Mediashift 10Q 2006 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 June 30, 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 4^th Avenue S.W.		T2P 2V6
Calgary Alberta, Canada		(Zip Code)
(Address of Principal Executive Offices)

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.


Yes þ		No o

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 filer o		Accelerated filer o		Non-accelerated filer þ

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


Yes o		No þ

The number of shares outstanding of Registrant’s common stock, par value $0.01, as of August 15, 2006, was 5,165,059.

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	2-6

	Consolidate Balance Sheets, as of June 30, 2006 (unaudited)	2

	Consolidated Statements of Operations and Deficit (unaudited) for the three and six month periods ended June 30, 2006 and 2005, and the period from the date of incorporation July 16, 2004 to June 30, 2006.	3

	Consolidated Statements of Cash Flows (unaudited) for the three and six month periods ended June 30, 2006 and 2005, and the period from the date of incorporation July 16, 2004 to June 30, 2006.	4

	Statement of Changes in Consolidated Stockholders’ Equity for the three and six month periods ended June 30, 2006 and 2005, and the period from the date of incorporation July 16, 2004 to June 30, 2006.	5

	Consolidated Statements of Comprehensive Loss (unaudited) for the three and six month periods ended June 30, 2006 and 2005, and the period from the date of incorporation July 16, 2004 to June 30, 2006.	6

	Notes to Consolidated Financial Statements (unaudited)	7-14

Item 2	Managements Discussion and Analysis of Financial Condition and Results of Operations	15-26

Item 3	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4	Controls and Procedures	27

	Part II. Other Information

Item 1	Legal Proceedings	28

Item 1A	Risk Factors	28

Item 2	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	28

Item 3	Defaults Upon Senior Securities	28

Item 4	Submission of Matters to a Vote of Security Holders	28

Item 5	Other Information	28

Item 6	Exhibits	28

SIGNATURES:
Certification of CEO Pursuant to Section 302
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CFO Pursuant to Section 302

JMG Exploration, Inc.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 2006 and 2005 and the period of
Incorporation July 16, 2004 to June 30, 2006.
(Forming a part of Form 10-Q Quarterly Report
to the Securities and Exchange Commission)

Interim Consolidated Financial Statements
JMG Exploration, Inc. (a development stage enterprise)

June 30, 2006
(unaudited)

JMG Exploration, Inc.
A Development Stage Enterprise

CONSOLIDATED BALANCE SHEETS
(In United States Dollars)
(unaudited)


	June 30			December 31
	2006			2005
As at	$			$


ASSETS
Current
Cash and cash equivalents		796,444			1,150,965
Accounts receivable		462,586			1,284,474
Prepaid expenses and deposits		239,817			34,701
Due from JED Oil Inc.[note 6]		1,830,123			—

		3,328,970			2,470,140


Other assets		230,000			230,000
Property and equipment[note 3]		15,477,913			15,073,039

		19,036,883			17,773,179


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current
Accounts payable		1,993,525			845,507
Accrued liabilities		454,791			1,660,648
Promissory note payable[note 4]		1,500,000			—
Due to JED Oil Inc.[note 6]		—			286,956

		3,948,316			2,793,111


Asset retirement obligation[note 7]		82,020			78,642

		4,030,336			2,871,753


Stockholders’ equity[note 5]
Common stock — $.001 par value; 25,000,000 shares authorized; 5,099,099 shares issued and outstanding at June 30, 2006 and 4,997,578 shares issued and outstanding at December 31, 2005		5,099			4,997
Additional paid-in capital		20,637,577			20,044,296
Share purchase warrants		2,086,403			2,151,470
Deficit accumulated during the development stage		(7,704,811	)		(7,296,640	)
Accumulated other comprehensive income		(17,721	)		(2,697	)

		15,006,547			14,901,426

		19,036,883			17,773,179

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

JMG Exploration, Inc.
A Development Stage Enterprise

CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(In United States Dollars)
(unaudited)


													For the period
													from the date
													of incorporation
	For the three month period						For the six month period						on July 16, 2004
	ended June 30						ended June 30						to June 30
	2006			2005			2006			2005			2006
	$			$			$			$			$


Revenue
Petroleum revenue		475,517			6,639			928,252			6,639			1,555,712
Interest		—			43,681			—			117,004			185,091

