UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q





x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      FOR THE QUARTERLY PERIOD ENDED DECMBER 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: 000-53311




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.)





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 filer
              o
              Accelerated
      filer
              oNon-accelerated
      filer (Do not check if a smaller reporting company)
              o
              Smaller
      reporting company
              x


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 February 06, 2009, there were
43,961,503 shares of the issuer's $.001 par value common stock issued and
outstanding.




1




JAYHAWK
ENERGY, INC.





Quarterly
Report on Form 10-QSB for the


Quarterly
Period Ending December 31, 2008





TABLE
OF CONTENTS





PART
      I. FINANCIAL INFORMATIONItem 1. Financial
      StatementsBalance
      Sheets:December
      31, 2008 (Unaudited) and September 30, 2008 (Audited)
            3Statements
      of Operations:Three Months Ended December 31, 2008 and 2007
      (Unaudited)
            4Statements
      of Cash
    Flows:Three
      Months Ended December 31, 2008 and 2007
      (Unaudited)
            5Notes
      to Unaudited Financial
      Statements:December 31, 2008
            6Item 2. Management
      Discussion and Analysis
            11Item 3. Quantitative
      and Qualitative Disclosures About Market
      Risk
            13Item 4. Controls
      and Procedures
            13PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
            13Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
            13Item
      3. Defaults Upon Senior Securities
            13Item
      4. Submission of Matters to a Vote of Security
      Holders
            14Item
      5. Other Information
            14Item
      6. Exhibits
            14Signatures
            15




2




PART
I - FINANCIAL INFORMATION




Item
1. Financial Statements


JayHawk
Energy, Inc.
 Consolidated
Balance Sheets


As
      at
              December
      31, 2008
              (Unaudited)
            
            
            As
      at
              September
      30, 2008
              (Audited)AssetsCash
      & cash equivalents
            
            $
            83,799
            
            
            $
            82,683Trade
      accounts receivable, less allowance for doubtful accounts of $95,810at
      December 31, 2008 and September 30, 2008 (Note 3)
            
            
            258,138
            
            
            
            413,862Other
      current assets net of allowance for doubtful collections of
      $9,500
            
            
            4,472
            
            
            
            16,027Total
      Current Assets
            
            
            346,409
            
            
            
            512,572Plant,
      Property and EquipmentUnproved oil and gas properties, net of allowance for impairment
      ofof $1,474,000 at December 31 and September 30, 2008
    andaccumulated
      amortization of $200,619 and$114,535, respectively (Note4)
            
            
            2,469,826
            
            
            
            2,555,910Proved
      and developed oil and gas properties net of accumulated
      depreciation,depletion
      and amortization of $836,234 at December 31, 2008and
      $613,159 at September 30, 2008 (Note 5)
            
            
            6,786,568
            
            
            
            6,991,043Computers,
      office equipment, furniture and leasehold improvements, net
    ofaccumulated
      depreciation of $4,314 at December 31, 2008 and $1,335 atSeptember
      30, 2008
            
            
            40,598
            
            
            
            32,365Total
      Net Plant, Property and Equipment
            
            
            9,296,992
            
            
            
            9,579,318Other
      Long-Term Assets
            
            
            189,300
            
            
            
            247,586Total
      Assets
            
            $
            9,832,701
            
            
            $
            10,339,476Liabilities
      and Stockholders' EquityCurrent
      LiabilitiesAccounts
      payable
            
            $
            437,446
            
            
            $
            381,197Working
      and royalty interests payable
            
            
            139,855
            
            
            
            106,003Accrued
      Taxes, Interest & Other Liabilities
            
            
            120,046
            
            
            
            147,100Convertible
      promissory note
            
            
            570,427
            
            
            
            472,038Total
      current liabilities
            
            
            1,267,774
            
            
            
            1,106,338Asset
      Retirement Obligation (Note 6)
            
            
            131,241
            
            
            
            128,040Total
      Liabilities
            
            
            1,399,015
            
            
            
