U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934


For the
Year Ended December 31, 2008


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)





900 IDS CENTER, 80 SOUTH
EIGHTH STREET, MINNEAPOLIS, MINNESOTA 55402-8773


(Address
of Principal Executive Offices)





Issuer’s
telephone number including area code: (612) 349-5277





Securities
registered under Section 12(b) of the Exchange Act:  None





Securities
registered under Section 12(g) of the Exchange Act:





COMMON STOCK, $0.01 PAR
VALUE


Title of
Class





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.   Yes  ̈No x





Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes  ̈No x





Indicate
by check mark whether the issuer (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 xNo  ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not 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-K or any amendment to this
Form 10-K  ̈.





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):


Large
      accelerated filer
                       ̈
                      
                      Accelerated
      filer
                       ̈Non-accelerated
      filer
                       ̈
                      
                      Smaller
      reporting company
                      x





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)  Yes  ̈No x





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 April 13, 2009 was approximately $9,500,000, based on the closing sale
price as reported on the OTCBB for the Company’s common stock on April 9,
2009.





On April
13, 2009, there were 144,974,309 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-K


For the
Year Ended December 31, 2008


Table of
Contents


PagePART
      IItem
      1.
                                                                      Description
      of Business
                                                                      4Item
      1A.
                                                                      Risk
      Factors
                                                                      19Item
      1B.
                                                                      Unresolved
      Staff Comments
                                                                      24Item
      2.
                                                                      Description
      of Properties
                                                                      25Item
      3.
                                                                      Legal
      Proceedings
                                                                      25Item
      4.
                                                                      Submission
      of Matters to a Vote of Security Holders
                                                                      25PART
      IIItem
      5.
                                                                      Market
      for Registrant’s Common Equity, Related Shareholder Matters and Issuer
      Purchases of Equity Securities
                                                                      26Item
      6.
                                                                      Selected
      Financial Data
                                                                      27Item
      7.
                                                                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                                      27Item
      7A.
                                                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                                                      32Item
      8.
                                                                      Financial
      Statements and Supplementary Data
                                                                      32Item
      9.
                                                                      Changes
      and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                                      32Item
      9A(T).
                                                                      Controls
      and Procedures
                                                                      32Item
      9B.
                                                                      Other
      Information
                                                                      34PART
      IIIItem
      10.
                                                                      Directors,
      Executive Officers and Corporate Governance
                                                                      35Item
      11.
                                                                      Executive
      Compensation
                                                                      37Item
      12.
                                                                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
                                                                      41Item
      13.
                                                                      Certain
      Relationships, Related Transactions and Director
    Independence
                                                                      43Item
      14.
                                                                      Principal
      Accountant Fees and Services
                                                                      45Item
      15.
                                                                      Exhibits
      and Financial Statement Schedules
                                                                      46Signatures
                                                                      
                                                                      52


2


SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
Annual Report on Form 10-K 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,” “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 PART I
Item 1A, among others, may impact forward-looking statements contained in this
Annual Report.


3


PART
I





ITEM
1.  BUSINESS





OVERVIEW





Wits
Basin Precious Minerals Inc. (with its subsidiaries “we,” “us,” “our,” “Wits
Basin” or the “Company”) is a minerals exploration and development company based
in Minneapolis, Minnesota.  As of December 31, 2008, we own a past
producing gold mine in Colorado (Bates-Hunter Mine), a 35% equity interest in
Kwagga Gold (Barbados) Limited, which holds rights to properties located in
South Africa (the FSC Project) through its wholly owned subsidiary and certain
rights in the Vianey Concession in Mexico. The following is a summary of our
projects:





·
            On
      June 12, 2008, we completed the acquisition of the Bates-Hunter Mine, a
      prior producing gold mine located in Central City, Colorado, which
      included real property, mining claims, permits and equipment (the
      “Bates-Hunter Mine”).  We consummated the acquisition by
      transferring our right to purchase the Bates-Hunter Mine to a newly
      created wholly owned subsidiary of ours, the Hunter Bates Mining
      Corporation, pursuant to a formal asset purchase agreement dated September
      20, 2006, in which we issued a limited recourse promissory note for
      Cdn$6,750,000 and issued 3,620,000 shares of our common
      stock.  Through August of 2008, a total of 12,039 feet of
      surface drilling was accomplished, which provided detailed data, which has
      been added to our existing 3-D map of the region. With the surface
      drilling program completed in August 2008, no further exploration
      activities will be conducted at the Bates-Hunter Mine until such time as
      we have sufficient funds.





·
            We
      hold a 35 percent equity interest in Kwagga Gold (Barbados) Limited
      (“Kwagga Barbados”), which, through its wholly owned subsidiary Kwagga
      Gold (Proprietary) Limited, holds mineral exploration rights in South
      Africa.  This project is referred to as the “FSC Project” and is
      located adjacent to the historic Witwatersrand Basin.  The last
      completed drillhole on the FSC Project occurred in 2005. On December 12,
      2007, we entered into an agreement with AfriOre International (Barbados)
      Limited (“AfriOre”), the holder of the other 65 percent of Kwagga
      Barbados, whereby we may acquire all of AfriOre’s interest of Kwagga
      Barbados.  On March 3, 2008, we entered into a letter of intent
      with Communications DVR Inc. (“DVR”), a capital pool company then listed
      on the TSX Venture Exchange, whereby it is anticipated that DVR will
      acquire the aforementioned 65 percent of Kwagga Barbados in exchange for
      22 million common shares of DVR. Currently, no exploration activities are
      being conducted at the FSC Project.





·
            On
      October 31, 2007, we executed an amendment to the formal joint venture
      agreement with Journey Resources Corp., a corporation formed under the
      laws of the Province of British Columbia (“Journey”) and Minerales Jazz
      S.A. De C.V., a corporation duly organized pursuant to the laws of Mexico
      and a wholly owned subsidiary of Journey. Pursuant to the terms of the
      amendment, we own a 50 percent undivided beneficial interest in “located
      mineral claims” in the property known as the Vianey Mine Concession
      located in the State of Guerrero, Mexico (“Vianey”).  In
      addition to located mineral claims, our interest includes all surface
      rights, personal property and permits associated with Vianey and all other
      claims, leases and interests in minerals acquired within two kilometers of
      the external perimeter of Vianey.  All work being performed at Vianey
      is under the supervision of Journey, which mainly consists of cleaning the
      site for a future work program.





Additionally,
we continue to record an advanced payment of $5,000,000 as of December 31, 2008,
related to the equity investment of the iron ore mining properties of Nanjing
Sudan Mining Co. Ltd, Xiaonanshan Mining Co. Ltd and Maanshan Zhao Yuan Mining
Co. Ltd located in the People’s Republic of China (the “PRC”).  This
initial advanced payment secured our right to acquire these iron ore properties,
and on March 17, 2009, we consummated the acquisition of the Nanjing Sudan
Mining Co. Ltd and the Xiaonanshan Mining Co. Ltd (deferring the acquisition of
the Maanshan Zhao Yuan Mining property) in a joint venture transaction with
London Mining Plc, a United Kingdom corporation (“London
Mining”).  See “—Transactions in Hong Kong and the People’s Republic
of China” that follows for further details.


