UNITED STATES

December 31, 2012

September 30, 2012

Beginning balance

Initial fair value of warrant derivative

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 December 31, 2012.


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.)

611 E. Sherman Avenue, Coeur d’Alene, ID 83814

(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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes 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	o
Non-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 14, 2013, there were 60,759,178 shares of the issuer's $.001 par value common stock issued and outstanding.

JAYHAWK ENERGY, INC.

Quarterly Report on Form 10-Q for the

Quarterly Period Ended December 31, 2012

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)	3

Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures About Market Risk	20

Item 4. Controls and Procedures	20

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3. Defaults Upon Senior Securities	20

Item 4. Mine Safety Disclosures	20

Item 5. Other Information	21

Item 6. Exhibits	21

Signatures	22


JAYHAWK ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

					December 31, 2012		September 30, 2012
ASSETS					(unaudited)
	CURRENT ASSETS
		Cash and cash equivalents		$	142,077	$	74,496
		Trade accounts receivable			56,634		132,454
		Other current assets			11,236		10,189
			TOTAL CURRENT ASSETS		209,947		217,139

	PROPERTY AND EQUIPMENT
		Unproved properties, net (NOTE 4)			327,685		380,371
		Proved properties, net (NOTE 5)			452,017		509,705
		Computers, office equipment, furniture and leasehold improvements, net			2,663		3,781
			NET PROPERTY AND EQUIPMENT		782,365		893,857

	OTHER LONG-TERM ASSETS (NOTE 6)				101,642		101,621

	TOTAL ASSETS			$	1,093,954	$	1,212,617

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
	CURRENT LIABILITIES:
		Accounts payable		$	527,424	$	587,228
		Due to royalty and working interest holders			440,768		437,202
		Other payables, interest and taxes accrued			220,691		232,917
		Conversion option derivative (NOTE 8)			65,182		109,414
		Warrant derivative (NOTE 8)			37,129		58,257
		Convertible debentures (NOTE 7)			1,164,000		1,164,000
			TOTAL CURRENT LIABILITIES		2,455,194		2,589,018

	LONG-TERM LIABILITIES
		Asset retirement obligation			192,149		187,463
			TOTAL LONG-TERM LIABILITIES		192,149		187,463

	TOTAL LIABILITIES				2,647,343		2,776,481

	COMMITMENTS AND CONTINGENCIES (NOTE 13)				-		-

	STOCKHOLDERS' EQUITY (DEFICIT):
		Preferred stock, $0.001 par value; 10,000,000 shares authorized,
			none issued and outstanding		-		-
		Common stock, $0.001 par value; 200,000,000 shares authorized,
			60,759,178 and 60,759,178 shares issued and outstanding
			respectively (NOTE 9)		60,759		60,759
		Additional paid-in capital			21,141,565		21,138,419
		Accumulated deficit			(22,755,713)		(22,763,042)
			TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		(1,553,389)		(1,563,864)

	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)			$	1,093,954	$	1,212,617

See accompanying notes to consolidated financial statements.


JAYHAWK ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

					Three Months Ended December 31,
					2012		2011
	REVENUE
		Oil sales		$	111,061	$	166,382
		Natural gas sales			-		2,874
			TOTAL REVENUE		111,061		169,256

	OPERATING EXPENSES
		Production costs - oil			66,581		92,248
		Production costs – natural gas			2,297		13,096
		Depreciation, depletion and amortization			63,451		167,575
		Accretion of asset retirement obligation			4,686		4,260
		Initial recording of warrant derivative			59,200		-
		Gain on sales of leases and equipment			(90,721)		-
		General and administrative			89,502		135,624
			TOTAL OPERATING EXPENSES		194,996		412,803

	OPERATING LOSS				(83,935)		(243,547)

	OTHER INCOME (EXPENSE)
		Interest expense			(33,296)		(32,233)
		Loss on extinguishment and conversion of debt			-		71,383
		Gain on change in fair value of conversion option derivative			44,232		196,197
		Gain on change in fair value of warrant derivatives			80,328		198,480
		Amortization of discount on debentures			-		(144,814)
			TOTAL OTHER INCOME (EXPENSE)		91,264		289,013

	INCOME BEFORE INCOME TAX				7,329		45,466

	Provision for income taxes				-		-

	NET INCOME			$	7,329	$	45,466

	Basic and diluted loss per share (NOTE 2)			$	Nil	$	Nil

	Basic and diluted weighted average number of shares outstanding				60,759,178		59,065,401

See accompanying notes to consolidated financial statements.


