##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended June 30, 2006oro
    
    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. EmployerIncorporation or Organization)
    
    Identification Number)Suite 2200, 500 4th Avenue S.W.
    
    T2P 2V6Calgary Alberta, Canada
    
    (Zip Code)(Address of Principal Executive Offices)
 
 
  Yes     þ
    
    No     o
  Large accelerated filer     o
    
    Accelerated filer     o
    
    Non-accelerated filer     þ
  Yes     o
    
    No     þ




---



##### 



JMG Exploration, Inc.
 PageNo.Item 1
    
    Part I. Financial InformationConsolidated Financial Statements
    
    2-6Consolidate Balance Sheets, as of June 30, 2006 (unaudited)
    
    2Consolidated 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.
    
    3Consolidated 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.
    
    4Statement 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.
    
    5Consolidated 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.
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    7-14Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15-26Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    27Item 4
    
    Controls and Procedures
    
    27Part II. Other InformationItem 1
    
    Legal Proceedings
    
    28Item 1A
    
    Risk Factors
    
    28Item 2
    
    Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    28Item 3
    
    Defaults Upon Senior Securities
    
    28Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    28Item 5
    
    Other Information
    
    28Item 6
    
    Exhibits
    
    28SIGNATURES:Certification of CEO Pursuant to Section 302Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification 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
 1




---



##### 



JMG Exploration, Inc.
 CONSOLIDATED BALANCE SHEETS
 June 30
    
    
    December 312006
    
    
    2005As at
    
    $
    
    
    $ASSETSCurrentCash and cash equivalents
    
    
    796,444
    
    
    
    1,150,965Accounts receivable
    
    
    462,586
    
    
    
    1,284,474Prepaid expenses and deposits
    
    
    239,817
    
    
    
    34,701Due from JED Oil Inc. [note 6]
    
    
    1,830,123
    
    
    
    3,328,970
    
    
    
    2,470,140Other assets
    
    
    230,000
    
    
    
    230,000Property and equipment [note 3]
    
    
    15,477,913
    
    
    
    15,073,03919,036,883
    
    
    
    17,773,179LIABILITIES AND STOCKHOLDERS EQUITYCurrentAccounts payable
    
    
    1,993,525
    
    
    
    845,507Accrued liabilities
    
    
    454,791
    
    
    
    1,660,648Promissory note payable [note 4]
    
    
    1,500,000
    
    
    
    Due to JED Oil Inc. [note 6]
    
    
    
    
    
    
    286,9563,948,316
    
    
    
    2,793,111Asset retirement obligation [note 7]
    
    
    82,020
    
    
    
    78,6424,030,336
    
    
    
    2,871,753Stockholders 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
    
    
    
    4,997Additional paid-in capital
    
    
    20,637,577
    
    
    
    20,044,296Share purchase warrants
    
    
    2,086,403
    
    
    
    2,151,470Deficit accumulated during the development stage
    
    
    (7,704,811
    )
    
    
    (7,296,640
    )Accumulated other comprehensive income
    
    
    (17,721
    )
    
    
    (2,697
    )15,006,547
    
    
    
    14,901,42619,036,883
    
    
    
    17,773,179
 The accompanying notes are an integral part of these interim consolidated financial statements.
 2




---



##### 



JMG Exploration, Inc.
 CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
 For the periodfrom the dateof incorporationFor the three month period
    
    
    For the six month period
    
    
    on July 16, 2004ended June 30
    
    
    ended June 30
    
    
    to June 302006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006$
    
    
    $
    
    
    $
    
    
    $
    
    
    $RevenuePetroleum revenue
    
    
    475,517
    
    
    
    6,639
    
    
    
    928,252
    
    
    
    6,639
    
    
    
    1,555,712Interest
    
    
    
    
    
    
    43,681
    
    
    
    
    
    
    
    117,004
    
    
    
    185,091475,517
    
    
    
    50,320
    
    
    
    928,252
    
    
    
    123,643
    
    
    
    1,740,803ExpensesProduction
    
    
    56,186
    
    
    
    10,953
    
    
    
    191,648
    
    
    
    10,953
    
    
    
    381,246General and administrative [note 6]
    
    
    338,494
    
    
    
    251,404
    
    
    
    631,857
    
    
    
    507,746
    
    
    
