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 June 30, 2015.

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 August 19, 2015, there were 199,725,629 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 Ended June 30, 2015

TABLE OF CONTENTS

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

28

2

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

3

JAYHAWK ENERGY, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	June 30, 2015		September 30, 2014
ASSETS		(unaudited)
CURRENT ASSETS
Cash	$	161	$	177,260
Trade accounts receivable		32,922		55,528
Other current assets		13,503		19,490
TOTAL CURRENT ASSETS		46,586		252,278
PROPERTY AND EQUIPMENT
Unproved properties, net (NOTE 4)		167,000		196,144
Proved properties, net (NOTE 5)		3,980		82,012
NET PROPERTY AND EQUIPMENT		170,980		278,156
RECLAMATION BONDS AND OTHER LONG TERM ASSETS		151,924		151,846
TOTAL ASSETS	$	369,490	$	682,280
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Checks issued and payable	$	2,413	$	-
Accounts payable		717,200		775,227
Due to working and royalty interests		443,894		596,442
Accrued interest related party		235,710		-
Other payables, interest and taxes accrued		178,930		446,321
Convertible line of credit  related party (NOTE 6)		36,933		-
Current portion of promissory notes payable (NOTE 11)		226,612		30,814
Convertible debentures  related party (NOTE 7)		470,439		1,038,687
TOTAL CURRENT LIABILITIES		2,312,131		2,887,491
LONG TERM LIABILITIES
Convertible debentures (NOTE 7)		130,000		40,000
Promissory notes payable (NOTE 11)		28,280		5,828
Conversion option derivative (NOTE 8)		90,515		676,533
Warrant derivative liability (NOTE 8)		14,345		24,697
Asset retirement obligation		172,684		160,636
TOTAL LONG TERM LIABILITIES		435,824		907,694
TOTAL LIABILITIES		2,747,955		3,795,185
COMMITMENTS AND CONTINGENCIES (NOTE 13)		-		-
STOCKHOLDERS’ DEFICIT
Preferred Stock, $.001 par value; 10,000,000 shares authorized, none issued and outstanding		-		-
Common Stock, $.001 par value;  200,000,000 shares authorized; 199,725,629 and 80,375,841 shares issued and outstanding		199,726		80,375
Additional paid in capital		24,991,932		22,313,609
Accumulated deficit		(27,570,123)		(25,506,889)
TOTAL STOCKHOLDERS DEFICIT		(2,378,465)		(3,112,905)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	369,490	$	682,280

The accompanying notes are an integral part of these financial statements.

4

JAYHAWK ENERGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three months ended June 30,				Nine months ended June 30,
	2015		2014		2015		2014
REVENUE
Oil sales	$	67,720	$	83,994	$	178,414	$	213,426
Gas sales		-		-		-		-
TOTAL GROSS REVENUE		67,720		83,994		178,414		213,426
OPERATING EXPENSE
Production costs-oil		65,629		260,578		168,810		368,514
Production costs-natural gas		330		1,582		7,434		5,501
Depreciation, depletion and amortization		32,748		51,750		95,648		152,386
Loss on write-off of equipment		11,528		-		11,528		-
Accretion of asset retirement obligation		4,016		3,651		12,048		10,953
North Dakota reclamation		-		-		2,306		-
General and administration		178,621		109,234		391,955		341,434
TOTAL OPERATING EXPENSES		292,872		426,795		689,729		878,788
OPERATING LOSS		(225,152)		(342,801)		(511,315)		(665,362)
OTHER INCOME (EXPENSE)
Interest and financing costs		(858,086)		(37,396)		(966,922)		(94,166)
Amortization of debt discount		(30,000)		(10,000)		(90,000)		(10,000)
Gain on forgiveness of liabilities		284,750		-		284,750		-
Loss on extinguishment of debt		(1,179,688)		(317,460)		(1,179,688)		(302,124)
Gain (loss) on change in fair value of conversion option derivative		11,105		(535,748)		389,589		(671,553)
Gain (loss) on change in fair value of warrant derivative		(3,759)		(37,294)		10,352		(40,814)
TOTAL OTHER INCOME (EXPENSE)		(1,775,678)		(937,898)		(1,551,919)		(1,118,657)
LOSS BEFORE INCOME TAX		(2,000,830)		(1,280,699)		(2,063,234)		(1,784,019)
Provision for income taxes		-		-		-		-
NET LOSS	$	(2,000,830)	$	(1,280,699)	$	(2,063,234)	$	(1,784,019)
Basic and diluted loss per share	$	(0.01)	$	(0.02)	$	(0.02)	$	(0.02)
Basic and diluted weighted average number of shares outstanding	159,977,347		80,375,841		106,909,676		79,837,379

The accompanying notes are an integral part of these financial statements.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the nine months ended June 30,
	2015		2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(2,063,234)	$	(1,784,019)
Adjustments to reconcile net income (loss) to cash used by operating activities:
Depreciation, depletion and amortization		95,648		152,386
Accretion of asset retirement obligation		12,048		10,953
Amortization and discount on debt		90,000		10,000
Non-cash financing costs		841,585
Loss on write-off of equipment		11,528
Gain on forgiveness of liabilities		(284,750)
Loss on extinguishment of debt		1,179,688		302,124
(Gain) Loss on change in fair value of conversion option derivative		(389,589)		671,553
(Gain) Loss on change in fair value of warrant derivative		(10,352)		40,814
Stock based compensation		-		28,080
Changes in assets and liabilities:
Trade accounts receivable		22,606		(30,228)
Other current assets and other long term asset		5,909		(7,811)
Accounts payable		(23,866)		50,212
Accrual for North Dakota reclamation complaint		-		(118,702)
Due to working and royalty interests		22,877		54,773
Accrued interest related party		235,710
Other payables, interest and taxes accrued		60,929		127,796
Net cash used by operating activities		(193,263)		(492,069)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in checks issued and payable		2,413		-
Proceeds from convertible debentures		-		600,000
Principal payments on promissory notes payable		(23,182)		-
Proceeds from convertible line of credit related party		36,933		-
Net cash provided  by financing  activities		16,164		600,000
Net decrease in cash		(177,099)		107,931
CASH AT BEGINNING OF PERIOD		177,260		96,833
CASH AT END OF PERIOD	$	161	$	204,764
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Proceeds from convertible debentures allocated to conversion option	$	828,211	$	600,000
Common stock issued for conversion of debentures		359,287		35,000
Due to working interest holders converted to promissory notes		175,425		46,642
Due to vendor converted to promissory note		34,162		-
Common stock issued for forgiveness of directors fees		6,000		-

The accompanying notes are an integral part of these financial statements.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

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 nine months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the full year ending September 30, 2015.

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, 2014.

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 operating losses since inception.  As of June 30, 2015, 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    $27,570,123, and as of that date the Company's current liabilities exceeded its current assets by  $2,265,545.  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/or lenders, 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.

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.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

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 June 30, 2015 and 2014, would be as follows:

	June 30, 2015		June 30, 2014
Stock options		3,400,000		4,000,000
Convertible debt		136,753,350		110,028,675
Warrants		16,000,000		5,777,778
Total possible dilution		156,153,350		119,806,453

At June 30, 2015 and 2014, 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.

Trade Accounts Receivable

Trade accounts receivable are carried at original invoice amount less an estimate for doubtful accounts. There was no allowance for doubtful accounts at June 30, 2015 and September 30, 2014. Management determines the allowance by regularly evaluating individual customer receivables and considering a customer's financial condition, credit history and current economic conditions.  Trade receivables are written off when deemed uncollectible.  Recoveries of receivables previously written off are recorded as income when received.

Concentrations

All of the Company’s direct operating revenues originate from oil production from its property in Crosby, North Dakota.  Each revenue stream is sold to a single customer through month to month contracts.  While this creates a customer concentration, there are alternate buyers of the production in the event the sole customer is unable or unwilling to purchase.

Property, Plant and Equipment

Acquisition costs associated with the acquisition of leases are capitalized when incurred.  These consist of costs incurred in obtaining a mineral interest or right in the property, such as a lease, concession, license, production sharing agreement, or other type of agreement granting such rights.  In addition, options to lease, brokers' fees, recording fees, legal costs, and other similar costs related to activities in acquiring property interests are capitalized.  

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

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 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.  

In the absence of a determination as to whether the reserves that have been found can be classified as proved, the costs of drilling such an exploratory well is not carried as an asset for more than one year following completion of drilling.  If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired, and its capitalized costs, net of salvage value are charged to expense.  Its costs can, however, continue to be capitalized if sufficient quantities of reserves are discovered in the well to justify its completion as a producing well and sufficient progress is made in assessing the reserves and the well's economic and operating feasibility.  

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.

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.

Impairment of Long-Lived Assets

The Company performs separate impairment tests for proved and unproved properties.

Proved properties - The Company evaluates its proved properties for impairment when circumstances or events occur that may impact the fair value of the assets.  The fair value of property is primarily evaluated based upon the present value of expected revenues directly associated with those assets.  An impairment loss would be recognized if the carrying amount of a capitalized asset is not recoverable and exceeds its fair value. 