JAYHAWK ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
						For the three months ended December 31,
						2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:								45,466
	Net Income				$	7,329	$	45,466
		Adjustments to reconcile net income to net cash provided (used) by operating activities:
			Depreciation, depletion and amortization			63,451		167,575
			Accretion of asset retirement obligation			4,686		4,260
			Amortization of discount on debentures			-		144,814
			Initial recording of warrant derivative			59,200
			Gain on extinguishment and conversion of debt			-		(71,383)
			Gain on change in fair value of conversion option derivative			(44,232)		(196,197)
			Gain on change in fair value of warrant derivatives			(80,328)		(198,480)
			Common stock issued in consideration of charitable contribution			-		5,000
			Common stock issue in lieu of interest			-		5,836
			Gain on sales of leases and equipment			(90,721)		-
			Stock based compensation			3,146		3,146
		Changes in assets and liabilities:
			Trade accounts receivable			75,820		(60,160)
			Other current assets and other long term assets			(1,068)		(569)
			Accounts payable			(59,805)		274,425
			Due to royalty and working interest holders			3,566		(53,173)
			Other payables, interest and taxes accrued			(12,226)		5,693
				Net cash provided (used) by operating activities		(71,182)		76,253

CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from sales of equipment and leases					138,763		-
				Net cash provided by investing activities		138,763		-

CASH FLOWS FROM FINANCING ACTIVITIES:
				Net cash provided by financing activities		-		-

Net increase in cash and cash equivalents						67,581		76,253

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD						74,496		52,912

CASH AND CASH EQUIVALENTS AT END OF PERIOD					$	142,077	$	129,165

Supplemental Disclosure of Cash Flows:

Non-cash investing and financing activity:
			Interest paid with common stock		$	-	$	5,836
			Common stock issued for conversion of debentures			-		115,000

See accompanying notes to consolidated financial statements.

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

JayHawk Energy, Inc. (the Company or JayHawk) and its wholly owned subsidiary, Jayhawk Gas Transportation Company, are engaged in the acquisition, exploration, development, production and sale of natural gas, crude oil and natural gas liquids primarily from conventional reservoirs within North America. The Company incorporated in Colorado on April 5, 2004 as Bella Trading Company, Inc. During the third quarter ending June 30, 2007, the Company changed management and entered the oil and gas business, and ceased all activity in retail jewelry. On June 21, 2007, the Company changed its name to JayHawk Energy, Inc. Since then, the Company has devoted its efforts principally to the raising of capital, organizational infrastructure development, the acquisition of oil and gas properties and exploration activities. To date, the Company has acquired three properties, the Uniontown in Kansas, the Crosby in North Dakota, and Girard in Kansas. The Company also formed a wholly owned subsidiary to transport natural gas in Kansas called JayHawk Gas Transportation Corporation.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, as well as the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three months ended December 31, 2012, are not necessarily indicative of the results that may be expected for the full year ending September 30, 2013.

For further information, refer to the financial statements and footnotes thereto in the Company’s Annual Report on Form 10-K for the year ended September 30, 2012.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, JayHawk Gas Transportation Company, after elimination of the intercompany accounts and transactions.

Going Concern

As shown in the accompanying consolidated financial statements, the Company has incurred annual operating losses since inception. As of December 31, 2012, the Company has limited financial resources with which to achieve the objectives and obtain profitability and positive cash flows. As shown in the accompanying balance sheets and statements of operations, the Company has an accumulated deficit of $22,755,713 and net income of $7,329 for the three months ended December 31, 2012, and as of that date the Company's current liabilities exceeded its current assets by $2,245,247. Achievement of the Company's objectives will be dependent upon the ability to obtain additional financing, to locate profitable energy properties and generate revenue from current and planned business operations, and control costs. The Company plans to fund its future operations by joint venturing, obtaining additional financing from investors, and attaining additional commercial production. However, there is no assurance that the Company will be able to achieve these objectives, therefore substantial doubt about its ability to continue as a going concern exists. The financial statements do not include adjustments relating to the recoverability of recorded assets nor the implications of associated bankruptcy costs should the Company be unable to continue as a going concern.

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.

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Significant areas requiring the use of management assumptions and estimates relate to asset impairments, asset retirement obligations, stock-based compensation, income taxes and derivatives. Actual results may differ from these estimates and assumptions which could have a material effect on the Company's reported financial position and results of operations.

Income or Loss Per Common Share

Basic earnings per share ("EPS") is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities.

The dilutive effect of convertible and outstanding securities as of December 31, 2012 and September 30, 2012, would be as follows:


		December 31, 2012	September 30, 2012
Stock Options		2,040,000	2,040,000
Convertible debt		23,279,993	23,279,993
Warrants		5,999,113	4,999,113
	Total Possible Dilution	31,319,106	30,319,106

At December 31, 2012 and September 30, 2012, respectively, the effect of the Company's outstanding options and common stock equivalents would have been anti-dilutive.

Revenue and Cost Recognition

The Company uses the sales method of accounting for oil and gas revenues. Under this method, revenues are recognized based on the actual volumes of gas and oil sold to purchasers. The volume sold may differ from the volumes the Company may be entitled to, based on the Company's individual interest in the property. Periodically, imbalances between production and nomination volumes can occur for various reasons. In cases where imbalances have occurred, a production imbalance receivable or liability will be recorded when determined. Costs associated with production are expensed in the period in which they are incurred.

Cash Equivalents

The Company considers all highly liquid instruments purchased with maturity of three months or less when acquired to be cash equivalents.

Property, Plant and Equipment

The Company follows the successful effort method of accounting for oil and gas property as promulgated in Accounting Standards Codification (ASC) Topic 932, "Extractive Activities – Oil and Gas". Under this method of accounting, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells, and successful exploratory drilling costs to locate proved reserves are capitalized. Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. A determination of whether a well has found proved reserves is made shortly after drilling is completed. The determination is based on a process that relies on interpretations of available geologic, geophysics and engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made. If an exploratory well requires a major capital expenditure before production can begin, the cost of drilling the exploratory well will continue to be carried as an asset pending

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012

determination of whether proved reserves have been found only as long as: i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made and ii) drilling of the additional exploratory wells is under way or firmly planned for the near future. If drilling in the area is not under way or firmly planned, or if the well has not found a commercially producible quantity of reserves, the exploratory well is assumed to be impaired and its costs are charged to expense.

