**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-QSB**

(Mark One)
| x      | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|-----------------------------------------------------------------------------------------|
|   | For the period ended  **October 31, 2006**                                    |  
[  

]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
 

For the transition period from [  

] to [  

]

 
Commission file number  **000-4995**

**TAO MINERALS LTD.**

(Name of small business issuer in its charter)

 

**Nevada**

 

**20-1682702**

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

Officina 618, Empresarial Mall Ventura, Cra.32#1B Sur 51, Medellin, Columbia

 

**N/A**

(Address of principal executive offices)

 

(Zip Code)

Issuer's telephone number  (305) 726-0602

Securities registered pursuant to Section 12(b) of the Act:

Title of each class**Nil**

 

Name of each exchange on which registered**Nil**

Securities registered pursuant to Section 12(g) of the Act:

**Common Shares, par value $0.001**

(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  

No [  

]

State issuer's revenues for its most recent fiscal year.   Nil

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

 

Yes o  

No [X ]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days.  (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

Note:  If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

 

 

 

 

**45,066,000 common shares @ $0.16(1) = $7,210,560**

(1)  Closing price on November 1, 2006.

**(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)**

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.     Yes [   ]     No [   ]

**(APPLICABLE ONLY TO CORPORATE REGISTRANTS)**

State the number of shares outstanding of each of the issuer's classes of equity stock, as of the latest practicable date.

**51,816,000 common shares issued and outstanding as of  October 31, 2006**

Transitional Small Business Disclosure Format (Check one):  

Yes [  

]  

No x.

 

 

 

 

 

 

INDEX

 

PART 1.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

Balance Sheets as of October 31, 2006 and January 31, 2006

 

Statement of Stockholders’ Equity for the period from September 23, 2004 (Date of inception) to October 31, 2006

 

Statements of Operations for the nine months ended October 31, 2006 and 2005, the three months ended October 31, 2006 and 2005, and for the period September 23, 2004 (Date of inception) to October 31, 2006

 

Statements of Cash Flows for the nine months ended October 31, 2006 and 2005, and for the period September 23, 2004 (Date of inception) to October 31, 2006

 

Notes to Financial Statements

 

 

Item 2

Management Discussion and Analysis

 

 

Item 3

Controls and Procedures

 

 

PART II.

OTHER INFORMATION

 

 

Item 1

Legal Proceedings

 

 

Item 2

Changes in 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 and Reports on Form 8K

 

 

SIGNATURES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**TAO MINERALS LTD.**

**(An Exploration Stage Company)**

 

Unaudited Financial Statements

 

 

 

 

Index

Page Number

 

 

Balance Sheets

F-1

 

 

Statement of Changes in Stockholders’ Equity

F-2-3

 

Statements of Operations

F-4

 
 

 

Statements of Cash Flows

F-5

 

 

Notes to  Financial Statements

F-6-11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**TAO MINERALS LTD.**

**(An Exploration Stage Company)**

Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2006

 

January 31, 2006

ASSETS

 

 

 

 

 

**Current**

 

 

 

 

 

Cash 

$  

110,947

$

2,361

Prepaids

 

10,000

 

-

**Total current assets**

 

120,947

 

2,361

**Mineral Properties**

 

 

 

 

Mineral Rights, net 

 

4,628,000

 

3,000

**Total Mineral Properties**

 

4,628,000

 

3,000

 

 

 

 

 

Total assets

 

$

4,748,947

$

5,361

LIABILITIES

 

 

 

 

 

**Current**

 

 

 

 

 

Accounts payable and accrued expenses 

$

3,358

$

1,119

Due to a related party

 

3,000

 

3,000

Stock issuance liability

 

620,000

 

-

**Total current liabilities**

 

626,358

 

4,119

Total Liabilities

 

 

626,358

 

4,119

 

 

 

 

 

 

**STOCKHOLDERS’ EQUITY**

 

 

 

 

**Share capital**

 

 

 

 

 

Authorized: 

 

 

 

 

 

Preferred stock

$0.001 par value 1,000,000 shares authorized

 

 

 

 

None issued, allotted and outstanding:

 

**-**

 

 

-

 

 

 

 

 

 

Common  stock

$0.001 par value, 552,000,000 shares authorized

 

 

 

 

Issued, allotted and outstanding:

 

 

 

 

51,816,000 

shares of common stock 

 

51,816

 

61,916

**Additional paid-in capital**

 

4,433,095

 

47,995

**Deficit accumulated during exploration stage**

 

(362,322)

 

(108,669)

**Total stockholders’ equity**

 

4,122,589

 

1,242

**Total liabilities and stockholders’ equity**

$

4,748,947

$

5,361

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

 

 

 

 

 

 

F-1

 

 

 

 

 

 

**TAO MINERALS LTD.**

 

 

 

 

 

 

**(An Exploration Stage Company)**

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Changes in Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

For the periods September 23, 2004 (Inception) to October 31, 2006

 

 

 

 

 

 

 

Page 1 of 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

Total 

 

 

 

 

Additional 

 

 

 

Accumulated During 

 

 

 

Stock- 

 

Common stock

 

paid-in 

 

Subscription 

 

Exploration  

 

 

 

holders' 

 

Shares 

Amount 

 

capital 

 

Receivable

Stage 

 

 

 

(deficiency)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to founders for cash

 

 

 

 

 

 

 

 

 

 

 

 

 

($0.001 per share)

54,080,000

$

54,080

$

 

$

 

$

(47,320)

 

 

$

6,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash ($0.05 per share)

7,836,000

 

7,836

 

47,995

 

(425)

 

(6,856)

 

 

 

48,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- net loss for the period from September 23, 2004 to 

 

 

 

 

 

 

 

 

(5,577)

 

 

 

(5,577)

January 31, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balance, January 31, 2005**

61,916,000

$

61,916

$

47,995 

$

(425)

$

(59,753)

 

 

$

49,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-2

 

 

 

 

**TAO MINERALS LTD.**

 

 

 

 

 

 

**(An Exploration Stage Company)**

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Changes in Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

For the period September 23, 2004 (Inception) to October 31,  2006

 

 

 

 

 

 

 

Page 2 of 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deficit

 

 

 

Total 

 

 

 

 

Additional 

 

 

 

Accumulated During

 

 

 

Stock- 

 

Common stock

 

paid-in 

 

Subscription 

 

Exploration  

 

 

 

holders' 

 

Shares 

Amount 

 

capital 

 

Receivable

Stage 

 

 

 

(deficiency)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balance**, January 31, 2005

61,916,000 

$

61,916 

$

47,995 

$

(425)

$

(59,753)

 

 

$

49,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription receivable cancelled

 

 

 

 

 

 

425

 

 

 

 

 

425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- net loss for the year ended January 31, 2005

 

 

 

 

 

 

 

 

(48,916)

 

 

 

