Mediashift (MSHFQ) 10-Q/A 2006 Q1 Quarterly report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

to

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2006

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-32438

JMG Exploration, Inc.

(Exact Name of Registrant as Specified in its Charter)

Nevada	20-1373949
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)
Suite 2200, 500 4th Avenue S.W.
Calgary Alberta, Canada	T2P 2V6
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code:
(403) 537-3250
Former name, former address and former fiscal year, if changed from last report.
Not applicable

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Yesþ Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero           Accelerated filero            Non-accelerated filerþ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso       Noþ

     The number of shares outstanding of Registrant’s common stock, par value $0.01, as of May 11, 2006, was 5,087,832.

Explanatory Note

     This Amendment No. 1 to Form 10-Q is being filed in order to comply with generally accepted accounting principles and our filing obligations under the Securities Exchange Act of 1934, as amended. We amended Form 10-Q to, among others, (1) eliminate references to non-GAAP measures “funds flow from operations,” “loss from operations” and “earnings from operations,” (2) revise our statement in Item 4 regarding disclosure controls and procedures, (3) report revenues net of royalties, and (4) expand disclosure on the use of funds generated from the issuance of the $1,500,000 promissory note.

2

JMG Exploration, Inc.
Index to Form 10-Q Quarterly Report
to the Securities and Exchange Commission

		Page
		No.
Item 1	Part I. Financial Information
	Consolidated Financial Statements	5 - 10
	Consolidate Balance Sheets, as of March 31, 2006(unaudited) and December 31, 2005 (unaudited)	5
	Consolidated Statements of Operations (unaudited) for the Three months ended March 31, 2006 and 2005, and the period from the date of incorporation July 16, 2004 to March 31, 2006.	6
	Consolidated Statements of Cash Flows (unaudited) for the Three months ended March 31, 2006 and 2005, and the period from the date of incorporation July 16, 2004 to March 31, 2006.	7
	Consolidated Statements of Shareholders’ Equity (unaudited) for the Three months ended March 31, 2006 and 2005, and the period from the date of incorporation July 16, 2004 to March 31, 2006.	8
	Consolidated Statements of Comprehensive Loss (unaudited) for the Three months ended March 31, 2006 and 2005, and the period from the date of incorporation July 16, 2004 to March 31, 2006.	10
	Notes to Consolidated Financial Statements (unaudited)	11 - 16
Item 2	Managements Discussion and Analysis of Financial Condition and Results of Operations	16 - 28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4	Controls and Procedures	27
	Part II. Other Information
Item 1	Legal Proceedings	27
Item 1A	Risk Factors	27
Item 2	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	27
Item 3	Defaults Upon Senior Securities	27
Item 4	Submission of Matters to a Vote of Security Holders	27
Item 5	Other Information	27
Item 6	Exhibits	27
SIGNATURES:
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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JMG Exploration, Inc.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)
March 31, 2006 and 2005 and the period of
Incorporation July 16, 2004 to March 31. 2006.
(Forming a part of Form 10-Q Quarterly Report
to the Securities and Exchange Commission)

4

JMG Exploration, Inc.
A Development Stage Enterprise

CONSOLIDATED BALANCE SHEETS

(In United States Dollars)
(unaudited)

	March 31			December 31
	2006			2005
As at	$			$
ASSETS
Current
Cash and cash equivalents		652,136			1,150,965
Accounts receivable		2,291,814			1,284,474
Prepaid expenses and deposits		161,639			34,701
		3,105,589			2,470,140
Other assets		230,000			230,000
Property and equipment[note3]		15,779,127			15,073,039
		19,114,716			17,773,179
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current
Accounts payable		444,523			845,507
Accrued liabilities		581,137			1,660,648
Promissory note payable[note 4]		1,500,000			—
Due to JED Oil Inc.[note 6]		1,390,523			286,956
		3,916,183			2,793,111
Asset retirement obligations[note7]		80,313			78,642
		3,996,496			2,871,753
Stockholders’ equity
Share capital[note 5]
Common stock — $.001 par value; 25,000,000 shares authorized; 5,086,832 shares issued and outstanding at March 31, 2006.		5,087			4,997
Additional paid-in capital		20,544,002			20,044,296
Share purchase warrants		2,094,415			2,151,470
Deficit accumulated during the development stage		(7,504,597	)		(7,296,640	)
Accumulated other comprehensive loss		(20,687	)		(2,697	)
		15,118,220			14,901,426
		19,114,716			17,773,179

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

5

JMG Exploration, Inc.
A Development Stage Enterprise

CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

(In United States Dollars)
(unaudited)

							Period from the date
							of incorporation on
	For the three month period ended						July 16, 2004 to
	March 31,						March 31,
	2006			2005			2006
	$			$			$
Revenue
Petroleum Revenue		452,735			—			1,080,195
Interest		—			73,323			185,091
		452,735			73,323			1,265,286
Expenses
Production		135,462			—			325,060
General and administrative[note 6]		268,495			256,342			2,323,267
Interest		23,897						23,897
Stock-based compensation[note 5]		24,868			—			103,457
Geophysical and Geological		—			—			256,484
Depletion, depreciation		206,299			34,316			4,951,163
Accretion on asset retirement obligation[note 7]		1,671			—			5,056
		660,692			290,658			7,988,384
Net loss for the period		(207,957	)		(217,335	)		(6,723,098	)
Less: cumulative preferred dividends		—			(193,397	)		(781,499	)
Net loss applicable to common shareholders		(207,957	)		(410,732	)		(7,504,597	)
Deficit, beginning of period		(7,296,640	)		(1,024,289	)		—
Deficit, end of period		(7,504,597	)		(1,435,021	)		(7,504,597	)
Basic weighted average shares outstanding[note 5]		5,036,049			250,000			2,006,227
Net loss for the period per share, basic and diluted[note 5]		(0.04	)		(1.64	)		(3.74	)

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

6

JMG Exploration, Inc.
A Development Stage Enterprise

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In United States Dollars)
(unaudited)