Unproved properties - Unproved properties are assessed periodically to determine whether they have been impaired.  An undeveloped property may be considered impaired as the expiration of a lease term approaches and the Company has not begun drilling on the property or nearby properties and the possibility of partial or total impairment of the property increases.   If the property is found to be impaired, an impairment allowance is provided and a loss is charged to operations.  However, if the property is surrendered or the lease expires without identifying proved reserves, the cost of the property is charged against the impairment allowance already to the extent impairment has been recognized.  Any remaining cost is charged to operations.

In the case of unproved developed properties, the fair value of property is primarily evaluated based upon the present value of expected revenues directly associated with those assets.  An impairment loss would be recognized if the carrying amount of a capitalized asset is not recoverable and exceeds its fair value. 

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

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 U.S. 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 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.

Income Tax and Accounting for Uncertainty

Income taxes are determined using the liability method in accordance with ASC Topic 740 "Income Taxes" ("ASC 740").  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

ASC 740 recognizes that the ultimate deductibility of positions taken or expected to be taken on tax returns is often uncertain.  It provides guidance on when tax positions claimed by an entity can be recognized and guidance on the dollar amount at which those positions are recorded.  In order to recognize the benefits associated with a tax position taken the entity must conclude that the ultimate allowability of the deduction is more likely than not.  If the ultimate allowability of the tax position exceeds 50% (more likely than not), the benefit associated with the position is recognized at the largest dollar amount that has more than a 50% likelihood of being realized upon ultimate settlement.  Differences between tax positions taken in a tax return and recognized in accordance with the guidance will generally result in (1) an increase in income taxes currently payable or a reduction in an income tax refund receivable or (2) an increase in a deferred tax liability or a decrease in a deferred tax asset, or both (1) and (2).

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

Stock Options Granted to Employees and Non-Employees

The Company follows financial accounting standards that require the measurement of the value of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.  Non-employee stock-based compensation is granted at the Board of Director’s discretion to award select consultants for exceptional performance.  Prior to issuance of the awards, the Company is not under any obligation to issue the stock options.  Subsequent to the award, the recipient is not obligated to perform any services.  Therefore, the fair value of these options is expensed on the grant date, which is also the measurement date.

The Company estimates the fair value of employee stock option awards on the date of grant using a Black-Scholes valuation model which requires management to make certain assumptions regarding: (i) the expected volatility in the market price of the Company's common stock; (ii) dividend yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercised (referred to as the expected holding period).  The expected volatility under this valuation model is based on the current and historical implied volatilities of the Company's common stock.  The dividend yield is based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities ranging from one month to five years.  The expected holding period of the awards granted is estimated using the historical exercise behavior of employees.  In addition, the Company estimates the expected impact of forfeited awards and recognize stock-based compensation cost only for those awards expected to vest.  The Company utilizes historical experience to estimate projected forfeitures.  If actual forfeitures are materially different from estimates, stock-based compensation expense could be significantly different from what we have recorded in the current period.  The cumulative effect on current and prior periods of a change in the estimated forfeiture rate is recognized as compensation cost in the period of the revision.

Stock Granted to Employees and Non-Employees in Lieu of Cash Payments

The Company periodically issues shares of its common stock in lieu of cash payments to certain consultants, vendors and employees.  The Company follows financial accounting standards that require the measurement of the value of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.

Reclassifications

Certain reclassifications have been made to the 2014 financial statements in order to conform to the 2015 presentation.  These reclassifications have no effect on net loss, total assets or accumulated deficit as previously reported.

New Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15—Presentation of Financial Statements—Going Concern. The guidance requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). If conditions or events exist that raise substantial doubt about an entity’s ability to continue as a going concern, the guidance requires disclosure in the financial statements. The guidance will be effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  The Company is currently evaluating the new standard and its impact on the Company’s consolidated financial statements.

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS   

The carrying values of cash and cash equivalents, reclamation bonds, convertible line of credit and promissory note payable 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 $1,100,287 using the current market price per share of stock at June 30, 2015. 

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 June 30, 2015 and September 30, 2014, respectively, and the fair value calculation input hierarchy that the Company has determined has applied to each asset and liability category.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

	June 30, 2015		September 30, 2014		Input Hierarchy level
Assets:
Cash	$	161	$	177,260		Level 1
Reclamation bonds		150,924		150,346		Level 1
Liabilities:
Conversion option derivative liability	$	90,515	$	676,533		Level 2
Warrant derivative liability		14,345		24,697		Level 2

NOTE 4 - UNPROVED PROPERTIES AND IMPAIRMENT  

The total of the Company's investment in unproved properties and equipment at June 30, 2015 and September 30, 2014, consists of the following capitalized costs respectively:

	June 30, 2015		September 30, 2014
UNPROVED AND DEVELOPED PROPERTIES
Kansas Girard Project
Field equipment - Jayhawk Gas Transport Company	$	2,605,871	$	2,605,871
Field equipment - Girard		579,027		579,027
Capitalized drilling costs		614,756		614,756
Subtotal		3,799,654		3,799,654
Less impairments		(2,432,087)		(2,432,087)
Less accumulated depreciation, depletion and amortization		(1,240,892)		(1,211,748)
Unproved and developed properties, net		126,675		155,819
UNPROVED AND UNDEVELOPED PROPERTIES
North Dakota Project, net		40,325		40,325
Unproved and undeveloped properties, net		40,325		40,325
TOTAL UNPROVED PROPERTIES	$	167,000	$	196,144

NOTE 5 - PROVED PROPERTIES AND IMPAIRMENT  

For the nine months ended June 30, 2015 and 2014, respectively, the Company performed an analysis to determine whether the carrying amounts in its financial statements exceeded the present value of the expected revenues directly associated with the Crosby, North Dakota property.  Management determined that the net value reflected in the financial statements did not exceed the present value of such revenues.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

The total of the Company's investment in proved properties and equipment at June 30, 2015 and September 30, 2014, consists of the following capitalized costs respectively:

	June 30, 2015		September 30, 2014
Crosby, North Dakota Properties
Proved reserves	$	2,381,962	$	2,381,962
Field equipment		1,200,247		1,200,247
Capitalized drilling costs		-		427,957
Subtotal		3,582,209		4,010,166
Less impairments		(811,339)		(1,092,302)
Less accumulated depreciation, depletion and amortization		(2,766,890)		(2,835,852)
TOTAL PROVED OIL AND GAS PROPERTIES	$	3,980	$	82,012

For the year ended September 30, 2014, 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.

During the three months ended June 30, 2015, management scrapped certain capitalized drilling costs and equipment associated with the Jenks and Knudsen wells in Crosby, North Dakota.  The Company determined the costs associated with completing the necessary engineering, road improvements and purchase of additional equipment to construct a disposal well exceeded the future benefits of said well.  The Company has plugged both the Jenks and Knudsen well bores. The loss on write-off of $11,528 was charged to operations.

NOTE 6 - CONVERTIBLE LINE OF CREDIT RELATED PARTY

On June 30, 2015, the Company entered into a revolving credit loan agreement with Vast Exploration, LLC (the “Lender” or “Vast”). Vast is a controlling shareholder of the Company and an affiliate of Vast Petroleum Corp., an entity that entered into a joint development agreement for the Company’s oil and gas operations in Kansas in May 2014. Vast Petroleum Corp. was not a party to the loan. The Chairman of the board for the Company, is the individual who possesses voting and dispositive authority on behalf of Vast.

The loan permits the Company to borrow up to $100,000 with an interest rate equal to 1.5% per month of the unpaid principal balance on the loan. The Company is required to pay principal on demand or, if not sooner demanded, then on or before June 30, 2016.  The Company is required to pay interest on demand or, if not sooner demanded, then on the 1st day of each month, commencing August 1, 2015. After demand, interest on the outstanding balance of the Loan will accrue at a rate equal to 2% per month. Vast has the right, at any time after the date of the Loan, at its election, to convert all or part of the Loan into shares of fully paid and non-assessable shares of common stock of the Company.

The Lender has the right, at any time after the date of the, at its election, to convert all or part of the loan amount into shares of fully paid and non-assessable shares of common stock of the Company.  The conversion price  shall be the lesser of (a) $0.01 per share of common stock, (b) 50% of the average of the three lowest trade prices of three  separate trading days of Common Stock recorded during the twenty five previous trading days prior to conversion, or (c) the lowest effective price per share granted to any person or entity after the date of this Note to acquire Common Stock, or adjust, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents, excluding any outstanding warrants or options that existed  prior to the date of the loan.  As a result of the variable nature of the conversion price, the Company recognize a conversion derivative liability based on the fair value of the conversion units at periodic valuation dates and events (Note 8).

As of June 30, 2015, the line of credit balance was $36,933 was convertible to 6,138,450 shares of the Company’s common stock at a share price of $0.006017 based on the aforementioned conversion formula.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

NOTE 7 - CONVERTIBLE DEBENTURES  

Modification of debt

On November 5, 2013, an investor converted $35,000 in convertible debentures at $0.01 per share.  Pursuant to this conversion, the Company issued 3,500,000 shares of common stock.  

On June 3, 2014, the Company entered into a Partial Reset of Conversion Price for the 10% Senior Secured Convertible Debentures agreement (the “2014 Partial Reset”) with one of the Investors.  Under the terms of the 2014 Partial Reset, the Investor and the Company agreed to the following terms:

The Investor has the right to convert, into common stock of the Company, up to two hundred thousand dollars ($200,000) (in addition to the principal amount of the Debentures rest in the 2013 Partial Reset) of the principal amount of the Debentures outstanding at a Conversion Price equal to $0.01.