4


As of
December 31, 2008, we possess only a few pieces of equipment and we employ
insufficient numbers of personnel necessary to actually explore and/or mine for
minerals. Therefore, we are substantially dependent on the third party
contractors we engage to perform such operations. As of the date of this Annual
Report, we do not claim to have any mineral reserves at the Bates-Hunter Mine,
the FSC Project or the Vianey.





All
dollar amounts are expressed in this Annual Report in US Dollars ($), unless
specifically noted as: certain PRC transactions are denominated in the Chinese
Dollar, referred to as the China Yuan Renminbi (“CNY” or “RMB”), certain
transactions are denominated in the Hong Kong Dollar (“HKD”) and certain
transactions are denominated in the Canadian Dollar (“Cdn$”).





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 Project, we changed our name to
Wits Basin Precious Minerals Inc. in order to further associate our corporate
name with our new business model.





Until
March 14, 2003, we provided industry-specific solutions for managing, sharing
and collaborating on business information on the Internet through our Hosted
Solutions Business and until April 30, 2003, we provided accounting software
through our Accounting Software Business.  We sold substantially all
of the assets relating to our Hosted Solutions and Accounting Software
Businesses as of such dates and as a result, we became an exploratory stage
company effective May 1, 2003.  As of the date of this Annual Report,
we have only one operating segment, that of minerals exploration, and we will
continue reporting as an exploration stage company until such time as an
economic mineral deposit is discovered or we otherwise complete acquisitions or
joint ventures with business models that have operating revenues.





OUR EXPLORATION
PROJECTS





BATES-HUNTER
MINE





Overview





On
January 21, 2005, we acquired an option to purchase all of the outstanding
capital stock of the Hunter Gold Mining Corp. (a corporation incorporated under
the laws of British Columbia, Canada) including its wholly owned subsidiary
Hunter Gold Mining, Inc, a Colorado corporation.  On July 21, 2006, we
executed a stock purchase agreement to supersede the option
agreement.  On September 20, 2006, we executed an Asset Purchase
Agreement (as amended on October 31, 2006, March 1, 2007 and May 31, 2007) to
purchase the Bates-Hunter Mine, located in Central City, Colorado and a prior
producing gold mine when operations ceased during the 1930’s, on different
economic terms than previously agreed upon in the stock purchase agreement or
option.  On January 28, 2008, the parties to the Asset Purchase
Agreement entered into a fourth amendment relating to the modification or
amendment of certain terms.





On June
12, 2008, we entered into a fifth amendment to the September 20, 2006 Asset
Purchase Agreement, by and among the Company, Hunter Gold Mining Corp, Hunter
Gold Mining Inc, George E. Otten, a resident of Colorado and Central City
Consolidated, Corp. d/b/a Central City Consolidated Mining Co, a Colorado
corporation, to, among other changes, reflect our assignment of our rights in
the Asset Purchase Agreement to Hunter Bates Mining Corporation, a newly created
Minnesota corporation and a wholly owned subsidiary of ours.


5


Pursuant
to the terms of the Asset Purchase Agreement, we completed with Hunter Bates the
acquisition of the Bates-Hunter Mine, which included land, buildings, equipment,
mining claims and permits, financed through a limited recourse promissory note
of Hunter Bates payable to Mr. Otten in the principal amount of Cdn$6,750,000
($6,736,785 US as of June 12, 2008) and the issuance of 3,620,000 shares of our
common stock with a fair value of $0.205 per share (the closing sale price on
June 11, 2008) totaling $742,100. Furthermore, we provided the following
additional compensation: (i) a two percent net smelter return royalty on all
future production, with no limit; (ii) a one percent net smelter return royalty
(up to a maximum payment of $1,500,000); and (iii) a fee of $300,000 to be paid
in cash. We incurred acquisition costs of $380,698.





The
Bates-Hunter Mine is located about 35 miles west of Denver, Colorado and is
located within the city limits of Central City while the mill lies about one
mile to the north in Black Hawk. The Central City mining district lies on the
east slope of the Front Range where elevations range from 8,000 in the east to
9,750 feet in the west. Local topography consists of gently rolling hills with
local relief of as much as 1,000 feet.





The mine
site is located in the middle of a residential district within the city limits
of Central City and is generally zoned for mining or industrial use. The
Bates-Hunter Mine shaft is equipped with a two-compartment, 85 foot tall steel
headframe and a single drum hoist using a one inch diameter rope to hoist two
ton skips from at least 1,000 feet deep.  A water treatment plant has
been constructed adjacent to the mine headframe. This is a significant asset
given the mine site location and environmental concerns.











Geology





The
regional geology of the Central City district is not “simple” but the economic
geology is classically simple. The Precambrian granites and gniesses in the area
were intensely fractured during a faulting event resulting in the emplacement of
many closely spaced and roughly parallel veins. The veins are the result of
fracture filling by fluids that impregnated a portion of the surrounding
gneisses and granites with lower grade gold concentrations “milling ore” and
usually leaving a high grade “pay streak” of high grade gold sulphides within a
quartz vein in the fracture. There are two veins systems present, one striking
east-west and the other striking sub parallel to the more predominant east-west
set. These veins hosted almost all of the gold in the camp. The veins vary from
2 to 20 feet in width and dip nearly vertical. Where two veins intersect, the
intersection usually widens considerably and the grade also increases, sometimes
to bonanza grades. In the Timmins camp, this same feature was described as a
“blow out” and resulted in similar grade and thickness increases. The Bates vein
in the area of the Bates-Hunter Mine has been reported to have both sets of
veins and extremely rich “ore” where the two veins intersected. These veins
persist to depth and consist of gold rich sulphides that include some
significant base metal credits for copper and silver.


6


Previous Exploration
Efforts





The
following is based on the information from a report titled “Exploration and
Development Plan for the Bates-Hunter Project,” prepared by Glenn R. O’Gorman,
P. Eng., dated March 1, 2004.





Lode gold
was first discovered in Colorado in 1859 by John H. Gregory.  The
first veins discovered were the Gregory and the Bates. This discovery started a
gold rush into the area with thousands of people trying to stake their
claims.  The Central City mining district is the most important mining
district in the Front Range mineral belt.  Since 1859, more than
4,000,000 ounces of gold have been mined from this district. Over 25% of this
production has come from the area immediately surrounding the Bates-Hunter
Project.  Although the Bates vein was one of the richest and most
productive in the early history of the area, it was never consolidated and mined
to any great depth.





