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 MARCH 31,
2009.
 
 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 has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of regulation S-T (§232.405
of this chapter) during the preceding 12  months (or for such shorter
period that the registrant was required to submit and post such files). 
xYes  
oNo
  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 May 06, 2009, there were
44,046,903 shares of the issuer's $.001 par value common stock issued and
outstanding.
  1
 
 JAYHAWK
ENERGY, INC.
 
 Quarterly
Report on Form 10-Q for the
 Quarterly
Period Ending March 31, 2009
 
 TABLE OF
CONTENTS
 
 PagePART
      I. FINANCIAL INFORMATIONItem
      1. Financial Statements
              3Balance Sheets:March
      31, 2009 (Unaudited) and September 30, 2008
      (Audited)
              3Statements
      of Operations:Three and Six Months Ended March 31, 2009 and 2008
      (Unaudited)
              4Statements of Cash Flows:Six Months Ended March 31, 2009 and 2008
    (Unaudited)
              5Notes
      to Unaudited Financial Statements:March 31, 2009
              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
              14Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              14Item
      3. Defaults Upon Senior Securities
              14Item
      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
                March
      31,
                2009
                (Unaudited)
              
              
              As
      at
                September
      30, 2008
                (Audited)AssetsCash
      & cash equivalents
              
              $
              20,930
              
              
              $
              82,683Trade
      accounts receivable, less allowance for doubtful accounts of
      $95,810at
      March 31, 2009 and September 30, 2008 (Note 3)
              
              
              281,482
              
              
              
              413,862Other
      current assets net of allowance for doubtful collections of
      $9,500
              
              
              6,629
              
              
              
              16,027Total
      Current Assets
              
              
              309,041
              
              
              
              512,572Plant,
      Property and EquipmentUnproved oil and gas properties, net of allowance for impairment
      ofof $1,474,000 at March 31, 2009 and September 30, 2008
      andaccumulated
      amortization of $259,992 and $114,535, respectively
(Note4)
              
              
              2,411,613
              
              
              
              2,555,910Proved
      and developed oil and gas properties net of accumulated
      depreciation,depletion
      and amortization of $974,486 at March 31, 2009and
      $613,159 at September 30, 2008 (Note 5)
              
              
              6,648,316
              
              
              
              6,991,043Computers,
      office equipment, furniture and leasehold improvements, net
    ofaccumulated
      depreciation of $7,312 at March 31, 2009 and $1,335 atSeptember
      30, 2008
              
              
              37,600
              
              
              
              32,365Total
      Net Plant, Property and Equipment
              
              
              9,097,529
              
              
              
              9,579,318Other
      Long-Term Assets
              
              
              132,814
              
              
              
              247,586Total
      Assets
              
              $
              9,539,384
              
              
              $
              10,339,476Liabilities
      and Stockholders' EquityCurrent
      LiabilitiesAccounts
      payable
              
              $
              310,092
              
              
              $
              381,197Working
      and royalty interests payable
              
              
              61,452
              
              
              
              106,003Deferred
      compensation
              
              
              30,000
              
              
              ─Accrued
      Taxes, Interest & Other Liabilities
              
              
              137,185
              
              
              
              147,100Convertible
      promissory note
              
              
              668,815
              
              
              
              472,038Total
      current liabilities
              
              
              1,207,544
              
              
              
              1,106,338Asset
      Retirement Obligation (Note 6)
              
              
              134,442
              
              
              
              128,040Total
      Liabilities
              
              
              1,341,986
              
              
              
              1,234,378Stockholders'
      EquityCommon
      Stock, $.001 par value; 200,000,000 shares authorized; sharesissued
      and outstanding 43,961,503 at March 31, 2009 and 42,810,928at September 30, 2008. (Note 7)
              
              
              43,962
              
              
              
              42,812Additional
      paid-in capital
              
              
              12,711,551
              
              
              
              12,400,782Stock
      issuance obligation
              
              
              14,555
              
              
              
              47,559Accumulated
      deficit
              
              
              (4,572,670
              )
              
              
              (3,386,055
              )Total
      Stockholders' Equity
              
              
              8,197,398
              
              
              
              9,105,098Total
      Liabilities and Equity
              
              $
              9,539,384
              
              
              $
              10,339,476
   See
Accompanying Notes to the Consolidated Financial Statements
  3
 
 JAYHAWK
ENERGY, INC.
 CONSOLIDATED
STATEMENTS OF  OPERATIONS
 And
Comprehensive Loss (Unaudited)
   Three
      months ended
              