            1,234,378Stockholders'
      EquityCommon
      Stock, $.001 par value; 200,000 shares authorized; shares
      issuedand outstanding 42,835,928 at 12/31/08 and 42,810,928 at 09/30/07.
      (Note 7)
            
            
            42,837
            
            
            
            42,812Additional
      paid-in capital
            
            
            12,417,508
            
            
            
            12,400,782Stock
      issuance obligation
            
            
            47,559
            
            
            
            47,559Accumulated
      deficit
            
            
            (4,074,218
            )
            
            
            (3,386,055
            )Total
      Stockholders' Equity
            
            
            8,433,686
            
            
            
            9,105,098Total
      Liabilities and Equity
            
            $
            9,832,701
            
            
            $
            10,339,476


See
Accompanying Notes to the Consolidated Financial Statements




3




JAYHAWK
ENERGY, INC.


Consolidated
Statements of Operations
 And
Comprehensive Loss (Unaudited)


For
      the three months endedDecember
      31, 2008
            
            
            For
      the three
              months
      ended
      December 31, 2007Revenue (Net
      Working Interest)Oil
      Sales
            
            $
            123,333
            
            
            $
            -Gas
      Sales
            
            
            33,700
            
            
            
            -Total
      Net Revenues
            
            $
            157,033
            
            
            $
            -Costs
      and Operating ExpensesExploration
      and Production - Kansas
            
            
            81,133
            
            
            
            135,225Exploration
      and Production - North Dakota
            
            
            71,505
            
            
            
            -Depreciation,
      depletion, and amortization
            
            
            312,139
            
            
            
            -General
      and Administrative
            
            
            221,574
            
            
            
            125,645Other
      (Income) and Expense
            
            
            158,844
            
            
            
            (2,939
            )Total
      Costsand
      Expenses
            
            
            845,195
            
            
            
            257,931Net
      loss and total comprehensive loss
            
            $
            (688,162
            )
            
            $
            (257,931
            )Deficit,
      beginning of period
            
            
            (3,386,056
            )
            
            
            (257,714
            )Deficit,
      end of period
            
            
            (4,074,218
            )
            
            
            (515,645
            )Basic
      and diluted loss per share
            
            $
            (0.02
            )
            
            $
            (0.01
            )Basic
      weighted average number shares outstanding
            
            
            42,827,505
            
            
            
            36,882,659





See
Accompanying Notes to the Consolidated Financial Statements
  4




JAYHAWK
ENERGY, INC.


Consolidated
Statement of Cash Flows (Unaudited)




For
      Quarter Ending
              December
      31, 2008
            
            
            For
      Quarter Ending
              December
      31, 2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss from operations
            
            $
            (688,162
            )
            
            $
            (257,931
            )Adjustments
      to reconcile net loss to net cash usedby
      operating activities:Depreciation,
      depletion and amortization
            
            
            312,139
            
            
            
            30Amortization
      of Discount on Note Payable
            
            
            58,286
            
            
            
            -Accretion
      of convertible promissory note
            
            
            98,389
            
            
            
            -Accretion
      in annual asset retirement obligation
            
            
            3,201
            
            
            
            -Common
      stock issued in consideration for services
            
            
            16,750
            
            
            
            -(Increase)
      decrease in accounts receivable
            
            
            155,723
            
            
            
            -(Increase)
      decrease in other current assets
            
            
            11,555
            
            
            
            -Increase
      (decrease) in accounts payable
            
            
            56,249
            
            
            
            25,399Increase
      in accruals and other current liabilities
            
            
            6,798
            
            
            
            -Net
      cash used by operating activities
            
            
            30,928
            
            
            
            (232,502
            )CASH
      FLOWS FROM INVESTING ACTIVITIESProved
      oil and gas property additions
            
            
            (18,600
            )
            
            
            -Unproved
      oil and gas property additions
            
            
            -
            
            
            
            -Other
      property additions
            
            
            (11,212
            )
            
            
            -Net
      cash used in investing activities
            
            
            (29,812
            )
            
            
            -CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from the sale of common stock
            
            
            -
            
            
            
            -Borrowings
      with note payable
            
            
            -
            
            
            
