**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 
 **FORM
        10-KSB**
 
 ANNUAL
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
        EXCHANGE ACT OF 1934
 For
        the
        Year Ended December 31, 2005
 Commission
        File Number: 1-12401
 
 **WITS
        BASIN PRECIOUS MINERALS INC.**
 (Exact
        Name of Small Business Issuer as Specified in its Charter)
 MINNESOTA
                84-1236619(State
                    or Other Jurisdiction of
                (I.R.S.
                    Employer Identification Number)Incorporation
                    or Organization)
 80
        SOUTH EIGHTH STREET, SUITE 900, MINNEAPOLIS, MINNESOTA
        55402-8773
 (Address
        of Principal Executive Offices)
 
 Issuer’s
        telephone number including area code: (612) 349-5277
 
 Securities
        registered under Section 12(b) of the Exchange Act: NONE
 
 Securities
        registered under Section 12(g) of the Exchange Act:
 
 COMMON
        STOCK, $0.01 PAR VALUE
 Title
        of
        Class
 
 Check
        whether the Registrant (1) has filed all reports required to be filed by
        Section
        13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the registrant was required to file such reports), and (2) has
        been
        subject to such filing requirements for the past 90 days. Yes x No o
 
 Check
        if
        there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
        S-B contained herein, and will not be contained, to the best of Registrant’s
        knowledge, in definitive proxy or information statements incorporated by
        reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB
        o.
 
 The
        Registrant’s revenues for its most recent fiscal year: None.
 
 The
        aggregate market value of the Registrant’s common stock held by non-affiliates
        as of March 28, 2006 was approximately $13,000,000, based on the closing
        sale
        price as reported on the OTCBB for the Registrant’s common stock on March 28,
        2006.
 
 On
        March
        28, 2006, there were 69,419,779 shares of common stock issued and outstanding,
        which is the Registrant’s only class of voting stock.
 
 Documents
        Incorporated by Reference: None.
 
 Traditional
        Small Business Disclosure Format: Yes o No x
  
 
 WITS
        BASIN PRECIOUS MINERALS INC.
 
 Annual
        Report on Form 10-KSB
 For
        the
        Year Ended December 31, 2005
 Table
        of
        Contents
 PART
                  I
              
              PageItem
                  1.
              Description
                  of Business
              4Item
                  2.
              Description
                  of Properties
              17Item
                  3.
              Legal
                  Proceedings
              17Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              17PART
                  IIItem
                  5.
              Market
                  for Common Equity and Related Shareholder Matters
              18Item
                  6.
              Management’s
                  Discussion and Analysis of Financial Conditionand
                  Results of Operations
              19Item
                  7.
              Financial
                  Statements
              25Item
                  8.
              Disagreements
                  with Accountants on Accounting and Financial Disclosure
              25Item
                  8A.
              Controls
                  and Procedures
              25Item
                  8B.
              Other
                  Information
              26PART
                  IIIItem
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance
                  withSection
                  16(a) of the Exchange Act
              27Item
                  10.
              Executive
                  Compensation
              28Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and
                  RelatedShareholder
                  Matters
              31Item
                  12.
              Certain
                  Relationships and Related Transactions
              32Item
                  13.
              Exhibits
              33Item
                  14.
              Principal
                  Accountant Fees and Services
              37Signatures
              38
 
 2
 
 SPECIAL
        NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
 This
        Annual Report on Form 10-KSB contains both historical statements and statements
        that are forward-looking in nature. Historical statements are based on events
        that have already happened. Certain of these historical events provide some
        basis to our management, with which assumptions are made relating to events
        that
        are reasonably expected to happen in the future. Management also relies on
        information and assumptions provided by certain third party operators of
        our
        projects as well as assumptions made with the information currently available
        to
        predict future events. These future event predictions, or forward-looking
        statements, include (but are not limited to) statements related to the
        uncertainty of the quantity or quality of probable ore reserves, the
        fluctuations in the market price of such reserves, general trends in our
        operations or financial results, plans, expectations, estimates and beliefs.
        You
        can identify forward-looking statements by terminology such as “may,” “could,”
“should,” “will,” “anticipate,” “believe,” “estimate,” “continue,” “expect,”
“intend,” “plan,” “predict,” “potential” and similar expressions and their
        variants. These forward-looking statements reflect our judgment as of the
        date
        of this Annual Report with respect to future events, the outcome of which
        is
        subject to risks, which may have a significant impact on our business, operating
        results and/or financial condition. Readers are cautioned that these
        forward-looking statements are inherently uncertain. Should one or more of
        these
        risks or uncertainties materialize, or should underlying assumptions prove
        incorrect, actual results or outcomes may vary materially from those described
        herein. We undertake no obligation to update forward-looking statements.
        The
        risks identified in the section following Item 1 entitled “RISK FACTORS,” among
        others, may impact forward-looking statements contained in this Annual
        Report.
  3
  PART
        I
 
 **ITEM
        1. BUSINESS**
 
 **OVERVIEW**
 
 Wits
        Basin Precious Minerals Inc., and subsidiaries (“we,” “us,” “our,” “Wits Basin”
or the “Company”) is a minerals exploration and development company based in
        Minneapolis, Minnesota. As of December 31, 2005, we hold interests in mineral
        exploration projects in South Africa (FSC Project), Canada (Holdsworth) and
        Colorado (Bates-Hunter).
 
 Our
        primary holding is a 35 percent interest in the company Kwagga Gold
        (Proprietary) Limited (“Kwagga”), which holds the rights and interests in the
“FSC Project,” an exploration project adjacent to the historic Witwatersrand
        goldfields in South Africa. We own the exploration rights of the “Holdsworth
        Project,” a property located near the village of Hawk Junction, Ontario, Canada.
        We acquired rights to the FSC and Holdsworth Projects in June 2003. On January
        21, 2005, we acquired purchase rights under a purchase agreement, which provides
        us with exploration rights of the Bates-Hunter Gold Mine located in Central
        City, Colorado and the possible future purchase of the assets of the Hunter
        Gold
        Mining Corporation. As of the date of this Annual Report, we do not claim
        to
        have any mineral reserves on our properties.
 
 As
        of
        December 31, 2005, we do not directly own any permits, we possess only a
        few
        pieces of equipment and we employ insufficient numbers of personnel necessary
        to
        actually explore and/or mine for minerals, therefore, we will be substantially
        dependent on the third party contractors we engage to perform such
        operations.
 
 **OUR
        HISTORY**
 
 We
        were
        originally incorporated under Colorado law in December 1992 under the name
        Meteor Industries, Inc. In conjunction with our April 2001 merger with activeIQ
        Technologies Inc., we reincorporated under Minnesota law and changed our
        name to
        Active IQ Technologies, Inc. In June 2003, following our transaction to acquire
        the rights to the FSC and Holdsworth Projects, we changed our name to Wits
        Basin
        Precious Minerals Inc., in order to further associate our corporate name
        with
        our new business model.
 
 Until
        March 14, 2003, we provided industry-specific solutions for managing, sharing
        and collaborating on business information on the Internet through our Hosted
        Solutions Business and until April 30, 2003, we provided accounting software
        through our Accounting Software Business. We sold substantially all of the
        assets relating to our Hosted Solutions and Accounting Software Businesses
        as of
        such dates and as a result, we became an exploratory stage company effective
        May
        1, 2003. As of the date of this Annual Report, we have only one operating
        segment, that of minerals exploration and we will continue reporting as an
        exploration stage company until such time as an economic mineral deposit
        is
        discovered or if we otherwise complete acquisitions or joint ventures with
        business models that have revenues.
 
 **OUR
        EXPLORATION PROJECTS**
 
 **FSC
        PROJECT**
 
 In
        June
        2003, we acquired two exploration projects in a transaction with Hawk Precious
        Minerals USA, Inc., (“Hawk USA”), a wholly owned subsidiary of Toronto-based
        Hawk Precious Minerals Inc., (“Hawk”). Hawk is an affiliate of ours. One of
        these projects, the FSC Project, we have acquired a 35 percent equity interest
        in the company Kwagga Gold (Proprietary) Limited (“Kwagga”) in exchange for a
        $2,100,000 investment. Kwagga is a subsidiary of AfriOre International
        (Barbados) Ltd., (“AfriOre”). The FSC Project is located in the Republic of
        South Africa adjacent to the major goldfields discovered at the historic
        Witwatersrand Basin. AfriOre is a precious minerals exploration company with
        offices in Johannesburg, South Africa and the operator of the FSC Project.
  4
 
 The
        concept that the known part of the Witwatersrand Basin represents a half-basin
        structure, as part of a super-basin, has long been postulated. In particular,
        the geophysical anomalies mapped in the “basement” rocks below Mesozoic cover in
        the FSC area have been considered a potential target area for extension to
        the
        main Witwatersrand Basin. Exploration has been undertaken sporadically by
        a
        number of the major South African mining companies, acting independently
        of each
        other in the 1970s, 1980s and 1990s.
 
 The
        prominent geophysical anomalies, suggestive of a major sedimentary basin
        in the
        FSC area have attracted exploration interest by South African mining companies
        for the past 60 years. Goldfields of South Africa drilled two holes in the
        1950s
        on the prominent aeromagnetic anomaly on the Colesberg trend, intersecting
        magnetite-bearing highly altered granites.
 
 Gencor
        (including the former Union Corporation) also recognized the possibility
        of a
        buried basin, conducted several exploration programs over a thirty year period
        from the 1960s. These included drilling a number of holes on the mafic
        Trompsburg complex, as well as conducting seismic and drilling programs in
        the
        Philippolis, Edenburg and Bethlehem areas. During these programs, drillholes
        successfully intersected Witwatersrand rocks in both the Edenburg and the
        Bethlehem areas.
 
 Anglo
        American Corporation similarly undertook exploration in various campaigns
        in the
        1980s and 1990s in the Bethulie, Edenburg, and Bethlehem areas.
 
 All
        these
        programs seldom intersected economic gold grades, but suggested that major
        volcanic and sedimentary basins were indeed preserved under the Mesozoic
        rocks.
        They also intersected Witwatersrand rocks, including a poorly mineralized
        Central Rand Group reef intersection in the FSC basin west of
        Edenburg.
 
 The
        FSC
        Project area is easily accessible via the N-1 motorway, which is the main
        Cape
        Town-Johannesburg route, as well as a network of well-established secondary
        paved highways and other roads. The city of Bloemfontein, the capital of
        the
        Free State Province and sixth largest city in South Africa, is approximately
        225
        km to the northeast of Colesburg on the N-1 and about 125 km northeast of
        Jagersfontein. Bloemfontein is a major transportation hub with road, railroad
        and air links branching in all directions. The FSC Project region has good
        existing infrastructure, including major arterial and secondary highways,
        railway lines, a modern electrical grid, a major nearby water supply,
        well-developed cities with modern necessities and conveniences, and a good
        pool
        of skilled and unskilled labor.
 
 AfriOre’s
        interest in the FSC Project began in 1996. Based largely on geophysical modeling
        of government aeromagnetic and other published data, such as regional gravity
        maps and some borehole data, AfriOre’s consultants theorized about the
        possibility of a major extension of the Witwatersrand Basin to the south
        and
        east.
 
 In
        October 2003, AfriOre commissioned the first range-finding drillhole of an
        initial drillhole program at the FSC Project. On June 8, 2004, AfriOre reported
        that the first drillhole in the range-finding program at the FSC Project
        had
        been completed. This drillhole, (“BH47”) was drilled in the western structural
        block to a depth of 2,984 meters and intersected a well developed succession
        of
        lower Proterozoic rocks before it was terminated in a zone of shearing. Although
        BH47 was not successful in intersecting any gold bearing mineralization reefs
        to
        the depths drilled, it did confirm the existence of the overlying cover rock
        stratigraphies, similar to those in the Witwatersrand Basin, thereby confirming
        the initial geological model.
 
 In
        October 2004, the South African Department of Minerals and Energy granted
        permission to prospect on newly acquired areas of the FSC Project, defined
        as
        drillhole BH48. On August 18, 2005, we announced the successful completion
        of
        BH48, which was based on the results of the previous drilling and an earlier
        aeromagnetic survey. BH48 succeeded in intersecting Witwatersrand quartzite
        rocks at a depth of 1,936 meters. Drilling continued within a succession
        of
        quartzites and shales to a depth of 2,560 meters and was terminated at that
        depth after extensive logging of the rocks intersected and analysis of those
        rocks. That intersection was over 600 meters of Witwatersrand type rocks.
        The
        drilling has also confirmed important features of the structural model,
        including an upturn of the Witwatersrand rocks, towards what has been identified
        as a potential basin margin that may have controlled deposition of any gold
        bearing conglomerates, typical of the ore controls in the main goldfields
        of the
        Witwatersrand Basin. AfriOre employed a panel of Witwatersrand experts to
        log
        the core and they determined that the rocks intersected could be accurately
        correlated with rocks belonging to the West Rand Group in the main Witwatersrand
        Basin, situated some 160 kilometers to the north. Age dating of selected
        samples
        from the core was also undertaken and determined an age of 2,925 million
        years
        which broadly correlates with the logged stratigraphy. Although the drilling
        was
        successful in confirming the model that there is indeed an extension to the
        Witwatersrand Basin within the FSC Project area, the rocks intersected were
        lower in the stratigraphy than the Central Rand Group rocks, which host most
        of
        the economic gold reefs in the main Witwatersrand Basin.
  5
 
 The
        compilation of the data from BH48 together with the available geophysical
        data
        in the area, is continuing the effort to identify an optimal site close to
        BH48
        where the potential for gold bearing Central Rand Group rocks may be preserved.
        Based on the results obtained from BH48 to the depth drilled, further drilling
        at the FSC Project is warranted. A total of six such sites have been identified
        and each site is being modeled to establish the priority site for the next
        drillhole.
  
 
 
 
 Once
        the
        current exploration activities being conducted on the FSC Project are complete
        (the expenditure of $2,100,000 for the drillhole exploration program was
        estimated to take approximately 24 months) AfriOre and Kwagga will deliver
        to us
        a report describing the results of these activities. Within 120 days of our
        receipt of that report, we have the option to increase our ownership position
        in
        Kwagga to 50 percent in exchange for a further investment of $1,400,000.
        If we
        choose not to make this additional investment, then we would continue to
        own the
        shares representing our 35 percent interest, but we would no longer have
        any
        rights to increase our participation and would be subject to dilution resulting
        from any additional investment in Kwagga. Should Kwagga fail to complete
        the
        entire drillhole program, we could realize a complete loss of any future
        funds
        advanced to Kwagga. Furthermore, in order to continue with exploration at
        the
        FSC Project, we are required to have an additional $500,000 advance available,
        which would be applied to the next investment of $1,400,000 required in order
        to
        maintain our level of participation in Kwagga.
  6
 
 In
        terms
        of the Mineral and Petroleum Resources Development Act 28 of 2002, the State
        is
        now the custodian of all minerals. In terms of the transitional arrangements,
        following the repeal of Act 50 of 1991 and the promulgation of Act 28,
        prospecting permits are required to be converted to a new order right.
        Application has been made to convert old order used rights to new order
        prospecting rights. As of December 31, 2005, approximately 63,993 hectares
        (or
        158,126 acres) are being held in terms of repealed legislation (under
        application for conversion) and approximately 54,131 hectares (or 133,757
        acres)
        are under new application. As with any government body, future changes will
        likely occur and we are relying on AfriOre to be able to comply with such
        changes. See “—Risks Relating to Our Business - Laws Governing Mineral Rights
        Ownership Have Changed in South Africa” that follows for further information.
 
 **HOLDSWORTH
        PROJECT**
 
 The
        other
        project we acquired from Hawk USA in June 2003 was the Holdsworth Project.
        The
        Holdsworth Project includes the rights to 19 contiguous patented mining claims,
        covering approximately 304 hectares (approximately 750 acres) located
        approximately 2 miles northwest of the town of Hawk Junction, Ontario, which
        is
        approximately 12 miles northeast of Wawa, Ontario, Canada. The mining claims
        allow us to conduct both exploration and exploitation activities in the near
        surface oxide zone of the Holdsworth Project.
 
 Since
        June 2003, we have not made any expenditure in connection with any exploration
        activities on the Holdsworth Project. We plan to conduct pre-exploration
        activities on the Holdsworth Project once we have secured the financing,
        which
        we estimate will cost approximately $150,000. The primary objective of these
        pre-exploration activities will be to confirm the results of prior exploration
        activities conducted on or near this property. Until we have the results
        of the
        pre-exploration activities, we will not be in a position to determine the
        scope
        and cost of further exploration activities, if any, necessary for the Holdsworth
        Project.
 
 **BRAZMIN
        LTDA.**
 
 In
        February 2004, we purchased substantially all of the outstanding stock of
        Brazmin Ltda., a limited liability company formed under the laws of Brazil,
        South America. Upon further analysis of Brazil’s business policies, further
        review of the history of gold discoveries made within the region of the Brazmin
        properties and our ability to furnish capital on the required schedule, we
        re-evaluated the rewards that Brazmin offered and concluded that Brazmin
        was not
        a proper fit to our long-term goals and arranged to terminate the original
        purchase agreement. On August 3, 2004, we executed a termination agreement,
        thereby selling Brazmin back to its original owner.
 
 **MCFAULDS
        LAKE**
 
 In
        June
        2004, we entered into an option agreement to earn a 70 percent interest in
        five
        mining claims covering approximately 1,295 hectares (approximately 3,200
        acres)
        in the McFaulds Lake area of the James Bay Lowlands, Attawapiskat Region
        of
        northern Ontario currently held under option by Hawk. This site is a VMS
        (volcanogenic massive sulphide) base metals project.
 
 In
        December 2004, we entered into an agreement with MacDonald Mines Exploration
        Ltd., (“MacDonald”) whereby they could earn a 55 percent interest in the
        McFaulds Lake Project. The option required MacDonald to make cash payments,
        issue shares of its common stock, and pay the Cdn$200,000 exploration
        expenditures required by the option. An initial drillhole had been completed
        and
        no mineral value was detected from the assay.
  7
  The
        ownership of the option could not be transferred from Hawk to MacDonald and
        us
        until the final exploration expenditure had been made prior to December 31,
        2005. Neither we nor MacDonald made the final Cdn$200,000 expenditure for
        exploration, which was required under the terms of the option agreement and
        therefore, our rights for McFaulds Lake lapsed on December 31,
        2005.
 
 **BATES-HUNTER
        GOLD MINE**
 
 Overview
 
 On
        January 21, 2005, we closed on an assignment of a purchase agreement (the
        “Purchase Agreement”) by and among us, Hunter Corporation and Ken Swaisland.
        Swaisland has sold us his rights to purchase all of the outstanding capital
        stock of the Hunter Corporation. The Hunter Corporation owns a 100% interest
        in
        the Bates-Hunter Gold Mine located in Central City, Colorado. We have begun
        our
        due diligence on the Bates-Hunter, requiring expenditures of approximately
        $1,150,000. Our rights under the Purchase Agreement required us to be completed
        with our due diligence by November 30, 2005, at which time, should the
        historical data prove viable, we could purchase the assets held by Hunter
        Corporation for a fixed price of $3,000,000 US. We have received further
        extensions to complete the due diligence process until November 30, 2006.
        Furthermore, the purchase price has been revised to $4,600,000 Canadian.
        The
        assets consist of the Bates-Hunter Gold Mine, the Golden Gilpin Mill, a water
        treatment plant, mining properties, claims, permits and all ancillary equipment.
 
 The
        Bates-Hunter Gold Mine is located about 35 miles west of Denver, Colorado
        and is
        located within the city limits of Central City while the mill lies about
        one
        mile to the north in Black Hawk. The Central City mining district lies on
        the
        east slope of the Front Range where elevations range from 8,000 in the east
        to
        9,750 feet in the west. Local topography consists of gently rolling hills
        with
        local relief of as much as 1,000 feet.
 
 The
        mine
        site is located in the middle of a residential district within the city limits
        of Central City and is generally zoned for mining or industrial use. The
        Bates-Hunter shaft is equipped with a two compartment 85 foot tall steel
        headframe and a single drum hoist using a one inch diameter rope to hoist
        two
        ton skips from at least 1,000 feet deep. Permit M-1990-41 covers the
        Bates-Hunter Gold Mine and the Golden Gilpin Mill and is in good standing.
        Colorado permitting regulations allow for transfer of ownership or relocating
        the mine or mill site within 90 to 120 days based on technical considerations
        only. A state-of-the-art water treatment plant has been constructed adjacent
        to
        the mine headframe. This is a significant asset given the mine site location
        and
        environmental concerns. Substantial water rights are attached to the mine
        and
        mill permits. There is ample water to meet both present and future project
        needs. The Water Discharge Permit #0043168 is in good standing until July
        31,
        2007. Transfer of permit ownership requires an amendment showing the new
        owner
        and takes about 30 days to process.
 
 
 
 8
 
 Geology
 
 The
        regional geology of the Central City district is not “simple” but the economic
        geology is classically simple. The Precambrian granites and gniesses in the
        area
        were intensely fractured during a faulting event resulting in the emplacement
        of
        many closely spaced and roughly parallel veins. The veins are the result
        of
        fracture filling by fluids that impregnated a portion of the surrounding
        gneisses and granites with lower grade gold concentrations “milling ore” and
        usually leaving a high grade “pay streak” of high grade gold sulphides within a
        quartz vein in the fracture. There are two veins systems present, one striking
        east-west and the other striking sub parallel to the more predominant east-west
        set. These veins hosted almost all of the gold in the camp. The veins vary
        from
        2 to 20 feet in width and dip nearly vertical. Where two veins intersect,
        the
        intersection usually widens considerably and the grade also increases, sometimes
        to bonanza grades. In the Timmins camp, this same feature was described as
        a
“blow out” and resulted in similar grade and thickness increases. The Bates vein
        in the area of the Bates-Hunter has been reported to have both sets of veins
        and
        extremely rich “ore” where the two veins intersected. These veins persist to
        depth and consist of gold rich sulphides that include some significant base
        metal credits for copper and silver.
 
 Previous
        Exploration Efforts
 
 The
        following is based on the information from a report titled “Exploration and
        Development Plan for the Bates-Hunter Project,” prepared by Glenn R. O’Gorman,
        P. Eng., dated March 1, 2004.
 
 Lode
        gold
        was first discovered in Colorado in 1859 by John H. Gregory. The first veins
        discovered were the Gregory and the Bates. This discovery started a gold
        rush
        into the area with thousands of people trying to stake their claims. The
        Central
        City mining district is the most important mining district in the Front Range
        mineral belt. Since 1859, more than 4,000,000 ounces of gold have been mined
        from this district. Over 25% of this production has come from the area
        immediately surrounding the Bates-Hunter Gold Project. Although the Bates
        vein
        was one of the richest and most productive in the early history of the area,
        it
        was never consolidated and mined to any great depth.
 
 The
        majority of production on the claims occurred during the period prior to
        1900.
        Technology at that time was very primitive in comparison to today's standards.
        Hand steel and hand tramming was the technology of the day. The above
        limitations coupled with limited claim sizes generally restricted mining
        to the
        top few hundred feet on any one claim.
 
 During
        the early 1900’s cyanidation and flotation recovery technologies were developed
        along with better hoists and compressed air operated drills. Consolidation
        of
        land was a problem. Production rates were still limited due to the lack of
        mechanized mucking and tramming equipment. Issues that were major obstacles
        prior to the 1900’s and 1930’s are easily overcome with modern
        technology.
 
 Colorado
        legislated their own peculiar mining problem by limiting claim sizes to 500
        feet
        in length by 50 feet wide and incorporated the Apex Law into the system as
        well.
        A typical claim was 100 to 200 feet long in the early days. This resulted
        in
        making it extremely difficult for any one owner to consolidate a large group
        of
        claims and benefit from economies of scale. The W.W.II Production Limiting
        Order
        # 208 effectively shut down gold mining in the area and throughout Colorado
        and
        the United States in mid 1942.
 
 Historical
        production records indicate that at least 350,000 ounces of gold were recovered
        from about half of the Bates Vein alone to shallow depths averaging about
        500
        feet below surface.
 
 GSR
        Goldsearch Resources drilled two reverse circulation holes on the property
        in
        1990. The first hole did not intersect the Bates Vein. However, the second
        drilled beneath the Bates-Hunter shaft bottom intersected the Bates Vein
        at
        about 900 feet below surface. The drill cuttings graded 0.48 oz. Au/ton over
        10
        feet. This drillhole intersected 3 additional veins as well with significant
        gold assays.
  9
  Our
        Exploration Plans
 
 During
        the months from January through the end of July 2005, in regards to implementing
        the phase one process of dewatering, much work was required to ready the
        water
        treatment plant. Our initial estimate about the readiness of the water treatment
        plant was it was approximately 85% ready. The last 15% required to actually
        put
        the plant into operation was much more than estimated, in both time and
        resources. On July 28, 2005, we announced that the plant had been put into
        operation. Further calibration was required, again requiring much time and
        resources. The water treatment plant is responsible to remove very caustic
        water
        from below ground and purify it to “tap water” purity before it can be
        discharged. The amount of time estimated to remove the water from the shaft
        was
        also underestimated. Once we reached the 151 foot level and were able to
        see the
        enormous stoped areas (areas dug out in search of mineralization) we had
        a
        better understanding of the volumes of water that can be underground. As
        of date
        of this Annual Report, we are approximately at the 210 foot level.
 
