,882,659Shares
      to be issued upon exercise of warrants
                
                
                5,549,326
                
                
                
                2,882,659Total
      shares of common stock outstanding upon exercise of
      warrants
                
                
                46,173,378
                
                
                
                39,765,318
  12
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  Issuance of Common
Stock. On March 31, 2008, we closed the Purchase and Sale Agreement with
Galaxy Energy Inc., completing the acquisition certain oil, gas and mineral
rights, and interests and other related operating assets located in Crawford and
Bourbon Counties, Kansas in exchange for $1,000,000 in cash and 1,000,000 shares
of common stock.  These shares were valued at $2.27.  In
addition, we acquired a smeal workover unit which is mounted to a 1980 Ford
Truck, in exchange for $30,000 in cash and 24,272 shares.  These
shares were also valued at $2.27.  On February 18, 2008, we agreed to
issued 50,000 shares of our common stock to Titan West Energy Inc. for
services provided in connection with the above Purchase and Sale
Agreement.  These shares were valued at $2.20.
  Exercise of Warrants.  On
March 31, 2008, we issued 900,000 shares of our common stock to two of the
Registrant’s shareholders who exercised certain warrants to purchase shares of
common stock at an exercise price of $1.00 per share. We used the proceeds of
$900,000 to close on the Agreement with Galaxy Energy Inc. as discussed
above.  The respective shares for this exercise were not yet issued as
of March 31, 2008, and were accounted for within “Stock issuance
obligation.”
 
 Note
6 – Related party transactions
  On July
15, 2007, we subleased an office space for $800 per month from Resource
Consulting, LLC, an entity owned by our Chief Financial Officer.  This
transaction occurred within the normal course of business and was measured at
the exchange amount, which is the amount of consideration established and agreed
to by the related parties. We believe this office space and facilities are
sufficient to meet our present needs, and do not anticipate any difficulty
securing alternative or additional space, as needed, on terms acceptable to
us.
  Note
7 – Discontinued Operations
 
 On June
21, 2007, we changed our name from Bella Trading Company, Inc. to JayHawk
Energy, Inc. and shifted our focus from the retail jewelry industry to the oil
and gas business. Bella was incorporated on April 5, 2004 but did not begin
operations until August of 2004. From inception until the third quarter 2007,
Bella had gross revenues from the sale of merchandise of approximately $19,000
and expenses of $107,000. During the third quarter ending June 30, 2007, we
decided to change management, enter the oil and gas business, and cease all
activity in the retail jewelry industry. We shifted our focus to exploration,
acquisition, development, production and sale of natural gas, crude oil and
natural gas liquids primarily from conventional reservoirs within North America.
On July 25, 2007, we acquired certain oil, gas, mineral leases, and other
mineral rights and interests located in Bourbon County, Kansas. Our new business
plan is to acquire oil and gas properties for exploration and
development with the intent to bring the projects to feasibility at which
time we will either contract out the operations or joint venture the
project to qualified interested parties.  Our main priority will be
given to projects with near term cash flow potential, although consideration
will be given to projects that may not be as advanced from a technical
standpoint but demonstrate the potential for significant upside.
 
 Note
8 – Income taxes
  We record
our income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes”.  We incurred net operating losses during all periods presented
resulting in a deferred tax asset, which was fully allowed for; therefore, the
net benefit and expense resulted in zero income taxes.
  13
 Table of Contents
 JAYHAWK
ENERGY, INC.
 Notes
to Unaudited Financial Statements
 March
31, 2008
  Note
9 – Subsequent Events
 
 On April
15, 2008, we issued 599,939 shares of common stock to two of the shareholders
who exercised certain warrants to purchase shares of common stock at an exercise
price of $1.00 per share. We intend to use the proceeds for working
capital.
 