            -Net
      cash provided by financing activities
            
            
            -
            
            
            
            -NET
      CHANGE IN CASH AND CASH EQUIVALENTS
            
            
            1,116
            
            
            
            (232,502
            )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            82,683
            
            
            
            525,117CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            83,799
            
            
            $
            292,615


See
Accompanying Notes to the Consolidated Financial Statements
  5




JAYHAWK
ENERGY, INC.
 Notes
to Financial Statements
 (Unaudited)
 For
the Three Months ended December 31, 2008 and December 31,
2007


Note
1 – Basis of Presentation
  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 Energy,
Inc. (the "Company") reports on operations using a fiscal year end of September
30.  This report on Form 10-QSB is for the first quarter of the fiscal
year to end September 30, 2009, the quarter ending December 31,
2008.  These consolidated financial statements, including notes, have
been prepared in accordance with the applicable rules of the Securities and
Exchange Commission and do not include all of the information and disclosures
required by accounting principles generally accepted in the United States of
America ("U.S. GAAP")for complete financial statements.  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-KSB for the year ended September 30, 2008 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.
  Note
2 - Summary of Significant Accounting Policies
  Going
Concern - To date we have incurred operating losses.  As of
December 31, 2008 we have limited financial resources with which to achieve our
objectives and obtain profitability and positive cash flows.  This
will be dependent on our ability to obtain additional financing , to locate
profitable mineral properties and generate revenue from our current and planned
business operations, and control costs.  We plan to fund our future
operations by joint venturing, obtaining additional financing from investors,
and attaining additional commercial production.  However, there is no
assurance that we will be able to achieve these objectives.
  Basis
of Consolidation – These consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, JayHawk Gas
Transportation Company, Inc. All intercompany accounts and transactions have
been eliminated.
  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  U.S. GAAP 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.  Included in these estimates are
assumptions about allowances for valuation of deferred tax assets, allowances
for doubtful accounts, provisions for asset retirement obligations,
depreciation, depletion, and amortization, as well as management’s impairment
assessment on its oil and gas properties.  By their very 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. These estimates and assumptions are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the periods in
which they become known.
  Loss
per common share -Basic loss per share is calculated based on the
weighted average number of common shares outstanding.  Diluted loss
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 reflect net losses from operations, all of
our warrants have an anti-dilutive effect on per common share
amounts.
  Revenue
Recognition - 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.  Revenues reflected in these financial statements are the
Company's net working interest after deduction of amounts attributable to other
working and royalty interest owners.  See note above, "Joint Venture
Operations" and subsequent Management's Discussion and
Analysis.
 6


JAYHAWK
ENERGY, INC.
 Notes
to Financial Statements
 (Unaudited)
 For
the Three Months ended December 31, 2008 and December 31, 2007
  Note
2 – Summary of Significant Accounting Policies (continued)
 Accounts
Receivable – When volumes of crude oil or gas are delivered to the
purchaser we record a receivable based on the volumes delivered and field prices
on the particular day of delivery.  Subsequently these amounts may be
adjusted for various technical factors affecting volumes such as temperature,
pressure and content of basic sediment and water.  When it becomes
evident that amounts receivable become uncollectible we establish a valuation
allowance and record a provision for bad debts in our statement of
operations.  Our sales of crude oil and natural gas are delivered into
a market with a very concentrated group of purchasers.  As more
specifically detailed in Note 3, the  former purchaser of our crude
filed for bankruptcy protection in July 2008.
  Property,
plant and equipment -The Company uses the successful-efforts method of
accounting for oil and gas property as defined under Statement of Financial
Accounting Standards (SFAS) No. 19, Financial Accounting and Reporting by Oil
and Gas Producing Companies (“FAS 19”). 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.
 We
provide depletion  of the capitalized cost of proved oil and gas
property on a field-by-field basis using the units-of-production method,
based upon estimated proved reserves.  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.




In
computing depreciation, depletion, and amortization (DD&A) we take into
consideration restoration, dismantlement and abandonment cost and the
anticipated proceeds from equipment salvage. When applicable, we 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.  Also, specifically see Note 6,
Asset Retirement Obligation.





