**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, 2004


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


(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 [
  ]





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
[   ].





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, 2005 was approximately $11,600,000, based on the closing sale
price as reported on the OTCBB for the Registrant’s common stock on March 28,
2005.





On March
28, 2005, there were 59,451,612 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 [  ] No [X]














WITS
BASIN PRECIOUS MINERALS INC.





Annual
Report on Form 10-KSB


For the
Year Ended December 31, 2004


Table of
Contents


PART
      I
    ****
    PageItem
      1.
    Description
      of Business
    4Item
      2.
    Description
      of Properties
    18Item
      3.
    Legal
      Proceedings
    18Item
      4.
    Submission
      of Matters to a Vote of Security Holders
    18PART
      IIItem
      5.
    Market
      for the Registrant’s Common Equity and Related Shareholder
      Matters
    19Item
      6.
    Management’s
      Discussion and Analysis of Financial Conditionand Results of
      Operations
    20Item
      7.
    Financial
      Statements
    26Item
      8.
    Changes
      in and Disagreements with Accountants on Accounting and
      Financial Disclosure
    26Item
      8A.
    Controls
      and Procedures
    26PART
      IIIItem
      9.
    Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act
    28Item
      10.
    Executive
      Compensation
    29Item
      11.
    Security
      Ownership of Certain Beneficial Owners and Management and Related Shareholder
      Matters
    32Item
      12.
    Certain
      Relationships and Related Transactions
    33Item
      13.
    Exhibits
      and Reports on Form 8-K
    34Item
      14.
    Principal
      Accountant Fees and Services
    38Signatures
    39











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 company based in Minneapolis,
Minnesota. For fiscal 2004, we held interests in mineral exploration projects
located in South Africa, Canada and South America. As of the date of this Annual
Report, we do not claim to have any mineral reserves on our
properties.





Our
primary holding is a gold exploration project located in the Republic of South
Africa adjacent to the major goldfields discovered at the historic Witwatersrand
Basin, which we refer to as the FSC Project. We also own the near surface
exploration rights of the Holdsworth Project located in the Wawa area near the
village of Hawk Junction, Ontario. The Holdsworth Project is primarily a gold
exploration project. We acquired rights to the FSC and Holdsworth Projects in
June 2003.





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.





In June
2004, we acquired a 70 percent interest in the explorations rights to a VMS
(volcanogenic massive sulphide) base metals project, which we refer to as the
McFaulds Lake Project, located in the McFaulds Lake area of the James Bay
Lowlands, Attawapiskat
Region of
northern Ontario.





As of
December 31, 2004, we do not directly own any permits, equipment or have
personnel necessary to actually explore for minerals and we will therefore be
substantially dependent on the third party contractors we engage to perform such
operations. Subsequent to December 31, 2004, 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. See the section
labeled “Liquidity and Capital Resources” within the Management’s Discussion and
Analysis of Financial Condition and Results of Operations of Item 6 for further
details on the Bates-Hunter Gold Mine project.





**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.





Prior to
April 30, 2003, we provided accounting software through our Accounting Software
Business. In December 2002, our Board of Directors authorized a plan to sell the
Accounting Software Business, which accounted for approximately 89 percent of
our total revenues and represented approximately 75 percent of our total assets
as of and for the year ended December 31, 2002. On April 29, 2003, at a special
shareholder meeting, the shareholders of the Company approved the sale and on
April 30, 2003, we completed the sale of substantially all of the assets of the
Accounting Software Business to two key employees of that division.





4





Until
March 14, 2003, we provided industry-specific solutions for managing, sharing
and collaborating business information on the Internet though our Hosted
Solutions Business. Following our decision to sell the Accounting Software
Business, we came to the conclusion that, due to current market conditions for
capital funding of Internet opportunities, it would be extremely unlikely for us
to secure the financing necessary to fund our Hosted Solutions Business beyond
the near term and thereby provide assurance to future customers of our long-term
viability. Accordingly, on March 14, 2003, we sold all of our assets related to
the Hosted Solutions Business, which accounted for approximately 25 percent of
our total assets and accounted for approximately 11 percent of our consolidated
revenues as and for the year ended December 31, 2002. The transaction did not
require shareholder approval under Minnesota law since the assets relating to
our Hosted Solutions Business did not constitute all or substantially all of the
assets of our Company as a whole.





As a
result of our selling both the Accounting Software and Hosted Solutions
Businesses, we became an exploration stage company effective as of May 1, 2003.
On June 26, 2003 we entered into a new business model with the completion of the
transaction whereby we acquired the FSC and Holdsworth Projects. 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 wholly owned subsidiary of AfriOre
International (Barbados) Ltd., (“AfriOre”). As of December 31, 2004, Kwagga’s
FSC Project land exploration rights included approximately 185,000 hectares
(approximately 485,000 acres) 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.





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. It is the discovery of a major extension that is being sought through our
funding of the FSC Project.





In
October 2003, AfriOre commissioned the first range-finding drill hole of an
initial three range-finding drill hole program at the FSC Project. On June 8,
2004, AfriOre reported that the first drill hole in the range-finding program at
the FSC Project had been completed. This drill hole, (“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.





5













In
October 2004, the South African Department of Minerals and Energy (“DME”)
granted permission to prospect on newly acquired areas of the FSC Project, which
has been defined as drill hole BH48. The geophysical interpretation of target
area BH48 indicates the possible presence of a more complete succession of upper
Witwatersrand stratigraphy, which in the Witwatersrand Basin, hosts mineralized
gold reefs.





Subsequent
to December 31, 2004, further drilling results from BH48 were announced. On
February 25, 2005, we announced that drilling had progressed to a depth of 1,867
meters and AfriOre management expressed their encouragement of the results, as
BH48 intersected identical stratigraphy and structure in the cover rocks as
those occurring in the area of the Witwatersrand Basin. Furthermore, drilling at
BH48 had been delayed due to difficult drilling conditions within a zone close
to the 1,867 meter depth. Expert drilling consultants have been engaged to
rectify the situation. Based on the results obtained from BH48 to the depth
drilled, further drilling at the FSC Project is warranted.





Once the
current exploration activities being conducted on the FSC Project are complete
(the expenditure of $2,100,000 for the drill hole exploration program 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. Furthermore, should Kwagga fail to complete the
entire drill hole program, we could realize a complete loss of the funds
advanced to Kwagga.





6





On May 1,
2004, the South African Mineral and Petroleum Resources Development Act 2002
(the “MPRD Act”) became effective. With the anticipated scope of gold
discoveries that are potentially realizable, AfriOre management is applying and
will continue to apply corporate resources towards the compliance of provisions
under the MPRD Act. 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 regarding the MPRD
Act.





**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.










Hawk
commissioned a geologist’s report in October 2002, which presented a description
of the geological setting and gold occurrences in the Holdsworth Project area
and described the history of previous work on the property.





7





The
terrain within the Holdsworth Project consists of rolling to steep rocky ridges
separated by low lying to swampy valleys. The area is generally located in a
forest with thick underbrush throughout the property. The property is accessible
by means of a 3.2 kilometer graveled bush road leading north from Hawk Junction
and old skidder and backhoe roads provide access to a majority of the known
mineralized zones on the property. Two paved highways connect Hawk Junction with
Wawa to the west. Hawk Junction also provides a rail stop on the Canadian
National Railway and the Wisconsin Rail Line thereby providing connection to the
Michipicoten Harbor on Lake Superior. This rail bed passes through the
Holdsworth Project area. All of
the requirements for a mining operation (electricity, infrastructure, personnel
etc.) are readily available in the area.





At the
present time there are no known environmental liabilities on the property. Work
programs in the past have involved stripping, trenching and road construction by
excavator and diamond drilling. The sample trenches have been filled in.





To date
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.**





On
February 6, 2004, we entered
into a purchase agreement to acquire Brazmin
Ltda, a precious minerals company located in Rio de Janeiro, Brazil from Argyle
Securities Limited, a corporation formed under the laws of Saint Vincent
(“Argyle”). Pursuant
to the purchase agreement, we purchased substantially all of the
outstanding capital  shares of
Brazmin. Brazilian law forbids 100 percent ownership by a foreign entity. In
exchange for the shares of Brazmin capital stock that we acquired, we paid
Argyle $50,000 in cash, issued 700,000 shares of our common stock and a
five-year warrant to purchase 150,000 additional shares at a price of $1.50 per
share, and reimbursed Argyle for expenses of approximately $20,000 incurred in
connection with the transaction.





Brazmin’s
only assets were the mineral exploration rights of four distinct regions (the
“Four Properties”) located within the South America. During fiscal 2004, Brazmin
had no revenues and its sole activity was to search out and acquire exploration
rights on properties that possess specific criteria relating to base and
precious minerals.





Upon
further analysis of the country in which the Four Properties were located,
further review of the history of discoveries made within the region of the Four
Properties and our ability to furnish capital on the required schedule, forced
us to re-evaluate the rewards that Brazmin offered. We therefore concluded that
Brazmin was not a proper fit to our long-term goals and on July 19, 2004 we
entered into a termination agreement in which we sold Brazmin back to Argyle,
completing the transaction on August 3, 2004.





Pursuant
to the termination agreement, we received (a) a cash payment of $25,000 at
closing, (b) a further $25,000 was received January 3, 2005, (c) Argyle returned
400,000 shares of the 700,000 shares of our common stock that it had received,
(d) a 10% carried interest in the Brazmin interest of the Four Properties up
until completion of a bankable feasibility process and (e) a 10% payment of any
proceeds obtained by Brazmin for the sale or partial sale of any of the Four
Properties. Furthermore, should any of the following events occur, we could
receive: (f) a cash payment of $100,000 in the event that Brazmin commences on a
pre-feasibility study on one of the Four Properties and (g) a cash payment of
$100,000 in the event that Brazmin commences on a bankable feasibility study on
one of the Four Properties. Our assessment of the likelihood of items f or g
above to come to fruition is nil and as such, we have not recorded any further
potential in our financial statements. Argyle retained the five-year warrant to
purchase 150,000 shares of our common stock, with an exercise price of $1.50. We
also terminated our consulting agreements with two of the principles of Brazmin,
effective June 30, 2004.





8


****


**MCFAULDS
LAKE**





On June
10, 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. The area is the site of a
new VMS (volcanogenic massive sulphide) base metals project. Hawk retained a 30
percent participating interest in the option should a feasibility study be
completed covering the project.





The
optioned claims consist of a block of five contiguous claims (west block)
comprising of approximately 80 40-acre units to the south and west of the
original Spider Resources and KWG claim group. This block also is contiguous to
the McNugget ground actively being explored by MacDonald Mines Exploration Ltd.
(“MacDonald”) and on which 207 line kilometers of airborne magnetometer and
Geotem electromagnetic surveys have been completed.





The
option agreement required us to pay Cdn$60,000 and issue 200,000 shares of our
non-registered common stock to Hawk. Furthermore, the option agreement requires
Cdn$200,000 for exploration expenditures, which has been assumed by MacDonald.





On
December 2, 2004, we entered into an agreement with MacDonald, whereby they can
earn a 55 percent interest (subject to the 2% royalties) in the McFaulds Lake
Project. The option requires MacDonald to: (1) make a cash payment of Cdn$10,000
by December 31, 2004, which we granted an extension until January 31, 2005, (2)
issue 250,000 shares of its common stock by December 31, 2004, which we granted
an extension until January 31, 2005, (3) pay the Cdn$200,000 exploration
expenditures required by the option to us and (4) expend an additional
Cdn$25,000, which was fully satisfied by conducting the airborne magnetometer
and Geotem electromagnetic surveys. An initial drill hole has been completed and
samples have been submitted for 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 will not be transferred from Hawk to MacDonald and us
until the final May 2005 exploration expenditure has been incurred. Furthermore,
regardless if any of the work scheduled is not completed, the terms of the
option agreement requires that the entire Cdn$200,000 is a mandatory
expenditure.





The
originator of the option agreement, Richard Nemis “In Trust” (a private resident
of Ontario, Canada) required for consideration of the grant of option, retained
a two percent net smelter royalty on all or any metal production and a two
percent production royalty on any diamond production. We hold the right to
purchase from Richard Nemis “In Trust,” prior to production, one percent of
either royalty for the sum of Cdn$1 million.





The James
Bay Lowlands of Ontario are isolated and largely inaccessible. The
topography in the area is flat. Large wet
peat swamps with poor drainage dominates the
landscape. Tree cover is generally sparse and stunted and vegetation is typical
for a fringe area to a boreal forest. There is sufficient space on the property
for an open pit or underground mine including an on site mill, ancillary
buildings, tailings pond, waste piles, etc. An adequate supply of water for
milling operations could be sourced from the ponds and streams within the
property boundaries.





Prior to
the recent exploration efforts by DeBeers Canada Exploration Inc., as well as by
Spider Resources Inc. / KWG Resources Inc. (“Spider/KWG”), the area about
McFaulds Lake had been subjected to very little if any work by companies and
only cursory work by government agencies. During the years of 2003-2004,
Spider/KWG drilled 41 holes on their claims (claims that are adjacent to our
claims), which resulted in the discovery and partial delineation of seven
mineralized (sulphide) zones.





9







Volcanogenic
massive sulphide (VMS) base metal (Cu-Zn-Pb-Au-Ag) deposits are the deposit type
sought on the project. An idealized simple VMS deposit consists of a concordant
massive sulphide (>60% sulphide minerals) lens that is stratigraphically
underlain by a discordant stockwork or stringer zone of vein-type sulphide
mineralization contained in a pipe (“feeder” pipe) of hydrothermally altered
rock. The stockwork represents the near surface channelway of a submarine
hydrothermal system, and the massive sulphide lens the accumulation of sulphides
precipitated on the sea floor above and around the discharge vent. Submarine
volcanic flows and pyroclastic rocks are the usual host lithologies (although
sediments may also be present), and deposits normally occur at a contact between
stratigraphic units. Of the metallic minerals, pyrite is ubiquitous throughout
these deposits, chalcopyrite and pyrrhotite are dominant in the core of the
stockwork zone and sphalerite is concentrated in the massive sulphide lens.
Chlorite and sericite are the main alteration minerals associated with the
feeder pipe. A single deposit or mine may consist of several individual massive
sulphide lenses and their underlying stockwork zones. Deposits often occur in
clusters. Often the deposits are blanketed by a thin pyritic horizon that
extends as a stratigraphic marker away from the deposit.





VMS
deposits represent extremely attractive exploration targets. The massive
sulphide lens of a deposit almost always responds extremely well to
electromagnetic geophysical methods. By contrast, the stringer zone, due to the
lesser concentrations of sulphides is more easily detected by IP, and may also
display a magnetic signature due to the presence of pyrrhotite. Once a deposit
and surrounding host rocks have been subjected to regional deformation, the
geophysical picture potentially indicative of a VMS deposit would be a short
(<1000 m) or a series of short electromagnetic anomalies possibly with an
associated magnetic anomaly in close proximity to a stratigraphically overlying,
much longer, regional, formational, electromagnetic anomaly. Any electromagnetic
anomaly with a signature in a geological setting similar to that described above
rates testing.





10





**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.





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, unexposed on the surface of the ground, exploration will continue to be a
“hit or miss” process.





**PRODUCTS
AND SERVICES**





During
fiscal 2003, we offered two types of business software and solutions: a
traditional business and accounting software package through our Accounting
Software Business subsidiaries and a hosted Internet suite of services through
our Hosted Solutions Business. On March 14, 2003, we completed the sale of our
Hosted Solutions Business and on April 30, 2003, we completed the sale of
substantially all of the assets of our Accounting Software Business, which the
results of both operations have been reported as discontinued operations,
thereby providing no future benefit to our ongoing business plan. Our only
current business model is minerals exploration projects in various foreign
countries. Accordingly, we do not anticipate having any future revenues until an
economic mineral deposit is discovered or unless we complete other acquisitions
or joint ventures with business models that produce such results.