 On April
18, 2008, we entered into a Purchase and Sale Agreement with Titan West Energy
Inc. to acquire certain petroleum and natural gas rights and interests and other
related operating assets located in Crawford County, Kansas in exchange for
$300,000 in cash and 50,000 shares of common stock.  The agreement
provides that 50% of the cash price is payable upon request of Titan West Energy
Inc. before the closing date, with the remainder of the cash and the shares of
stock, payable at closing. As of the date of this report, we paid $150,000 of
the purchase price.
  The
acquisition will complete the purchase of assets in the Crawford County, Kansas,
which includes 1,336 acres of leases and 14 completed gas wells.  We
believe the acquisition brings needed infrastructure to the adjacent Uniontown
project for its development. The purchase of the new acres added to current
acreage in the Uniontown project provides over 4,100 drilling locations with a
net interest of 100% to Jayhawk Energy Inc.
  On May 7,
2008, we issued 399,962 shares common stock to one of the shareholders who
exercised certain warrants to purchase shares of common stock at an exercise
price of $1.00 per share. We intend to use the proceeds for working
capital.
  On May 7,
2008, we issued 50,000 shares of common stock to Titan West Energy Inc. for
services provided in connection with the above described Purchase and Sale
Agreement.
  14
 Table of Contents
  Item
2.  Management’sDiscussion and Analysis of
Financial Condition and Results of Operations
 
 Forward-Looking
Statements
 
 This
following information specifies certain forward-looking statements of management
of the company. Forward-looking statements are statements that estimate the
happening of future events and are not based on historical fact. Forward-looking
statements may be identified by the use of forward-looking terminology, such as
“may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”,
“probable”, “possible”, “should”, “continue”, or similar terms, variations of
those terms or the negative of those terms. The forward-looking statements
specified in the following information have been compiled by our management on
the basis of assumptions made by management and considered by management to be
reasonable. Our future operating results, however, are impossible to predict and
no representation, guaranty, or warranty is to be inferred from those
forward-looking statements.
 
 The
assumptions used for purposes of the forward-looking statements specified in the
following information represent estimates of future events and are subject to
uncertainty as to possible changes in economic, legislative, industry, and other
circumstances. As a result, the identification and interpretation of data and
other information and their use in developing and selecting assumptions from and
among reasonable alternatives require the exercise of judgment. To the extent
that the assumed events do not occur, the outcome may vary substantially from
anticipated or projected results, and, accordingly, no opinion is expressed on
the achievability of those forward-looking statements. We cannot guarantee that
any of the assumptions relating to the forward-looking statements specified in
the following information are accurate, and we assume no obligation to update
any such forward-looking statements.
 
 Critical
Accounting Policies and Estimates
 
 Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations section discusses our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, accrued expenses, financing operations, and contingencies
and litigation. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The most significant accounting estimates
inherent in the preparation of our financial statements include estimates as to
the appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources.
 
 These
accounting policies are described at relevant sections in this discussion and
analysis and in the notes to the financial statements included in our Annual
Report on Form 10-KSB for the fiscal year ended September 30,
2007.
  15
 Table of Contents
  Overview
 
 From
inception through March 31, 2007, our operations consisted of the purchase of
jewelry and other accessories from our Asian suppliers, which were then sold at
arts and crafts shows and on the Internet. In April 2007, we changed management
and changed our business plan. Our new business plan is to acquire oil and gas
properties for exploration and development with the intent to determine the
feasibility of drilling at those properties with success, at which time we will
either contract out the operations or joint venture the project to qualified
interested parties.  Our main priority will be given to projects with
near term cash flow potential, although consideration will be given to projects
that may not be as advanced from a technical standpoint but demonstrate the
potential for significant upside.
  On June
21, 2007, we changed our name from Bella Trading Company, Inc. to Jayhawk
Energy, Inc. and increased the authorized number of shares of common stock from
50,000,000 shares to 200,000,000 shares.  The changes became effective
with the filing of a Certificate of Amendment to our Articles of Incorporation
with the Colorado Secretary of State.  Our purpose in changing our
name was to reflect a change in our business focus.  Our purpose in
increasing our authorized common stock was to allow flexibility in future
financings and stock issuances and other corporate purposes. The actions to
effect the name change and increase in authorized common stock were approved on
April 3, 2007, by unanimous approval of our Board of Directors. In
addition, shareholders holding a majority of our outstanding common stock
approved those actions at a meeting of shareholders on June 21, 2007, held in
accordance with the relevant sections of the Colorado Revised
Statutes.
 