 Again
        in
        regards to implementing the phase one process of shaft rehabilitation, our
        initial estimates were not achieved. Our project manager has maintained a
        relative relationship to the distance of the water level to the area the
        miners
        are working at, as not to create a dangerous distance in case a miner were
        to
        fall while in the shaft. As the water has been removed, the integrity of
        the
        shaft walls is a high priority, again for the miner’s safety. Furthermore, after
        lowering the water level below the stoped areas, special rehabilitation is
        required that nothing can fall down or out of these areas.
 
 Even
        though we have encountered delays in dewatering and shaft rehabilitation,
        our
        consulting geologists have gathered much in the way of both historical and
        geological data. In the assembling of this new database of information, the
        geologists are drawing conclusions about intact vein structure on the properties
        we hold rights to. With the aid of 3D modeling software, the geologists are
        able
        to “connect the dots” and postulate a theory of vein structures. It appears that
        three veins may have remained unexplored. With this new information, we intend
        to modify components of the phase one process by drilling earlier than
        contemplated. We will proceed with an underground drilling program somewhere
        in
        the 200 foot area in order to test out the vein theory. A surface drilling
        program is also being reviewed and drilling contractors are being located
        and
        qualified.
 
 At
        the
        end of the modified phase one process, estimated to be about June 2006, we
        should have a good idea regarding the geological continuity, grade and thickness
        of any mineralization and its metallurgical characteristics in the planned
        drilling areas. It is estimated that completion of phase one will require
        approximately $350,000. The results from the phase one work program will
        determine whether to continue to the next phase and also what phase two will
        consist of.
 
 We
        have
        until November 30, 2006 to determine if the results warrant the consummation
        of
        the purchase all of the outstanding capital stock of the Hunter Corporation
        with
        a further expenditure of $4,600,000 Canadian.
 
 **INDUSTRY
        BACKGROUND**
 
 The
        exploration for and development of mineral deposits involves significant
        capital
        requirements. While the discovery of an ore body may result in substantial
        rewards, few properties are ultimately developed into producing mines. Some
        of
        the factors involved in determining whether a mineral exploration project
        will
        be successful include, without limitation:
 
 ·
              competition;
 ·
              financing
                  costs;
 ·
              availability
                  of capital;
 ·
              proximity
                  to infrastructure;
 ·
              the
                  particular attributes of the deposit, such as its size and grade;
 ·
              political
                  risks, particularly in some in emerging third world countries;
                  and
 ·
              governmental
                  regulations, particularly regulations relating to prices, taxes,
                  royalties, infrastructure, land use, importing and exporting of
                  gold,
                  environmental protection matters, property title, rights and options
                  of
                  use, and license and permitting
                  obligations.
 
 10
  All
        of
        which leads to a speculative endeavor of very high risk. Even with the formation
        of new theories and new methods of analysis, unless the minerals are simply
        lying, exposed on the surface of the ground, exploration will continue to
        be a
“hit or miss” process.
 
 **PRODUCTS
        AND SERVICES**
 
 As
        of
        December 31, 2005, we held interests in three exploration projects: the FSC
        Project located in South Africa, the Holdsworth Project located in Canada
        and
        the Bates-Hunter Gold Mine in Colorado.
 
 **EXPLORATION
        AND DEVELOPMENT**
 
 If
        we
        acquire a project that has no known reserves or resources, exploration expenses
        will be charged to expense as incurred (less any fixed assets or other normally
        capitalized costs) until such time as proven resources or reserves have been
        properly established.
 
 **EMPLOYEES**
 
 We
        currently employ eight people - our chief executive officer, our chief financial
        officer and six mine related employees at the Bates-Hunter. None of our
        employees are represented by a labor union and we consider our employee
        relations to be good.
 
 **FINANCIAL
        INFORMATION IN INDUSTRY SEGMENTS**
 
 During
        the year ended December 31, 2005, our continuing operations included one
        reportable segment: that of minerals exploration.
 
 **AVAILABLE
        INFORMATION**
 
 We
        make
        available free of charge, through our Internet web site www.witsbasin.com,
        our
        annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports
        on Form 8-K, and amendments to those reports filed or furnished pursuant
        to
        Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
        after we electronically file such material, or furnish it to the Securities
        and
        Exchange Commission. You can also request a free copy of the above filings
        by
        writing or calling us at:
 
 
 Wits
        Basin Precious Minerals Inc.
 Attention:
        Mark D. Dacko, Secretary
 80
        South
        8 th Street,
        Suite 900
 Minneapolis,
        Minnesota 55402-8773
 (612)
        349-5277
  11
  **RISK
        FACTORS**
 
 **RISKS
        RELATING TO OUR COMMON STOCK**
 
 **TRADING
        OF OUR COMMON STOCK IS LIMITED.**
 
 Trading
        of our common stock is conducted on the National Association of Securities
        Dealers’ Over-the-Counter Bulletin Board, or “OTC Bulletin Board.” This has an
        adverse effect on the liquidity of our common stock, not only in terms of
        the
        number of shares that can be bought and sold at a given price, but also through
        delays in the timing of transactions and reduction in security analysts’ and the
        media’s coverage of us. This may result in lower prices for our common stock
        than might otherwise be obtained and could also result in a larger spread
        between the bid and asked prices for our common stock.
 
 **BECAUSE
        IT IS A “PENNY STOCK” IT CAN BE DIFFICULT TO SELL SHARES OF OUR COMMON
        STOCK.**
 
 Our
        common stock is a “penny stock.” Broker-dealers who sell penny stocks must
        provide purchasers of these stocks with a standardized risk disclosure document
        prepared by the SEC. This document provides information about penny stocks
        and
        the nature and level of risks involved in investing in the penny stock market.
        A
        broker must also give a purchaser, orally or in writing, bid and offer
        quotations and information regarding broker and salesperson compensation,
        make a
        written determination that the penny stock is a suitable investment for the
        purchaser, and obtain the purchaser’s written agreement to the purchase. The
        penny stock rules may make it difficult for you to sell your shares of our
        stock. Because of the rules, there is less trading in penny stocks. Also,
        many
        brokers choose not to participate in penny stock transactions. Accordingly,
        you
        may not always be able to sell our shares of common stock publicly at times
        and
        prices that you feel are appropriate.
 
 
 **RISKS
        RELATING TO OUR FINANCIAL CONDITION**
 
 **WE
        CURRENTLY DO NOT HAVE ENOUGH CASH TO FUND OPERATIONS DURING
        2006.**
 
 As
        of
        March 24, 2006, we had only approximately $212,000 of cash and cash equivalents
        on hand. Since we do not expect to generate any revenue from operations in
        2006,
        we will be required to raise additional capital in financing transactions
        in
        order to satisfy our expected cash expenditures. We expect to raise such
        additional capital by selling shares of our capital stock or by borrowing
        money.
        However, such additional capital may not be available to us at acceptable
        terms
        or at all. Further, if we sell additional shares of our capital stock, your
        ownership position in our Company will be subject to dilution. In the event
        that
        we are unable to obtain additional capital, we may be forced to reduce our
        operating expenditures or to cease operations altogether.
 
 **WE
        HAVE NO OPERATING ASSETS.**
 
 After
        we
        completed the sales of our Hosted Solutions Business and our Accounting Software
        Business in 2003, we became an exploration stage company and do not anticipate
        having any revenues from operations until an economic mineral deposit is
        discovered or unless we complete other acquisitions or joint ventures with
        business models that produce such revenues. As of March 29, 2006 we hold
        certain
        rights in three projects: the FSC Project in South Africa, the Holdsworth
        Property in Canada and the Bates-Hunter Gold Mine in Colorado. None of these
        projects may ever produce any significant mineral deposits.
  12
  **WE
        ANTICIPATE INCURRING LOSSES FOR THE FORESEEABLE FUTURE.**
 
 Since
        becoming an exploration stage company in May 2003 through December 31, 2005,
        we
        have incurred an aggregate net loss of $18,618,908. We expect operating losses
        to continue for the foreseeable future and may never be able to operate
        profitably.
 
 **OUR
        INDEPENDENT AUDITORS HAVE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE
        AS A
        GOING CONCERN.**
 
 We
        have
        had net losses for each of the years ended December 31, 2005 and 2004, and
        we
        have an accumulated deficit as of December 31, 2005. Since the financial
        statements for each of these periods were prepared assuming that we would
        continue as a going concern, in the view of our independent auditors, these
        conditions raise substantial doubt about our ability to continue as a going
        concern. Furthermore, since we do not expect to generate any significant
        revenues for the foreseeable future, our ability to continue as a going concern
        depends, in large part, on our ability to raise additional capital through
        equity or debt financing transactions. If we are unable to raise additional
        capital, we may be forced to discontinue our business.
 
 **THE
        SOUTH AFRICAN RAND VERSUS THE US DOLLAR.**
 
 The
        majority of all exploration costs that AfriOre deals in, is denominated in
        the
        South African Rand, whereas all of our funding has been in the US Dollar.
        Exchange rates are influenced by global economic trends beyond our control.
        On
        June 30, 2003, the exchange rates were approximately R7.51 = $1.00. Since
        June
        30, 2003, the Rand has appreciated against the Dollar by as much as
        approximately 25 percent. On December 31, 2005, the exchange rates were
        approximately R6.33 = $1.00. The fluctuations between the Dollar and the
        Rand is
        one of the factors that has decreased our initial 5 to 7 drillhole program
        on
        the FSC to be revised to only a three drillhole program. Furthermore, should
        the
        Dollar weaken further in relationship to the Rand, we may sustain additional
        reductions in the number of drillholes completed with future
        investments.
 
 
 **RISKS
        RELATING TO OUR BUSINESS**
 
 
 **SINCE
        BECOMING ENGAGED IN THE MINERAL EXPLORATION BUSINESS IN JUNE 2003, WE HAVE
        RELIED ON AN EXCLUSION FROM THE DEFINITION OF “INVESTMENT COMPANY” IN ORDER TO
        AVOID BEING SUBJECT TO THE INVESTMENT COMPANY ACT OF 1940. TO THE EXTENT
        THE
        NATURE OF OUR BUSINESS CHANGES IN THE FUTURE, WE MAY BECOME SUBJECT TO THE
        REQUIREMENTS OF THE INVESTMENT COMPANY ACT, WHICH WOULD LIMIT OUR BUSINESS
        OPERATIONS AND REQUIRE US TO SPEND SIGNIFICANT RESOURCES IN ORDER TO COMPLY
        WITH
        SUCH ACT.**
 
 The
        Investment Company Act defines an “investment company,” among other things, as
        an issuer that is engaged in the business of investing, reinvesting, owning,
        holding or trading in securities and owns investment securities having a
        value
        exceeding 40 percent of the issuer’s unconsolidated assets, excluding cash items
        and securities issued by the federal government. Because the value of our
        interest in the FSC Project has exceeded 40
        percent of our unconsolidated assets, excluding cash and government securities,
        since June 2003, we
        may
        meet this threshold definition of “investment company.” However, the Investment
        Company Act also excludes from this definition any person substantially all
        of
        whose business consists of owning or holding oil, gas or other mineral royalties
        or leases or fractional interests therein, or certificates of interest or
        participation relating to such mineral royalties or leases. Based on an
        opinion of
        counsel, we believe
        that we satisfy
        this mineral
        company exception to the definition of
“investment company” for the period from June 26, 2003 through August 29, 2004.
        If our reliance on the mineral company exclusion from the definition of
        investment company during this period is misplaced, we may have been in
        violation of the Investment Company Act, the consequences of which can be
        significant. For example, investment companies that fail to register under
        the
        Investment Company Act are prohibited from conducting business in interstate
        commerce, which includes selling securities or entering into other contracts
        in
        interstate commerce. Section 47(b) of the Investment Company Act provides
        that a
        contract made, or whose performance involves, a violation of the act is
        unenforceable by either party unless a court finds that enforcement would
        produce a more equitable result than non-enforcement. Similarly, a court
        may not
        deny rescission to any party seeking to rescind a contract that violates
        the
        Investment Company Act, unless the court finds that denial of rescission
        would
        produce more equitable result than granting rescission. Accordingly, for
        example, certain investors who purchase our securities during any period
        in
        which we were required to register as investment company may seek to rescind
        their subscriptions.
  13
 
 We
        further believe that we have continued to qualify for the mineral company
        exclusion from August 30, 2004 through the date of this Annual Report and are
        not
        therefore subject to the requirements of the Investment Company Act of 1940.
        If
        in the future the nature of our business changes such that the mineral company
        exception to the threshold definition of investment company is not available
        to
        us, we will be required to register as an investment company with the SEC.
        The
        ramifications of becoming an
        investment company, both in terms of the restrictions it would have on our
        Company and the cost of compliance, would be significant. For example, in
        addition to expenses related to initially registering as an investment company,
        the Investment Company Act also imposes various
        restrictions with regard to our ability to enter into affiliated transactions,
        the diversification of our assets and our
        ability to borrow money. If we became subject to the Investment Company Act
        at
        some point in the future, our ability
        to continue pursuing our business plan would be severely limited as it would
        be
        significantly more difficult for us to raise additional capital in a manner
        that
        would comply with the requirements of the Investment Company Act. To the
        extent
        we are unable to raise additional capital, we may be forced to discontinue
        our
        operations or sell or otherwise dispose of our mineral assets.
 
 **LAWS
        GOVERNING MINERAL RIGHTS OWNERSHIP HAVE CHANGED IN SOUTH AFRICA.**
 
 The
        South
        African mining industry has undergone a series of significant changes
        culminating in the enactment of the Mineral and Petroleum Resources Development
        Act No. 28 of 2002 (“the Act”) on May 1, 2004. The Act legislates the abolition
        of private mineral rights in South Africa and replaces them with a system
        of
        state licensing based on the patrimony over minerals, as is the case with
        the
        bulk of minerals in other established mining jurisdictions such as Canada
        and
        Australia. On May 3, 2004 the Department of Minerals and Energy (the “DME”)
        announced that it was seeking legal advice on the implications of the Act
        in
        light of South Africa’s international agreements.
 
 Holders
        of old-order mining rights, of the type held by Kwagga, are required within
        five
        years of the May 1, 2004 commencement date, to apply for conversion of their
        old
        order rights into new order mining rights in terms of the Act. Old order
        mining
        rights will continue to be in force during the conversion period, subject
        to the
        terms and conditions under which they were granted. Once a new order right
        is
        granted, security of tenure is guaranteed for a period of up to 30 years,
        subject to ongoing compliance with the conditions under which the right has
        been
        granted. A mining right may be renewed for further periods of up to 30 years
        at
        a time, subject to fulfillment of certain conditions.
 
 In
        order
        to be able to convert old order mining rights to new order mining rights,
        a
        holder must primarily: apply in the correct form for conversion at the relevant
        office of the DME before May 1, 2009; submit a prescribed social and labor
        plan;
        and undertake to “give effect to” the black economic empowerment and
        socio-economic objectives of the Act (the “Objectives”) and set out the manner
        in which it will give effect to the Objectives.
 
 In
        general, the Objectives are embodied in the broad-based socio-economic
        empowerment charter which was signed by the DME, the South African Chamber
        of
        Mines and others on October 11, 2002 (the “Charter”), and which was followed on
        February 18, 2003 by the release of the appendix to the Charter known as
        the
        Scorecard. The Charter and Scorecard has since been published for information
        during August 2004. The Charter is based on seven key principles, two of
        which
        are focused on ownership targets for historically disadvantaged South Africans
        (“HDSAs”) and beneficiation, and five of which are operationally oriented and
        cover areas focused on improving conditions for HDSAs.
  14
  Regarding
        ownership targets, the Charter (as read with the Scorecard) requires each
        mining
        company to achieve the following HDSA ownership targets for the purpose of
        qualifying for the grant of new order rights: (i) 15% ownership by HDSAs
        in that
        company or its attributable units of production by May 1, 2009, and (ii)
        26%
        ownership by HDSAs in that company or its attributable units of production
        by
        May 1, 2014. The Charter states that such transfers must take place in a
        transparent manner and for fair market value. It also states that the South
        African mining industry will assist HDSA companies in securing financing
        to fund
        HDSA participation, in the amount of ZAR100 billion within the first five
        years.
        The Charter does not specify the nature of the assistance to be
        provided.
  Kwagga
        and AfriOre are actively engaged in discussions with DME officials and others
        to
        ensure that Kwagga fulfills the ownership requirements for conversion under
        the
        Act; however, the finalization of the means of achieving that end will require
        greater certainty regarding the operation and interpretation of the Act and
        pending related legislation.
 
 At
        present, the financial implications and market-related risks brought about
        by
        the various pieces of the new legislation (including the Mineral and Petroleum
        Royalty Bill) cannot be assessed. It is not clear when the next draft of
        the
        Mineral and Petroleum Royalty Bill will be released. The Government has,
        however, indicated that no royalties will be payable until 2009. Material
        impacts on both the ownership structure and operational costs at the FSC
        Project
        are possible. Kwagga and AfriOre continue to explore their options and monitor
        the implementation and interpretation of the Act and the progress of other
        ancillary regulations and legislation closely.
 
 **DUE
        TO LEGISLATION ENACTED IN SOUTH AFRICA, KWAGGA WILL BE REQUIRED TO SELL A
        SUBSTANTIAL AMOUNT OF ITS STOCK, WHICH WOULD DILUTE OUR EQUITY POSITION IN
        KWAGGA.**
 
 In
        accordance with the Broad-Based Socio-Economic Empowerment Charter for the
        South
        African mining industry, Kwagga will offer up to 28 percent of its capital
        stock
        at fair market value to a HDSA investor group. Any investment by such a group
        will dilute our ownership of Kwagga and, accordingly, the right to receive
        profits generated from the FSC Project, if any.
 
 **WE
        ARE SUBSTANTIALLY DEPENDENT UPON OUR CHIEF EXECUTIVE
        OFFICER.**
 
 We
        are
        substantially dependent on the expertise and industry knowledge of H. Vance
        White, our chief executive officer. The loss of his services could have an
        adverse effect on us and we do not currently have key person insurance with
        respect to Mr. White.
 
 **ONE
        OF OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST WITH REGARD
        TO
        CERTAIN TRANSACTIONS THAT WE MAY ENTER.**
 
 H.
        Vance
        White, who is a director and the chief executive officer of our Company,
        is both
        an officer and director of Hawk Precious Minerals Inc., a junior exploration
        company and the parent company of Hawk USA, and a partner in Brooks & White
        Associates, an unincorporated Canadian partnership that provides management,
        financial and investor relations services to junior mineral resource exploration
        companies. As a result of his positions with other companies that may, from
        time
        to time, compete with us, Mr. White may have a conflict of interest to the
        extent the other companies with which he is affiliated acquire rights in
        exploration projects that may be suitable for us to acquire.
 
 **OUR
        SUCCESS IN CONNECTION WITH THE FSC PROJECT IS SUBSTANTIALLY DEPENDENT ON
        THE
        PROJECT’S OPERATOR.**
 
 We
        are
        relying heavily on the ability of AfriOre, the FSC Project operator, to make
        prudent use of all funds in connection with the exploration of the FSC Project.
        If AfriOre does not use these funds wisely, we may not realize any return
        on our
        investment. Further, we are dependent on the financial health and condition
        of
        AfriOre. In the event AfriOre became insolvent or otherwise unable to carry
        out
        its obligations of exploration, we could lose the entire amount we have invested
        in exploration of the FSC Project. We also depend on AfriOre to obtain and
        maintain various governmental licenses and permits necessary to explore and
        develop the properties. The failure to obtain and maintain such licenses
        and
        permits may cause significant delays in exploring and developing the properties,
        or even may prevent the completion of any of these activities altogether.
  15
 
 **THE
        OPERATORS OF OUR EXPLORATION PROJECTS MAY NOT HAVE ALL NECESSARY TITLE TO
        THE
        MINING EXPLORATION RIGHTS.**
 
 We
        expect
        that Kwagga and AfriOre will have good and proper right, title and interest
        in
        and to the respective mining exploration rights they currently own, have
        optioned or intend to acquire and that they will explore and develop. Such
        rights may be subject to prior unregistered agreements or interests or
        undetected claims or interests, which could materially impair our ability
        to
        participate in the development of the FSC Project. The failure to comply
        with
        all applicable laws and regulations, including failure to pay taxes and to
        carry
        out and file assessment work, may invalidate title to portions of the properties
        where the exploration rights are held.
 
 **WE
        WILL REQUIRE ADDITIONAL FINANCING TO CONTINUE TO FUND OUR CURRENT EXPLORATION
        PROJECT INTERESTS OR TO ACQUIRE INTERESTS IN OTHER EXPLORATION
        PROJECTS.**
 
 Additional
        financing will be needed in order to fund beyond the initial three drillhole
        exploration program currently underway at the FSC Project, to fund exploration
        of the Holdsworth Project and Bates-Hunter, or to potentially complete further
        acquisitions or complete other acquisitions or joint ventures with other
        business models. Our means of acquiring investment capital is limited to
        private
        equity and debt transactions. We have no significant sources of currently
        available funds to engage in additional exploration and development. Without
        additional capital, we will be unable to fund exploration of our current
        property interests or acquire interests in other mineral exploration projects
        that may become available. See “—Risks Relating to Our Financial Condition - We
        Currently Do Not Have Enough Cash to Fund Operations During 2006.”
 
 **OUR
        PERFORMANCE MAY BE SUBJECT TO FLUCTUATIONS IN GOLD PRICES.**
 
 The
        profitability of a gold exploration project could be significantly affected
        by
        changes in the market price of gold. Mine production and the willingness
        of
        third parties such as central banks to sell or lease gold affects the supply
        of
        gold. Demand for gold can be influenced by economic conditions, attractiveness
        as an investment vehicle and the relative strength of the US Dollar and local
        investment currencies. Other factors include the level of interest rates,
        exchange rates, inflation and political stability. The aggregate effect of
        these
        factors is impossible to predict with accuracy. Worldwide production levels
        also
        affect gold prices. In addition, the price of gold has on occasion been subject
        to very rapid short-term changes due to speculative activities. Fluctuations
        in
        gold prices may adversely affect the value of any discoveries made at the
        sites
        with which we are involved.
 
 **MINERAL
        EXPLORATION IS EXTREMELY COMPETITIVE.**
 
 There
        is
        a limited supply of desirable mineral properties available for claim staking,
        lease or other acquisition in the areas where we contemplate participating
        in
        exploration activities. We compete with numerous other companies and
        individuals, including competitors with greater financial, technical and
        other
        resources than we possess, in the search for and the acquisition of attractive
        mineral properties. Our ability to acquire properties in the future will
        depend
        not only on our ability to develop our present properties, but also on our
        ability to select and acquire suitable producing properties or prospects
        for
        future mineral exploration. We may not be able to compete successfully with
        our
        competitors in acquiring such properties or prospects.
  16
 
 **THE
        NATURE OF MINERAL EXPLORATION IS INHERENTLY RISKY.**
 
 The
        exploration for and development of mineral deposits involves significant
        financial risks, which even experience and knowledge may not eliminate,
        regardless of the amount of careful evaluation applied to the process. Very
        few
        properties are ultimately developed into producing mines .
        Whether
        a gold deposit will be commercially viable depends on a number of factors,
        including:
 
 ·
              financing
                  costs;
 ·
              proximity
                  to infrastructure;
 ·
              the
                  particular attributes of the deposit, such as its size and grade;
                  and
 ·
              governmental
                  regulations, including regulations relating to prices, taxes, royalties,
                  infrastructure, land use, importing and exporting of gold and
                  environmental protection.
 
 The
        outcome of any of these factors may prevent us from receiving an adequate
        return
        on invested capital.
 
 **ITEM
        2. PROPERTIES**
 
 Our
        corporate office is located at 80 South Eighth Street, Suite 900, Minneapolis,
        Minnesota 55402-8773, in which we occupy approximately 160 square feet of
        office
        space, together with the use of related adjacent common areas, pursuant to
        a
        lease agreement that expires May 31, 2007, which requires monthly payments
        of
        $1,156. We believe that our current facilities are adequate for our current
        needs.
 
 **ITEM
        3. LEGAL PROCEEDINGS**
 
 In
        action
        brought in District Court, City and County of Denver, Colorado, the Company
        was
        named a defendant in a proceeding brought by Farmers State Bank of Ft. Morgan,
        Colorado, in which it was alleged that the Company was liable to the plaintiff
        as a result of its guaranty of certain secured debt obligations in the aggregate
        amount of approximately $314,000 of Meteor Marketing, Inc. Meteor Marketing
        was
        formerly a subsidiary of Meteor Industries, Inc., until April 2001 when it
        was
        sold prior to the completion of the merger transaction between Meteor Industries
        and activeIQ Technologies Inc.
 