As a
result of the sale of the Hosted Solutions Business and the Accounting Software
Business, the Company became an exploratory stage company effective May 1,
2003.





As of
December 31, 2004, we held interests in three exploration projects: the FSC
Project located in South Africa and the Holdsworth and McFaulds Lake Projects
located in Canada.





**INTELLECTUAL
PROPERTY**





Since we
sold our Hosted Solutions Business and our Accounting Software Business in 2003,
our business is no longer dependent on any significant intellectual property at
this time.





**EXPLORATION
AND DEVELOPMENT**





If we
acquire a project that has no known reserves or resources and anticipate
exploration efforts to be commenced with 12 months from the date of acquisition,
we would capitalize the lesser of the: (i) historical value; (ii) the fair
value; or (iii) the cash paid to acquire (to include any related professional
fees required to consummate the acquisition). Furthermore, we would amortize the
recorded value on a straight-line method over a period from 12 to 24 months,
with quarterly reviews for impairment. Any further exploration costs incurred
will be charged to expense as incurred until such time as proven resources or
reserves have been properly established.





11





**EMPLOYEES**





We
currently employ two people - our chief executive officer and our chief
financial officer. 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, 2004, 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


(612)
349-5277








**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.





12





**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
2005.**





As of
March 28, 2005, we had only approximately $1,000,000 of cash and other current
assets on hand. Since we do not expect to generate any significant revenue from
operations in 2005, 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.**





On March
14, 2003, we completed the sale of our Hosted Solutions Business and on April
30, 2003, we completed the sale of substantially all of the assets of our
Accounting Software Business, in which the results of both operations have been
reported as discontinued operations, thereby providing no future benefit to our
ongoing business plan. Accordingly, we are 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 28, 2005 we have
rights in four projects: the FSC Project in South Africa, the Bates-Hunter Mine
in Colorado, the McFaulds Lake Project in northern Ontario, and the Holdsworth
Property near Wawa, Ontario, Canada. None of these projects may ever produce any
significant mineral deposits, however.





**WE
ANTICIPATE INCURRING LOSSES FOR THE FORESEEABLE FUTURE.**





Since
becoming an exploration stage company in May 2003 through December 31, 2004, we
have incurred an aggregate net loss of $12,888,219. 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, 2004 and 2003, and we
have an accumulated deficit as of December 31, 2004. 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.





13





**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.
Since June 30, 2003, the Rand has appreciated against the Dollar by
approximately 25 percent. On June 30, 2003, the exchange rates were
approximately R7.51 = $1.00. On June 30, 2004, the exchange rates were
approximately R6.28 = $1.00. And on December 31, 2004, the exchange rates were
approximately R5.65 = $1.00. It is this reduction that has decreased our initial
5 to 7 drill hole program on the FSC to be revised to only a 3 to 4 drill hole
program. Furthermore, should the Dollar weaken further in relationship to the
Rand, we may sustain additional reductions in the number of drill holes
completed with our initial investment.





**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.





We
further believe that we have continued to qualify for the mineral company
exclusion from August 30, 2004 through the date of the 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.





14


****


**LAWS
GOVERNING MINERAL RIGHTS OWNERSHIP HAVE CHANGED IN SOUTH AFRICA.**





On May 1,
2004, the South African Mineral and Petroleum Resources Development Act 2002
(the “MPRD Act”) became effective. The principal objectives set out in the MPRD
Act are:





·
    to
      recognize the internationally accepted right of the state of South Africa
      to exercise full and permanent sovereignty over all the mineral and
      petroleum resources within South Africa;


·
    to
      give effect to the principle of the State’s custodianship of the nation’s
      mineral and petroleum resources;


·
    to
      promote equitable access to South Africa’s mineral and petroleum resources
      to all the people of South African and redress the impact of past
      discrimination;


·
    to
      substantially and meaningfully expand opportunities for historically
      disadvantaged persons, including women, to enter the mineral and petroleum
      industry and to benefit from the exploitation of South Africa’s mineral
      and petroleum resources;


·
    to
      promote economic growth and mineral and petroleum resources development in
      South Africa;


·
    to
      promote employment and advance the social and economic welfare of all
      South Africans;


·
    to
      provide security of tenure in respect of prospecting, exploration, mining
      and production operations;


·
    to
      give effect to Section 24 of the South African Constitution by ensuring
      that South Africa’s mineral and petroleum resources are developed in an
      orderly and ecologically sustainable manner while promoting justifiable
      social and economic development;


·
    to
      follow the principle that mining companies keep and use their mineral
      rights, with no expropriation and with guaranteed compensation for mineral
      rights; and


·
    to
      ensure that holders of mining and production rights contribute towards
      socio-economic development of areas in which they are
      operating.





Under the
MPRD Act, tenure licenses over established operations will be secure for 30
years (and renewable for 30 years thereafter), provided that mining companies
obtain new licenses over existing operations within five years of the date of
enactment of the Act and fulfill requirements specified in the Broad-Based
Socio-Economic Empowerment Charter for the South African mining industry, or the
Mining Charter.





The
principles contained in the Mining Charter relate to the transfer of 26 percent
of South Africa’s mining assets to historically disadvantaged South Africans, or
HDSAs, over a 10-year period, as defined in the Mining Charter. Under the Mining
Charter, the South African mining industry has committed to securing financing
to fund participation of HDSAs in an amount of R$100 billion within the first
five years of the Mining Charter’s tenure. The Mining Charter provides for the
review of the participation process after five years to determine what further
steps, if any, are needed to achieve the 26 percent target participation. The
Mining Charter requires programs for black economic empowerment and the
promotion of value-added production, such as jewelry making and other gold
fabrication, in South Africa. The Mining Charter also sets out targets for
broad-based black economic empowerment in the areas of human resources, skill
development, employment equality, procurement and beneficiation. In addition,
the Mining Charter addresses other socio-economic issues, such as migrant labor,
housing and living conditions.





15





**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.





**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.





16





**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 3 to 4 drill hole
exploration program currently underway at the FSC Project, to fund exploration
of the Holdsworth Project, McFaulds Lake 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 2005.”





**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.





**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.





**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.





17





**ITEM
2. PROPERTIES**





As of
January 1, 2005, our corporate office is located at 80 South Eighth Street,
Suite 900, Minneapolis, Minnesota 55402, in which we occupy approximately 165
square feet of office space, together with the use of related adjacent common
areas, pursuant to a one-year lease, which requires monthly payments of $1,280.
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 is 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., (“Old AIQ”). In October 2003, Meteor Marketing
reached a settlement with Farmers State Bank and the matter was dismissed
without prejudice. As of December 31, 2004, an aggregate of approximately
$218,000 remains outstanding and, pursuant to the settlement agreement, Meteor
Marketing is required to make monthly payments of approximately $2,600. Although
we were not obligated to make any payments to the bank, we remain contingently
liable pursuant to the guaranty. In light of the size of Meteor Marketing’s
monthly settlement payment obligations and our understanding of Meteor
Marketing’s financial condition, we believe Meteor Marketing should be able to
satisfy this obligation for the foreseeable future.





The
guaranty to the potential liability to Farmers State Bank was not disclosed to
us at the time the Meteor Industries-Old AIQ merger was completed in April 2001.
In connection with the merger and the sale by Meteor Industries of all of its
operating subsidiaries to Capco Energy, Inc., the Meteor subsidiaries and Capco
Energy agreed to indemnify us for any claims relating to any of the
subsidiaries. Accordingly, in the event Farmers State Bank seeks to hold us
liable under the guaranty, we will seek indemnification from the Meteor
subsidiaries and Capco Energy.





**ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.









18





**PART
II**





**ITEM
5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS**





**PRICE
RANGE OF COMMON STOCK**





Our
common stock is quoted on the OTCBB under the symbol “WITM.” Prior to March 26,
2003, our common stock was quoted on the Nasdaq SmallCap Market under the symbol
“AIQT.” As of March 28, 2005 the last sale price of our common stock as reported
by OTCBB was $0.23 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, 2003
    
    $
    0.29
    
    $
    0.05Quarter
      Ended June 30, 2003
    
    $
    0.75
    
    $
    0.07Quarter
      Ended September 30, 2003
    
    $
    0.71
    
    $
    0.32Quarter
      Ended December 31, 2003
    
    $
    1.70
    
    $
    0.41Quarter
      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
    
    $
    0.16




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 22, 2005, there were approximately 265 record holders of our common stock.
Based on securities position listings, we believe that there are approximately
1,200 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 2004, we made the following sales
of unregistered securities during the fourth quarter of fiscal
2004:





On
December 3, 2004, and December 10, 2004, we completed private placements of
units (the “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. There were no commissions paid in connection with the
private placement. The
offering was conducted as a private placement pursuant to 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 investors are “accredited investors” as such term is
defined in Rule 501(a) promulgated under the Securities Act.





19





**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.





We are a
minerals exploration company based in Minneapolis, Minnesota. As of December 31,
2004, we held interests in mineral exploration projects in South Africa and
Canada. We have interests in two gold exploration projects that we acquired in a
transaction completed on June 26, 2003 from 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. In one of these projects, which we
commonly refer to as the “FSC Project,” we 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”). Kwagga holds the exploration rights
for the FSC Project. The FSC Project consists of approximately 185,000 hectares
(approximately 485,000 acres) 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. The other exploration project we
acquired from Hawk USA, located near Wawa, Ontario, Canada, we refer to as the
“Holdsworth Project.” The Holdsworth Project consists of the near surface rights
on 19 contiguous, patented mining claims covering approximately 304 hectares
(approximately 750 acres). Once we have secured the financing, which we estimate
to be approximately $150,000, we plan to conduct pre-exploration activities on
the Holdsworth Project. Any pre-exploration activities will be expensed as
incurred.





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.





On June
10, 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. The area is the site
of a new VMS (volcanogenic massive sulphide) base metals project. On December 2,
2004, we entered into an agreement with MacDonald Mines Exploration Ltd.
(“MacDonald”) whereby they can earn a 55 percent interest (subject to the 2%
royalties) in the McFaulds Lake Project.





Prior to
April 30, 2003, we provided accounting software through our Accounting Software
Business. On April 29, 2003, at a special shareholder meeting, the shareholders
of the Company approved the sale and on April 30, 2003, we completed the sale of
substantially all of the assets of the Accounting Software Business to two key
employees of that division. As a result of the sale, the results of operations
have been reported as discontinued operations.





Until
March 14, 2003, we provided industry-specific solutions for managing, sharing
and collaborating business information on the Internet though our Hosted
Solutions Business. Following our decision to sell the Accounting Software
Business, we came to the conclusion that, due to current market conditions for
capital funding of Internet opportunities, it would be extremely unlikely for us
to secure the financing necessary to fund our Hosted Solutions Business beyond
the near term and thereby provide assurance to future customers of our long-term
viability. Accordingly, on March 14, 2003, we sold all of our assets related to
the Hosted Solutions Business. The transaction did not require shareholder
approval under Minnesota law since the assets relating to our Hosted Solutions
Business did not constitute all or substantially all of the assets of our
Company as a whole. As a result of the sale, the results of operations have been
reported as discontinued operations.





20





**RESULTS
OF OPERATIONS**





**FOR
THE YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE YEAR ENDED DECEMBER 31,
2003.**





Revenues





We had no
revenues from continuing operations for the years December 31, 2004 and 2003.
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 $1,764,773 for 2004 as compared to $1,452,416
for 2003. 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 $1,764,773 recorded for 2004,
approximately $670,000 relates to marketing services, consulting fees and
shareowner services; approximately $500,000 relates to the legal fees we
incurred for litigation with a former CEO. Of the $1,452,416 recorded for 2003,
approximately $694,000 relates to consulting fees for warrants and common stock
issued for consulting services and approximately $275,000 for legal and
marketing services. We anticipate that our operating expenses will begin to
increase over the next fiscal year due to our plans for exploration at the
Bates-Hunter Project in Colorado, which was acquired in January
2005.





Exploration
expenses relate to: (i) the issuance of stock for acquiring mining rights, (ii)
expenditures being reported on the work-in-process from the project operator,
AfriOre, at the FSC Project site, (iii) expenses related to the Brazmin
properties, including landowner payments, geological expenses and consulting
fees, (iv) McFaulds Lake and (v) the due diligence required to secure rights for
the Colorado Bates-Hunter project. We anticipate the rate of spending for fiscal
2005 exploration expenses should increase based on the Bates-Hunter project and
should AfriOre accelerate drilling at the FSC.





Components
of exploration expenses are as follows:





Years
      Ended December 31,
    
    May
      1, 2003 (inception) to December 31,2004
    
    2003
    
    2004Expenditures
      reported by Kwagga/AfriOre
    
    $
    865,340
    
    $
    500,000
    
    $
    1,365,340Expenditures
      related to Brazmin
    
    
    195,572
    
    
    --
    
    
    195,572Expenditures
      related to McFaulds Lake
    
    
    24,251
    
    
    --
    
    
    24,251Expenditures
      related to Bates-Hunter
    
    
    70,379
    
    
    --
    
    
    70,379Issuance
      of shares to Hawk USA (1)
    
    
    --
    
    
    2,491,290
    
    
    2,491,290Issuance
      of shares to Hawk USA (2)
    
    
    --
    
    
    2,350,000
    
    
    2,350,000$
    1,155,542
    
    $
    5,341,290
    
    $
    6,496,832





(1) We
issued 3,750,000 shares of common stock for participation mining rights, valued
at $2,737,500 (based on the closing sale price, $0.73 per share, of our common
stock on June 26, 2003, as listed on the OTCBB, which represented an issuance of
28.2 percent of our total issued and outstanding common stock) and recorded the
excess over the historical cost, $246,210, of the contributions made by Hawk
USA.





21





(2) On
November 7, 2003, we exercised our option with Hawk USA to acquire Hawk USA’s
entire 50 percent equity interest in Active Hawk Minerals, LLC in exchange for
issuing to Hawk USA an additional 2,500,000 shares of our common stock. The
common stock was valued at $2,350,000, based on the closing sale price, $0.94
per share, of our common stock on November 7, 2003 as listed on the OTCBB, which
represented an issuance of 9.0 percent of our total issued and outstanding
common stock of 27,797,181 shares. As of November 7, 2003, Active Hawk Minerals,
LLC is our wholly owned subsidiary.





Amortization
for 2004 was $247,087 as compared to $81,143 for 2003. We began amortization of
the FSC Project in July 2003, over a 24-month period on a straight-line basis.
This is based on the premise that the initial 5 to 7 drill hole (subsequently
revised to 3 to 4 drill holes) at the FSC Project will be completed within 24
months. The quarterly amortization of the FSC is approximately $38,200 and will
be fully amortized by June 30, 2005. We began amortization of the Holdsworth
Project in October 2003, over a 15-month period on a straight-line basis at a
rate of approximately $4,600 per quarter. This was based on the assessment that
the Holdsworth Project was a relatively small project, and as such, our goal was
to locate a third party contractor by the end of fiscal 2004. We did not meet
that goal. As of December 31, 2004, the Holdsworth Project has been fully
amortized. We will continue our search for a contractor and funds for the
Holdsworth Project. Amortization of McFaulds Lake began in July 2004, over a
12-month period on a straight-line basis at a rate of approximately $14,500 per
quarter. Due to our transaction with MacDonald, we recorded an additional
$46,504 in amortization expense as an impairment relating to the 55 percent earn
in. We will review each project monthly and make evaluations regarding
impairment. For 2003, depreciation expense of property and equipment was $117.
During the year ended December 31, 2003, all fully depreciated assets were
written off. Additionally, we do not anticipate further depreciation expense of
fixed assets until such time as we deem it necessary to make purchases of
depreciable fixed assets.