 On July
25, 2007, we entered into an Asset Purchase and Sale Agreement with Armstrong
Investments Incorporated, pursuant to which we acquired the Uniontown project,
which includes gas and mineral leases, and other mineral rights and interests
located in Bourbon County, Kansas (“Uniontown Project”) in exchange for
$2,200,000 in cash.
 
 Concurrent
with the execution of the Asset Purchase and Sale Agreement as disclosed above,
we completed a private placement of approximately $2,882,659, in which we sold
2,882,659 Units at a purchase price of $1.00 per Unit, each Unit consisting of
(a) one share of common stock, $.001 par value per share and (b) one warrant
which will provide to the holder the right to purchase one share of our common
stock at a purchase price of $1.00 and which shall expire in two years.
Approximately 562,679 of the Units of the Private Placement were issued to
Berigan Portfolio, Inc. to repay the principal and interest accrued as of July
25, 2007, on the promissory note dated April 12, 2007 between us and Berigan
Portfolio, Inc. and 20,000 of the Units were issued to Berigan Portfolio, Inc.
to repay $20,000 that Berigan paid on our behalf.
 
 Candak
Property, North Dakota
 
 On
January 16, 2008, we entered into a Purchase and Sale Agreement with JED Oil
(USA) Inc., pursuant to which we acquired certain oil, gas, mineral rights and
interests, and other related operating assets located in the Candak Area, North
Dakota in exchange for $3,500,000 in cash. Concurrent with the execution of the
Purchase and Sale Agreement, we completed a private placement of approximately
$4,000,000. The Private Placement was 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.  Specifically, we sold
2,666,667 Units at a purchase price of $1.50 per Unit, each Unit consisting of
(a) one share of common stock, $.001 par value per share and (b) one warrant
which will provide to the holder the right to purchase one share of the
Registrant’s common stock at a purchase price of $1.60 and which shall expire in
one year.
  16
 Table of Contents
  The
Candak Property is located in the Williston Basin area of North Dakota. The
acquisition of the Candak Property provides us with a daily 65bbls net of light
oil production and operation. We acquired a 15,500-acre land position with this
acquisition and related production equipment. We believe that the lands are in
an area that is highly active by other operators. The acquisition of the Candak
Property is the next step in our strategic plan is to acquire oil and gas
properties for exploration, development and production.
 
 This
project was brought into production in September 2006, since we acquired the
project in January 2008, revenues net to our interest include approximately
$259,000 related to production generated from January 2008 through March
2008.  The following Statement of Revenues and Direct Operating
Expenses consist of historical production and expenses.
 
 Statement
of Revenues and Direct Operating Expenses
 For
the Six Months Ended March 31, 2008 and Year Ended September 30,
2007
 
 Six
      Months Ended
              
              
              Year
      EndedMarch
      31,
              
              
              September
      30,2008
              
              
              2007RevenuesOil
      production
              
              $
              659,809
              
              
              $
              1,033,898Direct
      operating expensesWell
      operating
              
              
              (309,240
              )
              
              
              (321,275
              )Revenues
      in excess of direct operating expenses
              
              $
              350,569
              
              
              $
              712,623
  Basis
of Presentation and Financial Information
 
 Direct
operating expenses include equipment rentals, contract operation,
instrumentation and mechanical repairs and maintenance, utilities, and other
direct operating expenses. Certain costs such as depreciation, depletion and
amortization, general and administrative expenses, interest expense, and
corporate taxes are not allocated to the Candak wells.
 
 Use of
Estimates – The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of revenues and expenses. Such estimates
primarily relate to unsettled transactions and events as of the date of the
financial statements. Accordingly, upon settlement, actual results may differ
from estimated amounts.
 