              
              Six
      months endedMarch
      31,
              
              
              March
      31,2009
              
              
              2008
              
              
              2009
              
              
              2008RevenueOil
      Sales
              
              $
              61,599
              
              
              $
              258,557
              
              
              $
              184,932
              
              
              $
              258,557Gas
      Sales
              
              
              29,213
              
              
              ─
              
              
              
              62,913
              
              
              ─Total
      Net Revenues
              
              $
              90,812
              
              
              $
              258,557
              
              
              $
              247,845
              
              
              $
              258,557Costs
      and Operating ExpensesExploration
      and production expenses
              
              
              107,571
              
              
              
              100,802
              
              
              
              260,209
              
              
              
              100,802Depreciation,
      depletion and amortization
              
              
              200,623
              
              
              
              149,224
              
              
              
              512,761
              
              
              
              149,253General
      and administration expenses
              
              
              101,627
              
              
              
              224,148
              
              
              
              323,202
              
              
              
              349,764Other
      (income) and expense
              
              
              179,443
              
              
              
              ( 4,720
              )
              
              
              338,287
              
              
              
              ( 7,658
              )Total
      Costs and Operating Expenses
              
              
              589,264
              
              
              
              469,454
              
              
              
              1,434,459
              
              
              
              592,161Loss
      from continuing operations before income tax expense
              
              $
              (498,452
              )
              
              $
              ( 210,897
              )
              
              $
              (1,186,614
              )
              
              $
              (333,604
              )Income
      tax expense
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─Deferred
      tax benefit
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─Net loss and
      total comprehensive loss
              
              $
              (498,452
              )
              
              $
              (210,897
              )
              
              $
              (1,186,614
              )
              
              $
              (333,604
              )Basic
      and diluted loss per share
              
              $
              (0.01
              )
              
              $
              (
      0.01
              )
              
              $
              (0.03
              )
              
              $
              (0.01
              )Basic
      and diluted weighted average shares outstanding
              
              
              43,544,761
              
              
              
              38,955,641
              
              
              
              43,182,192
              
              
              
              37,919,150
   See
Accompanying Notes to the Consolidated Financial Statements
  4
  JAYHAWK
ENERGY, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
 FOR THE SIX MONTHS ENDED MARCH 31,
2009 AND 2008
   2009
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss from operations
              
              $
              (1,186,614
              )
              
              $
              (333,604
              )Adjustments
      to reconcile net loss to net cash usedby
      operating activities:Depreciation,
      depletion and amortization
              
              
              512,761
              
              
              
              149,253Amortization
      of discount on convertible note payable
              
              
              116,572
              
              
              
              -Accretion
      of convertible promissory note
              
              
              196,777
              
              
              
              -Accretion
      in annual asset retirement obligation
              
              
              6,402
              
              
              
              -Common
      stock issued in consideration for services
              
              
              78,916
              
              
              
              -(Increase)
      decrease in accounts receivable
              
              
              132,380
              
              
              
              (106,219
              )(Increase)
      decrease in other current assets
              
              
              7,598
              
              
              
              (8,626
              )Increase
      (decrease) in accounts payable
              
              
              (71,105
              )
              
              
              20,091Increase
      in accruals and other current liabilities
              
              
              (24,467
              )
              
              
              -Net
      cash used by operating activities
              
              $
              (230,780
              )
              
              $
              (279,105
              )CASH
      FLOWS FROM INVESTING ACTIVITIESProved
      and unproved oil and gas property additions
              
              
              (18,600
              )
              
              
              (3,630,183
              )Other
      property additions
              
              
              (12,373
              )
              
              
              (1,234,248
              )Net
      cash used in investing activities
              
              $
              (30,973
              )
              
              $
              (4,864,431
              )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from the sale of common stock
              
              
              200,000
              
              
              
              4,900,000Net
      cash provided by financing activities
              
              $
              200,000
              
              
              $
              4,900,000NET
      DECREASE IN CASH AND CASH EQUIVALENTS
              
              $
              (61,753
              )
              
              $
              (243,536
              )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              82,683
              
              
              
              525,117CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              20,930
              
              
              $
              281,581Supplemental
      Disclosure of Cash Flow and Non-cash Investing ActivitiesIncome
      tax paid
              
              
              -
              
              
              
              -Interest
      paid
              
              
              -
              
              
              