 We
        were
        informed by Farmers State Bank on March 16, 2006, that Meteor Marketing had
        paid
        the debt obligation and Farmers State Bank had cancelled the guaranty which
        we
        were liable.
  **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None.
  17
  **PART
        II**
 
 **ITEM
        5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
        MATTERS**
 
 
 **PRICE
        RANGE OF COMMON STOCK**
 
 Our
        common stock is quoted on the OTCBB under the symbol “WITM.” As of March 28,
        2006 the last sale price of our common stock as reported by OTCBB was $0.22
        per
        share. The following table sets forth for the periods indicated the range
        of
        high and low bid prices of our common stock:
 
 **Period**
              
              **High**
              
              **Low**Quarter
                  Ended March 31, 2004
              
              $
              1.33
              
              $
              0.68Quarter
                  Ended June 30, 2004
              
              $
              0.91
              
              $
              0.33Quarter
                  Ended September 30, 2004
              
              $
              0.51
              
              $
              0.20Quarter
                  Ended December 31, 2004
              
              $
              0.41
              
              $
              0.16Quarter
                  Ended March 31, 2005
              
              $
              0.46
              
              $
              0.20Quarter
                  Ended June 30, 2005
              
              $
              0.29
              
              $
              0.14Quarter
                  Ended September 30, 2005
              
              $
              0.20
              
              $
              0.10Quarter
                  Ended December 31, 2005
              
              $
              0.27
              
              $
              0.08
 
 
 The
        quotations from the OTCBB above reflect inter-dealer prices, without retail
        mark-up, mark-down or commission and may not reflect actual
        transactions.
 
 **RECORD
        HOLDERS**
 
 As
        of
        March 24, 2006, there were approximately 255 record holders of our common
        stock.
        Based on securities position listings, we believe that there are approximately
        2,140 beneficial holders of our common stock.
 
 **DIVIDENDS**
 
 We
        have
        never paid cash dividends on our common stock and have no present intention
        of
        doing so in the foreseeable future. Rather, we intend to retain all earnings
        to
        provide for the growth of our Company. Payment of cash dividends in the future,
        if any, will depend, among other things, upon our future earnings, requirements
        for capital improvements and financial condition.
 
 **RECENT
        SALES OF UNREGISTERED SECURITIES**
 
 In
        addition to the sales of unregistered securities that we reported in our
        quarterly reports on Form 10-QSB during fiscal 2005, we made the following
        sales
        of unregistered securities during the fourth quarter of fiscal
        2005:
 
 As
        of
        October 15, 2005, we issued to a promissory note holder, 50,000 shares of
        our
        un-registered common stock as penalty charges due for not paying the principal
        due by October 15, 2005. We relied on the exemption from registration provided
        by Rule 506 of Regulation D under Section 4(2) of the Securities Act of 1933,
        as
        amended. The Company believes that the promissory note holder is “accredited”
(as defined by Rule 501(a) promulgated under the Securities Act) that no
        general
        solicitation was involved, and the transaction did not otherwise involve
        a
        public offering.
 
 In
        October 2005, we entered into an agreement with a consultant for services
        in
        public relations. We issued 92,567 shares of our un-registered common stock
        for their services for a three month term. We relied on the exemption from
        registration provided by Rule 506 of Regulation D under Section 4(2) of the
        Securities Act of 1933, as amended. The Company reasonably believes that
        the
        consultant is “sophisticated,” that no general solicitation was involved, and
        the transaction did not otherwise involve a public offering.
  18
  **ITEM
        6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 The
        following discussion should be read in conjunction with the Financial Statements
        of the Company and notes thereto included elsewhere in this Annual Report.
        See
“—Financial Statements.”
 
 Readers
        are cautioned that the following discussion contains certain forward-looking
        statements and should be read in conjunction with the “Special Note Regarding
        Forward-Looking Statements” appearing at the beginning of this Annual
        Report.
 
 As
        of
        December 31, 2005, we hold interests in mineral exploration projects in South
        Africa (FSC Project), Canada (Holdsworth) and Colorado
        (Bates-Hunter).
 
 In
        June
        2003, we acquired two exploration projects in a transaction with Hawk Precious
        Minerals USA, Inc., (“Hawk USA”), a wholly owned subsidiary of Toronto-based
        Hawk Precious Minerals Inc., (“Hawk”). Hawk is an affiliate of ours. One of
        these projects, the FSC Project, we have acquired a 35 percent equity interest
        in the company Kwagga Gold (Proprietary) Limited (“Kwagga”) in exchange for a
        $2,100,000 investment. Kwagga is a wholly owned subsidiary of AfriOre
        International (Barbados) Ltd., (“AfriOre”). The FSC Project is located in the
        Republic of South Africa adjacent to the major goldfields discovered at the
        historic Witwatersrand Basin.
 
 The
        other
        project we acquired from Hawk USA in June 2003 was the Holdsworth Project
        located near the town of Hawk Junction, Ontario, Canada. The mining claims
        allow
        us to conduct both exploration and exploitation activities in the near surface
        oxide zone of the Holdsworth Project. Since June 2003, we have not made any
        expenditure in connection with any exploration activities on the Holdsworth
        Project. We plan to conduct pre-exploration activities on the Holdsworth
        Project
        once we have secured the financing, which we estimate will cost approximately
        $150,000. The primary objective of these pre-exploration activities will
        be to
        confirm the results of prior exploration activities conducted on or near
        this
        property. Until we have the results of the pre-exploration activities, we
        will
        not be in a position to determine the scope and cost of further exploration
        activities, if any, necessary for the Holdsworth Project.
 
 In
        February 2004, we purchased substantially all of the outstanding stock of
        Brazmin, Ltda. (“Brazmin”) a limited liability company formed under the laws of
        Brazil from Argyle Securities Limited. Upon further analysis of Brazil’s
        business policies, further review of the history of discoveries made within
        the
        region of the Brazmin properties and our ability to furnish capital on the
        required schedule, we re-evaluated the rewards that Brazmin offered. We
        concluded that Brazmin was not a proper fit to our long-term goals and arranged
        with Argyle to terminate the original purchase agreement. On August 3, 2004,
        we
        executed a termination agreement, thereby selling Brazmin back to
        Argyle.
 
 In
        June
        2004, we entered into an option agreement to earn a 70 percent interest in
        five
        mining claims in the McFaulds Lake area of the James Bay Lowlands, Attawapiskat
        Region of northern Ontario currently held under option by Hawk. This site
        is a
        base metals project. The option agreement required us to pay Cdn$60,000 ($45,501
        US) and issue 200,000 shares of our common stock, valued at $84,000. In December
        2004, we entered into an agreement with MacDonald Mines Exploration Ltd.,
        whereby they could earn a 55 percent interest in the McFaulds Lake Project.
        The
        option required MacDonald to make a cash payment of Cdn$10,000, issue 250,000
        shares of its common stock, and pay the Cdn$200,000 exploration expenditures
        required by the option. An initial drillhole had been completed and no mineral
        value was detected from the assay. The Cdn$10,000 cash payment and the issuance
        of the 250,000 shares transpired in January 2005 and were divided between
        Hawk
        and us on our respective 30 percent and 70 percent basis. The ownership of
        the
        option could not be transferred from Hawk to MacDonald and us until the final
        exploration expenditure had been made prior to December 31, 2005. Neither
        we nor
        MacDonald made the final Cdn$200,000 expenditure for exploration, which was
        required under the terms of the option agreement and therefore, our rights
        for
        McFaulds Lake lapsed on December 31, 2005.
  19
 
 On
        January 21, 2005, we completed the acquisition of an option to purchase all
        of
        the outstanding capital stock of the Hunter Gold Mining Corporation (a
        corporation incorporated under the laws of British Columbia, Canada) including
        its wholly owned subsidiary Hunter Gold Mining, Inc., (a corporation
        incorporated under the laws of Colorado) (collectively “Hunter Corporation”). We
        had until November 30, 2005 to complete the purchase of Hunter Corporation
        for a
        fixed price of US$3,000,000 of the following: the Bates-Hunter Gold Mine,
        the
        Golden Gilpin Mill, a water treatment plant, mining properties, claims, permits
        and all ancillary equipment. On August 25, 2005, we received the following
        extensions: (i) until December 31, 2005 to complete the first phase of due
        diligence testing, (ii) until April 30, 2006 to complete the second phase
        of due
        diligence testing, and (iii) until May 31, 2006 to close on the purchase
        (from
        the previous date of November 30, 2005). On December 22, 2005, we began
        negotiations with Hunter Corporation regarding a further extension to the
        purchase date. Final negotiations resulted in extensions to both the due
        diligence exploration dates and the final purchase date, and a revised purchase
        price. We executed the letter agreement on January 16, 2006 with an effective
        date of December 31, 2005 and received the following extensions: (a) completion
        of phase one extended from December 31, 2005 to June 30, 2006, (b) completion
        of
        phase two extended from April 30, 2006 to October 31, 2006, and (c) the closing
        date extended from May 31, 2006 to on or before November 30, 2006. Furthermore,
        an amendment to the purchase price allowing for the price to be denominated
        in
        Canadian Dollars, with a revised and restated purchase price of $4,600,000
        Canadian was included. Our initial due diligence estimates for cash expenditures
        is approximately $1,150,000 (we have recorded expenses of approximately $510,000
        as of December 31, 2005).
 
 Until
        March 14, 2003, we provided industry-specific solutions for managing, sharing
        and collaborating on business information on the Internet through our Hosted
        Solutions Business and until April 30, 2003, we provided accounting software
        through our Accounting Software Business. We sold substantially all of the
        assets relating to our Hosted Solutions and Accounting Software Businesses
        as of
        such dates and as a result, we became an exploratory stage company effective
        May
        1, 2003.
 
 **RESULTS
        OF OPERATIONS**
 
 **FOR
        THE YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31,
        2004.**
 
 Revenues
 
 We
        had no
        revenues from continuing operations for the years December 31, 2005 and 2004.
        Furthermore, we do not anticipate having any future revenues until an economic
        mineral deposit is discovered or unless we make further acquisitions or complete
        other mergers or joint ventures with business models that produce such results.
 
 Operating
        Expenses
 
 General
        and administrative expenses were $3,777,977 for 2005 as compared to $1,764,773
        for 2004. After we completed the sale of our Hosted Solutions and Accounting
        Software Businesses, we became an exploratory stage company effective May
        1,
        2003, and all prior operating expenses associated with these two business
        models
        are included in discontinued operations. Of the $3,777,977 recorded for 2005,
        approximately $3,252,000 relates to public relations services, consulting
        fees
        and shareowner services. Of the $1,764,773 recorded for 2004, approximately
        $670,000 relates to public relations services, consulting fees and shareowner
        services; approximately $500,000 relates to the legal fees we incurred for
        litigation with a former CEO. We anticipate that our operating expenses will
        begin to increase over the next fiscal year due to our continued plans for
        investor awareness programs and exploration at the Bates-Hunter Project in
        Colorado.
  20
 
 Exploration
        expenses relate to: (i) the issuance of stock for acquiring mining rights,
        (ii)
        expenditures being reported on the work-in-process from the FSC Project
        operator, AfriOre, (iii) expenses related to the South American Brazmin
        properties, which we sold in 2004, (iv) McFaulds Lake, of which our rights
        lapsed on December 31, 2005 and (v) the due diligence exploration activities
        at
        the Bates-Hunter. We anticipate the rate of spending for fiscal 2006 exploration
        expenses should increase based on the Bates-Hunter project and continued
        drilling at the FSC Project.
 
 Components
        of exploration expenses are as follows:
 
 Years
                  Ended December 31,
              
              May
                  1, 2003
                (inception)
                  to
                December
                  31,2005
              
              2004
              
              2005Expenditures
                  reported by Kwagga/AfriOre
              
              $
              613,857
              
              $
              865,340
              
              $
              1,979,197Expenditures
                  related to Brazmin
              
              
              —
              
              
              195,572
              
              
              195,572Expenditures
                  related to McFaulds Lake
              
              
              —
              
              
              24,251
              
              
              24,251Expenditures
                  related to Bates-Hunter
              
              
              415,776
              
              
              70,379
              
              
              486,155Issuance
                  of shares and warrant expense (1)
              
              
              104,753
              
              
              —
              
              
              104,753Issuance
                  of shares to Hawk USA (2)
              
              
              —
              
              
              —
              
              
              4,841,290$
              1,134,386
              
              $
              1,155,542
              
              $
              7,631,218
 
 (1)
        We
        issued 275,000 shares of common stock for fees related to our obtaining the
        rights to purchase the Bates-Hunter, valued at $94,000 and recorded $10,753
        in
        warrant expense related to the grants of 150,000 warrants issued to two
        Bates-Hunter consultants.
 
 (2)
        During fiscal 2003, we issued an aggregate 6,250,000 shares of common stock
        to
        Hawk USA, valued at $5,087,500 and recorded the excess over the historical
        cost,
        $246,210, of the contributions as participation mining rights.
 
 Depreciation
        and amortization for 2005 was $110,703 as compared to amortization of $247,087
        for 2004. Of the $110,703 recorded, $5,053 is straight-line depreciation
        of
        fixed assets purchased for work at the Bates-Hunter and $105,650 is amortization
        of the participation mining rights related to the FSC and McFaulds Lake
        projects. As of December 31, 2005, all participation mining rights projects
        have
        been fully amortized and future projects will be charged to expense as incurred
        (less any fixed assets or other normally capitalized costs) with a
        project-by-project review. We will recognize depreciation expense for 2006
        on
        the fixed assets already purchased and possibly will be adding additional
        assets
        to the Company.
 
 In
        October 2003, we completed a private placement of 10,190,000 units of our
        securities, each unit consisting of one share of common stock and a one-year
        warrant to purchase one-half of one share of common stock at a price of $0.75
        per share. The units were sold at a price of $0.25 per unit, resulting in
        gross
        proceeds of $2,547,500 before agent commissions and other offering related
        expenses. We agreed to file a registration statement under the Securities
        Act of
        1933 covering the resale of the shares purchased in the private placement.
        In
        accordance with the terms of the private placement, because such registration
        statement was not declared effective by the Securities and Exchange Commission
        by February 11, 2004, we issued to the investors an additional one-fifth
        of one
        share of our common stock for each unit purchased in the private placement,
        or
        2,038,000 shares, which we deemed “penalty shares.” We used a five-day closing
        sale price average ($1.056) of our common stock, as listed on the OTCBB,
        to
        value the penalty shares. We recorded a $2,152,128 expense for the penalty
        shares during the quarter ended March 31, 2004.
 
 We
        recorded a loss on impairment for the three and six months ended June 30,
        2004
        relating to our South American subsidiary project, Brazmin. Upon further
        analysis of Brazil’s business policies, and further review of the history of
        discoveries made within the region of the Brazmin properties and our ability
        to
        furnish capital on the required schedule, we re-evaluated the rewards that
        Brazmin offered. We concluded that Brazmin was not a proper fit to our long-term
        goals and arranged with the previous owner a termination of the original
        purchase agreement. We recorded the acquisition of Brazmin at $908,578. We
        sold
        Brazmin for $50,000 plus the return of 400,000 shares of our common stock.
        We
        valued the 400,000 shares of common stock at $116,000, based on the closing
        sale
        price, $0.29 per share, of our common stock on August 3, 2004, as listed
        on the
        OTCBB. Therefore, we recorded a loss on impairment of $742,578 against the
        value
        of Brazmin. Furthermore, in June 2005, we received a $75,000 cash payment
        from
        the previous owner for our release of future rights we still held in the
        Brazmin
        project. We recorded this cash payment as a component of the loss on impairment
        of Brazmin, since it was a form of recovery of prior subsidiary.
  21
 
 Other
        Income and Expenses
 
 Our
        other
        income and expense consists of interest expense. Interest expense for 2005
        was
        $782,623 and for 2004 it was $295,045. The
        interest expense relates primarily to our notes payable. Components of interest expense for 2005 were: $44,219 in principal loan interest
        and $738,404 representing the amortization of original issue discount and
        beneficial conversion feature (relating to the issuance of common stock and
        warrants in connection with the notes). Components of interest expense for
        2004
        were: $42,266 in principal loan interest and $252,779 representing the
        amortization of original issue discount relating to the issuance of common
        stock
        and warrants in connection with the Pandora note (as described below). Our
        interest expense will continue at least through the second quarter of 2006
        and
        possibly continue throughout the year depending on if we can raise capital
        through equity transactions.
 
 Discontinued
        Operations
 
 We
        reported a gain of $21,154 for the year ended 2004 resulting from accounts
        payable issues that remained in dispute resulting from the sale of our Hosted
        Solutions Business.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 Liquidity
        is a measure of an entity’s ability to secure enough cash to meet its
        contractual and operating needs as they arise. We have funded our operations
        and
        satisfied our capital requirements primarily through the sale of our business
        assets and the sale of securities. We do not generate sufficient net positive
        cash flows from our operations to fund the next twelve months. For the years
        ended December 31, 2005 and 2004, we had net cash used in operating activities
        of $2,535,963 and $1,050,137, respectively.
  We
        had a
        working capital deficit of $210,834 at December 31, 2005, compared to working
        capital of $1,076,840 at December 31, 2004. Cash and equivalents were $117,816
        at December 31, 2005, representing a decrease of $1,004,532 from the cash
        and
        equivalents of $1,122,348 at December 31, 2004.
 
 On
        June
        1, 2004 we received gross proceeds of $650,000 in consideration for issuing
        an
        18-month secured convertible promissory note (the “Note”) to Pandora Select
        Partners LP (“Pandora”), a Virgin Islands limited partnership. The Note was
        secured by substantially all of our assets and bore interest of 10 percent
        per
        annum. The principal and interest monthly payment was $46,278. In lieu of
        cash,
        we could satisfy our repayment obligations by issuing shares of our common
        stock. On any payments we elected to pay in shares of common stock, the
        per-share value would be equal to 85 percent of the average of the high closing
        bid price of our common stock during the 20 trading days immediately preceding
        the payment date. From inception and through March 31, 2005, all payments
        were
        made in cash. From April through October 2005, all payments were paid by
        the
        issuance of common stock. The final November payment was a combination of
        cash
        and common stock. We paid $334,645 in principal payments during 2005 and
        issued
        an aggregate of 2,400,000 shares of our common stock. The Note was repaid
        in
        full as of December 9, 2005.
 
 As
        of
        September 30, 2004, we have invested $2,100,000 in Kwagga (with a balance
        of
        $120,803 remaining at December 31, 2005), which is being used to fund a three
        drillhole exploration program on the FSC Project that commenced in October
        2003.
        Once the entire $2,100,000 has been expended, we will have a further right
        to
        increase our equity position in Kwagga for an additional $1,400,000 cash
        investment.
  22
 
 On
        January 7, 2005, we completed a private placement of units of our securities,
        each unit consisting of one share of our common stock and a warrant to purchase
        one-half share of common stock at an exercise price of $0.25 per share. We
        sold
        an aggregate of 25,050,000 units, resulting in gross proceeds of $2,505,000.
        In
        connection with the private placement, we engaged a placement agent, Galileo
        Asset Management SA, Switzerland. As compensation for their services, we
        paid a
        cash commission of $22,750.
 
 On
        January 21, 2005, we closed on an assignment of a purchase agreement (the
        “Purchase Agreement”) by and among us, Hunter Corporation and Swaisland.
        Swaisland has sold us his rights to purchase the assets of the Hunter
        Corporation. The Hunter Corporation owns a 100% interest in the Bates-Hunter
        Gold Mine located in Central City, Colorado. We have begun our due diligence
        on
        the Bates-Hunter Gold Mine, requiring expenditures of approximately $1,150,000.
        Our rights under the Purchase Agreement requires us to be completed with
        our due
        diligence by November 30, 2006, at which time, should the historical data
        prove
        viable, we may complete the purchase of the assets held of the Hunter
        Corporation for a fixed price of $4,600,000 Canadian (approximately US$3,950,000
        at December 31, 2005). The assets consist of the Bates-Hunter Mine, the Golden
        Gilpin Mill, a water treatment plant, mining properties, claims, permits
        and all
        ancillary equipment. In addition to the Cdn$4,600,000 purchase price, we
        will
        issue the following additional compensation: (i) we will issue a warrant
        to
        Swaisland to purchase 1,000,000 shares of our common stock at a price per
        share
        equal to the 10-day closing average sale price of our common stock; (ii)
        Swaisland will retain a two percent net smelter return royalty on all future
        production from the Bates-Hunter Gold Mine; and (iii) Goldrush Casino and
        Mining
        Corporation will retain a one percent net smelter return royalty (up to a
        maximum payment of $1,500,000). Furthermore, if the Cdn$4,600,000 payment
        has
        not been made by November 30, 2006 and Hunter Corporation has not otherwise
        granted an extension for payment, the Purchase Agreement will become null
        and
        void and neither party shall have any further rights or obligations
        thereunder.
 
 In
        May
        2005, we entered into warrant exercise agreements with two consultants, allowing
        them a reduced exercise price on previously issued and outstanding warrants
        for
        a period of one year. They held an aggregate of 3,063,834 warrants exercisable
        with a range of original pricing was from $0.40 to $5.50 per share. Each
        warrant
        exercise agreement allows for monthly exercises with an exercise price of
        $0.20
        per share. For the year ending December 31, 2005, an aggregate of 794,150
        warrants were exercised into common stock with proceeds received of
        $158,830.
 
 On
        October 10, 2005, we entered into a short-term loan arrangement with a
        shareholder of ours (an individual resident of Minnesota) whereby we borrowed
        $100,000 through a purchase agreement with an unsecured promissory note.
        The
        promissory note bears an interest rate of six percent per annum and matures
        on
        April 10, 2006.
 
 In
        May
        2005, we entered into a short-term loan arrangement with a shareholder of
        ours,
        Andrew Green, an individual resident of Ohio (“Mr. Green”) whereby we borrowed
        $250,000 through a purchase agreement with an unsecured promissory note (“PN”).
        The PN bore an initial interest rate of six percent per annum and since we
        had
        not repaid the PN in full by July 15, 2005 the applicable interest rate from
        July 15 forward increased to 18 percent per annum. As additional consideration
        for the PN, we agreed to amend the terms of a warrant (originally issued
        as part
        of our October 2003 private placement) to purchase up to 500,000 shares of
        our
        common stock held by Mr. Green to reduce the exercise price from $0.25 per
        share
        to $0.01 per share based on a default provision in the PN. In August 2005,
        Mr.
        Green exercised the warrant to purchase 500,000 shares of common stock and
        we
        deducted the new warrant exercise price ($0.01 per share) of $5,000 from
        the
        accrued interest owed to him from the PN. See the information that follows
        pertaining to our renegotiated agreement with Mr. Green.
 
 On
        September 30, 2005, we issued Pacific Dawn Capital, LLC, a California limited
        liability company (“Pacific”) a six-month secured convertible promissory note
        (the “Pacific Note”) in the principal amount of $600,000, or such lesser amount
        that is actually drawn by us pursuant to a loan and security agreement with
        Pacific dated September 30, 2005 (the “Pacific Loan Agreement”). The Pacific
        Note is secured by substantially all of our assets and bore an interest rate
        of
        six percent per annum. In order to effectuate the note, Pacific required
        an
        additional personal guaranty. Stephen D. King, a board member of ours, provided
        that guaranty. In exchange for agreeing to personally guaranty our obligations
        under the Pacific Note, we issued a two-year warrant to purchase 1,000,000
        shares of our common stock at a price of $0.15 per share.
  23
 
 Under
        the
        Pacific Loan Agreement, beginning October 1, 2005, we have the right to draw
        up
        to $100,000 per month (up to an aggregate of $600,000) by providing Pacific
        notice of our intent to exercise a monthly draw along with a report of the
        exploration operations for the Bates-Hunter. Pacific has the right to reject
        the
        draw if it is not satisfied with the report. If we fail to exercise a draw
        during any month, we waive our right to draw the $100,000 for that month.
 
 On
        October 3, 2005, we drew the initial monthly amount of $100,000 and issued
        to
        Pacific (i) 500,000 shares of our un-registered common stock (with piggyback
        registration rights) and (ii) issued a five-year warrant to purchase up to
        1,000,000 shares of our common stock with an exercise price of $0.12 per
        share,
        subject to adjustment as defined in the agreement. For each subsequent $100,000
        monthly draw, we will issue another five-year warrant to purchase up to
        1,000,000 shares of our common stock with an exercise price of $0.12 per
        share.
 
 We
        also
        provided Pacific certain preemptive rights under the Pacific Loan Agreement.
        Furthermore, Pacific has the right to convert any portion of the principal
        or
        interest of the Pacific Note outstanding into shares of our common stock
        based
        on a conversion rate equal to $0.20 per share. We hold the right to call
        the
        Pacific Note at any time the average over 20 consecutive trading days of
        the
        daily average of the high and low fair market value of our common stock is
        at or
        above $0.50 per share and the shares have been registered.
 
 On
        November 1, 2005, we renegotiated our financing agreements with Mr. Green
        and
        Pacific. Mr. Green entered into a new loan and security agreement (the “Green
        Note”) whereby his original $250,000 unsecured note (“Existing Financing”) was
        combined to allow us to draw up to an aggregate of $600,000, on terms similar
        to
        the Pacific Loan Agreement, as amended. In consideration for the Existing
        Financing, we issued a five-year warrant to purchase up to 2,500,000 shares
        of
        our common stock with an exercise price of $0.12 per share, subject to
        adjustment as defined in the agreement. On November 9, 2005, we drew the
        initial
        monthly amount of $100,000 and issued to Mr. Green (i) 500,000 shares of
        our
        un-registered common stock (with piggyback registration rights) and (ii)
        issued
        a five-year warrant to purchase up to 1,000,000 shares of our common stock
        with
        an exercise price of $0.12 per share. The Green Note bears interest of 12
        percent per annum. The Green Note requires no payments until the maturity
        date
        of April 30, 2006. We have the option to prepay interest accruing on any
        given
        month by paying either (i) the amount of the monthly accrual in cash or (ii)
        by
        issuing 50,000 shares of common stock. The Green Note is convertible at Mr.
        Green’s option at a conversion rate of $0.20 per share. We have a call option
        that triggers at any time the average over 20 consecutive trading days of
        the
        daily average of the high and low fair market value of our common stock is
        at or
        above $0.50 per share and the shares are registered. In order to effectuate
        the
        Green Note, Mr. Green required an additional personal guaranty. Stephen D.
        King,
        a board member of ours, provided that guaranty. In exchange for agreeing
        to
        personally guaranty our obligations under the Green Note, we issued a two-year
        warrant to purchase 1,000,000 shares of our common stock at a price of $0.15
        per
        share to Mr. King.
 