		475,517			50,320			928,252			123,643			1,740,803


Expenses
Production		56,186			10,953			191,648			10,953			381,246
General and administrative[note 6]		338,494			251,404			631,857			507,746			2,765,218
Interest on promissory note[note 4]		89,975			—			113,872			—			113,872
Geophysical and geological		—			162,284			—			162,284			256,484
Depletion, depreciation and accretion		191,076			93,140			399,046			127,456			5,147,295

		675,731			517,781			1,336,423			808,439			8,664,115


Net loss for the period		(200,214	)		(467,461	)		(408,171	)		(684,796	)		(6,923,312	)
Less: cumulative preferred dividends		—			(195,000	)		—			(388,397	)		(781,499	)

Net loss applicable to common shareholders		(200,214	)		(662,461	)		(408,171	)		(1,073,193	)		(7,704,811	)

Deficit, beginning of period		(7,504,597	)		(1,435,021	)		(7,296,640	)		(1,024,289	)		—


Deficit, end of period		(7,704,811	)		(2,097,482	)		(7,704,811	)		(2,097,482	)		(7,704,811	)


Basic and diluted weighted average common shares outstanding		5,094,773			250,000			5,090,825			250,000			2,442,166


Net loss for the period per common share[note 5]
basic and diluted		(0.04	)		(2.65	)		(0.08	)		(4.29	)		(3.15	)

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

JMG Exploration, Inc.
A Development Stage Enterprise

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In United States Dollars)
(unaudited)


													For the period
													from the date
													of incorporation
	For the three month period						For the six month period						on July 16, 2004
	ended June 30,						ended June 30,						to June 30,
	2006			2005			2006			2005			2006
	$			$			$			$			$


OPERATIONS
Net loss for the period		(200,214	)		(467,461	)		(408,171	)		(684,796	)		(6,923,312	)
Adjustments to reconcile net loss to cash flows from operating activities:
Stock-based compensation[note 5]		25,144			—			50,012			—			128,601
Depletion, depreciation and accretion		191,076			93,140			399,046			127,456			5,147,295
Other changes:
Increase in accounts receivable		(1,117,844	)		(162,288	)		(326,755	)		(95,634	)		(835,356	)
Increase in prepaid expenses and deposits		(78,178	)		(108,332	)		(205,116	)		(136,744	)		(239,817	)
Increase (decrease) in accounts payable and accrued liabilities		2,975,813			(4,337	)		1,131,424			3,041			1,383,590
Increase (decrease) in due to JED Oil Inc.		(1,970,730	)		(101,147	)		(2,117,079	)		286,393			(1,830,123	)
Decrease in due to related party		—			(14,856	)		—			(4,164	)		—
Increase (decrease) in accrued interest on loan receivable		—			(15,815	)		—			16,683			(15,815	)

Cash used in operating activities		(174,933	)		(781,096	)		(1,476,639	)		(487,765	)		(3,184,937	)


INVESTING
Repayment (advance) of loan receivable		—			—			—			750,000			(750,000	)
Proceeds on disposition of property		—			391,249			—			391,249			391,249
Purchase of property and equipment		255,844			(586,269	)		(841,162	)		(2,875,155	)		(18,731,126	)
Increase in other assets		—			(7,500	)		—			(82,500	)		(230,000	)

Cash provided by (used in) investing activities		255,844			(202,520	)		(841,162	)		(1,816,406	)		(19,319,877	)


FINANCING
Issue of common shares, net of issue costs		60,431			—			478,304			—			20,506,063
Issue of share purchase warrants		—			—			—			—			2,094,415
Promissory note payable		—			—			1,500,000			—			1,500,000
Preferred share dividends		—			(195,000	)		—			(390,000	)		(781,499	)

Cash provided by (used in) financing activities		60,431			(195,000	)		1,978,304			(390,000	)		23,318,979

Effect of foreign exchange on cash balances		2,966			1,444			(15,024	)		(1,860	)		(17,721	)

Net increase (decrease) in cash		144,308			(1,177,172	)		(354,521	)		(2,696,031	)		796,444
Cash, beginning of period		652,136			3,521,941			1,150,965			5,040,800			—

Cash, end of period		796,444			2,344,769			796,444			2,344,769			796,444

During the three and six month periods ended June 30, 2006 and 2005, the Company paid $25,500 (2005 — $nil) and $71,000 (2005 — $nil) in interest on the promissory note. No income or capital taxes were paid for the three and six month periods ended June 30, 2006 and 2005.