The Company considered the impact of ASC 470-50 “Debt Modifications and Extinguishments” of the 2014 Partial Reset and concluded it constituted a substantial modification and therefore should be accounted for as an extinguishment of debt.  During the year ended September 30, 2014, the Company recognized a loss on extinguishment of $399,287 representing the change in fair value of the embedded conversion option because of the modification.

Fiscal year ended September 30, 2014

On or about June 3, 2014, the Company entered into Securities Purchase Agreements with an institutional investor, and accredited investor and the Chairman of the Board of Directors of the Company (each an “Investor” and together the “Investors”), wherein the Company agreed to sell and the Investors agreed to purchase $400,000 (total) of Secured Convertible Debentures. The Debentures are due sixty (60) months from the date of closing. The Debentures are secured by a security agreement granting the Investors a security interest in and to all of the Company’s assets located in the State of Kansas.  At closing, the Company also entered into a Stock Pledge Agreement pledging to each Investor, as additional security, all of the Company’s right, title and interest in and to the capital stock of JayHawk Gas Transportation Corporation (a wholly owned subsidiary of the Company and the owner of the Company’s gas transmission pipeline in Kansas).

The Debentures are convertible at any time after the original issue date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.01 per share, or an aggregate of 40,000,000 shares.

Additionally, each Investor will receive: 1) a Wastewater Disposal Fee; and 2) a Royalty Interest.

Wastewater Disposal Fee: the Company agrees to pay each Investor a per barrel fee (the "Disposal Fee") for each barrel of wastewater, which emanates from the Company's five currently producing, as of the original issue date of the Debentures, oil wells located in North Dakota, which is disposed of in the Company's proposed wastewater disposal well to be located in North Dakota (the "Disposal Well").  For a period commencing on the original issue date of the Debentures and continuing for five years or until the Debenture is repaid by the Company, whichever is sooner, the Disposal Fee will be equal to one and no/I 00 dollars ($1.00) per barrel of wastewater disposed of in the Disposal Well. After year five and continuing until each respective Debenture repaid by the Company the Disposal Fee shall be equal to fifty cents ($.50) per barrel of wastewater, emanating from the Company's five currently producing, as of the date the Debenture is issued, oil wells located in North Dakota, disposed of in the Disposal Well.

Royalty Interest: beginning on the original issue date of the Debentures and continuing thereafter so long as the Company owns the subject wells, the Company agrees to pay each Investor a one percent (1 %) overriding royalty interest, calculated monthly, on all proceeds received by the Company from sales of crude oil produced from the Company's five (5) then producing, as of the date the Debentures were issued, oil wells located in North Dakota

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

On June 6, 2014, the Registrant entered into a Securities Purchase Agreement with an accredited investor (the “Investor”), wherein the Company agreed to sell and the Investor agreed to purchase a $200,000 Secured Convertible Debenture (the “Debenture”).  The Debenture is due sixty (60) months from the date of closing (the “Securities Purchase Agreement,” and “Debenture” collectively constitute the “Offering”). The Debenture is secured by a security agreement granting the Investor a security interest in and to all of the Company’s assets located in the State of Kansas.  At closing, the Company will also enter into a Stock Pledge Agreement pledging to the Investor, as additional security, all of the Company’s right, title and interest in and to the capital stock of JayHawk Gas Transportion Corporation (a wholly owned subsidiary of the Company and the owner of the Company’s gas transmission pipeline in Kansas).

Additionally, the Company agrees to pay the Investor a per barrel fee (the “Disposal Fee”) for each barrel of wastewater, which emanates from the Company’s five (5) currently producing, as of the original issue date of the Debenture, oil wells located in North Dakota, which is disposed of in the Company’s proposed wastewater disposal well to be located in North Dakota (the “Disposal Well”).  For a period commencing on the original issue date of the Debenture and continuing for five (5) years or until the Debenture is repaid by the Company, whichever is sooner, the Disposal Fee will be equal to fifty cents ($.50) per barrel of wastewater disposed of in the Disposal Well.  Thereafter the Disposal Fee shall be equal to twenty five cents ($.25) per barrel of wastewater, emanating from the Company’s 5 currently producing, as of the date the Debenture is issued, oil wells located in North Dakota, disposed of in the Disposal Well.

The Debenture is convertible at any time after the original issue date into a number of shares of the registrant’s common stock, determined by dividing the amount to be converted by a conversion price of $0.01 per share, or an aggregate of 20,000,000 shares of common stock.On June 3, 2014, the price for the Company’s common stock exceeded the $0.01 conversion price stated in the debentures. Management determined that the favorable exercise price represented a beneficial conversion feature. Using the intrinsic value method at the debenture date, a total discount of $600,000 was recognized on the debentures. The discount is being amortized over the term of the debentures using the straight-line method, which approximated the effective interest method. The Company recorded $40,000 in interest expense related to the amortization of the discount for the year ended September 30, 2014. The remaining discount balance was $560,000 at September 30, 2014. For the nine months ended June 30, 2015, the Company recorded $90,000 in interest and finance expense related to the amortization of the discount.  The remaining discount balance was $470,000 at June 30, 2015.

Nine months ended June 30, 2015

On April 17, 2015, Vast Exploration, LLC (“Vast”) acquired, from the various original institutional holders, the Convertible Debentures originally issued by the Company on or about December 11, 2009, December 30, 2009, April 22, 2010 and October 18, 2010 (collectively the “Convertible Debentures”).  Vast also acquired two outstanding convertible debentures originally issued by the Company on or about June 3, 2014, in aggregate amount of $400,000 from an institutional holder and a related party to the Company.

On or about April 17, 2015, Vast notified the Company of its intent to hold the Company in default of certain provisions of the Convertible Debentures, including but not limited to additional interest at 18% and recalculating the principal balances to 125% of their face amount retroactive to the last known date of compliance. The increase in principal balance of the debentures as a result of the default at date of notification was $283,188.  The increase in additional accrued interest on the debentures as a result of the default at the date of notification was $300,441. The total $583,629 was recognized as interest and finance expense during the three months ended June 30, 2015.  As of June 30, 2015, the Convertible Debentures and accrued interest remain in default and consequently are classified as “current liabilities”.

Effective April 30, 2015 the Company entered into an agreement, with Vast, to amend the Company’s outstanding convertible debentures held by Vast.  Under the terms of the Amendment to Convertible Debentures the “Conversion Price” for the remaining entire outstanding balance owed by the Company under the Convertible Debentures has been reset to $.01 per share.  The amendment to the convertible debentures includes a conversion feature that allows the principal and accrued interest of the loans to be converted into common stock of Jayhawk Energy, Inc. at $0.01 per share at the option of related party note holders.  These notes and accrued interest as of April 30, 2015, would convert into 207,954,477 shares of Jayhawk Energy, Inc.’s common stock, subject to an increase in the Company’s authorized shares of common stock.  The Amendment to Convertible Debentures also eliminated certain provisions of the convertible debentures that required convertible derivative accounting rules to be applied to the convertible debentures (See Note 8).

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

The fair value of the conversion feature prior to amendment of the agreement was $286,952.   The Company estimated the fair value of the amended conversion feature to be $1,436,734 which has been recognized as a loss on extinguishment of debt in the Company’s non-operating expenses. The Company recognized extinguishment of debt of $1,179,688.

On April 30, 2015, Vast gave the Company written Notice of Conversion of four of the Convertible Debentures (Note 7) into the Company's common stock.  Vast converted $828,211 of the principal balance and $359,287 of accrued interest of the debentures for a total conversion of $1,187,498.   The conversion price was $0.01 per share   The Company issued 118,749,800 shares of its common stock.  As a result of the conversion, Vast became the majority shareholder of the Company.

The fair value was calculated using Level 2 inputs.   The fair value of the amended conversion feature was estimated by applying a Black-Scholes model and using the following conversion variables:

Stock price	$	.00112
Risk-free interest rate		286.6%
Expected term		.25  years
Expected volatility		286.6%
Fair value of conversion option per unit		0.0069

At June 30, 2015, principal payments on debt are due as follows:

Year ending June 30, 2015	$	470,439
Year ending June 30, 2016		-
Year ending June 30, 2017		-
Year ending June 30, 2018		-
Year ending June 30, 2019		600,000
	$	1,070,439

NOTE 8 - DERIVATIVE LIABILITIES

The Company had convertible debentures 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.  

During the three months ended June 30, 2015, the Company entered into a modification agreement with the holders of the convertible debentures.  The modification agreement changed the conversion price to $0.01 per common share and also specifically eliminated provisions of the debentures requiring conversion derivative accounting.  The fair value of the derivative liability on that date of $1,436,734 was charged to ‘additional paid-in capital’.

The Company also entered into a convertible line of credit (Note 6), dated June 30, 2015, which contained provisions allowing holders of the note to convert outstanding debt to shares of the Company's common stock. The line of credit contains anti-dilution provisions which call for the debt conversion price 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 to require derivative liability accounting.  Management has valued them at fair value using a Black Scholes model with the inputs as indicated below at the date of issuance.  