							Period from the
							date of
	For the three month period						incorporation on
	ended						July 16, 2004 to
	March 31,						March 31,
	2006			2005			2006
	$			$			$
OPERATIONS
Net loss for the period		(207,957	)		(217,335	)		(6,723,098	)
Adjustments to reconcile net loss to cash flows from operating activities:
Stock-based compensation		24,868			—			103,457
Depletion and depreciation and accretion		207,970			34,316			4,956,219
Other changes:
Increase (decrease) in accounts receivable		791,089			(14,066	)		282,488
Increase in prepaid expenses and deposits		(126,938	)		(28,412	)		(161,639	)
Decrease in accounts payable and accrued liabilities		(1,844,389	)		(14,402	)		(1,592,223	)
Increase (decrease) in due to JED Oil Inc.		(146,349	)		387,540			140,607
Increase in due to related party.		—			10,692			—
Decrease (increase) in accrued interest on Loan receivable		—			29,229			(15,815	)
Cash used in operating activities		(1,301,706	)		187,562			(3,010,004	)
INVESTING
Repayment (advance) of loan receivable		—			750,000			(750,000	)
Proceeds on disposition of property		—			—			391,249
Purchase of property and equipment		(1,097,006	)		(2,186,386	)		(18,986,970	)
Increase in other assets		—			(75,000	)		(230,000	)
Cash used in investing activities		(1,097,006	)		(1,511,386	)		(19,575,721	)
FINANCING
Issue of common shares, net of issue costs		417,873			—			20,445,632
Issue of preferred shares		—			—			—
Issue of share purchase warrants		—						2,094,415
Preferred share dividends		—			(195,000	)		(781,499	)
Issue of promissory note		1,500,000						1,500,000
Cash provided by financing activities		1,917,873			(195,000	)		23,258,548
Effect of foreign exchange on cash and cash equivalents		(17,990	)		(35	)		(20,687	)
Net (decrease) increase in cash and cash equivalents		(498,829	)		(1,518,859	)		652,136
Cash and cash equivalents, beginning of period		1,150,965			5,040,800			—
Cash and cash equivalents, end of period		652,136			3,521,941			652,136

Interest paid on promissory note to March 31, 2006 was $26,000.

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

7

JMG Exploration, Inc.
A Development Stage Enterprise

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY

(In United States Dollars)
(unaudited)

Period from the date of incorporation on July 16, 2004 to March 31, 2006.

	Shares			Total
	#			$
Common stock, $.001 par value:
Balance at July 16, 2004 and December 31, 2004.		250,000			1,000,000
Preferred shares converted to common stock		1,950,000			7,792,225
Issuance of common stock, stock issued for cash pursuant to initial public offering		2,185,000			11,143,500
Warrants exercised for common stock		612,578			3,042,828
Share issue costs		—			(861,254	)
Portion of proceeds attributed to share purchase warrants.		—			(2,146,595	)
Balance at December 31, 2005		4,997,578			19,970,704
Warrants exercised for common stock		89,254			420,770
Share issue costs					(2,897	)
Portion of proceeds attributed to share purchase warrants.					57,055
Balance at March 31, 2006		5,086,832			20,445,632
Additional paid in capital
Balance, July 16, 2004 (inception) and December 31, 2004					—
Stock-based compensation					78,589
Balance at December 31, 2005					78,589
Stock-based compensation					24,868
Balance at March 31, 2006		—			103,457
Preferred stock, $.001 par value:
Balance at December 31, 2004		1,950,000			7,792,225
Preferred shares converted to common stock		(1,950,000	)		(7,792,225	)
Balance at December 31, 2005 and March 31, 2006		—			—

8

Share purchase warrants:
Balance at December 31, 2004	487,500		4,875
Share purchase warrants: issued pursuant to initial public offering $5.00	2,185,000		693,866
Share purchase warrants: issued pursuant conversion preferred shares $4.25	1,950,000		1,816,766
Warrants exercised for common stock	(612,578	)	(364,037	)
Balance at December 31, 2005	4,009,922		2,151,470
Warrants exercised for common stock	(89,254	)	(57,055	)
Balance at March 31, 2006	3,920,668		2,094,415
Deficit:
Balance at beginning of period July 16, 2004.	—		—
Net loss for the period to December 31, 2004	—		(701,132	)
Preferred share dividends	—		(323,157	)
Balance at December 31, 2004	—		(1,024,289	)
Net loss for the twelve-month period ended December 31, 2005	—		(5,814,009	)
Preferred share dividends	—		(458,342	)
Balance at December 31, 2005	—		(7,296,640	)
Net loss for the three month period ended March 31, 2006			(207,957	)
Balance at March 31, 2006	—		(7,504,597	)
Accumulated other comprehensive income
Balance at beginning of period July 16, 2004.	—		—
Balance December 31, 2004	—		—
Foreign exchange translation adjustment	—		(2,697	)
Balance at December 31, 2005	—		(2,697	)
Foreign exchange translation adjustment			(17,990	)
Balance at March 31, 2006	—		(20,687	)
Total stockholders equity at March 31, 2006	—		(15,118,220	)

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

9

JMG Exploration, Inc.
A Development Stage Enterprise

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In United States Dollars)
(unaudited)

							For the period
							from the date of
							incorporation on
	For the three month period ended						July 16, 2004 to
	March 31,						March 31,
	2006			2005			2006
	$			$			$
Net loss for the period		(207,957	)		(217,335	)		(6,723,098	)
Other comprehensive income:
Foreign exchange translation adjustment		(17,990	)		(35	)		(20,687	)
Comprehensive loss for the period		(225,947	)		(217,370	)		(6,743,785	)

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

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1. INCORPORATION AND NATURE OF OPERATIONS

JMG Exploration, Inc. (“JMG” or the “Company”) is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids in Canada and the United States. Currently, all of the Company’s proved reserves are located in the United States.

The Company’s future financial condition and results of operations will depend upon prices received for its oil and natural gas production and the costs of finding, acquiring, developing and producing reserves. Prices for oil and natural gas are subject to fluctuations in response to change in supply, market uncertainty and a variety of other factors beyond the Company’s control. These factors include worldwide political instability, the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer demand, and the price and availability of alternative fuels.

JMG was incorporated with nominal share capital under the laws of the State of Nevada on July 16, 2004 and commenced operations in August 2004.

JED Oil Inc. (Amex: JDO) (“JED”) and JMG on February 27,2006 announced they have signed a letter of intent to pursue a possible acquisition of JMG by JED. The proposal would offer two-thirds of a share of common stock of JED for each share of common stock of JMG. This exchange ratio is based on the “market to market” recent trading prices of JED and JMG stock and the transaction is subject to the receipt of independent third party opinions that the transaction is fair to both the shareholders of JMG and shareholders of JED. Completion of the transaction is also subject to receipt of all required regulatory and stock exchange approvals in both the United States and Canada, and to the approval of the shareholders of both JMG and JED. It is anticipated that all of the outstanding common shares, warrants and options of JMG will be converted at the above-mentioned exchange rate. The JMG Board of Directors has extended the JMG warrants that were to expire in August and December of 2006 to January 15, 2007.

As with many development stage enterprises, JMG has not realized a profit from operations since its incorporation on July 16, 2004. The recovery of the Company’s assets and its ability to continue operations is dependent on successful production of economic quantities of hydrocarbons, obtaining additional financing to fund its exploration activity or the successful completion of the merger with JED discussed in the preceding paragraph.