              -Property
      and equipment purchased with common stock
              
              
              -
              
              
              $
              2,436,130
   See
Accompanying Notes to the Consolidated Financial Statements
  5
  JAYHAWK
ENERGY, INC.
 Notes
to Financial Statements
 (Unaudited)
 For
the Period Ended March 31, 2009
   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-Q is for the second quarter of the fiscal
year to end September 30, 2009, the quarter ending March 31,
2009.  These consolidated financial statements, including notes, have
been prepared in accordance with the applicable rules of the Securities and
Exchange Commission
(SEC) anddo 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  the Company has incurred operating losses.  As of
March 31, 2009 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 Period Ended March 31, 2009
   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 Period Ended March 31, 2009
   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 and July of 2008, and
March of 2009, 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 March 31, 2009 and September 30, 2008:
 
 March
      31,
                2009
              
              
              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
              
              
              80,047
              
              
              
              181,340Due
      for natural gas delivered
              
              
              7,725
              
              
              
              19,356Due
      from joint operating agreement working interests
              
              
              6,035
              
              
              
              25,490$
              281,482
              
              
              $
              413,862
 
 The
previous purchaser of our North Dakota crude oil, SemCrude, took delivery
of  the Company'sJune 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 March 31, 2009, for oil and
natural gas deliveries were received in April 2009.
  Note
4 – Unproved Properties and Impairment
 
 The Company's
total investment inunproved properties consists of the capitalized
costs of property acquisitions made during the prior two fiscal
years.  At March 31, 2009 and September 30, 2008, net Unproved
Properties was the aggregate of the following:
  Description
              
              March
      31,
                2009
              
              
              September
      30, 2008Land
      acquisition and retention
              
              $
              4,145,605
              
              
              $
              4,144,445Less:
      Accumulated amortization
              
              
              (259,992
              )
              
              
              (114,535
              )Less:
      Allowance for impairment in value
              
              
              (1,474,000
              )
              
              
              (1,474,000
              )Total
      Net Investment in Unproved Properties
              
              $
              2,411,613
              
              
              $
              2,555,910
 
 Impairment of Uniontown
Project:In
addition to amortizing the capitalized lease costs, the Company 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 Period Ended March 31, 2009
   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$6,648,316,
at March 31, 2009, and $6,991,043 at September 30, 2008.  These net
capitalized costs are comprised of the following; detailed by
property:
  March
      31,
                2009
              
              
              September 30,
      2008Candak,
      North Dakota PropertiesProved
      Reserves
              
              $
              2,357,752
              
              
              $
              2,357,752Field
      Equipment
              
              
              1,200,248
              
              
              
              1,200,248Less
      accumulated DD&A
              
              
              (812,094
              )
              
              
              (538,042
              )Net
      Capitalized Costs
              
              
              2,745,906
              
              
              
              3,019,958Girard,
      Kansas PropertiesField
      Equipment
              
              
              796,033
              
              
              
              634,705Capitalized
      Drilling Costs
              
              
              662,899
              
              
              
              807,227Less
      accumulated DD&A
              
              
              (47,423
              )
              
              
              (18,076
              )Net
      Capitalized Costs
              
              
              1,411,509
              
              
              
              1,423,856JayHawk
      Gas TransportationField
      Equipment
              
              
              2,605,870
              
              
              
              2,604,270Less
      accumulated Depreciation
              
              
              (114,969
              )
              
              
              (57,041
              )Net
      Capitalized Costs
              
              
              2,490,901
              
              
              
              2,547,229Total
      Net Proved Oil & Gas Properties
              
              $
              6,648,316
              
              
              $
              6,991,043
  Note
6 - Asset Retirement Obligation
  In the
period in which an asset 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 March 31, 2009 of
$134,442, increased from the September 30, 2008 balance of $128,040 by the
amount of this "accretion expense" for the  six
month  period, $6,402
  Note
7 - Common Stock
  On October 31, 2008 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.
 
 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 the Company 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.
 9
  J AYHAWK
ENERGY, INC.
 Notes
to Financial Statements
 (Unaudited)
 For
the Period Ended March 31, 2009
   Note
7 - Common Stock (cont.)
  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,
that was 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.
 
  Note
8 – Subsequent events
  On April
20, 2009 the Company issued 85,400 shares of  its $0.001 par value
Common Stock to three vendors as compensation for services
rendered.  These shares were valued at $0.20 per share; the fair
market value on the date of the transaction for two of the vendors, and at $0.15
per share for the third.  This approximates the value of the services
provided.
  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.  The Company
incorporated in April 2004 as Bella Trading Company, Inc. and
changed  management and entered the oil and gas business in June of
2007.  At that time 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.
 