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

Conversion option derivative

At June 30, 2015 and 2014, the fair value of conversion options was estimated at the period’s end using the Black-Scholes option pricing model using the following weighted average assumptions.

	June 30,
	2015		2014
Stock price	$	0.0169	$	0.0294
Risk-free interest rate		0.01% to 0.28%		0.06% to 0.10%
Expected term		.25 years to 1 year		.25 to .50 years
Expected volatility		242.5% to 298.6%		248.6% to 339.3%
Fair value of conversion option derivative units		$0.003 to $0.015		$.002 to $0.01

Below is detail of the change in conversion option liability balance for the three months ended June 30, 2015 and 2014, respectively.

	For the three months ended June 30,
	2015		2014
Beginning balance	$	298,049	$	298,022
Fair value of derivative conversion option extinguished		(286,944)		317,460
Line of credit derivative conversion option liability		90,515		-
Net change in fair value of conversion option liability		(11,105)		535,748
Ending balance	$	90,515	$	1,151,230

Below is detail of the change in conversion option liability balance for the nine months ended June 30, 2015 and 2014, respectively.

	For the nine months ended June 30,
	2015			2014
Beginning balance	$	676,533	$	177,553
Fair value of derivative conversion option extinguished		(286,944)		302,124
Line of credit derivative conversion option liability		90,515
Net change in fair value of conversion option liability		(389,589)		671,553
Ending  balance	$	90,515	$	1,151,230

Warrant derivative

At June 30, 2015 and 2014, respectively, the fair value of warrant derivative liability was estimated using the Black-Scholes option pricing model using the following weighted average assumptions:

	June 30,
	2015		2014
Stock price	$	0.0169	$	0.0294
Risk-free interest rate		0.56%		0.02% to 0.90%
Expected term		1.88 year		1 month to 1 year
Expected volatility		274.3%		128.4% to 297.7%
Fair value of warrant derivative units		$0.0106		$0.0002 to $0.028

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

Below is detail of the change in warrant derivative liability balance for three months ended June 30, 2015 and 2014, respectively:

	Three  months ended June 30,
	2015		2014
Beginning balance	$	10,586	$	45,073
Net change in fair value of warrant derivative liability		3,759		37,294
Ending balance	$	14,345	$	82,367

Below is detail of the change in warrant derivative liability balance for nine months ended June 30, 2015 and 2014, respectively:

	Nine months ended June 30,
	2015		2014
Beginning balance	$	24,697	$	41,553
Net change in fair value of warrant derivative liability		(10,352)		40,814
Ending balance	$	14,345	$	82,367

NOTE 9 - STOCK BASED COMPENSATION

The Company’s board of directors approved a stock and option plan on August 11, 2009 (the “Plan”).  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 number of shares subject to the Plan and any outstanding awards will be adjusted appropriately by the Board of Directors if the Company’s common stock is affected through a reorganization, merger, consolidation, recapitalization, restructuring, reclassification dividend (other than quarterly cash dividends) or other distribution, stock split, spin-off or sale of substantially all of the Company’s assets.  

On October 10, 2013, the Board of Directors rescinded, from various officers and directors, 2,040,000 options to purchase shares of the Company’s common stock.  The rescinded options had a strike price of $0.20 based on the closing price of the Company’s common stock on the date of grant.  Also on October 10, 2013, the Board of Directors authorized the grant, to various officers and directors, of 4,000,000 options to purchase shares of the Company’s common stock.  The options have a strike price of $0.01 based on the closing price of the Company’s common stock on the date of grant and vest over 9 months.  The concurrent grant of a replacement award was accounted for as a modification of terms and resulted in an offset to compensation expense of $20,151.

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.  

The outstanding options have a weighted average remaining term of 3.78 years.  No options were exercised during the three months ended June 30, 2015. At June 30, 2015 and 2014, the Company had 3,400,000 options outstanding and exercisable.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

The following table reflects the summary of changes during the periods ended September 30, 2014 and June 30, 2015:

	Number of shares under options	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance outstanding, September 30, 2013	2,040,000	$	0.20	$	-
Issued	4,000,000		0.01		-
Exercised	-		-		-
Forfeited or rescinded	(2,040,000)		(0.20)		-
Balance outstanding and exercisable, September 30, 2014	4,000,000	$	0.01	$	-
Issued	-		-		-
Exercised	-		-		-
Forfeited or rescinded	(600,000)		(0.01)		-
Balance outstanding and exercisable, June 30, 2015	3,400,000	$	0.01	$	23,460

All 3,400,000 options outstanding are fully vested and exercisable at $0.01 per share.

As of June 30, 2015, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan.  The Company recognized $Nil and $9,360 of compensation cost related to options vested during the three months ended June 30, 2015 and 2014, respectively.  The Company recognized $Nil and $28,080 of compensation cost related to options vested during the nine months ended June 30, 2015 and 2014, respectively   These costs are classified under management and administrative expense.

The aggregate intrinsic value of options exercisable at June 30, 2015 was $23,460 based on the Company’s closing price of $0.0169 per common share, respectively.

NOTE 10 - BROKER AND SHARE PURCHASE WARRANTS

A summary of activity of the Company's share purchase and broker warrants outstanding at June 30, 2015 is presented as follows:

	Broker Warrants		Weighted Average Exercise Price	Share Purchase Warrants		Weighted Average Exercise Price
Balance outstanding, September 30, 2013	1,055,335	$	0.06	4,777,778	$	0.05
Forfeited or expired	(55,335)		(0.05)	(2,000,000)		(0.05)
Exercised	-		-	-		-
Granted	-		-	-		-
Balance outstanding, September 30, 2014	1,000,000	$	0.06	2,777,778	$	0.05
Forfeited or expired	-			(2,777,778)		(0.05)
Exercised	-		-	-		-
Granted	-		-	15,000,000		0.001
Balance outstanding, June 30, 2015	1,000,000	$	0.06	15,000,000	$	0.001

The Broker Warrants expire February 15, 2017 and have an exercise price of $0.06.

19

JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

On April 17, 2015 the Company granted, to four institutional investors, warrants to purchase up to an aggregate of 15,000,000 shares of the Company’s common stock in consideration of the investors waiving the Company’s prior defaults under the Convertible Debentures.  The Warrants give the holders thereof the right to purchase common stock of the Company at the purchase price of $0.001 per share and expire on March 17, 2020. The fair value of the warrants issued was $167,442 was charged to interest and financing costs.

NOTE 11 – PROMISSORY NOTES PAYABLE

On or about July 12, 2014, the Company entered into a promissory note for $46,642 with a working interest partner.  The Company will make seven monthly payments in the amount of $2,500 and subsequently make ten monthly payments in the amount of $2,914.  At June 30, 2015, the balance due on the note was $31,642. The Company is currently in default on the terms of the promissory note.

On or about January 27, 2015, the Company entered into a promissory note for $189,790 with a working interest partner which included past due amounts of $175,425 and imputed interest of $14,364 which was recognized as financing expense.  The Company will make nineteen monthly payments in the amount of $9,542 and subsequently make one monthly payments in the amount of $19,016.  The note bears interest at 6% per annum.  At June 30, 2015, the total balance due plus accrued interest and late payment charges on the note was $192,370.  The Company is currently in default on the terms of the promissory note.

On or about February 12, 2015, the Company entered into a promissory note for $49,696 with a vendor which included accounts payable of $34,162 and imputed interest of $15,534 which was recognized as financing expense.  The Company will make one payment of $5,000, thirty-eight monthly payments in the amount of $1,500 and subsequently make one monthly payments in the amount of $1,378.  The note bears interest at 8% per annum.  At June 30, 2015, the balance due including accrued interest on the note was $42,129.

At June 30, 2015, principal payments on these notes are due as follows:

Year ending June 30,
2016	$	226,612
2017		14,503
2018		13,777
	$	254,892

NOTE 12 - RELATED PARTY TRANSACTIONS  

On or about December 1, 2011, the Company entered into a four year lease with Marlin Property Management, LLC, an entity owned by the spouse of the Company's former President/CEO and current member of the board of directors.  Under the terms of the lease the Company is required to pay $2,500 per month for office space in Coeur d'Alene, Idaho.  For the three months and nine months ended June 30, 2015 and 2014, $7,500 and $7,500, and $15,000 and $15,000 respectively, were due under the terms of the lease.  The balance due to the related party including common area expenses as of June 30, 2015 was $17,113.

On or about June 3, 2014, the Company entered into a Securities Purchase Agreement with the former Chairman and current member of the board of directors to sell $200,000 of Secured Convertible Debentures (Note 7).

On or about April 17, 2015, the former Chairman assigned for consideration the $200,000 convertible debenture to Vast. On or about April 17, 2015, Vast also was assigned for consideration to the holder a $200,000 convertible debenture held by an institutional investor and also acquired the Convertible Debentures (Note 7) from their original holders.  

On or about April 17, 2015, Vast notified the Company of its intent to hold the Company in default of certain provisions of the Convertible Debentures, including but not limited to additional interest at 18% and recalculating the principal balances to 125% of their face amount retroactive to the last known date of compliance.