    2,765,218Interest on promissory note [note 4]
    
    
    89,975
    
    
    
    
    
    
    
    113,872
    
    
    
    
    
    
    
    113,872Geophysical and geological
    
    
    
    
    
    
    162,284
    
    
    
    
    
    
    
    162,284
    
    
    
    256,484Depletion, depreciation and
accretion
    
    
    191,076
    
    
    
    93,140
    
    
    
    399,046
    
    
    
    127,456
    
    
    
    5,147,295675,731
    
    
    
    517,781
    
    
    
    1,336,423
    
    
    
    808,439
    
    
    
    8,664,115Net 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
    
    
    
    2,442,166Net 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.
 3




---



##### 



JMG Exploration, Inc.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the periodfrom the dateof incorporationFor the three month period
    
    
    For the six month period
    
    
    on July 16, 2004ended June 30,
    
    
    ended June 30,
    
    
    to June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006$
    
    
    $
    
    
    $
    
    
    $
    
    
    $OPERATIONSNet 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
    
    
    
    
    
    
    
    128,601Depletion, depreciation and accretion
    
    
    191,076
    
    
    
    93,140
    
    
    
    399,046
    
    
    
    127,456
    
    
    
    5,147,295Other 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
    
    
    
    1,383,590Increase (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
    )INVESTINGRepayment (advance) of loan
receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750,000
    
    
    
    (750,000
    )Proceeds on disposition of property
    
    
    
    
    
    
    391,249
    
    
    
    
    
    
    
    391,249
    
    
    
    391,249Purchase 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
    )FINANCINGIssue of common shares, net of issue
costs
    
    
    60,431
    
    
    
    
    
    
    
    478,304
    
    
    
    
    
    
    
    20,506,063Issue of share purchase warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,094,415Promissory note payable
    
    
    
    
    
    
    
    
    
    
    1,500,000
    
    
    
    
    
    
    
    1,500,000Preferred share dividends
    
    
    
    
    
    
    (195,000
    )
    
    
    
    
    
    
    (390,000
    )
    
    
    (781,499
    )Cash provided by (used in) financing activities
    
    
    60,431
    
    
    
    (195,000
    )
    
    
    1,978,304
    
    
    
    (390,000
    )
    
    
    23,318,979Effect 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
    )
    
    
    796,444Cash, 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
  The accompanying notes are an integral part of these interim consolidated financial statements.
 4




---



##### 



JMG Exploration, Inc.
 STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS EQUITY
 Shares
    
    
    TotalPeriod 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
    
    
    
    1,000,000Preferred shares converted to common stock
    
    
    1,950,000
    
    
    
    7,792,225Issuance of common stock, stock issued for cash pursuant to initial public offering
    
    
    2,185,000
    
    
    
    11,143,500Warrants exercised for common stock
    
    
    612,578
    
    
    
    3,042,828Share issue costs
    
    
    
    
    
    
    (861,254
    )Portion of proceeds attributed to share purchase warrants
    
    
    
    
    
    
    (2,146,595
    )Balance at December 31, 2005
    
    
    4,997,578
    
    
    
    19,970,704Warrants exercised for common stock
    
    
    97,854
    
    
    
    462,866Issued under stock option plan
    
    
    3,667
    
    
    
    18,335Share issue costs
    
    
    
    
    
    
    (2,897
    )Portion of proceeds attributed to share purchase warrants
    
    
    
    
    
    
    65,067Balance at June 30, 2006
    
    
    5,099,099
    
    
    
    20,514,075Additional paid in capital:Balance, July 16, 2004 (inception) and December 31, 2004
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    78,589Balance at December 31, 2005
    
    
    
    
    
    
    78,589Stock-based compensation
    
    
    
    
    
    
    50,012Balance at June 30, 2006
    
    
    
    
    
    
    128,601Preferred stock, $.001 par value:Balance at December 31, 2004
    
    
    1,950,000
    
    
    
    7,792,225Preferred 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
    
    
    
    4,875Share purchase warrants: issued pursuant to initial public offering $5.00
    
    
    2,185,000
    
    
    
    693,866Share purchase warrants: issued pursuant conversion preferred shares $4.25
    
    
    1,950,000
    
    
    
    1,816,766Warrants exercised for common stock
    
    
    (612,578
    )
    