 Contemporaneously,
        we amended the Pacific Loan Agreement and Pacific Note to allow for similar
        terms between Mr. Green and Pacific and to enable the parties to have equal
        security interests in our Company. Pursuant to an intercreditor agreement
        between Mr. Green and Pacific, Mr. Green is *pari
        passu* in a
        secondary security interest to the assets of the Company. The amended note
        allows Pacific to receive a monthly interest rate of 12 percent per annum
        (versus the original rate of six percent). Furthermore, the amended note
        requires no payments until the maturity date of April 30, 2006 and the monthly
        interest payments have been modified as follows: we have the option to prepay
        interest accruing on any given month by paying either (i) the amount of the
        monthly accrual in cash or (ii) by issuing 50,000 shares of common
        stock.
 
 As
        of
        December 31, 2005, we have received an aggregate sum of $750,000 in new debt
        financing and accrued $23,790 of interest.
  24
 
 Our
        existing sources of liquidity will not provide cash to fund operations for
        the
        next twelve months. As of the date of this Annual Report, we have estimated
        our
        cash needs over the next twelve months to be approximately $2,800,000 (to
        include anticipated debt servicing of approximately $1,150,000, $650,000
        for the
        Bates-Hunter and $150,000 for the Holdsworth project). Additionally, should
        the
        exploration results for Bates-Hunter prove viable, we will require
        $4,600,000 Canadian to complete the purchase by November 30, 2006. Furthermore,
        in order to continue with exploration at the FSC Project, we are required
        to
        have an additional $500,000 advance available, which would be applied to
        the
        next investment of $1,400,000 required in order to maintain our level of
        participation in Kwagga. We will continue our attempt to raise additional
        capital. Some of the possibilities available to us are through private equity
        transactions, to develop a credit facility with a lender or the exercise
        of
        options and warrants. However, such additional capital may not be available
        to
        us at acceptable terms or at all. In the event that we are unable to obtain
        additional capital, we would be forced to reduce operating expenditures and/or
        cease operations altogether.
 
 Foreign
        Exchange Exposure
 
 Since
        our
        entrance into the precious minerals arena, we have had very limited dealings
        with foreign currency transactions, even though most of our transactions
        have
        been with foreign entities. Most of the funds requests have required US Dollar
        denominations. Even though we may not record direct losses due to our dealings
        with market risk, we have an associated reduction in the productivity of
        our
        assets. Since we have invested $2,100,000 in US funds in Kwagga, whereby
        they in
        turn transfer funds to AfriOre for exploration expenditures, the exchange
        from
        the US Dollar to the South African Rand has sustained a reduction. This
        reduction is one of the reasons for the decrease in our initial 5 to 7 drillhole
        program on the FSC Project, to be revised to a three drillhole program.
        Furthermore, should the US Dollar weaken further in relationship to the South
        African Rand, we may sustain additional reductions in the number of drillholes
        with future investments.
 
 **ITEM
        7. FINANCIAL STATEMENTS**
 
 The
        Financial Statements of the Company, the accompanying notes and the report
        of
        independent registered public accounting firm are included as part of this
        Form
        10-KSB beginning on page F-1, which follows the signature page.
  **ITEM
        8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 None.
 
 **ITEM
        8A. CONTROLS AND PROCEDURES**
 
 (a)
        Evaluation of Disclosure Controls and Procedures.
 
 The
        Company’s Chief Executive Officer and Chief Financial Officer have reviewed the
        Company’s disclosure controls and procedures as of the end of the period covered
        by this Annual Report. Based upon this review, these officers believe that
        the
        Company’s disclosure controls and procedures were effective.
 
 Since
        the
        Company does not have a formal audit committee, its Board of Directors oversees
        the responsibilities of the audit committee. The Board is fully aware that
        there
        is lack of segregation of duties due to the small number of employees dealing
        with general administrative and financial matters. However, the Board has
        determined that considering the employees involved and the control procedures
        in
        place, risks associated with such lack of segregation are insignificant and
        the
        potential benefits of adding employees to clearly segregate duties does not
        justify the expenses associated with such increases at this time.
  25
 
 (b)
        Changes in Internal Controls Over Financial Reporting.
 
 There
        have been no significant changes in internal control over financial reporting
        that occurred during the fiscal period covered by this Annual Report that
        have
        materially affected or are reasonably likely to materially affect the Company’s
        internal control over financial reporting.
 
 **ITEM
        8** **B.
        OTHER INFORMATION**
 
 None.
  26
  **PART
        III**
 
 **ITEM
        9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
        REGISTRANT**
 
 Set
        forth
        below are the names of all directors and executive officers of the Company,
        their respective ages and all positions and offices with the Company held
        by
        each person as of March 29, 2006:
 
 Name
              
              Age
              
              Positions
                  with the CompanyH.
                  Vance White
              
              61
              
              Chief
                Executive Officer and DirectorMark
                  D. Dacko
              
              54
              
              Chief
                Financial Officer, Secretary and DirectorNorman
                  D. Lowenthal
              
              68
              
              DirectorStephen
                  D. King
              
              49
              
              Director
 
 H.
        Vance
        White has been our Chief Executive Officer and one of our directors since
        June
        26, 2003. Since January 2003, Mr. White has also served as President of Hawk
        Precious Minerals Inc., a Toronto based mineral exploration company. Since
        May
        2005 to present, Mr. White serves on the board of directors of MacDonald
        Mines
        Exploration Ltd. Since April 2001, Mr. White has also been a partner in Brooks
        & White Associates, an unincorporated partnership providing management,
        financial and/or investor relations services to junior companies primarily
        in
        the natural resources sector. Since 1989 to present, Mr. White serves on
        the
        board of directors of Kalahari Resources Inc., a publicly-held Junior Canadian
        Resources company. Since November 1995 to present, Mr. White has served as
        the
        Alpine Ski Race Administrator for the Osler Bluff Ski Club, and since September
        1979 to present, Mr. White has served as President and Director of Brewis
&
White Limited, a private family investment company. From January 1991 to
        July
        1998 he was the Franchisee for Alarm Force Industries in the Collingwood,
        Grey-Bruce Regions of Central Ontario, a provider of residential and commercial
        monitored alarm systems monitoring. From August ****** 1993
        to
        March 1995, Mr. White was the President of Amarado Resources Inc., a predecessor
        company of AfriOre Limited and a Director from August 1993 to June 1997.
        From
        September 1983 to September 1995, Mr. White was President of Mid-North
        Engineering Services, a company providing services and financing to the junior
        mining sector prior to which he was President and Director of the Dickenson
        Group of Companies, gold producers in the Red Lake gold mining camp of North
        Western Ontario, Canada. Mr. White has been involved with the natural resource
        industry for over 30 years and intends to devote approximately 70-80 percent
        of
        his time to the affairs of our Company.
 
 Mark
        D.
        Dacko was appointed to our board of directors on June 26, 2003. Since March
        2003, Mr. Dacko has also served as Chief Financial Officer and Secretary
        and he
        served as our Controller from February 2001 to March 2003. Prior to joining
        the
        Company, Mr. Dacko was Controller for PopMail.com, inc., a publicly held
        email/marketing services and restaurant company, from January 1999 until
        January
        2001. From November 1994 to December 1998, Mr. Dacko was Controller for
        Woodroast Systems, Inc., a publicly held restaurant company based in
        Minneapolis, Minnesota. Mr. Dacko has no prior experience in the precious
        mineral exploration or mining industry.
 
 Norman
        D.
        Lowenthal was appointed to our board of directors on September 4, 2003. Since
        October 2002, Mr. Lowenthal has served as Vice-Chairman of the Taylor Companies,
        a private bank located in Washington, D.C., and since January 2001, he has
        served as Chairman of SSC Mandarin Financial Services based in Hong Kong.
        SSC
        Mandarin Financial Services is a joint venture partner with the China Gold
        Bureau, which is an advisor to the government operated association of China
        gold
        mines. Mr. Lowenthal was Chairman of the Johannesburg Stock Exchange from
        April
        1997 to April 2000 and, since April 1997, he has been a member of the Securities
        Regulation Panel of South Africa.
 
 Stephen
        D. King was appointed to our board of directors on July 8, 2004. Since October
        2000, Mr. King has served as President of SDK Investments, Inc., a private
        investment firm located in Atlanta, Georgia specializing in corporate finance
        and investing. He has served as President, from January 1994 until July 2000
        and
        Chairman until October 2000, of PopMail.com, inc., a publicly traded company
        with businesses in the hospitality and Internet sectors.
  27
 
 There
        is
        no family relationship between any director and executive officer of the
        Company.
 
 **CODE
        OF ETHICS**
 
 The
        Company has adopted a Code of Ethics that applies to its principal executive
        officer, principal financial officer, controller and persons performing similar
        functions. The Code of Ethics is available on its website at www.witsbasin.com.
 
 **SECTION
        16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**
 
 Section
        16(a) of the Securities Exchange Act of 1934, as amended, requires our officers,
        directors and persons who own more than 10% of our outstanding common stock
        to
        file reports of ownership and changes in ownership with the Securities and
        Exchange Commission and to furnish copies of these reports to us. Based solely
        on a review of the copies of the Forms 3, 4 and 5 and amendments that we
        have
        received, we believe that all such forms required during 2004 and 2005 were
        filed on a timely basis, except for the following:
 
 H.
        Vance
        White filed a Form 4 on February 11, 2005 relating to a transaction on February
        9, 2004.
 
 H.
        Vance
        White filed a Form 4 on February 16, 2005 relating to a transaction on February
        14, 2004.
 
 Mark
        D.
        Dacko filed a Form 4 on May 3, 2005 relating to a transaction on December
        29,
        2004.
 
 Stephen
        D. King filed a Form 4 on October 20, 2005 relating to a transaction on October
        13, 2005.
 
 Norman
        D.
        Lowenthal filed a Form 4 on October 26, 2005 relating to a transaction on
        October 20, 2005.
 
 H.
        Vance
        White filed a Form 4 on October 26, 2005 relating to a transaction on October
        20, 2005.
 
 Stephen
        D. King filed a Form 4 on October 26, 2005 relating to a transaction on October
        20, 2005.
 
 Tom
        Brazil filed a Form 4 dated November 30, 2005 relating to transactions on
        November 17, 2005.
 
 Tom
        Brazil filed a Form 4 dated January 4, 2006 relating to transactions on December
        20, 2005.
 
 Stephen
        D. King filed a Form 4/A on February 21, 2006 relating to a transaction on
        May
        4, 2005.
 
 Stephen
        D. King filed a Form 4 on February 21, 2006 relating to a transaction on
        October
        27, 2005.
 
 **ITEM
        10. EXECUTIVE COMPENSATION**
 
 **SUMMARY
        COMPENSATION TABLE**
 
 The
        following table sets forth, for the last three fiscal years, the compensation
        earned for services rendered in all capacities by our chief executive officer
        and the other highest-paid executive officers serving as such at the end
        of 2005
        whose compensation for that fiscal year was in excess of $100,000. No other
        executive officer of ours received compensation in excess of $100,000 during
        fiscal year 2005.
  28


AnnualCompensation
              
              Long-Term
                  Compensation
                    Awards
              
              All
                  Other
                  Compensation
                    ($)Name
                  and Principal Position
              
              Year
              
              Salary($)
              
              Bonus($)
              
              Other
                    AnnualCompensation
                  ($)
              
              Securities
                  UnderlyingOptions/SAR(#)H.
                  Vance White(1)
              
              2005
              
              
              —
              
              
              —
              
              
              —
              
              
              450,000
              
              
              —Chief
                  Executive Officer
              
              2004
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —and
                  Director
              
              2003
              
              
              —
              
              
              —
              
              
              —
              
              
              1,000,000
              
              
              —Mark
                  D. Dacko(2)
              
              2005
              
              $
              90,000
              
              
              —
              
              
              —
              
              
              450,000
              
              
              —Chief
                  Financial Officer,
              
              2004
              
              $
              90,000
              
              
              —
              
              
              —
              
              
              125,000
              (3)
              
              —Secretary
                  and Director
              
              2003
              
              $
              90,000
              
              
              —
              
              
              —
              
              
              350,000
              
              
              —




(1)
            Mr.
                White has been our Chief Executive Officer and one of our directors
                since
                June 26, 2003. The Company does not pay Mr. White a salary, but we
                do
                record a non-cash expense for his contributed
                services.


(2)
            Mr.
                Dacko was appointed to our board of directors on June 26, 2003. Since
                March 14, 2003, Mr. Dacko has also served as Chief Financial Officer
                and
                Secretary and he served as our Controller from February 2001 to March
                2003.


(3)
            Our
                Board of Directors granted Mr. Dacko a stock option for his voluntary
                deferment of his salary for a six-month period during 2004.




**OPTION
      GRANT TABLE**





The
      following information sets forth information with respect to the grants of
      options by us to our Chief Executive Officer and our other most highly
      compensated executive officers as of December 31, 2005.





Percent
                totalNumber
                of
            
            options
                granted
            
            Exercise/
            
            
            
            Grant
                dateoptions
            
            to
                employees in
            
            base
            
            Expiration
            
            presentgranted
            
            fiscal
                2005
            
            price
                ($)
            
            date
            
            value
                (c)Mr.
                White (a)
            250,000
            
            28%
            
            $0.26
            
            5/2/2015
            
            $
                64,810Mr.
                White (b)
            200,000
            
            22%
            
            $0.15
            
            10/20/2015
            
            $
                29,860Mr.
                Dacko (a)
            250,000
            
            28%
            
            $0.26
            
            5/2/2015
            
            $
                64,810Mr.
                Dacko (b)
            200,000
            
            22%
            
            $0.15
            
            10/20/2015
            
            $
                29,860





(a) The
      options granted vested entirely on 5/2/05.


(b) The
      options granted vested entirely on 10/20/05.


(c) Grant
      date present value is calculated on the date of the grant using the
      Black-Scholes pricing model assuming the following: no dividend yield, risk-free
      interest rate of ranging from 4.5 to 7.0 percent, expected volatility ranging
      from 176 to 190 percent, and expected terms of the options of 10 years. The
      Black-Scholes value is then multiplied by the number of options
      granted.





**AGGREGATED
      OPTION EXERCISES IN 2005 AND YEAR-END OPTION VALUE TABLE**





Shown
      below is information relating to (i) the exercise of stock options during 2005
      by our Chief Executive Officer and each of our other most highly compensated
      executive officers as of December 31, 2005 and (ii) the value of unexercised
      options for each of the Chief Executive Officer and such executive officers
      as
      of December 31, 2005:




29





Number
                of
            
            
            
            Number
                of shares
            
            Value
                of unexercisedshares
            
            
            
            underlying
                unexercised
            
            in-the-money
                optionsacquired
                on
            
            Value
            
            options
                at Dec. 31, 2005
            
            at
                Dec. 31, 2005 (a)exercise
            
            Realized
            
            Exercisable
            
            Unexercisable
            
            Exercisable
            
            UnexercisableMr.
                White
            —
            
            $
                —
            
            1,450,000
            
            —
            
            $
                —
            
            $
                —Mr.
                Dacko
            —
            
            $
                —
            
            965,000
            
            —
            
            $
                —
            
            $
                —





(a)
            The
                value of unexercised in-the-money options is based on the difference
                between the exercise price of the options and $0.14, the fair market
                value
                of the Company’s common stock on December 31,
                2005.





No
      stock
      appreciation rights were exercised during the 2005 fiscal year, and no stock
      appreciation rights were outstanding at the end of that fiscal
      year.





**EMPLOYMENT
      AGREEMENTS**





We
      employ
      eight employees and we do not have written employment agreements with any.
      Although our chief executive officer does not collect any salary, we did record
      a non-cash expense for his contributed services during the year ended December
      31, 2005. Effective January 2006, our chief financial officer is entitled to
      an
      annual salary of $120,000.





As
      indicated above, Mr. White also serves as president of Hawk Precious Minerals
      Inc., a Toronto-based mineral exploration company, for which he receives a
      monthly salary of $2,500 Canadian, roughly the equivalent of US$2,250 as of
      March 24, 2006. Hawk Precious Minerals USA, Inc., a wholly owned subsidiary
      of
      Hawk Precious Minerals Inc., holds 3,242,500 shares of our common stock.
      Additionally, Hawk Precious Minerals Inc., holds 200,000 shares of our common
      stock and a warrant to purchase 30,000 shares of our common stock at $1.00
      per
      share, which expires on October 13, 2006.





**DIRECTOR
      COMPENSATION**





Non-employee
      directors of our Company are reimbursed for all reasonable and necessary costs
      and expenses incurred in connection with their duties as directors. In addition,
      we issue options to our directors as determined from time to time by the Board.
      In 2005, we issued options to purchase a total of 900,000 shares of our common
      stock to two directors as follows: on May 2, 2005, we granted an option to
      purchase 250,000 shares to Mr. Lowenthal and
      250,000 shares to Mr. King ;
      and on
      October 20, 2005 we granted an option to purchase 200,000 shares to Mr.
      Lowenthal and 200,000 shares to Mr. King. The grants to Messrs. Lowenthal and
      King were both pursuant to our 2003 Director Stock Option Plan.





On
      January 27, 2005, the board authorized a consulting agreement with Stephen
      D.
      King. The agreement is for consulting services to provide strategic merger,
      acquisition and corporate advice with regard to the Company’s Colorado mining
      opportunities, as well as other consulting services. As of December 31, 2005,
      we
      paid $207,000 to Mr. King for said services.





Members
      of our board who are also employees of ours receive no options for their
      services as directors.





**AUDIT
      COMMITTEE FINANCIAL EXPERT**





The
      Company does not have a formal audit committee. Our Board of Directors as a
      group acts in the capacity as the audit committee. There were no audit committee
      meetings held during 2005. Financial information relating to quarterly reports
      was disseminated to all board members for review. The audited financial
      statements for the years ended December 31, 2005 and 2004 were provided to
      each
      member of the board in which any concerns by the members were directed to our
      auditors: Carver Moquist & O’Connor, LLC.




30




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      SHAREHOLDER MATTERS**





The
      following information sets forth the number and percentage of shares of the
      Company’s common stock owned beneficially, as of March 29, 2006, by any person,
      who is known to the Company to be the beneficial owner of five percent or more
      of the Company’s common stock, and, in addition, by each director and each
      executive officer of the Company, and by all directors and executive officers
      as
      a group. Information as to beneficial ownership is based upon statements
      furnished to the Company by such persons.





**Name
                and Address**
            **Amount
                of Beneficial Ownership (1)**
            **Percentage
                of Class**H.
                Vance White
            4,922,500
                (2)
            6.980
                South 8thStreet, Suite 900Minneapolis,
                MN 55402Mark
                D. Dacko
            965,000
                (3)
            1.480
                South 8thStreet, Suite 900Minneapolis,
                MN 55402Norman
                D. Lowenthal
            700,000
                (3)
            1.0Private
                Bag X60Saxonwold,
                2132 South AfricaStephen
                D. King
            2,700,000
                (4)
            3.74243
                Dunwoody Club, Suite 103Atlanta,
                GA 30350All
                directors and officers as a group
            9,287,500
            12.3Thomas
                Brazil
            7,732,367
                (5)
            10.717
                Bayns Hill RoadBoxford,
                MA 01921Andrew
                Green
            7,750,000
                (6)
            10.39900
                Carver RoadCincinnati,
                OH 45242Pacific
                Dawn Capital
            4,500,000
                (7)
            6.12566
                W. Woodland DriveAnaheim,
                CA 92801Hawk
                Precious Minerals Inc.
            3,472,500
                (8)
            5.02500
                - 120 Adelaide St. W.Toronto,
                ON M5H 1T1


______________





(1)
            Except
                as otherwise indicated, each person possesses sole voting and investment
                power with respect to the shares shown as beneficially
                owned.




(2)
            Includes
                1,450,000 shares issuable upon the exercise of options that are currently
                exercisable. Also includes 3,242,500 shares held by Hawk Precious
                Minerals
                USA, Inc., a wholly owned subsidiary of Hawk Precious Minerals Inc.,
                200,000 shares held by Hawk Precious Minerals Inc., and 30,000 shares
                issuable upon exercise of certain warrants held by Hawk Precious
                Minerals
                Inc., of which Mr. White is a director and executive
                officer.




(3)
            Represents
                shares issuable upon the exercise of options that are currently
                exercisable.




(4)
            Includes
                700,000 shares issuable upon the exercise of options that are currently
                exercisable and 2,000,000 shares issuable upon exercise of certain
                warrants. All options and warrants have been transferred into the
                name of
                Mr. King’s spouse.




(5)
            Includes
                2,775,000 shares issuable upon the exercise of certain warrants.
                Also
                includes 91,500 shares owned by Mr. Brazil’s spouse. Mr. Brazil disclaims
                beneficial ownership of these
                shares.




(6)
            Includes
                6,500,000 shares issuable upon the exercise of certain
                warrants.





(7)
            Includes
                4,000,000 shares issuable upon the exercise of certain
                warrants.





(8)
            Includes
                3,242,500 shares held by Hawk Precious Minerals USA, Inc., a wholly
                owned
                subsidiary of Hawk Precious Minerals Inc., 200,000 shares held by
                Hawk
                Precious Minerals Inc., and 30,000 shares issuable upon exercise
                of
                certain warrants held by Hawk Precious Minerals
                Inc.





31




**EQUITY
      COMPENSATION**





The
      following table sets forth certain information regarding equity compensation
      plan information as of December 31, 2005:




Number
                of securitiesremaining
                available forfuture
                issuance underNumber
                of securities to
            
            Weighted-average
            
            equity
                compensationbe
                issued upon exercise
            
            exercise
                price of
            
            plans
                (excludingof
                outstanding options,
            
            outstanding
                options,
            
            securities
                reflected inPlan
                category
            
            warrants
                and rights
            
            warrants
                and rights
            
            column
                (a))(a)
            
            
            
            (b)Equity
                compensationplans
                approved bysecurity
                holders (1)
            
            
            4,409,500
            
            $
            0.90
            
            
            764,000Equity
                compensationplans
                not approved bysecurity
                holders
            
            
            1,722,500
            
            $
            0.83
            
            
            400,000Total
            
            
            6,132,000
            
            $
            0.88
            
            
            1,164,000





(1)
      Includes 450,000 securities (in columns a and b) available from the 2000
      Director Stock Option Plan (a Plan previously approved by shareholders) approved
      by written board action on July 8, 2003 but not yet presented for shareholder
      approval.





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





The
      following describes certain relationships and related transactions that we
      have
      with persons deemed to be affiliates of ours. We believe that each of the
      transactions described below were on terms at least as favorable to our Company
      as we would have expected to negotiate with unaffiliated third
      parties.





Wayne
      W. Mills





The
      following transactions occurred when Mr. Mills beneficially owned more than
      5%
      of our securities. As of December 31, 2005, Mr. Mills is a less than 5%
      beneficial owner of our securities as indicated in his Schedule 13G
      filings.





In
      May
      2004, in exchange for agreeing to personally guarantee our obligations under
      a
      secured convertible promissory note that we issued to Pandora Select Partners,
      L.P., we paid Mr. Mills a cash fee of $48,750, plus issued a five-year warrant
      to purchase 375,000 shares of our common stock at a price of $0.40 per share.
      In
      addition, in consideration for advisory services rendered to us, we paid to
      Blake Capital LLC (a wholly owned entity of Mr. Mills) $25,000, respectively
      and
      agreed to issue to Blake Capital a five-year warrant to purchase, at an exercise
      price of $0.40 per share, 100,000 shares of our common stock.




32





In
      May
      2005, we entered into a consulting agreement with Blake Advisors, LLC related
      to
      strategic merger, acquisition and corporate finance services for a period of
      one-year. The agreement required monthly payments of $15,875 in cash and the
      reimbursement of reasonable out-of-pocket expenses. The agreement was cancelled
      December 31, 2005. Blake Advisors is wholly owned by Mr. Mills. And in May
      2005,
      we entered into warrant exercise agreement with Mr. Mills, allowing him a
      reduced exercise price on previously issued and outstanding warrants, granted
      in
      his name or one of his wholly owned entities. He held an aggregate of 1,906,334
      warrants exercisable with a range of original pricing from $0.40 to $5.50 per
      share. The warrant exercise agreement allows for a predetermined number of
      warrants available for monthly exercise at $0.20 per share, for a period of
      one
      year. During 2005, Mr. Mills exercised 370,650 warrants.




Hawk





On
      June
      10, 2004, we entered into an option agreement to earn an interest in the
      McFaulds Lake project held under option by Hawk. The option agreement required
      cash payments of Cdn$60,000 and the issuance of 200,000 shares of our common
      stock.





On
      October 13, 2004, we entered into a short-term loan arrangement with Hawk,
      whereby we borrowed $15,000 by issuing a four-month unsecured promissory note
      to
      Hawk. The note bore a 10 percent interest rate per annum and was repaid in
      December 2004. We had the authorization to borrow up to an additional $15,000
      under the same terms. As consideration for the note and any additional loans,
      we
      issued to Hawk a two-year warrant to purchase up to 30,000 shares of our common
      stock at a price of $1.00 per share.