(48,916)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balance, January 31, 2006**

61,916,000

$

61,916

$

47,995 

$

-

$

(108,669)

 

 

$

1,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for mineral rights on April 10, 2006 at $1.75

 

2,500,000

 

 

2,500

 

 

 

4,372,500

 

 

-

 

 

-

 

 

 

 

4,375,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock cancelled April 21, 2006

(12,600,000)

 

(12,600)

 

12,600

 

-

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- net loss for the period ended October 31, 2006

 

 

 

 

 

 

 

 

(253,653)

 

 

 

(253,653)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balance, October 31, 2006**

51,816,000

$

51,816

$

4,433,095

 

-

$

(362,322)

 

 

$

4,122,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

On March 24, 2006 a forward split of (8) new for (1) old common shares was effected. Amounts have been restated and  accounted for as a stock dividend of $54,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-3

 

 

 

 

 

****

 

**TAO MINERALS LTD.**

**(An Exploration Stage Company)**

Statements of Operations

 

 

 

 

From Inception Date of September 23, 2004 to Period Ended October 31, 2006

 

 

 

 

 

For the nine Months ended

October 31, 2006

For the nine

Months ended

October 31, 2005

For the three

Months ended

October 31, 2006

For the three

Months ended

October 31, 2005

**OPERATING EXPENSES**

 

 

 

 

 

 

 

 

 

 

Exploration expenses

$

30,550

$

**-**

$

250

$

-

$

250

Professional fees

 

53,149

 

36,810

 

10,685

 

3,225

 

2,017

Consulting fees

 

103,790

 

100,790

 

3,000

 

44,940

 

3,000

Transfer agent and filing fees

 

5,764

 

1,270

 

4,040

 

601

 

688

Investor Relations

 

108,308

 

108,308

 

-

 

32,473

 

-

General and administrative

 

8,116

 

6,475

 

1,392

 

334

 

1,318

Total Operating Expenses

 

309,677

 

253,653

 

19,367

 

81,573

 

7,273

**LOSS FROM OPERATIONS**

4

(309,677)

 

(253,653)

 

(19,367)

 

(81,573)

 

(7,273)

**OTHER EXPENSE**

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain(loss)

 

1,531

 

-

 

(6)

 

-

 

-

**Net Loss for the Period**

$

(308,146)

$

(253,653)

$

(19,373)

$

(81,573)

$

(7,273)

 

 

 

 

 

 

 

 

 

**LOSS PER SHARE – BASIC AND FULLY DILUTED**

**$**

0.00

$

0.00

$

0.00

$

0.00

**WEIGHTED AVERAGE NUMBER OF ISSUED SHARES BASIC and FULLY DILUTED**

54,850,559

61,916,000

51,816,000

61,916,000

 

 

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

 

 

 

 

 

F-4

 

 

 

 

 

**TAO MINERALS LTD.**

**(An Exploration Stage Company)**

Statements of Cash Flows

 

 

From Inception Date September 23, 

2004 to October 31, 2006

For the Nine Months ended 

October 31, 2006

 

For the Nine Months ended October 31, 2005

 

**Cash Provided by (Used for) Operating Activities**

 

 

 

 

 

 

 
Net  (loss) for the period

$

(308,146)

**$**

(253,653)

$

(19,373)

 
Changes in non-cash working capital items

 

 

 

 

 

 

 
Accounts payable and accrued

 

3,358

 

2,239

 

(2,504)

 
Prepaid expenses

 

(10,000)

 

(10,000)

 

(5,755)

 
Increase in due from related party

 

3,000

 

 

 

 

 
Subscription receivable

 

425

 

 

 

 

 
Cash used by operations

 

(311,363)

 

(261,414)

 

(27,632)

 
**Investing Activities**

 

 

 

 

 

 

 
Purchase of mineral rights

 

(253,000)

 

(250,000)

 

-

 
Cash used by investing activities   

 

(253,000)

 

(250,000)

 

-

 
**Financing Activities**

 

 

 

 

 

 

 
Issuance of debt

 

620,000

 

620,000

 

-

 
Issuance of common stock for cash

 

55,310

 

-

 

**-**

 
Cash provided by financing activities

 

675,310

 

620,000

 

-

 
**Cash Increase (Decrease) During the Period**

 

110,947

 

108,586

 

(27,362)

 
**Cash, Beginning of Period**

 

-

 

2,361

 

50,933

 
**Cash and Equivalent, End of Period**

**$**

110,947

$

110,947

$

23,301

 
 

 

 

 

 

 
 

Non Cash Activity

During the period ended October 31, 2006 the Company acquired mineral rights in South America for $250,000 in cash and the issuance of 2,500,000 shares of common stock valued at $4,375,000 for a total consideration of $4,625,000.

 

 

 

 

F-5

 

 

 

 

 

**TAO MINERALS LTD**

**(An Exploration Stage Company)**

Notes to Financial Statements

For the period ended October 31, 2006

 

**1.**

**Organization and Summary of Significant Accounting Policies**

This summary of accounting policies for Tao Minerals Ltd. is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.

 

Nature of Operations and Going Concern

 

Tao Minerals, Ltd. (an exploration stage company) (the “Company”) was incorporated under the laws of the State of Nevada on September 23, 2004.  The Company is natural resource exploration company with an objective of acquiring, exploring and if warranted and feasible, developing natural resource properties. 

 

As reflected in the accompanying financial statements, the Company is in the exploration stage and has a cumulative negative cash flow from operations of $311,363 since inception and losses of $253,653 for the nine month period ended October 31, 2006.  This raises substantial doubt about its ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

 

**2.**

**Significant Accounting Policies**

 

**(a)**

**Accounting Estimates**

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from those estimates. In management’s opinion all adjustments necessary for a fair statement of the results for the interim periods have been made

 

**(b)**

**Cash Equivalents**

For purposes of the statement of cash flows cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturity of three months or less when purchased.

 

 

 

F-6

 

 

 

 

**TAO MINERALS LTD**

**(An Exploration Stage Company)**

Notes to Financial Statements

For the period ended October 31, 2006 

 

**2.**

**Significant Accounting Policies**(continued)

 

**(c)**

**Concentration of Credit Risk**

 
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.  The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits.

 

**(d)**

**Mineral Interest**

In March 2004, the Emerging Issues Task Force issued EITF 04-2, “Whether Mineral Rights are Tangible or Intangible Assets” (EITF 04-2). The Task Force reached a consensus that mineral rights are tangible assets. In April 2004, the FASB issued FASB Staff Positions (FSPs) FAS 141-1 and FAS 142-1, “Interaction of FASB Statements No. 141”, Business Combinations (SFAS 141), and No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), and EITF Issue No. 04-2, “Whether Mineral Rights are Tangible or Intangible Assets”. The FSPs amend SFAS 141 and 142 to conform them to the Task Force consensus. The FSPs are effective for the first reporting period beginning after April 29, 2004 adoption is permitted.