The
majority of production on the claims occurred during the period prior to
1900.  Technology at that time was very primitive in comparison to
today's standards. Hand steel and hand tramming was the technology of the day.
The above limitations coupled with limited claim sizes generally restricted
mining to the top few hundred feet on any one claim.





During
the early 1900’s cyanidation and flotation recovery technologies were developed
along with better hoists and compressed air operated drills. Consolidation of
land was a problem. Production rates were still limited due to the lack of
mechanized mucking and tramming equipment. Issues that were major obstacles
prior to the 1900’s and 1930’s are easily overcome with modern
technology.





Colorado
legislated their own peculiar mining problem by limiting claim sizes to 500 feet
in length by 50 feet wide and incorporated the Apex Law into the system as
well.  A typical claim was 100 to 200 feet long in the early days.
This resulted in making it extremely difficult for any one owner to consolidate
a large group of claims and benefit from economies of scale. The W.W.II
Production Limiting Order # 208 effectively shut down gold mining in the area
and throughout Colorado and the United States in mid 1942.





Historical
production records indicate that at least 350,000 ounces of gold were recovered
from about half of the Bates Vein alone to shallow depths averaging about 500
feet below surface.





GSR
Goldsearch Resources drilled two reverse circulation holes on the property in
1990. The first hole did not intersect the Bates Vein. However, the second
drilled beneath the Bates-Hunter shaft bottom intersected the Bates Vein at
about 900 feet below surface. The drill cuttings graded 0.48 oz. Au/ton over 10
feet. This drillhole intersected three additional veins as well with significant
gold assays.





Through
August of 2008, over 12,000 feet of drilling was accomplished, which provided
detailed data, which has been added to our existing 3-D map of the region.
Several narrow intervals of potential ore grade gold values were intersected,
which require further exploration efforts to delineate any
valuation.





Our Exploration
Plans





With what
we have compiled so far, the underground and surface geologic mapping, assay
testing, the detailed surface survey of claims and outcropping veins and the
computer modeling with state-of the three-dimensional art software, we are
continuing to define what possible next steps will be implemented. No further
exploration activities will be conducted at the Bates-Hunter Mine until such
time as we have sufficient funds. As soon as funds become available, we will
determine what our next steps will be and provide the projected costs. We have
taken measures to secure the property until such time as we can start
exploration again.


7


KWAGGA
GOLD (BARBADOS) LIMITED and the FSC PROJECT





Overview





In
September 2004, we acquired a 35% equity interest in Kwagga Gold (Barbados)
Limited (“Kwagga Barbados”), which, through its wholly owned subsidiary Kwagga
Gold (Proprietary) Limited, holds mineral exploration rights in South Africa
(pursuant to an August 27, 2004 Shareholders Agreement).  This project
is referred to as the “FSC Project” and is located adjacent to the historic
Witwatersrand basin.  In December 2007, we entered into a new
agreement, the Sale of Shares Agreement with AfriOre International (Barbados)
Limited (“AfriOre”), the holder of the other 65% of Kwagga Barbados, whereby we
have the option to acquire all of AfriOre’s interest in Kwagga Barbados. Our
ownership in Kwagga Barbados was facilitated through a transaction with Hawk
Uranium Inc. (“Hawk”) in 2003. Our chairman, H. Vance White, is an officer and
director of Hawk (f/k/a Hawk Precious Minerals Inc).





In order
for us to acquire the remaining 65% interest, all of the following must occur:
(1) South Africa’s Minister of Minerals and Energy, who oversees the Department
of Minerals and Energy (the “DME”), must consent in writing to the change in the
controlling interest in Kwagga (Proprietary) as per South African law; (2) we
must incur exploration expenditures in the aggregate amount of at least $1.4
million; and (3) we must pay to AfriOre an amount equal to $1.162 million within
three months following the final date of the completion of the required $1.4
million exploration expenditures. The closing of this transaction will occur
three business days following the receipt of the DME consent (provided certain
other conditions have then been satisfied), at which time we will acquire the
remaining 65% interest and simultaneously grant to AfriOre a security interest
in that 65% interest as collateral for the performance of the Company’s
obligations under the Sale of Shares Agreement. Such security interest will not
be released by AfriOre until such time as we incur the exploration expenditures
described above and make the $1.162 million payment to AfriOre. The August 27,
2004 Shareholders Agreement remains in full force and effect until receipt of
the DME consent, but upon receipt of the DME consent, such Shareholders
Agreement will be superseded by the Sale of Shares Agreement.  Under
the terms of the Sale of Shares Agreement, as amended, consent was to be
obtained by the DME on or before June 30, 2009.  The parties are
currently anticipating an extension of the termination date of the Sale of
Shares Agreement to December 21, 2009. If no such extension is granted by
AfriOre, the Sale of Shares Agreement will lapse and the terms and conditions
set forth therein will be null and void and of no further force or
effect.





As
additional consideration for entering into the Sale of Shares Agreement, AfriOre
will be entitled to a 2% gross royalty on all sales of gold and any other
minerals by the Company relating to the FSC Project. We may buy back 1% of the
2% gross royalty for a one-time cash payment of $2 million upon delivery of a
bankable feasibility study.




In
connection with the Sale of Shares Agreement, we entered in an Operating
Agreement with Kwagga (Proprietary), whereby we will serve as the manager of
exploration, evaluation, development and mining of those mineral properties to
which Kwagga (Proprietary) holds rights. Under that Operating Agreement, we will
be compensated for our management services according to the accounting
procedures set forth in the operating agreement. We may terminate the Operating
Agreement for any reason upon three months’ notice to Kwagga
(Proprietary).





On March
3, 2008, we entered into a letter of intent with Communications DVR Inc.
(“DVR”), a capital pool company then listed on the TSX Venture Exchange. DVR’s
shares are currently listed on the NEX, an exchange affiliated with the TSX
Venture Exchange (trading symbol: DVR.H). Under the terms of the letter of
intent, it is anticipated that DVR will acquire and assume all of our rights and
obligations under the Sale of Shares Agreement in exchange for 22 million common
shares of DVR (the “DVR Transaction”).  DVR currently has 2.79 million
common shares issued and outstanding and at the request of DVR, trading of DVR
common shares has been halted and will remain so until receipt by the TSX
Venture Exchange of all requisite documentation in connection with this proposed
DVR Transaction and satisfaction of related conditions.


8


The
closing of the proposed DVR Transaction is subject to a number of other
conditions including, but not limited to the following: (1) obtaining all
necessary regulatory approvals, including the approval by the TSX Venture
Exchange of the DVR Transaction, which is intended to qualify as DVR's
qualifying transaction for purposes of the rules of the TSX Venture Exchange and
as a result of which DVR would cease to be a capital pool company and would
become a regularly-listed company on the TSX Venture Exchange; (2) DME and other
necessary third party consents; (3) the negotiation and execution of definitive
agreements; (4) board of director approval; (5) the completion of necessary
financing and (6) other conditions typical of a transaction of this
nature.