 Historical
financial statements reflecting financial position, results of operations and
cash flows required by accounting principles generally accepted in the United
States of America are not presented as such information is not readily available
on an individual property basis and not meaningful to the acquired property.
Historically, no allocation of general and administrative, interest, corporate
income taxes, accretion of asset retirement obligations, depreciation, depletion
and amortization was made to the Candak wells. Accordingly, the statements are
presented in lieu of the financial statements required under Rule 3-01 of the
Securities and Exchange Commission Regulation S-X.
  17
 Table of Contents
  Results
of Operations
 
 Previous Operations.On June
21, 2007, we changed our name from Bella Trading Company, Inc. to JayHawk
Energy, Inc. and shifted our focus from the retail jewelry industry to the oil
and gas business. We do not expect that we will generate any revenues from our
jewelry business as we have discontinued the operations related to our jewelry
business. Going forward, we hope to generate larger revenues as we implement our
new business plan, which we adopted in April 2007.
 
 For
the three months ended March 31, 2008 and March 31, 2007
 
 Revenues. We had $259,000 in
revenue for the three months ended March 31, 2008, as compared to no sales for
the three months ended March 31, 2007 related to our former jewelry
business.  Since we had no sales for the three months ended March 31,
2007, we had no gross profit. We do not expect that we will generate any further
revenues from our jewelry business as we have discontinued the operations
related to our jewelry business. Going forward, we hope to generate larger
revenues as we continue to implement our new business plan, which we adopted in
April 2007.
 
 Operating Expenses.For the
three months ended March 31, 2008, our total operating expenses were $474,000,
as compared to $45,000 total operating expenses for the three months ended March
31, 2007. The increase in total operating expenses is primarily due to lease
operating expenses, legal and professional fees, audit fees, and other general
and administrative expenses.  We expect that we will continue to incur
significant professional fees related to being a public company. For the three
months ended March 31, 2008, our operating expenses consisted of lease operating
expenses of $68,000 related to our Candak and Uniontown
properties, $186,000 in legal and professional consulting fees, $27,000 in
payroll expense, $9,000 in audit fees, $9,000 in insurance, $5,000 in public
relations expense, $3,000 in rent, $9,000 in travel, $50,000 in depreciation
expense, $100,000 in depletion expense, and $8,000 in other general and
administrative expenses. In comparison, for the three months ended March 31,
2007, we had professional fees and payroll expense of $41,000, other general and
administrative expenses of $4,000.
 
 Net Income or
Loss.For the three months ended March 31, 2008, our net loss
from operations was $216,000, with a total net loss of $211,000.  This
is in comparison to the three months ended March 31, 2007, where our net loss
from operations and net loss was $45,000.  The increase in our net
loss for the three months ended March 31, 2008, was due to an increase in
operating expenses between the two periods as a result of our change in focus,
which was primarily represented by the cost to operate and explore our Candak
and Uniontown properties, as well as legal and professional services
expenses.
 
 For
the six months ended March 31, 2008 and March 31, 2007
 
 Revenues. We had $259,000 in
revenue for the six months ended March 31, 2008, as compared to $242 in sales
for the six months ended March 31, 2007 related to our former jewelry
business.  For the six months ended March 31, 2007, we had $79 in cost
of goods sold for a gross profit of $163. We do not expect that we will generate
any further revenues from our jewelry business as we have discontinued the
operations related to our jewelry business. Going forward, we hope to generate
larger revenues as we continue to implement our new business plan, which we
adopted in April 2007.
  18
 Table of Contents
  Operating Expenses.For
the six months ended March 31, 2008, our total operating expenses were
$600,000, as compared to $54,000 total operating expenses for the six
months ended March 31, 2007. The increase in total operating expenses is
primarily due to lease operating expenses, legal and professional fees, audit
fees, and other general and administrative expenses.  We expect that
we will continue to incur significant professional fees related to being a
public company. For the six months ended March 31, 2008, our operating
expenses consisted of lease operating expenses of $68,000 related to our Candak
and Uniontown properties, $236,000 in legal and professional consulting
fees, $60,000 in payroll expense, $27,000 in audit fees, $20,000 in insurance,
$13,000 in public relations expense, $7,000 in rent, $16,000 in travel, $50,000
in depreciation expense, $100,000 in depletion expense, and $13,000 in other
general and administrative expenses. In comparison, for the six months
ended March 31, 2007, we had professional fees and payroll expense of $50,000,
other general and administrative expenses of $4,000.
 