The Company calculates depletion, depreciation and amortization (DD&A) of capitalized cost of proved oil properties on a field-by-field basis using the units-of-production method based upon proved reserves. In computing DD&A the Company will take into consideration restoration, dismantlement and abandonment cost and the anticipated proceeds from equipment salvage. When applicable, the Company will apply the provisions of ASC Topic 410, "Accounting for Asset Retirement Obligations", ("ASC 410") which provides guidance on accounting for dismantlement and abandonment cost (see Note 10).

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.

The Company recognizes a gain or loss on sales or retirement of property, plant and equipment and includes the gain or loss in the results of operations.

Sales of Producing and Non-producing Property

The Company accounts for the sale of a partial interest in a proved property as normal retirement. The Company accounts for the sale of a partial interest in an unproved property as a recovery of cost when substantial uncertainty exists as to recovery of the cost applicable to the interest retained. The Company recognizes a gain or loss for all other sales of non-producing properties and include the gain or loss in the results of operations.

Fair Value Measures

ASC Topic 820 "Fair Value Measurements and Disclosures" ("ASC 820") requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1: Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2: Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quote prices for similar assets or liabilities in active markets; quoted prices for identical assets in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3: Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are

significant to the measurement of the fair value of the assets or liabilities.

Derivative Instruments

The Company has financing arrangements that contain freestanding derivative instruments or hybrid instruments that contained embedded derivative features. In accordance with accounting principles generally accepted in the United States (“GAAP”), derivative instruments and hybrid instruments are recognized as either assets or liabilities in the Company’s balance sheet and are measured at fair value with gains or losses recognized in earnings depending on the nature of the derivative or hybrid instruments. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and recognized at fair value with changes in fair

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012

value recognized as either a gain or loss in earnings if they can be reliably measured. When the fair value of embedded derivative features cannot be reliably measured, the Company measures and reports the entire hybrid instrument at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using a Black Scholes model, giving consideration to all of the rights and obligations of each instrument and precluding the use of “blockage” discounts or premiums in determining the fair value of a large block of financial instruments. Fair value under these conditions does not necessarily represent fair value determined using valuation standards that give consideration to blockage discounts and other factors that may be considered by market participants in establishing fair value.

Reclassifications

Certain reclassifications have been made to the 2011 financial statements in order to conform to the 2012 presentation. These reclassifications have no effect on net loss, total assets or accumulated deficit as previously reported.

New Accounting Pronouncements

From time to time, new accounting guidance is issued by the FASB that the Company adopts as of the specified effective date. If not discussed, management believe that the impact of recently issued standards, which are not yet effective, will not have a material impact on its financial statements upon adoption.

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, and reclamation bonds approximate fair value due to their limited time to maturity or ability to immediately convert them to cash in the normal course. The carrying values of convertible debentures is net of a discount and does not reflect fair value of similar instruments. The approximate fair value of the convertible debentures based upon the number of shares into which the debentures are convertible is $232,800 and $465,600 using the market price per share of stock at December 31, 2012 and September 30, 2012, respectively.

The table below sets forth the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2012 and September 30, 2012, respectively, and the fair value calculation input hierarchy that the Company has determined has applied to each asset and liability category.


			December 31, 2012		September 30, 2012	Input Hierarchy Level

Assets:
	Cash equivalents	$	142,077	$	74,496	Level 1
Liabilities:
	Conversion option derivatives		65,182		109,414	Level 2
	Warrant derivatives		37,129		58,257	Level 2

NOTE 4 - UNPROVED PROPERTIES AND IMPAIRMENT

The total of the Company's investment in unproved properties at December 31, 2012 and September 30, 2012, consists of the following capitalized costs respectively:


				December 31, 2012		September 30, 2012

UNPROVED AND DEVELOPED PROPERTIES
Kansas Girard Project
	Field equipment - Jayhawk Gas Transport Company		$	2,605,871	$	2,605,871
	Field equipment - Girard			579,027		587,091
	Capitalized drilling costs			662,899		662,899
		Subtotal		3,847,797		3,855,861
	Less impairments			(2,432,087)		(2,435,637)
	Less accumulated DD&A			(1,128,350)		(1,127,463)

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012



Total unproved and developed properties, net			287,360		292,761

UNPROVED AND UNDEVELOPED PROPERTIES
Kansas Girard Project			1,421,199		1,421,199
	Less impairments		(839,363)		(839,363)
	Less: accumulated amortization		(581,837)		(581,837)
Girard Project, net			-		-

North Dakota Project			40,325		87,610
North Dakota Project, net			40,325		87,610

Total unproved and undeveloped properties			40,325		87,610

TOTAL UNPROVED PROPERTIES		$	327,685	$	380,371

Impairment of Girard Project: In 2012, management made a review of its Kansas Girard project. Management's outlook for the U.S. natural gas prices indicated it is unlikely that sufficient U.S. demand for natural gas would materialize in the foreseeable future. Internal cash flow estimates prepared by management of the Company did not prove significant fair value exists in the properties. Therefore, the undeveloped and unproved Kansas natural gas properties and equipment have had impairment losses recorded, to the extent net book value exceeds estimated salvage value of such equipment. The Company also recognized impairment to its unproved and undeveloped properties in Girard, Kansas. Thus, the Company recognized impairment loss of $3,275,000 on the Girard project for the year ended September 30, 2012.