On April 17, 2015, the Board of Directors appointed the managing member of Vast Exploration LLC as a director of the Company to fill a vacancy on the Board and in connection with Vast Exploration, LLC’s acquisition of certain Convertible Debentures from institutional investors.  The managing member of Vast Exploration LLC will serve as the Chairman of the board of Directors of Jayhawk Energy.     

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

The aggregate debenture and accrued interest  balance due  to the Vast as of June 30, 2015 is $1,106,149 which is convertible at any time after the original issue date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.01 per share, or an aggregate of  shares.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

On December 1, 2011, the Company entered into an office space lease with a related party for a term of four years, at the fixed monthly rental amount of $2,500.  Accordingly, the Company's commitment to make these lease payments for each successive year is $30,000.

The Company is obligated to pay royalties to holders of oil and natural gas interests in both North Dakota and Kansas operations.  The Company also is obligated to pay working interest holders a pro-rata portion of revenue in oil operations net of shared operating expenses.  The amounts are based on monthly oil and natural gas sales and are charged monthly net of oil and gas revenue and recognized as "Due to royalty and working interest holders" on the Company's balance sheet.

On August 1, 2013, the North Dakota Industrial Commission (“NDIC”) submitted an administrative complaint to the State of North Dakota related to plugging and remediation of the Company’s Jenks 1 and Knudsen 1 wells in Crosby, ND. The administrative complaintalleged the Company violated certain portions of the North Dakota Century Code and requested administrative relief against Jayhawk Energy, Inc. for violation of sections of the North Dakota Administrative Code governing the oil and gas industry.

On or about August 12, 2013, the Company responded to the administrative complaint and entered into settlement negotiations with the NDIC. As a good faith effort, the Company began plugging the Knudsen 1 well on or about December 20, 2013.  The work required to plug the Knudsen 1 well was completed in January 2014.  The range of associated penalties as proposed by the NDIC was $100,000 to $525,000 for failure to comply.

As September 30, 2013, the Company accrued $330,000 as an estimate of total liability related to the Jenks and Knudsen reclamation. For the year ended September 30, 2014, the Company revised the estimate related to the Jenks and Knudsen reclamation and paid an additional $190,947 for completion of remaining remediation.   

On February 18, 2014, the Company entered into a Consent Agreement with the State of North Dakota whereby the Company was required to finish reclamation work on the two waste water storage pits adjacent to the Jenks 1 and Knudsen 1 wells respectively.  Further, the Consent Agreement allows that the Company must plug the “production zone” of the Jenks 1 well and then may apply for a permit to convert the Jenks 1 well to a salt water disposal well.  As a part of the Consent Agreement the Company agreed to pay a civil penalty of no less than $105,000, consisting of $25,000 due and payable upon execution of the Consent Agreement and a $16,000 installment per month for five successive months thereafter.  

The Company made the initial $25,000 payment and each subsequent monthly installment payment of $16,000 with the final installment paid to the State of North Dakota on June 26, 2014.  As of September 30, 2014 the Company has completed substantially all reclamation work and has paid all fines assessed.

On July 12, 2014, the Company completed reclamation work on both the Jenks 1 and Knudsen 1 waste water storage pits.  Unseasonably heavy rains which saturated the soil and limited safe access to the site by heavy equipment delayed scheduled reclamation until such time as ground conditions improved.  The Company also completed plugging of the ‘production zone’ on the Jenks 1 well and set a balance plug on the Knudsen 1 well bore.  

With respect to the Knudsen 1 site reclamation, under North Dakota statute, the Company is required to re-vegetate the disturbed area with native species or with crops according to reasonable specifications of the surface owner.  The Company intends to plant native grass in the Spring and Summer of 2015 and believes it has substantially complied with the standards set for reclamation of the site.  Management does not believe the cost of replanting to be material at this time and, therefore, accrues no additional contingent liability.

With respect to the Jenks site reclamation (Note 14), management determined the cost to construct a salt water disposal well exceeded the present value of the economic benefit thereof.  The Company engaged contractors to plug the Jenks well of which the expected completion date will be during August 2015.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

On February 12, 2015, the Company entered into a settlement agreement with the Staff of the Corporation Commission of the State of Kansas with respect to a Penalty Order served by the Company for failure to comply with certain portions of the Kansas Administrative Regulations.  The Company was found in violation of failure to plug, return to service or temporarily abandon 71 wells and assessed a $7,100 penalty, of which $3,100 was payable immediately, a $2,000 payment due by April 1, 2015 and the final $2,000 payment by May 1, 2015.  The Company has subsequently submitted 71 temporary abandonment applications, of which 71 applications were approved.  The Company has up to one year to plug the wells, return them to service or file additional temporary abandonment applications.  

On or about April 17, 2015, as a result of the Vast transaction, the Company reported a Change of Control which triggered certain provisions of a Company officer’s Executive Employment Agreement. The Company accrued a liability of $143,781 which is included in “other payables, taxes and interest accrued” at June 30, 2015. For the three months ended June 30, 2015, the Company charged “general and administrative” expense in the amount of $143,781.

NOTE 14– SUBSEQUENT EVENTS

On August 6, 2015, the Company entered into a Line of Credit Modification Agreement with Vast.  The Agreement modifies that certain Revolving Credit Note (Note 6) entered into on June 30, 2015 by the Company for the benefit of Vast.. The Agreement adjusts the maximum principal balance that may be borrowed from $100,000 to $150,000.

On July 8, 2015, the Company executed a Contract Operating Agreement (the “Operating Agreement”) with Vast, which was made retroactive to January 01, 2015. Under the terms of the Operating Agreement Vast becomes the “operator of record” for all of the Company’s properties. Vast’s duties include the exclusive responsibility for the operation of the Company’s oil and gas properties, which includes handling routine operations, major operations, reporting services and other miscellaneous services. The Company will pay Vast a monthly fee for services in the amount of $20,000. The Company will remain responsible for all fees, expenses and taxes related to its properties and has agreed to reimburse Vast for any fees, expenses or taxes advanced on the Company’s behalf. The Company has the right to audit the books, records and invoices maintained by Vast in its operation of the Company properties. The term of the Operating Agreement is two years from the effective date. The Operating Agreement automatically renews for successive one year terms until the Company or Vast provide notice of non-renewal. The Operating Agreement includes mutual indemnities and waivers of consequential and punitive damages. The Operating Agreement also includes release and hold harmless provisions for the exclusive benefit of Vast. Finally, the Operating Agreement consents to and ratifies any operational services Vast has provided to the Company prior to the date the Operating Agreement was executed.  Vast billed the Company $120,000 for the nine months ended June 30, 2015 which was charged to ‘production expense’ and subsequently billed to working interest partners for their pro-rata share of the expense.

Vast is a controlling shareholder of the Company, the contract operator of the Company’s oil and gas properties and an affiliate of Vast Petroleum Corp. – an entity that entered into a joint development agreement for the Company’s oil and gas operations in Kansas in May 2014. Vast Petroleum Corp. was not a party to the Agreements. The Chairman of the Board of Directors for the Company, is the individual who possesses voting and dispositive authority on behalf of Vast. Acting in his capacity of Chairman of the Board of the Company, he recused himself from voting on the approvals of the Line of Credit Modification Agreement and the Contract Operating Agreement, both of which were subsequently approved by the remaining members of the Company’s Board of Directors.

On or about August 11, 2015, the Company plugged the Jenks well bore and is taking additional steps to re-vegetate the surrounding disturbed area with native species or with crops according to reasonable specifications of the surface owner.  In the event the Company does not comply with the restoring the disturbed area with native species or crops according to reasonable specifications by the land owner, the Company may be subject to fines and penalties up to $1,825,000 and would be subject to post a $120,000 bond with the state to ensure adequate cleanup.   Management believes it has substantially complied with the requirements of plugging and abandonment on the Jenks well and expects to complete surface work and replanting by the end of the fiscal year September 30, 2015.

NOTE 15– COMMON STOCK

On April 30, 2015, Vast gave the Company written Notice of Conversion of four of the Convertible Debentures (Note 7) into the Company's common stock. The holder converted $828,211 of the principal balance and $359,287 of accrued interest of the debentures for a total conversion of $1,187,498.  The conversion price was $0.01 per share.  The Company issued 118,749,800 shares of its common stock.

On June 8, 2015, the Company issued 600,000 shares of its common stock at $0.01 per shares (Note 16) to certain directors of the Company’s board of directors in consideration for accrued board fees.

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JAYHAWK ENERGY, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

June 30, 2015

NOTE 16– GAIN ON FORGIVENESS OF LIABLILITIES

During the three months ended June 30, 2015, the former President, Chief Executive Officer and Chairman of the board of directors forgave $84,500 of accrued compensation and four members of the Company’s board of directors entered into agreements in which $206,250 of accrued directors fees were forgiven in consideration of 600,000 shares of the Company’s common stock with a fair value of $6,000. The Company recognized ‘gain on forgiveness of liabilities” of $284,750 during the three months ended June 30, 2015.

.

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

Results of Operations for the three months and nine months ended June 30, 2015 and 2014   

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, 2014, on Form 10-K, and the Forms 8-K and Forms 10-Q issued in the periods subsequent to June 30, 2014.  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 June 30, 2015, ongoing low oil prices adversely affected the Company’s net revenue total.  The Kearney and Erickson wells encountered mechanical issues.  The Company shut-in the Erickson well until such time as sufficient capital resources are available to perform a complete work over on the unit.   