2. SIGNIFICANT ACCOUNTING POLICIES

These interim consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the interim periods, on a basis that is consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and the summary of significant accounting policies and notes thereto included in the Company’s audited financial statements for the period from the date of incorporation on July 16, 2004 to December 31, 2005.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Change in Accounting Principle

At December 31, 2005, the company has a stock-based employee compensation plan, which is described more fully in Note 5. Prior to January 1, 2006, the company accounted for the stock options granted to employees and directors under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based

11

Compensation and for the stock options granted to consultants under the recognition and measurement provisions of FASB Statement No. 123. No stock-based employee and directors compensation cost was recognized in the Statement of Operations and Deficit for the year ended December 31, 2005 nor for the period from the date of incorporation on July 16, 2004 to December 31, 2004, as all options granted to employees and directors under that plan had an exercise price equal to the market value of the company’s common stock on the date of grant. Effective January 1, 2006, the company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition method, compensation cost recognized effective January 1, 2006 includes: (a) compensation cost for share-based options granted to employees and directors prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated.

As a result of adopting Statement 123(R) on January 1, 2006, the company’s net loss for three-month period ended March 31, 2006, is $2,346 higher, than if it had continued to account for share-based compensation under Opinion 25. Basic and diluted loss per share for three-month period ended March 31, 2006 would have been $0.04 and $0.04, respectively, if the company had not adopted Statement 123(R), compared to reported basic and diluted loss per share of $0.04 and $0.04, respectively.

The following table illustrates the effect on net loss for the year ended December 31, 2005, for the period from the date of incorporation on July 16, 2004 to December 31, 2004 and for three-month period ended March 31, 2006 and loss per share if the company had applied the fair value recognition provisions of Statement 123 to options granted to employees and directors under the company’s stock option plan in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes option-pricing model and amortized to expense over the options’ vesting period on a straight-line basis.

					Period from the
					date of
					incorporation on
	Three-month		Year ended		July 16, 2004 to
	period ended		December 31,		December 31,
	March 31, 2006		2005		2004
Net Loss, as reported	$	207,957	$	6,272,351	$	7,504,597
Add: Stock-based employees and directors compensation expenses included in reported net loss, net of related tax effects	$	2,346	$	—	$	2,346
Deduct: Total stock-based employees and directors compensation expenses determined under fair value based method for all awards, net of related tax effects	$	2,346	$	213,634	$	215,980
Pro Forma Net Loss	$	207,957	$	6,058,717	$	7,290,963
Loss per share:
Basic and diluted—as reported	$	0.04	$	2.97	$	3.74
Basic and diluted—pro forma	$	0.04	$	2.87	$	3.63

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3. PROPERTY AND EQUIPMENT

During the three month period ended March 31, 2006, the Company recorded a depletion provision related to its oil properties of $197,000 (2005 — $nil). The company recorded a depletion and depreciation from the period from the date of incorporation July 16, 2004 to March 31, 2006 of $4,951,163, of this amount $4,245,233 related to impairment and $653,000 to depletion and $52,930 to deprecation. Undeveloped land and other assets of were $6,043,484 (2005-$2,216,294). These amounts were excluded from the depletion calculation for the three month period ended March 31, 2006 there was no production or depletion for the same period in 2005. During the three month period ended March 31, 2006 (2005 $nil) and the period from incorporation July 16, 2004 to March 31, 2006 the company did not capitalize any general and administration expenses.

	March 31, 2006				December 31, 2005
			Accumulated
			depletion,
			depreciation and
	Cost		accretion,		Net book value		Net book value
	$		$		$		$
Petroleum and natural gas properties		14,685,276		4,896,703		9,788,573		9,014,228
Undeveloped Land		5,816,167		—		5,816,167		5,868,691
Other assets		227,317		52,930		174,387		190,120
		20,728,760		4,949,633		15,779,127		15,073,039

4. PROMISSARY NOTE

On February 8, 2006 a promissory note was issued to an unrelated third party, for a total of $1,500,000. The terms of the agreement call for interest calculated at 12% per annum calculated and paid on a monthly basis. The promissory note was repayable on March 30, 2006, but a letter of extension was issued on March 29, 2006 and the note is now due and payable on May 31, 2006. All other terms of the original agreement remain the same. The funds generated from the issuance of the $1,500,000 promissory note were used for general corporate purposes.

5. SHARE CAPITAL

a) Authorized

The Company has authorized 25,000,000 common shares, par value $.001, and 10,000,000 preferred shares, par value $.001. As of March 31, 2006 there were 5,086,832 common shares issued and outstanding. Preferred shares were converted into common shares of the Company subsequent to Company’s initial public offering on August 3, 2005. No preferred shares are currently outstanding.

b) Issued and outstanding

					Additional
			Capital		Paid-in
			Stock		Capital		Total
	#		$		$		$
Common Stock, $.001 par value:
Balance, at July 16, 2004 and December 31, 2004		250,000		250		999,750		1,000,000
Preferred shares converted to common stock		1,950,000		1,950		7,790,275		7,792,225

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							Additional
				Capital			Paid-in
				Stock			Capital			Total
	#			$			$			$
Issued for cash, pursuant to initial public offering		2,185,000			2,185			11,141,315			11,143,500
Warrants exercised for common stock		612,578			612			3,042,216			3,042,828
Share Issue Costs		—			—			(861,254	)		(861,254	)
Portion of proceeds attributed to share purchase warrants		—			—			(2,146,595	)		(2,146,595	)
Balance at December 31, 2005		4,997,578			4,997			19,965,707			19,970,704
Warrants exercised for common stock		89,254			90			420,680			420,770
Share Issue Costs		—			—			(2,897	)		(2,897	)
Portion of proceeds attributed to share purchase warrants		—			—			57,055			57,055
Balance at March 31, 2006		5,086,832			5,087			20,440,545			20,445,632
Preferred Stock:
Balance, at July 16, 2004 and December 31, 2004		1,950,000			1,950			7,798,050			7,800,000
Preferred shares converted to common stock		(1,950,000	)		(1,950	)		(7,790,275	)		(7,792,225	)
Share issue costs, net of tax		—			—			(2,900	)		(2,900	)
Portion of proceeds attributed to share purchase warrants		—			—			(4,875	)		(4,875	)
Balance at December 31, 2005 and March 31, 2006		—			—			—			—
Share Purchase Warrants
Balance, at July 16, 2004 and December 31, 2004		487,500			—			—			4,875
Issued pursuant to initial public offering		2,185,000			—			—			693,866
Issued pursuant to conversion of preferred shares		1,950,000			—			—			1,816,766
Warrants exercised for common stock		(612,578	)		—			—			(364,037	)
Balance at December 31, 2005		4,009,922			—			—			2,151,470
Warrants exercised for common stock		(89,254	)								(57,055	)
Balance at March 31, 2006		3,920,668			—			—			2,094,415
Total					5,087			20,440,475			22,540,044

c) Stock options

The Company has a stock option plan under which employees, directors and consultants are eligible to receive grants. As of March 31, 2006, 446,750 shares were reserved for issuance under the plan. Options granted under the plan generally have a term of five years to expiry and vest immediately when issued to directors and generally vest as to one-third on each of the first, second and third anniversaries of the grant date for employees and consultants. The exercise price of each option equals the market value of the Company’s common stock on the date of grant. The following summarizes information concerning outstanding and exercisable stock options as of March 31, 2005:

14

				Weighted
				average exercise
	Number of			price
	options			$
Outstanding as at December 31, 2004		260,000			4.00
Granted — April 5, 2005		387,750			5.00
Granted – July 21, 2005		79,500			5.00
Granted – August 19, 2005		1,500			15.25
Granted – August 29, 2005		5,000			14.74
Granted – November 1, 2005		10,000			12.25
Cancelled		(260,000	)		4.00
Cancelled		(4,500	)		5.00
Options outstanding as at December 31, 2005		479,250
Cancelled		(32,500	)		5.00
Options outstanding as at March 31, 2006		446,750
Exercisable as at March 31, 2006		250,000			5.00

d) Stock – based Compensation

Prior to August 3, 2005 the Company was private. Accordingly the expected volatility of the Company’s stock options granted during the period prior to August 3, 2005 had been set at a rate of 10%. The 13,000 stock options granted after the Company became public were set with an expected volatility of 50%. There were no stock options granted in the three month period ended March 31, 2006. The estimated fair value of the options is amortized over the options’ vesting period on a straight-line basis. For the three-month period ended March 31, 2006 the stock option expense was $24,868 (2005 — $nil). The stock option expense from the period of incorporation July 16, 2004 to March 31, 2006 was $103,457.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004),Share-Based Payment, which is a revision of FASB Statement No. 123,Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R)requiresall share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.

Statement 123(R) must be adopted by small-business issuers at the beginning of the first interim or annual period beginning after December 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We have adopted Statement 123(R) on January 1, 2006.

Statement 123(R) permits public companies to adopt its requirements using a “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date. The Company has adopted Statement 123(R) using the modified-prospective method.

e) Loss per share

For the three-month period ended March 31, 2006 the weighted average number of common shares outstanding were 5,036,049. (2005 – March 31, 2005 weighted average number of common shares outstanding were 250,000). All of the Company’s outstanding stock options and warrants currently have an anitdilutive effect on per common share amounts. These stock options and warrants could be dilutive in future periods.

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6. RELATED PARTY TRANSACTIONS

On August 1, 2004 the Company entered into a technical services agreement with JED Oil Inc. (“JED”). Under the Agreement, JED provides all required personnel, office space and equipment, at standard industry rates for similar services. JED is considered an affiliate, because of its ownership interest in us and because two of our directors are directors of JED. This agreement was terminated on January 1, 2006; it was replaced by a joint services agreement, which operates to provide the above services on an as needed basis. There were no transactions under this agreement during the three-month period ended March 31, 2006.

JED paid on behalf of the Company for the three month period ended March 31, 2006 total of $nil (2005 — $342,270) and $582,505 for the period from incorporation, for general and administrative services and capital related expenditures.

JED also paid, in consideration for the assignment of JED’s interests in certain oil and gas properties, JED charged the Company for drilling and other costs related to those properties for the period ended March 31, 2006, in the amount of $1,249,917 (2005 — $85,085) and $2,802,014 for the period from incorporation. This amount for the period ended March 31, 2006 will be paid through the collection of joint venture receivables from unrelated third parties. Amounts payable, relating to the JED farm in, are due and payable on receipt of funds from the unrelated third party.

7. ASSET RETIREMENT OBLIGATION

As at March 31, 2006, the estimated present value of the Company’s asset retirement obligation was $80,313 (2005 — $nil) based on estimated future cash requirements of $216,000, determined using a credit adjusted risk free interest rate of 8.5% over the economic life of the properties, an inflation rate of 2.0%, and an estimated life until repayment of 5-10 years. Accretion of $1,671 was recorded for the three months ending March 31, 2006, (2005 — $nil). The accretion recorded from the period from incorporation July 16, 2004 to March 31, 2006 was $5,056.

Asset retirement obligation at December 31, 2005	$	78,642
Liabilities incurred		—
Liabilities settled		—
Accretion expense	$	1,671
Asset retirement obligation at March 31, 2006	$	80,313

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

JMG Exploration, Inc
Management’s Discussion and Analysis or Plan of Operation

May 11, 2006 The following Management’s Discussion and Analysis (“MD&A”) of financial results as provided by the management of JMG Exploration, Inc. (“JMG”) should be read in conjunction with the unaudited consolidated financial statements and notes for the three months ended March 31, 2006, the audited financial statements and accompanying notes for the year ended December 31, 2005 and the managements discussion and analysis for the year ended December 31, 2005. This commentary is based upon information available to May 11, 2006.

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements. All statements other than statements of historical facts contained herein, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our

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financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in “Risk Factors” of the Company’s Registration Statement dated August 3, 2005.

Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Statements relating to “reserves” are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this MD&A are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.

Finally, in the presentation of the MD&A, JMG uses two terms that are universally applied in analyzing corporate performance within the oil and gas industry but which regulators require that we provide disclaimers.

Barrel of Oil Equivalent (BOE) –The oil and gas industry commonly expresses production volumes and reserves on a “barrel of oil equivalent” basis (“BOE”) whereby natural gas volumes are converted at the ratio of six thousand cubic feet to one barrel of oil. The intention is to sum oil and natural gas measurement units into one basis for improved analysis of results and comparisons with other industry participants. Throughout this MD&A, JMG has used the 6:1 BOE measure which is the approximate energy equivalency of the two commodities at the burner tip. BOE does not represent a value equivalency at the plant gate, which is where JMG sells its production volumes, and therefore may be a misleading measure if used in isolation.

Overview

JMG was incorporated under the laws of the State of Nevada on July 16, 2004. We explore for oil and natural gas in the United States and Canada.

Since incorporation, we have made direct property acquisitions and will be developing the oil and natural gas properties of others under arrangements in which we will finance the cost of exploration drilling in exchange for interests in the oil or natural gas revenue generated by the properties. Such arrangements are commonly referred to as farm-ins to us, or farm-outs by the property owners to us.