NOTE 5 - PROVED PROPERTIES AND IMPAIRMENT

Net capitalized costs are comprised of the following; detailed by property:


			December 31,2012		September 30, 2012
Crosby, North Dakota Properties
	Proved Reserves	$	2,357,753	$	2,357,753
	Field Equipment		1,200,247		1,200,247
	Capitalized Drilling Costs		416,429		416,429
	Subtotal		3,974,429		3,974,429
	Less: Impairments		(1,092,302)		(1,092,302)
	Less: Accumulated DD&A		(2,430,111)		(2,372,422)
Total Proved Oil and Gas Properties		$	452,017	$	509,705

For the year ended September 30, 2012, the Company performed an analysis to determine whether the carrying amounts in its financial statements exceeded the net present value of the reserve estimates for the Crosby, North Dakota property. Management determined that the net value reflected in the financial statements did not exceed the net discounted present value of the reserves estimated by the independent reserve engineer.

NOTE 6 – OTHER LONG-TERM ASSETS

Other assets consist of various deposits and reclamation bonds. Detail is disclosed in the following table:


			December 31, 2012		September 30, 2012
Rental Security Deposit		$	1,500	$	1,500
Reclamation bonds			100,142		100,121
	TOTAL	$	101,642	$	101,621

NOTE 7 - CONVERTIBLE DEBENTURES

During the year ended September 30, 2010, the Company issued, pursuant to a securities purchase agreement, 10% convertible debentures with a face value of $1,500,000. The first tranche of the total financing, with a face value of $900,000, was issued during the first quarter ended December 31, 2009. In April 2010, additional debentures with a face value of $600,000 were issued. All of the

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012

debentures had a two year maturity and were issued with attached common stock purchase warrants. The effective interest rate on the debentures was, and is, 10% per annum. The debentures were secured by all assets of the Company except those specifically excluded in the agreement which include all Kansas properties and related assets.

During the year ended September 30, 2011, the Company entered into a Securities Purchase Agreement with certain institutional investors to purchase $500,000 of Secured Convertible Debentures. The debentures provide for interest to be paid quarterly, at the rate of 10% per annum, and are due two years from the issuance date. The debentures are secured by all assets of the Company except those specifically excluded in the agreement which include all Kansas properties and related assets.

The debentures are convertible at any time after the original issue date into a number of shares of the registrant’s common stock, determined by dividing the amount to be converted by an initial conversion price of $0.18 per share. In addition to the debentures the purchasers were issued an aggregate of 2,833,113 common share purchase warrants, each having a term of 42 months, expiring April of 2014, and giving the purchasers the right to purchase the Company’s common shares at an initial exercise price of $0.18 per share. Subsequent to the initial issue date, the initial conversion price of $0.18 per share was amended to $0.12 per share based on provisions in the agreements related to equity issuances and issuance of additional convertible debentures during the year ended September 30, 2011.

The modified conversion price of $0.12 per share was amended on or about January 9, 2012, to $0.05 per share based on provisions in the agreements related to equity issuances of additional convertible shares,

The debentures all contain anti-dilution provisions which call for the debt conversion and warrant exercise prices be reduced based on future issues of debt or equity with more favorable provisions. Management has determined that these provisions cause the conversion options and warrants to require derivative liability accounting. As such, management has valued at fair value at the date of issuance and bifurcated from the host instruments. See Note 8.

Based upon the fair values as of the original agreement dates of the December 2009 and April 2010 debentures, $1,500,000 was allocated to the common stock purchase warrants and the conversion features resulting in a discount on the debt. Giving effect to the amortization of the discount and the debenture currently being in default, the discount was fully amortized during the year ended September 30, 2012.

Based upon the fair values as of the original agreement dates of the October 2010 debentures, $500,000 was allocated to the common stock purchase warrants and the conversion features resulting in a discount on the debt. Giving effect to the amortization of the discount and the conversion of $115,000 in principal conversion and the debenture currently being in default, the discount was fully amortized during the year ended September 30, 2012.

In all three cases, the entire face amount of the debt issued was allocated to discount, and was amortized over the respective term of the debt.

During the three months ended December 31, 2012 and 2011, holders of the debt elected to convert $nil and $115,000 face amount of the debt into nil and 958,333 shares of common stock, respectively, according to the terms of the agreements. See Note 9.

As of December 31, 2012, the Company is in default of the terms of the convertible debentures as a result of certain provisions of the agreement. The debenture holders may force foreclosure on the North Dakota properties but have not elected to do so. The December 2009 and April 2010 debentures maturity date of December 14, 2011 has lapsed, causing the default provisions on all debentures including the October 2010 debentures for a total balance of $1,164,000 as of December 31, 2012 and September 30, 2012. Management reclassified the outstanding balance of all debentures to current liabilities as of December 31, 2012 and September 30, 2012.