We review
our long-lived assets for impairment at least annually or when events or changes
in circumstances indicate that impairment may have occurred in accordance with
SFAS 144.  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.  Also, specifically see Note 4, Unproved Properties and
Impairment.




Share Based Payments–
Periodically we compensate specific vendors of goods and services with shares of
our common stock.  The fair value of the common shares issued for
goods or services rendered by non-employees is measured based on the fair value
of the goods or services received.





Income Taxes - Income taxes
are determined using the asset and liability method in accordance with 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.  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.




7




JAYHAWK
ENERGY, INC.
 Notes
to Financial Statements
 (Unaudited)
 For
the Three Months ended December 31, 2008 and December 31,
2007




Note
3 - Trade Accounts Receivable





Trade
accounts receivable represents those amounts the Company is owed for its' oil
and gas production delivered during the months of June, July, and December 2008,
less an allowance for doubtful accounts.  Also included in the
aggregate is an amount receivable from other working interests billed for their
percentages of joint operating costs.  Specifically, it is detailed as
follows at December 31, 2008 and September 30, 2008:





December
      31,
              2008
            
            
            September
      30,
              2008Due
      for crude oil delivered in June & July - SemCrude
            
            $
            283,485
            
            
            $
            283,486Less:
      Allowance for doubtful collections
            
            
            (
      95,810
            )
            
            
            (95,810
            )Due for crude oil
      delivered in December (September)
            
            
            20,008
            
            
            
            181,340Due for natural gas
      delivered in December (September)
            
            
            21,100
            
            
            
            19,356Due
      from joint operating agreement working interests
            
            
            29,355
            
            
            
            25,490$
            $258,138
            
            
            $
            413,862





The
previous purchaser of our North Dakota crude oil, SemCrude, took delivery of
JayHawk's June and July production and before compensating the Company filed a
Chapter 11 bankruptcy proceeding.  Management believes that the
Company will receive all the proceeds for the July sales but has established an
allowance for 80% of the value of the June deliveries, equivalent to $95,810,
charging bad debt expense for an equal amount.   Amounts
receivable at December 31, 2008, for oil and natural gas deliveries were
received in January 09.




Note
4 – Unproved Properties and Impairment





The total
of JayHawk's investment in unproved properties consists of the capitalized costs
of property acquisitions made during the prior two fiscal years.  At
December 31, 2008 and September 30, 2008, net Unproved Properties was the
aggregate of the following:




Description
            
            December 31,
      2008
            
            
            September 30,
      2008Land
      acquisition and retention
            
            $
            4,144,445
            
            
            $
            4,144,445Less:
      Accumulated amortization
            
            
            (200,619
            )
            
            
            (114,535
            )Less:
      Allowance for impairment in value
            
            
            (1,474,000
            )
            
            
            (1,474,000
            )Total
      Net Investment in Unproved Properties
            
            $
            2,469,826
            
            
            $
            2,555,910





Impairment of Uniontown
Project:  In addition to amortizing the capitalized lease
costs, JayHawk periodically reviews and assesses its' unproved properties to
determine whether or not they have been impaired.  A property is
considered impaired if it will not or cannot be developed.  At that
time an allowance is established to revalue the capitalized cost and a provision
of equal amount is provided as an operating expense.  Management made
a review of the portfolio of leases acquired in the Uniontown transaction of
July 2007 and decided based on geology and proximity to our pipeline, to permit
approximately one-third of the original leases acquired to expire without
renewal. The Company's inability at September 30, 2008 to fund development of
any acreage, justified the creation of an impairment valuation.  The
management has estimated the allowance at two-thirds, 67 percent, of the
original investment equaling $1,474,000.