    
    (364,037
    )Balance at December 31, 2005
    
    
    4,009,922
    
    
    
    2,151,470Warrants exercised for common stock
    
    
    (97,854
    )
    
    
    (65,067
    )Balance at June 30, 2006
    
    
    3,912,068
    
    
    
    2,086,403Deficit: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 incomeBalance 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.
 5




---



##### 



JMG Exploration, Inc.
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 For the periodfrom the dateof incorporationFor the three month period
    
    
    For the six month period
    
    
    on July 16, 2004ended 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.
 6




---



##### 



JMG Exploration, Inc.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  1. INCORPORATION AND NATURE OF OPERATIONS
      2. SIGNIFICANT ACCOUNTING POLICIES
  7




---



##### 



JMG Exploration, Inc.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
   Change in Accounting Principle
    8




---



##### 



JMG Exploration, Inc.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  Period from thedate ofThree month period
    
    
    Six month period
    
    
    incorporation onended
    
    
    ended
    
    
    July 16, 2004 toJune 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2006Net loss, as reported
    
    $
    200,214
    
    
    $
    408,171
    
    
    $
    6,923,312Deduct:
    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
    
    
    $
    218,352Pro forma net loss
    
    $
    200,214
    
    
    $
    408,171
    
    
    $
    7,136,946Net loss per common share:Basic and diluted  as reported
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    2.83Basic and diluted  pro forma
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    2.92
 3. PROPERTY AND EQUIPMENT
  9




---



##### 



JMG Exploration, Inc.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  June 30, 2006
    
    
    December 31, 2005Accumulateddepletion,depreciation andCost
    
    
    accretion,
    
    
    Net book value
    
    
    Net book value$
    
    
    $
    
    
    $
    
    
    $Petroleum and
natural gas
properties
    
    
    14,414,845
    
    
    
    5,077,703
    
    
    
    9,337,142
    
    
    
    9,014,228Undeveloped Land
    
    
    5,974,753
    
    
    
    
    
    
    
    5,974,753
    
    
    
    5,868,691Other assets
    
    
    227,317
    
    
    
    61,299
    
    
    
    166,018
    
    
    
    190,12020,616,915
    
    
    
    5,139,002
    
    
    
    15,477,913
    
    
    
    15,073,039
 4. PROMISSORY NOTE
  5. SHARE CAPITAL
 a) Authorized
  10




---



##### 



JMG Exploration, Inc.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  b) Issued and outstanding
 AdditionalCapital
    
    
    Paid-inStock
    
    
    Capital
    
    
    Total#
    
    
    $
    
    
    $
    
    
    $Common Stock, $.001 par value:Balance, at July 16, 2004 and
December 31, 2004
    
    
    250,000
    
    
    
    250
    
    
    
    999,750
    
    
    
    1,000,000Preferred shares converted to common
stock
    
    
    1,950,000
    
    
    
    1,950
    
    
    
    7,790,275
    
    
    
    7,792,225Issued for cash, pursuant to initial
public offering
    
    
    2,185,000
    
    
    
    2,185
    
    
    
    11,141,315
    
    
    
    11,143,500Warrants exercised for common stock
    
    
    612,578
    
    
    
    612
    
    
    
    3,042,216
    
    
    
    3,042,828Share 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
    
    
    
    78,589Balance at December 31, 2005
    
    
    4,997,578
    
    
    
    4,997
    
    
    
    20,044,296
    
    
    
    20,049,293Warrants exercised for common stock
    
    
    97,854
    
    
    
    98
    
    
    
    462,768
    
    
    
    462,866Issued under stock option plan
    
    
    3,667
    
    
    
    4
    
    
    
    18,331
    
    
    
    18,335Share issue costs
    
    
    
    
    
    
    
    
    
    
    (2,897
    )
    
    
    (2,897
    )Portion of proceeds attributed to
share
purchase warrants
    
    
    
    
    
    
    
    
    
    
    65,067
    
    
    
    65,067Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    50,012
    
    
    
    50,012Balance at June 30, 2006
    
    
    5,099,099
    
    
    
    5,099
    
    
    
    20,637,577
    
    
    
    20,642,676Preferred Stock:Balance, at July 16, 2004 and
December 31, 2004
    
    
    1,950,000
    
    
    