 On
January 16, 2008, JayHawk purchased the Candak properties from JED Oil (USA)
Inc. a 65% working interest in 5 producing oil wells located in the Williston
Basin of North Dakota, along with the right to develop the oil, gas and mineral
resources on 15,500 acres of leases in this same area.  In
consideration for these properties JayHawk paid JED Oil $3.5 million in
cash.  Because of the significance of this acquisition, Securities and
Exchange rules and regulations define operations of these five wells (the Candak
properties) to be "predecessor operations and an acquired
business".  As such, the Securities and Exchange Commission, through
Article 8-04 of Regulation S-X, requires a complete set of audited financial
statements of the acquired business operations to be provided for at least the
two most recent fiscal years.
  As a
consequence of the previous operator being in bankruptcy proceedings and having
limited staff, sufficient evidential material was unavailable to our external
auditors to prepare complete financial statements reflecting the carved out
operations of the five wells.  These would be required for the period
from October 1, 2006 through September 30, 2007 and from October 1, 2007 through
January 16, 2008, the date of the acquisition.  We did not have any
previous relationship with the prior operator and there were no ongoing
arrangements with the prior operator.  Failure to provide this
information will preclude the Company from completing a registration statement
with the Securities and Exchange Commission prior to having sufficient
historical financial information on these operations for a two
year  period.  This condition should be met with the
completion of the fiscal year ending September 30, 2009.
 
 Results
of Operations
 
 Revenues -derived from
oil sales delivered from our Candak, North Dakota properties are reported at our
net working interest.  For the three month and six month periods
ending March 31, 2009, net revenues before production and severance taxes, were
$61,599 and $184,932, respectively.  These net revenues compare to
$258,557 for both the same periods end in 2008.  As previously
discussed, these operations did not begin until January of 2008.  The
unfavorable apparent decline in revenues is primarily attributable to declines
in prices received for our crude oil.  Prices received during the
quarter ending March 31, 2008 averaged $81.61 per barrel whereas during this
quarter ending March 31, 2009 prices received averaged only
$34.77.  This represents a 57 percent decline from the comparable
period in 2008.  Additionally, all five wells where shut-in and did
not produce during the month of January 2009, due to constraints of weather
conditions.
 
 Revenues
derived from the sale of gas produced and delivered from our Girard, Kansas
properties for the three and six months ending March 31, 2009 were $29,213 and
$62,913, respectively.  There were no gas sales during the comparable
periods of 2008 as there was no production until the quarter ending June 30,
2008.  Gas prices paid for our Girard, Kansas production have
continued to be volatile, fluctuating from a high of $4.67 received in January
to a low of $2.48 per mcf received in March 2009.  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 -include
direct production expensessuch as field labor,
fuel, power, well repair and maintenance, saltwater disposal and severance
taxes, depreciation, depletion and amortization and corporate general and
administrative expenses and other income and expense.  There was no
production from the Girard, Kansas properties during the comparable 2008 periods
and all direct production expense is associated with the Candak, North Dakota
properties.  The following two tables segregate these expenses by
producing properties and the corporate office for three months and six months,
respectively:
  Quarter
      End
                March
      31, 2009
              
              
              March
      31,
                2008Candak,
      N.D.
              
              
              Girard,
      KS.
              
              
              G&A
              
              
              Total
              
              
              TotalDirect
      production costs
              
              $
              35,695
              
              
              $
              71,876
              
              
              
              -
              
              
              $
              107,571
              
              
              $
              100,802Depreciation,
      depletion, and amortization
              
              
              109,289
              
              
              
              88,337
              
              
              
              2,997
              
              
              
              200,623
              
              
              
              149,224General
      and administrative expenses
              
              
              -
              
              
              
              -
              
              
              
              101,627
              
              
              
              101,627
              
              
              
              224,148Other
      net (income) and expense
              
              
              
              
              
              
              
              
              
              
              179,443
              
              
              
              179,443
              
              
              
              (4,720
              )Totals
              
              $
              144,984
              
              
              $
              160,213
              
              
              $
              284,067
              
              
              $
              589,264
              
              
              $
              469,454
  
 For
      the Six Months End
                March
      31, 2009
              
              
              March
      31,
                2008Candak,
      N.D.
              
              
              Girard,
      KS.
              