In March 2004, the EITF issued EITF 04-3, “Mining Assets’ Impairment and Business Combinations”. EITF 04-3 requires mining companies to compare cash flows to the economic value of mining assets (including mineral properties and rights) beyond those assets’ proven and probable reserves, as well as anticipated market price fluctuations, when assigning value in a business combination in accordance with SFAS 141 and when testing the mining assets for impairment in accordance with SFAS 144. The consensus is effective for reporting periods beginning after March 31, 2004 but earlier adoption is permitted. Pursuant to SFAS No. 141 and SFAS No. 142, as amended by EITF 04-02, mineral interest associated with other than owned properties are classified as tangible assets. As of October 31, 2006, the Company had capitalized $4,528,000 related to the mineral rights. Managementbelieves no impairment should be taken based on DUNCAN JAMES BAIN, B.Sc., F.G.A.C., P.Geo., report of February 2006 indicating that  there could be as much as 45,000 tonnes of ore with an estimated average grade of 5 g/t  gold.

The mineral rights will be amortized using the units-of-production method when production at each project commences or impaired based on results of planned exploration.

 

**(e)**

**Long-Lived Assets**

The Company accounts for long-lived assets under the Statements of Financial Accounting Standards Nos. 142 and 144 “Accounting for Goodwill and Other Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS No. 142 and 144”).  In accordance with SFAS No. 142 and 144, long-lived assets, goodwill and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  For purposes of evaluating the recoverability of long-lived assets, goodwill and intangible assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets.

 

**(f)**

**Recent Accounting Pronouncements**

Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs – an 

F-7

 

 

 

 

**TAO MINERALS LTD**

**(An Exploration Stage Company)**

Notes to Financial Statements

For the period ended October 31, 2006 

 

**2.**

**Significant Accounting Policies**(continued)

amendment of ARB No. 43, Chapter 4”” SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67,” SFAS No. 153, “Exchanges of Non-monetary Assets – an amendment of APB Opinion No. 29,” and SFAS No. 123 (revised 2004), “Share-Based Payment,” were recently issued.  SFAS No. 151, 152, 153 and 123 (revised 2004) have no current applicability to the Company and have no effect on the financial statements.

 

**(g)**

**Loss per Share**

Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by Financial Accounting Standards No. 128, “Earnings Per Share.” As of October 31, 2006 and 2005, there were no dilutive securities outstanding.

 

**(h)**

**Income Taxes**

The Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“Statement 109”).  Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  

 

**(i)**

**Business Segments**

The Company operates in one segment and therefore segment information is not presented.

 

**(j)**

**Mining Properties and Exploration Costs**

Exploration costs and costs of acquiring mineral properties are charged to operations in the year in which they are incurred, except where these costs relate to specific properties for which economically recoverable resources are estimated to exist, in which case they are capitalized.

Mining properties are, upon commencement of production, amortized over the estimated life of the orebody to which they relate or are written off if the property is abandoned or if there is considered to be a permanent impairment in value.

Investments in mining properties over which the company has significant influence but not joint control are accounted for using the equity method.

Site Restoration and Post Closure Costs

Expenditures related to ongoing environmental and reclamation activities are expensed, as incurred, unless previously accrued. Provisions for future site restoration and reclamation and other post closure costs in respect of operating facilities are charged to operations over the estimated life of the operating facility, commencing when a reasonably definitive estimate of the cost can be made

F-8

 

 

 

 

**TAO MINERALS LTD**

**(An Exploration Stage Company)**

Notes to Financial Statements

For the period ended October 31, 2006

 

**3.**

**Acquisition of Mineral Rights**

On October 22, 2004, the Company acquired the mining rights to two claims collectively known as the Whale Mine property for a purchase price of $3,000. The Company received rights to all minerals contained in the Whale Mine property.

On March 5, 2006, we entered into an Assignment Agreement dated effective February 28, 2006 (the “Definitive Agreement”), with Primecap Resources Inc., of Las Vegas, Nevada, (Primecap), concerning the acquisition of Primecap’s option (the “Option”), to acquire a 100% interest in the Risaldo La Golondrina D14-082 mineral property located in Narino, Colombia (the “Property”). Primecap had been granted the Option by Nueva California S.A., of Medellin, Colombia, pursuant to the terms and conditions of a Heads of Agreement dated August 23, 2004 (the “HOA”).

 

The Definitive Agreement provides for the assignment of the Option for the following consideration:

Payment of US$150,000, payable on or before March 15, 2006 and upon execution of the Definitive Agreement; (extended to April 15, 2006 and paid on April 13, 2006) and

The issuance of 2,500,000 common shares in the capital stock of the company, subject to applicable trading restrictions, to Nueva California which will be issued either contemporaneous with the payment of US$150,000 or within 14 days of the execution of a Definitive Agreement, whichever is the earlier. On April 10, 2006 we issued the 2,500,000 common shares. 

In addition, we will assume Primecap’s financial obligations under the HOA. The obligations under the HOA are:

 

 

1.

US$30,000.00 upon execution of the HOA, which amount has been paid;

 

2.

US$20,000.00 on or before August 23, 2005, which amount has been paid;

 

3.

US$32,000.00 on or before August 23, 2006;

 

4.

US$40,000.00 on or before August 23, 2007;

 

5.

US$48,000.00 on or before August 23, 2008; and

 

6.

US$160,000.00 on or before August 23, 2009.

 

7.

200,000 shares of the Assignor, as of August 23, 2004, which issuance has been completed;

 

8.

200,000 shares of the Assignor, as of August 23, 2005, which issuance has been completed;

 

9.

300,000 shares of the Assignor, as of August 23, 2006;

 

10.

300,000 shares of the Assignor, as of August 23, 2007

On, June 30, 2006 we entered into an amending agreement (the “Agreement”) which Agreement amended certain terms of an assignment agreement (the “Assignment Agreement”) dated February 28, 2006, between our Company and Primecap Resources Inc. of Nevada, as amended by an amending agreement dated March 15, 2006.

The Agreement amends the total consideration that our Company is to pay Primecap Resources Inc. as to $100,000 on or before July 1, 2006 and $100,000 on or before July 1, 2007.  This Agreement satisfy’s our obligation in assuming the above noted financial obligations under the HOA.

The first $100,000 payment has been made.

F-9

 

 

 

**TAO MINERALS LTD**

**(An Exploration Stage Company)**

Notes to Financial Statements

For the period ended October 31, 2006

 

**4.**

**Related Party**

During the year ended January 31, 2006, the president advanced the Company $3,000. This amount is outstanding,  is unsecured, non-interest bearing and has no specific terms of repayment.