8
 JAYHAWK
ENERGY, INC.
 Notes
to Financial Statements
 (Unaudited)
 For
the Three Months ended December 31, 2008 and December 31, 2007


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 $6,786,568, at December 31, 2008, and
$6,991,043 at September 30, 2008.  These net capitalized costs are
comprised of the following; detailed by property:




December
      31, 2008
            
            
            September
      30, 2008Candak,
      North Dakota PropertiesProved
      Reserves
            
            $
            2,357,752
            
            
            $
            2,357,752Field
      Equipment
            
            
            1,200,248
            
            
            
            1,200,248Less
      accumulated DD&A
            
            
            (717,295
            )
            
            
            (538,042
            )Net
      Capitalized Costs
            
            
            2,840,705
            
            
            
            3,019,958Girard,
      Kansas PropertiesField
      Equipment
            
            
            653,305
            
            
            
            634,705Capitalized
      Drilling Costs
            
            
            807,227
            
            
            
            807,227Less
      accumulated DD&A
            
            
            (32,934
            )
            
            
            (18,076
            )Net
      Capitalized Costs
            
            
            1,427,598
            
            
            
            1,423,856JayHawk
      Gas TransportationField
      Equipment
            
            
            2,604,270
            
            
            
            2,604,270Less
      accumulated Depreciation
            
            
            (86,005
            )
            
            
            (57,041
            )Net
      Capitalized Costs
            
            
            2,518,265
            
            
            
            2,547,229Total
      Net Proved Oil & Gas Properties
            
            $
            6,786,568
            
            
            $
            6,991,043







Note
6 - Asset Retirement Obligation


In the period in which anasset retirement
obligationis 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 has
identified potential asset retirement obligations at the Girard, Kansas and
Candak, North Dakota operating sites.  These retirement obligations
are determined based on the estimated cost to comply with abandonment
regulations established by the Kansas Corporation Commission and the State of
North Dakota.  The Company's engineers have estimated the cost, in
today's dollars, to comply with these regulations.  These estimates
were projected out to the anticipated retirement date 15 years from when placed
in service, at an assumed annual inflation rate of 1.5
percent.   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 percent, to arrive at a net present value of the
obligation.  The asset retirement obligation at December 31, 2008 of
$131,241, increased from the September 30, 2008 balance of $128,040 by the
amount of this "accretion expense" for this three month  period,
$3,201.
  Note
7 - Common Stock
  On
October 31, 2009 the Company issued 25,000 shares of stock to a consultant in
exchange for services provided.  The shares were valued at the fair
market value of $0.67, on the date of the transaction.  This
approximates the value of the services provided.
  9
  JAYHAWK
ENERGY, INC.
 Notes
to Financial Statements
 (Unaudited)
 For
the Three Months ended December 31, 2008 and December 31,
2007
 Note
8 – Subsequent events
  On
January 12, 2009 the Company issued 74,575 shares of  its $0.001 par
value Common Stock to Missouri Gas Partners.  Of this amount 22,225
shares represented the total "Stock Issuance Obligation" of $47,559 existing at
December 31, 2008.  This represented the residual from the June 30,
2008 transaction, wherein JayHawk agreed to release 25 shares per acre as
individual oil and gas mineral leases were renewed.  The remaining
52,350 shares were issued in recognition of the Company's obligation to issue 25
shares per acre for 2,094 acres in lieu of lease renewal.  These
shares were valued at $0.51 per share, the fair market value of a share on the
day the obligation was recognized.
  Also on
January 12, 2009, the Company issued a total of 51,000 shares to two individual
consultants, in exchange for services provided.   These shares
were all valued at $0.41 per share; the fair market value on the date of the
transaction.  This approximates the value of the services
provided.
  On
February 5, 2009 the Company completed a private placement of 1,000,000
of  its $.001 par value common shares.  The shares were
issued to one private investor in consideration for $200,000  in cash,
to be used as working capital.  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 4 of that Act.
  10


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





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, 2008,on Form 10-KSB.  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.  For additional risk
factors affecting our business see "Risks Related to Our Business," under Item
1. Description of Business in our Annual Report for the period ending September
30, 2008, filed on Form 10-KSB.