NOTE 8 - DERIVATIVE LIABILITIES

As discussed in Note 7, the Company entered into three separate issuances of convertible debentures, dated December 14, 2009, April 23, 2010 and October 20, 2010, which contained provisions allowing holders of the debentures to convert outstanding debt to shares of the Company's common stock. The debentures contain anti-dilution provisions which call for the debt conversion and warrant exercise prices to be reduced based on future issues of debt or equity with more favorable provisions. Management has determined that these provisions cause the conversion options and warrants to require derivative liability accounting. As such, management has valued them at fair value at the date of issuance and bifurcated the option from the host instruments.

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012

The debentures are convertible at any time after the original issue date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price which is $0.05 per share at December 31, 2012, and September 30, 2012, or an aggregate of 23,279,993 shares. Additionally common share purchase warrants were issued, expiring 42 months from the original issue date and permit the holders two exercisable options. The warrants were exercisable by purchase of the Company’s common stock for cash, or alternatively, in a cashless exercise, the number of shares being determined in accordance with a predetermined formula based on the Company’s then current stock price.

Conversion option derivative

For the three months ended December 31, 2012 and year ended September 30, 2012, the fair value of conversion options was estimated at the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions and the associated revaluation range of assumptions on designated event dates, including end of quarter revaluations:



	December 31, 2012	September 30, 2012
Risk-free interest rate	0.11%	0.09% to 0.17%
Expected term	.25 years	.25 years to 1 year
Expected volatility	340.9%	140.3% - 248.3%
Per unit value of conversion option derivative	$0.0028	$0.005

Below is detail of the conversion option liability balance at December 31, 2012 and September 30, 2012.



			December 31, 2012		September 30, 2012
Beginning balance		$	109,414	$	286,498
	Revaluation of conversion option liability resulting from conversion of debentures		-		731,085
	Net change in fair value of conversion option liability		(44,232)		(908,169)
Ending balance		$	65,182	$	109,414

Conversion options outstanding at year-end			23,279,333		23,279,333
	Period end weighted average fair value per unit	$	0.0028	$	0.005
Ending balance		$	65,182	$	109,414

Warrant derivative

For the three months ended December 31, 2012 and the year ended September 30, 2012, the fair value of warrants was estimated at the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions and the associated revaluation range of assumptions on designated event dates over the past two years:



	December 31, 2012	September 30, 2012
Risk-free interest rate	0.11% to 0.72%	0.11% to 0.33%
Expected term	6 months to 1 year	6 months to 2 years
Expected volatility	191.2% to 306.9%	148.0% to 244.3%
Per unit value of conversion option derivative	$0.0088	$0.012

As discussed in Note 11, 1,000,000 warrants were issued to an investment banking advisor for services rendered. The warrants contained anti-dilution provisions which call for the warrant exercise price to be reduced based on future issues of debt or equity with more favorable provisions. Therefore, based on current guidance, the warrants were treated as derivatives. The warrants were valued at $59,200 using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.81%, volatility of 158.4%, exercise price of $0.06, current market price of $0.06 per share and an expected life of 5 years. The warrants expire February 15, 2017.

Below is detail of the warrant derivative balance at December 31, 2012 and September 30, 2012.

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012


	Revaluation of warrant derivatives resulting from modification of warrant terms		-		159,271
	Net change in fair value of warrant derivatives		(80,328)		(400,961)
Ending balance		$	37,129	$	58,257

Warrants outstanding			5,999,113		4,999,113
	Period end weighted average fair value per unit		$0.006		$0.012
Ending balance		$	37,129	$	58,257

NOTE 9 - COMMON STOCK

Three months ended December 31, 2012

There was no issuance of common stock in the three months ended December 31, 2012.

Fiscal Year End September 30, 2012

Per the terms of the convertible debentures (Note 7), holders of the debentures have the option to receive shares of common stock issued in lieu of cash for accrued interest at 10% per annum through the date of conversion. The table below details common shares issued for conversion of debentures and accrued interest during the year ended September 30, 2012:


	Date		Debt Converted	Conversion price per share	Shares Issued		Accrued Interest	Fair Market Value per share	Shares Issued

October 4, 2011		$	-	-	-	$	5,835	$0.07	82,660
October 20, 2011			60,000	$0.12	500,000		607	$0.07	9,141
November 29, 2011			55,000	$0.12	458,333		932	$0.08	12,183
February 16, 2012			-	-	-		25,643	$0.07	469,446
April 16, 2012			-	-	-		20,292	$0.05	400,545
July 11, 2012			-		-		20,292	$0.04	507,292
TOTAL		$	115,000		958,333	$	73,601		1,481,267

On December 8, 2011, the Company issued 83,333 shares of common stock as a charitable contribution. These shares were valued at $0.06 per share, representing the fair value at date of issuance.

NOTE 10 - STOCK BASED COMPENSATION

The Company’s board of directors approved a stock option plan on August 11, 2009. The purpose of the Plan is to provide employees and consultants of the Corporation and its Subsidiaries with an increased incentive to make significant and extraordinary contributions to the long-term performance and growth of the Corporation and its Subsidiaries, to join the interests of employees and consultants with the interests of the shareholders of the Corporation, and to facilitate attracting and retaining employees and consultants of exceptional ability. The total number of shares available for grant under the terms of the Plan is 4,000,000. The stock option price is the market price of the share at the date of issuance, but may be changed by the Board of Directors or designee from time to time. The stock options are non-transferable and expire not more than five (5) years from the date of the granting.