Effective April 1, 2006 we entered into management agreements with two directors and officers of the company for $8,000 per month and $5,000 per month. During the nine month period ended October 31, 2006 the Company paid consulting fees of $96,943 (2005 - $0.00)

**5.**

**Common Stock**

On March 13, 2006, the board of directors of our company approved an eight (8) for one (1) forward stock split (the "Forward Stock Split") of our authorized, issued and outstanding common stock. The Forward Stock Split was effective with the Secretary of State of Nevada on March 24, 2006. The record date was set at March 23, 2006. As a result, our authorized capital increased from 69,000,000 shares of common stock with a par value of $0.001 and 1,000,000 Preferred “A” stock with a par value of $0.001 to 552,000,000 shares of common stock with a par value of $0.001 and 1,000,000 Preferred “A” stock with a par value of $0.001. Our issued and outstanding share capital increased from 7,739,500 shares of common stock to 61,916,000 shares of common stock. The financial statements and notes have been changed to reflect the retroactive effect of the 8 to 1 forward stock splitwhich has been accounted for as a stock dividend.

On April 10, 2006 the Company entered into a private placement subscription agreement to sell 1,000,000 shares of stock with a non detachable warrant to acquire 1 share of common stock for a $1.25. As of October 31, 2006 the Company has received $620,000 for which common stock has not been issued to the subscriber.  According to the subscription agreement this amount has been treated as an interest free loan under the item stock issuance liability. The company performed a fair value analysis on the warrants using the Black Scholes model and determined that no other expense should be recognized at this time. Accordingly the warrants were not bifurcated from the loan as prescribed by FASB 133.

On April 21, 2006 a director of the Company contributed 2,200,000 pre-split shares of the Company’s common stock. These shares amounted to 17,600,000 post split shares of which the Company redistributed 5,000,000 shares to 4 directors and cancelled 12,600,000 shares.

**6.**

**Income Taxes**

As of October 31, 2006, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $308,146 that may be offset against future taxable income through 2026.  Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs.  Therefore, the amount available to offset future taxable income may be limited.  No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused.  Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount

 

 

**2006**

**2005**

Deferred tax assets:

 

 

Net operating loss carryforwards

$  308,146

$        17,677

Gross deferred tax assets

104,770

6,010

Less:  valuation allowance

(104,770)

(6,010)

Net deferred tax asset

$          --

$              --

F-10

 

 

 

 

**TAO MINERALS LTD**

**(An Exploration Stage Company**

Notes to Financial Statements

For the period ended October 31, 2006

 

**6.**

**Income Taxes continued**

A reconciliation of the differences between the effective income tax rate and the statutory federal tax rate follows:

 

 

**2006**

**2005**

Tax expense (benefit) at U.S. statutory rate

34.00%

34.00%

State taxes, net of federal benefit

--

--

Change in valuation allowance

(34.00)

(34.00)

 

0.00 %

0.00 %

 

 

 

 

 

 

 

 

 

F-11

 

 

 

 

**Item 2.**      **Management’s Discussion and Analysis and Plan of Operation.**

FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levelsof activity, performance or achievements expressed or implied by these forward-looking statements.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our  financial statements and the related notes that appear elsewhere in this quarterly report.

 

In this quarterly report, unless otherwise specified, all references to “common shares” refer to the common shares in our capital stock and the terms “we”, “us” and “our” mean Tao Mining Ltd..

Overview

We are in the mineral resource business. This business generally consists of three stages: exploration, development and production. Mineral resource companies that are in the exploration stage have not yet found mineral resources in commercially exploitable quantities, and are engaged in exploring land in an effort to discover them. Mineral resource companies that have located a mineral resource in commercially exploitable quantities and are preparing to extract that resource are in the development stage, while those engaged in the extraction of a known mineral resource are in the production stage. Our company is in the exploration stage.

Mineral resource exploration can consist of several stages. The earliest stage usually consists of the identification of a potential prospect through either the discovery of a mineralized showing on that property or as the result of a property being in proximity to another property on which exploitable resources have been identified, whether or not they are or have in the past been extracted. 

After the identification of a property as a potential prospect, the next stage would usually be the acquisition of a right to explore the area for mineral resources. This can consist of the outright acquisition of the land or the acquisition of specific, but limited, rights to the land (e.g., a license, lease or concession). After acquisition, exploration would probably begin with a surface examination by a prospector or professional geologist with the aim of identifying areas of potential mineralization, followed by detailed geological sampling and mapping of this showing with possible geophysical and geochemical grid surveys to establish whether a known trend of mineralization continues through un-exposed portions of the property (i.e., underground), possibly trenching in these covered areas to allow sampling of the underlying rock. Exploration also commonly includes systematic regularly spaced drillingin order to determine the extent and grade of the mineralized system at depth and over a given area, as well as gaining underground access by ramping or shafting in order to obtain bulk samples that would allow one to determine the ability to recover various commodities from the rock. Exploration might culminate in a feasibility study to ascertain if the mining of the minerals would be economic. A feasibility study is a study that reaches a conclusion with respect to the economics of bringing a mineral resource to the production stage. 

 

 

 

 

 

 

Our mineral resource properties consist of exploration claims located in Nevada (“Whale Mine property”) and in Columbia (“Risaldo La Golondrina D14-082 mineral property located in Narino, Colombia”). There is no assurance that a commercially viable mineral deposit exists on any of our properties, and further exploration is required before we can evaluate whether any exist and, if so, whether it would be economically and legally feasible to develop or exploit those resources. Even if we complete our current exploration program and we are successful in identifying a mineral deposit, we would be required to spend substantial funds on further drilling and engineering studies before we could know whether that mineral deposit will constitute a reserve (a reserve is a commercially viable mineral deposit). Please refer to the section entitled ‘Risk Factors’, of this quarterly reporton Form 10-QSB, for additional information about the risks of mineral exploration. 

PLAN OF OPERATIONS AND CASH REQUIREMENTS

We are an exploration stage company that has not yet generated or realized any revenues from our business operations. We have concentrated our recent exploration efforts on the La Golondrina Property in Columbia and we intend to focus primarily on this property over the twelve month period ending January 31, 2007.

There is no assurance that a commercially viable mineral deposit exists on any of our properties, including the La Golondrina Property, or that we will be able to identify any mineral resource on any of these properties that can be developed profitably. Even if we do discover commercially exploitable levels of mineral resources on any of our properties there can be no assurance that we will be able to enter into commercial production of our mineral properties:

**La Golondrina**

The Golondrina property was acquired by Colombian mining company Barro Blanco S.A.  Several other gold properties exist in the area. Latingold Inc. optioned several properties from Barro Blanco S.A. and carried out exploration on those properties. This work included surface and underground mapping and sampling, as well as a Lithium-Bismuth surface geochemical survey. In 1998 Latingold abandoned its option. Except for local small-scale mining no further work has been done on those properties since that time except a site visit in August 2004 by Duncan Bain. During that visit several samples of possible ore-grade material were taken for analysis. These assays confirmed the presence of ore-grade gold mineralization on the property. Primecap Resources Inc. acquired an option from the Cooperative of Small Miners of the Andes Comilan to earn a 100% interest in the Golondrina property in August 2004. No work hasbeen carried out by PrimeCap since that time. We optioned the property from PrimeCap in February 2006, as amended.