Upon
completion of the DVR Transaction, the parties anticipate that DVR will have
approximately 33.615 million common shares issued and outstanding on a
non-diluted basis, and its officers are expected to include H. Vance White as
Chief Executive Officer and Chairman, Dr. Clyde Smith as President, Walter
Brooks as Vice President – Corporate, as well as the appointment of a chief
financial officer prior to completion of the DVR Transaction. We also anticipate
that Mr. White, Dr. Smith (our President), Mr. Brooks, Stephen D. King (our CEO)
and Mr. Alan Friedman will serve on the board of directors of DVR.





In
November 2008, AfriOre informed us that they would not be providing any
additional funding and that it was our responsibility to maintain the permits
and land claims of the FSC Project. Therefore, in November 2008, we entered into
a bridge financing arrangement with Hawk, whereby Hawk made a loan to the
Company of $60,000 in consideration of a 90-day promissory note in order to
provide temporary funding to Kwagga. We recorded these proceeds as an investment
loan to our subsidiary of Kwagga and will recognize 100% of the expenses
(attributable to a loss in subsidiary) related to such permit and land claim
maintenance expenditures.  In consideration of the loan, we issued
Hawk a five-year warrant to purchase up to 250,000 shares of our common stock
and granted Hawk a security interest in our right to acquire the 65% interest in
Kwagga Barbados, subject to any existing security interest granted by us prior
to November 12, 2008. The security interest granted is to be construed to the
fullest extent permitted without violating any term or right of any existing
security interest or any holder of such security interest granted prior to the
grant date. In March 2009, we received an extension until April 20, 2009 on the
maturity date and for such extension, we reduced the exercise price of the
five-year warrant from $0.125 per share to $0.0625 per share.





Creating
a vehicle through the potential DVR Transaction that is focused on the 65%
interest in the FSC Project is part of an overall strategy to allow management
to be single minded as well as to have access to the Canadian mining capital
market, one of the largest in the world.





Previous Exploration
Efforts





The
geological model was developed by AfriOre, affiliates of AfriOre and academic
geologists from Witwatersrand University.





In
October 2003, AfriOre commissioned the first drillhole, which was completed on
June 8, 2004. This drillhole, BH47, was drilled in the western structural block
to a depth of 2,984 meters (approximately 9,800 feet) 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
main Witwatersrand Basin, thereby confirming the initial geological
model.





In
October 2004, the South African Department of Minerals and Energy granted
permission to prospect on newly acquired areas of the FSC Project, which had
been defined as drillhole BH48. That second drillhole, BH48 (which was completed
in August 2005) was drilled to a depth of 2,559 meters (approximately 8,400
feet) and intersected over 600 meters of quartzites, below cover rocks which
included a relatively thin succession of Transvaal Supergroup sedimentary rocks
(160 meters) and Ventersdorp Supergroup lavas (132 meters) below the Karoo
Supergroup rocks. The quartzites have been positively identified as
Witwatersrand rocks, both through stratigraphic correlation and age dating
analysis. Although the age dating determinations indicated an age of the
quartzites in accordance with that of the Witwatersrand Supergroup, expert
consultants engaged by AfriOre correlated the quartzites with the West Rand
Group of the Witwatersrand Supergroup. Also identified in BH48 were a number of
bands of pyrite mineralization which, while returning assays results with
negligible amounts of gold, nevertheless were consistent with similar features
encountered throughout the rocks in the main Witwatersrand
Basin.


9











Our Exploration
Plans





The FSC
Project is significant because for the first time all the historical data
previously held by independent sources has been acquired and interpreted
together. Part of the data that AfriOre has acquired and compiled from
independent sources includes:


·
            Government
      aeromagnetic and gravimetric data.


·
            An
      AfriOre commissioned detailed aeromagnetic survey covering 1531 km2.


·
            66
      regional drillholes of which 37 define the greater FSC basin and 7
      intersected Witwatersrand rocks within the FSC
  basin.


·
            785
      line kilometers of seismic data.





Six
potential sites for proposed future drilling have been identified for
consideration.  It has been recommended that additional seismic and
drillhole information be purchased from a third party to enhance the
interpretation in the exploration area prior to siting the
drillholes.  A preliminary estimate of costs associated with the next
phase of exploration has been calculated and includes the purchase of data from
other drilling companies and the drilling of a single drillhole with associated
costs. The actual costs will be dependent on the depth of drilling, with a 2,000
meter hole estimated at $750,000 and a 3,200 meter hole estimated at $1,150,000
based on estimates made in December 2008. We anticipate that costs will continue
to increase generally over the 2009 year and beyond.  It is
anticipated that the next round of exploration funding will be financed upon
completion of the proposed DVR Transaction. In the event that the DVR
Transaction is not closed, alternate sources of financing will be
sought.


10


VIANEY
MINE CONCESSION





In
October 2007, we executed an amendment to the formal joint venture agreement
with Journey Resources Corp., a corporation formed under the laws of the
Province of British Columbia (“Journey”) and Minerales Jazz S.A. De C.V., a
corporation duly organized pursuant to the laws of Mexico and a wholly owned
subsidiary of Journey. Pursuant to the terms of the amendment, we own a 50%
undivided beneficial interest in “located mineral claims” in the property known
as the Vianey Mine Concession located in the State of Guerrero, Mexico
(“Vianey”).  In addition to located mineral claims, our interest
includes all surface rights, personal property and permits associated with
Vianey and all other claims, leases and interests in minerals acquired within
two kilometers of the external perimeter of Vianey. We paid an aggregate of
$600,000 and issued 2.6 million shares of our unregistered common stock to
Journey for our interest.








11


The
Vianey Mine is located in the north-central part of the state of Guerrero, which
lies in the southern part of Mexico.  It is about 250 kilometers by
road south of Mexico City and 160 kilometers north of Acapulco. The mine is
situated within the Morelos National Mining Reserve on the southwestern flank of
the southern Sierra Madre Occidental province that extends north-northwest to
the border between Sonora and Arizona, and east-southeast to Oaxaca State. The
region is characterized by moderately steep rolling hills with alternating
valleys of gentle gradient.  Elevations in the area range from 450 to
850m above sea level. A major drainage system, the Balsas River, flows generally
east to west through the region, about 2.5 km south of the site. The concession
constitutes 44 contiguous hectares, centered on UTM coordinates 431,330m E,
1,987,020m N (WGS 84, Zone 14), or –99.6485 degrees E, 17.9704 degrees
N.