The Company recognizes compensation expense straight-line over the vesting term. Historically, the Company has issued new shares to satisfy exercises of stock options and the Company expects to issue new shares to satisfy any future exercises of stock options.

At December 31, 2012, and September 30, 2012, the Company had 2,040,000 options granted and outstanding. The outstanding options have a weighted average remaining term of 1.75 years.

There was no grant, exercise or forfeiture of stock options during the three months ended December 31, 2012 nor during the year ended September 30, 2012. As of December 31, 2012 and September 30, 2012, there are 2,040,000 stock options outstanding with a

Jayhawk Energy, Inc. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2012

weighted average exercise price of $0.20 per share. The weighted average fair value of the options outstanding is $408,000. There is no aggregate intrinsic value for the options outstanding.

A summary of the status of the Company’s non-vested stock options outstanding at September 30, 2012 is presented as follows:


		Number of options			Weighted Average Per Share			Weighted Average Fair Value
Nonvested, September 30, 2011			160,000	$		0.16	$		25,169
	Granted		-			-			-
	Vested		(80,000)			0.16			(12,585)
	Forfeited					-
Nonvested, September 30, 2012			80,000	$		0.16	$		12,584
	Granted		-			-			-
	Vested
	Forfeited		-			-			-
Nonvested, December 31, 2012			80,000	$		0.16	$		12,584

As of December 31, 2012, there was $9,438 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of .75 years.

NOTE 11 - BROKER AND SHARE PURCHASE WARRANTS

In conjunction with the issuance of the $1,500,000 convertible debentures described in Note 7, 166,000 warrants were issued for services provided in execution of the debentures. As discussed in Note 8, the share purchase and broker warrants are treated as derivatives. The warrants were valued at $104,580 using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 1.70%, volatility of 165.4%, exercise price of $0.45, current market price of $0.63 per share and an expected life of 3.5 years. The warrants expire June 14, 2013.

In conjunction with the issuance of the $500,000 convertible debentures on or about October 26, 2010 described in Note 7, 55,335 warrants were issued for services provided in execution of the debentures. The warrants were valued at $8,854 using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.59%, volatility of 159.6%, exercise price of $0.18, current market price of $0.16 per share and an expected life of 3.5 years. The warrants expire April 26, 2014.

As discussed in Note 8, 1,000,000 warrants were issued to an investment banking advisor for services rendered. The warrants contained anti-dilution provisions which call for the warrant exercise price to be reduced based on future issues of debt or equity with more favorable provisions. Therefore, based on current guidance, the warrants were treated as derivatives. The warrants were valued at $59,200 using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.81%, volatility of 158.4%, exercise price of $0.06, current market price of $0.06 per share and an expected life of 5 years. The warrants expire February 15, 2017.

A summary of the Company's share purchase and broker warrants outstanding at December 31, 2012 is presented as follows:


		Broker warrants		Broker warrant exercise price		Share purchase warrants		Warrant exercise price
Balance outstanding, September 30, 2011			221,335		$0.12 ⁽¹⁾		4,777,778		$0.12⁽¹⁾
	Forfeited
	Exercised
	Granted
Balance outstanding, September 30, 2012			221,335		$0.05 ⁽¹⁾		4,777,778		$0.05⁽¹⁾
	Forfeited		-		-		-
	Exercised		-		-		-
	Granted		1,000,000		$0.06		-
Balance outstanding, December 31, 2012			1,221,335		$0.05 ⁽²⁾		4,777,778		$0.05⁽¹⁾

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

Results of Operations for the three months ended December 31, 2012 and 2011

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, 2012, on Form 10-K, and the Forms 8-K and Forms 10-Q issued in the periods subsequent to September 30, 2012. Certain sections of Management's Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements concerning trends or events potentially affecting our business. These statements typically contain words such as "anticipates," "believes," "estimates," "expects," "plans," "probable," "should," "could," "would," or similar words indicating that future outcomes are uncertain. In accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not all such factors, which could cause future outcomes to differ materially from those set forth in the forward-looking statements.

Oil and Gas Properties

During the three months ended December 31, 2012, the Crosby area experienced improving weather conditions which provided adequate access to four of JayHawk Energy’s five producing wells. All four wells produced regularly during the quarter just ended, and continue to produce to date of this report.

Revenues – For the three months ending December 31, 2012 and 2011, revenues reported as JayHawk's net working interest were $111,061 and $169,256 respectively. The comparative volume of oil and gas delivered and the average prices received during each of the two respective three month periods of 2012 and 2011, are disclosed in the following table:


		Volumes		Average Prices		Gross Revenue
		2012	2011	2012	2011	2012	2011

Oil sales (in barrels)		3,012	3,963	$70.38	$82.85	$ 211,990	328,321
Gas sales (in thousand cubic feet)		-	1,416	-	3.25	-	4,609
Total gross receipts						$211,990	332,930
	Less: working and royalty interests					(100,929)	(163,674)
Net revenue to JayHawk						$111,061	$169,256

Oil Revenues – As commented in Note 2 of the Notes to Consolidated Financial Statements above, the Company recognizes revenues only to the extent of its net working interest, which is the remainder after deduction of the outside working and royalty interests .