Upon the closing of the initial public offering on August 3, 2005, the Company issued 2,185,000 shares of common stock at a price of $5.00 and 2,185,000 warrants at a price of $0.10 for gross proceeds of $11,143,500. The warrants associated with the initial public offering are exercisable at $5.00, until one year from the statement of registration. The Company completed its initial public offering and commenced trading on the Archipelago Exchange under the symbols JMG (common stock) and JMG+ (stock warrants).

Other than our executive officers, we have no operating personnel and have entered into a revised technical services agreement with JED Oil Inc., (“JED”). to provide us office space, equipment and all required personnel, including drilling, field operations and related administrative services on an as needed basis. These services are billed to JMG on a quarterly basis at standard industry rates for similar services. JED is considered an affiliate of ours because of its ownership interest in us and because two of our directors are directors of JED. (See “Related Party Transactions” of this management discussion and analysis)

We entered into the 2^nd Amended and Restated Agreement of Business Principles with JED and Enterra Energy Trust, effective August 1, 2004. Under the agreement, JED and Enterra shall offer farm-outs to us of exploratory drilling prospects, and we shall offer farm-outs to JED of developed drilling prospects from Enterra and us. The

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agreement contemplates that we will pursue exploratory drilling, JED will pursue development drilling, and Enterra will pursue developed and producing assets. Under the agreement, if we accept a farm-in, we will pay all of the exploration drilling costs and will earn 70%, or a mutually agreeable percentage, of the interest in the producing zones of the wells we drill. This arrangement provides us with exploration projects developed by JED and Enterra and not just those we identify independently. Under our farm-outs to JED, JED will pay all of the drilling costs and will earn 70%, or a mutually agreeable percentage, of our interest in the producing zones of the wells drilled under the farm-out. This arrangement provides us with the potential for a carried working interest in new wells for which we will have no costs.

This agreement also provides that Enterra has the right of first refusal to purchase our interests when we determine that we wish to sell. The agreement provides that the price for our interest is to be the same consideration as offered under abona fidethird party offer, or if there is no such offer, as determined by an independent engineering report prepared by a mutually agreeable independent engineering firm. We believe these arrangements will permit us to concentrate on our business plan of exploratory drilling, possibly provide a buyer for our interests as they are developed and permit further development drilling in which we may be able to retain a reduced interest at no additional cost to us.

To date, JMG has assembled substantial land positions in North Dakota and Wyoming and participated in the drilling of nine gross (4.1 net) wells with 100% success rate proving up significant future development. Six of the nine wells drilled to date were on production in late 2005 with the other three wells have come on production this quarter. Our average production for the first quarter of 2006 was 96 boe/d.

JMG currently has over 115,000 gross (over 80,000 net) acres of land in northern North Dakota. In addition, JMG owns a 77.5% working interest in a section of land in the Pinedale area of Wyoming. These lands offset the prolific Jona/Pinedale producing fields. As previously announced, JMG was involved in a significant oil discovery in the Midale formation in the northern part of North Dakota. Three wells have been drilled into this formation to date and 16 development locations have been identified as a result of this initial drilling.

Financial operations overview

	Q1			Q1
	2006			2005			Change
Petroleum and natural gas revenue		453			—			453
Net loss		(208	)		(217	)		9
Per share basic and diluted		(0.04	)		(1.64	)		1.60
Exit production rate (boe/d)		132			—			132
Weighted average number of shares outstanding — basic		5,036			250			4,786

Quarterly Information

Quarterly information(In US$ thousands, except per share data)
	Q1			Q4			Q3			Q2			Q1			Q4			Q3			Q2
	2006			2005			2005			2005			2005			2004			2004			2004
Revenue		453			286			334			7			0			—			—			—
Net loss		(208	)		(4,435	)		(695	)		(467	)		(217	)		(627	)		(74	)		—
Per share, basic and diluted		(0.04	)		(0.91	)		(0.26	)		(2.65	)		(1.64	)		(3.24	)		(0.30	)		—

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2 Year Summary

Summarized financial and operational data

(In US$ thousands except for volumes and per share amounts)

	Period ended March 31,
	2006			2005
Revenue		453			—
Net loss		(208	)		(217	)
Net loss per share – basic and diluted		(0.04	)		(1.64	)
Weighted average number of shares – basic and diluted		5,036			250
Total assets		19,115			8,683
Total long-term debt	Nil			Nil

Results of operations

     Revenue.Our revenue is dependent upon success in finding and developing oil and natural gas reserves. Our ownership interest in the production from these properties is measured in Boe per day, a term that encompasses both oil and natural gas production. Revenues were $452,735 for the three month period ended March 31, 2006, there was no revenue for the same period in 2005. This revenue related to production sales from two Bakken exploratory wells, two Midale exploratory wells and two non-operated Midale wells in North Dakota together with revenue from two non-operated wells in Wyoming. Total revenue from incorporation July 16, 2004 to March 31, 2006 was $1,080,195.

Three-month period ended March 31, 2006 compared to three month period ended March 31, 2005 and period from incorporation July 16, 2004 to March 31, 2006.

								Period from the date of
	Three month period ended							incorporation on July 16,
	March 31,				Percentage			2004 to March 31,
For the	2006		2005		Increase			2006
Production (Boe)		8,617		—		100	%		19,956
Average Price	$	52.54		—				$	54.13
Revenues	$	452,735		—		100	%	$	1,080,195

Critical to our revenue stream is the market price for crude oil. Commodity benchmark prices for crude oil is as follows:

	2006		2005
	March 31,		December 31,
West Texas Intermediate grade crude oil, per barrel	$	62.69	$	59.78

Our realized price for any oil and natural gas production will be dependent upon the actual quality of the commodity which could result in a premium or discount to the above indices. Oil and natural gas are commodities

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and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile. If oil and natural gas prices decrease this movement could affect the overall valuation of our petroleum and natural gas reserves and we may be required to take a write-down of the carrying value.

     We may use derivative financial instruments when we deem them appropriate to hedge exposure to changes in the price of crude oil and natural gas, fluctuations in interest rates and foreign currency exchange rates. JMG currently does not have any financial derivative contracts or fixed price contracts in place.

Interest income. Interest for the periods ending March 31, 2006 and 2005 respectively are $nil and $73,323. Interest has decreased due to the repayment of the promissory note and interest by an unrelated industry partner on June 28, 2005. Total interest from incorporation July 16, 2004 to March 31, 2006 was $185,091.

Production expense.Production costs include operating costs associated with field activities. Production expenses for the three month period ended March 31, 2006 were $135,462; there was no production for the same period in 2005. Initially these costs as a percentage of revenue will be higher than desired due to recently commencing operations, but as production and revenue increase these costs should fall within industry ranges. Total production expenses from incorporation July 16, 2004 to March 31, 2006 were $325,060.