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

JMG Exploration, Inc.
A Development Stage Enterprise

STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
(In United States Dollars)
(unaudited)


	Shares			Total
Period from the date of incorporation on July 16, 2004 to June 30, 2006.	#			$

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		97,854			462,866
Issued under stock option plan		3,667			18,335
Share issue costs		—			(2,897	)
Portion of proceeds attributed to share purchase warrants		—			65,067

Balance at June 30, 2006		5,099,099			20,514,075

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		—			50,012

Balance at June 30, 2006		—			128,601

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 June 30, 2006		—			-

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		(97,854	)		(65,067	)

Balance at June 30, 2006		3,912,068			2,086,403

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 six month period ended June 30, 2006					(408,171	)

Balance at June 30, 2006		—			(7,704,811	)

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					(15,024	)

Balance at June 30, 2006		—			(17,721	)

Total stockholders equity at June 30, 2006		—			(15,006,547	)

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

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
	For the three month period						For the six month period						on July 16, 2004
	ended June 30,						ended June 30,						to June 30,
	2006			2005			2006			2005			2006
	$			$			$			$			$

Net loss for the period		(200,214	)		(467,461	)		(408,171	)		(684,796	)		(6,923,312	)

Other comprehensive income (loss):
Foreign exchange translation adjustment		2,966			98			(15,024	)		98			(17,071	)

Comprehensive loss for the period		(197,248	)		(467,363	)		(423,195	)		(684,698	)		(6,940,383	)

Comprehensive loss for the period per common share[note 5]		(0.04	)		(1.87	)		(0.08	)		(2.74	)		(2.84	)

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

JMG Exploration, Inc.
A Development Stage Enterprise

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In United States Dollars)
(unaudited)

June 30, 2006

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 presentation of the results for the interim periods, on a basis that is consistent with the annual audited consolidated 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 consolidated financial statements and the summary of significant accounting policies and notes thereto included in the Company’s audited consolidated financial statements for the period from the date of incorporation on July 16, 2004 to December 31, 2005.

JMG Exploration, Inc.
A Development Stage Enterprise

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In United States Dollars)
(unaudited)

June 30, 2006

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 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 the six month period ended June 30, 2006, is the same as if it had continued to account for share-based compensation under Opinion 25. Basic and diluted loss per common share for the six month period ended June 30, 2006 would have been $0.08 and $0.08, respectively, if the Company had not adopted Statement 123(R), compared to reported basic and diluted loss per share of $0.08 and $0.08, respectively.

The following table illustrates the effect on net loss for the period from the date of incorporation on July 16, 2004 to June 30, 2006, and for the three and six month periods ended June 30, 2006 and loss per common 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.

JMG Exploration, Inc.
A Development Stage Enterprise

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In United States Dollars)
(unaudited)

June 30, 2006


								Period from the
								date of
		Three month period			Six month period			incorporation on
		ended			ended			July 16, 2004 to
		June 30, 2006			June 30, 2006			June 30, 2006

Net loss, as reported		$	200,214		$	408,171		$	6,923,312

Deduct:	Stock-based employees and directors compensation expenses included in reported net loss, net of related tax effects	$	(2,346	)	$	(4,718	)	$	(4,718	)

Add:	Total stock-based employees and directors compensation expenses determined under fair value based method for all awards, net of related tax effects	$	2,346		$	4,718		$	218,352

Pro forma net loss		$	200,214		$	408,171		$	7,136,946

Net loss per common share:
Basic and diluted — as reported		$	0.04		$	0.08		$	2.83

Basic and diluted — pro forma		$	0.04		$	0.08		$	2.92

3. PROPERTY AND EQUIPMENT

During the three and six month periods ended June 30, 2006, the Company recorded a depletion provision related to its oil properties of $189,369 and $395,668, respectively (2005 — $92,374, 126,690). The Company recorded depletion and depreciation from the period from the date of incorporation July 16, 2004 to June 30, 2006 of $5,140,532, of this amount $4,243,703 related to impairment and $834,000 to depletion and $61,299 to depreciation. At June 30, 2006, undeveloped land and other assets were $5,974,753 (2005 — $2,216,294). These amounts were excluded from the depletion calculation for the three and six month periods ended June 30, 2006. There was no production or depletion for the same period in 2005. During the three and six month periods ended June 30, 2006 (2005 — $nil) and the period from incorporation July 16, 2004 to June 30, 2006 the Company did not capitalize any direct general and administration expenses.