 Net Income or
Loss.For the six months ended March 31, 2008, our net
loss from operations was $341,000, with a total net loss of
$334,000.  This is in comparison to the six months ended March
31, 2007, where our net loss from operations and net loss was
$54,000.  The increase in our net loss for the six months ended
March 31, 2008, was due to an increase in operating expenses between the two
periods as a result of our change in focus, which was primarily represented by
the cost to operate and explore our Candak and Uniontown properties, as well as
legal and professional services expenses.
 
 Liquidity
and Capital Resources
 
 As of March 31, 2008, we
had cash of $282,000, $106,000 in accrued revenue receivable, and $9,000 in
prepaid expenses.  Our current liabilities were $62,000 as of March
31, 2008, which was represented principally by accounts payable for professional
fees, audit review fees, and payroll tax payable.  We had no other
liabilities including long term commitments or contingencies, which provides for
a net working capital of $335,000 as of March 31, 2008.
 
 Other
than the expenses of exploring other business opportunities as described above,
and the anticipated increases in legal and accounting costs due to the reporting
requirements of being a reporting company, we are not aware of any other known
trends, events or uncertainties, which may affect our future
liquidity.
 
 As
described above, in July 2007, we completed the Private Placement pursuant to
which we raised approximately $2,882,659, of which $2,200,000 were used to
acquire the Uniontown Project.
 
 In
January 2008, we completed a private placement of approximately $4,000,000, of
which $3,500,000 were used to acquire the Candak Property.
 
 Our
Plan of Operation for the Next Twelve Months
 
 In April
2007, we discontinued the operations related to our jewelry business. We do not
expect that we will generate any future revenues from our jewelry business. Our
new business plan is to acquire oil and gas properties for exploration and
development with the intent to bring the projects to feasibility at which time
we will either contract out the operations or joint venture the project to
qualified interested parties.
 
 As
described above, on July 25, 2007, we entered into an Asset Purchase and Sale
Agreement with Armstrong Investments Incorporated, pursuant to which we acquired
the Uniontown Project, which includes gas and mineral leases and other mineral
rights and interests located in Bourbon County, Kansas in exchange for
$2,200,000 in cash.
  19
 Table of Contents
  The
acquisition of the Uniontown Project is the initial step of our new business
plan is to acquire oil and gas properties for exploration and development. Over
the next twelve months, we intend to engage in the exploration, acquisition,
development, production and sale of natural gas, crude oil and natural gas
liquids primarily from conventional reservoirs within North
America.
 
 Additionally
as described above, on January 16, 2008, we entered into a Purchase and Sale
Agreement with JED Oil (USA) Inc., pursuant to which we acquired the Candak
Property, which certain oil, gas, mineral rights and interests, and other
related operating assets located in the Candak Area, North Dakota in exchange
for $3,500,000 in cash. The acquisition of the Candak Property provides us with
a daily 65bbls net of light oil production and operation. We acquired a
15,500-acre land position with this acquisition and related production
equipment. We believe that the lands are in an area that is highly active by
other operators. Subject to financing we are planning on drilling 2-3 more wells
in the next twelve months as well as implementing a water flood program. The
acquisition of the Candak Property is the next step in our strategic plan is to
acquire oil and gas properties for exploration, development and
production.
 
 Adjacent
to the Uniontown project, is the Girard Project in Crawford County Kansas, which
we acquired on March 31, 2008.  With the acquisition of the Girard
project, we now hold over 55,000 acres in the Bourbon and Crawford counties of
Kansas. Included in the acreage is a sixteen (16) mile gas pipeline we acquired
from Galaxy Energy, Inc., along with 34 wells, 7 of which are tied-in to the
pipeline.  Our entire position and drill targets in the 55,000 acres
can be tied into our 100% owned 16 mile pipeline. This pipeline is tied into a 2
million cubic ft sales pipeline and allows for substantial growth.
 
 Our first
step will be to dewater the 7 tied-in wells, and then connect the additional 27
wells on our way to maximizing production in this area.  These assets
combined with our Uniontown project provide over 4,100 drilling locations with a
net interest of 100% to JayHawk Energy, significantly expanding our South
Eastern sector asset base as a 'core area' with the acreage positions adjacent
to each other.
  Subject
to financing we plan to drill a minimum of 48 new wells in this area in the next
twelve months, and tie in approximately 30 completed wells, as acquired in the
last 3 months.
 