Property Geology

The Golondrina Gold-Silver property is underlain by Dagua Group fine-grained layered quartzites (siliceous clastic sediments) of Cretaceous age.  These contain minor basalt flows and diabase dikes of the same age.  Intruded into these sediments is a small (2 km X 0.5 km) biotite-hornblende tonalite body of Tertiary age.  It is associated with the larger Vergel Stock, which is found 7 kilometers to the northwest.  The intrusion has a 100 meter wide hornfelsed contact aureole against the sediments.

Mineralization on the Golondrina Project is confined to milky white quartz veins which contain disseminated sulphides.  These sulphides include pyrite, chalcopyrite (copper) and galena (lead).  Vein widths range between 5 and 50 centimeters.

Accessibility

The Golondrina Project is located in the watershed of Quebrada Honda, a tributary of the Rio Pacual in the Municipality of Los Andes Sotomayor, Department of Narinõ, in the southwest part of the state of Colombia, South America. It is found in the Mining District of Pasto and is contained within mining concession No. D14-082, which covers a rectangular area of 96 hectares. It occurs on Colombian National Topographic map sheet 410, and metric co-ordinates 945000E/ 655000N. 

The closest town to the mining property is Sotomayor, which lies 5 kilometres to the southeast. Sotomayor is approximately 40 kilometres NW of the city of Pasto (population 354,000).  Golondrina lies at Latitude 1o N, Longitude 78o W.

 

 

 

 

The property is accessible from Sotomayor by a one-lane gravel road for the first four kilometres and then by a 1 kilometre ATV trail. Access to Sotomayor is from Pasto by a secondary gravel road, with travel time estimated to be 4 hrs. Transportation to Sotomayor is available in Pasto. The gravel roads are suitable for movement of heavy equipment. Pasto connects to the capital city of Bogota by road and scheduled air service.  

During the period we engaged in preliminary exploration activities at our La Golondrina property. These preliminary exploration activities consisted primarily of acquiring select surface samples of vein material from the property. A total of 114 samples were selected under the direction of Carlos Alberto Vera, Consulting Field Geologist on the Golondrina exploration program. This initial sampling program produced gold assay results averaging 2.08 g/tonne with a minimum of 0.001 g/tonne and a maximum grade of 8.323 g/tonne.  A secondary portion of the initial exploration program consisted of trenching material from the property. A total of 40 samples were selected under the direction of Carlos Alberto Vera, Consulting Field Geologist on the Golondrina exploration program. This initial trenching program has produced gold assay results in all 40 select samples.

 

Gold mineralization on the Golondrina property occurs in a series of sub-horizontal dipping (0 to 25 degree) veins ranging from 5 to 50 cm in width. The veins are sub-parallel and "stacked" approximately 2 m apart. The gold mineralization is associated with milky white quartz veins which contain disseminated sulphides. These sulphides include pyrite, chalcopyrite (copper) and galena (lead). Most of the veins are located along the contact between the tonalite/quartz diorite intrusions and enclosing quartzites. A series of these subparallel veins have been traced vertically for 200 m.

 

Highlights from the La Golondrina targets include Trench #4 that returned grading of 30.43 grams per tonne gold, Trench #17 where samples graded 14.30 grams per tonne gold, Trench # 24 @ 24.40 g/t gold, Trench # 25 @ 12.10 g/t gold, Trench #27 @ 15.87 g/t gold, Trench # 28 @ 18.67 g/t gold, Trench # 29 @ 34.37 g/t gold, Trench # 30 @ 28.33 g/t gold, Trench #31 @ 28.10 g/t gold .

 

The original property examination prior to acquisition reported a series of 108 samples of vein material producing an average grade of 6.3 g/tonne gold. From the same review it was reported that a series of 428 samples of vein material, wallrock and tonalite with quartz veins gave an average grade of 1.43 g/tonne gold.

There can be no assurance that future exploration will reveal any significant amounts of gold or other minerals in quantities sufficient to justify development of a mine or the conduct of mining operations

During the following 12 months ending October 31, 2007, we intend to focus our exploration activities almost entirely on our La Golodrina property. In this regard, we anticipate that we will incur the following expenses over the next twelve months: 

1.             $500,000 for operating expenses, including professional, legal and accounting expenses associated with our company being a reporting issuer under the Securities Exchange Act of 1934; and

2.            Continued work in a Phase 1 program consists of reconnaissance and detailed mapping of the property. Particular notice would be made for structures which might control mineralization and alteration. Prospecting for and sampling of mineralization would also be conducted. Stream sediment sampling would be carried out over the whole drainage system within the property boundaries. This sampling would be used to look for continuity of mineralized veins or their alteration haloes not exposed at surface. For the same purpose a soil survey would also be conducted, on a grid covering the entire property, with lines at 50 m spacing. Samples would be taken every 25 m along those lines. The positions of surface and underground workings would be accurately plotted and these workings would be mapped. They would also be systematically sampled.Assaying of all stream sediment, surface rock and soil samples would be carried out for 30 elements by ICP-MS, and any samples showing highly anomalous Au values would be re-assayed by Fire Assay. Trenching of appropriate areas to expose bedrock for mapping and sampling would be carried out, based on mapping and sampling results. Samples from underground workings would be assayed by Fire Assay. Any underground samples with recognizable coarse gold would be screened and the appropriate fractions assayed independently. The estimated cost of this work is $52,450.

Dependent on favourable results from the Phase 1 program, a Phase 2 diamond drill program would be initiated.  Further work would be dependent on the results of the Phase 1 and Phase 2 programs.