For the three month period ending December 31, 2012, JayHawk sold a gross 3,012 barrels (Bbls). Field prices (after delivery charges) fluctuated from a low of $58.98 to a high of $79.28 during the three month period ending December 31, 2012. This production was sold at average prices of $70.38/Bbl. During the comparable period ending December 31, 2011 the quarterly sales volumes were 3,963 Bbls. Field prices (after delivery charges) fluctuated from a low of $73.27 to a high of $85.55/Bbl. Average prices received per barrel of crude oil were $82.85 for the three months ending December 31, 2011.

Volumes of oil delivered during the three month period ending December 31, 2012 decreased by 951 barrels (-24%) over the same timeframe in 2011. The Company operated five of five wells in the three months ended December 31, 2012 for an aggregate of 305 production days compared to 325 days producing for the three months ended December 31, 2011. The Company encountered mechanical issues on its Burner well which caused no production from that site for the three months ended December 31, 2012. The Burner well resumed production in late January 2013.

Gas Revenues – During the fourth quarter ending September 30, 2012, the Company’s joint venture partner failed to exercise an option that would have given WHL Midcon, LLC an 85 percent working interest in the Girard properties. By failing to exercise, WHL Midcon’s revenue percentage fell from 42.5 to 35% beginning in July 2011. As well, under the terms of the previous joint venture agreement, the joint venture partner was responsible for all operating expenses related to the Girard properties. Beginning in July 2011, Jayhawk Energy became responsible for 100% of operating expenses related to the Girard properties. As WHL Midcon, LLC continues to maintain oil operations in the Girard vicinity, Jayhawk continues to share some contract employees and overhead

expenses pro-rata with WHL Midcon, LLC. Consequently, production expenses in Kansas have increased. Due to low natural gas prices, the Company temporarily suspended production for the three months ended December 31, 2012.

Prices received for gas production continue to remain low. As such, production was temporarily shut-in in anticipation of natural gas prices strengthening.

Production and Operating Expenses (Income) – Total operating expenses for the three months ended December 31, 2012 and 2011 were $194,996 and $412,803 respectively. The expenses are segregated as follows:


				Three months ended									Three months ended
				December 31, 2012									December 31, 2011
			Crosby, ND			Girard, KS		G&A		Total		Total
Direct Regional Costs		$	66,581		$	2,297	$	-	$	68,878	$	105,344
Depreciation, depletion and amortization			57,688			4,644		1,118		63,450		167,575
General and administrative			-			-		89,502		89,502		135,624
Accretion of asset retirement obligation			1,973			2,714		-		4,687		4,260
(Gain) on sale of equipment and leases			(53,977)			(36,744)		-		(90,721)		-
Initial recording of warrant derivative			-			-		59,200		59,200		-
	Totals	$	72,265		$	(27,089)	$	149,819	$	194,996	$	412,803

Total production expenses for the North Dakota oil operations were $66,581 (59.9% of oil revenue) for the three months ended December 31, 2012 compared to $92,248 (54.6% of oil revenue) for the three months ended December 31, 2011. These expenses are 5.3% higher as a percentage of revenue than incurred in the comparative periods ending December 31, 2011. The Company contracted for significant repairs on three of the wells in the three months ended December 31, 2012 which accounted for the increase in production costs.

Production Expenses – include direct costs and expenses such as field labor, fuel, power, well repair and maintenance, and saltwater disposal. The direct production expenses are reported net of amounts charged to our non-operating partners for their working interest share of applicable costs and expenses.

Initial recording of warrant derivative - The Company recognized a $59,200 expense on recording of warrant derivatives per the terms of a consulting agreement with an investment banking advisor. The agreement was a six month engagement which was not renewed.

General and Administrative Expenses – include the cost of head office administration and the salaries and wages paid senior management and administrative staff. A comparative analysis of the general and administrative expense for the three month period ending December 31, 2012 and 2011 is provided in the following table:


			Three months ended		Three months ended
			December 31, 2012		December 31, 2011
Compensation and payroll taxes		$	27,937	$	45,360
Stock option expense			3,146		3,146
Legal, professional and consulting fees			5,775		10,957
Audit and public company expense			25,994		39,540
Insurance			14,741		12,541
All other general and administrative			11,909		24,080
	TOTAL	$	89,502	$	135,624

Total general and administrative expense has decreased $46,122 (34.0%) during the three month period ending December 31, 2012 compared to the prior year. Compensation and payroll expense has decreased $17,423, attributable to the Company's President and CEO foregoing compensation during quarter ended December 31, 2012. Audit and public company expense decreased $13,546 (34.3%) for the three months ended December 31, 2012 compared to the prior year.

All other general and administrative expense of $11,909 for the three months ended December 31, 2012, was a reduction of $12,171 from the same period ending December 31, 2011. Management has continued to see cost-efficiencies and has eliminated an administrative position. Currently only the Company CFO is a salaried employee.

Legal, professional and consulting fees decreased by $5,182 over the comparable period ending December 31, 2011. The Company continues to seek opportunities to increase shareholder value by seeking merger candidates, joint venture partners or interested parties in sale or trade of business operations.

Insurance expense increased $2,200 over the prior year due to rise in annual premium costs.

Other income (expense) – for the three month period ending December 31, 2012 and 2011, are detailed below. Interest expense, discount amortization, financing costs and the non-cash costs of debt conversion and derivatives are more fully discussed in Note 8 to the Notes to the Financial Statements.