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 relating to our South American 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-evaluate 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.





We
recorded losses on disposal of assets for 2004 of $0 as compared to $1,633 for
2003.





Other
Income and Expenses





Our other
income and expense consists of interest and dividend income and interest
expense. Interest income for 2004 was $0 compared to interest and dividend
income of $25,769 for the same period in 2003. The interest income we reported
for 2003 was primarily earned from a federal income tax refund filed with the
IRS.





22





Interest
expense for 2004 was $295,045 and for 2003 it was $0. The
interest expense relates primarily to the $650,000 secured promissory note
payable. Components of interest expense are: $42,266 in principal loan interest and
$252,779 represents the original issue discount of the principal and the
warrants issued. The proceeds of $650,000 were allocated between the note and
the warrants based on the relative fair values of these securities at the time
of issuance. The resulting original issue discount, the fair value of the
warrant is being amortized over the life of the note using the straight-line
method, which approximates the interest method.





Income
Tax Refund





We filed
an amended Federal Income Return on prior Net-Operating Losses (NOL’s) and
received a tax refund in the amount of $243,920 during the quarter ended June
30, 2003. No further refunds will be available based on current tax law for the
periods previously amended.





Discontinued
Operations





We have
reported a gain of $21,154 for the year ended 2004 as compared to a loss of
$296,776 for 2003 relating to our discontinued operations. The gain resulted
from accounts payable issues that remained in dispute resulting from the sale of
our Hosted Solutions Business. All disputes were reconciled and adjusted
accordingly. The loss of $296,776 for 2003 is presented below.





Effective
with the sale of our Hosted Business Solutions model on March 14, 2003, we have
classified all results as discontinued operations.





The
following are condensed consolidated statements of discontinued operations for
the:





HOSTED
      SOLUTIONS BUSINESS
    
    December
      31,2004
    
    2003Revenues
    
    $
    --
    
    $
    132,455Operating
      expensesCosts
      of sales
    
    
    --
    
    
    35,354Selling,
      general and administrative
    
    
    --
    
    
    161,597Depreciation
      and amortization
    
    
    --
    
    
    8,935Gain
      on disposal of assets
    
    
    --
    
    
    (749
    )Total
      operating expenses
    
    
    --
    
    
    205,137Loss
      from discontinued operations
    
    
    --
    
    
    (72,682
    )Other
      income
    
    
    21,154
    
    
    150,000Loss
      on sale of prepaid royalties
    
    
    --
    
    
    (434,895
    )Net
      gain (loss) from discontinued operations
    
    $
    21,154
    
    $
    (357,577
    )





Effective
with the sale of our Accounting Software Business model on April 30, 2003, we
have classified all results as discontinued operations.





23





The
following are condensed consolidated statements of discontinued operations for
the:





ACCOUNTING
      SOFTWARE BUSINESS
    
    December
      31,2004
    
    2003Revenues
    
    $
    --
    
    $
    1,491,059Operating
      expensesCosts
      of goods sold
    
    
    --
    
    
    371,971Selling,
      general and administrative
    
    
    --
    
    
    617,417Depreciation
      and amortization
    
    
    --
    
    
    63,848Product
      development
    
    
    --
    
    
    231,243Total
      operating expenses
    
    
    --
    
    
    1,284,479Income
      from discontinued operations
    
    
    --
    
    
    206,580Other
      expense
    
    
    --
    
    
    (145,779
    )Net
      income from discontinued operations
    
    $
    --
    
    $
    60,801





**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, 2004 and 2003, we had net cash used in operating activities
of $1,050,137 and $405,362, respectively.





We had
working capital of $1,076,840 at December 31, 2004, compared to $870,032 at
December 31, 2003. Cash and equivalents were $1,122,348 at December 31, 2004,
representing an increase of $758,358 from the cash and equivalents of $363,990
at December 31, 2003.





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), a Virgin Islands limited partnership. The Note is secured by
substantially all of our assets. The Note bears interest of 10 percent per
annum. The principal and interest payment is as follows: (a) payments of
$5,416.67 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 are required to pay amortized
principal and interest of $46,278.15. Notwithstanding the foregoing, in lieu of
cash, we may satisfy our repayment obligations by issuing shares of our common
stock. As of December 31, 2004, all principal and interest payments have been
made in cash and the Note is current.





On June
10, 2004, we entered into an option agreement to earn a 70 percent interest in 5
mining claims in the McFaulds Lake area of the James Bay Lowlands, Attawapiskat
Region of northern Ontario, currently held under option by Hawk. The option
agreement required cash payments of Cdn$60,000 and the issuance of 200,000
shares of our non-registered common stock, valued at $84,000. On December 2,
2004, we entered into a farm out option agreement with MacDonald Mines
Exploration Ltd. whereby they can earn a 55% interest (subject to a 2% royalty)
in the McFaulds Lake Project by (i) making a Cdn$10,000 cash payment, (ii)
issuing 250,000 shares of their common stock and (iii) paying exploration
expenditures of Cdn$200,000.





As of
September 30, 2004, we have invested $2,100,000 in Kwagga, which is being used
to fund a 3 to 4 drill hole 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.





24





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.





Our
existing sources of liquidity will not provide cash to fund operations for the
next twelve months. We have estimated our cash needs over the next twelve months
to be approximately $2,050,000 (to include debt servicing of approximately
$510,000 and the Holdsworth Project for $150,000). Additionally, should the
exploration results from the FSC Project be completed ahead of schedule (prior
to June 2006), we could be required to have an additional $1,400,000 advance
available within a 120-day timeframe. 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.





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 and the Golden Gilpin Mill located in Central City, Colorado. We will
begin 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, 2005, at which time, should
the historical data prove viable, we may complete the purchase of the assets of
the Hunter Corporation for a fixed price of $3,000,000. 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
$3,000,000 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
$3,000,000 payment has not been made by November 30, 2005 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.





Foreign
Exchange Exposure





Since our
entrance into the precious minerals arena, we have had very limited dealings
with foreign currency transactions, even though all 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
US Dollars to the South African Rand has had a substantial reduction. It is this
reduction that has decreased our initial 5 to 7 drill hole program on the FSC to
be revised to only a 3 to 4 drill hole program. Furthermore, should the US
Dollar weaken further in relationship to the South African Rand, we may sustain
additional reductions in the number of drill holes completed with our initial
investment.





25





**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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE**





On
December 28, 2004 Virchow, Krause & Company, LLP (“VK”) resigned from its
position as our principal independent accountants. The audit reports of VK on
our financial statements for the years ended December 31, 2003 and 2002 did not
contain any adverse opinion or disclaimer of opinion or qualification. VK did
not, during the applicable periods, advise us of any of the enumerated items
described in Item 304(a)(1) of Regulation S-B. We and VK have not (through the
date of this report and in connection with the audits of our financial
statements for the years ended December 31, 2003 and 2002) had any disagreement
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement, if not resolved
to VK’s satisfaction, would have caused VK to make reference to the subject
matter of the disagreement in connection with its reports. During the period
from January 1, 2004 to December 28, 2004, VK did not audit our financial
statements, but did review our quarterly reports for the three quarters of 2004.
During the fiscal years ended December 31, 2003 and 2002 and through December
28, 2004, none of the events specified in Item 304(a)(1)(iv)(B) of Regulation
S-B have occurred. We requested that VK furnish us with a letter addressed to
the Securities and Exchange Commission stating whether or not it agrees with the
above statements. A copy of such letter issued
regarding this change was filed as Exhibit 16.1 to our Current Report on Form
8-K, filed January 3, 2005.





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. During the two most recent fiscal years and to
January 3, 2005, we have not consulted with CMO regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
our financial statements, and (ii) no written report or oral advice was provided
by CMO that was considered an important factor by us in reaching a decision as
to an accounting, auditing or financial reporting issue or any matter that was
either the subject of a disagreement, as that term is defined in Item
304(a)(1)(iv) of Regulation S-B and the related instructions to Item 304 of
Regulation S-B, or a reportable event, as that term is defined in Item
304(a)(1)(iv) of Regulation S-B.





**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 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.





26





(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 report that have
materially affected or are reasonably likely to materially affect the Company’s
internal control over financial reporting.














27





**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 28, 2005:





Name
    
    Age
    
    Positions
      with the CompanyH.
      Vance White
    
    60
    
    Chief
      Executive Officer and DirectorMark
      D. Dacko
    
    53
    
    Chief
      Financial Officer, Secretary and DirectorNorman
      D. Lowenthal
    
    67
    
    DirectorStephen
      D. King
    
    48
    
    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 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. (formerly Café Odyssey, Inc.)
a publicly traded company with businesses in the hospitality and Internet
sectors.





There is
no family relationship between any director or executive officer of the
Company.





28


****


**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 were filed on a
timely basis, except for the following:





Hawk
Precious Minerals USA, Inc., filed a Form 4 dated February 17, 2004 relating to
a transaction on January 7, 2004.





Walter E.
Brooks filed a Form 4 dated March 3, 2004 relating to a sale of director stock
options on February 26, 2004.





Zoran
Arandjelovic filed a Form 4 dated March 15, 2004 relating to a transaction and
an option grant on March 10, 2004.





H. Vance
White filed a Form 4 on February 9, 2005 relating to a transaction on March 22,
2004.





**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 2004
whose compensation for that fiscal year was in excess of $100,000. The
individuals named in the table will be hereinafter referred to as the “Named
Officers.” No other executive officer of ours received compensation in excess of
$100,000 during fiscal year 2004.




Annual
      Compensation
    
    Long-Term
      Compensation Awards
    
    All
      Other Compen-
      sation
      ($)Name
      and Principal Position
    
    Year
    
    Salary($)
    
    Bonus($)
    
    Other
      Annual Compensation ($)
    
    Securities
      Underlying Options/SARs(#)H.
      Vance White(1)
      Chief
      Executive Officer
      and
      Director
    
    
    2004
      2003
      2002
    
    
    --
      --
      --
    
    
    --
      --
      --
    
    
    --
      --
      --
    
    
    --
      1,000,000
      --
    
    
    --
      --
      --Mark
      D. Dacko(2)
      Chief
      Financial Officer, Secretary and Director
    
    
    2004
      2003
      2002
    
    $
      $
      $
    90,000
      104,971
      90,000
    
    
    --
      --
      $18,000
    
    
    --
      --
      --
    
    
    125,000(3)
      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.





29





**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, 2004.





Percent
      totalNumber
      of
    
    options
      granted
    
    Exercise/
    
    
    
    Grant
      dateoptions
    
    to
      employees in
    
    base
    
    Expiration
    
    presentgranted
    
    fiscal
      2004
    
    price
      ($)
    
    date
    
    value
      (b)Mr.
      White
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Mr.
      Dacko (a)
    
    
    125,000
    
    
    100
    %
    $
    0.23
    
    
    12/29/2014
    
    $
    28,750





(a)  The
options granted vested entirely on 12/29/04.


(b)  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 4.5 percent, expected volatility of 200 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 2004 AND YEAR-END OPTION VALUE TABLE**





Shown
below is information relating to (i) the exercise of stock options during 2004
by our Chief Executive Officer and each of our other most highly compensated
executive officers as of December 31, 2004 and (ii) the value of unexercised
options for each of the Chief Executive Officer and such executive officers as
of December 31, 2004:





Number
      of
    
    
    
    Number
      of shares
    
    Value
      of unexercisedshares
    
    
    
    underlying
      unexercised
    
    in-the-money
      optionsacquired
      on
    
    Value
    
    options
      at Dec. 31, 2004
    
    at
      Dec. 31, 2004 (a)exercise
    
    realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableMr.
      White
    
    
    --
    
    $
    --
    
    
    1,000,000
    
    
    --
    
    $
    --
    
    $
    --Mr.
      Dacko
    
    
    --
    
    $
    --
    
    
    515,000
    
    
    --
    
    $
    27,500
    
    $
    --





(a)
    The
      value of unexercised in-the-money options is based on the difference
      between the exercise price of the options and $0.45, the fair market value
      of the Company’s common stock on December 31,
2004.





No stock
appreciation rights were exercised during the 2004 fiscal year, and no stock
appreciation rights were outstanding at the end of that fiscal
year.





30





**EMPLOYMENT
AGREEMENTS**





The only
two employees of our Company are our chief executive officer and our chief
financial officer. We do not have written employment agreements with either.
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, 2004. Our chief financial officer is entitled to an annual salary of
$90,000.





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$2,075 as of
March 16, 2005. 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 2003, we issued options to purchase a total of 1,650,000 shares of our common
stock to four directors, as follows: on July 9, 2003, we granted an option to
purchase 750,000 shares to Mr. Brooks and 250,000 shares to Michael Pickens,
both former directors, both pursuant to our 2000 Director Stock Option Plan; on
September 4, 2003 we granted an option to purchase 250,000 shares to Mr.
Lowenthal; and on November 5, 2003 we granted an option to purchase 400,000
shares to Zoran Arandjelovic, a former director. The grants to Messrs. Lowenthal
and Arandjelovic were both pursuant to our 2003 Director Stock Option
Plan.





On March
10, 2004, we amended Mr. Arandjelovic’s stock option grant to accelerate the
vesting of the entire option, allowing for immediate exercise. We also granted
to Mr. Arandjelovic an option to purchase an additional 400,000 shares at a
price of $1.03, which shares were immediately exercisable.





On July
8, 2004, we granted Mr. King an option to purchase 250,000 shares pursuant to
our 2003 Director Stock Option Plan.





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 2004. Financial information relating to quarterly reports
was disseminated to all board members for review. The audited financial
statements for the years ended December 31, 2004 and 2003 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.








31





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





The
following information sets forth the number and percentage of shares of the
Company’s common stock owned beneficially, as of March 28, 2005, 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
    
    
    4,472,500
      (2
    )
    
    7.480
      South 8thStreet, Suite 900Minneapolis,
      MN 55402Mark
      D. Dacko
    
    
    515,000
      (3
    )
    
    *80
      South 8thStreet, Suite 900Minneapolis,
      MN 55402Norman
      D. Lowenthal
    
    
    250,000
      (3
    )
    
    *Private
      Bag X60Saxonwold,
      2132 South AfricaStephen
      D. King
    
    
    187,500
      (3
    )
    
    *Three
      Ravinia Drive, Suite 1950Atlanta,
      GA 30346All
      directors and officers as a group
    
    
    5,425,000
    
    
    8.8
  Thomas
      Brazil
    
    
    8,746,911
      (4
    )
    
    13.817
      Bayns Hill RoadBoxford,
      MA 01921Everest,
      Ltd.
    
    
    3,750,000
      (5
    )
    
    6.2Chancery
      Court, ProvidencialesTurks
      and Caicos IslandsPhilip
      M. Georgas
    
    
    3,000,000
      (6
    )
    
    5.091
      Riverview DriveToronto,
      ON M4N 3C6Hawk
      Precious Minerals Inc.
    
    
    3,472,500
      (7
    )
    
    5.8404
      - 347 Bay StreetToronto,
      ON M5H 2R7Wayne
      W. Mills
    
    
    3,169,400
      (8
    )
    
    5.21615
      Northridge DriveMedina,
      MN 55391











*
represents less than 1 percent





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




(2)
    Includes
      1,000,000 shares issuable upon the exercise of an option that is 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 or will be exercisable within 60
days.






32






(4)
    Basedon
      a Schedule 13D filed on November 26, 2003, by Thomas E. Brazil and Boston
      Financial Partners, Inc., includes 3,775,000 shares issuable upon the
      exercise of certain warrants. Mr. Brazil is the sole officer and director
      of Boston Financial Partners, Inc. Also includes 91,500 shares owned by
      Mr. Brazil’s spouse. Mr. Brazil disclaims beneficial ownership of these
      shares.