JMG Exploration, Inc.
A Development Stage Enterprise

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In United States Dollars)
(unaudited)

June 30, 2006

June 30, 2006

December 31, 2005

Accumulated

depletion,

depreciation and

Cost

accretion,

Net book value

Petroleum and natural gas properties

14,414,845

5,077,703

9,337,142

9,014,228

Undeveloped Land

5,974,753

—

5,974,753

5,868,691

Other assets

227,317

61,299

166,018

190,120

20,616,915

5,139,002

15,477,913

15,073,039

4. PROMISSORY 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 repayment has now been extended indefinitely. All other terms of the original agreement remain the same.

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 June 30, 2006 there were 5,099,099 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.

JMG Exploration, Inc.
A Development Stage Enterprise

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In United States Dollars)
(unaudited)

June 30, 2006

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
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	)
Stock-based compensation		—			—			78,589			78,589

Balance at December 31, 2005		4,997,578			4,997			20,044,296			20,049,293
Warrants exercised for common stock		97,854			98			462,768			462,866
Issued under stock option plan		3,667			4			18,331			18,335
Share issue costs		—			—			(2,897	)		(2,897	)
Portion of proceeds attributed to share purchase warrants		—			—			65,067			65,067
Stock-based compensation		—			—			50,012			50,012

Balance at June 30, 2006		5,099,099			5,099			20,637,577			20,642,676


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 June 30, 2006		—			—			—			—

JMG Exploration, Inc.
A Development Stage Enterprise

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In United States Dollars)
(unaudited)

June 30, 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	(97,854	)			(65,067	)

Balance at June 30, 2006	3,912,068		—	—	2,086,403

Total			5,099	20,637,577	22,729,079

c) Stock options

The Company has a stock option plan under which employees; directors and consultants are eligible to receive grants. As of June 30, 2006, 427,000 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 June 30, 2006:


				Weighted average
	Number of			exercise 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		(148,583	)		5.00
Exercised		(3,667	)		5.00

Options outstanding as at June 30, 2006		327,000

Exercisable as at June 30, 2006		264,005			5.00

JMG Exploration, Inc.
A Development Stage Enterprise

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In United States Dollars)
(unaudited)

June 30, 2006

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 six month period ended June 30, 2006. The estimated fair value of the options is amortized over the options’ vesting period on a straight-line basis. For the three and six month periods ended June 30, 2006 the stock option expense was $25,144 (2005 — $nil) and $50,012 (2005 — $nil) respectively. The stock option expense from the period of incorporation July 16, 2004 to June 30, 2006 was $128,601.

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 and six month periods ended June 30, 2006 the basic and diluted weighted average number of common shares outstanding were 5,094,773 (2005 — 250,000) and 5,090,825 (2005 — 250,000) respectively. For both the period from the date of incorporation to June 30, 2006 the basic and diluted weighted average number of common shares outstanding were 2,442,166. All of the Company’s outstanding stock options and warrants currently have an antidilutive effect on per common share amounts.

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 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.

JMG Exploration, Inc.
A Development Stage Enterprise

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In United States Dollars)
(unaudited)

June 30, 2006

JED paid on behalf of the Company for the six month period ended June 30, 2006 total of $nil (2005 - - $342,270) and $582,505 for the period from incorporation, for general and administrative services and capital related expenditures.

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 June 30, 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 June 30, 2006 is offset from 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.

As at June 30, 2006, JED owes the Company $1,830,123 for the reimbursement of intangible drilling costs.

7. ASSET RETIREMENT OBLIGATION

As at June 30, 2006, the estimated present value of the Company’s asset retirement obligation was $82,020 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.


	$

Asset retirement obligation, December 31, 2005		78,642

Accretion expense		3,378

Asset retirement obligation, June 30, 2006		82,020

8. SUBSEQUENT EVENTS

On February 27, 2006, JED and JMG 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.

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

The following is Management’s Discussion and Analysis (“MD&A”) of JMG Exploration, Inc. (“JMG”) for the three and six months ended June 30, 2006. This MD&A should be read in conjunction with the unaudited interim consolidated financial statements and notes of JMG for the three and six months ended June 30, 2006 prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”), and the audited consolidated financial statements and accompanying notes for the year ended December 31, 2005 and the MD&A for the year ended December 31, 2005. This MD&A is based upon information available to August 13, 2006. All amounts are stated in United States dollars except where otherwise indicated.