JayHawk
Energy, Inc. and its wholly owned subsidiary JayHawk Gas Transportation
Corporation, (herein referred to as the Company, JayHawk, we and
our)  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.  We incorporated in
Colorado on April 5, 2004 as Bella Trading Company, Inc.  During the
second quarter ending June 30, 2007, we changed  management and
entered the oil and gas business, and ceased all activity in retail
jewelry.  On June 21, 2007, we changed our name to JayHawk Energy
Inc.  Since then, we have devoted our efforts principally to the
raising of capital, organizational infrastructure development, the acquisition
of oil and gas properties for the purpose of future extraction of resources, and
production of oil and natural gas.  To date, we have acquired three
main properties, the Uniontown in Kansas, the Candak in North Dakota, and Girard
in Kansas.  We did not begin producing and selling oil until the
second quarter of the previous fiscal year, the quarter ending March 31, 2008;
nor did we produce and sell any natural gas until the third quarter ending June
30, 2008.





Results
of Operations for the three months ended December 31, 2008 and 2007





Revenues -For the
three months ending December 31, 2008, revenues, reported as JayHawk's net
working interest,  were $157,033.  JayHawk delivered
from  our Candak, North Dakota properties 4,601 Bbls of crude oil and
from our Girard, Kansas properties 10,710 mcf's of natural gas, receiving an
average of $42.10/Bbl. and $3.15/mcf for the oil and gas,
respectively.  There was no production or sales during the comparable
quarter ending December 31, 2007.  The Company's working interest
portion of the production and revenue is computed as follows:


Three
                Months
      EndDecember
      31, 2008Gross
      receipts for oil delivered from Candak, North Dakota
      properties
              
              $
              193,699Gross
      receipts for gas delivered from Girard, Kansas properties
              
              
              33,700Total
      gross receipts
              
              $
              227,399Less:  Other
      Working and Royalty Owner's interests
              
              
              (70,366
              )JayHawk's
      net revenues
              
              $
              157,033


During the quarter ending December 31,
2008 field prices posted for our Candak, North Dakota crude oil declined from
$74.43 in October to $37.27 during the month of December.  At the same
time, gas prices paid for our Girard, Kansas production were volatile,
fluctuating between $1.85 per mcf and $5.65 per mcf, during the period..  As
evidenced here, the prices we receive for our liquid hydrocarbons and natural
gas are very volatile.  Our revenues, operating results and ability to
grow in the future are highly dependent on the prices we receive for our oil and
natural gas.




11





Operating Expenses -Total
operating expenses for the three months ended December 31, 2008 and 2007 were
$746,807, and $257,931, respectively.  These expenses are segregated
as follows:




Quarter
      End
                December
      31,2008
              
              
              Quarter
      End
                December
      31, 2007Candak,
      N.D
              
              
              Girard,
      KS.
              
              
              G&A
              
              
              Total
              
              
              TotalDirect
      regional costs
              
              $
              71,505
              
              
              $
              81,133
              
              
              
              -
              
              
              $
              152,638
              
              
              $
              135,225Depreciation,
      depletion, and amortization
              
              
              179,255
              
              
              
              129,905
              
              
              
              2,979
              
              
              
              312,139
              
              
              
              -General
      and administrative expenses
              
              
              -
              
              
              
              -
              
              
              
              221,574
              
              
              
              221,574
              
              
              
              125,645Other net
      (income) and expense
              
              
              
              
              
              
              
              
              
              
              60,456
              
              
              
              60,456
              
              
              
              (2,939
              )Totals
              
              $
              250,760
              
              
              $
              211,038
              
              
              $
              285,009
              
              
              $
              746,807
              
              
              $
              257,931




The
direct regional costs above totaling $152,638 for the three months ending
December 31, 2008, represent direct production costs, including, production and
severance taxes, labor, supplies and materials, maintenance, chemicals, and salt
water disposal for both the North Dakota and Kansas properties.  The
$135,225 reflected here for the comparable period ending December 31, 2007,
represented primarily costs associated with the acquisition of the Uniontown
properties in Kansas.
  General
and administrative expenses incurred for the corporate office
and  management, for the period ending December 31, 2008 was higher
when compared to the same period ending December 31, 2007, primarily due to
increased corporate activity, effecting public company expenses (legal, investor
relations and communications, audit and regulatory compliance) compensation
costs, rent, and all other, detailed as follows:


Quarter
      End

                  December
      31,2008
              
              
              Quarter
      EndDecember
      31,2007Legal,
      audit and investor relations
              
              $
              76,020
              
              
              $
              26,907Salaries
      and  wages
              
              
              91,198
              
              
              
              73,314Independent
      contractors
              
              
              26,000
              
              
              
              -Insurance
              
              
              11,177
              
              
              
              11,135Rent
      corporate office
              
              
              4,500
              
              
              
              3,200All
      other general and administrative expenses
              
              
              12,679
              
              
              
              11,089Total
      general and administrative expenses
              
              $
              221,574
              
              
              $
              125,645


Other expenses in the period
ending December 31, 2008, of $158,844 is the net of the following detailed
items;
  Interest
      expense
              
              $
              24,000Accretion
      of convertible note payable
              
              
              98.389Amortization
      of note discount
              
              
              58,285Accretion
      of asset retirement obligation
              
              
              3,201Bad
      debt expense
              
              
              3,000Net
      of debt forgiveness income
              
              
              ( 28,031
              )Total
      net other expenses
              
              $
              158,844
  12
  The
accretion expense associated with the convertible note payable and amortization
of note discount are both non-cash charges to operations related to the
Convertible Note Payable more thoroughly discussed in the Notes to the Financial
Statements, Note 8.  None of these expenses were incurred during the
period ending December 31, 2007, which reflected only $2,939 of interest
earned.


Cash
Flows, Liquidity and Capital Resources




Net
cash provided by operating activitiestotaled
$30,928 in the quarter ending December 31, 2008, compared to $232,502
used  in operating activities for the three month period ending
December 31, 2007.  Cash provided by operations benefited from
collection of accounts receivable existing at year end September 30,
2008.
  Net
cash used in investing activities totaled $29,812 in the three months
ending December 31, 2008 as compared to zero in the same period ending December
31, 2007.


No cash
was provided by financing activities in either quarter ending December 31, 2008
or 2007.  The net change in cash and cash equivalents is the sum of
cash provided by operating activities and the cash used in investing activities,
or a net total of $1,116 which is the increase in the Company's cash balance of
$82,683 existing at September 30, 2008 to the cash balance at December 31, 2008
of $83,799.  Our main sources of liquidity are cash and internally
generated cash flow from the sale of crude oil and natural gas.  At
December 31, 2008 our current assets totaled $346,409 and our current
liabilities totaled $1,169,385. As of December 31, 2008, we have limited
financial resources with which to achieve our objectives, and obtain
profitability and positive cash flows.





As
clearly demonstrated in this current quarter ending December 31, 2008, our
revenue and operating cash flows, are highly dependent on the prices we receive
for crude oil and natural gas.  A substantial and continued decline in
these prices will further reduce our operating results and cash flows and will
impact our rate of growth and the carrying values of our assets.  For
the immediate future we plan to reduce our operating expenses, consolidate our
properties, and fund our future operations by joint venturing, obtaining
additional financing from investors, and attaining additional commercial
production.  However, there is no assurance that we will be able to
achieve these objectives.  As commented upon above in Note 8, on
February 5, 2009 we did obtain additional working capital in the amount of
$200,000 in consideration of the issuance of 1,000,000 shares of the Company's
common stock.




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- We maintain controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit under theSecurities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and procedures
performed as of December 31, 2008, the date of this report, our chief executive
officer and the chief financial officer concluded that our disclosure controls
and procedures were effective.
  (b) Changes
in internal controls- There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation of those controls by the chief executive officer and chief
financial officer.
 13




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


31.2          Rule
13a - 14(a) / 15d - 14(a) Certification of CFO


32.1          Section
1350 Certification of CEO


32.2          Section
1350 Certification of CFO




14





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:
      February 12, 2009
            By:
            /s/ Lindsay
      E. GorrillLindsay
      E. Gorrill
              Principal Executive Officer,
              President and a Director




Date:
      February 12, 2009
              By:
              /s/ Thomas
      G. RymanThomas
      G. Ryman
                Chief Financial Officer








15