 

 

 

 

**ESTIMATED BUDGET, PHASE 1 PROGRAM**

 

ITEM

 

#

Cost/wk

# Wks

$US/day

Total $US

Comments

1

Senior Geologist

1

$1,400

6

$200

$8,400

 

2

Junior Geologist

2

$875

6

$125

$10,500

 

3

Labourers

6

$140

6

$7

$5,040

 

4

Stream sample Analysis

50

 

 

$20/sample

$1,000

ICP+AuFA

5

Soil sample analysis

50

 

 

$20/sample

$1,000

ICP+AuFA

6

Underground sample analysis

200

 

 

$20/sample

$4,000

ICP+AuFA

7

Trenching/backhoe

1

$1,500

1

$45/hr

$1,500

RetroCAT100

8

Food

9

$180

6

$20

$9,720

 

9

Transportation

1

$400

6

 

$2,400

Campero 4X4

10

Accommodation

9

$35

6

$5

$1,890

 

11

Office Management-local

1

$1,000

3

 

$1,000

 

12

Administration-Medellin

1

$1,000

12

$4000/mo

$6,000

 

 

**TOTAL**

 

 

 

 

**$52,450**

 

 

Based on favourable results on completion of the Phase 1 program a phase 11 program would include on the property tracing of veins already exposed on surface and in underground workings. These would be mapped and sampled in detail, to confirm strike and dip and to establish an average width of the gold-quartz vein system. As well sampling will include testing of the host rock at least 1 metre on either side of the quartz vein zone to look for continuity of low-grade finely disseminated gold. A grid would be established over the entire property and a soil survey would be conducted on crosslines set every 50 m along the baseline and at stations set every 10 m on each crossline. The positions of surface and underground workings would be accurately plotted. Mapping and sampling of those workings would be carried out. Assaying of all rock, soil and trench samples would be carried out for gold by Fire Assay andfor a package of 30 elements by ICP-MS. Any samples with recognizable coarse gold would be screened and the appropriate fractions assayed independently. Appropriate elements (e.g. mercury, antimony, copper, zinc, lead, silver, iron) used as pathfinders for gold and silver mineralization not exposed at surface would be contoured to outline areas of anomalous values. The estimated cost of this work is **USD$142,300**.   

 

Expense Schedule – Phase 2

 

ITEM

 

#Personnel

# Days

$US/day/person

Total $US

**Comments**

1

Senior Geologist

1

100

$250

$25000

 

2

Junior Geologist

2

100

$150

$30000

 

3

Labourers

10

60

$10

$6000

 

4

Soil sample analysis

300 samples

 

$30/sample

$9000

**ICP+AuFA**

5

Rock sample analysis

300 samples

 

$30/sample

$9000

**ICP+AuFA**

6

Trenching/backhoe

1

60 hrs

$50/hr

$3000

**RetroCAT100**

7

Food

13

60

$20/day

$15600

 

8

Transportation

13

60

$5/day

$3900

**Campero 4X4**

9

Accommodation

13

80

$10/day

$10,400

 

10

OfficeManagement-local

1

80

$30/day

$2400

 

11

Administration-Medellin

1

100

$40/day

$4000

 

12

Contingencies at 20%

 

 

 

$24000

 

 

TOTAL

 

 

 

$142,300

 

 

We require a minimum of approximately $700,000 to proceed with our plan of operation through Phase 2, exclusive of any acquisition or development costs or moving into a Phase 3 diamond drilling program. This amount may increase if we are required to carry out due diligence investigations in regards to any prospective property or if the costs of negotiating acquisition agreements are greater than anticipated. As we had cash in the amount of $110,947 

 

 

and a working capital deficit in the amount of $505,411 as of October 31, 2006, we will only have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months if our financing is completed. We plan to complete private placement sales of our common stock in order to raise the funds necessary to pursue our plan of operation and to fund our working capital deficit in order to enable us to pay our accounts payable and accrued liabilities. We have drawn $620,000 from our $1 million placement but we will require additional financing to enable the operation through phase 2. However, there is no assurance that we will be successful in completing other private placement financings. 

*Purchase of Significant Equipment*

We do not anticipate the purchase or sale of any plant or significant equipment during the next twelve-month period.

*Personnel Plan*

We do not anticipate any significant changes in the number of employees during the next twelve-month period.

*Off-Balance Sheet Arrangements*

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

***Financial Condition, Liquidity and Capital Resources***

Our principal capital resources have been through the issuance of common stock, although we may use shareholder loans, advances from related parties, or borrowing in the future. 

At October 31, 2006, we had working capital deficit of ($505,411), compared to a working capital of $27,360 as at October 31, 2005.

At October 31, 2006, our total current assets were $120,947 which consisted of cash and $10,000 of prepaid expenses, compared to total current assets of $29,056 as at October 31, 2005.

At October 31, 2006, our total current liabilities were $626,358, including $620,000 from a financing received without issuing common stock, compared to total current liabilities of $1,696 as at October 31, 2005.

For the three month period ended October 31, 2006, we posted losses of $81,573 compared to $7,273 for the three months ended October 31, 2005 and to $308,146 since incorporation. For the nine month period ended October 31, 2006 we posted losses of $253,653 compared losses for the nine months ended October 31, 2005 of $19,373. 

At October 31, 2006, we had cash on hand of $110,947 compared to $23,301 as at October 31, 2005.

*Cash Requirements*

We will require additional funds to implement our growth strategy in exploration operations.  These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares.  There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock.  Further, we may continue to be unprofitable.

*Going Concern*

Due to our being an exploration stage company and not having generated revenues, in their Notes to our financial statements for the year ended January 31, 2006, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern.

We have historically incurred losses, and through October 31, 2006 have incurred losses of $308,146 from our inception. Because of these historical losses, we will require additional working capital to develop our business 

 

 

operations. We intend to raise additional working capital through private placements, public offerings, bank financing and/or advances from related parties or shareholder loans.

The continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. 

There are no assurances that we will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available we may not increase our operations. 

These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern. 

***Risks Associated With Our Business***

*We have a limited operating history and as a result there is no assurance we can operate on a profitable basis.*

We have a limited operating history and must be considered in the exploration stage. Our company's operations will be subject to all the risks inherent in the establishment of an exploration stage enterprise and the uncertainties arising from the absence of a significant operating history.  Potential investors should be aware of the difficulties normally encountered by mineral exploration companies and the high rate of failure of such enterprises.  The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake.  These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates.  The expenditures to be made by us in the exploration of the mineralclaims may not result in the discovery of mineral deposits.  Problems such as unusual or unexpected formations of rock or land and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts.  If the results of our exploration do not reveal viable commercial mineralization, we may decide to abandon our claims and acquire new claims for new exploration or cease operations.  The acquisition of additional claims will be dependent upon us possessing capital resources at the time in order to purchase such claims.  If no funding is available, we may be forced to abandon our operations.  No assurance can be given that we may be able to operate on a profitable basis.

*If we do not obtain additional financing, our business will fail and our investors could lose their investment.*

We had cash in the amount of $110,947 and working capital deficit of $505,411 as of the period ended October 31, 2006. We currently do not generate revenues from our operations. Our business plan calls for substantial investment and cost in connection with the acquisition and exploration of our mineral properties currently under lease and option. Any direct acquisition of the claim under lease or option is subject to our ability to obtain the financing necessary for us to fund and carry out exploration programs on the properties. The requirements are substantial. We do not currently have any arrangements for additional financing and we can provide no assurance to investors that we will be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including market prices for minerals, investor acceptance of our properties, and investor sentiment. Thesefactors may make the timing, amount, terms or conditions of additional financing unavailable to us. The most likely source of future funds presently available to us is through the sale of equity capital and loans. Any sale of share capital will result in dilution to existing shareholders. 