The natural gas pipeline near Girard, Kansas owned by the Company’s subsidiary, Jayhawk Gas Transport Company remains dormant until such time as sufficient capital resources are available to upgrade calibration units and equipment required by the purchaser of gas transported by said pipeline.  The Company’s joint interest partner, Vast Petroleum Corp., is currently seeking bids on costs to complete the necessary upgrades and the Company expects to evaluate a costs and timeline for returning to production during the quarter ending September 30, 2015.

On February 12, 2015, the Company entered into a settlement agreement with the Staff of the Corporation Commission of the State of Kansas with respect to a Penalty Order served by the Company for failure to comply with certain portions of the Kansas Administrative Regulations.  The Settlement Agreement is not binding until accepted with regard to Commission Docket Number 15-CONS-458-CPEN.  The Company was found in violation of failure to plug, return to service or temporarily abandon 71 wells and assessed a $7,100 penalty, of which $3,100 is payable immediately, a $2,000 payment due by April 1, 2015 and the final $2,000 payment by May 1, 2015.  The Company has subsequently submitted 71 temporary abandonment applications, of which 71 applications were approved and all monetary penalties were paid in a timely manner.  The Company has up to one year to plug the wells, return them to service or file additional temporary abandonment applications.  

There has been no revision of estimate to the Company’s asset retirement obligation for the period ended June 30, 2015 as management has not reasonably determined a probability of imminent retirement of the asset at this time.  

Revenues – For the three months ending June 30, 2015 and 2014, revenues reported as JayHawk's net working interest were $67,720 and $83,994 respectively.  The comparative volume of oil and gas delivered and the average prices received during each of the two respective three month periods of 2015 and 2014, are disclosed in the following table:

	Volumes		Average Prices				Gross Revenue
	2015	2014	2015		2014		2015		2014
Oil Sales (in barrels)	3,062	1,971	$	42.75	$	82.34	$	130,909	$	162,289
Gas Sales (in thousand cubic feet)	-	-		-		-		-		-
Total Gross Receipts								130,909		162,289
Less: working & royalty interests								(59,207)		(74,522)
Less: severance taxes								(3,982)		(3,773)
Total Net Revenues to JayHawk							$	67,720	$	83,994

For the nine months ending June 30, 2015 and 2014, revenues reported as JayHawk's net working interest were $178,414 and $213,426 respectively.  The comparative volume of oil and gas delivered and the average prices received during each of the two respective three month periods of 2015 and 2014, are disclosed in the following table:

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	Volumes		Average Prices				Gross Revenue
	2015	2014	2015		2014		2015		2014
Oil Sales (in barrels)	8,376	5,451	$	41.34	$	74.52	$	346,299	$	406,184
Gas Sales (in thousand cubic feet)	-            -	-		-		-          -		-                   -		-
Total Gross Receipts								346,299		406,184
Less: working & royalty interests								(158,917)		(183,355)
Less: severance taxes								(8,968)		(9,403)
Total Net Revenues to JayHawk							$	178,414	$	213,426

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 June 30, 2015, JayHawk sold a gross 3,062 barrels (Bbls).  Field prices (after delivery charges) fluctuated from a low of $41.92 to a high of $50.83 during the three month period ending June 30, 2015.  This production was sold at average prices of $42.75/Bbl.  During the comparable period ending June 30, 2014 the quarterly sales volumes were 1,971 Bbls.  Field prices (after delivery charges) fluctuated from a low of $76.07 to a high of $86.94/Bbl.  Average prices received per barrel of crude oil were $82.34 for the three months ending June 30, 2014.  

Volumes of oil delivered during the three month period ending June 30, 2015 increased by 1,091 barrels (+55.4%) over the same timeframe in 2014. However, average sales price per barrel declined by 48%.  The Company operated five of five wells intermittently in the three months ended June 30, 2015 for an aggregate of 262 production days of 455 days available for production (57.6%) compared to 134 production days of 455 days available for production (29.5%) for the three months ended June 30, 2014.   

Gas Revenues – There was no gas production during the quarter ended June 30, 2015.  The Company is currently in discussion with joint venture partners to repair certain measurement and calibration equipment which should allow for resumption of production within the next three to nine months.

Production and Operating Expenses (Income) – Total production expenses for the North Dakota oil operations were $65,629 (96.9% of oil revenue) for the three months ended June 30, 2015 compared to $260,578 (310.0% of oil revenue) for the three months ended June 30, 2014.   

Total operating expenses for the three months ended June 30, 2015 and 2014 were $292,872 and $426,795 respectively.  The expenses are segregated as follows:

	Three months ended June 30, 2015								Three months ended June 30, 2015
	Crosby, ND		Girard, KS		G&A		Total		Total
Direct Regional Costs	$	65,629	$	330	$	-	$	65,959	$	262,160
Depreciation, depletion and amortization		23,208		9,540		-		32,748		-
Loss on write off of equipment		11,528		-		-		11,528		51,750
General and administrative		-		-		178,621		178,621		109,234
Accretion of asset retirement obligation		3,053		963		-		4,016		3,651
Total	$	103,418	$	10,833	$	178,621	$	292,872	$	426,795

Total operating expenses for the nine months ended June 30, 2015 and 2014 were $689,729 and $878,788 respectively.  The expenses are segregated as follows:

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	Nine months ended June 30, 2015								Nine months ended June 30, 2014
	Crosby, ND		Girard, KS		G&A		Total		Total
Direct Regional Costs	$	168,810	$	7,434	$	-	$	176,244	$	374,015
Depreciation, depletion and amortization		66,504		29,144		-		95,648		152,386
Write off of equipment		11,528		-		-		11,528		-
General and administrative		-		-		391,955		391,955		341,434
North Dakota reclamation		2,306		-		-		2,306		-
Accretion of asset retirement obligation		9,159		2,889		-		12,048		10,953
Total	$	258,307	$	39,467	$	391,955	$	689,729	$	878,788

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

General and Administrative Expenses – include the cost of head office administration and the salaries and wages paid senior management and administrative staff.  A comparative analysis of the general and administrative expense for the three month period ending June 30, 2015 and 2014 is provided in the following table:

	Three months ended June 30,
	2015		2014		$ Change		Percent change
Compensation and payroll taxes	$	145,781	$	40,524	$	105,257	259.7%
Directors fees		-		-		-	-
Stock option expense		-		9,360		(9,360)	(100.0%)
Legal, professional and consulting		12,913		20,336		(7,423)	(36.5%)
Audit and public company expense		5,635		7,707		(2,072)	(26.9%)
Insurance		12,990		14,405		(1,415)	(9.8%)
Office and other general and administrative		1,302		16,902		(15,600)	(92.3%)
Total	$	178,621	$	109,234	$	69,387	63.5%

Total general and administrative expense increased $69,387 (63.5%) during the three month period ending June 30, 2015 compared to the prior year.  

Compensation and payroll expense increased $105,257 for the three months ended June 30, 2015 compared to the same date in 2014, as the Company estimated and accrued a change of control provision included in the executive employment agreement with its Chief Financial Officer.  The Chief Financial Officer and the Company are currently negotiating a revised executive employment agreement.  

Legal, professional and consulting fees decreased $7,423 (36.5%) for the three months ended June 30, 2015 compared to the prior year.  This decrease is primarily due to legal fees related to the State of North Dakota complaint on reclamation of the Jenks and Knudsen wells for the period ended June 30, 2014, which did not subsequently recur during the three months ended June 30, 2015.  

Audit and public company expense decreased $2,072 for the three months ended June 30, 2015 compared to the three months ended June 30, 2014.

All other general and administrative/insurance expense of $14,292 for the three months ended June 30, 2015, was a decrease of $17,015 from the same period ending June 30, 2014.  The Company suspended lease payments and is negotiating a termination of the lease on its lease on its office premises by mutual agreement with the related party landlord which accounted for virtually all of the decrease in general and administrative expense.

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A comparative analysis of the general and administrative expense for the nine month period ending June 30, 2015 and 2014 is provided in the following table:

	Nine months ended June 30,
	2015		2014		$ Change		Percent change
Compensation and payroll taxes	$	187,607	$	104,148	$	83,459	80.1%
Directors fees		26,500		-		26,500	-
Stock option expense		-		28,080		(28,080)	(100.0%)
Legal, professional and consulting		31,381		60,349		(28,968)	(48.0%)
Audit and public company expense		67,713		60,196		7,517	12.5%
Insurance		49,439		46,786		2,653	5.7%
Office and other general and administrative		29,315		41,875		(12,560)	(30.0%)
Total	$	391,955	$	341,434	$	50,521	14.8%

Other income (expense) – for the three month period ending June 30, 2015 and 2014, are detailed below.  Interest expense, financing costs and the non-cash costs of debt conversion and derivatives are more fully discussed in Note 8 of the Notes to the Financial Statements.