On
      April
      11, 2005, we entered into a management services agreement with Hawk, whereby
      Hawk will provide certain management and administrative services to the Company.
      The term of the agreement is for one-year and requires payment of $50,000 US.
      As
      of June 30, 2005, we had paid the entire yearly agreement amount to
      Hawk.





**ITEM
      13. EXHIBITS**





The
      following exhibits are filed as part of this Annual Report on Form 10-KSB,
      or
      are incorporated herein by reference.


Exhibit**
              Description
                  of Document3.1
              Articles
                  of Incorporation, as amended through July 10, 2003 (incorporated
                  by
                  reference to Exhibit 3.1 to the Registrant’s Form SB-2 filed on February
                  14, 2005 (File No. 333-122338)).3.2
              By-Laws
                  (incorporated by reference to Exhibit 3.2 to Form 10-KSB for the
                  year
                  ended December 31, 2004 (File No. 1-12401)).4.1
              Form
                  of Common Stock certificate (incorporated by reference to Exhibit
                  4.1 to
                  the Registrant’s Form S-2 filed on November 26, 2003 (File No.
                  333-110831)).4.2
              Form
                  of Common Stock Purchase Warrant dated October 24, 2003 (incorporated
                  by
                  reference to Exhibit 4.1 to the Registrant’s Form 8-K filed October 31,
                  2003).4.3
              Form
                  of Warrant issued to Pandora Select Partners, L.P. (incorporated
                  by
                  reference to Exhibit 4.1 of the Registrant’s Form 8-K filed June 4,
                  2004).
  33
  4.4
              Form
                  of Warrant issued to two affiliates of Pandora Select Partners,
                  L.P.
                  (incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K
                  filed June 4, 2004).4.5
              Form
                  of Warrant issued to Hawk Precious Minerals Inc. (incorporated
                  by
                  reference to Exhibit 4.1 of the Registrant’s Form 8-K filed October 15,
                  2004).4.6
              Form
                  of Common Stock Purchase Warrant (incorporated by reference to
                  Exhibit 4.1
                  of the Registrant’s Form 8-K filed December 16, 2004).4.7
              Form
                  of Common Stock Purchase Warrant dated November 1, 2005 (incorporated
                  by
                  reference to Exhibit 4.1 to Form 10-QSB for the quarter ended September
                  30, 2005 (File No. 1-12401)).5.1
              Opinion
                  of Maslon Edelman Borman & Brand, LLP, dated January 6, 2005,
                  regarding Registrant’s status under the Investment Company Act of 1940
                  (incorporated by reference to Exhibit 5.2 to the Registrant’s Form S-2
                  filed on January 10, 2005 (File No. 333-110831)).10.1
              Stock
                  Option Agreement (incorporated by reference to Exhibit 6.1 to Registrant’s
                  Form 1-A (File No. 24D-3802 SML)).10.2
              1997
                  Incentive Plan (incorporated by reference to Exhibit 10.23 to Registrant’s
                  Form 10-K for the year ended December 31, 1996 (File No.
                  0-27968)).10.3
              2000
                  Director Stock Option Plan, as amended (incorporated by reference
                  to
                  Exhibit 4.1 to Registrant’s Form S-8 filed November 19, 2003 (File No.
                  333-110590)).10.4
              2001
                  Employee Stock Option Plan (incorporated by reference to Exhibit
                  10.18 to
                  Form 10-K for the year ended December 31, 2001 (File No.
                  1-12401)).10.5
              Join
                  Venture and Joint Contribution Agreement dated June 26, 2003 by
                  and among
                  the Registrant, Hawk Precious Minerals Inc. and Hawks Precious
                  Minerals
                  USA, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s
                  Form 8-K filed July 1, 2003).10.6
              Member
                  Control Agreement of Active Hawk Minerals, LLC dated June 26, 2003
                  (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K
                  filed July 1, 2003).10.7
              2003
                  Director Stock Option Plan (incorporated by reference to Exhibit
                  4.2 to
                  Registrant’s Form S-8 filed November 19, 2003 (File No.
                  333-110590)).10.8
              Quota
                  Purchase Agreement by and between the Registrant and Argyle Securities
                  Limited, dated February 6, 2004 (incorporated by reference to Exhibit
                  10.1
                  to the Registrant’s Form 8-K filed February 12, 2004).10.9
              Purchase
                  Agreement by and among the Registrant and Pandora Select Partners
                  L.P.
                  dated May 28, 2004 (incorporated by reference to Exhibit 10.1 of
                  the
                  Registrant’s Form 8-K filed June 4, 2004).10.10
              Secured
                  Convertible Promissory Note by the Registrant to Pandora Select
                  Partners
                  L.P. dated May 28, 2004 (incorporated by reference to Exhibit 10.2
                  of the
                  Registrant’s Form 8-K filed June 4,
                  2004).
  34
 10.11
              Registration
                  Rights Agreement by and among the Registrant and Pandora Select
                  Partners
                  L.P. dated May 28, 2004 (incorporated by reference to Exhibit 10.3
                  of the
                  Registrant’s Form 8-K filed June 4, 2004).10.12
              Security
                  Agreement by and between the Registrant and Pandora Select Partners
                  L.P.
                  dated May 28, 2004 (incorporated by reference to Exhibit 10.4 of
                  the
                  Registrant’s Form 8-K filed June 4, 2004).10.13
              Assignment
                  of Option Agreement between and by the Registrant, Hawk Precious
                  Minerals
                  Inc. and Richard Nemis “In Trust” dated June 10, 2004 (incorporated by
                  reference to Exhibit 10.1 of the Registrant’s Form 8-K filed June 14,
                  2004).10.14
              Option
                  Agreement between the Registrant and Richard Nemis “In Trust” dated May
                  12, 2004 (incorporated by reference to Exhibit 10.2 of the Registrant’s
                  Form 8-K filed June 14, 2004).10.15
              Agreement
                  by and among the Registrant and Argyle Securities Limited, dated
                  July 19,
                  2004 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form
                  8-K filed August 4, 2004).10.16
              Shareholders
                  Agreement by and among AfriOre International (Barbados) Limited,
                  the
                  Registrant, and Kwagga Gold (Barbados) Limited, dated August 27,
                  2004
                  (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K
                  filed September 1, 2004).10.17
              Amendment
                  to Shareholders Agreement by and among AfriOre International (Barbados)
                  Limited, the Registrant, and Kwagga Gold (Barbados) Limited, dated
                  August
                  30, 2004 (incorporated by reference to Exhibit 10.2 of the Registrant’s
                  Form 8-K filed September 1, 2004).10.18
              Proposal
                  by and among the Registrant, Hunter Gold Mining Corporation, Hunter
                  Gold
                  Mining, Inc., and Ken Swaisland, dated September 16, 2004 (incorporated
                  by
                  reference to Exhibit 10.1 of the Registrant’s Form 8-K filed September 16,
                  2004).10.19
              Form
                  of Promissory Note by the Registrant to Hawk Precious Minerals
                  Inc., dated
                  October 13, 2004 (incorporated by reference to Exhibit 10.1 of
                  the
                  Registrant’s Form 8-K filed October 15, 2004).10.20
              Form
                  of Subscription Agreement and Investment Representation (incorporated
                  by
                  reference to Exhibit 10.1 of the Registrant’s Form 8-K filed December 16,
                  2004).10.21
              Form
                  of Supplement to Subscription Agreement and Investment Representation
                  (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K
                  filed December 16, 2004).10.22
              Letter
                  Agreement dated December 2, 2003 by and between Ken Swaisland and
                  Hunter
                  Gold Mining Corporation regarding purchase and sale of shares of
                  Hunter
                  Gold Mining Corporation (incorporated by reference to Exhibit 10.24
                  to the
                  Registrant’s Form SB-2 filed on February 14, 2005 (File No. 333-122338)).
  35
 10.23
              Assignment
                  of Purchase Option Agreement by and between the Registrant and
                  Kenneth
                  Swaisland, dated August 12, 2004 (incorporated by reference to
                  Exhibit
                  10.24 to Form 10-KSB for the year ended December 31, 2004 (File
                  No.
                  1-12401)).10.24
              Consulting
                  Agreement dated January 20, 2005 between the Registrant and Stephen
                  D.
                  King (incorporated by reference to Exhibit 10.1 to Form 10-QSB
                  for the
                  quarter ended March 31, 2005 (File No. 1-12401)).10.25
              Management
                  Services Agreement dated April 11, 2005 between the Registrant
                  and Hawk
                  Precious Minerals Inc. (incorporated by reference to Exhibit 10.2
                  to Form
                  10-QSB for the quarter ended March 31, 2005 (File No.
                  1-12401)).10.26
              Amended
                  and Restated Loan and Security Agreement by the Registrant to Pacific
                  Dawn
                  Capital, LLC dated November 1, 2005 (incorporated by reference
                  to Exhibit
                  10.1 to Form 10-QSB for the quarter ended September 30, 2005 (File
                  No.
                  1-12401)).10.27
              Amended
                  Secured Convertible Promissory Note by the Registrant to Pacific
                  Dawn
                  Capital, LLC dated September 30, 2005 (incorporated by reference
                  to
                  Exhibit 10.2 to Form 10-QSB for the quarter ended September 30,
                  2005 (File
                  No. 1-12401)).10.28
              Loan
                  and Security Agreement by the Registrant to Andrew Green dated
                  November 1,
                  2005 (incorporated by reference to Exhibit 10.3 to Form 10-QSB
                  for the
                  quarter ended September 30, 2005 (File No. 1-12401)).10.29
              Secured
                  Convertible Promissory Note by the Registrant to Andrew Green dated
                  November 1, 2005 (incorporated by reference to Exhibit 10.4 to
                  Form 10-QSB
                  for the quarter ended September 30, 2005 (File No.
                  1-12401)).10.30
              Letter
                  Agreement dated December 31, 2005 by and between the Registrant
                  and Hunter
                  Gold Mining Corporation regarding amending the option agreement
                  for the
                  purchase of the shares of Hunter Gold Mining Corporation (incorporated
                  by
                  reference to Exhibit 10.1 of the Registrant’s Form 8-K filed January 18,
                  2006).16.1
              Letter
                  from Virchow, Krause & Company, LLP dated January 3, 2005
                  (incorporated by reference to Exhibit 16.1 of the Registrant’s Form 8-K
                  filed January 3, 2005).16.2
              Letter
                  from Walter E. Brooks dated January 12, 2005 (incorporated by reference
                  to
                  Exhibit 16.1 of the Registrant’s Form 8-K filed January 18,
                  2005).21**
              Subsidiaries
                  of the Registrant.23.1**
              Consent
                  of Carver Moquist & O’Connor, LLC.24**
              Power
                  of Attorney (included on the signature page hereto).31.1**
              Certification
                  by Chief Executive Officer.31.2**
              Certification
                  by Chief Financial Officer.32.1**
              Certification
                  by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as
                  Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.32.2**
              Certification
                  by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as
                  Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.
  ** Filed
          herewith electronically
  36




**ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 On
        January 3, 2005, our Board of Directors ratified the engagement of Carver
        Moquist & O’Connor, LLC (“CMO”) to audit our financial statements for the
        year ended December 31, 2004 and on January 23, 2006, our Board ratified
        the
        engagement of CMO to audit our financial statements for the year ended December
        31, 2005. On December 28, 2004 Virchow, Krause & Company, LLP (“VK”)
        resigned from its position as our principal independent
        accountants.
 
 **AUDIT
        FEES:**
 VK
        were
        our auditors for the three quarters ended September 30, 2004 and CMO were
        our
        auditors for the years ended December 31, 2004 and 2005.
 
 For
        their
        review of our Quarterly Reports on Form 10-QSB and services that are normally
        provided by the accountant in connection with statutory and regulatory filings,
        VK billed us $38,890.
 
 The
        aggregate fees billed for professional services rendered by CMO for the audit
        of
        the Company's annual financial statements and review of financial statements
        included in the Company's Form 10-KSB for 2004 and 2005, the Company’s Form
        10QSB for 2005, and services that are normally provided by the accountant
        in
        connection with statutory and regulatory filings or engagements was $12,400
        for
        the year ended December 31, 2004 and $37,440 for the year ended December
        31,
        2005.
 
 **AUDIT
        RELATED FEES:**
 There
        were no fees billed in each of the last two fiscal years for assurance and
        related services by the principal accountant that are reasonably related
        to the
        performance of the audit or review of the Company's financial statements.
 
 **TAX
        FEES:**
 There
        were no fees billed in each of the last two fiscal years for professional
        services rendered by the principal accountant for tax compliance, tax advice,
        and tax planning.
 
 **ALL
        OTHER FEES:**
 There
        were no other fees billed in each of the last two fiscal years for products
        and
        services provided by the principal accountant, other than the services reported
        above.
  **POLICY
        ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
        OF
        INDEPENDENT AUDITORS**





At
      present, we do not have an audit committee, but rather our entire Board of
      Directors performs the functions of the audit committee. Our Board approves
      each
      engagement for audit or non-audit services before we engage our independent
      auditor to provide those services. The Board has not established any
      pre-approval policies or procedures that would allow our management to engage
      our independent auditor to provide any specified services with only an
      obligation to notify the audit committee of the engagement for those services.
      None of the services provided by our independent auditors for fiscal 2005 was
      obtained in reliance on the waiver of the pre-approval requirement afforded
      in
      SEC regulations.




37





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.




WITS
                BASIN PRECIOUS MINERALS INC.
              (“REGISTRANT”)Dated:
              March 29, 2006
            By:
            /s/ H.
              Vance
              WhiteH.
              Vance WhiteChief
              Executive Officer





Each
      person whose signature to this Annual Report appears below hereby constitutes
      and appoints H. Vance White and Mark D. Dacko as his or her true and lawful
      attorney-in-fact and agent, with full power of substitution, to sign on his
      or
      her behalf individually and in the capacity stated below and to perform any
      acts
      necessary to be done in order to file all amendments to this Annual Report
      and
      any and all instruments or documents filed as part of or in connection with
      this
      Annual Report or the amendments thereto and each of the undersigned does hereby
      ratify and confirm all that said attorney-in-fact and agent, or his substitutes,
      shall do or cause to be done by virtue hereof.





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





**Name**
            
            **Title**
            
            **Date**/s/
                H. Vance White
              H.
                Vance White
            
            Chief
                Executive Officer and Director
              (principal
                executive officer)
            
            March
                29, 2006/s/
                Mark D. Dacko
              Mark
                D. Dacko
            
            Chief
                Financial Officer, Secretaryand
                Director
              (principal
                financial and accounting officer)
            
            March
                29, 2006/s/
                Norman D. Lowenthal
              Norman
                D. Lowenthal
            
            Director
            
            March
                30, 2006/s/
                Stephen D. King
              Stephen
                D. King
            
            Director
            
            March
                29, 2006





38




**ITEM
        7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
 
 Table
        of
        Contents
  PageReport
                  of Independent Registered Public Accounting Firm ofCarver
                  Moquist & O’Connor, LLC
              F-2Consolidated
                  Balance Sheets as of December 31, 2005 and 2004
              F-3Consolidated
                  Statements of Operations for the Years EndedDecember
                  31, 2005 and 2004
              F-4Consolidated
                  Statements of Shareholders’ Equity and ComprehensiveLoss
                  for the Years Ended December 31, 2005 and 2004
              F-5Consolidated
                  Statements of Cash Flows for the Years EndedDecember
                  31, 2005 and 2004
              F-9Notes
                  to Consolidated Financial Statements
              F-10
  F-1
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors and Shareholders of
 Wits
        Basin Precious Minerals Inc. and subsidiaries (an exploration stage
        company)
 
 We
        have
        audited the accompanying consolidated balance sheets of Wits Basin Precious
        Minerals Inc., and subsidiaries (an exploration stage company) as of December
        31, 2005 and 2004, and the related consolidated statements of operations,
        shareholders’ equity and comprehensive loss, and cash flows for the years ended
        December 31, 2005 and 2004, and the period from May 1, 2003 (inception of
        exploration stage) to December 31, 2005. These financial statements are the
        responsibility of the company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Wits Basin Precious Minerals
        Inc.
        as of December 31, 2005 and 2004, and the results of its operations and its
        cash
        flows for the years ended December 31, 2005 and 2004, and the period from
        May 1,
        2003 (inception of exploration stage) to December 31, 2005 in conformity
        with
        accounting principles generally accepted in the United States of
        America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 1 to the
        consolidated financial statements, the Company had net losses for the years
        ended December 31, 2005 and 2004 and had an accumulated deficit at December
        31,
        2005. These conditions raise substantial doubt about its ability to continue
        as
        a going concern. Management’s plans regarding those matters are also described
        in Note 1. The consolidated financial statements do not include any adjustments
        that might result from the outcome of this uncertainty.
 
 /s/
        Carver Moquist & O’Connor, LLC
 
 Minneapolis,
        Minnesota
 March
        30,
        2006
  F-2
  **WITS
        BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
        EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
        BALANCE SHEETS**
  December
                  31,2005
              
              2004AssetsCurrent
                  assets:Cash
              
              $
              117,816
              
              $
              1,122,348Receivables
              
              
              —
              
              
              30,817Investment
              
              
              11,260
              
              
              18,904Prepaid
                  expenses
              
              
              163,396
              
              
              317,276Total
                  current assets
              
              
              292,472
              
              
              1,489,345Property
                  and equipment, net
              
              
              89,559
              
              
              —Participation
                  mining rights, net
              
              
              120,803
              
              
              840,310Debt
                  issuance costs, net
              
              
              4,662
              
              
              80,359Total
                  Assets
              
              $
              507,496
              
              $
              2,410,014Liabilities
                  and Shareholders’ EquityCurrent
                  liabilities:Notes
                  payable, net of original issue discount
              
              $
              301,111
              
              $
              87,279Accounts
                  payable
              
              
              136,223
              
              
              191,631Accrued
                  expenses
              
              
              65,972
              
              
              133,595Total
                  current liabilities
              
              
              503,306
              
              
              412,505Accrued
                  guarantee fee
              
              
              —
              
              
              30,000Private
                  placement escrow
              
              
              —
              
              
              734,950Total
                  liabilities
              
              
              503,306
              
              
              1,177,455Commitments
                  and contingenciesShareholders’
                  equity:Common
                  stock, $.01 par value, 150,000,000 sharesauthorized:
                  65,674,329 and 42,601,612 shares issued andoutstanding
                  at December 31, 2005 and 2004, respectively
              
              
              656,743
              
              
              426,016Additional
                  paid-in capital
              
              
              34,487,774
              
              
              31,388,817Warrants
              
              
              6,418,685
              
              
              5,238,405Accumulated
                  deficit
              
              
              (22,932,460
              )
              
              (22,932,460
              )Deficit
                  accumulated during the exploration stage,subsequent
                  to April 30, 2003
              
              
              (18,618,908
              )
              
              (12,888,219
              )Accumulated
                  other comprehensive loss
              
              
              (7,644
              )
              
              —Total
                  shareholders’ equity
              
              
              4,190
              
              
              1,232,559Total
                  Liabilities and Shareholders’ Equity
              
              $
              507,496
              
              $
              2,410,014
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-3
  **WITS
        BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
        EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  May
                  1, 2003(inception)
                  toDecember
                  31,
              
              Dec.
                  31,2005
              
              2004
              
              2005Revenues
              
              $
              —
              
              $
              —
              
              $
              —Operating
                  expenses:General
                  and administrative
              
              
              3,777,977
              
              
              1,764,773
              
              
              6,916,932Exploration
                  expenses
              
              
              1,134,386
              
              
              1,155,542
              
              
              7,631,218Depreciation
                  and amortization
              
              
              110,703
              
              
              247,087
              
              
              439,050Stock
                  issued as penalty
              
              
              —
              
              
              2,152,128
              
              
              2,152,128Loss
                  (gain) on impairment of Brazmin
              
              
              (75,000
              )
              
              742,578
              
              
              667,578Loss
                  on disposal of assets
              
              
              —
              
              
              —
              
              
              1,633Total
                  operating expenses
              
              
              4,948,066
              
              
              6,062,108
              
              
              17,808,539Loss
                  from operations
              
              
              (4,948,066
              )
              
              (6,062,108
              )
              
              (17,808,539
              )Other
                  income (expense):Interest
                  income
              
              
              —
              
              
              —
              
              
              2,225Interest
                  expense
              
              
              (782,623
              )
              
              (295,045
              )
              
              (1,077,668
              )Total
                  other expense
              
              
              (782,623
              )
              
              (295,045
              )
              
              (1,075,443
              )Loss
                  from operations before income tax
                benefit and
                  discontinued operations
              
              
              (5,730,689
              )
              
              (6,357,153
              )
              
              (18,883,982
              )Benefit
                  from income taxes
              
              
              —
              
              
              —
              
              
              243,920Loss
                  from continuing operations
              
              
              (5,730,689
              )
              
              (6,357,153
              )
              
              (18,640,062
              )Discontinued
                  operations (See Note 3):Gain
                  from discontinued operations
              
              
              —
              
              
              21,154
              
              
              21,154Net
                  loss
              
              $
              (5,730,689
              )
              $
              (6,335,999
              )
              $
              (18,618,908
              )Basic
                  and diluted net loss per common share:Continuing
                  operations
              
              $
              (0.09
              )
              $
              (0.19
              )
              $
              (0.48
              )Discontinued
                  operations
              
              
              —
              
              
              —
              
              
              —Net
                  loss
              
              $
              (0.09
              )
              $
              (0.19
              )
              $
              (0.48
              )Basic
                  and diluted weighted averagecommon
                  shares outstanding
              
              
              61,637,933
              
              
              33,633,074
              
              
              39,070,732
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-4
  **WITS
        BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
        EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS’ EQUITY AND**
 **COMPREHENSIVE
        LOSS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 
 AdditionalCommon
                  stock
              
              paid-inShares
              
              Amount
              
              capital
              
              WarrantsBALANCE,
                  December 31, 2003
              
              
              30,297,181
              
              $
              302,972
              
              $
              27,423,258
              
              $
              4,146,438Issuance
                  of 700,000 shares of common stock and150,000
                  5-year warrants to purchase BrazminLtda
                  in February 2004
              
              
              700,000
              
              
              7,000
              
              
              679,000
              
              
              147,000Issuance
                  of 2,380,000 shares of common stockdeemed
                  as penalty shares related to October2003
                  private placement
              
              
              2,038,000
              
              
              20,380
              
              
              2,131,748
              
              
              —Exercise
                  of stock option by former directors inFebruary
                  and March 2004
              
              
              240,000
              
              
              2,400
              
              
              150,000
              
              
              —Issuance
                  of 1,928,571 warrants in connection withApril
                  2004 secured promissory note payable andpersonal
                  guaranty
              
              
              —
              
              
              —
              
              
              —
              
              
              650,000Issuance
                  of 200,000 shares of common stock in June2004
                  for option agreement of McFaulds Lake
              
              
              200,000
              
              
              2,000
              
              
              82,000
              
              
              —Partial
                  consideration returned for terminating thepurchase
                  of Brazmin Ltda.
              
              
              (400,000
              )
              
              (4,000
              )
              
              (112,000
              )
              
              —Conversion
                  of accounts payable to common stockat
                  $0.27 per share in August 2004
              
              
              250,000
              
              
              2,500
              
              
              65,000
              
              
              —Exercise
                  of 576,461 warrants at $0.25 per shareunder
                  repricing offer in September & October 2004
              
              
              576,431
              
              
              5,764
              
              
              138,344
              
              
              —Issuance
                  of 30,000 warrants at $1.00 per share inconnection
                  with bridge loan with affiliate
              
              
              —
              
              
              —
              
              
              —
              
              
              7,633Issuance
                  of 100,000 warrants at $0.10 per share inNovember
                  2004 for financial services
              
              
              —
              
              
              —
              
              
              —
              
              
              33,834Issuance
                  of common stock at $0.10, in privateplacement
                  in December 2004 and warrants at$0.25
                  per share
              
              
              8,450,000
              
              
              84,500
              
              
              507,000
              
              
              253,500Deferred
                  compensation related to consultingAgreements
                  for Brazmin Ltda.
              