 As of
March 31, 2008, we do not have any commitments or arrangements to provide any
additional capital. Even if our new operations can generate cash, our future
plans will, in part, be dependent upon additional capital which may be available
to us. If additional financing is not available when needed, we may continue to
operate in our present mode or we may need to cease operations.
 
 Our
forecast for the period for which our financial resources will be adequate to
support our operations involves risks and uncertainties and actual results could
fail as a result of a number of factors. In the event that we experience a
shortfall in our capital, we intend to pursue capital through public or private
financing as well as borrowings and other sources, such as our officers,
director and principal shareholders. We cannot guarantee that additional funding
will be available on favorable terms, if at all. If adequate funds are not
available, we hope that our officers, director and principal shareholders will
contribute funds to pay for our expenses to achieve our objectives over the next
twelve months.
 
 We are
not currently conducting any research and development activities. We do not
anticipate that we will purchase or sell any significant equipment. In the event
that we generate significant revenues and expand our operations, then we may
need to hire additional employees or independent contractors as well as purchase
or lease additional equipment.
 
 Off-Balance
Sheet Arrangements
 
 We have
no off-balance sheet arrangements.
  20
 Table of Contents
  Item 3. Controls and
Procedures
 
 (a)
Evaluation of disclosure controls and procedures.
 
 Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as
of March 31, 2008. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their
costs.
 
 Based
on our evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required
disclosure.
 
 (b)
Changes in internal control over financial reporting.
 
 We
regularly review our system of internal control over financial reporting and
make changes to our processes and systems to improve controls and increase
efficiency, while ensuring that we maintain an effective internal control
environment. Changes may include such activities as implementing new, more
efficient systems, consolidating activities, and migrating
processes.
 
 There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-QSB that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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  PART II— OTHER INFORMATION
 
 Item 4. Legal
Proceedings.
 
 None.
 
 Item 5. Unregistered Sales
of Equity Securities and Use of Proceeds.
 
 On
January 16, 2008, concurrent with the execution of the Candak property Purchase
and Sale Agreement, we completed a private placement of approximately
$4,000,000. The Private Placement was 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.  Specifically, we sold
2,666,667 Units at a purchase price of $1.50 per Unit, each Unit consisting of
(a) one share of common stock, $.001 par value per share and (b) one warrant
which will provide to the holder the right to purchase one share of the
Registrant’s common stock at a purchase price of $1.60 and which shall expire in
one year.
 
 On March
31, 2008, we closed the Purchase and Sale Agreement with Galaxy Energy Inc.,
completing the acquisition certain oil, gas and mineral rights, and interests
and other related operating assets located in Crawford and Bourbon Counties,
Kansas in exchange for $1,000,000 in cash and 1,000,000 shares of common
stock.  These shares were valued at $2.27.  In addition, we
acquired a smeal workover unit which is mounted to a 1980 Ford Truck, in
exchange for $30,000 in cash and 24,272 shares.  These shares were
also valued at $2.27.  On February 18, 2008, we agreed to issued
50,000 shares of our common stock to Titan West Energy Inc. for services
provided in connection with the above Purchase and Sale
Agreement.  These shares were valued at $2.20.
 
 Item 6.  Defaults
Upon Senior Securities
 
 None.
 
 Item
7.  Submission of Matters to Vote of Security
Holders
 
 None.
 
 Item 8.  Other
Information
 
 None.
 
 Item
9.  Exhibits
 
 Exhibit
              Description31.1
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended31.2
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended32.1
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Executive
    Officer)32.2
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Financial
    Officer)
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  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.
 
 
 
 May 15,
2008                                                        By:/s/
Lindsay E. Gorrill
 Name: Lindsay E. Gorrill
 Its: Principal Executive Officer, President and a Director
 
 
 
 May 15,
2008                                                             By:/s/
Joseph B. Young
 Name: Joseph B. Young
 Its: Principal Accounting Officer, Chief Financial
Officer