(5)
    Includes
      1,250,000 shares issuable upon the exercise of certain
  warrants.





(6)
    Includes
      1,000,000 shares issuable upon the exercise of certain
  warrants.





(7)
    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.





(8)
    Includes
      1,196,000 shares issuable upon exercise of certain warrants, of which
      473,000 are owned by Blake Capital, LLC, of which Mr. Mills is the sole
      member. Also includes 271,000 shares owned by Blake Capital, LLC, 30,000
      shares owned by Sea Spray, Ltd., a foreign corporation of which Mr. Mills
      is the sole director. Also includes 150,000 shares owned by Mr. Mills’
      spouse and warrants to purchase 250,000 shares held by a trust for the
      benefit of Mr. Mills’ children. Mr. Mills disclaims beneficial ownership
      of these shares.





**EQUITY
COMPENSATION**





The
following table sets forth certain information regarding equity compensation
plan information as of December 31, 2004:


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)
    
    (c)Equity
      compensationplans approved by security
    holders
    
    
    3,572,500
    
    $
    1.11
    
    
    2,089,000Equity
      compensationplans not approved bysecurity
      holders
    
    
    1,427,500
    
    $
    1.26
    
    
    700,000Total
    
    
    5,000,000
    
    $
    1.16
    
    
    2,789,000




**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.





Blake
Capital Partners, LLC





In
October 2003, in exchange for financial advisory services related to equity
raising activities, we paid to Blake Capital Partners, LLC $52,000 in cash and
issued a four-year warrant to purchase an aggregate of 208,000 shares of our
common stock at an exercise price of $0.50. Blake Capital is wholly owned by
Wayne W. Mills, who beneficially owns more than 5 percent of our outstanding
common stock.





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 $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.





33





Boston
Financial Partners, Inc.





In
October 2003, in exchange for financial advisory services related to equity
raising activities, we paid to Boston Financial Partners, Inc., $300,000 in cash
and issued a four-year warrant to purchase an aggregate of 538,000 shares of our
common stock at an exercise price of $0.50.





In
November 2003, we engaged Boston Financial Partners, Inc. to provide consulting
services to us in connection with evaluating our business model, evaluating and,
if necessary, modifying our investor relations plans, introducing us to
potential investors and identifying for us mineral exploration investment or
acquisition opportunities. In exchange for these services rendered, we issued to
Boston Financial Partners a two-year warrant to purchase an aggregate of
1,000,000 shares of our common stock at an exercise price of $0.62.





Hawk
USA





Pursuant
to a joint venture agreement dated June 26, 2003, we formed Active Hawk, LLC,
which was initially 50 percent owned by us and 50 percent owned by Hawk Precious
Minerals USA, Inc., (“Hawk USA”), a wholly owned subsidiary of Hawk Precious
Minerals Inc., (“Hawk”). See “Business - Active Hawk Minerals, LLC.” H. Vance
White, our chief executive officer and director, is also an officer and director
of Hawk USA and Hawk. Immediately prior to this agreement, neither Hawk USA,
Hawk nor Mr. White were affiliated with our Company. On June 26, 2003, Hawk USA
contributed all of its interest in the FSC and Holdsworth Projects and we
assumed Hawk USA’s obligation to provide $2.1 million of capital to Kwagga under
the Heads of Agreement. We also issued to Hawk USA 3,750,000 shares of our
common stock, which then represented approximately 37.2 percent of our
outstanding shares. On November 7, 2003, we exercised our option under the June
26, 2003 agreement to purchase Hawk USA’s 50 percent interest in Active Hawk LLC
in exchange for issuing an additional 2,500,000 shares of our common stock to
Hawk USA, making Active Hawk LLC our wholly owned subsidiary.





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.





**ITEM
13. EXHIBITS**


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





34





Exhibit**   Description
of Document




2.1
    Asset
      Purchase Agreement dated February 17, 2003 by and among the Registrant,
      Red Wing Software Inc., Red Wing Business Systems, Inc., and Champion
      Business Systems, Inc. (incorporated by reference to Exhibit 2.1 to the
      Registrant’s Form 8-K filed May 12, 2003).




2.2
    Asset
      Purchase Agreement dated March 14, 2003 by and between the Registrant and
      Stellent, Inc. (incorporated by reference to Exhibit 2.1 to the
      Registrant’s Form 8-K filed March 21, 2003).




3.1
    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.




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).




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).




4.4
    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).




4.5
    Form
      of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1
      of the Registrant’s Form 8-K filed December 16,
2004).




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)).






35




10.5
    Severance
      Agreement between the Registrant and Jeffrey M. Traynor dated March 14,
      2003 (incorporated by reference to Exhibit 10.21 to the Registrant’s Form
      10-K for the year ended December 31, 2002 (File No.
1-12401)).




10.6
    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).




10.7
    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).




10.8
    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)).




10.9
    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).




10.10
    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).




10.11
    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).




10.12
    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).




10.13
    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).




10.14
    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).




10.15
    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).




10.16
    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).






36




10.17
    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).




10.18
    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).




10.19
    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).




10.20
    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).




10.21
    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).




10.22
    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).




10.23
    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)).




10.24**
    Assignment
      of Purchase Option Agreement by and between the Registrant and Kenneth
      Swaisland, dated August 12, 2004.




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.




23.2**
    Consent
      of Virchow, Krause & Company, LLP.




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




37





**ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





On
December 28, 2004 Virchow, Krause & Company, LLP, resigned from its position
as our principal independent accountants. See Item 8 - Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.





The Audit
Committee of the Company selected Virchow Krause to audit the Company’s
financial statements for the years ended December 31, 2003, 2002 and 2001. The
following table details the fees billed by Virchow Krause in the years ended
December 31, 2004 and 2003.





**2004**
    
    **2003**Audit
      Fees
    
    $
    35,925
    
    $
    49,230Audit-Related
      Fees (1)
    
    
    30,000
    
    
    540Tax
      Fees (2)
    
    
    10,690
    
    
    31,705All
      Other Fees
    
    
    135
    
    
    0Total
    
    $
    76,750
    
    $
    81,475





(1)
    Audit-Related
      Fees consist primarily of assurance and related services that are
      reasonable related to the performance of the audit or review of the
      Company’s financial statements but not reported under the caption “Audit
      Fees.” These fees include review of registration statements and current
      reports on Form 8-K filed by the Company.





(2)
    Tax
      Fees consist of fees for tax compliance, tax advice and tax
      planning.





No
services in connection with appraisal or valuation services, fairness opinions
or contribution-in-kind reports were rendered by Virchow Krause. Furthermore, no
work of Virchow Krause with respect to its services rendered to the Company was
performed by anyone other than Virchow Krause.





On
January 3, 2005, our Board of Directors ratified the engagement of Carver
Moquist & O’Connor, LLC to audit our financial statements for the year ended
December 31, 2004. There have been no billings received from our new
auditor.


**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 our 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 2004 was
obtained in reliance on the waiver of the pre-approval requirement afforded in
SEC regulations.





38





**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”)**Date: March 30,
2005
    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 on March 30, 2005 by the following persons on behalf of the Registrant,
in the capacities indicated.




******Signatures**
    
    **Title**/s/
      H. Vance White
    
    Chief
      Executive Officer and DirectorH.
      Vance White
    
    (principal
      executive officer)/s/
      Mark D. Dacko
    
    Chief
      Financial Officer, Controller, Secretary andMark
      D. Dacko
    
    Director
      (principal financial and accounting officer)/s/
      Norman D. Lowenthal
    
    DirectorNorman
      D. Lowenthal/s/
      Stephen D. King
    
    DirectorStephen
      D. King







39




**ITEM
7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
 
 Table of
Contents
 
 ****
    PageReport
      of Independent Registered Public Accounting Firm ofCarver Moquist
      & O’Connor, LLC
    F-2Report
      of Independent Registered Public Accounting Firm ofVirchow, Krause
      & Company, LLP
    F-3Consolidated
      Balance Sheets as of December 31, 2004 and 2003
    F-4Consolidated
      Statements of Operations for the Years Ended December 31, 2004 and
      2003
    F-5Consolidated
      Statements of Shareholders’ Equity for the YearsEnded December 31,
      2004 and 2003
    F-6Consolidated
      Statements of Cash Flows for the Years EndedDecember 31, 2004 and
      2003
    F-10Notes
      to Consolidated Financial Statements
    F-11
  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 sheet of Wits Basin Precious
Minerals Inc., and subsidiaries (an exploration stage company) as of December
31, 2004, and the related consolidated statements of operations, shareholders’
equity, and cash flows for the year and the period from May 1, 2003 (inception)
to December 31, 2004. 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 audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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, 2004, and the results of its operations and its cash flows
for the year ended December 31, 2004 and the period from May 1, 2003 (inception)
to December 31, 2004 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, 2004 and 2003 and had an accumulated deficit at December 31,
2004. 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 21,
2005
 
 
 F-2
 
 **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To Audit
Committee, Shareholders and Board of Directors of Wits Basin Precious Minerals
Inc. and subsidiaries (an exploration stage company):
  We have
audited the accompanying consolidated balance sheet of Wits Basin Precious
Minerals Inc. and subsidiaries (an exploration stage company) as of December 31,
2003, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended December 31, 2003 and for the period
from May 1, 2003 (inception) to December 31, 2003. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
  We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 audit provides a reasonable basis for our
opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wits Basin
Precious Minerals Inc. and subsidiaries as of December 31, 2003, and the results
of their operations and their cash flows for the year ended December 31, 2003
and for the period from May 1, 2003 (inception) to December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
  As
discussed in Note 16 to the consolidated financial statements, the Company has
restated its consolidated balance sheet as of December 31, 2003 and the related
consolidated statements of operations, shareholders’ equity and cash flows for
the year ended December 31, 2003 and the period from May 1, 2003 (inception) to
December 31, 2003 to expense certain costs related to the Company’s
participation mining rights.
  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 year ended
December 31, 2003 and had an accumulated deficit at December 31, 2003. 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/ Virchow, Krause & Company,
      LLPMinneapolis, MinnesotaJanuary 30, 2004 (except as to
      Notes 2, 3, 7, 15 and 16, as to which the date is September 15,
      2004)
 
 F-3
 
 **WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
BALANCE SHEETS**
 
 December
      31,Restated2004
    
    2003AssetsCurrent
      assetsCash
      and cash equivalents
    
    $
    1,122,348
    
    $
    363,990Receivables
    
    
    30,817
    
    
    —Investment
    
    
    18,904
    
    
    —Prepaid
      expenses
    
    
    317,276
    
    
    612,777Total
      current assets
    
    
    1,489,345
    
    
    976,767Participation
      Mining Rights, net
    
    
    840,310
    
    
    1,547,956Debt
      Issuance Costs, net
    
    
    80,359
    
    
    —$
    2,410,014
    
    $
    2,524,723Liabilities
      and Shareholders’ EquityCurrent
      LiabilitiesSecured
      promissory note payable
    
    $
    87,279
    
    $
    —Accounts
      payable
    
    
    191,631
    
    
    59,226Liabilities
      of operations of discontinuedhosted solutions
      business
    
    
    —
    
    
    34,734Accrued
      expenses
    
    
    133,595
    
    
    12,775Total
      current liabilities
    
    
    412,505
    
    
    106,735Accrued
      guarantee fee
    
    
    30,000
    
    
    30,000Private
      Placement Escrow
    
    
    734,950
    
    
    —Total
      liabilities
    
    
    1,177,455
    
    
    136,735Commitments
      and ContingenciesShareholders’
      EquityCommon
      stock, $.01 par value, 150,000,000 shares authorized;42,601,612
      and 30,297,181 shares issued and outstandingat
      December 31, 2004 and 2003
    
    
    426,016
    
    
    302,972Additional
      paid-in capital
    
    
    31,388,817
    
    
    27,423,258Warrants
    
    
    5,238,405
    
    
    4,146,438Accumulated
      deficit
    
    
    (22,932,460
    )
    
    (22,932,460
    )Deficit
      accumulated during the exploration stage, subsequentto April 30,
      2003
    
    
    (12,888,219
    )
    
    (6,552,220
    )Total
      shareholders’ equity
    
    
    1,232,559
    
    
    2,387,988$
    2,410,014
    
    $
    2,524,723
 
 See
accompanying notes to consolidated financial statements.
 
 
 F-4
 
 **WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
STATEMENTS OF OPERATIONS**
 
 Years
      Ended December 31,
    
    May
      1, 2003 (inception) to Dec. 31,Restated2004
    
    2003
    
    2004Revenues
    
    $
    —
    
    $
    —
    
    $
    —Operating
      expenses:General
      and administrative
    
    
    1,764,773
    
    
    1,452,416
    
    
    3,138,955Exploration
      expenses
    
    
    1,155,542
    
    
    5,341,290
    
    
    6,496,832Depreciation
      and amortization
    
    
    247,087
    
    
    81,260
    
    
    328,347Stock
      issued as penalty
    
    
    2,152,128
    
    
    —
    
    
    2,152,128Loss
      on impairment of Brazmin
    
    
    742,578
    
    
    —
    
    
    742,578Loss
      on disposal of assets
    
    
    —
    
    
    1,633
    
    
    1,633Total
      operating expenses
    
    
    6,062,108
    
    
    6,876,599
    
    
    12,860,473Loss
      from operations
    
    
    (6,062,108
    )
    
    (6,876,599
    )
    
    (12,860,473
    )Other
      income (expense):Interest
      income
    
    
    —
    
    
    25,769
    
    
    2,225Interest
      expense
    
    
    (295,045
    )
    
    —
    
    
    (295,045
    )Total
      other income (expense)
    
    
    (295,045
    )
    
    25,769
    
    
    (292,820
    )Loss
      from operations before income taxrefund
      and discontinued operations
    
    
    (6,357,153
    )
    
    (6,850,830
    )
    
    (13,153,293
    )Benefit
      from income taxes
    
    
    —
    
    
    243,920
    
    
    243,920Loss
      from continuing operations
    
    
    (6,357,153
    )
    
    (6,606,910
    )
    
    (12,909,373
    )Discontinued
      Operations (See Note 3)Gain
      (loss) from discontinued operations
    
    
    21,154
    
    
    (296,776
    )
    
    21,154Net
      Loss
    
    $
    (6,335,999
    )
    $
    (6,903,686
    )
    $
    (12,888,219
    )Basic
      and diluted net loss per common share:Continuing
      operations
    
    $
    (0.19
    )
    $
    (0.43
    )
    $
    (0.49
    )Discontinued
      operations
    
    
    —
    
    
    (0.02
    )
    
    —Net
      Loss
    
    $
    (0.19
    )
    $
    (0.45
    )
    $
    (0.49
    )Basic
      and diluted weighted averagecommon shares
      outstanding
    
    
    33,633,074
    
    
    15,361,315
    
    
    26,175,188
  See
accompanying notes to consolidated financial statements.
 