FORWARD-LOOKING STATEMENTS

This interim 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 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 interim 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. 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 the 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 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 seven gross (3.2 net) wells with 100% success rate proving up significant future development. Two of the seven wells drilled to date were on production in late 2005 with the other four wells have come on production in the first quarter of 2006. JMG’s production is 92 boe/d for the second quarter of 2006.

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



	Q2			Q2
	2006			2005			*Change*
	$			$			$

Petroleum revenue		476			7			469
Net loss		(200	)		(662	)		267
Per share basic and diluted		(0.04	)		(2.65	)		2.61
Weighted average number of shares outstanding — basic and diluted		5,095			250			4,845

Quarterly Information(In US$ thousands, except per share data)



	Q2			Q1			Q4			Q3			Q2			Q1			Q4			Q3			Q2
	2006			2006			2005			2005			2005			2005			2004			2004			2004

Petroleum revenue		476			453			286			334			7			0			—			—			—

Net loss for the period		(200	)		(208	)		(4,435	)		(765	)		(662	)		(411	)		(627	)		(74	)		—
Per share, basic and diluted		(0.04	)		(0.04	)		(0.91	)		(0.26	)		(2.65	)		(1.64	)		(3.29	)		(0.80	)		—

2 Year Summary

Summarized financial and operational data
(In US$ thousands except for volumes and per share amounts)



	Period ended June 30,
	2006			2005
Revenue		928			7

Net loss		(408	)		(1,073	)
Net loss per share — basic and diluted		(0.08	)		(4.29	)

Weighted average number of shares — basic and diluted		5,091			250

Total assets		19,037			10,547

Total long-term debt	Nil			Nil

Results of operations

Petroleum revenue. Our petroleum 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. Petroleum revenues were $928,252 for the six month period ended June 30, 2006 compared with revenue of $6,639 for the same period in 2005. This petroleum 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 petroleum revenue from incorporation July 16, 2004 to June 30, 2006 was $1,555,712.

Three month period ended June 30, 2006 compared to three month period ended June 30, 2005 and period from incorporation July 16, 2004 to June 30, 2006


								Period from the date
								of incorporation
	Three month period ended							on July 16, 2004
	June 30,				Percentage			to June 30,
	2006		2005		Increase			2006

Production (Boe)		8,407		122		100	%		28,363
Average Price	$	56.56		—				$	54.85
Petroleum revenues	$	475,517	$	6,639		99	%	$	1,555,712

Critical to our petroleum revenue stream from any production activities is the market price for crude oil and natural gas. Commodity benchmark prices for crude oil and natural gas were as follows:


As at June 30,	2006		2005

West Texas Intermediate grade crude oil, per barrel	$	73.93	$	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 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 income for the three and six month periods ended June 30, 2006 are $nil (2005 — $43,681) and $nil (2005 — $117,004) respectively. Interest income has decreased due to the repayment of interest on the promissory note owed to an unrelated industry partner since February 8, 2006. Total interest from incorporation July 16, 2004 to June 30, 2006 was $185,091.

Production expense. Production costs include operating costs associated with field activities. Production expenses for the three and six month periods ended June 30, 2006 were $56,186 and $191,648 respectively compared with production expenses of $10,953 for the same periods 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 June 30, 2006 were $381,246.

Three month period ended June 30, 2006 compared to three month period ended June 30, 2005 and period from incorporation July 16, 2004 to June 30, 2006.


														Period from the
														date of
														incorporation on
Three month period			% of					% of			Percentage			July 16, 2004 to
ended June 30,	2006		revenue			2005		revenue			Decrease			June 30, 2006		% of revenue

Production expense	$	56,186		11.8	%		10,953		165	%		413	%	$	381,246		24.5	%

Production expense per BOE:	$	6.68		—		$	89.78		—					$	13.44		—

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 contracted out all field personnel and equipment necessary for exploration activities, and for related administrative functions. During the three and six month periods ended June 30, 2006 the amount for general and administrative expenses was $338,494 and $631,857 compared with $251,404 and $507,746 respectively for the same periods in 2005. Total general and administrative expenses from incorporation July 16, 2004 to June 30, 2006 were $2,765,218.

Three month period ended June 30, 2006 compared to three month period ended June 30, 2005 and period from incorporation July 16, 2004 to June 30, 2006.