Three-month period ended March 31, 2006 compared to three month period ended March 31, 2005 and period from incorporation July 16, 2004 to March 31, 2006.

													Period from the
													date of
Three month													incorporation on
period ended			% of					% of		Percentage			July 16, 2004 to		% of
March 31,	2006		revenue			2005		revenue		Increase			March 31, 2006		revenue
Production expense	$	135,462		29.9	%		—		—		100	%	$	325,060		30.1	%
Production expense per Boe:	$	15.72		—			—		—				$	16.29

General and administrative expense.General and administrative expense relates to compensation and overhead for executive officers and fees for general operational and administrative services. We have ontracted out all field personnel and equipment necessary for exploration activities, and for related administrative functions. During the three month period ended March 31, 2006 the amount for general and administrative expenses were $268,495 compared with $256,342 for the same period in 2005. Total general and administrative expenses from incorporation July 16, 2004 to March 31, 2006 were $2,323,267.

Three-month period ended March 31, 2006 compared to three month period ended March 31, 2005 and period from incorporation July 16, 2004 to March 31, 2006.

								Period from the date
								of incorporation on
					Percentage			July 16, 2004 to
Three month period ended March 31,	2006		2005		Increase			March 31, 2006
General and administrative expense	$	268,495	$	256,342		5	%	$	2,323,267

Stock–based Compensation.The Company has a stock option plan under which employees, directors and consultants are eligible to receive grants. The Corporation accounts for the stock option granted to consultants using the fair value recognition provisions of SFAS No. 123. Stock compensation expense for the three month period ended March 31, 2006 was as $24,868. There was no stock based compensation for the three-month period ended March 31, 2005. The Company has adopted Statement 123(R) using the modified-prospective method, therefore for the three month period ended March 31, 2006 the stock based compensation was a result of

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expensing the stock options for employees as well as consultants on a straight line basis using the Black-Scholes option pricing model. The total stock-base compensation expense from incorporation July 16, 2004 to March 31, 2006 was $103,457.

Geophysical and geological expense.There were no geophysical and geological expenses for the three month period ended March 31, 2006 or March 31, 2005. Under the successful-efforts method, costs such as geological and geophysical, exploratory dry holes and delay rentals are expensed as incurred. The costs in 2005 related to the expensing of acquisition costs of seismic data as well as the expensing of land deposits, which had expired. Total geophysical and geological expenses from incorporation July 16, 2004 to March 31, 2006 were $256,484.

Depletion, depreciation expense.Depletion, depreciation and accretion expense were $206,299 for the three months ending March 31, 2006 and $34,316 for the same period in 2005. This increase was due to the depletion recorded in the current year, (2005 -$nil). Depletion was only recorded in the third and fourth quarters of 2005 due to commencement of production. In 2005 the company’s impairment that was recorded that related to properties located in Wyoming and North Dakota. This impairment is a result of unsuccessful work programs and production evaluation work performed during 2005. The impairment equals the excess of the aggregate carrying value of PP&E over the discounted (10%) cash flows, which are expected to result from the Company’s proved plus probable reserves from these fields. The company also recorded impairment in 2005 when it terminated operations in the Fiddler Creek area and abandoned any further plans for development in the area. Impairment ($470,642) was recorded for 2004 for the work programs and production evaluation work performed on the Cut Bank property that resulted in no commercial quantities of oil. We have abandoned all planned activities in this prospect. Total depletion and depreciation expenses from incorporation July 16, 2004 to March 31, 2006 were $4,951,163.

Three-month period ended March 31, 2006 compared to three month period ended March 31, 2005 and period from incorporation July 16, 2004 to March 31, 2006.

													Period from the
													date of
Three month													incorporation on
period ended			% of					% of		Percentage			July 16, 2004 to		% of
March 31,	2006		revenue			2005		revenue		Increase			March 31, 2006		revenue
Depletion, depreciation expense	$	206,299		45.6	%	$	34,316		—		501	%	$	4,951,163		458.4	%
Depletion, depreciation expense per Boe:	$	23.94		—			—		—				$	248.10

Accretion expense.As at March 31, 2006, the estimated present value of the Company’s asset retirement obligation was $80,313 based on estimated future cash requirements of $216,000, determined using a credit adjusted risk free interest rate of 8.5% over the economic life of the properties, an inflation rate of 2.0%, and an estimated life until repayment of 5-10 years. Accretion of $1,671 was recorded for the three months ending March 31, 20065. There was no accretion expense for the period ending March 31, 2005. Total accretion expense from incorporation July 16, 2004 to March 31, 2006 was $5,056.

Preferred dividend.In August 2004, we issued 1,950,000 shares of preferred stock, which paid a 10% annual dividend on a quarterly basis. In August 2005, all holders of our preferred stock converted to common stock following the effectiveness of our registration statement. Dividends have been paid up to the date of conversion August 3, 2005. Total preferred dividends paid from incorporation July 16, 2004 to March 31, 2006 were $781,499.

Income taxes.Due to the loss, the company did not pay or record any income taxes in the period ended March 31, 2006 and March 31, 2005.

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Earnings (Loss).The net loss is presented below.

Three-month period ended March 31, 2006 compared to three month period ended March 31, 2005 and period from incorporation July 16, 2004 to March 31, 2006.

													Period from the
													date of
													incorporation on
				% of						Percentage			July 16, 2004 to			% of
For the three month period ended March 31,	2006			revenue			2005			Decrease			March 31, 2006			revenue
Net loss	($	207,957	)		(45.9	%)	($	217,335	)		(4.32	%)		(6,723,098	)		(622.4	%)
Per share information
Net loss per share	($	0.04	)				($	1.64	)					(3.74	)
Average number of shares outstanding		5,036,049						250,000						2,006,227

Capital Expenditures

Capital expenditures for the three months ended March 31, 2006 were $1,097,006, net of capital accrual and $2,186,386 for the period ended March 31, 2005. For period from incorporation July 16, 2004 to March 31, 2006, the capital expenditures net of the capital accrual were $18,986,970.

Liquidity and capital resources

Cash flows and capital expenditures

At March 31, 2006, we had $652,136 in cash and cash equivalents. Since our incorporation, we have financed our operating cash flow needs through private and public offerings of equity securities as well as a promissory note for $1,500,000. On February 8, 2006 a promissory note was issued for a total of $1,500,000. The promissory note was repayable on March 30, 2006, but a letter of extension was issued on March 29, 2006 and the note is now due and payable on May 31, 2006.