 
 F-5
 
 **WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY**
 **FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003**
 ****
    
    Common
      stock
      shares
    
    Amount
    
    Additional
      paid-in
      capital
    
    Stock
      subscription
      receivableBALANCE,
      December 31, 2002
    
    
    13,264,681
    
    $
    132,647
    
    $
    22,616,833
    
    $
    (2,000,000
    )Surrender
      of common stock at $4.00 per share, inexchange
      for cancellation of stock subscriptionreceivable
      with a director in January 2003
    
    
    (500,000
    )
    
    (5,000
    )
    
    (1,995,000
    )
    
    2,000,000Forfeiture
      of employee stock options
    
    
    --
    
    
    --
    
    
    (140,749
    )
    
    --Issuance
      of common stock at $0.20 per share,pursuant
      to an exercise of stock options, to formerofficer
      in lieu of accrued wages in February 2003
    
    
    292,500
    
    
    2,925
    
    
    53,604
    
    
    --Conversion
      of accounts payable to common stockat
      $0.219 per share in May 2003
    
    
    250,000
    
    
    2,500
    
    
    52,145
    
    
    --Issuance
      of common stock at $0.73 per share, ascontribution
      into Active Hawk Minerals, LLC withHawk
      Precious Minerals Inc. and issuance ofoption
      to purchase 100,000 shares of common stockat
      $0.40 per share, to director for consulting feein
      June 2003
    
    
    3,750,000
    
    
    37,500
    
    
    2,755,000
    
    
    --Exercise
      of stock options by former director inOctober
      2003 at $0.35 per share
    
    
    50,000
    
    
    500
    
    
    17,000
    
    
    --Issuance
      of common stock at $0.25, in privateplacement
      in October 2003 (net of offering costs of$295,897)
      and one-year warrants at $0.75 per share
    
    
    10,190,000
    
    
    101,900
    
    
    1,393,125
    
    
    --Issuance
      of common stock at $0.94 per share inNovember
      2003 on exercise of our option topurchase
      the interest held by Hawk PreciousMinerals
      Inc., in Active Hawk Minerals, LLC
    
    
    2,500,000
    
    
    25,000
    
    
    2,325,000
    
    
    --Issuance
      of common stock in November 2003 toconsultant
      for advisory services rendered
    
    
    500,000
    
    
    5,000
    
    
    225,000
    
    
    --Issuance
      of warrants in November 2003 toconsultants
      for advisory services, 250,000 at$0.60
      per share and 1,050,000 at $0.62 per share
    
    
    --
    
    
    --
    
    
    --
    
    
    --Additional
      stock option compensation undervariable
      plan accounting
    
    
    --
    
    
    --
    
    
    96,800
    
    
    --Contributed
      services by an executive
    
    
    --
    
    
    --
    
    
    24,500
    
    
    --Deferred
      compensation expense
    
    
    --
    
    
    --
    
    
    --
    
    
    --Net
      loss - Restated
    
    
    --
    
    
    --
    
    
    --
    
    
    --BALANCE,
      December 31, 2003
    
    
    30,297,181
    
    
    302,972
    
    
    27,423,258
    
    
    --Issuance
      of 700,000 shares of common stock and150,000
      5-year warrants to purchase BrazminLtda
      in February 2004
    
    
    700,000
    
    
    7,000
    
    
    679,000
    
    
    --Issuance
      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
    
    
    --
    
    
    --
    
    
    --
    
    
    --
 F-6
  ****
    
    Common
      stock
      shares
    
    Amount
    
    Additional
      paid-in
      capital
    
    Stock
      subscription
      receivable
 Issuance
      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
    
    
    --
    
    
    --
    
    
    --
    
    
    --Issuance
      of 100,000 warrants at $0.10 per share inNovember
      2004 for financial services
    
    
    --
    
    
    --
    
    
    --
    
    
    --Issuance
      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
    
    
    --Deferred
      compensation related to consulting
    
    
    
    
    
    
    
    
    
    
    
    --agreements
      for Brazmin Ltda.
    
    
    --
    
    
    --
    
    
    109,967Conversion
      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
    
    
    --
    
    
    --
    
    
    --
    
    
    --BALANCE,
      December 31, 2004
    
    
    42,601,612
    
    $
    426,016
    
    $
    31,388,817
    
    $
    --
 See
accompanying notes to consolidated financial statements.
 
 F-7
 
 **WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY**
 **FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003**
  Deferred
      compen-
      sation
    
    Warrants
    
    Accumulated
      Deficit
    
    Deficit
      Accumulated
      (1)
    
    TotalBALANCE,
      December 31, 2002
    
    $
    (182,213
    )
    $
    2,602,860
    
    $
    (22,580,994
    )
    $
    --
    
    $
    589,133Surrender
      of common stock at $4.00 per share, inexchange
      for cancellation of stock subscriptionreceivable
      with a director in January 2003
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Forfeiture
      of employee stock options
    
    
    140,749
    
    
    --
    
    
    --
    
    
    --
    
    
    --Issuance
      of common stock at $0.20 per share,pursuant
      to an exercise of stock options, to formerofficer
      in lieu of accrued wages in February 2003
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    56,529Conversion
      of accounts payable to common stockat
      $0.219 per share in May 2003
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    54,645Issuance
      of common stock at $0.73 per share, ascontribution
      into Active Hawk Minerals, LLC withHawk
      Precious Minerals Inc. and issuance ofoption
      to purchase 100,000 shares of common stockat
      $0.40 per share, to director for consulting feein
      June 2003
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    2,792,500Exercise
      of stock options by former director inOctober
      2003 at $0.35 per share
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    17,500Issuance
      of common stock at $0.25, in privateplacement
      in October 2003 (net of offering costs of$295,897)
      and one-year warrants at $0.75 per share
    
    
    --
    
    
    756,578
    
    
    --
    
    
    --
    
    
    2,251,603Issuance
      of common stock at $0.94 per share inNovember
      2003 on exercise of our option topurchase
      the interest held by Hawk PreciousMinerals
      Inc., in Active Hawk Minerals, LLC
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    2,350,000Issuance
      of common stock in November 2003 toconsultant
      for advisory services rendered
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    230,000Issuance
      of warrants in November 2003 toconsultants
      for advisory services, 250,000 at$0.60
      per share and 1,050,000 at $0.62 per share
    
    
    --
    
    
    787,000
    
    
    --
    
    
    --
    
    
    787,000Additional
      stock option compensation undervariable
      plan accounting
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    96,800Contributed
      services by an executive
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    24,500Deferred
      compensation expense
    
    
    41,464
    
    
    --
    
    
    --
    
    
    --
    
    
    41,464Net
      loss - Restated
    
    
    --
    
    
    --
    
    
    (351,466
    )
    
    (6,552,220
    )
    
    (6,903,686
    )BALANCE,
      December 31, 2003
    
    
    --
    
    
    4,146,438
    
    
    (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
    
    
    --
    
    
    147,000
    
    
    --
    
    
    --
    
    
    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
    
    
    --
    
    
    650,000
    
    
    --
    
    
    --
    
    
    650,000
  F-8
  ****
    
    
    Deferred
      compen-
      sation
    
    
    Warrants
    
    
    Accumulated
      Deficit
    
    
    Deficit
      Accumulated
      (1)
    
    
    TotalIssuance
      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
    
    
    --
    
    
    7,633
    
    
    --
    
    
    --
    
    
    7,633Issuance
      of 100,000 warrants at $0.10 per share inNovember
      2004 for financial services
    
    
    --
    
    
    33,834
    
    
    --
    
    
    --
    
    
    33,834Issuance
      of common stock at $0.10, in privateplacement
      in December 2004 and warrants at$0.25
      per share
    
    
    --
    
    
    253,500
    
    
    --
    
    
    --
    
    
    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
    
    
    --
    
    
    --
    
    
    --
    
    
    (6,335,999
    )
    
    (6,335,999
    )BALANCE,
      December 31, 2004
    
    $
    --
    
    $
    5,238,405
    
    $
    (22,932,460
    )
    $
    (12,888,219
    )
    $
    1,232,559
 (1)
    Deficit
      accumulated during the exploration stage, subsequent to April 30,
      2003.
 
 
 See
accompanying notes to consolidated financial statements.
 
 F-9
 
 **WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
EXPLORATION STAGE COMPANY)**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 
 Years
      Ended December 31,
    
    May
      1, 2003 (inception)Restated
    
    to
      Dec. 31,2004
    
    2003
    
    2004OPERATING
      ACTIVITIES:Net
      loss
    
    $
    (6,335,999
    )
    $
    (6,903,686
    )
    $
    (12,888,219
    )Adjustments
      to reconcile net loss to cashflows from operating
      activities:Depreciation
      and amortization
    
    
    247,087
    
    
    100,082
    
    
    328,347Loss
      on disposal of assets
    
    
    —
    
    
    884
    
    
    1,633Loss
      on disposal of discontinued operations
    
    
    —
    
    
    99,085
    
    
    —Loss
      on sale of prepaid royalties
    
    
    —
    
    
    434,895
    
    
    —Loss
      on impairment of Brazmin
    
    
    742,578
    
    
    —
    
    
    742,578Issue
      of common stock for exploration rights in excess ofhistorical
      cost
    
    
    —
    
    
    4,841,290
    
    
    4,841,290Amortization
      of participation mining rights
    
    
    865,340
    
    
    500,000
    
    
    1,365,340Amortization
      of debt issuance costs
    
    
    51,138
    
    
    —
    
    
    51,138Amortization
      of original issue discount
    
    
    252,779
    
    
    45,366
    
    
    252,779Amortization
      of prepaid consulting fees related to issuance ofwarrants
      and common stock
    
    
    —
    
    
    664,083
    
    
    664,083Amortization
      of acquired software developed
    
    
    —
    
    
    53,884
    
    
    —Exchange
      of assets for services
    
    
    —
    
    
    2,644
    
    
    —Compensation
      expense related to stock options and warrants
    
    
    355,934
    
    
    138,264
    
    
    469,498Contributed
      services by an executive
    
    
    80,000
    
    
    24,500
    
    
    104,500Issuance
      of common stock as penalty related to October 2003private
      placement
    
    
    2,152,128
    
    
    —
    
    
    2,152,128Changes
      in operating assets and liabilities:Accounts
      receivable, net
    
    
    —
    
    
    154,980
    
    
    12,200Inventories
    
    
    —
    
    
    7,983
    
    
    —Prepaid
      expenses
    
    
    295,501
    
    
    (212,684
    )
    
    44,366Other
      assets
    
    
    —
    
    
    (2,890
    )
    
    —Accounts
      payable
    
    
    132,405
    
    
    (195,320
    )
    
    138,489Deferred
      revenue
    
    
    —
    
    
    (130,498
    )
    
    —Accrued
      expenses
    
    
    110,972
    
    
    (28,224
    )
    
    (61,992
    )Net
      cash used in operating activities
    
    
    (1,050,137
    )
    
    (405,362
    )
    
    (1,781,842
    )INVESTING
      ACTIVITIES:Proceeds
      from sale of property and equipment
    
    
    —
    
    
    109,895
    
    
    —Proceeds
      from sale of prepaid royalties
    
    
    —
    
    
    540,105
    
    
    —Proceeds
      from sale of assets
    
    
    —
    
    
    752,426
    
    
    —Proceeds
      from sale of Brazmin
    
    
    25,000
    
    
    —
    
    
    25,000Purchases
      of property and equipment
    
    
    —
    
    
    (3,880
    )
    
    —Investment
      in participation mining rights
    
    
    (411,232
    )
    
    (1,827,889
    )
    
    (2,239,121
    )Net
      cash used in investing activities
    
    
    (386,232
    )
    
    (429,343
    )
    
    (2,214,121
    )FINANCING
      ACTIVITIES:Payments
      on long-term debt
    
    
    (165,500
    )
    
    (837,158
    )
    
    (165,500
    )Private
      placement advances held in escrow
    
    
    734,950
    
    
    —
    
    
    734,950Cash
      proceeds from issuance of common stock
    
    
    845,000
    
    
    2,251,603
    
    
    3,096,603Cash
      proceeds from exercise of stock options
    
    
    152,400
    
    
    17,500
    
    
    169,900Cash
      proceeds from exercise of warrants
    
    
    144,108
    
    
    —
    
    
    144,108Cash
      proceeds from long-term debt
    
    
    650,000
    
    
    —
    
    
    650,000Debt
      issuance costs
    
    
    (131,497
    )
    
    —
    
    
    (131,497
    )Net
      cash provided by financing activities
    
    
    2,229,461
    
    
    1,431,945
    
    
    4,498,564CHANGE
      IN CASH AND CASH EQUIVALENTS OFDISCONTINUED
      ACCOUNTING SOFTWARE BUSINESS
    
    
    (34,734
    )
    
    (246,461
    )
    
    (77,293
    )INCREASE
      (DECREASE) IN CASH EQUIVALENTS
    
    
    758,358
    
    
    350,779
    
    
    425,308CASH
      AND EQUIVALENTS, beginning of period
    
    
    363,990
    
    
    13,211
    
    
    697,040CASH
      AND EQUIVALENTS, end of period
    
    $
    1,122,348
    
    $
    363,990
    
    $
    1,122,348
 
 See
accompanying notes to consolidated financial statements.
 
 F-10
 
 **WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**
 **(AN
EXPLORATION STAGE COMPANY)**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 and 2003**
 
 
 **NOTE
1 - NATURE OF BUSINESS**
 
 Wits
Basin Precious Minerals Inc., and subsidiaries (“we,” “us,” “our,” “Wits Basin”
or the “Company”) is a minerals exploration company based in Minneapolis,
Minnesota. For fiscal 2004, we held interests in mineral exploration projects
located in South Africa, Canada and South America. As of the date of this Annual
Report, we do not claim to have any mineral reserves on our
properties.
 
 Our
primary holding is a gold exploration project located in the Republic of South
Africa adjacent to the major goldfields discovered at the historic Witwatersrand
Basin, which we refer to as the FSC Project. We also own the exploration rights
of the Holdsworth Project located in the Wawa area near the village of Hawk
Junction, Ontario. The Holdsworth Project is primarily a gold exploration
project. We acquired rights to the FSC and Holdsworth Projects in June
2003.
 
 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.
 
 In June
2004, we acquired the explorations rights to a VMS (volcanogenic massive
sulphide) base metals project, which we refer to as the McFaulds Lake Project,
located in the McFaulds Lake area of the James Bay Lowlands, Attawapiskat
Region of
northern Ontario.
 
 As of
December 31, 2004, we do not directly own any permits, equipment or have
personnel necessary to actually explore for minerals and we will therefore be
substantially dependent on the third party contractors we engage to perform such
operations. Subsequent to December 31, 2004, 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. See Note 18 -
Subsequent Events.
 
 Until
April 30, 2003, we provided accounting software through our Accounting Software
Business (see Note 3 - Discontinued Operations) and until March 14, 2003, we
provided industry-specific solutions for managing, sharing and collaborating on
business information on the Internet though our Hosted Solutions Business. We
sold substantially all of the assets relating to our Accounting Software and
Hosted Solutions Businesses as of such dates. See Note 3 - Discontinued
Operations.
 
 As a
result of the sale of the Hosted Solutions Business and Accounting Software
Business, we became an exploratory stage company effective May 1,
2003.
 
 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, 2004, we incurred losses from continuing operations of
$6,357,153. At December 31, 2004, we had an accumulated deficit of $35,820,679
and working capital of $1,076,840. Our ability to continue as a going concern is
dependent on our ultimately achieving profitability and/or raising the required
additional capital. If we are unable to obtain the necessary capital, we may
have to cease operations. We believe we have enough cash to fund our operations
through the end of July 2005.
 
 F-11
 
 **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: Gregory Gold Producers, Inc,
Active Hawk Minerals, LLC, Red Wing Business Systems, Inc. and 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. See Note 3 - Discontinued Operations. 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.
 
 Accounts
Receivable
 
 Our
exploration business model does not generate any accounts receivable. With the
sale of our Hosted Solutions Business and our Accounting Software Business, all
accounts receivable balances are a component of discontinued operations. See
Note 3 - Discontinued Operations.
 