			Three months ended		Three months ended
			December 31, 2012		December 31, 2011
Interest expense		$	(33,296)	$	(32,232)
Gain on extinguishment and conversion of debt			-		71,383
Gain on change in fair value of conversion option derivative			44,232		196,197
Gain on change in fair value of warrant derivative			80,328		198,480
Amortization of discount on debentures			-		(144,814)
	TOTAL OTHER INCOME	$	91,264	$	289,014

On or about January 9, 2012, the Company modified the terms of its debentures (Notes 7 and 8) and warrants (Note 8), changing the conversion and exercise price from $0.12 to $0.05 per share whereby the fair value of the options and warrants were re-price to their fair market trading value. The Company recognized no additional derivatives during the quarter ended December 31, 2012 nor any loss on conversion of debt. The total non-cash gain on conversion derivative of $44,232 and warrant derivative of $80,328 positively impacted the financial results for the quarter. The gain on derivatives results from the conversion price of the debenture exceeding the market value of the share price of the Company’s common stock at December 31, 2012.

There was no amortization of discount on debentures recognized during the three months ended December 31, 2012. See Note 7 to the Financial Statements in this 10-Q.

Cash Flows, Liquidity and Capital Resources

As of December 31, 2012 current assets totaled $209,947 consisting of cash, $142,077, accounts receivable, $56,634, and prepaid expenses, $11,236. At the same time the Company's current liabilities were $2,455,194, of which $1,164,000 are debentures currently in default. Consequently, management has reclassified the debt to current liabilities. This working capital shortage of $2,245,247 impairs the Company's ability to continue operating as a going concern. Future success and independence will be dependent upon the Company's ability to obtain sufficient additional financing and upon achieving profitable future operations. At this time there is no assurance that the Company will be able to achieve these objectives. Management is seeking joint venture, merger, acquisition and other means of financing to grow the Company.

Net cash used by operating activities totaled $71,182 for the three months ending December 31, 2012, compared to $76,253 provided by operating activities for the three month period ending December 31, 2011.

Net cash provided by investing activities totaled $138,763 during the nine months ending December 31, 2012 as compared to $121,555 in the same period ending December 31, 2011. The Company divested of lease holdings which it was unable to develop to production due to present lack of available capital.

Net cash used by financing activities totaled $0 during the three months ending December 31, 2012 and December 31, 2011.

The net change in cash is the sum of cash used in operating activities and provided by investing and financing activities, or a net increase of $67,581 which is an increase in the Company's cash balance of $74,496 existing at September 30, 2012, to the cash balance at December 31, 2012 of $142,077.

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 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 the evaluation of those controls and procedures performed as of December 31, 2012, the date of this report, our chief executive officer concluded that our disclosure controls and procedures were effective to allow timely decisions regarding required disclosure.

(b) Changes in internal controls – Our management, including the CEO and CFO, identified no change in our internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

On March 7, 2012, Gross Capital, Inc. (“Gross”) filed suit against the Company (Civil Action No. 4:12-cv-00714) in the United States District Court for the Southern District of Texas, Houston Division (the “Gross Lawsuit”). Gross formerly provided the Company with investor relations and other consulting services. The Gross Lawsuit alleges the Company breached two separate contracts between Gross and JayHawk. The suit requests relief in the form of money damages, including attorneys’ fees and costs. On March 30, 2012 the Company filed its answer (defenses) to the original complaint, wherein it denied all claims, and filed counterclaims against Gross for breach of contract, fraud and fraud in the inducement. The Company also requested the Gross Lawsuit be transferred to be heard in the state of Idaho.

No director, officer or affiliate of JayHawk Energy, Inc., and no owner of record or beneficial owner of more than 5% of our securities or any associate of any such director, officer or security holder is a party adverse to JayHawk Energy, Inc. or has a material interest adverse to JayHawk Energy, Inc. in reference to pending litigation

Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosed in our Form 10-K for the year ended September 30, 2012 which was filed with the SEC on January 9, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities

Convertible Debentures-- As of December 31, 2012, the Company is in default, as a result of certain provisions of the debentures, of the terms of its 10% convertible debentures issued to certain institutional investors in December 2009 and April 2010. The December 2009 and April 2010 debentures original maturity date of December 14, 2011, which was extended to December 31, 2012, has lapsed, causing the default provisions on all debentures including the October 2010 debentures for a total balance of $1,164,000 as of December 31, 2012. Management has reclassified the outstanding balance of all debentures, including the October 2010 debentures to current liabilities as of December 31, 2012. The Exercise Price of all outstanding warrants is reduced to five cents ($0.05) per share effective February 16, 2012. See Part I, Item II, Note 7-Convertible Debentures and Note 8—Derivative Liabilities for a more thorough discussion of the debentures and warrants.

Item 4. Mining Safety Disclosures

None.


CONTENTS

FINANCIAL STATEMENTS (unaudited):	Page

Consolidated Balance Sheets	4

Consolidated Statements of Operations	5

Consolidated Statements of Cash Flows	6

Notes to Consolidated Financial Statements	7


	JayHawk Energy, Inc., a Colorado corporation

Date: February 14, 2013	By:	/s/ Lindsay E. Gorrill
		Lindsay E. Gorrill Principal Executive Officer, President and a Director