Upon the closing of our initial public offering on August 3, 2005, the Company issued 2,185,000 shares of common stock at a price of $5.00 and 2,185,000 warrants at a price of $0.10 for gross proceeds of $11,143,500.

We have no plans for any future issues of equity securities other than in conjunction with the exercise of outstanding warrants, and pursuant to our employee equity compensation plan. Any additional exploration activities are dependent upon the exercise of our outstanding warrants, which are summarized in the table below. In the event funds from the exercise of warrants are unavailable, we will delay our exploration activities until alternative sources of capital are obtained, such as production revenue and farm out agreements on our properties or sale of our properties. The 2,185,000 warrants from the initial public offering are trading on the Archipelago Exchange under the symbol (JMG+). The warrants issued with the preferred shares 1,950,000 at $4.25 and 487,500 at $6.00 are not trading and were outstanding upon the closing of our initial public offering on August 3, 2005.

	Number
	of warrants		Exercise		Maximum
Warrant summary as of March 31, 2006.	outstanding		price		proceeds
Warrants issued in the preferred stock private placement		375,187	$	6.00	$	2,251,122
Warrants issued upon conversion of preferred stock		1,739,500		4.25	$	7,392,875
Warrants issued our initial public offering		1,805,981		5.00	$	9,029,905
		3,920,668	$	4.25 - $6.00	$	18,673,902

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Cash flow used in operations.Cash utilized by operating activities was $1,301,706 for the three months ended March 31, 2006 and cash was provided by operating activities for the three months ended March 31, 2005 in the amount of $187,562. The increase in the use of cash was partially attributable to the decrease in accounts payable of $1,844,389, accounts payable to JED of $146,349 this was offset by an increase in prepaid expenses and deposits of $126,938 and by the increase in accounts receivable of $791,089. Depreciation and depletion and accretion expense were $207,970 for the three-month period ending March 31, 2006 and $34,316 for the same period in 2005. The stock-based compensation was $24,868 for the period ending March 31, 2006 and $nil for the period ended March 31, 2005.

Cash utilized by operating activities was $3,010,004 for the period from incorporation on July 16, 2004 to March 31, 2006. The use of cash was principally attributable to the net loss of the period of $6,723,098 decreased by the change in accounts payable of $1,592,223 and prepaid expenses of $161,639. This is offset by the increase in accounts receivables of $282,488 and due to JED Oil Inc of $140,607.

Cash flow used in investing activities.Cash utilized for the three-month period ended March 31, 2006 was $1,097,006 (2005 — $1,511,386). Cash utilized in investing activities was $19,575,721 for the period from incorporation on July 16, 2004 to March 31, 2006 and was principally attributable to $18,986,970 in property and equipment purchased for our exploration prospects which included the following: the Hooligan Draw prospect of $1,517,679, the Cut Bank prospect of $416,299, the Fiddler Creek prospect of $163,800, the Bakken prospect $3,112,797 the Rindal prospect $3,581,769, the two Candak prospects $5,324,611, and $5,270,602 invested in connection with a farm-in agreement and direct purchase of acreage for several prospects in the Bakken Zone of North Dakota which comprised our Candak prospect, Myrtle Beach prospect and Bluffton prospects. In November 2004, we loaned Fellows Energy $1,500,000, with interest at a rate of 18% per annum and a fixed and specific charge on all the assets provided as collateral. The promissory note was due and payable in two installments: the first installment of $750,000 plus accrued interest was received February 2005, and the second, for the remaining balance and all accrued and unpaid interest thereon, was due April 30, 2005. The first installment has been paid, including accrued interest to date. In May 2005, we accepted the remaining 50% working interest in the contracted lands we did not already own as payment in full on the final installment of the note due from Fellows Energy, including accrued interest to date. We granted Fellows an option through June 30, 2005 to reacquire an undivided 50% interest in the exploration and development lands for $391,249. The option was exercised on June 28, 2005.

Cash flow used in financing activities.Cash provided by financing activities was $ $1,917,873 for the three-month period ended March 31, 2006 this was attributable to the promissory note of $1,500,000 and warrants that were exercised during the period for $417,873 (2005 — $nil).

Cash provided by financing activities was $23,258,548 for the period from incorporation on July 16, 2004 to March 31, 2006 and was attributable to two private placements completed in 2004 and the initial public offering on August 3, 2005. We realized $1,000,000 from the sale of common stock to JED. We realized $7,797,100 from the sale of 1,950,000 units consisting of preferred stock and warrants. Upon the closing of our initial public offering on August 3, 2005, the Company issued 2,185,000 shares of common stock at a price of $5.00 and 2,185,000 warrants at a price of $0.10 for net proceeds of $10,301,250. The issuance of a promissory note also provided cash in the amount of $1,500,000. We have warrants outstanding exercisable into shares of our common stock at prices ranging from $4.25 to $6.00 per share, which expire in one to one and a half years from the date of our initial offering. These sources of financing were offset by $781,499 in preferred dividends paid during the period. All holders of preferred stock converted their preferred stock in common stock following the effectiveness of our registration statement. Dividends have been paid up to the date of conversion.

Changes in critical accounting estimates

Stock-based compensation

     Effective January 1, 2006, the company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition

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method, compensation cost recognized effective January 1, 2006 includes: (a) compensation cost for share-based options granted to employees and directors prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated. Prior to January 1, 2006, the company accounted for the stock options granted to employees and directors under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation and for the stock options granted to consultants under the recognition and measurement provisions of FASB Statement No. 123. No stock-based employee and directors compensation cost was recognized in the Statement of Operations and Deficit for the year ended December 31, 2005 nor for the period from the date of incorporation on July 16, 2004 to December 31, 2004, as all options granted to employees and directors under that plan had an exercise price equal to the market value of the company’s common stock on the date of grant.

We determine the fair value of our common stock by evaluating a number of factors, including our financial condition and business prospects, our stage of development and achievement of key technical and business milestones, private and public market conditions, the terms of our private financings and the valuations of similar companies in our industry.

Contingencies

     In the future, we may be subject to adverse proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We will be required to assess the likelihood of any adverse judgments or outcomes of these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to developments in each matter or changes in approach such as a change in settlement strategy in dealing with these potential matters.

Contractual obligations and commitments

Our exploration prospects have several phases of possible development. Costs cannot be estimated at this time, as they are dependent upon the results of the exploration activities. In the event the results of the initial exploration are positive, our investment in subsequent exploration phases could be substantial. In the event the results of the initial exploration are not positive, there may be no further expenditures on the prospect.