 Inventories
 
 Our
exploration business model does not require inventory. Our Hosted Solutions
Business did not require maintaining any assets classified as inventories, as
the services were delivered electronically. Inventories related to the
discontinued Accounting Software Business consist principally of manuals for the
various software modules, stocked software and shipping supplies. Inventory is
recorded at the lower of cost (first-in, first-out) or market. See Note 3 -
Discontinued Operations.
 
 Property
and Equipment
 
 Property,
equipment and leasehold improvements were recorded at cost. Improvements are
capitalized while repairs and maintenance costs are charged to operations when
incurred. Property and equipment was depreciated or amortized using the
straight-line method over estimated useful lives ranging from three to seven
years. Leasehold improvements were amortized using the straight-line method over
the shorter of the lease term or the estimated useful life of the asset. All
property and equipment is fully depreciated at December 31, 2004.
 
 Segment
Reporting
 
 Due to
the reclassification of our Hosted Solutions Business and our Accounting
Software Business into discontinued operations, we have a single operating
segment. The single operating segment is that of minerals exploration. See Note
3 - Discontinued Operations.
 
 Revenue
Recognition and Deferred Revenue
 
 The
Company did derive revenues from customers of the online document management
service for monthly access to the service and initial service
configuration/implementation until March 14, 2003. Customers were invoiced at
the beginning of each month for access service and revenue was recognized when
invoiced. Configuration/implementation revenue was invoiced the month after the
services were performed and recognized in the month invoiced.
 
 F-12
 
 Until
April 30, 2003, the Company recognized the revenues derived from the accounting
software business sales after all of the following criteria had been met: there
was an executed license agreement, software had been delivered to the customer,
the license fee was fixed and payable within twelve months, collection was
deemed probable and product returns were reasonably estimable. Revenues related
to multiple element arrangements were allocated to each element of the
arrangement based on the fair values of elements such as license fees,
maintenance, and professional services. Fair value was determined based on
vendor specific objective evidence. Service revenue was recognized ratably over
the term of the agreement, which was typically one year. All service revenue
invoiced in excess of revenue recognized was recorded as deferred revenue. At
December 31, 2004, deferred revenue was $0.
 
 We
currently do not have the ability to generate revenues from our investments in
Kwagga (the FSC Project), Holdsworth, McFaulds Lake or other projects.
Furthermore, we do not expect to generate revenues for the foreseeable future.
 
 Advertising
 
 Advertising
costs are charged to expense as incurred. Advertising costs were $0 and $48,248
for the years ended December 31, 2004 and 2003, respectively, and are included
in discontinued operations in the consolidated statements of operations.
 
 Exploration
Costs
 
 If we
acquire a project that has no known reserves or resources and anticipate
exploration efforts to be commenced with 12 months from the date of acquisition,
we would capitalize the lesser of the: (i) historical value; (ii) the fair
value; or (iii) the cash paid to acquire (to include any related professional
fees required to consummate the acquisition). Furthermore, we would amortize the
recorded value on a straight-line method over a period from 12 to 24 months,
with quarterly reviews for impairment. Any further exploration costs incurred
will be charged to expense as incurred until such time as proven resources or
reserves have been properly established.
 
 Stock
Based Compensation
 
 In
accordance with Accounting Principles Board (“APB”) Opinion No. 25, we use the
intrinsic value-based method for measuring stock-based compensation cost which
measures compensation cost as the excess, if any, of the quoted market price of
our common stock at the grant date over the amount the employee must pay for the
stock. Our general policy is to grant stock options and warrants at fair value
at the date of grant.
 
 We have
adopted the disclosure only provisions of SFAS No. 123, “Accounting for
Stock-Based Compensation.” In December 2002, the FASB issued SFAS No. 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure.” SFAS No.
148 is an amendment to SFAS No. 123 providing alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation and also requires additional disclosures about
the method of accounting for stock-based employee compensation. The amendments
are effective for financial statements for fiscal years ending after December
15, 2002 and for the interim periods beginning after December 15, 2002. We have
adopted the annual disclosure provision of SFAS No. 148. If we adopted the
voluntary change to the fair value based method of accounting for stock-based
employee compensation, the impact could have a material effect on our
consolidated financial position or results of operations. We recorded
compensation expense pursuant to APB Opinion No. 25 and related interpretations
on options granted and due to modifications of options of $72,000 and $41,464
for the years ended December 31, 2004 and 2003, respectively. We recorded
expense related to stock based compensation issued to non-employees in
accordance with SFAS No. 123. Had compensation costs for employees 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:
 
 F-13
 
 
 May
      1, 2003 (inception) toYears
      Ended December 31,Restated
    
    December
      31,2004
    
    2003
    
    2004Net
      loss
    
    $
    (6,335,999
    )
    $
    (6,903,686
    )
    $
    (12,888,219
    )Stock-based
      employee compensationexpense
      included in net loss, netof
      related tax effects
    
    
    72,000
    
    
    41,464
    
    
    88,764Stock-based
      employee compensationexpense
      determined under the fairvalue
      based method, net of relatedtax
      effects
    
    
    (1,246,750
    )
    
    (3,700,810
    )
    
    (4,696,344
    )Pro
      forma net loss
    
    $
    (7,510,749
    )
    $
    (10,563,032
    )
    $
    (17,495,799
    )Loss
      per share (basic and diluted):As
      reported
    
    $
    (0.19
    )
    $
    (0.45
    )
    $
    (0.49
    )Pro
      forma
    
    $
    (0.22
    )
    $
    (0.69
    )
    $
    (0.67
    )
  In
determining the compensation cost of the options granted during fiscal 2004 and
2003, 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:
 
 2004
    
    2003Risk-free
      interest rate
    
    
    4.5
    %
    
    4.5
    %Expected
      volatility factor
    
    
    200
    %
    
    303
    %Expected
      dividend
    
    
    --
    
    
    --Expected
      option term
    
    
    10
      years
    
    
    10
      years
 
 Financial
Instruments
 
 The
carrying amounts for all financial instruments approximates fair value. The
carrying amounts for cash and cash equivalents, accounts receivable, 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.
 
 Net
Loss Per Common Share
 
 Basic and
diluted net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the periods
presented. The impact of common stock equivalents has been excluded from the
computation of weighted average common shares outstanding, as the net effect
would be anti-dilutive for all periods presented. Total options and warrants
outstanding at December 31, 2004 were 5,000,000 and 22,074,691, respectively and
options and warrants outstanding at December 31, 2003 were 5,550,724 and
16,552,551, respectively.
 
 Income
Taxes
 
 We
account 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.
 
 We have
recorded a full valuation allowance against the net deferred tax asset due to
the uncertainty of realizing the related benefits.
 
 F-14
 
 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.
 
 **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 though our Hosted
Solutions Business. On March 14, 2003, we sold all of the assets relating to our
Hosted Solutions Business. The transaction did not require shareholder approval
under Minnesota law since the assets relating to our Hosted Solutions Business
did not constitute all or substantially all of the assets of our Company as a
whole. We received $650,000 cash plus the reimbursement of transaction-related
expenses incurred by us in the amount of $150,000 and the assumption of certain
obligations, liabilities and employees of ours. We reported a gain of $24,154
from adjustments relating to disputes of accounts payable issues, which we
reconciled in 2004.
 
 The
following are condensed consolidated statements of discontinued operations for
the:
  HOSTED
      SOLUTIONS BUSINESS
    
    Years
      Ended December 31,2004
    
    2003Revenues
    
    $
    --
    
    $
    132,455Operating
      expensesCosts
      of sales
    
    
    --
    
    
    35,354Selling,
      general and administrative
    
    
    --
    
    
    161,597Depreciation
      and amortization
    
    
    --
    
    
    8,935Gain
      on disposal of assets
    
    
    --
    
    
    (749
    )Total
      operating expenses
    
    
    --
    
    
    205,137Loss
      from discontinued operations
    
    
    --
    
    
    (72,682
    )Other
      income
    
    
    21,154
    
    
    150,000Loss
      on sale of prepaid royalties
    
    
    --
    
    
    (434,895
    )Net
      gain (loss) from discontinued operations
    
    $
    21,154
    
    $
    (357,577
    )
 
 Liabilities
of the Hosted Solutions Business consisted of the following at:
  HOSTED
      SOLUTIONS BUSINESS
    
    Years
      Ended December 31,2004
    
    2003Accounts
      payable
    
    $
    --
    
    $
    34,734Liabilities
      of operations of discontinuedhosted
      solutions business
    
    $
    --
    
    $
    34,734
  Prior to
April 30, 2003, we designed, developed, marketed and supported accounting
software products through our Accounting Software Business subsidiaries. On
April 30, 2003, we completed the sale of substantially all of the assets of our
Accounting Software Business to two key employees (the “Purchaser”) of that
division. The assets sold consisted primarily of all intellectual property
rights, cash, accounts receivable, inventories, property and equipment, and
customer contracts. The Purchaser assumed substantially all the liabilities of
the Accounting Software Business incurred in the ordinary course of the business
consisting of trade payables, accrued expenses, debt and liabilities arising
from contractual obligations related to the ongoing operations. In addition, the
Purchaser paid us cash sufficient to discharge outstanding debt that was
incurred during 2001 to acquire the Accounting Software Business. The remaining
outstanding debt (as of April 30, 2003 of $1,451,714) was discharged as follows:
(a) cash proceeds ($752,426) from the Purchaser were used to pay 17 of the note
holders a negotiated 75 percent of the remaining balance due under the terms of
their promissory notes, (b) the 25 percent discount ($250,809) re-negotiated
with the 17 note holders, was booked as a component of Discontinued Operations,
and (c) the remaining seven note holders (valued at $448,479) received new
promissory notes issued by the Purchaser, again which was as a component of
Discontinued Operations. The shareholders of the Company approved the sale at a
special meeting on April 29, 2003.
 
 F-15
 
 The
following are condensed consolidated statements of discontinued operations for
the:
  ACCOUNTING
      SOFTWARE BUSINESS
    
    Years
      Ended December 31,2004
    
    2003Revenues
    
    $
    --
    
    $
    1,491,059Operating
      expensesCosts
      of goods sold
    
    
    --
    
    
    371,971Selling,
      general and administrative
    
    
    --
    
    
    617,417Depreciation
      and amortization
    
    
    --
    
    
    63,848Product
      development
    
    
    --
    
    
    231,243Total
      operating expenses
    
    
    --
    
    
    1,284,479Income
      from discontinued operations
    
    
    --
    
    
    206,580Other
      expense
    
    
    --
    
    
    (145,779
    )Net
      income from discontinued operations
    
    $
    --
    
    $
    60,801
 
 **NOTE
4 - RECEIVABLES**
 
 On August
3, 2004, we completed a termination agreement in which we sold Brazmin back to
the original owner. In that agreement, we were due an additional $25,000 payment
due on December 31, 2004. The final payment was received January 3,
2005.
 
 On
December 2, 2004, we entered into an agreement with MacDonald Mines Exploration
Ltd., whereby they can earn a 55 percent interest (subject to the 2% royalties)
in the McFaulds Lake Project. One of the provisions under the agreement required
MacDonald to make a cash payment of Cdn$10,000 by December 31, 2004, which we
extended until January 31, 2005. This cash payment is pro rata shared between
Hawk and us on our respective 30 percent and 70 percent basis. The US Dollar
value of our 70 percent (Cdn$7,000) was $5,817 on December 31, 2004. We received
the payment in January 2005.
 ****
 **NOTE
5 - INVESTMENT**
 
 Further
to the agreement described with MacDonald above, MacDonald was required to issue
250,000 shares of its common stock by December 31, 2004, which we extended until
January 31, 2005. This stock issuance is pro rata shared between Hawk and us on
our respective 30 percent and 70 percent basis. The US Dollar value of our 70
percent (175,000 shares of MacDonald, TSXV:BMK) was $18,904 on December 31,
2004. We consider this a current asset as we expect to sell these shares in the
near term. We received the stock in January 2005.
 
 
 F-16
 ****
 **NOTE
6 - PREPAID EXPENSES**
 
 In 2003,
we issued warrants to provide consulting services to us in connection with
marketing and public relations over a period of two years. In exchange for these
services to be rendered, we issued 150,000 five-year warrants exercisable at
$0.60 per share. We recorded the prepaid consulting fee using the Black-Scholes
pricing model since this was more readily measurable than the value of the
services to be rendered. The amount recorded was $155,000 and is being amortized over a
period of two years beginning in November 2003 .
 
 In 2003,
we issued to Windsor Capital Corporation 500,000 shares of our common stock to
provide consulting fees in connection with marketing and public relations over a
period of two years. We recorded the prepaid consulting based on the closing
price of our stock on the OTCBB since this was more readily measurable than the
value of the services to be rendered. The amount recorded was $230,000 and is
being amortized over a two-year period which began in November
2003.
 
 Components
of prepaid expenses are as follows:
 
 December
      31,2004
    
    2003Prepaid
      consulting fees
    
    $
    160,417
    
    $
    352,917Other
      prepaid expenses
    
    
    156,859
    
    
    259,860$
    317,276
    
    $
    612,777
 
 **NOTE
7 - PARTICIPATION MINING RIGHTS**
 
 As of
December 31, 2004, we hold interests in mineral exploration projects in South
Africa (FSC Project) and Canada (Holdsworth and McFaulds Lake).
 
 FSC
and Holdsworth Projects
 
 On June
26, 2003, we entered into a Joint Venture and Joint Contribution Agreement, and
a Member Control Agreement (collectively the “Joint Agreement”) with Hawk USA.
One of the terms of the Joint Agreement was the creation of a Minnesota limited
liability company named Active Hawk Minerals, LLC (“Active Hawk”). We both made
contributions to Active Hawk for a 50 percent equity interest. One of Hawk USA’s
contributions was its right to fund and acquire an initial 35 percent interest
in the FSC Project. AfriOre or one of its affiliates will be the operator of the
FSC Project and Kwagga holds the exploration rights for the FSC Project. We have
a further option to acquire an additional 15 percent interest (an aggregate 50
percent) equity interest in Kwagga by providing further cash funding of the FSC
Project.
 
 We have
completed our first step and acquired a 35 percent interest in Kwagga through a
$2,100,000 investment. Kwagga is required to use the $2,100,000 investment to
incur expenditures for the exploration, development and maintenance of the FSC
Project. Once the current exploration activities being conducted on the FSC
Project are complete, which commenced in October 2003 and is estimated to take
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 contribution of $1,400,000. These additional funds would then be
used to fund a second phase of exploration work on the FSC Project.
 
 If we
determine not to elect to provide the funding for the second phase, we may
request that AfriOre purchase our 35 percent interest for an aggregate price of
$1,050,000. If AfriOre declines to purchase our 35 percent interest, we may
elect to cease funding Kwagga. In that event, however, we no longer would have
any rights to vote any shares of Kwagga’s capital stock owned by us and may be
subject to dilution of our equity interest in Kwagga.
 
 F-17
 
 In the
event Kwagga elects to discontinue FSC exploration altogether or if less than
$2,100,000 is expended prior to June 2006, our only right is to terminate our
interest in the FSC Project, whereupon Kwagga shall repay the remaining unspent
balance of our initial $2,100,000 contribution.
 
 AfriOre
or one of its affiliates, as operator, will have sole discretion to determine
all work to be carried out on the FSC Project and will be responsible for
ensuring that the property and the project are at all times in compliance with
applicable laws. AfriOre is 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 will be 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 black economic
empowerment groups 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.
 
 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 drill hole
program of the FSC Project. Of the $2,100,000 already invested in Kwagga,
$734,660 remains in their cash reserves at December 31, 2004. Each quarter,
Kwagga will provide us with a report of the remaining value held in
reserve.
 