Road
access is good via highway 95, then 15 kilometers by gravel road. The concession
exists in the municipality of Cocula, 1.6 km southeast of the small town of
Atzcala, where labor suitable for exploration and limited mining can be found.
Supplies and equipment are available in the towns of Mezcala and Chilpancingo,
the capital of Guerrero, located on the main highway approximately 8 and 48 km
south of the property respectively. A major power line passes near the property
and electrical power is available at the mine.





In
Mexico, all minerals are held in trust for the people of Mexico by the national
government. Surface rights can be held by the government, local communities
(“ejidos”), or privately held by companies or individuals. Under the mining
regulations, there are no provisions for patent to mineral lands in Mexico. The
granting of permission for an individual, a cooperative, or a commercial company
to acquire rights to explore for, and ultimately for extracting minerals from
the ground, is governed by legislation administrated by the government of
Mexico.





The
Mexico mining code of 1990 was revised in June 1992, and its current enabling
regulations were issued by the President of Mexico in 1999. The government,
under the mining code, can grant to individuals and Mexican corporations mining
concessions with the right to explore and extract mineral
resources.





“Concessions”
refer to mining lots, the perimeter and name of which is determined by the
applicant, and which are granted on “free” land (“tierra libre”). An exploration
concession is valid for a period of six years; an exploitation concession for
fifty years. Exploitation concessions can be renewed once for an additional
fifty years, if requested before the end of the expiration of the original
concession. The concession relating to Vianey consists of 44 hectares held under
the exploitation concession (Number 164151, Exp. No. 5929, issued March 5, 1979
and will expire, unless renewed, in 2029) pursuant to the laws of Mexico.
Minerales Jazz SA de C.V., (the wholly-owned subsidiary of Journey) exercised a
lease with option to purchase the property held between Minera LMX SA de C.V.,
and Minera Chilpancingo SA de C.V., and the owner of the concession. The
property is owned 100 percent by Minerales Jazz SA de C.V., with no royalty,
back-in rights, or other encumbrance.





The main
obligations which arise from a mining concession, and which must be kept current
to avoid its cancellation, are (i) the performance of assessment work, (ii) the
payment of mining taxes (technically called “duties”), and (iii) compliance with
environmental laws.





The
Mining Law (in Mexico) establishes that minimum amounts of funds for assessment
work be spent in performing exploration work (in the case of exploration
concessions) or exploration and/or exploitation work (in the case of
exploitation concessions); in the latter case the sales of minerals from the
mine may be substituted in lieu of the equivalent amount of minimum
expenditures. A report must be filed in May of each year regarding the work done
during the previous calendar year.





Mining
duties must be paid in advance in January and July of each year, and they are
based on the type of concession, on the surface area of the concession and the
number of years that have elapsed since the date of issue. Environmental laws
require the filing and approval of an environmental impact statement for all
exploitation work, and for exploration work that does not fall within the
threshold of a standard issued by the federal government for mining
exploration.


12


Potential
environmental impacts and social impacts to communities affected by future land
disturbance and mining activities are reviewed by the environmental protection
sector of the government. We are not aware of any known or observed
environmental liabilities with respect to the Vianey or the land adjacent to
it.





Geology





The
property is located in the Sierra del Sur Metallogenic Province in the Guerrero
Gold and Massive Sulfide Belts. This province is characterized by Cretaceous
sedimentary and volcanic rocks intruded by Lower Tertiary intermediate
composition stocks. It hosts intrusive associated gold-copper-silver deposits.
To the west, the massive sulfide belt hosts several silver-lead-zinc and copper
deposits.





The
Vianey is located in the Morelos-Guerrero Basin of Cretaceous age, mostly
composed of a folded and faulted limestone sequence up to 2500 meters thick,
intruded by granodiorite and monzonite plutons, which are responsible for
development of silver-lead-zinc mineralization in veins, skarn and breccia
bodies.  Various types of deposits occur in this geological context,
i.e. mesothermal lenses, veins and breccias (Vianey Mine), iron- and
gold-bearing skarns, disseminated iron-gold-copper or hydrothermal veins and
epithermal gold-mercury deposits.





The
Vianey property is underlain by limestones, limestone breccias, calcareous and
carbonaceous siltstones, and argillites intruded locally by felsic dikes and
plugs with affiliated skarn. The local stratigraphy consists of limestone
underlain by limy siltstone of undetermined thickness, but known to exceed 2500
meters thick. These rocks are part of regionally extensive shallow marine
sedimentary sequence that form an elliptical exposure of Cretaceous carbonate
lithologies known as the Morelos-Guerrero Basin.





The
Vianey Mine carbonate sequence is intruded by granodiorite and monzonite
plutons, dikes, sills and irregular plugs. These intrusive masses are intimately
associated with mineral deposits throughout the region.  The carbonate
stratigraphy in the Vianey Mine region is broadly folded and domed. Major folds,
with amplitudes of fifty- to hundreds of meters are common. Drag folds and
distortions of the bedded rocks are common in the underground exposures at the
property.





Various
types of mineralization occur as a result of the interplay between stratigraphy,
structure, and proximity to intrusive centers in the district. The different
types of deposits known to occur are as follows:





·
            Lenses,
      veins, mantos or breccias containing silver and poly-metallic Pb-Zn-Cu
      (Vianey deposit)


·
            Skarn
      zones and replacement concentrations or iron and gold (Nukay
      deposit)


·
            Disseminated
      and hydrothermal vein type Fe-Au-Cu (La Subsida
  deposit)


·
            Epithermal
      and hot springs deposits of mercury (Hg) and gold (Brasil and Laguna
      deposits)





Mineralization
at the Vianey Mine includes veins, breccias, lens and mantos of silver – and
poly-metallic (Pb-Zn) mineralization with local concentrations of gold and
copper. The veins and breccia zones predominate in apparent importance. Most of
the veins are localized along NW-SE trending structures and E-W structures; the
lenses occur in fault zones and as sulfide concentrations with calcite, gypsum
and quartz between some bedding planes.





Previous Exploration
Efforts





The
Vianey Mine has been operated intermittently on a small-scale basis since the
1400’s.  More recently, the mine is said to have been in almost
continuous production since about 1976 by Compania Minera de Chilpancingo S.A.,
and operated until 1996 on a small scale with short breaks, extracting 200 to
300 tonnes per month.





Underground
workings put in by Compania Minera de Chilpancingo S.A., and its predecessors,
amounts to seven levels, several winzes, two shafts and numerous stopes. The
portal is approximately 540 meters above sea level, which penetrates into the
mountain about 100 meters in an easterly direction.


13


Minera
LMX SA de C.V., a former subsidiary of LMX Resources Ltd. took over the Vianey
operations in 1996 and started various exploration and development works. The
first phase of exploration was conducted in the mine by P.H. Consultants Ltd of
Val d’Or, Quebec, in order to determine what resources were still contained in
the old workings. A total of 252 meters of vertical fan drilling was completed
from drill station one, 276 channel samples were taken, and 433 additional
samples were obtained. All samples were analyzed for 38 minerals by a
combination of fire assay, ICP, and aqua regia-AA methods by Bondar Clegg
Laboratories.