*Because there is no assurance that we will generate revenues, we face a high risk of business failure.*

We have not earned any revenues as of the date of this annual report and have never been profitable. We do not have an interest in any revenue generating properties. We were incorporated in September 2004 and to date have been involved primarily in organizational activities and limited exploration activities. Prior to our being able to generate revenues, we will incur substantial operating and exploration expenditures without realizing any revenues. We 

 

 

therefore expect to incur significant losses into the foreseeable future.  We have limited operating history upon which an evaluation of our future success or failure can be made. Our net loss from inception to our year ended January 31, 2006 was $54,493. We have incurred additional losses for the nine month period ended October 3, 2006 of $253,653. We recognize that if we are unable to generate significant revenues from our activities, we will not be able to earn profits or continue operations. Based upon current plans, we also expect to incur significant operating losses in the future.  We cannot guarantee that we will be successful in raising capital to fund these operating losses or generate revenues in the future.  We can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations.  If we are unsuccessful in addressing these risks, ourbusiness will most likely fail and our investors could lose their investment.

*Because of the speculative nature of the exploration of natural resource properties, there is substantial risk that this business will fail.*

There is no assurance that any of the claims we explore or acquire will contain commercially exploitable reserves of minerals. Exploration for natural resources is a speculative venture involving substantial risk. Hazards such as unusual or unexpected geological formations and other conditions often result in unsuccessful exploration efforts. We may also become subject to significant liability for pollution, cave-ins or hazards, which we cannot insure or which we may elect not to insure. 

*Our foremost project is located in Colombia where mineral exploration activities may be affected in varying degrees by political and government regulations which could have a negative impact on our ability to continue our operations.*

Certain projects in which we have interests are located in Colombia.  Mineral exploration activities in Colombia may be affected in varying degrees by political instabilities and government regulations relating to the mining industry.  Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business.  Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriations of property, environmental legislation and mine safety.  The status of Colombia as a developing country may make it more difficult for us to obtain any required financing for our projects.  The effect of all these factors cannot be accurately predicted.  Notwithstanding the progress achieved in restructuring Colombia political institutions and revitalizing its economy, thepresent administration, or any successor government, may not be able to sustain the progress achieved.  While the Colombian economy has experienced growth in recent years, such growth may not continue in the future at similar rates or at all.  If the economy of Colombia fails to continue its growth or suffers a recession, we may not be able to continue our operations in that country.  We do not carry political risk insurance.

*If we cannot compete successfully for financing and for qualified managerial and technical employees, our exploration program may suffer.*

Our competition in the mining industry includes large established mining companies with substantial capabilities and with greater financial and technical resources than we have.  As a result of this competition, we may be unable to acquire additional financing on terms we consider acceptable.  We also compete with other mining companies in the recruitment and retention of qualified managerial and technical employees.  If we are unable to successfully compete for financing or for qualified employees, our exploration program may be slowed down or suspended.

*There are no known reserves of minerals on our mineral claims and we cannot guarantee that we will find any commercial quantities of minerals.*

We have not found mineral reserves on our claims and there can be no assurance that any of the mineral claims we are exploring contain commercial quantities of any minerals.  Even if we identify commercial quantities of minerals in any of our claims, there can be no assurance that we will be able to exploit the reserves or, if we are able to exploit them, that we will do so on a profitable basis. 

*If we are unable to hire and retain key personnel, we may not be able to implement our business plan.*

Our success is also largely dependent on our ability to hire highly qualified personnel. This is particularly true in highly technical businesses such as mineral exploration. These individuals are in high demand and we may not be able to attract the personnel we need. In addition, we may not be able to afford the high salaries and fees demanded 

 

 

by qualified personnel, or may lose such employees after they are hired. Failure to hire key personnel when needed, or on acceptable terms, would have a significant negative effect on our business. 

*Inability of our officers and directors to devote sufficient time to the operation of the business may limit our company's success.*

Presently some of our officers and directors allocate only a portion of their time to the operation of our business. If the business requires more time for operations than anticipated or the business develops faster than anticipated, the officers and directors may not be able to devote sufficient time to the operation of the business to ensure that it continues as a going concern. Even if this lack of sufficient time of our management is not fatal to our existence, it may result in limited growth and success of the business.

*Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages as we conduct our business.*

The exploration of valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. The payment of such liabilities may have a material adverse effect on our financial position.

*Our independent certified public accounting firm, in their Notes to the audited financial statements for the year ended January 31, 2006 states that there is a substantial doubt that we will be able to continue as a going concern.*

Our former independent certified public accounting firm, De Leon & Company, state in their Notes to the audited financial statements for the year ended January 31, 2006, that we have experienced significant losses since inception.  Failure to arrange adequate financing on acceptable terms and to achieve profitability would have an adverse effect on our financial position, results of operations, cash flows and prospects, there is a substantial doubt that we will be able to continue as a going concern. 

*Because the probability of an individual prospect ever having reserves is extremely remote, any funds spent on exploration will probably be lost.*

The probability of an individual prospect ever having reserves is extremely remote. In all probability our properties do not contain any reserves. As such, any funds spent on exploration will probably be lost which result in a loss of your investment. 

*We are subject to various government regulations and environmental concerns.*

We are subject to various government and environmental regulations.  Permits from a variety of regulatory authorities are required for many aspects of exploration, mining operations and reclamation.  We cannot predict the extent to which future legislation and regulation could cause additional expense, capital expenditures, restrictions, and delays in the development of our U.S. or Colombian properties, including those with respect to unpatented mining claims.

Our activities are not only subject to extensive federal, state and local regulations controlling the exploration and mining of mineral properties, but also the possible effects of such activities upon the environment.  Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of our properties, the extent of which cannot be predicted.  Also, as discussed above, permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation.  In the context of environmental permitting, including the approval of reclamation plans, we must comply with known standards, existing laws and regulations that may entail greater or lesser costs and delays, depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority.  We are notpresently aware of any specific material environmental constraint affecting our properties that would preclude the economic development or operation of any specific property.

If we become more active on our properties, it is reasonable to expect that compliance with environmental regulations will increase our costs.  Such compliance may include feasibility studies on the surface impact of the our proposed operations; costs associated with minimizing surface impact, water treatment and protection, reclamation activities, including rehabilitation of various sites, on-going efforts at alleviating the mining impact on wildlife, and 

 

 

permits or bonds as may be required to ensure our compliance with applicable regulations.  It is possible that the costs and delays associated with such compliance could become so prohibitive that we may decide to not proceed with exploration, development, or mining operations on any of our mineral properties.