 We do not
have any permits, equipment or personnel necessary to actually explore for
minerals at this time and we will therefore be substantially dependent on
AfriOre, as the project operator. AfriOre is a wholly owned subsidiary of
AfriOre Limited, a publicly-held company listed on the Toronto Stock Exchange
(TSX: AFO). Historically, AfriOre Limited has operated coal and anthracite mines
in South Africa. On October 29, 2004, AfriOre announced that it had disposed of
its entire coal business unit and thereby would focus on precious minerals
exploration in Africa.
 
 By the
terms of the Joint Agreement, as described above, both parties made their
contributions to Active Hawk for a 50 percent equity interest. Hawk USA
contributed its right to fund and acquire a 50 percent interest in the FSC
Project and the near surface rights on its patented mining claims held in the
Holdsworth Project. Hawk USA’s projects were valued at their historical cost, an
aggregate of $246,210 and we agreed to fund the required $2,100,000 for the FSC
Project. As additional compensation for Hawk USA’s mineral rights contributions,
Hawk USA was issued 3,750,000 shares of our unregistered common stock valued at
$2,737,500 (based on the closing sale price, $0.73 per share, of our common
stock on June 26, 2003, as listed on the OTCBB) which represented an issuance of
28.2 percent of our total issued and outstanding common stock of 13,307,181
shares. The excess amount of stock issued to Hawk USA over the historical cost,
or $2,491,290, was recorded as an exploration expense.
 
 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.
 
 Active
Hawk has no revenues and all subsidiary transactions and balances have been
eliminated in consolidation. We have recorded $1,155,542 in exploration expenses
for the year ended December 31, 2004. Based on the estimated timeframe to
complete the current drill hole program at the FSC Project, we began amortizing
the FSC Project portion of the exploration agreement over 24 months, beginning
in July 2003. The amortization period will be periodically evaluated and
adjusted if necessary. The Holdsworth Project has been fully amortized as of
December 31, 2004. The amortization period of both components will be
periodically evaluated and adjusted if necessary.
 
 F-18
 
 Brazmin,
Ltda.
 
 On
February 6, 2004, we purchased Brazmin from Argyle Securities Limited, recording
the transaction at $908,578. On August 3, 2004, we completed the sale of Brazmin
back to Argyle. Effective with the closing on August 3, 2004, we received from
Argyle: (i) 400,000 shares (valued at $116,000) of the 700,000 shares of our
common stock that it had received as partial consideration, (ii) a cash payment
of $25,000, and (iii) a further promise to receive an additional $25,000 before
December 31, 2004, which has been reclassified and recorded as a current
receivable. We received the additional $25,000 in January 2005. We recorded an
impairment of $742,578 against Brazmin for the year ended December 31,
2004.
 
 McFaulds
Lake Project
 
 On June
10, 2004, we entered into an option agreement to earn a 70% interest in five
mining claims covering 1,295 hectares (approximately 3,200 acres) in the
McFaulds Lake area of the James Bay Lowlands region of northern Ontario,
currently held under option by an affiliate of ours, Hawk Precious Minerals Inc.
The area is the site of a new VMS (volcanogenic massive sulphide) base metals
project.
 
 The
optioned claims consist of a block of 5 contiguous claims (west block)
comprising of approximately 80 40-acre units to the south and west of the
original Spider Resources and KWG claim group. This block also is contiguous to
the MacNugget ground actively being explored by MacDonald Mines Exploration Ltd
and on which airborne magnetometer and GEOTEM AEM ( airborne
electromagnetic) surveys
have been completed.
 
 The
option agreement requires: (i) cash payments of Cdn$60,000 (Cdn$30,000 ($22,751
US) which was paid on the execution of the agreement and a further Cdn$30,000
(estimated to be approximately $22,750 US) was due on November 1, 2004; the
November 1 payment was subsequently extended to December 1, 2004, (ii) we issued
200,000 shares of our non-registered common stock, valued at $84,000, and (iii)
we are required to pay exploration expenditures of Cdn$200,000, estimated to be
approximately $150,000 US (Cdn$100,000 each due by November 1, 2004 and May 1,
2005; the November 1 expenditure was subsequently extended to March 1, 2005).
Therefore, we valued our initial investment in McFaulds Lake at $129,501. Based
on our assessment of McFaulds Lake, we began amortizing the exploration option
over 12 months, beginning in July 2004.
 
 Components
of participation mining rights are as follows:
  December
      31,
      2004
    
    December
      31, 2003Investment
      made in Kwagga
    
    $
    2,100,000
    
    $
    1,800,000Historical
      value assigned to the FSC Project
    
    
    228,975
    
    
    228,975Historical
      value assigned to the Holdsworth Project
    
    
    17,235
    
    
    17,235Miscellaneous
      costs (1)
    
    
    82,889
    
    
    82,889McFaulds
      Lake
    
    
    129,501
    
    
    --Gross
      participation mining rights
    
    
    2,558,600
    
    
    2,129,099Less
      exploration expenditures reported by Kwagga
    
    
    1,365,340
    
    
    500,000Less
      earn in option with MacDonald in McFaulds Lake (2)
    
    
    24,721
    
    
    --Less
      accumulated amortization (3)
    
    
    328,229
    
    
    81,143$
    840,310
    
    $
    1,547,956
 
 (1)
Includes the joint agreement costs and the issuance of an option to a former
director.
 
 F-19
 
 (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.
 
 The
balance of $840,310 as of December 31, 2004 principally represents $734,660 of
cash reserves held by Kwagga.
 
 **NOTE
8 - 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; and consulting services fees of
$25,000, which are being amortized on a straight-line basis over an 18-month
period. The monthly amortization is approximately $7,300 per month. In order to
effectuate the note, Pandora required an additional personal guarantee. Wayne W.
Mills, a former board member of ours, provided that guarantee.
 
 The
following table summarizes the amortization of debt issuance costs:
  December
      31, 2004Gross
      debt issuance costs
    
    $
    131,497Less:
      amortization of debt issuance costs
    
    
    51,138Debt
      issuance costs, net
    
    $
    80,359
 
 **NOTE
9 - SECURED PROMISSORY NOTE**
 
 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 is
secured by substantially all of our assets and bears interest of 10 percent per
annum. The principal and interest payment is 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 are required to pay amortized principal and
interest of $46,278. Notwithstanding the foregoing, in lieu of cash, we may
satisfy our repayment obligations by issuing shares of our common stock. The
number of shares of our common stock which may be issued to repay any or all of
any monthly obligation may not exceed the lesser of: (i) 10 percent of the
aggregate number of traded shares of our common stock for the 30 trading days
immediately preceding such monthly payment date or (ii) the greatest number of
shares of our common stock which, when added to the number of shares of our
common stock beneficially owned by Pandora, would not cause Pandora to
beneficially own more than 4.99 percent of the our outstanding common stock. If
we elect to pay the required monthly payment in shares of common stock, the
per-share value is 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.
 
 Furthermore,
Pandora has the right to convert any portion of the principal or interest of the
Note outstanding into shares of our common stock based on a conversion rate
equal to the average of the high closing bid prices of our common stock for the
30 trading days immediately proceeding the regular monthly payment. However, in
no event shall such conversion rate be lower than $0.35 or higher than $0.65 per
share.
 
 F-20
 
 Since we
did have an effective resale registration statement filed with the SEC covering
the shares issuable upon exercise of the five-year warrants (described below) or
the shares of common stock issued as payment under or upon conversion of this
Note by November 28, 2004, and Pandora did not consent to an extension, we have
accrued $6,148 to satisfy the contingent interest clause through December 31,
2004. The Note specified that for each full month thereafter (prorated for
partial months) that this failure continues, we shall pay in arrears and in
cash, with the next otherwise scheduled monthly payment, additional interest
equal to the greater of $1,000 or one percent (1%) of the outstanding principal
balance on the Note as of the last day of the prior month. We satisfied the
requirement by February 14, 2005 and do not have any further contingent interest
to contend with beyond our regular February 2005 payment.
 
 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 to the
guarantor of the Note. The proceeds of $650,000 were allocated between the Note
and the warrant based on the relative fair values of the securities at the time
of issuance. The resulting original issue discount, the fair value of the
warrant is being amortized over the life of the Note using the straight-line
method, which approximates the interest method.
 
 The
following table summarizes the secured promissory note balance:
  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
    
    $
    87,279
 
 As of
December 31, 2004, all principal and interest payments have been made in cash
and the Note is current (with the exception of the contingent interest payment,
as described above, to be made).
 
 **NOTE
10 - ACCRUED GUARANTEE FEE**
 
 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 is 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., (“Old AIQ”). In October 2003, Meteor Marketing
reached a settlement with Farmers State Bank and the matter was dismissed
without prejudice. As of December 31, 2004, approximately $218,000 remains
outstanding and, pursuant to the settlement agreement, Meteor Marketing is
required to make monthly payments of approximately $2,600. Although we were not
obligated to make any payments to the bank, we remain contingently liable
pursuant to the guaranty. In light of the size of Meteor Marketing’s monthly
settlement payment obligations and our understanding of Meteor Marketing’s
financial condition, we believe Meteor Marketing should be able to satisfy this
obligation for the foreseeable future.
 
 The
guaranty to the potential liability to Farmers State Bank was not disclosed to
us at the time the Meteor Industries-Old AIQ merger was completed in April 2001.
In connection with the merger and the sale by Meteor Industries of all of its
operating subsidiaries to Capco Energy, Inc., the Meteor subsidiaries and Capco
Energy agreed to indemnify us for any claims relating to any of the
subsidiaries. Accordingly, in the event Farmers State Bank seeks to hold us
liable under the guaranty, we will seek indemnification from the Meteor
subsidiaries and Capco Energy.
 
 F-21
 
 Pursuant
to FASB Interpretation No. (FIN) 45, the guaranty was valued in the amount of
$30,000 during the year ended December 31, 2004.
 
 **NOTE
11 - PRIVATE PLACEMENT ESCROW**
 
 On
January 7, 2005, we completed a private placement of units of our securities. As
of December 31, 2004, we were holding advances of $734,950 in escrow related to
that private placement.
 
 **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 December 31, 2005, which requires monthly
payments of $1,280. Total rent expense under operating leases for the years
ended December 31, 2004 and 2003, was $18,635 and $46,018, respectively. We have
paid a total rent expense for the years ended December 31, 2004 and 2003, in the
amount of $0 and $19,000, respectively, for our former executive offices to a
company whose sole director is a former director and significant
shareholder.
 
 As
conditions of the sale of the Accounting Software Business and the Hosted
Solutions Business, we have been released from all prior commitments regarding
operating leases.
 
 **NOTE
13 - SHAREHOLDERS’ EQUITY**
 
 Common
Stock Issuances
 
 On
January 6, 2003, we entered into a severance agreement with D. Bradly Olah, our
then Chief Executive Officer, effective December 31, 2002. The agreement allowed
for the payment of Mr. Olah’s base salary through May 31, 2003, payment of
health and other insurance benefits through December 31, 2003 and the extension
until December 31, 2007 to exercise options issued in July 2000. In exchange,
Mr. Olah resigned as Chief Executive Officer and released us from all claims,
including a release from his employment agreement dated May 1, 2001 (amended
January 1, 2002). In addition, we exercised our right to a non-cash repurchase
of 500,000 shares of common shares issued to Mr. Olah on January 14, 2002 in
exchange for the cancellation of his stock subscription receivable to
us.
 
 On
February 26, 2003, Mr. Olah agreed to exchange the remaining unpaid base salary
and benefits per the January 6, 2003 severance agreement, totaling $56,529, into
292,500 common shares of the Company at a rate of $0.20 per share.
 
 In May
2003, we issued 250,000 shares of our common stock to a law firm, in exchange
for amounts due them for services rendered totaling $54,645, which we had
previously recorded as accounts payable.
 
 In June
2003, we issued 3,750,000 shares of our common stock valued at $0.73 per share.
See Note 7 - Participation Mining Rights.
 
 In
October 2003, a former director exercised 50,000 director stock options and we
received proceeds of $17,500.
 
 F-22
 
 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 SEC 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 at
$2,152,128.
 
 In
November 2003, we issued 2,500,000 shares of our common stock valued at $0.94
per share as payment for the exercise of our option to purchase the 50 percent
interest held by Hawk USA in Active Hawk. See Note 7 - Participation Mining
Rights.
 
 In
November 2003, we issued 500,000 shares of our common stock to a consultant for
services to be rendered. The common shares were valued at $230,000 and the
prepaid services will be amortized over two years. See Note 6 - Prepaid
Expenses.
 
 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
February 2004, a director exercised 200,000 director stock options and we
received proceeds of $130,000.
 
 In March
2004, a director exercised 40,000 director stock options and we received
proceeds of $22,400.
 
 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.
 
 Option
Grants
 
 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. Generally, all options were granted with exercise prices equal to the
fair market value of our common stock on the date of grant.
 
 F-23
 
 The total
amount of compensation expense recorded, pursuant to APB 25 and related
interpretations, for the years ended December 31, 2004 and 2003 was $181,967
(including $72,000 related to variable plan accounting) and $138,264 (including
$96,800 related to variable plan accounting), respectively. Following is a roll
forward of the deferred compensation account:
 
 Balance
      at December 31, 2002
    
    $
    182,213Cancellation
      of un-vested option
    
    
    (140,749
    )Compensation
      expense
    
    
    (41,464
    )Balance
      at December 31, 2003
    
    
    --Additions
    
    
    (181,967
    )Compensation
      expense
    
    
    (181,967
    )Balance
      at December 31, 2004
    
    $
    --
 
 Warrant
Grants
 
 In
October 2003, we issued 5,095,000 one-year warrants to purchase common stock at
a price of $0.75 per share, in connection with our private placement of
10,190,000 units. Additionally, we issued 256,000 four-year warrants to purchase
common stock at a price of $0.50 per share, as compensation for placement agent
services rendered in connection with our private placement.
 
 In
November 2003, we issued a 250,000 five-year warrant to purchase common stock at
$0.60 per share and a 50,000 two-year warrant to purchase common stock at $0.62
per share, all for services rendered.
 
 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.
 
 For
warrants issued to non-employees in exchange for services, we account for such
warrants in accordance with Emerging Issues Task Force (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. We recorded
expense related to warrants issued in the amount of $242,467 and $644,916 for
the years ended December 31, 2004 and 2003, respectively.
 
 The
following assumptions were used to value the fair value of warrants given during
the years 2004 and 2003 for which the fair value of the services were not more
reliably measurable: dividend yield of 0%, risk-free interest rate of 4 to 6%,
expected life equal to the contractual life of five years and volatility of 74%
to 313%.
 
 F-24
 
 Information
regarding our warrants is summarized below:
 
 ****
    
    Number
    
    Weighted
      Average
      Exercise
      Price
    
    Range
      of
      Exercise
      PriceOutstanding
      at December 31, 2002
    
    
    9,269,301
    
    $
    4.05
    
    $
    1.00
      - $60.00Granted
    
    
    7,397,000
    
    
    0.69
    
    
    0.50
      - 0.75Cancelled
      or expired
    
    
    (113,750
    )
    
    2.90
    
    
    2.90Exercised
    
    
    --
    
    
    --
    
    
    --Outstanding
      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
      - $37.50Warrants
      exercisable at December 31, 2004
    
    
    22,074,691
    
    $
    1.96
    
    $
    0.10
      - $37.50
 
 Stock
Subscription Receivable
 
 On
January 1, 2002, we amended the employment agreement with D. Bradly Olah.
Following the amendment of his employment agreement, Mr. Olah was awarded an
option to purchase an additional 500,000 shares at $4.00 per share. On January
14, 2002, Mr. Olah exercised his right to acquire all 500,000 shares subject to
the option, though none had yet vested, by delivering a promissory note to us in
the amount of $2,000,000 and pledging all 500,000 shares acquired as security
for the repayment of the note, all in accordance with the terms of the option
agreement.
 