A second
phase of exploration completed in November 1996 accomplished 2,173 meters of
underground core drilling from drill stations one through six. The second phase
drilling further delineated the mineralized zones identified by the first
program and resulted in the partial definition of a new breccia chimney called
the Twilight Zone.





In May
1997, Minera LMX started a third phase to verify and expand previous findings
and to mine accessible reserves for direct shipping. After stockpiling about 940
tonnes of material from underground development work, the company abruptly
closed the operation and the third drilling program was interrupted shortly
after it was initiated.





The
property was sold to the Chief Geologist of Minera LMX, who later defaulted on a
property payment and a legal battle ensued. After several years of inactivity,
the legal matters were settled and Minerales Jazz SA de CV acquired 100 percent
interest in the property, free of royalties and encumbrances, with a cash
payment in 2004, but did not conduct any physical exploration of the
property.





As
reported in the Blakestad Report, there are many issues related to the
resource/reserve calculations reported from these prior drilling phases which
may not meet the requirements of National Instrument 43-101. The calculations,
however, were performed by a qualified person (P. J. Hawley) with intimate
experience with the property and its mineralization. The results of exploration
to date and the evaluations serve to form a basis for recommending aggressive
exploration of the Vianey Mine.





A total
of 12 diamond drillholes were drilled in during 2006-2007. In some cases these
holes were incorrectly located and in some cases they were terminated prior to
intersecting target zones. The target zones were projected to depth from the
lowest levels of the mine at –75 meters below surface.  No further
drilling occurred in 2008.





Our Exploration
Plans





Based on
our further due diligence on the Vianey Mine, we have determined that it is
necessary to increase the size of the land package in order for this property to
be a viable large scale exploration endeavor (we also have taken into
consideration the spot price for silver metals as well). Inquiries and
communications have been disseminated to the adjacent properties, regarding
possible purchase of land, rights or some type of further joint venture to
accomplish an increased footprint. Journey remains the operator of the project
and has other specific tasks to be performed. Until such time as we have
determined what options are available for an increase in land rights and
development, no further funds will be expended at the Vianey until such time as
we have obtained dedicated funds.  As soon as funds become available,
we will determine what our next steps will be and provide the projected
costs.





TRANSACTIONS IN HONG KONG
AND THE PEOPLE’S REPUBLIC OF CHINA





As of
December 31, 2007, we had made loans through Wits Basin (BVI) Ltd. (f/k/a China
Global Mining Resources Limited) a British Virgin Islands corporation and wholly
owned subsidiary of ours (“Wits BVI”) in the aggregate amount of $7 million to
acquire interests in a nickel property and certain iron ore mining properties
located in the PRC. As of December 31, 2008, we only held the rights to acquire
the iron ore properties and therefore continued to record the remaining $5
million as an advanced payment. See Note 20 to our annual financial statements
for the years ended December 31, 2008 and 2007 included elsewhere in this Annual
Report for details of the subsequent acquisition of certain of these iron ore
properties.


14


Nickel – Shaanxi Hua Ze
Nickel Smelting Co.





Wits BVI
was a party to that certain Joint Venture Agreement with Shaanxi Hua Ze Nickel
Smelting Co. (“Shaanxi Hua Ze”) dated April 14, 2007 (as supplemented on June 6,
2007) and a Supply Contract, pursuant to which the parties contemplated a joint
venture relating to the Xing Wang Mine, in which Wits BVI would purchase 40
metric tons of electrolytic nickel from Shaanxi Hua Ze.  Wits BVI
provided a $2 million advance payment, which payment also served as a prepayment
of the initial contribution outlined in the Joint Venture Agreement. The
consummation of the Joint Venture Agreement would have required an additional
investment of approximately 580 million RMB (or approximately $84 million US as
of June 2008, the anticipated closing timeframe).





As the
seller’s inability to obtain the necessary permits for the joint venture and our
inability to meet the agreed upon timetables for contributions created
significant delays in forward progress, and on July 31, 2008, Wits BVI entered
into (1) a Termination Agreement with Shaanxi Hua Ze whereby the parties
terminated the Joint Venture Agreement and (2) a Settlement Agreement whereby
the parties terminated the Supply Contract.  As part of the Settlement
Agreement, Shaanxi Hua Ze agreed to refund to Wits BVI $1.85 million,
representing a partial refund of the $2 million advanced to Shaanxi Hua
Ze.





On
October 20, 2008, we received a $1.85 million refund (combined with the $150,000
loss recorded for the period ended June 30, 2008), which completed the
requirements under the Termination and Settlement Agreements.





Iron Ore – Nanjing Sudan
Mining, Xiaonanshan Mining, Maanshan Zhao Yuan Mining


Wits
(BVI) Ltd was the original party to that certain Equity and Asset Transfer Heads
of Agreement, dated May 4, 2007 (the “Nanjing Heads of Agreement”) with Mr. Lu
and Ms. Tinglan, two related PRC nationals, Xiaonanshan Mining Co. Ltd (“XNS”)
and Maanshan Zhao Yuan Mining Co. Ltd (“MZM”) (Messrs. Lu and Nan, XNS and MZM
collectively, the “Sellers”). The Nanjing Heads of Agreement provided Wits (BVI)
or its nominee, the right to purchase 100% of the equity of the Nanjing Sudan
Mining Co., Ltd. (an iron ore processing plant, the “Sudan”) and the two iron
ore mining properties of XNS and MZM. The Nanjing Heads of Agreement stated a
purchase price of $66 million, to be paid in cash or in shares of stock of a
listed company, as agreed by the parties.
 
 On
January 25, 2008, Wits Basin, Wits (BVI) and the Sellers entered into a letter
agreement establishing a revised purchase price and a payment schedule. The
letter agreement required the purchase price to be denominated in RMB Dollars
and required scheduled payments to be made based on verification of permits
issued.  The revised purchase price was 620 million RMB or
approximately $86 million US as of January 25, 2008.  The Sellers
renegotiated the purchase price due primarily to the fact that the iron ore spot
price had increased since May 2007 and the change to the RMB Dollar was due
primarily to the continual changes in the exchange rate applicable to the U.S.
Dollar.
 
 On March
14, 2008, the parties executed two additional agreements. One of the agreements:
(i) reset the closing date to be on or around April 20, 2008 (the closing date
was subsequently extended again to be no later than July 31, 2008), (ii)
established a new purchase for just the Sudan and XNS at RMB 155 million, (iii)
removed the MZM from the first closing, and (iv) set parameters for an earn out
of shares of common stock by Mr. Lu. The other agreement defined that additional
assets would be included in the acquisition and provide third party appraisal
valuations for all of the assets to be acquired, and that the purchase price was
further subject to adjustments (increases or decreases) based on the valuation
of those assets at closing.
 