    1,950
    
    
    
    7,798,050
    
    
    
    7,800,000Preferred 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 11




---



##### 



JMG Exploration, Inc.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  Share Purchase Warrants:Balance, at July 16, 2004 and
December 31, 2004
    
    
    487,500
    
    
    
    
    
    
    
    
    
    
    
    4,875Issued pursuant to initial public
offering
    
    
    2,185,000
    
    
    
    
    
    
    
    
    
    
    
    693,866Issued pursuant to conversion of
preferred shares
    
    
    1,950,000
    
    
    
    
    
    
    
    
    
    
    
    1,816,766Warrants exercised for common stock
    
    
    (612,578
    )
    
    
    
    
    
    
    
    
    
    
    (364,037
    )Balance at December 31, 2005
    
    
    4,009,922
    
    
    
    
    
    
    
    
    
    
    
    2,151,470Warrants exercised for common stock
    
    
    (97,854
    )
    
    
    
    
    
    
    
    
    
    
    (65,067
    )Balance at June 30, 2006
    
    
    3,912,068
    
    
    
    
    
    
    
    
    
    
    
    2,086,403Total
    
    
    
    
    
    
    5,099
    
    
    
    20,637,577
    
    
    
    22,729,079
 c) Stock options
  Weighted averageNumber of
    
    
    exercise priceoptions
    
    
    $Outstanding as at December 31, 2004
    
    
    260,000
    
    
    
    4.00Granted   April 5, 2005
    
    
    387,750
    
    
    
    5.00Granted  July 21, 2005
    
    
    79,500
    
    
    
    5.00Granted  August 19, 2005
    
    
    1,500
    
    
    
    15.25Granted  August 29, 2005
    
    
    5,000
    
    
    
    14.74Granted  November 1, 2005
    
    
    10,000
    
    
    
    12.25Cancelled
    
    
    (260,000
    )
    
    
    4.00Cancelled
    
    
    (4,500
    )
    
    
    5.00Options outstanding as at December 31, 2005
    
    
    479,250Cancelled
    
    
    (148,583
    )
    
    
    5.00Exercised
    
    
    (3,667
    )
    
    
    5.00Options outstanding as at June 30, 2006
    
    
    327,000Exercisable as at June 30, 2006
    
    
    264,005
    
    
    
    5.00
 12




---



##### 



JMG Exploration, Inc.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  d) Stock-based compensation
  Share-Based Payment Accounting for
Stock-Based Compensation Accounting for Stock
Issued to Employees Statement of Cash Flows requires
   e) Loss per share
  6. RELATED PARTY TRANSACTIONS
  13




---



##### 



JMG Exploration, Inc.
 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
     7. ASSET RETIREMENT OBLIGATION
  $Asset retirement obligation, December 31, 2005
    
    
    78,642Accretion expense
    
    
    3,378Asset retirement obligation, June 30, 2006
    
    
    82,020
 8. SUBSEQUENT EVENTS
  14




---



##### 



JMG Exploration, Inc.
Managements Discussion and Analysis or Plan of Operation
  FORWARD-LOOKING STATEMENTS
     Barrel of Oil Equivalent (BOE) 
 15




---



##### 



Overview
     nd
 bona fide
   16




---



##### 



Financial operations overview
 Q2
    
    
    Q22006
    
    
    2005
    
    
    Change$
    
    
    $
    
    
    $Petroleum revenue
    
    
    476
    
    
    
    7
    
    
    
    469Net loss
    
    
    (200
    )
    
    
    (662
    )
    
    
    267Per share basic and diluted
    
    
    (0.04
    )
    
    
    (2.65
    )
    
    
    2.61Weighted 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
    
    
    Q22006
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2004
    
    
    2004Petroleum 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
    
    
    2005Revenue
    
    
    928
    
    
    
    7Net 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
    
    
    
    250Total assets
    
    
    19,037
    
    
    
    10,547Total long-term debt
    
    Nil
    
    Nil
 Results of operations
 Petroleum revenue.
 17




---



##### 



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 dateof incorporationThree month period ended
    
    
    
    
    
    
    on July 16, 2004June 30,
    
    
    Percentage
    
    
    to June 30,2006
    
    
    2005
    
    
    Increase
    
    
    2006Production (Boe)
    