								Period from the
								date of
								incorporation on
Three month period					Percentage			July 16, 2004 to
ended June 30,	2006		2005		Increase			June 30, 2006

General and administrative expense	$	338,494	$	251,404		34.6	%	$	2,765,218

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 and six month periods ended June 30, 2006 was at $25,144 and $50,012 respectively. There was no stock-based compensation for the three and six month periods ended June 30, 2005. The Company has adopted Statement 123(R) using the modified-prospective method, therefore for the six month period ended June 30, 2006 the stock based compensation was a result of 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-based compensation expense from incorporation July 16, 2004 to June 30, 2006 was $128,601. The total compensation costs related to non-vested options which has not been recognized is $433,738 as at June 30, 2006.

Geophysical and geological expense. Geophysical and geological expenses for the three and six month periods ended June 30, 2006 was $nil and $162,284 for the three and six month periods ended June 30, 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 June 30, 2006 were $256,484.

Depletion, depreciation and accretion expense. Depletion, depreciation and accretion expense were $191,076 and $399,046 for the three and six months ended June 30, 2006 and $93,140 and $127,456 respectively for the same periods in 2005. This increase was due to the depletion recorded in the current year, which was not applicable at March 31, 2005. Depletion was only recorded starting in the second quarter of 2005 due to commencement of production. In 2005, the Company’s impairment charge 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 of $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 June 30, 2006 were $5,147,295.

The estimated present value of the Company’s asset retirement obligation was $82,020 as that June 30, 2006. This amount is 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.

Three month period ended June 30, 2006 compared to three month period ended June 30, 2005 and period from incorporation July 16, 2004 to June 30, 2006.


														Period from the
														date of
														incorporation on
Three month period			% of					% of			Percentage			July 16, 2004 to		% of
ended June 30,	2006		revenue			2005		revenue			Increase			June 30, 2006		revenue

Depletion, depreciation and accretion expense	$	191,076		40.2	%	$	93,140		1,402.9	%		105.1	%	$	5,147,295		330.9	%

Depletion, depreciation and accretion expense per Boe:	$	22.73				$	763.44							$	181.48

Preferred dividend. In August 2004, we issued 1,950,000 shares of preferred stock, which pay 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 for the three and six month periods ended June 30, 2006 were $nil and were $195,000 and $388,397 respectively for the same periods in 2005. Total preferred dividend paid from incorporation July 16, 2004 to June 30, 2006 were $781,499.

Income taxes. The Company did not pay or record any income taxes in the three or six month period ended June 30, 2006 and June 30, 2005.

Earnings (loss). Net loss is presented below.

Three month period ended June 30, 2006 compared to three month period ended June 30, 2005 and period from incorporation July 16, 2004 to June 30, 2006.


													Period from the
													date of
													incorporation on
For the three month				% of						Percentage			July 16, 2004 to
period ended June 30,	2006			revenue			2005			Increase			June 30, 2006			% of revenue

Net loss		($200,214	)		(42.1	%)		($662,461	)		(64.8	%)		(7,704,811	)		(495.3	%)

Per share information Net loss for the period per common share		($0.04	)					($2.65	)					(3.15	)

Average number of shares outstanding		5,094,773						250,000						2,442,166

Capital Expenditures

Capital expenditures for the three and six months ended June 30, 2006 and 2005 was a negative $255,844 (2005 — $586,269) and $841,162 (2005 — $2,875,155), net of capital accrual respectively. For period from incorporation July 16, 2004 to June 30, 2006, the capital expenditures net of the capital accrual were $18,731,126.

Liquidity and capital resources

Cash flows and capital expenditures

At June 30, 2006, we had $796,444 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 repayment has now been extended indefinitely.

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 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
Warrant summary as of June 30, 2006	outstanding		Exercise price		Maximum 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		1,797,381		5.00	$	8,986,905

		3,912,068	$	4.25 - $6.00	$	18,630,902

Cash flow used in operations. Cash used by operating activities was $174,933 for the three months ended June 30, 2006 and cash was utilized by operating activities for the three months ended June 30, 2005 in the amount of $781,096. The reduction in the use of cash was mainly attributable to the increase in trade accounts payable of $2,975,813 during the second quarter of 2006. Cash used by operating activities was $781,096 and $487,765 for the six month period ended June 30, 2006 and 2005 respectively.

Cash utilized by operating activities was $3,184,937 for the period from incorporation on July 16, 2004 to June 30, 2006. The use of cash was principally attributable to the net loss of the period of $6,923,312 increased by the amount due to JED Oil Inc of $1,830,123 and offset by $5,147,295 in depletion, depreciation, and accretion expense.