 On August
11, 2008, Maanshan Global Mining Resources Limited (“MGMR”), a limited liability
company incorporated under the laws of the PRC and a wholly owned subsidiary of
Wits (BVI), and the Sellers entered into three separate Equity Transfer
Agreements:




15





· Pursuant
to the Equity Transfer Agreement for Nanjing Sudan Mining (“Sudan ETA”), MGMR
will acquire Sudan for the purchase price of 160 million RMB or the US Dollar
equivalent (approximately $23.3 million US at the agreed upon exchange rate
equal to 6.86 RMB to $1.00 US). The purchase price payment will be divided into
two installments: 90.8 million RMB within 20 working days of the satisfaction of
all conditions precedent identified in the Sudan ETA and 69.2 million RMB 15
days prior to the formal closing.  The Sellers had obligations to make
capital expenditures estimated to be approximately 120 million RMB, provide a
detailed ledger of the costs and have an independent accounting firm produce an
inventory listing of the assets. The Sellers are to be reimbursed for such
improvements upon validation.





· Pursuant
to the Equity Transfer Agreement for Xiaonanshan Mining (“XNS ETA”), MGMR will
acquire XNS for the purchase price of 130 million RMB or the US Dollar
equivalent (approximately $19 million US at the agreed upon exchange rate equal
to 6.86 RMB to $1.00 US). The purchase price payment will be divided into two
installments: 73.8 million RMB within 20 working days of the satisfaction of all
conditions precedent identified in the XNS ETA and 56.2 million RMB 15 days
prior to the formal closing.  The Sellers had obligations to make
expenditures relating to the increase in mine output production and have an
independent accounting firm produce an inventory listing of the
assets.





· Pursuant
to the Equity Transfer Agreement for Maanshan Zhao Yuan Mining (“MZM ETA”), MGMR
will acquire MZM for the purchase price of 80 million RMB or the US Dollar
equivalent (approximately $11.7 million US at the agreed upon exchange rate
equal to 6.86 RMB to $1.00 US).  The purchase price payment will
require the use of a Chinese escrow agent and be divided into two installments:
45.4 million RMB within 20 working days of the satisfaction of all conditions
precedent identified in the MZM ETA and 34.6 million RMB 15 days prior to the
formal closing.





On August
11, 2008, pursuant to the terms of the Equity Transfer Agreements, Wits (BVI)
also entered into a consulting agreement with Mr. Lu (“Lu Consulting
Agreement”), whereby he shall assist Wits (BVI) in operating the properties,
assist in obtaining and maintaining necessary governmental approvals and provide
strategic advice, among other services.  The term of the Lu Consulting
Agreement is two years, commencing upon the closing of the acquisition of the
Sudan and XNS.  In consideration of his services: (i) Wits (BVI) shall
be obligated to pay Mr. Lu a consulting fee of approximately $10 million within
1 day of the closing of the Sudan and XNS, (ii) Mr. Lu will also be eligible to
earn up to $44 million, such cash amount to be paid by December 31, 2009 (Wits
(BVI) can offset against the amount of this final payment any breaches by the
Sellers of any representations and warranties under the Equity Transfer
Agreements) and (iii) Wits (BVI) will procure that Mr. Lu receive up to 50
million shares of the Wits Basin common stock subject to fulfillment of Mr. Lu’s
guarantee to produce certain amounts and grades of iron ore concentrate within
certain periods of time.  On January 13, 2009, Wits (BVI) and Mr. Lu
entered into an Agreement on Amendment whereby the parties amended the term of
the Consulting Agreement to five years and the timing of certain payments under
the Consulting Agreement.  Also on January 13, 2009, Wits (BVI), Mr.
Lu and China Global Mining Resources (BVI) Ltd,, a newly created British Virgin
Islands corporation we formed to constitute our joint venture entity with London
Mining Plc in December 2008 (as discussed below), entered into a Novation
Agreement whereby Wits (BVI)’s rights and obligations under the Consulting
Agreement were assigned to, and assumed by, China Global Mining Resources (BVI)
Ltd.





On
October 29, 2008, MGMR entered into two amendment agreements with the Sellers,
whereby it assigned its rights under the Equity Transfer Agreements of the Sudan
and XNS to China Global Mining Resources Limited, a Hong Kong corporation (“CGMR
HK”), a wholly owned subsidiary of Wits Basin at that time.





· Pursuant
to that certain Assignment and Amendment Agreement on the Equity Transfer of
Sudan, the parties agreed to (1) assign the purchase rights of the Sudan ETA to
CGMR HK and (2) amend the payment schedule such that only 40 million RMB
(approximately $5.8 million US) is required to be deposited with the escrow
agent three days prior to closing, with the final 120 million RMB (approximately
$17.5 million US) to be paid within 90 days of closing. However, should
deficiencies of available cash from operations exist, the final 120 million RMB
payment can be extended out another 60 days and will then accrue interest at a
rate of 8 percent.





· Pursuant
to that certain Supplementary and Amendment Agreement on the Equity Transfer of
XNS, the parties agreed to (1) assign the purchase rights of the XNS ETA to CGMR
HK and (2) amend the payment schedule such that the entire 130 million RMB
(approximately $18.9 million US) is required to be deposited with the escrow
agent three days prior to closing.


16
  On
December 17, 2008, we created a new British Virgin Islands corporation and
wholly owned subsidiary of ours under the name of China Global Mining Resources
(BVI) Limited (“CGMR (BVI)”) to serve as the joint venture entity with London
Mining Plc. On December 23, 2008, we sold our 100% equity ownership of CGMR HK
to CGMR (BVI), whereby CGMR HK became a wholly owned subsidiary of CGMR
(BVI).
 
 Subsequent
to the end of the fiscal year, on March 17, 2009, London Mining Plc acquired 50%
equity in CGMR (BVI). Contemporaneously, CGMR (BVI) (through CGMR HK) completed
the acquisition of the Sudan and XNS from the Sellers pursuant to the August 11,
2008 Equity Transfer Agreements (as amended or supplemented). The joint venture
agreement for CGMR (BVI) and the acquisition of the Sudan and XNS are detailed
in Note 20 to our annual financial statements for the years ended December 31,
2008 and 2007 included elsewhere in this Annual Report.
  Iron Ore – Yun County
Changjiang Mining Company Ltd.