              
              G&A
              
              
              Total
              
              
              TotalDirect
      production costs
              
              $
              107,200
              
              
              $
              153,009
              
              
              
              -
              
              
              $
              260,209
              
              
              $
              100,802Depreciation,
      depletion, and amortization
              
              
              274,054
              
              
              
              232,731
              
              
              
              5,976
              
              
              
              512,761
              
              
              
              149,253General
      and administrative expenses
              
              
              -
              
              
              
              -
              
              
              
              323,202
              
              
              
              323,202
              
              
              
              349,764Other
      net (income) and expense
              
              
              
              
              
              
              
              
              
              
              338,287
              
              
              
              338,287
              
              
              
              (7,658
              )Totals
              
              $
              381,254
              
              
              $
              385,740
              
              
              $
              667,465
              
              
              $
              1,434,459
              
              
              $
              592,161
 
 
 General
and administrative expenses incurred during the three month periods ending March
31, 2009 and 2008 totaled $101,627 and $224,148, respectively.  Detail
is as follow:
 
 General and Administrative
Expenses:
  Periods End March 31,
      2009
                
                
                Periods End March 31,
      2008Three
    Months
                
                
                Six
    Months
                
                
                Three
    Months
                
                
                Six
    MonthsSalaries,
      wages and compensation
                
                $
                35,076
                
                
                $
                152,275
                
                
                $
                146,675
                
                
                $
                219,990Legal
      and audit fees
                
                
                27,036
                
                
                
                50,642
                
                
                
                40,053
                
                
                
                58,484Other
      public company expenses
                
                
                1,204
                
                
                
                53,618
                
                
                
                5,509
                
                
                
                13,985Insurance
                
                
                2,870
                
                
                
                14,047
                
                
                
                8,658
                
                
                
                19,794All
      other general and administrative expenses
                
                
                35,441
                
                
                
                52,620
                
                
                
                23,253
                
                
                
                37,511Total
                
                $
                101,627
                
                
                $
                323,202
                
                
                $
                224,148
                
                
                $
                349,764
 Other Income and Expenses -for the three and six month periods ending March 31, 2009, are detailed
below.  For the comparable periods ending March 31, 2008, other income
and expenses was comprised only of interest income of $4,720, for the three
month period and $7,658 for the six month period.
  Periods
      End March 31, 2009Three
    Months
                
                
                Six
    MonthsNet
      interest (income) expense
                
                $
                19,567
                
                
                $
                43,501Accretion
      of convertible note payable
                
                
                98,389
                
                
                
                196,777Amortization
      of note discount
                
                
                58,286
                
                
                
                116,572Accretion
      of asset retirement obligation
                
                
                3,201
                
                
                
                6,402Net
      debt forgiveness (income)
                
                
                -
                
                
                
                ( 24,965
                )Total
                
                $
                179,443
                
                
                $
                338,287
  12
  Cash
Flows, Liquidity and Capital Resources
 
 As of
March 31, 2009, our current assets totaled $309,041, consisting of
cash,  $20,930, accounts receivable, $281,482, and prepaid expenses
$6,629.  At the same time, our current liabilities were
$1,207,544.  Our main sources of liquidity are cash and internally
generated cash flow from the sale of crude oil and natural gas.  As of
March 31, 2009, we have limited financial resources with which to achieve our
objectives, and obtain profitability and positive cash flows.
 
 The net
change in cash and cash equivalents is the sum of cash used by operating
activities and in investing activities, and that provided by financing
activities for a net total decrease in cash of $61,753 for the six months ending
March 31, 2009.  This decreased our cash balance from $82,683 existing
at September 30, 2008 to the cash balance at March 31, 2009 of
$20,930.
 
 Net cash used by operating activitiestotaled $230,780 for the six months ending March 31, 2009, compared to
$279,105 used  in operating activities for the three month period
ending March 31, 2008.
  Net cash used in investing
activities totaled $30,973 in the six months ending March 31, 2009 as
compared to $4,864,431 in the same period ending March 31, 2008.
  Net cash provided by financing
activities during the six months ending March 31, 2009 was $200,000 (see
Note 7, of Notes to Financial Statements).  For the six month period
ending March 31, 2008, $4,900,000 was provided by financing
activities.
 
 As
clearly demonstrated in this current quarter ending March 31, 2009, 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.
  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 4T. 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
the Securities 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 during this last
fiscal quarter that have materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
  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:
      May 8, 2009
              By:
              /s/ Lindsay
      E. GorrillLindsay
      E. Gorrill
                Principal
      Executive Officer,
                President
      and a Director
  Date:
      May 8, 2009
              By:
              /s/ Thomas
      G. RymanThomas
      G. Ryman
                Chief
      Financial Officer