    
    8,407
    
    
    
    122
    
    
    
    100
    %
    
    
    28,363Average Price
    
    $
    56.56
    
    
    
    
    
    
    
    
    
    
    $
    54.85Petroleum revenues
    
    $
    475,517
    
    
    $
    6,639
    
    
    
    99
    %
    
    $
    1,555,712
  As at June 30,
    
    2006
    
    
    2005West Texas Intermediate grade crude oil, per barrel
    
    $
    73.93
    
    
    $
    59.78
   Interest income
 Production expense.
 18




---



##### 



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 thedate ofincorporation onThree month period
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    Percentage
    
    
    July 16, 2004 toended June 30,
    
    2006
    
    
    revenue
    
    
    2005
    
    
    revenue
    
    
    Decrease
    
    
    June 30, 2006
    
    
    % of revenueProduction 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.
 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 thedate ofincorporation onThree month period
    
    
    
    
    
    
    
    
    
    Percentage
    
    
    July 16, 2004 toended June 30,
    
    2006
    
    
    2005
    
    
    Increase
    
    
    June 30, 2006General and
administrative expense
    
    $
    338,494
    
    
    $
    251,404
    
    
    
    34.6
    %
    
    $
    2,765,218
 Stock-based compensation.
 Geophysical and geological expense.
 Depletion, depreciation and accretion expense.
 19




---



##### 



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 thedate ofincorporation onThree month period
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    Percentage
    
    
    July 16, 2004 to
    
    
    % ofended June 30,
    
    2006
    
    
    revenue
    
    
    2005
    
    
    revenue
    
    
    Increase
    
    
    June 30, 2006
    
    
    revenueDepletion,
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.
 Income taxes.
 Earnings (loss).
 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 thedate ofincorporation onFor the three month
    
    
    
    
    
    % of
    
    
    
    
    
    
    Percentage
    
    
    July 16, 2004 toperiod ended June 30,
    
    2006
    
    
    revenue
    
    
    2005
    
    
    Increase
    
    
    June 30, 2006
    
    
    % of revenueNet 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
 20




---



##### 



Capital Expenditures
  Liquidity and capital resources
 Cash flows and capital expenditures
    Numberof warrantsWarrant summary as of June 30, 2006
    
    outstanding
    
    
    Exercise price
    
    
    Maximum proceedsWarrants issued in the preferred stock private
placement
    
    
    375,187
    
    
    $
    6.00
    
    
    $
    2,251,122Warrants issued upon conversion of preferred stock
    
    
    1,739,500
    
    
    
    4.25
    
    
    $
    7,392,875Warrants issued our initial public offering
    
    
    1,797,381
    
    
    
    5.00
    
    
    $
    8,986,9053,912,068
    
    
    $
    4.25 - $6.00
    
    
    $
    18,630,902
 Cash flow used in operations.
  Cash flow provided by investing activities.
 21




---



##### 



Cash flow provided by financing activities.
  Critical accounting estimates
    22




---



##### 



Successful-efforts method of accounting
      Proved Oil and Gas Reserves
  23




---



##### 



Long-lived assets
  Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
 Stock-based compensation
 Accounting for Stock Issued to Employees
   Contingencies
  Contractual obligations and commitments
  24




---



##### 



Accounting for certain hybrid Financial Instruments
  Accounting for Uncertainty in Income Taxes
  Related Party Transactions
     Qualitative and Quantitative Disclosures about Market and Credit Risk
  25




---



##### 



Credit Risk.
 Market Risk.
 Interest Rate Risk.
 Outlook and Proposed Transactions
   26




---



##### 



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  27




---



##### 



Part II. Other Information
 Item 1. Legal Proceedings
  Item 1A. Risk Factors
  Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
  Item 3. Defaults Upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
  Item 5. Other Information
  Item 6. Exhibits
 a) Exhibits
 Exhibit Number31.1
    
    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.
 28




---



##### 



SIGNATURES
  JMG Exploration, IncDate: August 18, 2006
    
    /s/ Joseph W. SkeehanJoseph W. SkeehanChief Executive Officer and President/s/ David C. HoDavid C. HoChief Financial Officer 29




---



##### 



Exhibit Index
 Exhibit Number31.1
    
    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.
 30