***Risks Associated with Our Common Stock***

*Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.*

Our common stock is quoted on the OTC Bulletin Board service of the National Association of Securities Dealers.  Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects.  This volatility could depress the market price of our common stock for reasons unrelated to operating performance.  Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex.  Accordingly, shareholders may have difficulty reselling any of the shares.

*Our stock is a penny stock.  Trading of our stock may be restricted by the SEC’s penny stock regulations and the NADSD’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our stock.*

Our stock is a penny stock.  The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”.  The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardizedrisk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account.  The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation.  In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receivethe purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules.  Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.  We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the NASD has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.  Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock. 

***Other Risks***

*Because some of our officers and directors are located in non-U.S. jurisdictions, you may have no effective recourse against the non U.S. officers and directors for misconduct and may not be able to enforce judgment and civil liabilities against our officers, directors, experts and agents.*

Some of our directors and officers are nationals and/or residents of countries other than the United States, 

 

 

specifically Canada and Colombia, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.

*Trends, Risks and Uncertainties*

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock. 

**Item 3.**

**Disclosure Controls and Procedures**

As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report, October 31, 2006. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s president and chief executive officer. Based upon that evaluation, our company’s president and chief executive officer concluded that our company’s disclosure controls and procedures are effective as at the end of the period covered by this report. There have been no significant changes in our company’s internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our company’s president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure

**PART II - OTHER INFORMATION**

**Item 1.**

**Legal Proceedings.**

We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation.  There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

**Item 2.**

**Unregistered Sales of Equity Securities and Use of Proceeds.**

On February 1, 2006 we entered into an agreement with Primecap Resources Inc. and Nueva California S.A. concerning the acquisition of an interest in the Risaraldo La Golondrina D14-082 property located in Narino, Colombia.  On March 5, 2006, we entered into an Assignment Agreement dated effective February 28, 2006 (the “Definitive Agreement”), with Primecap Resources Inc., of Las Vegas, Nevada, (Primecap), concerning the acquisition of Primecap’s option (the “Option”), to acquire a 100% interest in the Risaldo La Golondrina D14-082 mineral property located in Narino, Colombia (the “Property”). Primecap had been granted the Option by Nueva California S.A., of Medellin, Colombia, pursuant to the terms and conditions of a Heads of Agreement dated August 23, 2004 (the “HOA”).

Pursuant to the terms of the Definitive Agreement, we issued 2,500,000 shares of our capital stock to Nueva California.  In issuing the shares, we relied on the exemption from registration requirements of the United States Securities Act of 1933, as amended, provided by Regulation S promulgated thereunder.

On March 13, 2006, our board of directors approved an eight (8) for one (1) forward stock split of our authorized, issued and outstanding common stock. The forward stock split became effective with the Secretary of State of Nevada on March 24, 2006. As a result, our authorized capital increased from 69,000,000 shares of common stock 

 

 

with a par value of $0.001 and 1,000,000 Preferred “A” stock with a par value of $0.001 to 552,000,000 shares of common stock with a par value of $0.001 and 1,000,000 Preferred “A” stock with a par value of $0.001. Our issued and outstanding share capital increased from 7,739,500 shares of common stock to 51,816,000 shares of common stock.

**Item 3.**

**Defaults Upon Senior Securities.**

None.

**Item 4.**

**Submission of Matters to a Vote of Security Holders.**

None.

**Item 5.**

**Other Information.**

On April 1, 2006 we appointed James Sikora and Gordon Samson to our Board of Directors as President and Chief Financial Officer respectively.

Effective September 1, 2006 Mr. Gordon Samson resigned as the Chief Financial Officer of the Company. The Board of Directors appointed Mr. Julio De Leon as Chief Financial Officer on September 1, 2006.

On September 1, 2006 De Leon & Company, P.A. resigned as our independent accountant and the Company appointed Infante & Company as our independent accountant ( see 8-K dated September 1, 2006 which was filed on September 5, 2006).

 

 

 

 

 

**Item 6.**

**Exhibits.**

*Exhibits required by Item 601 of Regulation S-B*

Exhibit Number

Description

**(3)**

**(i) Articles of Incorporation; and (ii) Bylaws**

3.1

Articles of Incorporation (incorporated by reference from our Form SB-2 Registration Statement, filed on March 24, 2005).

3.2

Bylaws (incorporated by reference from our Form SB-2 Registration Statement, filed on March 24, 2005).

3.3

Certificate of Change (incorporated by reference from our Current Report on Form 8-K, filed on March 24, 2006).

**(10)**

**Material Contracts**

10.1

Purchase and Sale Agreement dated October 22, 2004 (incorporated by reference from our Amendment No. 1 on Form SB-2/A Registration Statement, filed on April 28, 2005).

10.2

Letter Agreement dated February 1, 2006 between our company and Nueva California S.A. and Primecap Resources Inc. (incorporated by reference from our Current Report on Form 8-K, filed on February 6, 2006).

10.3

Assignment Agreement dated February 28, 2006 between our company and Primecap Resources Inc. (incorporated by reference from our Current Report on Form 8-K, filed on March 10, 2006).

10.4

Amending Agreement dated March 15, 2006 between our company and Primecap Resources Inc. (incorporated by reference from our Current Report on Form 8-K, filed on March 20, 2006).

10.5

Consulting Agreement dated April 1, 2006 between our company and James Sikora (incorporated by reference from our Current Report on Form 8-K, filed on April 20, 2006)

10.6

 

Consulting Agreement dated April 1, 2006 between our company and Gordon Samson (incorporated by reference from our Current Report on Form 8-K, filed on April 20, 2006)

10.7

Amending Agreement Dated June 30, 2006 between our Company and Primecap Resources Inc. 

(incorporated by reference from our Current Report on Form 8-K, filed on July 14, 2006).

10.8

Consulting Agreement dated September 1, 2006 between our company and Julio De Leon (filed with this 10-QSB)

**(31)**

**302 Certification**

31.1*

Section 302 Certification under Sarbanes-Oxley Act of 2002 of James Sikora.

31.2*

Section 302 Certification under Sarbanes-Oxley Act of 2002 of Julio De Leon.

**(32)**

**906 Certification**

32.1*

Section 906 Certification under Sarbanes-Oxley Act of 2002 of James Sikora. 

32.2*

Section 906 Certification under Sarbanes-Oxley Act of 2002 of Julio De Leon.

*Filed herewith

 

 

 

**SIGNATURES**

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

**TAO MINERALS INC.**

By:  /s/ James Sikora

President and Director

Principal Executive Officer 

Date: December 14, 2006.

By:  /s/ Julio De Leon

Chief Financial Officer and Director

Principal Financial Officer

Date: December 14, 2006.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 

By:  /s/ James Sikora

President and Director

Principal Executive Officer 

Date: December 14, 2006.

By:  /s/ Julio De Leon

Chief Financial Officer and Director

Principal Accounting Officer

Date: December 14, 2006.

 

 

 

 

 

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