Cash flow provided by investing activities. Cash provided by investing activities in the three month period ended June 30, 2006 was $255,844 (2005 — $202,520). Adjustments were made in the second quarter of 2006 pertaining to the capital cost for a North Dakota well that resulted in a partial reversal of cash expenditures reported in the first quarter of 2006. For the six month period ended June 30,

2006 and 2005, $841,162 and $1,816,406 was spent on investing activities respectively. Cash utilized in investing activities was $19,319,877 for the period from incorporation on July 16, 2004 to June 30, 2006 and was principally attributable to $18,731,126 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 of 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 provided by financing activities. Cash provided by financing activities was $60,431 for the three month period ended June 30, 2006. This was attributable to warrants and stock options that were exercised during the period for $60,431 (2005 — $195,000). For the six month period ended June 30, 2006 and 2005, financing activities provided $1,978,304 and used $390,000 respectively.

Cash provided by financing activities was $23,318,979 for the period from incorporation on July 16, 2004 to June 30, 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 $7,792,225 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.

Critical accounting estimates

In the preparation of the interim consolidated financial statements, it was necessary for JMG to make certain estimates that were critical to determining our assets, liabilities and net loss for the period. None of these estimates affect the determination of cash flow but do have a significant impact in the determination of net loss for the period. The most critical of these estimates is the reserves estimations and the resulting effect on various income statement and balance sheet measures.

JMG engaged an independent engineering firm to evaluate 100% of our oil and natural gas reserves and prepare a report thereon. Their report was utilized in the calculations of depletion and depreciation expense. The estimation of the reserve volumes and future net revenues set out in the report is complex and subject to uncertainties and interpretations. Judgments are based upon engineering data, projected future rates of production, forecasts of commodity prices, and the timing of future expenditures. Inevitably the estimates of reserve volumes and future net revenues will vary over time as new data becomes available and estimates of future net revenues do not represent fair market value.

The following significant accounting policies outline the major policies involving critical estimates.

Successful-efforts method of accounting

Our business is subject to special accounting rules that are unique to the oil and gas industry. There are two allowable methods of accounting for oil and gas business activities: the successful-efforts method and the full-cost method. Under the successful-efforts method, costs such as geological and geophysical, exploratory dry holes and delay rentals are expensed as incurred whereas under the full-cost method these types of charges are capitalized.

Under the successful-efforts method of accounting, all costs of property acquisitions and drilling of exploratory wells are initially capitalized. If a well is unsuccessful, the capitalized costs of drilling the well, net of any salvage value, are charged to expense. If a well finds oil and natural gas reserves that cannot be classified as proved within a year after discovery, the well is assumed to be impaired and the capitalized costs of drilling the well, net of any salvage value, are charged to expense. The capitalized costs of unproven properties are periodically assessed to determine whether their value has been impaired below the capitalized cost, and if such impairment is indicated, a loss is recognized. We consider such factors as exploratory results, future drilling plans and lease expiration terms when assessing unproved properties for impairment. For each field, an impairment provision is recorded whenever events or circumstances indicate that the carrying value of those properties may not be recoverable from estimated future net revenues. The impairment provision is measured as the excess of carrying value over the fair value. Fair value is defined as the present value of the estimated future net revenue from total proved and risked-adjusted probable reserves over the economic life of the reserves, based on year end oil and gas prices, consistent with price and cost assumptions used for acquisition evaluations.

Geological and geophysical costs and costs of retaining undeveloped properties are expensed as incurred. Expenditures for maintenance and repairs are charged to expense, and renewals and betterments are capitalized. Upon disposal, the asset and related accumulated depreciation and depletion are removed from the accounts, and any resulting gain or loss is reflected in income or loss.

Costs of development dry holes and proved leaseholds are depleted on the unit-of-production method using proved developed reserves on a field basis. The depreciation of capitalized production equipment, drilling costs and asset retirement obligations is based on the unit-of-production method using proved developed reserves on a field basis.

To economically evaluate our future proved oil and natural gas reserves, if any, independent engineers must make a number of assumptions, estimates and judgments that they believe to be reasonable based upon their expertise and professional guidelines. Were the independent engineers to use differing assumptions, estimates and judgments, then our financial condition and results of operations could be affected. We would have lower revenues in the event revised assumptions, estimates and judgments resulted in lower reserve estimates, since the depletion and depreciation rate would then be higher. A write-down of excess carrying value also might be required. Similarly, we would have higher revenues and net profits in the event the revised assumptions, estimates and judgments resulted in higher reserve estimates, since the depletion and depreciation rate would then be lower.