	Three months ended June 30,
	2015		2014		$ Change		Percent change
Net interest and financing costs	$	(858,086)	$	(37,396)	$	(820,690)	2194.6%
Amortization of debt discount		(30,000)		(10,000)		(20,000)	200.0%
Gain on forgiveness of liabilities		284,750		-		284,750	-
Loss on extinguishment of debt		(1,179,688)		(317,460)		(862,228)	271.6%
Gain (loss) on change in fair value of conversion option derivative		11,105		(535,748)		546,853	(102.1%)
Loss on change in fair value of warrant derivative		(3,759)		(37,294)		33,535	(89.9%)
Total other income	$	(1,775,678)	$	(937,898)	$	(837,780)	89.3%

On or about May 3, 2013, the Company modified the terms of its debentures (Notes 7 and 8) and warrants (Note 8), changing the conversion and exercise price from $0.05 to $0.01 per share for up to 25% of the outstanding debenture balance. Consequently the Company recognizes gain or loss to the extent the fair value of the derivative instrument exceeds or is below the share price at the end of each reporting period.  

On or about April 17, 2014, the Company modified the terms of its debentures (Notes 7 and 8), changing the conversion and exercise price from $0.05 to $0.01 per share on the remaining 75% of the outstanding debenture balance. Consequently the Company recognizes gain or loss to the extent the fair value of the derivative instrument exceeds or is below the share price at the end of each reporting period.  

A comparative analysis of the other income (expense) for the nine month period ending June 30, 2015 and 2014 is provided in the following table:

	Nine months ended June 30,
	2015		2014		$$ Change		Percent change
Net interest and financing costs	$	(966,922)	$	(94,166)	$	(872,756)	926.8%
Amortization of debt discounts		(90,000)		(10,000)		(80,000)	800.0%
Gain on forgiveness of liabilities		284,750		-		284,750	0.0%
Loss on extinguishment of debt		(1,179,688)		(302,124)		(877,564)	290.5%
Gain (loss) on change in fair value of conversion option derivative		389,589		(671,553)		1,061,142	(158.0%)

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Loss on change in fair value of warrant derivative		10,352		(40,814)		51,166	(125.4%)
Total other income	$	(1,551,919)	$	(1,118,657)	$	(433,262)	38.7%

Cash Flows, Liquidity and Capital Resources    

As of June 30, 2015 current assets totaled $46,586 consisting of cash of $161, accounts receivable of $32,922 and other current assets of $13,503.  At the same date, the Company's current liabilities were $2,312,131.  This working capital shortage of $2,265,545 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 aggressively seeking joint venture partners, merger, acquisition or other means of financing to grow the Company.

Net cash used by operating activities totaled $193,263 for the nine months ending June 30, 2015, compared to $492,069 used by operating activities for the nine month period ending June 30, 2014.    

Net cash provided by financing activities totaled $16,164 during the nine months ending June 30, 2015 as compared to $600,000 in the same period ending June 30, 2014.   The Company negotiated a promissory note to a working interest partner for past due amounts in the amount of $175,425 and a vendor balance converted to a promissory note in the amount of $34,162.  

The net change in cash is the sum of cash used in operating activities and provided by investing and financing activities, or a net decrease of $177,099 which is a decrease in the Company's cash balance of $177,260 existing at September 30, 2014, to the cash balance at June 30, 2015 of $161. 

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has no investments, trading or non-trading, that would be sensitive to market risk.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures – In connection with the preparation of this quarterly  report on Form 10-Q, an evaluation was carried out by JayHawk’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of June 30, 2015.  Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, JayHawk’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management of JayHawk Energy, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting.

The Company’s internal control over financial reporting is a process, under the supervision of the Chief Executive Officer and the Chief Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with United States generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that:

·   Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

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·   Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and

·   Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, management identified a material weakness in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness identified is described below:

Due to insufficient staffing, it was not possible to ensure appropriate segregation of duties between incompatible functions, and formalized monitoring procedures have not been established or implemented.

As a result of the material weakness in internal control over financial reporting described above, the Company’s management has concluded that, as of June 30,2015,  the Company’s internal control over financial reporting was not effective based on the criteria in Internal Control – Integrated Framework (2013) issued by COSO.

This quarterly report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. The Company was not required to have, nor has it, engaged its independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this quarterly report

 (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 June 30, 2014 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”) alleging breach of provisions of two contracts entered into between the Company and Gross.  The Gross Lawsuit requested monetary relief in excess of $132,000 plus attorneys, fees, interest and costs.  Prior to the filing of the Gross Lawsuit the Company had offered to settle the dispute for $42,000.  

On July 16, 2013, the Company and Gross entered into a Mediated Settlement Agreement (the “Agreement”).  Under the terms of the Agreement, the Company agreed to pay Gross a total of $60,000 (the “Settlement Amount”) in four monthly installments of $15,000 each.  The first payment of the Settlement Amount was paid on July 19, 2013 with each additional payment made on the 19^th day of each successive month and the final payment being made on October 19, 2013.  Following the final payment being made on October 19, 2013 the Gross Lawsuit was dismissed with prejudice.

On August 1, 2013, the North Dakota Industrial Commission (“NDIC”) submitted an administrative complaint to the State of North Dakota related to plugging and remediation of the Company’s Jenks 1 and Knudsen 1 wells in Crosby, ND. The administrative complaintalleged the Company violated certain portions of the North Dakota Century Code and requested administrative relief against Jayhawk Energy, Inc. for violation of sections of the North Dakota Administrative Code governing the oil and gas industry.

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On or about August 12, 2013, the Company responded to the administrative complaint and entered into settlement negotiations with the NDIC. As a good faith effort, the Company began plugging the Knudsen 1 well on or about December 20, 2013.  The work required to plug the Knudsen 1 well was completed on or about January 1, 2014.  The range of associated penalties as proposed by the NDIC was $100,000 to $525,000 for failure to comply.

On February 18, 2014, the Company entered into a Consent Agreement with the State of North Dakota whereby the Company is required to finish reclamation work, by June 30, 2014, on the two waste water storage pits adjacent to the Jenks 1 and Knudsen 1 wells respectively.  Further, the Consent Agreement allows that the Company must plug the “production zone” of the Jenks 1 well and then may apply for a permit to convert the Jenks 1 well to a salt water disposal well.  As a part of the Consent Agreement the Company agreed to pay a civil penalty of no less than $105,000, consisting of $25,000 due and payable upon execution of the Consent Agreement and a $16,000 installment per month for five successive months thereafter.  Should the Company fail to comply with the terms of the Consent Agreement, the Company is subject to penalties of up to an additional $420,000 (over and above the $105,000 penalty agreed to in the Consent Agreement).

The Company made the initial $25,000 payment and subsequently made each monthly payment with the final installment of $16,000 paid to the State of North Dakota on June 26, 2014.  

Although reclamation work was to have been completed by June 30, 2014, unseasonably heavy rains which saturated the soil and limited safe access to the site by heavy equipment delayed scheduled reclamation until such time as ground conditions improved. On July 12, 2014, the Company completed reclamation work on both the Jenks 1 and Knudsen 1 waste water storage pits.  The Company also completed plugging of the ‘production zone’ on the Jenks 1 well and set a balance plug on the Knudsen 1 well bore.  The Company has submitted an application for conversion of the Jenks 1 well to a saltwater disposal well which is currently under consideration by the North Dakota Industrial Commission.  The Company is performing additional engineering surveys and cost estimates related to construction of the salt water disposal well to address considerations requested by the North Dakota Industrial Commission.  

With respect to the Knudsen 1 site reclamation, under North Dakota statute, the Company is required to revegetate the disturbed area with native species or with crops according to reasonable specifications of the surface owner.  The Company intends to plant native grass in the summer of 2015 and believes it has substantially complied with the standards set for reclamation of the site.  Management does not believe the cost of replanting to be material at this time and, therefore, accrues no additional contingent liability.

On or about August 11, 2015, the Company plugged the Jenks well bore and is taking additional steps to re-vegetate the surrounding disturbed area with native species or with crops according to reasonable specifications of the surface owner.  In the event the Company does not comply with the restoring the disturbed area with native species or crops according to reasonable specifications by the land owner, the Company may be subject to fines and penalties up to $1,825,000 and would be subject to post a $120,000 bond with the state to ensure adequate cleanup.   Management believes it has substantially complied with the requirements of plugging and abandonment on the Jenks well and expects to complete surface work and replanting by the end of the fiscal year September 30, 2015.

On February 12, 2015, the Company entered into a settlement agreement with the Staff of the Corporation Commission of the State of Kansas with respect to a Penalty Order served by the Company for failure to comply with certain portions of the Kansas Administrative Regulations.  The Settlement Agreement is not binding until accepted with regard to Commission Docket Number 15-CONS-458-CPEN.  The Company was found in violation of failure to plug, return to service or temporarily abandon 71 wells and assessed a $7,100 penalty, of which $3,100 is payable immediately, a $2,000 payment due by April 1, 2015 and the final $2,000 payment by May 1, 2015.  

The Company has subsequently submitted 71 temporary abandonment applications, of which 71 applications were approved and all monetary penalties were paid in a timely manner.  The Company has up to one year to plug the wells, return them to service or file additional temporary abandonment applications.

No director, officer or affiliate of Jayhawk Energy, Inc. and no owner of record or beneficial owner of more than 5% of the Company’s 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, 2014, which was filed with the SEC on January 13, 2015.