 On
January 6, 2003, we entered into a severance agreement with D. Bradly Olah, our
then Chief Executive Officer, effective December 31, 2002. The agreement allowed
for the payment of Mr. Olah’s base salary through May 31, 2003, payment of
health and other insurance benefits through December 31, 2003 and the extension
until December 31, 2007 to exercise options issued in July 2000. In exchange,
Mr. Olah resigned as Chief Executive Officer and released us from all claims,
including a release from his employment agreement dated May 1, 2001 (amended
January 1, 2002). In addition, we exercised our right to a non-cash repurchase
of 500,000 shares of common shares issued to Mr. Olah on January 14, 2002 in
exchange for the cancellation of his stock subscription receivable to
us.
 
 Stock
Option Plans
 
 The
Company has six stock option plans. The Company has 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, 2004, 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 of
ranging from one to four years and expire 10 years from the date of
grant.
 
 Information
regarding the Company’s stock options is summarized below:
 
 F-25
 
 ****
    
    Number
      of
      Options
    
    Weighted
      Average
      Exercise
      PriceOptions
      outstanding - December 31, 2002
    
    
    4,566,649
    
    $
    2.38Granted
    
    
    3,392,500
    
    
    0.54Canceled
      or expired
    
    
    (2,065,925
    )
    
    1.64Exercised
    
    
    (342,500
    )
    
    0.22Options
      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
    
    $
    1.16Options
      exercisable - December 31, 2004
    
    
    4,875,000
    
    $
    1.18Weighted
      average fair value of optionsgranted during the year ended
      December 31, 2004
    
    
    
    
    $
    0.61Weighted
      average fair value of optionsgranted during the year ended
      December 31, 2003
    
    
    
    
    $
    0.52
 
 The
following information summarizes information about stock options outstanding at
December 31, 2004:
 
 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$0.23
      to $2.87
    
    
    4,599,000
    
    
    4.2
      years
    
    $
    0.85
    
    
    4,474,000
    
    $
    0.86$3.00
      to $5.50
    
    
    401,000
    
    
    3.1
      years
    
    
    4.64
    
    
    401,000
    
    
    4.64$0.23
      to $5.50
    
    
    5,000,000
    
    
    4.0
      years
    
    $
    1.66
    
    
    4,875,000
    
    $
    1.18
 
 **NOTE
14 - RELATED PARTY TRANSACTIONS**
 
 Pursuant
to a joint venture agreement dated June 26, 2003, we formed Active Hawk, LLC,
which was initially 50 percent owned by us and 50 percent owned by Hawk Precious
Minerals USA, Inc., (“Hawk USA”), a wholly owned subsidiary of Hawk Precious
Minerals Inc., (“Hawk”). H. Vance White, our chief executive officer and
director, is also an officer and director of Hawk USA and Hawk. Immediately
prior to this agreement, neither Hawk USA, Hawk nor Mr. White were affiliated
with our Company. On June 26, 2003, Hawk USA contributed all of its interest in
the FSC and Holdsworth Projects and we assumed Hawk USA’s obligation to provide
$2.1 million of capital to Kwagga. We also issued to Hawk USA 3,750,000 shares
of our common stock, which then represented approximately 37.2 percent of our
outstanding shares. On November 7, 2003, we exercised our option under the June
26, 2003 agreement to purchase Hawk USA’s 50 percent interest in Active Hawk LLC
in exchange for issuing an additional 2,500,000 shares of our common stock to
Hawk USA, making Active Hawk LLC our wholly owned subsidiary.
 
 In
October 2003, in exchange for financial advisory services related to equity
raising activities, we paid to Blake Capital Partners, LLC $52,000 in cash and
issued a four-year warrant to purchase an aggregate of 208,000 shares of our
common stock at an exercise price of $0.50.
 
 F-26
 
 In
October 2003, in exchange for financial advisory services related to equity
raising activities, we paid to Boston Financial Partners, Inc., $300,000 in cash
and issued a four-year warrant to purchase an aggregate of 538,000 shares of our
common stock at an exercise price of $0.50.
 
 In
November 2003, we engaged Boston Financial Partners, Inc. to provide consulting
services to us in connection with evaluating our business model, evaluating and,
if necessary, modifying our investor relations plans, introducing us to
potential investors and identifying for us mineral exploration investment or
acquisition opportunities. In exchange for these services rendered, we issued to
Boston Financial Partners a two-year warrant to purchase an aggregate of
1,000,000 shares of our common stock at an exercise price of $0.62.
 
 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 $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.
 
 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
(“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.
 
 **NOTE
15 - INCOME TAXES**
 
 The
Company estimates that at December 31, 2004, it had cumulative net operating
loss carryforwards for tax purposes of approximately $2,400,000 for both federal
and state purposes. These carryforwards if not used will begin to expire in
2019. As a result of various equity offerings that occurred previous to 2004,
the Company experienced a change in ownership prior to 2004 under the net
operating loss limitation rules. In the first quarter of 2005, the Company
calculated a preliminary estimate of the net operating loss carryforward based
upon the change in ownership. The net operating loss carryforward of
approximately $2,400,000 at December 31, 2004 are based upon this preliminary
calculation. The Company’s estimate at December 31, 2004 of the net operating
loss carryforward is 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
net deferred tax assets at December 31, 2004 and 2003. 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, 2004 and 2003 are as
follows:
 
 Deferred
      tax assets:
    
    2004
    
    2003Net
      operating loss carryforwards
    
    $
    1,000,000
    
    $
    6,211,000Stock
      issued for consideration ofexploration
rights
    
    
    1,985,000
    
    
    1,985,000Accrued
      liabilities and other
    
    
    55,000
    
    
    267,000Total
      deferred tax asset
    
    
    3,040,000
    
    
    8,463,000Valuation
      allowance
    
    
    (3,040,000
    )
    
    (8,463,000
    )$
    —
    
    $
    —
  
 F-27
 
 The
benefit from income taxes consists of the following for the years ended December
31:
 
 ****
    
    2004
    
    2003Current
      income tax benefit
    
    $
    —
    
    $
    243,920Valuation
      allowance
    
    
    —
    
    
    —Total
      benefit from income taxes
    
    $
    —
    
    $
    243,920
 
 Reconciliation
between the statutory rate and the effective tax rate for the years ended
December 31:
 
 2004
    
    2003Federal
      statutory tax rate
    
    
    (35.0
    %)
    
    (35.0
    %)State
      taxes, net of federal benefit
    
    
    (6.0
    %)
    
    (6.0
    %)Valuation
      allowance
    
    
    41.0
    %
    
    37.3
    %Effective
      tax rate
    
    
    (0.0
    %)
    
    (3.7
    %)
  At
December 31, 2004, the Company fully reserved its net deferred tax assets
totaling $3,040,000, 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 - RESTATEMENT**
 
 Balance
Sheet and Net Loss Restatement for the Year Ended December 31,
2003
 
 The
following table reconciles the previously reported amounts to the restated
amounts: the reclassification of the Hosted Solutions Business to discontinued
operations effective with the sale of the business segment on March 14, 2003 and
the consideration issued for mining rights reclassified as expense as of and for
the year ended December 31, 2003.
 
 Assets
    
    Accounts
      Payable
    
    Liabilities
      of
      HSB
    
    AccruedExpenses
    
    Shareholders’Equity
    
    Net
      LossPreviously
      reported amounts
    
    $
    6,984,088
    
    $
    87,637
    
    $
    --
    
    $
    19,098
    
    $
    6,847,353
    
    $
    (2,444,321
    )Expensing
      of previously recorded explorationIntangibles
      (4)
    
    
    (4,707,321
    )
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Accounts
      payable of HSB
    
    
    --
    
    
    (28,411
    )
    
    34,734
    
    
    (6,323
    )
    
    --
    
    
    --Reclassification
      of exploration costs (1)
    
    
    (1,300,000
    )
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Restatement
      of historical costs of miningrights
      (4)
    
    
    1,547,956
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --Expensing
      of stock issued (2)
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (2,491,290
    )
    
    (2,491,290
    )Reverse
      value assigned to ourinterest
      in Hawk USA
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (2,100,000
    )
    
    (2,100,000
    )Stock
      issued (3)
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (400,000
    )
    
    (400,000
    )Change
      in amortization expense as a resultof
      above adjustments
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    531,925
    
    
    531,925Restated
      amounts
    
    $
    2,524,723
    
    $
    59,226
    
    $
    34,734
    
    $
    12,775
    
    $
    2,387,988
    
    $
    (6,903,686
    )
 
 (1) We
reclassified the previously reported prepaid exploration costs to Participation
Mining Rights. This amount represents the difference of advances we made to
Kwagga ($1,800,000) less the expenditures reported by AfriOre and Kwagga
($500,000) for a net amount of $1,300,000.
 
 (2)
Expensing of stock issued to Hawk USA in June 2003 ($2,737,500), net of
historical cost of the assets ($228,975 and $17,235) contributed by
Hawk.
 
 (3)
Expensing of stock issued to Hawk USA in November 2003 ($2,350,000) less the
previously recorded minority interest ($1,950,000) required to purchase the
remaining 50 percent interest in the LLC.
 
 F-28
 
 (4) The
following table reconciles the participation mining rights restatement as of
December 31, 2003:
 
 As
      reported
    
    RestatedTotal
      value of consideration contributed by Hawk USA (a)
    
    $
    2,100,000
    
    $
    --Issuance
      of 3,750,000 common shares to Hawk USA (b)
    
    
    2,737,500
    
    
    --Issuance
      of option to former director
    
    
    55,000
    
    
    55,000Joint
      Agreement costs
    
    
    27,889
    
    
    27,889Issuance
      of 2,500,000 common shares to Hawk USA (c)
    
    
    2,350,000
    
    
    --Less:
      Minority interest previously recorded (c)
    
    
    (1,950,000
    )
    
    --Advances
      made to Kwagga
    
    
    --
    
    
    1,800,000Historical
      value assigned to the FSC Project (a)
    
    
    --
    
    
    228,975Historical
      value assigned to the Holdsworth Project (a)
    
    
    --
    
    
    17,235Gross
      value at December 31, 2003
    
    
    5,320,389
    
    
    2,129,099Expenditures
      reported by AfriOre and Kwagga (d)
    
    
    --
    
    
    (500,000
    )Accumulated
      amortization at December 31, 2003
    
    
    (613,068
    )
    
    (81,143
    )Participation
      Mining Rights, net
    
    $
    4,707,321
    
    $
    1,547,956
 
 (a) On
June 26, 2003, we entered into a Joint Venture and Joint Contribution Agreement,
and a Member Control Agreement (the “Joint Agreement”) with Hawk USA. By the
terms of the Joint Agreement, a Minnesota limited liability company was formed,
named Active Hawk Minerals, LLC (the “LLC”) in which both parties would make
their contributions. Hawk USA contributed its rights and interests in the FSC
and Holdsworth Projects, which was valued at its historical cost of $246,210 and
we agreed to fund the required $2,100,000 for the FSC Project. Based on
the information we obtained from Hawk, we estimated that the value of the FSC
Project was approximately $228,975. Based on this, the remaining value of
$17,235 was assigned the Holdsworth Project. **** See Note
7 - Participation Mining Rights for details on total contributions
made.
 
 (b) We
issued 3,750,000 shares of our common stock to Hawk USA on June 26,
2003 as specified in the Joint Agreement. We valued these shares at $2,737,500,
or $0.73 per share, based on the closing sale price of our common stock on June
26, 2003 as listed on the OTCBB. We have reclassified this issuance as expense
since it reflects excess value of the contributions made into the
LLC.
 
 (c)
Additionally, as specified in the Joint Agreement, we obtained a “Buyout Option”
in which we could acquire Hawk USA’s 50 percent interest in LLC, by issuing Hawk
USA 2,500,000 shares of our common stock. On November 7, 2003, we exercised the
option and issued the common stock valued at $2,350,000, or $0.94 per share,
based on the closing sale price of our common stock on November 7, 2003 as
listed on the OTCBB. This amount has been reclassified as expense in the
restated consolidated statement of operations as an additional stock issued for
consideration of exploration rights for the year ended December 31, 2003, since
these shares were also issued in excess of the contributions made to the
LLC. ****
 
 (d) We
record expenditures as expenses based on reports from AfriOre describing the
work completed and the funds expended. At December 31, 2003, of the $1,800,000
advances made to Kwagga, $500,000 was recorded as exploration
expenses.
 
 The
following table reconciles the previously reported loss per common share amounts
to the restated amounts for the year ended December 31, 2003:
 
 Continuing
      Operations
    
    Discontinuing
      OperationsBasic
      and diluted net lossper common share:Previously
      reported amounts
    
    $
    (0.16
    )
    $
    --Restated
      amounts
    
    
    (0.27
    )
    
    (0.02
    )Restated
      Net Loss
    
    $
    (0.43
    )
    $
    (0.02
    )
 
 F-29
 ****
 **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 is 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., (“Old AIQ”). In October 2003, Meteor Marketing
reached a settlement with Farmers State Bank and the matter was dismissed
without prejudice. As of December 31, 2004, approximately $218,000 remains
outstanding and, pursuant to the settlement agreement, Meteor Marketing is
required to make monthly payments of approximately $2,600. Although we were not
obligated to make any payments to the bank, we remain contingently liable
pursuant to the guaranty. In light of the size of Meteor Marketing’s monthly
settlement payment obligations and our understanding of Meteor Marketing’s
financial condition, we believe Meteor Marketing should be able to satisfy this
obligation for the foreseeable future.
 
 The
guaranty to the potential liability to Farmers State Bank was not disclosed to
us at the time the Meteor Industries-Old AIQ merger was completed in April 2001.
In connection with the merger and the sale by Meteor Industries of all of its
operating subsidiaries to Capco Energy, Inc., the Meteor subsidiaries and Capco
Energy agreed to indemnify us for any claims relating to any of the
subsidiaries. Accordingly, in the event Farmers State Bank seeks to hold us
liable under the guaranty, we will seek indemnification from the Meteor
subsidiaries and Capco Energy.
 
 Pursuant
to FIN 45, the guarantee was valued in the amount of $30,000 at December 31,
2004.
 
 **NOTE
18 - SUBSEQUENT EVENTS**
 
 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. The
warrants have an expiration date of December 31, 2006. We sold an aggregate of
16,600,000 units resulting in gross proceeds of $1,660,000. In connection with
the private placement, we engaged a placement agent, Galileo Asset Management
SA, Switzerland. As compensation for their services, we agreed to pay
compensation: (i) a commission payable in cash equal to 7% of the gross proceeds
resulting from the agent’s selling efforts, or $22,750; and (ii) a warrant to
purchase such number of shares (at an exercise price of $0.25 per share) of
common stock equal to 6% of the units sold as a result of their efforts, or a
warrant to purchase 195,000 shares with an expiration date of December 31,
2006.
 
 On
January 21, 2005, we closed on an assignment of a purchase agreement by and
among us, Hunter Corporation and Kenneth 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 and the Golden Gilpin Mill
located in Central City, Colorado. We will begin 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, 2005, 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 $3,000,000. The assets consist of the
Bates-Hunter Mine, the Golden Gilpin Mill, a water treatment plant, mining
properties, claims, permits and all ancillary equipment.
  F-30




Exhibit
Index
 
 Exhibit
    Description
      of Document3.2
    By-Laws.10.24
    Assignment
      of Purchase Option Agreement by and between the Registrant and Kenneth
      Swaisland, dated August 12, 2004.21
    Subsidiaries
      of the Registrant.23.1
    Consent
      of Carver Moquist & O’Connor, LLC.23.2
    Consent
      of Virchow, Krause & Company, LLP.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.