              
              —
              
              
              —
              
              
              109,967
              
              
              —Conversion
                  of accounts payable to common stockat
                  $0.26 per share in December 2004
              
              
              250,000
              
              
              2,500
              
              
              62,500
              
              
              —Additional
                  stock option compensation undervariable
                  plan accounting
              
              
              —
              
              
              —
              
              
              72,000
              
              
              —Contributed
                  services by an executive
              
              
              —
              
              
              —
              
              
              80,000
              
              
              —Net
                  loss and comprehensive loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
                  December 31, 2004
              
              
              42,601,612
              
              
              426,016
              
              
              31,388,817
              
              
              5,238,405Issuance
                  of common stock and warrants in January2005
                  private placement at $0.10 per unit (net ofoffering
                  costs of $31,331)
              
              
              16,600,000
              
              
              166,000
              
              
              1,015,159
              
              
              447,510Issuance
                  of 275,000 shares of common stock inJanuary
                  2005 for purchase option rights ofBates-Hunter
                  Gold Mine
              
              
              275,000
              
              
              2,750
              
              
              91,250
              
              
              —Conversion
                  of note payable principal and interestinto
                  common stock from April thru November 2005
              
              
              2,400,000
              
              
              24,000
              
              
              304,861
              
              
              —
  F-5
 
 AdditionalCommon
                  stock
              
              paid-inShares
              
              Amount
              
              capital
              
              WarrantsAdditional
                  compensation for re-pricing of3,063,834
                  warrants granted to two consultants
              
              
              —
              
              
              —
              
              
              —
              
              
              209,817Exercise
                  of warrants with cash
              
              
              794,150
              
              
              7,941
              
              
              204,147
              
              
              (53,258
              )Issuance
                  of 1,353,567 shares of common stock,200,000
                  options and 2,800,000 warrants toconsultants
                  during 2005 for services
              
              
              1,353,567
              
              
              13,536
              
              
              289,566
              
              
              905,120Exercise
                  of warrants in lieu of interestdue
                  on note payable
              
              
              500,000
              
              
              5,000
              
              
              81,264
              
              
              (81,264
              )Issuance
                  of 150,000 shares of common stock andre-pricing
                  of 500,000 warrants for latepayment
                  penalty on note payable
              
              
              150,000
              
              
              1,500
              
              
              18,500
              
              
              55,284Issuance
                  of 1,000,000 shares of common stock and9,500,000
                  warrants and recording a beneficialconversion
                  charge related to 2005 notes payable
              
              
              1,000,000
              
              
              10,000
              
              
              214,011
              
              
              477,270Warrants
                  that expired during 2005 without exercise
              
              
              —
              
              
              —
              
              
              780,199
              
              
              (780,199
              )Contributed
                  services by an executive
              
              
              —
              
              
              —
              
              
              100,000
              
              
              —Comprehensive
                  loss:Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —Unrealized
                  loss on investment
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
                  comprehensive loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
                  December 31, 2005
              
              
              65,674,329
              
              $
              656,743
              
              $
              34,487,774
              
              $
              6,418,685
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-6
  **WITS
        BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
        EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS’ EQUITY AND**
 **COMPREHENSIVE
        LOSS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 Accumulated
                deficit
              
              Deficit
                accumulated(1)
              
              Accumulated
                other
                comprehensive
                loss
              
              TotalBALANCE,
                  December 31, 2003
              
              $
              (22,932,460
              )
              $
              (6,552,220
              )
              $
              —
              
              $
              2,387,988Issuance
                  of 700,000 shares of common stock and150,000
                  5-year warrants to purchase BrazminLtda
                  in February 2004
              
              
              —
              
              
              —
              
              
              —
              
              
              833,000Issuance
                  of 2,380,000 shares of common stockdeemed
                  as penalty shares related to October2003
                  private placement
              
              
              —
              
              
              —
              
              
              —
              
              
              2,152,128Exercise
                  of stock option by former directors inFebruary
                  and March 2004
              
              
              —
              
              
              —
              
              
              —
              
              
              152,400Issuance
                  of 1,928,571 warrants in connection withApril
                  2004 secured promissory note payable andpersonal
                  guaranty
              
              
              —
              
              
              —
              
              
              —
              
              
              650,000Issuance
                  of 200,000 shares of common stock in June2004
                  for option agreement of McFaulds Lake
              
              
              —
              
              
              —
              
              
              —
              
              
              84,000Partial
                  consideration returned for terminating thepurchase
                  of Brazmin Ltda.
              
              
              —
              
              
              —
              
              
              —
              
              
              (116,000
              )Conversion
                  of accounts payable to common stockat
                  $0.27 per share in August 2004
              
              
              —
              
              
              —
              
              
              —
              
              
              67,500Exercise
                  of 576,461 warrants at $0.25 per shareunder
                  repricing offer in September & October 2004
              
              
              —
              
              
              —
              
              
              —
              
              
              144,108Issuance
                  of 30,000 warrants at $1.00 per share inconnection
                  with bridge loan with affiliate
              
              
              —
              
              
              —
              
              
              —
              
              
              7,633Issuance
                  of 100,000 warrants at $0.10 per share inNovember
                  2004 for financial services
              
              
              —
              
              
              —
              
              
              —
              
              
              33,834Issuance
                  of common stock at $0.10, in privateplacement
                  in December 2004 and warrants at$0.25
                  per share
              
              
              —
              
              
              —
              
              
              —
              
              
              845,000Deferred
                  compensation related to consultingagreements
                  for Brazmin Ltda.
              
              
              —
              
              
              —
              
              
              —
              
              
              109,967Conversion
                  of accounts payable to common stockat
                  $0.26 per share in December 2004
              
              
              —
              
              
              —
              
              
              —
              
              
              65,000Additional
                  stock option compensation undervariable
                  plan accounting
              
              
              —
              
              
              —
              
              
              —
              
              
              72,000Contributed
                  services by an executive
              
              
              —
              
              
              —
              
              
              —
              
              
              80,000Net
                  loss and comprehensive loss
              
              
              —
              
              
              (6,335,999
              )
              
              —
              
              
              (6,335,999
              )BALANCE,
                  December 31, 2004
              
              
              (22,932,460
              )
              
              (12,888,219
              )
              
              —
              
              
              1,232,559Issuance
                  of common stock and warrants in January2005
                  private placement at $0.10 per unit (net ofoffering
                  costs of $31,331)
              
              
              —
              
              
              —
              
              
              —
              
              
              1,628,669Issuance
                  of 275,000 shares of common stock inJanuary
                  2005 for purchase option rights ofBates-Hunter
                  Gold Mine
              
              
              —
              
              
              —
              
              
              —
              
              
              94,000Conversion
                  of note payable principal and interestinto
                  common stock from April thru November 2005
              
              
              —
              
              
              —
              
              
              —
              
              
              328,861
  F-7
  Accumulated
                deficit
              
              Deficit
                accumulated(1)
              
              Accumulated
                other
                comprehensive
                loss
              
              TotalAdditional
                  compensation for re-pricing of3,063,834
                  warrants granted to two consultants
              
              
              —
              
              
              —
              
              
              —
              
              
              209,817Exercise
                  of warrants with cash
              
              
              —
              
              
              —
              
              
              —
              
              
              158,830Issuance
                  of 1,353,567 shares of common stock,200,000
                  options and 2,800,000 warrants toconsultants
                  during 2005 for services
              
              
              —
              
              
              —
              
              
              —
              
              
              1,208,222Exercise
                  of warrants in lieu of interestdue
                  on note payable
              
              
              —
              
              
              —
              
              
              —
              
              
              5,000Issuance
                  of 150,000 shares of common stock andre-pricing
                  of 500,000 warrants for latepayment
                  penalty on note payable
              
              
              —
              
              
              —
              
              
              —
              
              
              75,284Issuance
                  of 1,000,000 shares of common stock and9,500,000
                  warrants and recording a beneficialconversion
                  charge related to 2005 notes payable
              
              
              —
              
              
              —
              
              
              —
              
              
              701,281Warrants
                  that expired during 2005 without exercise
              
              
              —
              
              
              —
              
              
              —
              
              
              —Contributed
                  services by an executive
              
              
              —
              
              
              —
              
              
              —
              
              
              100,000Comprehensive
                  loss:Net
                  loss
              
              
              —
              
              
              (5,730,689
              )
              
              —
              
              
              —Unrealized
                  loss on investment
              
              
              —
              
              
              —
              
              
              (7,644
              )
              
              —Total
                  comprehensive loss
              
              
              —
              
              
              —
              
              
              —
              
              
              (5,738,333
              )BALANCE,
                  December 31, 2005
              
              $
              (22,932,460
              )
              $
              (18,618,908
              )
              $
              (7,644
              )
              $
              4,190
 
 (1)
              Deficit
                  accumulated during the exploration stage, subsequent to April 30,
                  2003.
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-8
  **WITS
        BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
        EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
 May
                  1, 2003(inception)
                  toDecember
                  31,
              
              Dec.
                  31,2005
              
              2004
              
              2005OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (5,730,689
              )
              $
              (6,335,999
              )
              $
              (18,618,908
              )Adjustments
                  to reconcile net loss to cashflows
                  from operating activities:Depreciation
                  and amortization
              
              
              110,703
              
              
              247,087
              
              
              439,050Loss
                  on disposal of assets
              
              
              —
              
              
              —
              
              
              1,633Loss
                  on impairment of Brazmin
              
              
              —
              
              
              742,578
              
              
              742,578Issue
                  of common stock for exploration rights in excess of
                historical
                  cost
              
              
              94,000
              
              
              —
              
              
              4,935,290Amortization
                  of participation mining rights
              
              
              613,857
              
              
              865,340
              
              
              1,979,197Amortization
                  of debt issuance costs
              
              
              83,058
              
              
              51,138
              
              
              134,196Amortization
                  of original issue discount
              
              
              649,613
              
              
              252,779
              
              
              902,392Amortization
                  of prepaid consulting fees related to issuance of
                warrants
                  and common stock
              
              
              1,155,679
              
              
              —
              
              
              1,819,762Compensation
                  expense related to stock options and warrants
              
              
              280,500
              
              
              355,934
              
              
              749,998Contributed
                  services by an executive
              
              
              100,000
              
              
              80,000
              
              
              204,500Issuance
                  of common stock as penalty related to October 2003
                private
                  placement
              
              
              —
              
              
              2,152,128
              
              
              2,152,128Interest
                  expense related to issuance of common stock
                and
                  warrants
              
              
              88,790
              
              
              —
              
              
              88,790Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              30,817
              
              
              —
              
              
              43,017Prepaid
                  expenses
              
              
              135,740
              
              
              295,501
              
              
              180,106Accounts
                  payable
              
              
              (55,408
              )
              
              132,405
              
              
              83,081Accrued
                  expenses
              
              
              (92,623
              )
              
              110,972
              
              
              (154,615
              )Net
                  cash used in operating activities
              
              
              (2,535,963
              )
              
              (1,050,137
              )
              
              (4,317,805
              )INVESTING
                  ACTIVITIES:Purchases
                  of property and equipment
              
              
              (94,612
              )
              
              —
              
              
              (94,612
              )Proceeds
                  from sale of Brazmin
              
              
              —
              
              
              25,000
              
              
              25,000Investment
                  in participation mining rights
              
              
              —
              
              
              (411,232
              )
              
              (2,239,121
              )Net
                  cash used in investing activities
              
              
              (94,612
              )
              
              (386,232
              )
              
              (2,308,733
              )FINANCING
                  ACTIVITIES:Payments
                  on long-term debt
              
              
              (169,145
              )
              
              (165,500
              )
              
              (334,645
              )Private
                  placement advances held in escrow
              
              
              (734,950
              )
              
              734,950
              
              
              —Cash
                  proceeds from issuance of common stock, netof
                  offering costs
              
              
              1,628,669
              
              
              845,000
              
              
              4,725,272Cash
                  proceeds from exercise of stock options
              
              
              —
              
              
              152,400
              
              
              169,900Cash
                  proceeds from exercise of warrants
              
              
              158,830
              
              
              144,108
              
              
              302,938Cash
                  proceeds from short-term debt
              
              
              750,000
              
              
              —
              
              
              750,000Cash
                  proceeds from long-term debt
              
              
              —
              
              
              650,000
              
              
              650,000Debt
                  issuance costs
              
              
              (7,361
              )
              
              (131,497
              )
              
              (138,858
              )Net
                  cash provided by financing activities
              
              
              1,626,043
              
              
              2,229,461
              
              
              6,124,607Change
                  in Cash and Cash Equivalents of Discontinued Operations
              
              
              —
              
              
              (34,734
              )
              
              (77,293
              )INCREASE
                  (DECREASE) IN CASH EQUIVALENTS
              
              
              (1,004,532
              )
              
              758,358
              
              
              (579,224
              )CASH
                  AND EQUIVALENTS, beginning of period
              
              
              1,122,348
              
              
              363,990
              
              
              697,040CASH
                  AND EQUIVALENTS, end of period
              
              $
              117,816
              
              $
              1,122,348
              
              $
              117,816
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-9
  **WITS
        BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
        EXPLORATION STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 and 2004**
 
 **NOTE
        1 - NATURE OF BUSINESS**
 
 Wits
        Basin Precious Minerals Inc., and subsidiaries (“we,” “us,” “our,” “Wits Basin”
or the “Company”) is a minerals exploration and development company based in
        Minneapolis, Minnesota. As of December 31, 2005, we hold interests in mineral
        exploration projects in South Africa (FSC Project), Canada (Holdsworth) and
        Colorado (Bates-Hunter).
 
 Our
        primary holding is a 35 percent interest in the company Kwagga Gold
        (Proprietary) Limited (“Kwagga”), which holds the rights and interests in the
“FSC Project,” an exploration project adjacent to the historic Witwatersrand
        goldfields in South Africa. We own the exploration rights of the “Holdsworth
        Project,” a property located near the village of Hawk Junction, Ontario, Canada.
        We acquired rights to the FSC and Holdsworth Projects in June 2003. On January
        21, 2005, we acquired purchase rights under a purchase agreement, which provides
        us with exploration rights of the Bates-Hunter Gold Mine located in Central
        City, Colorado and the possible future purchase of the assets of the Hunter
        Gold
        Mining Corporation. As of the date of this Annual Report, we do not claim
        to
        have any mineral reserves on our properties.
 
 Until
        March 14, 2003, we provided industry-specific solutions for managing, sharing
        and collaborating on business information on the Internet through our Hosted
        Solutions Business and until April 30, 2003, we provided accounting software
        through our Accounting Software Business. We sold substantially all of the
        assets relating to our Hosted Solutions and Accounting Software Businesses
        as of
        such dates and as a result, we became an exploratory stage company effective
        May
        1, 2003.
 
 As
        of
        December 31, 2005, we do not directly own any permits, we possess only a
        few
        pieces of equipment and we employ insufficient numbers of personnel necessary
        to
        actually explore and/or mine for minerals, therefore, we will be substantially
        dependent on the third party contractors we engage to perform such
        operations.
  The
        accompanying consolidated financial statements have been prepared assuming
        we
        will continue as a going concern, which contemplates the realization of assets
        and satisfaction of liabilities in the normal course of business. For the
        year
        ended December 31, 2005, we incurred losses from continuing operations of
        $5,730,689. At December 31, 2005, we had an accumulated deficit of $41,551,368
        and working capital deficit of $210,834. Our ability to continue as a going
        concern is dependent on our ability in raising the required additional capital
        or debt to meet short and long-term operating requirements. We believe that
        private placements of equity capital and debt financing may be adequate to
        fund
        our long-term operating requirements. We may also encounter business endeavors
        that require significant cash commitments or unanticipated problems or expenses
        that could result in a requirement for additional cash. If we raise additional
        funds through the issuance of equity or convertible debt securities, the
        percentage ownership of our current shareholders could be reduced, and such
        securities might have rights, preferences or privileges senior to our common
        stock. Additional financing may not be available upon acceptable terms, or
        at
        all. If adequate funds are not available or are not available on acceptable
        terms, we may not be able to take advantage of prospective business endeavors
        or
        opportunities, which could significantly and materially restrict our operations.
        We are continuing to pursue external financing alternatives to improve our
        working capital position. If we are unable to obtain the necessary capital,
        we
        may have to cease operations.
  F-10
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 Principles
        of Consolidation
 
 The
        consolidated financial statements include the accounts of Wits Basin Precious
        Minerals Inc., and our wholly owned subsidiaries: (i) Gregory Gold Producers,
        Inc; (ii) Active Hawk Minerals, LLC; (iii) Red Wing Business Systems, Inc;
        and
        (iv) Champion Business Systems, Inc. Red Wing Business Systems, Inc., and
        Champion Business Systems, Inc., became inactive subsidiaries after the sale
        of
        our Accounting Software Business in 2003. All significant intercompany
        transactions and balances have been eliminated in consolidation.
 
 Cash
        and Cash Equivalents
 
 We
        include as cash equivalents: (a) certificates of deposit, and (b) all other
        investments with maturities of three months or less, which are readily
        convertible into known amounts of cash. We maintain our cash in high-quality
        financial institutions. The balances, at times, may exceed federally insured
        limits.
 
 Property
        and Equipment
 
 Property
        and equipment are recorded at cost and depreciated using the straight-line
        method over estimated useful lives ranging from five to seven
        years.
 
 Long-Lived
        Assets
 
 We
        will
        periodically evaluate the carrying value of long-lived assets to be held
        and
        used, including but not limited to, capital assets and intangible assets,
        when
        events and circumstances warrant such a review. The carrying value of a
        long-lived asset is considered impaired when the anticipated undiscounted
        cash
        flow from such asset is separately identifiable and is less than its carrying
        value. In that event, a loss is recognized based on the amount by which the
        carrying value exceeds the fair value of the long-lived asset. Fair value
        is
        determined primarily using the anticipated cash flows discounted at a rate
        commensurate with the risk involved. Losses on long-lived assets to be disposed
        of are determined in a similar manner, except that fair values are reduced
        for
        the cost to dispose.
 
 Segment
        Reporting
 
 Due
        to
        the reclassification of our Hosted Solutions Business into discontinued
        operations, we have a single operating segment. The single operating segment
        is
        that of minerals exploration.
 
 Revenue
        Recognition and Deferred Revenue
 
 We
        currently do not have the ability to generate revenues from our investments
        in
        Kwagga (the FSC Project), Holdsworth, or Bates-Hunter. Furthermore, we do
        not
        expect to generate revenues for the foreseeable future.
 
 Exploration
        Expenses
 
 If
        we
        acquire a project that has no known reserves or resources, exploration expenses
        will be charged as incurred (less any fixed assets or other normally capitalized
        costs) until such time as proven resources or reserves have been properly
        established.
  F-11
 
 Use
        of
        Estimates
 
 Preparing
        financial statements in conformity with accounting principles generally accepted
        in the United States of America requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting period. Actual results could differ from those estimates.
 
 Stock
        Based Compensation
 
 For
        the
        year ended December 31, 2005 and as permitted by Statement of Financial
        Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based
        Compensation,” we accounted for share-based payments to employees and directors
        using the intrinsic value method under Accounting Principles Board (“APB”)
        Opinion No. 25. As such, we do not recognize compensation cost related to
        these
        stock option grants if the exercise price of the options equals or exceeds
        the
        fair value of the underlying stock at issuance date. Our general policy is
        to
        grant stock options and warrants at fair value at the date of grant. We recorded
        expense related to stock based compensation issued to non-employees in
        accordance with SFAS No. 123.
  For
        the
        years ended December 31, 2005 and 2004, we recorded compensation expense
        pursuant to APB Opinion No. 25 and related interpretations on options granted
        and due to modifications of options of $0 and $72,000, respectively. Had
        compensation expense for employees and directors been recognized based upon
        the
        fair value of options at the grant date consistent with the provisions of
        SFAS
        No. 123, our results would have been as follows:
 
 May
                  1, 2003(inception)
                  toDecember
                  31,
              
              December
                  31,2005
              
              2004
              
              2005Net
                  loss
              
              $
              (5,730,689
              )
              $
              (6,335,999
              )
              $
              (18,618,908
              )Stock-based
                  employee compensation expense
                  included in net loss, netof
                  related tax effects
              
              
              —
              
              
              72,000
              
              
              88,764Stock-based
                  employee compensation expense
                  determined under the fairvalue
                    based method, net of relatedtax
                    effects
              
              
              (428,679
              )
              
              (1,246,750
              )
              
              (5,125,023
              )Pro
                  forma net loss
              
              $
              (6,159,368
              )
              $
              (7,510,749
              )
              $
              (23,655,167
              )Loss
                  per share (basic and diluted):As
                  reported
              
              $
              (0.09
              )
              $
              (0.19
              )
              $
              (0.48
              )Pro
                  forma
              
              $
              (0.10
              )
              $
              (0.22
              )
              $
              (0.61
              )
  In
        determining the compensation cost of the options granted during fiscal 2005
        and
        2004, as specified by SFAS No. 123, the fair value of each option grant has
        been
        estimated on the date of grant using the Black-Scholes pricing model and
        the
        weighted average assumptions used in these calculations are summarized
        below:
 
 2005
              
              2004Risk-free
                  interest rate
              
              
              4.5%
                  - 7.0
              %
              
              4.5
              %Expected
                  volatility factor
              
              
              176%
                  - 190
              %
              
              200
              %Expected
                  dividend
              
              
              —
              
              
              —Expected
                  option term
              
              
              10
                  years
              
              
              10
                  years
  Off
          Balance Sheet Arrangements
 
 As
          of
          December 31, 2005, we did not have any off-balance sheet activities (including
          the use of structured finance or special purpose entities) or any trading
          activities in non-exchange traded commodity contracts that have a current
          or
          future effect on our financial condition, changes in the financial condition,
          revenues or expenses, results of operation, liquidity, capital expenditures
          or
          capital resources that are material to our investors .
 F-12
  Financial
        Instruments
 
 The
        carrying amounts for all financial instruments approximates fair value. The
        carrying amounts for cash and cash equivalents, accounts payable and accrued
        liabilities approximated fair value because of the short maturity of these
        instruments. The fair value of long-term debt approximated the carrying amounts
        based upon our expected borrowing rate for debt with similar remaining
        maturities and comparable risk.
 
 Comprehensive
        Income (Loss)
 
 Comprehensive
        income (loss) includes net income (loss) and items defined as other
        comprehensive income (loss). Items defined as other comprehensive income
        (loss)
        include such items as foreign currency translation adjustments and unrealized
        gains (losses) on certain marketable securities.
 
 Net
        Loss per Common Share
 
 Basic
        net
        loss per common share is computed by dividing net loss applicable to common
        shareholders by the weighted average number of common shares outstanding
        during
        the periods presented. Diluted net loss per common share is determined using
        the
        weighted average number of common shares outstanding during the periods
        presented, adjusted for the dilutive effect of common stock equivalents,
        consisting of shares that might be issued upon exercise of options, warrants
        and
        conversion of convertible debt. In periods where losses are reported, the
        weighted average number of common shares outstanding excludes common stock
        equivalents, because their inclusion would be anti-dilutive.
 
 At
        December 31, 2005, the total principal and interest due on secured convertible
        debt was $672,442, which might be converted into 3,362,210 shares of our
        common
        stock, based on a $0.20 per share conversion price. Total options and warrants
        outstanding at December 31, 2005 were 6,132,000 and 40,126,998, respectively
        and
        total options and warrants outstanding at December 31, 2004 were 5,000,000
        and
        22,074,691, respectively. These shares were not included in computing the
        net
        loss per share because their effects were antidilutive for each of the years
        ended December 31, 2005 and 2004.
 
 Income
        Taxes
 
 The
        Company accounts for income taxes using the liability method to recognize
        deferred income tax assets and liabilities. Deferred income taxes are provided
        for temporary differences between the financial reporting and tax bases of
        our
        assets and liabilities at currently enacted tax rates. Deferred tax assets
        are
        reduced by a valuation allowance when, in the opinion of management, it is
        more
        likely than not that some portion or all of the deferred tax asset will not
        be
        realized.
 
 The
        Company has recorded a full valuation allowance against the net deferred
        tax
        asset due to the uncertainty of realizing the related benefits.
  Recent
          Accounting Pronouncements
 
 In
          December 2004, the Financial Accounting Standards Board (“FASB”) issued
          Statement No. 123(R), “Share-Based Payment,” which is a revision of SFAS
          No. 123 ,
          and
          supersedes APB Opinion No. 25 .
          SFAS 123(R) requires all share-based payments to employees and directors,
          as well as other equity-based compensation arrangements, to be recognized
          in the
          financial statements based on their fair values, using prescribed option-pricing
          models effective for the first annual period beginning after June 15, 2005. The
          pro
          forma disclosures previously permitted under SFAS
          No.
          123 will no
          longer be an alternative to financial statement recognition. The adoption
          of
          this statement becomes effective for the Company on January 1,
          2006.
 F-13
  The
        impact of adopting Statement No. 123(R) can not be predicted at this time
        because it will depend on levels of share-based payments granted in the future, valuation
        methodology adopted and
        assumptions selected at the time of future grants. With the adoption of
        Statement No. 123(R), we may elect to utilize a different valuation method
        and/or different valuation assumptions. These selections may have a significant
        impact on the amount of share-based payment expense under Statement
        No. 123(R).
 