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

On April 17, 2015, the Company granted, to four (4) institutional investors, warrants to purchase up to an aggregate of fifteen million (15,000,000) shares of the Company ’ s common stock (the “ Warrants ” ) in consideration of the investors ’ waiving of the Company ’ s prior defaults under the Convertible Debentures.  The Warrants give the holders thereof the right to purchase common stock of the Company at the purchase price of $.001 per shares and expire on March 17, 2020. The summary the Warrants above are qualified in their entirely by the Exhibits described in the Exhibit Table.

The issuance of the Common Stock Purchase Warrants above were issued without registration by reason of the exemption afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933 (the “ Securities Act ” ) as a transaction by an issuer not involving any public offering. As such, the Warrants may not be offered or sold in the United States unless they are registered under the Securities Act, or an exemption from the registration requirements of the Securities Act is available

Item 3.  Defaults Upon Senior Securities

The Company has outstanding, with certain institutional investors, convertible debentures in the outstanding principal and accrued default interest amount of $1,106,149, as of June 30, 2015,  (See Note 7 Convertible Debentures).  The convertible debentures matured as of December 31, 2013.  The principal amount owed under the debentures is currently due and owing in full and the Company has not paid the principal amount owing.  As a result the Company is in default under the terms of the debentures.

Item 4.  Mining Safety Disclosures

None.

Item 5.  Other Information

In response to comments received from SEC staff dated April 28, 2015 and July 09, 2015, the Company is including the table and discussion below which contains additional information regarding the convertible debentures originally issued by the Company on or about December 11, 2009, December 30, 2009, April 22, 2010 and October 18, 2010.  Also in response to SEC staff comments the Company has included examples of the executed convertible debentures as exhibits to this Form 10-Q.

Date (1)	Holder	Principal Amount
12/9/2009   (6)	Alpha Capital Anstalt	$159,253.00
12/9/2009   (6)	Ellis International Ltd.	33,333.33
12/9/2009   (6)	Lane Ventures	8,250.00
12/9/2009   (6)	Momona Capital	16,667.00
12/9/2009	Whalehaven Capital	82,500.00
	Total	$300,003.33
12/20/2009  (6)	Alpha Capital Anstalt	$315,747.00
12/20/2009  (6)	Ellis International Ltd.	66,666.67
12/20/2009  (6)	Lane Ventures	8,250.00
12/20/2009  (6)	Momona Capital	16,667.00
12/20/2009	Whalehaven Capital	167,500.00
	Total	$599,996.67

(1)

On December 9, 2009 the Company entered into a Securities Purchase Agreement wherein the Company agreed to sell and the investors agreed to purchase up to $1.5 million of Convertible Debentures.  The aggregate $1.5 million was invested in stages.  The Company filed a Form 8-K December 14, 2009, regarding the first tranche of investments.  Proceeds from the second tranche, which closed on December 30, 2009, totaled $600,000.  That brought the total invested in the Offering to $900,000.  The Convertible Debentures provided for interest to be paid quarterly, at the rate of ten percent (10%) per annum, and were due two years from the date of the initial closing.

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Date (2)	Holder	Principal Amount
4/21/2010   (6)	Alpha Capital Anstalt	$415,747.00
4/21/2010   (6)	Ellis International Ltd.	134,170.00
4/21/2010   (6)	Lane Ventures	16,750.00
4/21/2010   (6)	Momona Capital	33,333.00
	Total	$600,000.000

(2)

On April 19, 2010, disclosed via 8-K filed on April 20, 2010, the Company and the investors entered into an amendment to the Securities Purchase Agreement whereby the investors and the Company agreed to combine the third and fourth tranches into one final tranche and the investors agreed to waive certain conditions to closing the third tranche.  Proceeds from the third tranche totaled $600,000.  Upon the closing and funding of the third tranche the amount invested pursuant to this totaled $1,500,000.00 and concluded the funding of this offering.  The Convertible Debentures provide for interest to be paid quarterly, at the rate of ten percent (10%) per annum, and are due two years from the date of the initial closing.  

Date (3)	Holder	Principal Amount
10/18/2010  (6)	Alpha Capital Anstalt	$200,000.00
10/18/2010  (6)	Ellis International Ltd	75,000.00
10/18/2010  (6)	Lane Ventures	20,000.00
10/18/2010  (6)	Momona Capital	30,000.00
10/18/2010	Whalehaven Capital	175,000.00
	Total	$500,000.00

(3)

On October 18, 2010, disclosed via 8-K filed October 19, 2010, the Company entered into a Securities Purchase Agreement with certain institutional investors wherein the Company agreed to sell and the purchasers agreed to purchase $500,000 of Secured Convertible Debentures.  The Debentures provided for interest to be paid quarterly, at the rate of 10% per annum, and were originally due two years from the date of the initial closing. The Debentures were secured by a lien on the Company’s assets, including its properties in North Dakota but not including certain assets of the Company in Kansas.

Date (4)	Holder	Principal Amount
6/3/2014 (6)	Alpha Capital Anstalt	200,000.00
6/3/2014 (6)	Lindsay E. Gorrill	200,000.00
	Total	$400,000.00

(4)

On June 3, 2014, disclosed via 8-K filed June 9, 2014, the Company entered into Securities Purchase Agreements with an institutional investor, Alpha Capital Anstalt, and Lindsay E. Gorrill, an officer and director of the Company (each an “Investor” and together the “Investors”), wherein the Company agreed to sell and the Investors agreed to each purchase $200,000 of Secured Convertible Debentures.  The Debentures are due sixty (60) months from the date of closing.  The Debentures were secured by a security agreement granting the Investors a security interest in and to all of the Company’s assets located in the State of Kansas. Additionally, each Investor will receive: 1) a Wastewater Disposal Fee; and 2) a Royalty Interest.

Date (5)	Holder	Principal Amount
6/6/14	Galaxy Energy, Inc.	$200,000.00
	Total	$200,000.00

(5)

On June 6, 2014, disclosed via 8-K filed June 9, 2014, the Company entered into a Securities Purchase Agreement with an accredited investor, Galaxy Energy, Inc., wherein the Company agreed to sell and the Investor agreed to purchase a $200,000 Secured Convertible Debenture.  The Debenture is due sixty (60) months from the date of closing.  The Debenture is secured by a security agreement granting the Investor a security interest in and to all of the Company’s assets located in the State of Kansas.  At closing, the Company will also enter into a Stock Pledge Agreement pledging to the Investor, as additional security, all of the Company’s right, title and interest in and to the capital stock of JayHawk Gas Transportation Corporation (a wholly owned subsidiary of the Company and the owner of the Company’s gas transmission pipeline in Kansas).  Additionally, the Investor will receive a Wastewater Disposal Fee.

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(6)

On April 17, 2015, Vast Exploration, LLC acquired various outstanding Convertible Debentures from the holders of Convertible Debentures originally issued by the Company on or about December 9, 2009, December 20, 2009, April 21, 2010, October 18, 2010 and June 3, 2014.   For more information regarding the Convertible Debentures, please refer to the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission on December 14, 2009, December 31, 2009, April 20, 2010, October 19, 2010, February 17, 2012, April 24, 2013 and June 9, 2014.

Item 6.  Exhibits

10.1

  10% Senior Secured Convertible Debenture Due December 11, 2011, issued December 11, 2009

10.2

  10% Senior Secured Convertible Debenture Due December 14, 2011, issued December 30, 2009

10.3

  10% Senior Secured Convertible Debenture Due December 14, 2011, issued April 21, 2010

10.4

  10% Senior Secured Convertible Debenture Due October 18, 2012, issued October 18, 2010

10.5

  10% Senior Secured Convertible Debenture Due June 3, 2019, issued June 3, 2014

10.6

  10% Senior Secured Convertible Debenture Due June 3, 2019, issued June 3, 2014

10.6

  10% Senior Secured Convertible Debenture Due June 3, 2019, issued June 3, 2014

10.7

  Contract Operating Agreement

31.1          Rule 13a - 14(a) / 15d - 14(a) Certification of CEO

32.1          Section 1350 Certification of CEO

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	JayHawk Energy, Inc., a Colorado corporation
Date: August 19, 2015	By:	/s/ Kelly J. Stopher
		Kelly J. Stopher Principal Executive Officer, Interim President and Interim Chief Executive Officer

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Exhibit 31.1

CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLY ACT OF 2002

Rule 13a-14(a)/15d-14(a) Certifications.

I, Kelly J. Stopher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of JayHawk Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) of the registrant, and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation and

(d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting , to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer‘s internal control over financial reporting.

 Date: August 19, 2015

/s/ Kelly J. Stopher 

Kelly J. Stopher

Interim Chief Executive Officer

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 Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of Sarbanes-Oxley Act

I, Kelly J. Stopher, certify that:

1.	I have reviewed this quarterly report on Form 10-Qof JayHawk Energy, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) of the registrant, and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting.
5.	The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

 Date: August 19, 2015

/s/ KELLY J. STOPHER

Kelly J. Stopher

Chief Financial Officer

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CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of JayHawk Energy, Inc. a Colorado corporation (the "Company") on Form 10-Q for the period ending June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Kelly J. Stopher, Chief Executive Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to JayHawk Energy, Inc., and will be retained by JayHawk Energy, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Kelly J. Stopher

Kelly J. Stopher

Interim Chief Executive Officer

August 19,2015

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