Related Party Transactions

On August 1, 2004 the Company entered into a technical services agreement with JED Oil Inc. (“JED”). Under the Agreement, JED provides all required personnel, office space and equipment, at standard industry rates for similar services. JED is considered an affiliate of ours because of its ownership interest in us and because two of our directors are directors of JED. This agreement was terminated on January 1, 2006; it was replaced by a joint services agreement, which operates to provide the above services on an as needed basis. There were no transactions under this agreement during the three-month period ended March 31, 2006.

JED paid on behalf of the Company for the three month period ended March 31, 2006 total of $nil (2005 — $342,270) and $582,505 for the period from incorporation, for general and administrative services and capital related expenditures.

JED also paid, in consideration for the assignment of JED’s interests in certain oil and gas properties, JED charged the Company for drilling and other costs related to those properties for the period ended March 31, 2006, in the amount of $1,249,917 (2005 — $85,085) and $2,802,014 for the period from incorporation. This amount for the period ended March 31, 2006 will be paid through the collection of joint venture receivables from unrelated third parties. Amounts payable, relating to the JED farm in, are due and payable on receipt of funds from the unrelated third party.

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Qualitative and Quantitative Disclosures about Market and Credit Risk

We are exposed to all of the normal market risks inherent within the oil and natural gas industry, including commodity price risk, foreign-currency rate risk, interest rate risk and credit risk. We plan to manage our operations in a manner intended to minimize our exposure to such market risks.

Credit Risk.Credit risk is the risk of loss resulting from non-performance of contractual obligations by a customer or joint venture partner. A substantial portion of our accounts receivable are expected to be with customers in the energy industry and are subject to normal industry credit risk. We intend to assess the financial strength of our customers and joint venture partners through regular credit reviews in order to minimize the risk of non-payment.

Market Risk.We are exposed to market risk from changes in currency exchange rates. As JED and Enterra are based in Canada, we may be adversely affected by changes in the exchange rate between U.S. and Canadian dollars as most of our operating expenses, drilling expenses and general overhead expenses will be billed by JED and Enterra in Canadian dollars. The price we will receive for oil and natural gas production from operations in Canada, if any, will be based on a benchmark expressed in U.S. dollars, which is the standard for the oil and natural gas industry worldwide. Changes to the exchange rate between U.S. and Canadian dollars can adversely affect us. When the value of the U.S. dollar increases, we will receive higher revenue from any Canadian prospects and when the value of the U.S. dollar declines, we will receive lower revenue from any Canadian prospects on the same amount of production sold at the same prices.

Interest Rate Risk.Interest rate risk will exist principally with respect to any future indebtedness that bears interest at floating rates. At March 31, 2006, we had no indebtedness that bears a floating interest rate and do not contemplate utilizing this type of indebtedness as a means of financing our exploration activities.

Outlook and Proposed Transactions

     The year ended December 31, 2005 was the start up period for JMG and should be viewed as such. The focus in 2005 was to assemble a significant land position with initial drilling to commence in the latter part of 2005 carrying into 2006. The majority of JMG’s drilling has taken place in early 2006 or the latter part of the fourth quarter of 2005. The Company has begun generating production volumes starting in the third quarter of 2005.

     JMG and JED announced in January 2006 that they are pursuing a possible merger in which JMG would merge with a wholly owned subsidiary of JED in the U.S., and JMG’s securities would be exchanged for securities of JED on the basis of two-thirds of a JED common share for each JMG common share.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the information included in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our 2005 Annual Report on Form 10-K.

Item 4.Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure controls. Based on this assessment, management has determined that the Company’s disclosure controls as of March 31, 2006 were ineffective because of the material weakness discussed below.

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The required certifications of our principal executive officer and principal financial officer are included as exhibits to this Quarterly Report. The disclosures set forth in this Item 4 contain information concerning the evaluation of our disclosure controls and procedures and changes in internal control over financial reporting referred to in those certifications. Those certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.

A material weakness is a significant deficiency (within the meaning of Public Company Accounting Oversight Board Auditing Standard No. 2), or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

The material weakness was identified in the fourth quarter of 2005 when our CEO was informed by our auditors, Ernst &Young LLP, of their concern relating to the ability of the Company’s accounting group to meet the Company’s ongoing reporting requirements.Specifically, the auditors felt JMG did not have sufficient staff with a knowledge of U.S. accounting principles and sufficiently trained staff to ensure appropriate internal controls existed. To mitigate this weakness, the Company engaged consultants to assist with the preparation of the financial statements and other accounting issues. The Company did not retain outside experts to review its disclosure controls and procedures or its internal controls and consequently, no reports or recommendations regarding our controls were requested or prepared.

By taking remedial actions through the hiring of consultants, management believes that the consolidated financial statements for all periods presented in this report for the period ended March 31, 2006 present fairly, in all material respects, our financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles.

Subsequent to March 31, 2006, the Company is taking additional actions to reduce or eliminate the weakness in internal controls by using alternate staff for the financial reporting process, by engaging in more regular and substantive communication with JED on accounting matters, by proactively accessing and reviewing transactions on a periodic basis directly within JMG’s accounting system, and by continuing to work with independent experts pertaining to disclosure matters. JMG and JED continue to pursue the proposed merger to formalize these control procedures and to solidity efficiencies in the reporting process. Effective July 1, 2006, David Ho will be JMG’s acting Chief Financial Officer. Mr. Ho is also JED’s Chief Financial Officer. Further, for the quarter ended June 30, 2006, a regional accounting firm with petroleum industry experience assisted with the preparation of the working papers to be reviewed by the acting Chief Financial Officer. Further, a national public accounting firm has been retained to assist with overall accounting disclosures for JMG’s June 30, 2006 financial statements.

Changes in Internal Control Over Financial Reporting

Except as set forth above, there was no change in JMG’s internal control over financial reporting during the quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, JMG’s internal control over financial reporting.

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Part II. Other Information

Item 1.Legal Proceedings

There have been no material changes to the information included in Item 3. “Legal Proceedings” in our 2005 Annual Report on Form 10-K.

Item 1A.Risk Factors

There have been no material changes to the information included in Item 1A. “Risk Factors” in our 2005 Annual Report on Form 10-K.

Item 2.Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

None

Item 3.Defaults Upon Senior Securities

None

Item 4.Submission of Matters to a Vote of Security Holders

None

Item 5.Other Information

None

Item 6.Exhibits

(a) Exhibitsrequired by Item 601 of Regulation S-K are as follows:

Exhibit
Number
	31.1	Certification of Herman S. Hartley, Chief Executive Officer of Registrant, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Joanne R. Finnerty, Chief Financial Officer of Registrant, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Herman S. Hartley, Chief Executive Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Joanne R. Finnerty, Chief Financial Officer of Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	JMG Exploration, Inc
Date: September 12, 2006	/s/ David C. Ho
	David C. Ho
	Acting Chief Financial Officer

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