 In
        May
        2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections” which
        replaces APB Opinion No. 20 “Accounting Changes” and SFAS 3, “Reporting
        Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion
        No. 28.” SFAS 154 provides guidance on the accounting for and reporting of
        accounting changes and error corrections. It establishes retrospective
        application, or the latest practicable date, as the required method for
        reporting a change in accounting principle and the reporting of a correction
        of
        an error. SFAS 154 is effective for accounting changes and corrections of
        errors
        made in fiscal years beginning after December 15, 2005. We are currently
        evaluating the effect that the adoption of SFAS 154 will have on our
        consolidated results of operations and financial condition but do not expect
        that adoption will have a material impact.
  **NOTE
        3 - DISCONTINUED OPERATIONS**
 
 Hosted
        Solutions Business
 
 Until
        March 14, 2003, we provided industry-specific solutions for managing, sharing
        and collaborating business information on the Internet through our Hosted
        Solutions Business. On March 14, 2003, we sold all of the assets relating
        to our
        Hosted Solutions Business. We reported a gain of $21,154 from adjustments
        relating to disputes of accounts payable issues, which we reconciled in 2004.
  **NOTE
        4 - RECEIVABLES**
 
 On
        August
        3, 2004, we completed a termination agreement in which we sold our interest
        in
        Brazmin, Ltda., back to its original owner. In that agreement, we were due
        a
        $25,000 payment, which was received in January 2005. On December 2, 2004,
        we
        entered into an agreement with MacDonald Mines Exploration Ltd., a Canadian
        company listed on the TSXV under BMK (“MacDonald”) whereby they could earn a 55
        percent interest in the McFaulds Lake Project. One of the provisions under
        the
        agreement required MacDonald to make a cash payment of $5,817, which was
        received in January 2005. See Note 8 - Participation Mining Rights for
        information regarding McFaulds Lake.
 **NOTE
          5 - INVESTMENT**
 
 Further
          to the agreement described above with MacDonald, MacDonald was required
          to issue
          to us 175,000 shares of their common stock. The US Dollar value of the
          175,000
          shares of MacDonald we hold was $11,260 on December 31, 2005 and $18,904
          on
          December 31, 2004. We consider this a current asset as we expect to sell
          these
          shares in the near term.
  **NOTE
          6 - PREPAID EXPENSES**
 
 Prepaid
          expenses consist of two components: prepaid consulting fees and other prepaid
          expenses. The prepaid consulting fees are calculated amounts from the issuance
          of common stock, warrants or options to consultants for various services
          that we
          do not have internal infrastructure to perform. The amortization periods
          coincide with terms of the agreements. The other prepaid expenses contain
          amounts we have prepaid for general and administrative purposes and are
          being
          expensed as utilized.
 
 In
          January 2005, we issued 2,000,000 warrants (which expire on December 31,
          2006)
          exercisable at $0.225 per share as consulting fees in connection with
          international marketing and public relations services provided by a foreign
          corporation, Caribbean Consultants Holdings Associated S.A. The warrants
          were
          valued at $710,664 using the Black-Scholes pricing model and were amortized
          over
          a one-year period (ending December 2005) to coincide with the term of the
          consulting agreement.
 F-14
 
 In
        April
        2005, we issued (i) 300,000 shares of our common stock (valued at $73,200
        based
        on an average five day closing sale price of our common stock) and 300,000
        two-year warrants exercisable at $0.50 per share (valued at $54,794 using
        the
        Black-Scholes pricing model) as compensation to a consultant for website
        marketing and monitoring programs; (ii) 150,000 two-year warrants (valued
        at
        $32,994 using the Black-Scholes pricing model) in 50,000 increments exercisable
        at $0.25, $0.50 and $0.75 per share as compensation to a consultant for advice
        with the investment capital markets and development of investment banking
        relationships and (iii) 150,000 two-year warrants exercisable at $0.30 per
        share
        (valued at $28,668 using the Black-Scholes pricing model) as compensation
        to two
        consultants (one 50,000 and one 100,000 issuance) who directly will be working
        with us on the Bates-Hunter project. Amortization of these issuance costs
        will
        vary between six and twenty four months to coincide with the term of the
        consulting agreements.
 
 In
        May
        2005, we entered into warrant exercise agreements with two consultants, allowing
        them a reduced exercise price on previously issued and outstanding warrants
        for
        a period of one year. They held an aggregate of 3,063,834 warrants exercisable
        with a range of original pricing from $0.40 to $5.50 per share. Each of the
        warrant exercise agreements allow for a predetermined number of warrants
        available for monthly exercise at $0.20 per share. An additional expense
        ($209,817) resulted from the modification of these warrants, which was
        calculated using the Black-Scholes pricing model, and is being amortized
        over an
        eleven month period to coincide with the terms of the agreements.
 
 In
        September 2005, we issued 50,000 shares of our common stock (valued at $7,000
        based on an average five day closing sale price of our common stock and fully
        amortized by December 31, 2005 to coincide with the terms of the agreement)
        as
        compensation to a consultant for advice with the investment capital
        markets.
 
 On
        October 20, 2005, we issued 200,000 options out of our 2001 Employee Stock
        Option Plan, which allows for such grants, with an exercise price of $0.15
        (the
        closing sale price of our common stock was $0.13) as compensation to a former
        board member related to advice of the investment capital markets outside
        of the
        US. The options were valued at $20,401 using the Black-Scholes pricing model
        and
        are being amortized over a two year period to coincide with the terms of
        the consulting agreement.
 
 Components
        of prepaid expenses are as follows:
 
 December
                  31,2005
              
              2004Prepaid
                  consulting fees
              
              $
              142,276
              
              $
              160,417Other
                  prepaid expenses
              
              
              21,120
              
              
              156,859$
              163,396
              
              $
              317,276
 
 **NOTE
        7 - PROPERTY AND EQUIPMENT**
 
 Related
        to our due diligence process at the Bates-Hunter Gold Mine in Colorado, we
        have
        made certain purchases of equipment ($94,612) necessary to operate and de-water
        the property. Depreciation of these purchases is calculated on a straight-line
        method over the estimated useful life, presently ranging from five to seven
        years, with the first years depreciation of $5,053.
  **NOTE
        8 - PARTICIPATION MINING RIGHTS**
  F-15
 
 The
        Participation Mining Rights are the capitalized investments we made in the
        mineral exploration projects of: (i) the FSC Project in South Africa, (ii)
        the
        Holdsworth Project in Canada, and (iii) the McFaulds Lake Project in Canada
        (which rights expired on December 31, 2005). These investments are in the
        form
        of: (a) shares of our common stock and warrants issued to purchase the rights
        to
        explore or buy assets, (b) cash expenditures required by the agreements we
        entered into to obtain those rights, and (c) historical costs we recorded
        as
        part of certain acquisitions. We have amortized all of the projects costs
        except
        for the remaining cash balance held by Kwagga for the FSC Project. We do
        not
        have the right to a refund of that remaining balance, except in very specific
        events and therefore do not consider those funds to be a prepaid expense,
        but an
        investment in exploration.
 
 We
        have
        adopted the policy to expense all further exploration project expenses as
        incurred (less any fixed assets or other normally capitalized costs) until
        we
        can establish a timeline for revenue recognition from either the mining of
        a
        mineral or the sale of a developed property.
 
 FSC
        and Holdsworth Projects
 
 In
        June
        2003, we acquired two exploration projects in a transaction with Hawk Precious
        Minerals USA, Inc., (“Hawk USA”), a wholly owned subsidiary of Toronto-based
        Hawk Precious Minerals Inc., (“Hawk”). Hawk is an affiliate of ours. One of the
        projects is the FSC Project, in which we have acquired a 35 percent equity
        interest in the company Kwagga Gold (Proprietary) Limited (“Kwagga”) in exchange
        for a $2,100,000 investment. Kwagga is a subsidiary of AfriOre International
        (Barbados) Ltd., (“AfriOre”). Kwagga holds the exploration rights for the FSC
        Project located in the Republic of South Africa adjacent to the major goldfields
        discovered at the historic Witwatersrand Basin. AfriOre is a precious minerals
        exploration company with offices in Johannesburg, South Africa and the operator
        of the FSC Project
 
 To
        date,
        we have invested $2,100,000 in Kwagga, which is being used to fund a three
        drillhole exploration program on the FSC Project that commenced in October
        2003.
        Once the current exploration funds have been expended completely, estimated
        to
        be mid-year 2006, AfriOre and Kwagga will deliver to us a report describing
        the
        results of the drilling activities. Within 120 days of our receipt of that
        report, we have the option to increase our ownership position in Kwagga to
        50
        percent in exchange for a further investment of $1,400,000. We have had initial
        conversations with AfriOre regarding possible financing options for the next
        investment. If we choose not to make this additional investment, then we
        would
        continue to own the shares representing our 35 percent interest, but we would
        no
        longer have any rights to increase our participation and would be subject
        to
        rapid dilution resulting from any additional investment in Kwagga. Furthermore,
        should Kwagga fail to complete the entire drillhole program, we could realize
        a
        complete loss of any remaining funds advanced to Kwagga.
  AfriOre
        consults with us regarding the work to be carried out on the FSC Project.
        AfriOre is responsible for ensuring that the property and the project are
        at all
        times in compliance with applicable laws. AfriOre is also required to provide
        us
        with quarterly written reports describing the work completed and the funds
        expended therewith. As consideration for its role as the project operator,
        AfriOre is entitled to a fee equal to 10 percent of all qualified expenditures
        made in connection with the FSC Project.
 
 In
        accordance with South African legislation, Kwagga will offer to a black economic
        empowerment group an option to purchase up to a 28 percent equity stake in
        Kwagga at a price to be mutually agreed upon by us, Kwagga and AfriOre. If
        such
        empowerment groups exercises such right to be granted, our interest in Kwagga
        would be proportionately diluted. For example, if we own 50 percent of Kwagga’s
        outstanding capital stock prior to the time any black economic empowerment
        group
        purchases a 28 percent stake, we would own 36 percent of Kwagga’s outstanding
        capital after the sale.
 
 After
        all
        of the funds contributed by us and any black empowerment group have been
        expended on the FSC Project, we, AfriOre and any such empowerment group will
        contribute on a pro rata basis all such further amounts necessary to continue
        funding the exploration work on the project on a pro rata basis. In the event
        any of the parties do not fully contribute in proportion to their respective
        equity interest in Kwagga, such party’s interest will be proportionately
        diluted.
  F-16
  Certain
        components of our Participation Mining Rights are based on the distributions
        made by us to Kwagga and further advanced to AfriOre to fund the drillhole
        program of the FSC Project. Of the $2,100,000 already invested in Kwagga,
        $120,803 remains in their cash reserves at December 31, 2005. The majority
        of
        all exploration expenses processed by AfriOre, is denominated in the South
        African Rand, whereas all of our funding has been in the US Dollar. Since
        June
        30, 2003, the Rand has appreciated against the Dollar by as much as
        approximately 25 percent. This reduction in the US Dollar plus the cost overruns
        associated with the additional depth drilled on each drillhole (BH47 and
        BH48)
        and sidewall repair on BH48 are the major factors that have contributed to
        decreasing the initial 5 to 7 drillhole program on the FSC to be revised
        to only
        a three drillhole program. The initial drillhole, BH47 was completed in June
        2004 to a depth of 2,984 meters
        (approximately 9,800 feet) and the second drillhole, BH48 was completed in
        August 2005 to a depth of 2,559 meters (approximately 8,400 feet).
 
 In
        order
        for AfriOre to begin preparation to commence on the third drillhole, they
        must
        receive the drilling permit (issued by the Department of Minerals and Energy,
        which is currently in process) and be provided with additional satisfaction
        that
        we have secured funds of at least $500,000.
 
 The
        other
        exploration project we acquired from Hawk USA in June 2003, located in the
        Wawa
        area near the village of Hawk Junction, Ontario, Canada, is the Holdsworth
        Project. The Holdsworth Project consists of 19 contiguous patented mining
        claims
        covering approximately 304 hectares (approximately 750 acres). The mining
        claims
        allow us to conduct exploration and exploitation activities in the near surface
        oxide zone of the Holdsworth Project. Once we have secured the financing,
        which
        we estimate to be approximately $150,000, our plan would be to conduct
        pre-exploration activities on the Holdsworth Project. The primary objective
        of
        these pre-exploration activities will be to confirm the results of prior
        exploration activities conducted on or near this property. Until we have
        the
        results of the pre-exploration activities, we will not be in a position to
        determine the scope and cost of further exploration activities, if any,
        necessary for the Holdsworth Project.
 
 Hawk
        USA’s contributions of its right in the FSC Project and its mining claims held
        in the Holdsworth Project were valued at their historical cost, an aggregate
        of
        $246,210. Based on the information we obtained from Hawk, we estimated that
        the
        value attributable to the FSC Project was $228,975. Based on this, the remaining
        value of $17,235 was assigned the Holdsworth Project.
  McFaulds
        Lake
 
 In
        June
        2004, we entered into an option agreement to earn a 70 percent interest in
        five
        mining claims covering approximately 1,295 hectares (approximately 3,200
        acres)
        in the McFaulds Lake area of the James Bay Lowlands, Attawapiskat Region
        of
        northern Ontario currently held under option by Hawk. This site is a VMS
        (volcanogenic massive sulphide) base metals project.
 
 The
        option agreement required us to pay Cdn$60,000 ($45,501 US) and issue 200,000
        shares of our common stock, valued at $84,000; therefore, we recorded our
        initial investment in McFaulds Lake at $129,501.
 
 In
        December 2004, we entered into an agreement with MacDonald whereby they could
        earn a 55 percent interest (subject to the 2% royalties) in the McFaulds
        Lake
        Project. The option required MacDonald to make a cash payment of Cdn$10,000,
        issue 250,000 shares of its common stock, and pay the Cdn$200,000 exploration
        expenditures required by the option. An initial drillhole had been completed
        and
        no mineral value was detected from the assay. The Cdn$10,000 cash payment
        and
        the issuance of the 250,000 shares transpired in January 2005 and were divided
        between Hawk and us on our respective 30 percent and 70 percent basis. Our
        portion was valued at US$24,721 at December 31, 2004 (includes $5,871 of
        cash
        and $18,904 in MacDonald common stock).
  The
        ownership of the option could not be transferred from Hawk to MacDonald and
        us
        until the final exploration expenditure had been made prior to December 31,
        2005. Neither we nor MacDonald made the final Cdn$200,000 expenditure for
        exploration, which was required under the terms of the option agreement and
        therefore, our rights for McFaulds Lake lapsed on December 31, 2005.
  F-17
 
 Components
        of participation mining rights are as follows:
 
 December
                  31,2005
              
              2004Investment
                  made in Kwagga
              
              $
              2,100,000
              
              $
              2,100,000Historical
                  value assigned to the FSC Project
              
              
              228,975
              
              
              228,975Historical
                  value assigned to the Holdsworth Project
              
              
              17,235
              
              
              17,235Miscellaneous
                  expenses (1)
              
              
              82,889
              
              
              82,889McFaulds
                  Lake
              
              
              129,501
              
              
              129,501Gross
                  participation mining rights
              
              
              2,558,600
              
              
              2,558,600Less
                  exploration expenditures reported by Kwagga
              
              
              (1,979,197
              )
              
              (1,365,340
              )Less
                  earn in option with MacDonald in McFaulds Lake (2)
              
              
              (24,721
              )
              
              (24,721
              )Less
                  accumulated amortization (3)
              
              
              (433,879
              )
              
              (328,229
              )Ending
                  Balance (4)
              
              $
              120,803
              
              $
              840,310
 
 (1)
              Includes
                  the joint agreement expenses and the issuance of an option to a
                  former
                  director.
 (2)
              In
                  exchange for the option agreement with MacDonald, they made a cash
                  payment
                  of Cdn$10,000 (our pro rata share in US Dollar value was $5,817)
                  and
                  issued 250,000 shares of their common stock (our pro rata share
                  in US
                  Dollar value was $18,904) both valued as of December 31,
                  2004.
 (3)
              We
                  began amortization of the FSC Project over a 24-month period on
                  a
                  straight-line basis beginning in July 2003. We began amortization
                  of the
                  Holdsworth Project over a 15-month period on a straight-line basis
                  beginning in October 2003. We began amortization of McFaulds Lake
                  over a
                  12-month period on a straight-line basis beginning in July 2004.
                  Also
                  included is the amount representing MacDonald’s 55 percent right in
                  McFaulds Lake. All projects are fully amortized as of December
                  31,
                  2005.
 (4)
              The
                  ending balance of $120,803 as of December 31, 2005 represents the
                  cash
                  reserves held by Kwagga.
 **NOTE
          9 - DEBT ISSUANCE COSTS**
 
 On
          June
          1, 2004 we received gross proceeds of $650,000 pursuant to the issuance
          of an
          18-month secured convertible promissory note to Pandora Select Partners
          LP, a
          Virgin Islands limited partnership. We paid or accrued $131,497 of debt
          issuance
          costs for the following: (i) origination fees of $40,000; (ii) legal fees
          of
          $17,747; (iii) guarantee fees of $48,750 (in order to effectuate the note,
          Pandora required an additional personal guaranty); and consulting services
          fees
          of $25,000, which were being amortized on a straight-line basis over an
          18-month
          period. The monthly amortization was approximately $7,300 per month and
          was
          fully amortized by December 2005.
 
 Related
          to two secured convertible promissory notes (See Note 10 - Notes Payable)
          issued
          in the fourth quarter of 2005, we paid or accrued $7,361 of debt issuance
          costs
          for legal fees.
 
 The
          following table summarizes the amortization of debt issuance costs:
 
 December
                    31,2005
                
                2004Gross
                    debt issuance costs
                
                $
                7,361
                
                $
                131,497Less:
                    amortization of debt issuance costs
                
                
                (2,699
                )
                
                (51,138
                )Debt
                    issuance costs, net
                
                $
                4,662
                
                $
                80,359
  **NOTE
          10 - NOTES PAYABLE**
 
 Secured
          Convertible Promissory Note with Pandora Select Partners LP
 F-18
 
 On
        June
        1, 2004 we received gross proceeds of $650,000 in consideration for issuing
        an
        18-month secured convertible promissory note (the “Note”) to Pandora Select
        Partners LP (“Pandora”), a Virgin Islands limited partnership. The Note was
        secured by substantially all of our assets and bore interest of 10 percent
        per
        annum. The principal and interest payment was as follows: (a) payments of
        $5,417
        in cash of interest only were payable in arrears on June 28, July 28 and
        August
        28, 2004; and (b) commencing on September 28, 2004, and on the 28th day of
        each
        of the following 14 months, we were required to pay principal and interest
        of
        $46,278. In lieu of cash, we could satisfy our repayment obligations by issuing
        shares of our common stock. On any payments we elected to pay in shares of
        common stock, the per-share value would be equal to 85 percent of the average
        of
        the high closing bid price of our common stock during the 20 trading days
        immediately preceding the payment date.
 
 From
        inception and through March 31, 2005, all payments were made in cash. From
        April
        through October 2005, all payments were paid by the issuance of common stock.
        The final November payment was a combination of cash and common stock. We
        issued
        an aggregate of 2,400,000 shares of our common stock. The Note was repaid
        in
        full as of December 9, 2005.
 
 As
        further consideration for the financing, we issued to Pandora a five-year
        warrant to purchase up to 928,571 shares of our common stock and issued
        five-year warrants to purchase an aggregate of 200,000 shares of our common
        stock to two affiliates of Pandora, both at a price of $0.40 per share, subject
        to adjustment as defined in the agreement. We issued additional five-year
        warrants to purchase an aggregate of 475,000 of our common stock for the
        personal guarantee of the Note.
 The
          following table summarizes the secured promissory note balance with
          Pandora:
 
 Original
                    gross proceeds
                
                $
                650,000Less:
                    original issue discount at time of issuance of note
                
                
                (650,000
                )Less:
                    principal payments
                
                
                (165,500
                )Add:
                    amortization of original issue discount
                
                
                252,779Balance
                    at December 31, 2004
                
                
                87,279Less:
                    principal payments
                
                
                (484,500
                )Add:
                    amortization of original issue discount
                
                
                397,221Balance
                    at December 31, 2005
                
                $
                —
  Promissory
          Note with Andrew Green
 
 In
          May
          2005, we entered into a short-term loan arrangement with a shareholder
          of ours,
          Andrew Green, an individual resident of Ohio (“Mr. Green”) whereby we borrowed
          $250,000 through a purchase agreement with an unsecured promissory note
          (“PN”).
          The PN bore an initial interest rate of six percent per annum and since
          we had
          not repaid the PN in full by July 15, 2005 the applicable interest rate
          from
          July 15 forward increased to 18 percent per annum.
 
 As
          additional consideration for the PN, we agreed to amend the terms of a
          warrant
          (originally issued as part of our October 2003 private placement) to purchase
          up
          to 500,000 shares of our common stock held by Mr. Green to reduce the exercise
          price from $0.25 per share to $0.01 per share based on a default provision
          in
          the PN, and we recorded a non-cash interest charge of $55,284 based on
          the
          Black-Scholes pricing model. Furthermore, since we had not repaid the PN
          in full
          by July 15, 2005, we were required to issue 50,000 shares of our unregistered
          common stock for each month there remained an outstanding balance beginning
          August 15, 2005, up to a maximum issuance of 150,000 shares. As of October
          15,
          2005, we have issued 150,000 of such penalty shares. We recorded the issuance
          of
          these penalty shares as an additional interest component, valuing each
          issuance
          with the closing sale price of our common stock, thereby recording $20,000
          in
          additional non-cash interest expense.
 
 In
          August
          2005, Mr. Green exercised the warrant to purchase 500,000 shares of common
          stock
          and we deducted the new warrant exercise price ($0.01 per share) of $5,000
          from
          the accrued interest owed to him from the PN.
 F-19
 
 The
        PN
        had a due date of September 15, 2005. On October 18, 2005, Mr. Green informed
        us
        that he did not consider us in default as of September 16, 2005 and furthermore
        was open to signing a new note arrangement. See the information that follows
        pertaining to our new agreement with Mr. Green.
  Secured
        Convertible Promissory Note with Pacific Dawn Capital, LLC and Andrew
        Green
 
 On
        September 30, 2005, we issued Pacific Dawn Capital, LLC, a California limited
        liability company (“Pacific”) a six-month secured convertible promissory note
        (the “Pacific Note”) in the principal amount of $600,000, or such lesser amount
        that is actually drawn by us pursuant to a loan and security agreement with
        Pacific dated September 30, 2005 (the “Pacific Loan Agreement”). The Pacific
        Note is secured by substantially all of our assets and bore an interest rate
        of
        six percent per annum. In order to effectuate the note, Pacific required
        an
        additional personal guaranty. Stephen D. King, a board member of ours, provided
        that guaranty. In exchange for agreeing to personally guaranty our obligations
        under the Pacific Note, we issued a two-year warrant to purchase 1,000,000
        shares of our common stock at a price of $0.15 per share.
 Under
          the
          Pacific Loan Agreement, beginning October 1, 2005, we have the right to
          draw up
          to $100,000 per month (up to an aggregate of $600,000) by providing Pacific
          notice of our intent to exercise a monthly draw along with a report of
          the
          exploration operations for Bates-Hunter. Pacific has the right to reject
          the
          draw if it is not satisfied with the report. If we fail to exercise a draw
          during any month, we waive our right to draw the $100,000 for that month.
 
 On
          October 3, 2005, we drew the initial monthly amount of $100,000 and issued
          to
          Pacific (i) 500,000 shares of our un-registered common stock (with piggyback
          registration rights) and (ii) issued a five-year warrant to purchase up
          to
          1,000,000 shares of our common stock with an exercise price of $0.12 per
          share,
          subject to adjustment as defined in the agreement. For each subsequent
          $100,000
          monthly draw, we will issue another five-year warrant to purchase up to
          1,000,000 shares of our common stock with an exercise price of $0.12 per
          share.
 
 We
          also
          provided Pacific certain preemptive rights under the Pacific Loan Agreement.
          Furthermore, Pacific has the right to convert any portion of the principal
          or
          interest of the Pacific Note outstanding into shares of our common stock
          based
          on a conversion rate equal to $0.20 per share and is considered to be
          conventional convertible debt under the accounting guidance of Emerging
          Issues
          Task Force (“EITF”)
          05-2. We hold
          the right to call the Pacific Note at any time the average over 20 consecutive
          trading days of the daily average of the high and low fair market value
          of our
          common stock is at or above $0.50 per share and the shares have been
          registered.
 F-20
 
 On
        November 1, 2005, we entered into a new loan and security agreement with
        Andrew
        Green (the “Green Note”) whereby his original $250,000 unsecured note (“Existing
        Financing”) which became due was refinanced to allow us to draw up to an
        aggregate of $600,000, on terms similar to the Pacific Loan Agreement, as
        amended. In consideration for the Existing Financing, we issued a five-year
        warrant to purchase up to 2,500,000 shares of our common stock with an exercise
        price of $0.12 per share, subject to adjustment as defined in the agreement.
        On
        November 9, 2005, we drew the initial monthly amount of $100,000 and issued
        to
        Mr. Green (i) 500,000 shares of our un-registered common stock (with piggyback
        registration rights) and (ii) issued a five-year warrant to purchase up to
        1,000,000 shares of our common stock with an exercise price of $0.12 per
        share.
        The Green Note bears interest of 12 percent per annum. The Green Note requires
        no payments until the maturity date of April 30, 2006. We have the option
        to
        prepay interest accruing on any given month by paying either (i) the amount
        of
        the monthly accrual in cash or (ii) by issuing 50,000 shares of common stock.
        The Green Note is convertible at Mr. Green’s option at a conversion rate of
        $0.20 per share and is considered to be conventional convertible debt under
        the
        accounting guidance of  EITF05-2. We have a
        call option that triggers at any time the average over 20 consecutive trading
        days of the daily average of the high and low fair market value of our common
        stock is at or above $0.50 per share and the shares are registered. In order
        to
        effectuate the Green Note, Mr. Green required an additional personal guaranty.
        Stephen D. King, a board member of ours, provided that guaranty. In exchange
        for
        agreeing to personally guaranty our obligations under the Green Note, we
        issued
        a two-year warrant to purchase 1,000,000 shares of our common stock at a
        price
        of $0.15 per share to Mr. King.
 