Proved Oil and Gas Reserves

Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. The estimated quantities of proved crude oil, natural gas liquids and natural gas are derived from geological and engineering data that demonstrate with reasonable certainty the amounts that can be recovered in future years from known reservoirs under existing economic and operating conditions. Reserves are considered proved if they can be produced economically as demonstrated by either actual production or conclusive formation tests. The oil and gas reserve estimates are made using all available geological and reservoir data as well as historical production data. Estimates are reviewed and revised as appropriate. Revisions occur as a result of changes in prices, costs, fiscal regimes, reservoir performance or a change in the Company’s plans.

Long-lived assets

When assets are placed into service, we make estimates with respect to their useful lives that we believe are reasonable. However, factors such as competition, regulation or environmental matters could cause us to change our estimates, thus impacting the future calculation of depreciation and depletion. We evaluate long-lived assets for potential impairment by identifying whether indicators of impairment exist and, if so, assessing whether the long-lived assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss, if any, to be recorded is equal to the amount by which a long-lived asset’s carrying value exceeds its fair value. Estimates of future discounted cash flows and fair value of assets require subjective assumptions with regard to future operating results and actual results could differ from those estimates.

Asset Retirement Obligations

We have adopted SFAS No. 143,“Accounting for Asset Retirement Obligations”from inception. The net estimated costs are discounted to present values using a credit-adjusted, risk-free rate over the estimated economic life of the properties. These costs are capitalized as part of the cost of the related asset and amortized. The associated liability is classified as a long-term liability and is adjusted when circumstances change and for the accretion of expense which is recorded as a component of depreciation and depletion.

Stock-based compensation

We account for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and provide pro forma disclosures of net income (loss) as if a fair value based method had been applied in measuring compensation expense. Under the intrinsic value method, no stock-based compensation expense for stock options issued is reflected in the statement of operations as all grants under our stock option plan have an exercise price equal to the fair market value of the underlying common stock on the date of grant.

The Corporation accounts for the stock option granted to consultants using SFAS No. 123. Under these provisions, the cost of options granted consultants are charged to net loss with a corresponding increase in additional paid-in capital, based on an estimate of the fair value determined using the Black-Scholes option-pricing model. EITF 96-18 requires that the Corporation must continue to measure, at each reporting date, the award’s fair value until performance is complete and/or the vesting date is reached.

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.

Accounting for certain hybrid Financial Instruments

In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring in fiscal years beginning after September 15, 2006. The Corporation currently does not have any hybrid financial instruments.

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation requires that the Corporation recognize in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective beginning January 1, 2007 with the cumulative effect of the change in accounting principle recorded as an adjustment to the opening balance of deficit. The Corporation is currently evaluating the impact FIN 48 will have on its consolidated financial statements.

Related Party Transactions

JED paid on behalf of the Company for the six month period ended June 30, 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 June 30, 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 June 30, 2006 is offset from 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.

As at June 30, 2006, JED owes the Company $1,830,123 for the reimbursement of intangible drilling costs.

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 June 30, 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 February 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 4.Controls and Procedures

Disclosure Controls and Procedures

The Company maintains 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. As of June 30, 2006, management conducted an assessment of the effectiveness of the design and operation of the Company’s disclosure controls. Based on this assessment, management has determined that the Company’s disclosure controls as of June 30, 2006 were effective.

Changes in Internal Control Over Financial Reporting

For the second quarter of 2006, the Company used alternate staff for the financial reporting process, engaged in more regular and substantive communication with JED on accounting matters, directly accessed and reviewed transactions posted on JMG’s accounting system, and obtained the assistance of qualified consultants during the financial reporting and disclosure process. JMG and JED continue to pursue the proposed merger to formalize these control procedures and to solidify efficiencies in the reporting process.

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 Joseph W. Skeehan, 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 David C. Ho, 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 Joseph W. Skeehan, 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 David C. Ho, 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.

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: August 18, 2006		/s/ Joseph W. Skeehan
		Joseph W. Skeehan
		Chief Executive Officer and President


		/s/ David C. Ho
		David C. Ho
		Chief Financial Officer

Exhibit Index


Exhibit Number

31.1		Certification of Joseph W. Skeehan, 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 David C. Ho, Chief Financial Officer of the 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 Joseph W. Skeehan, 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 David C. Ho, Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

Mediashift (MSHFQ) Inactive 10-Q2006 Q2 Quarterly report

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