 Contemporaneously,
        we amended the Pacific Loan Agreement and Pacific Note to allow for similar
        terms between Mr. Green and Pacific and to enable the parties to have equal
        security interests in our Company. Pursuant to an intercreditor agreement
        between Mr. Green and Pacific, Mr. Green is *pari
        passu* in a
        secondary security interest to the assets of the Company. The amended note
        allows Pacific to receive a monthly interest rate of 12 percent per annum
        (versus the original rate of six percent). Furthermore, the amended note
        requires no payments until the maturity date of April 30, 2006 and the monthly
        interest payments have been modified as follows: we have the option to prepay
        interest accruing on any given month by paying either (i) the amount of the
        monthly accrual in cash or (ii) by issuing 50,000 shares of common stock.
 The
          application of the provisions of EITF 98-5, “Accounting for Convertible
          Securities with Beneficial Conversion Features or Contingently Adjustable
          Conversion Ratios,” and EITF 00-27, “Application of Issue 98-5 to Certain
          Convertible Instruments” for Mr. Green and Pacific resulted in the proceeds of
          the two loans being allocated based on the relative fair value of the loan,
          common stock and warrants. Lastly, due to the reduced relative fair value
          assigned to the convertible debt, the debt has a beneficial conversion
          feature
          that is “in-the-money” on the commitment date. Based on EITF 98-5, “Accounting
          for Convertible Securities with Beneficial Conversion Features or Contingently
          Adjustable Conversion Ratios,” the amount of the discount assigned to the
          beneficial conversion feature was limited to the amount of the proceeds
          allocated to the debt instrument.
 
 Unsecured
          Promissory Note
 
 On
          October 10, 2005, we entered into a short-term loan arrangement with a
          shareholder of ours (an individual resident of Minnesota) whereby we borrowed
          $100,000 through a purchase agreement with an unsecured promissory note.
          The
          promissory note bears an interest rate of six percent per annum and matures
          on
          April 10, 2006. As further consideration for the financing, we issued a
          five-year warrant to purchase up to 1,000,000 shares of our common stock
          with an
          exercise price of $0.12 per share, subject to adjustment as defined in
          the
          agreement.
 
 The
          proceeds of the loan were allocated based on the relative fair value of
          the loan
          and the warrants granted in accordance with APB 14, “Accounting for Convertible
          Debt and Debt Issued with Stock Purchase Warrants.”
 
 Notes
          Payable - Summarized
 
 As
          described above, during 2005, we have received an aggregate sum of $750,000
          in new debt financing, issued 1,000,000 shares of common stock and issued
          9,500,000 in warrants, all related to the new debt. The weighted average
          interest rate for all debt outstanding as of December 31, 2005 is
          11.2%.
 
 The
          following table summarizes the note payable balances:
 
 Original
                    gross proceeds
                
                $
                750,000Less:
                    original issue discount at time of issuance of note
                  for
                    common stock and warrants
                
                
                (521,304
                )Less:
                    beneficial conversion feature
                
                
                (179,977
                )48,719Less:
                    principal payments
                
                
                —Add:
                    amortization of original issue discount and
                  beneficial
                    conversion feature
                
                
                252,392Balance
                    at December 31, 2005
                
                $
                301,111
 F-21
  **NOTE
        11 - PRIVATE PLACEMENT ESCROW**
 
 We
        were
        holding advances of $734,950 in escrow related to a private placement of
        units
        of our securities, which we completed on January 7, 2005.
 
 **NOTE
        12 - COMMITMENTS AND CONTINGENCIES**
 
 Operating
        Leases
 
 We
        currently occupy approximately 160 square feet of office space, together
        with
        the use of related adjacent common areas, in Minneapolis, Minnesota pursuant
        to
        a lease agreement that expires May 31, 2007, which requires monthly payments
        of
        $1,156. Total rent expense under operating leases for the years ended December
        31, 2005 and 2004, was $13,872 and $18,635, respectively.
 
 Future
        minimum operating lease commitments are as follows for the years ending December
        31:
 
 2006
              
              $
              13,8722007
              
              
              5,780$
              19,652
  **NOTE
        13 - SHAREHOLDERS’ EQUITY**
 
 Common
        Stock Issuances
 
 In
        February 2004, we issued 700,000 shares of our common stock valued at $0.98
        per
        share, the closing sale as reported on the OTCBB, to Argyle Securities Limited
        for the purchase of Brazmin Ltda. On August 3, 2004, we entered into an
        agreement whereby we terminated the purchase of Brazmin and sold it back
        to
        Argyle. We received 400,000 shares of the common stock we had initially issued
        to Argyle and valued those shares at $0.29 per share, which was the closing
        sale
        price on that day.
 
 In
        June
        2004, we issued 200,000 shares of our non-registered common stock to Hawk
        to be
        able to participate in the McFaulds Lake Project. We valued those shares
        at
        $0.42 per share, the closing sale price on June 10, 2003.
 
 In
        August
        2004, we issued 250,000 shares of our common stock to a law firm, in exchange
        for amounts due them for services rendered totaling $50,000, which we previously
        recorded as accounts payable.
 
 In
        September and October 2004, certain warrant holders exercised on previously
        issued and outstanding warrants at an exercise price of $0.25 per share,
        providing gross proceeds of $144,108. The holders were offered a reduced
        price
        for a limited time and converted into 576,461 shares of common stock. The
        range
        of original price of the warrants exercised was from $0.50 to $5.50 per
        share.
 
 On
        December 3, 2004 and December 10, 2004, we completed private placements of
        units
        of our securities, each unit consisting of one share of our common stock
        and a
        warrant to purchase one-half share of common stock at an exercise price of
        $0.25
        per share. The warrants have an expiration date of December 31, 2006. We
        sold an
        aggregate of 8,450,000 units, resulting in gross proceeds of
        $845,000.
 
 In
        December 2004, we issued 250,000 shares of our common stock to a law firm,
        in
        exchange for amounts due them for services rendered totaling $50,000, which
        we
        previously recorded as accounts payable.
  In
        January 2005, we completed a private placement of 16,600,000 units of our
        securities, each unit consisting of one share of our common stock and a warrant
        to purchase one-half share of common stock at an exercise price of $0.25
        per
        share, resulting in gross proceeds of $1,660,000.
  F-22
  In
        January 2005, we closed on an assignment of a purchase agreement by and among
        us, Hunter Gold Mining Corporation and Ken Swaisland. Swaisland has sold
        us his
        rights to purchase the assets of the Hunter Corporation. The Hunter Corporation
        owns a 100% interest in the Bates-Hunter Gold Mine located in Central City,
        Colorado. We issued 250,000 shares of our common stock to Swaisland (valued
        at
        $0.34 per share, the closing sale price on January 21, 2005) and a further
        25,000 shares to an unrelated third party for the assignment on February
        2, 2005
        (valued at $0.36 per share).
  In
        May
        2005, we entered into warrant exercise agreements with two consultants, allowing
        them a reduced exercise price on previously issued and outstanding warrants
        for
        a period of one year. They held an aggregate of 3,063,834 warrants exercisable
        with a range of original pricing was from $0.40 to $5.50 per share. Each
        warrant
        exercise agreement allows for monthly exercises with an exercise price of
        $0.20
        per share. An additional expense of $209,817 resulted from the modification
        of
        these warrants. For the year ending December 31, 2005, an aggregate of 794,150
        warrants were exercised into common stock.
 
 In
        August
        2005, as additional consideration to a promissory note holder, we agreed
        to
        amend the terms of a warrant to purchase up to 500,000 shares of our common
        stock, with the reduction of the exercise price from $0.25 per share to $0.01
        per share. The holder exercised the entire 500,000 shares.
 
 During
        fiscal 2005, we entered into various agreements with consultants for services
        in
        public and investor relations. A total of 1,353,567 shares of our un-registered
        common stock were issued as follows: in March we issued 75,000 shares; in
        April
        we issued 500,000 shares; in May we issued 60,000 shares; in June we issued
        576,000 shares; in September we issued 50,000 shares and in December we issued
        92,567 shares.
 
 As
        of
        October 15, 2005, we issued to a promissory note holder, 150,000 shares of
        our
        un-registered common stock as penalty charges due for not paying the principal
        due as specified in the note.
 
 As
        of
        December 31, 2005, we issued to two promissory note holders, 1,000,000 shares
        of
        our un-registered common stock as additional consideration for extending
        the
        notes.
 
 From
        April through October 2005, all payments to Pandora were paid by the issuance
        of
        common stock. The final November payment was a combination of cash and common
        stock. We issued an aggregate of 2,400,000 shares of our common stock in
        lieu of
        cash principal and interest payments.
 
 Warrant
        Grants
 
 In
        February 2004, we issued a 150,000 two-year warrant to purchase common stock
        at
        $1.50 per share as additional consideration for Brazmin Ltda.
 
 In
        May
        2004, we completed a financing transaction by issuing an 18-month secured
        convertible promissory note to Pandora. As further consideration for the
        financing, we issued to Pandora a five-year warrant to purchase up to 928,571
        shares of our common stock at a price of $0.40 per share, subject to adjustment.
        We also issued warrants to purchase an aggregate of 200,000 shares of our
        common
        stock to two affiliates of Pandora as origination fees. Furthermore, in order
        to
        secure the financing, we were required to provide a personal guarantee. As
        consideration for the guarantee and for advisory related services, we issued
        five-year warrants to purchase, at an exercise price of $0.40 per share,
        375,000
        and 100,000 shares of our common stock.
 
 In
        October 2004, we issued a 30,000 two-year warrant to purchase common stock
        at
        $1.00 per share in conjunction with a loan financing provided by
        Hawk.
 
 In
        November 2004, we issued a warrant to purchase 100,000 shares of common stock
        at
        $0.10 per share to a consultant.
 In
          December 2004, we issued 4,225,000 warrants to purchase common stock at
          a price
          of $0.25 per share, in connection with our private placement of 8,450,000
          units.
          The warrants have an expiration date of December 31, 2006.
 F-23
 
 In
        January 2005, we issued 8,300,000 two-year warrants to purchase common stock
        at
        a price of $0.25 per share, in connection with our private placement of
        16,600,000 units. Additionally, we issued 195,000 two-year warrants to purchase
        common stock at a price of $0.25 per share, as compensation for placement
        agent
        services rendered in connection with our private placement.
 
 In
        January 2005, we issued a 2,000,000 two-year warrant to purchase common stock
        at
        $0.225 per share for consultant services, valued at $710,664.
 
 In
        March
        2005, we issued 200,000 three-year warrants to purchase common stock at $0.30
        per share for consultant services, valued at $78,000.
 
 In
        April
        2005, we issued an aggregate of 600,000 two-year warrants to purchase common
        stock as follows: 50,000 at $0.25 per share; 350,000 at $0.50 per share;
        150,000
        at $0.30 per share and 50,000 at $0.75 per share all for consultant services,
        valued at $116,456.
 
 Relating
        to our issuance of three promissory notes, we issued an aggregate of 7,500,000
        five year warrants to purchase common stock at $0.12 per share as additional
        consideration. Furthermore, in order to effectuate two of the notes, a personal
        guaranty was required. Stephen D. King, a board member of ours, provided
        those
        guaranties. In exchange for agreeing to personally guaranty our obligations,
        we
        issued two-year warrants to purchase an aggregate of 2,000,000 shares of
        our
        common stock at a price of $0.15 per share to Mr. King (or his
        assigns).
  For
        warrants issued to non-employees in exchange for services, we account for
        such
        warrants in accordance with EITF Issue No. 96-18. We value the fair value
        of the
        equity instrument using the Black-Scholes pricing model unless the value
        of the
        services is more reliably measurable.
 
 Using
        the
        Black-Scholes pricing model, the following assumptions were used to value
        the
        fair value of warrants granted during the years 2005 and 2004 for which the
        fair
        value of the services were not more reliably measurable: dividend yield of
        0%,
        risk-free interest rate of 4.5 to 7.0%, expected life equal to the contractual
        life between two and five years, and volatility of 176% to 199%.
 
 Information
        regarding our warrants is summarized below:
 
 Number
              
              Weighted
                  Average
                Exercise
                  Price
              
              Range
                  of
                Exercise
                  PriceOutstanding
                  at December 31, 2003
              
              
              16,552,551
              
              $
              2.56
              
              $
              0.50
                  - $60.00Granted
              
              
              6,108,571
              
              
              0.32
              
              
              0.10
                  - 1.50Cancelled
                  or expired
              
              
              (10,000
              )
              
              60.00
              
              
              60.00Exercised
              
              
              (576,431
              )
              
              0.29
              
              
              0.25
                  - 5.50Outstanding
                  at December 31, 2004
              
              
              22,074,691
              
              
              1.96
              
              $
              0.10
                  - $37.50Granted
              
              
              20,795,000
              
              
              0.20
              
              
              0.12
                  - 0.75Cancelled
                  or expired
              
              
              (1,448,543
              )
              
              1.21
              
              
              0.62-37.50Exercised
              
              
              (1,294,150
              )
              
              0.13
              
              
              0.01
                  - 0.20Outstanding
                  at December 31, 2005
              
              
              40,126,998
              
              $
              1.10
              
              $
              0.10
                  - $5.50Warrants
                  exercisable at December 31, 2005
              
              
              40,126,998
              
              $
              1.10
              
              $
              0.10
                  - $5.50
  F-24
 
 Option
        Grants
 
 The
        Company has six stock option plans: the 1994 Stock Option Plan, the 1998
        Incentive Equity Plan, the 1999 Stock Option Plan, the 2000 and 2003 Director
        Stock Option Plans and the 2001 Employee Stock Option Plan. As of December
        31,
        2005, an aggregate of 11,700,000 shares of our common stock may be granted
        under
        these plans as determined by the board of directors. Stock options, stock
        appreciation rights, restricted stock and other stock and cash awards may
        be
        granted under the plans. In general, options vest over a period ranging from
        immediate vesting to four years and expire 10 years from the date of grant.
        Effective
        January 13, 2006, the 2001 Employee Stock Option Plan was amended to increase
        the total shares of stock which may be issued under the Plan from 1,450,000
        to
        2,500,000.
 
 During
        the year ended December 31, 2004, we granted 1,125,000 options to purchase
        common stock at prices ranging from $0.20 to $1.10 per share.
 
 For
        the
        year ended December 31, 2005, we granted
        2,350,000 options to purchase common stock at prices ranging from $0.14 to
        $0.26
        per share. We granted 1,800,000 options (valued collectively at $378,679)
        to
        officers and directors of the Company with exercise prices equal to or greater
        than the fair market value of our common stock on the date of grant. We
        accounted for share-based payments to officers and directors using the intrinsic
        value method under APB Opinion No. 25 and the disclosure requirements of
        SFAS
        123 for the years ended December 31, 2005 and 2004. E ffective
        January 1, 2006, the accounting method previously utilized will no longer
        be allowable for financial statement presentation. See
        Note
        2 - Summary of Significant Accounting Policies for information discussed
        under
        Stock Based Compensation.
 
 The
        total
        amount of compensation expense recorded, pursuant to APB 25 and related
        interpretations, for the years ended December 31, 2005 and 2004 was $0 and
        $181,967 (including $72,000 related to variable plan accounting), respectively.
 
 We
        granted 550,000 options to consultants as compensation for services, some
        of
        which carryforward into 2006, with exercise prices equal to or greater than
        the
        fair market value of our common stock on the date of grant. The aggregate
        consulting options were valued at $100,601 and such value was recorded as
        a
        component of Prepaid Expenses in 2005. Of that amount, $41,575 remains to
        be
        expensed during 2006 to coincide with the consulting agreements timeline
        for
        services to be rendered. See Note 6 - Prepaid Expenses for detailed information.
 
 Information
        regarding the Company’s stock options is summarized below:
 
 Number
                  of
                Options
              
              Weighted
                Average
                Exercise
                  PriceOptions
                  outstanding - December 31, 2003
              
              
              5,550,724
              
              $
              1.66Granted
              
              
              1,125,000
              
              
              0.62Canceled
                  or expired
              
              
              (1,185,724
              )
              
              3.30Exercised
              
              
              (490,000
              )
              
              0.64Options
                  outstanding - December 31, 2004
              
              
              5,000,000
              
              
              1.16Granted
              
              
              2,350,000
              
              
              0.21Canceled
                  or expired
              
              
              (868,000
              )
              
              0.79Exercised
              
              
              (350,000
              )
              
              0.23Options
                  outstanding - December 31, 2005
              
              
              6,132,000
              
              $
              0.88Weighted
                  average fair value of optionsgranted
                  during the year ended December 31, 2005
              
              
              
              
              $
              0.17Weighted
                  average fair value of optionsgranted
                  during the year ended December 31, 2004
              
              
              
              
              $
              0.61
  F-25
 
 The
        following information summarizes information about stock options outstanding
        at
        December 31, 2005:
 
 Options
                  Outstanding
              
              Options
                  ExercisableRange
                  of Exercise Prices
              
              Weighted
                Average
                Number
                Outstanding
              
              Weighted
                Remaining
                Contractual
                Life
              
              Weighted
                Average
                Exercise
                Price
              
              Number
                Exercisable
              
              Weighted
                Average
                Exercise
                Price$0.15
                  to $2.75
              
              
              5,731,000
              
              
              5.1
                  years
              
              $
              0.62
              
              
              5,731,000
              
              $
              0.62$3.00
                  to $5.00
              
              
              401,000
              
              
              2.1
                  years
              
              
              4.64
              
              
              401,000
              
              
              4.64$0.15
                  to $5.00
              
              
              6,132,000
              
              
              4.5
                  years
              
              $
              0.88
              
              
              6,132,000
              
              $
              0.88
 
 **NOTE
        14 - RELATED PARTY TRANSACTIONS**
 
 In
        May
        2004, in exchange for agreeing to personally guarantee our obligations under
        a
        secured convertible promissory note that we issued to Pandora Select Partners,
        L.P., we paid Mr. Mills (a former director of ours) a cash fee of $48,750,
        plus
        issued a five-year warrant to purchase 375,000 shares of our common stock
        at a
        price of $0.40 per share. In addition, in consideration for advisory services
        rendered to us, we paid to Blake Capital (a wholly owned entity of Mr. Mills)
        $25,000 and issue to Blake Capital a five-year warrant to purchase 100,000
        shares of our common stock, at an exercise price of $0.40 per
        share.
 
 On
        June
        10, 2004, we entered into an option agreement to earn an interest in the
        McFaulds Lake project held under option by Hawk. The option agreement required
        cash payments of Cdn$60,000 and the issuance of 200,000 shares of our common
        stock to Hawk. In December 2004, we entered into an agreement with MacDonald
        Mines Exploration Ltd., a Canadian mining company whereby they could earn
        a 55
        percent interest in the McFaulds Lake Project. H. Vance White, who is a director
        and the chief executive officer of our Company, is an officer and director
        of
        Hawk Precious Minerals Inc., a junior Canadian exploration company and is
        also a
        director of MacDonald.
 
 On
        October 13, 2004, we entered into a short-term loan arrangement with Hawk,
        whereby we borrowed $15,000 by issuing a four-month unsecured promissory
        note
        (“Note”) to Hawk. The Note bore a 10 percent interest rate per annum and was
        repaid in December 2004. We had the authorization to borrow up to an additional
        $15,000 under the same terms. As consideration for the Note and any additional
        loans, we issued to Hawk a two-year warrant to purchase up to 30,000 shares
        of
        our common stock at a price of $1.00 per share.
 
 On
        April
        11, 2005, we entered into a management services agreement with Hawk, whereby
        Hawk will provide certain management and administrative services to the Company.
        The term of the agreement is for one-year and requires payment of $50,000.
        As of
        June 30, 2005, we had paid the entire yearly agreement amount to
        Hawk.
 
 In
        May
        2005, we entered into a consulting agreement with Blake Advisors, LLC related
        to
        strategic merger, acquisition and corporate finance services for a period
        of
        one-year. The agreement required monthly payments of $15,875 in cash and
        the
        reimbursement of reasonable out-of-pocket expenses. The agreement was cancelled
        December 31, 2005. Blake Advisors is wholly owned by Wayne W. Mills. In May
        2005, we entered into a warrant exercise agreement with Mr. Mills (See Note
        6 -
        Prepaid Expenses), allowing him a reduced exercise price on previously issued
        and outstanding warrants, granted in his name or one of his wholly owned
        entities. He held an aggregate of 1,906,334 warrants exercisable with a range
        of
        original pricing from $0.40 to $5.50 per share. The warrant exercise agreement
        allows for a predetermined number of warrants available for monthly exercise
        at
        $0.20 per share, for a period of one year. An additional expense of $108,579
        was
        recorded for his portion of the repricing. During 2005, Mr. Mills exercised
        370,650 warrants.
  F-26
 
 **NOTE
        15 - INCOME TAXES**
 The
          Company estimates that at December 31, 2005, it had cumulative net operating
          loss carryforwards for tax purposes of approximately $6,830,000 for both
          federal
          and state purposes. These carryforwards, if not used, will begin to expire
          in
          2023. The Company’s net operating loss carryforwards have been reduced in 2004
          as a result of various equity offerings that occurred previous to 2004,
          which
          caused a change in ownership under the net operating loss limitation rules.
          The
          Company’s estimate at December 31, 2004 of the net operating loss carryforward
          was significantly lower than previously reported because the Company had
          not
          previously calculated an estimate since it experienced a change in control.
          The
          new estimate did not result in any change to the Company’s financial statements
          as a full valuation allowance was provided for against the deferred tax
          assets
          at December 31, 2004.
 
 Deferred
          income taxes reflect the net tax effects of temporary differences between
          the
          carrying amount of assets and liabilities for financial reporting purposes
          and
          the amounts used for income tax purposes. Significant components of the
          Company’s estimated deferred tax assets and liabilities at December 31, 2005 and
          2004 are as follows:
 Deferred
                  tax assets:
              
              2005
              
              2004Net
                  operating loss carryforwards
              
              $
              2,800,000
              
              $
              1,000,000Exploration
                  rights
              
              
              2,450,000
              
              
              1,985,000Accrued
                  liabilities and other
              
              
              123,000
              
              
              55,000Total
                  deferred tax asset
              
              
              5,373,000
              
              
              3,040,000Valuation
                  allowance
              
              
              (5,373,000
              )
              
              (3,040,000
              )$—
              
              $
              —
 
 The
        income tax provision consists of the following for the years ended December
        31:
 
 2005
              
              2004Current
                  tax provision
              
              $
              —
              
              $
              —Deferred
                  tax provision
              
              
              (2,333,000
              )
              
              5,423,000Valuation
                  allowance
              
              
              2,333,000
              
              
              (5,423,000
              )Total
                  income tax provision
              
              $
              —
              
              $
              —
 
 Reconciliation
        between the statutory rate and the effective tax rate for the years ended
        December 31:
 
 2005
              
              2004Federal
                  statutory tax rate
              
              
              (35.0
              %)
              
              (35.0
              %)State
                  taxes, net of federal benefit
              
              
              (6.0
              %)
              
              (6.0
              %)Valuation
                  allowance
              
              
              41.0
              %
              
              41.0
              %Effective
                  tax rate
              
              
              (0.0
              %)
              
              (0.00
              %)
 
 At
        December 31, 2005, the Company fully reserved its net deferred tax assets
        totaling $5,373,000, recognizing that the Company has incurred losses during
        the
        last several years and there is no assurance that future years will be
        profitable.
 
 **NOTE
        16 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION**
 
 May
                  1, 2003(inception)
                  toDecember
                  31,
              
              Dec.
                  31,2005
              
              2004
              
              2005Supplemental
                  cash flow information:Cash
                  paid for interest
              
              $
              21,578
              
              $
              36,117
              
              $
              57,695Issuance
                  of common stock, warrants and options forprepaid
                  consulting fees
              
              $
              1,137,538
              
              $
              —
              
              $
              1,519,205
  F-27
  **NOTE
        17 - LEGAL PROCEEDINGS**
 
 In
        action
        brought in District Court, City and County of Denver, Colorado, the Company
        was
        named a defendant in a proceeding brought by Farmers State Bank of Ft. Morgan,
        Colorado, in which it was alleged that the Company was liable to the plaintiff
        as a result of its guaranty of certain secured debt obligations in the aggregate
        amount of approximately $314,000 of Meteor Marketing, Inc. Meteor Marketing
        was
        formerly a subsidiary of Meteor Industries, Inc., until April 2001 when it
        was
        sold prior to the completion of the merger transaction between Meteor Industries
        and activeIQ Technologies Inc. As of December 31, 2004, we reserved $30,000
        as
        an accrued guarantee fee for a possible loss in connection with this
        matter.
 
 We
        were
        informed by Farmers State Bank on March 16, 2006, that Meteor Marketing had
        paid
        the debt obligation and Farmers State Bank had cancelled the guaranty which
        we
        were liable. With this subsequent information, we reversed the guarantee
        fee as
        of December 31, 2005.
  **NOTE
        18 - SUBSEQUENT EVENTS**
 
 As
        of the
        date of this Annual Report: (i) we have received an additional $350,000 pursuant
        to the monthly draw available under the secured promissory notes and issued
        five-year warrants to purchase up to 3,500,000 shares of our common stock
        with
        an exercise price of $0.12 per share; and (ii) we have received an additional
        $214,090 from the exercise of warrants, 300,000 exercised at $0.25 per share
        and
        695,450 exercised at $0.20 per share.
  F-28


Exhibit
      Index





Exhibit
            Description
                of Document21
            Subsidiaries
                of the Registrant.23.1
            Consent
                of Carver Moquist & O’Connor, LLC.31.1
            Certification
                by Chief Executive Officer.31.2
            Certification
                by Chief Financial Officer.32.1
            Certification
                by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as
                Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            Certification
                by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as
                Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.