Wits BVI
is also party to that certain Equity Transfer Heads of Agreement (“Changjiang
Heads of Agreement”) dated May 4, 2007 with three individual sellers, whereby
Wits BVI holds a right to acquire a 95% equity interest in Yun County Changjiang
Mining Company Limited (“Changjiang”), which holds licenses to explore for iron
ore in the Hubei province of the PRC, for an aggregate of $57
million.  The purchase price is to be paid with no more than $15
million in cash and the remainder in shares of stock of a listed
company.  Mr. Lu Benzhao and Ms. Lu Tinglan, who are parties to the
Nanjing Heads of Agreement, hold an aggregate of 90% of the interest in
Changjiang.  Under the Changjiang Heads of Agreement, Wits BVI is
required to arrange for a loan to Changjiang in the amount of $10 million, such
loan to be secured by the capital stock of Changjiang. Additionally, in the
event Wits BVI and Changjiang enter into an exclusive supply agreement relating
to the purchase by Wits BVI of iron ore from Changjiang, Wits BVI will also be
required to arrange for an additional loan to Changjiang, the amount of such
loan to be determined based on the reserves of iron ore located on the related
mining properties, but not to exceed 1.2 billion RMB. In order to begin
production at the Changjiang, the involvement of the Chinese government will be
required, and as such, the Changjiang is a long-term project. As of December 31,
2008, no funds have been advanced for this project.





Terminated Merger
Transaction with Easyknit Enterprises in 2007





In an
effort to finance our potential transactions in the PRC through access to the
capital markets in Hong Kong, we entered into an Agreement and Plan of Merger
and Reorganization (the “Easyknit Merger Agreement”) with Easyknit Enterprises
Holdings Limited, a Bermuda corporation with its principal place of business in
Hong Kong (a Hong Kong Stock Exchange listed company: SEHK: 0616) in April
2007.





On
November 1, 2007, we terminated the Easyknit Merger Agreement, based on our
determination that the merger transaction was not in the best interests of our
shareholders based on our due diligence findings.  On December 18,
2007, we entered into a Settlement Agreement and General Release with Easyknit,
whereby the parties agreed to dismiss with prejudice and release each other from
all claims, counterclaims and defenses that touched upon or arose out of the
Easyknit Merger Agreement or which were asserted or could have been asserted in
the litigation between the parties.





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;


17


·
            availability
      of capital;


·
            proximity
      to infrastructure;


·
            the
      particular attributes of the deposit, such as its size and
      grade;


·
            political
      risks, particularly in some 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 exposed on the surface of the ground, exploration will continue to be a
“hit or miss” process.





PRODUCTS AND
SERVICES





As of
December 31, 2008, we own a past producing gold mine in Colorado (Bates-Hunter
Mine), a 35% equity interest in Kwagga Gold (Barbados) Limited, which holds
rights to properties located in South Africa (the FSC Project) through its
wholly owned subsidiary and certain rights in the Vianey Concession in
Mexico.





EXPLORATION AND DEVELOPMENT
EXPENSES





If we
acquire a project that has no revenue, exploration expenses will be charged to
expense as incurred.





EMPLOYEES





As of
December 31, 2008, we employ four individuals under the Wits Basin parent
corporation – our chief executive officer, our president, our chief financial
officer and our president of Asia operations. Gregory Gold Producers (our wholly
owned subsidiary) employs one mine related employee at the Bates-Hunter Mine.
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, 2008, 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-K, quarterly reports on Form 10-Q, 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


900 IDS
Center, 80 South 8th
Street


Minneapolis,
Minnesota 55402-8773


(612)
349-5277


18


ITEM 1A. RISK
FACTORS





RISKS
RELATING TO OUR COMMON STOCK





TRADING
OF OUR COMMON STOCK IS LIMITED.





Trading
of our common stock is conducted on the National Association of Securities
Dealers’ Over-the-Counter Bulletin Board, or “OTC Bulletin Board.” This has an
adverse effect on the liquidity of our common stock, not only in terms of the
number of shares that can be bought and sold at a given price, but also through
delays in the timing of transactions and reduction in security analysts’ and the
media’s coverage of us. This may result in lower prices for our common stock
than might otherwise be obtained and could also result in a larger spread
between the bid and asked prices for our common stock.





BECAUSE
IT IS A “PENNY STOCK” IT CAN BE DIFFICULT TO SELL SHARES OF OUR COMMON
STOCK.





Our
common stock is a “penny stock.” Broker-dealers who sell penny stocks must
provide purchasers of these stocks with a standardized risk disclosure document
prepared by the SEC. This document provides information about penny stocks and
the nature and level of risks involved in investing in the penny stock market. A
broker must also give a purchaser, orally or in writing, bid and offer
quotations and information regarding broker and salesperson compensation, make a
written determination that the penny stock is a suitable investment for the
purchaser, and obtain the purchaser’s written agreement to the purchase. The
penny stock rules may make it difficult for you to sell your shares of our
stock. Because of the rules, there is less trading in penny stocks. Also, many
brokers choose not to participate in penny stock
transactions.  Accordingly, you may not always be able to sell our
shares of common stock publicly at times and prices that you feel are
appropriate.





A
SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK ARE HELD IN RESERVE FOR VARIOUS
AGREEMENTS AND THEIR ISSUANCE COULD DEPRESS THE PRICE OF OUR
SECURITIES.





The
issuance of a substantial number of shares of our common stock in the public
market could adversely affect the market price for our common stock and make it
more difficult for you to sell our securities at times and prices that you feel
are appropriate. As of April 13, 2009, we had 144,974,309 shares of common stock
and 7,726,200 Class C Redeemable Warrants issued and outstanding. Furthermore,
we have reserved for issuance 16,643,500 shares of common stock issuable upon
the exercise of stock options, approximately 54,000,000 shares of common stock
issuable upon the exercise of warrants, approximately 19,600,000 shares of
common stock issuable upon the conversion of convertible debt, and may be
required to issue up to an aggregate of 50,000,000 shares of common stock
pursuant to a consulting agreement, subject to the satisfaction of certain
conditions under that agreement.





RISKS
RELATING TO OUR FINANCIAL CONDITION





WE
CURRENTLY DO NOT HAVE ENOUGH CASH TO FUND OPERATIONS, DEBT REDUCTION OR
POTENTIAL ACQUISITIONS DURING 2009.





As of
April 10, 2009, we had only approximately $25,000 of cash and cash equivalents
on hand.  Since we do not expect to generate any revenue from
operations in 2009, we will be required to raise additional capital in financing
transactions in order to satisfy our expected cash expenditures. Included in the
expected cash expenditures is approximately $2,400,000 in debt that will become
due during 2009, assuming some or all of such debt is not converted into equity
prior to such date. Accordingly, we will require additional funds during
2009.


19


We
continue to seek additional opportunities relating to our mining operations, and
our ability to seek out such opportunities, perform due diligence, and, if
successful, acquire such properties or opportunities requires additional
capital. We expect to raise such additional capital by selling shares of our
capital stock or by borrowing money. However, we currently have only a limited
number of available shares of common stock authorized for issuance, and will
require shareholder approval to increase our authorized capitalization to raise
such additional capital. Additionally, such additional capital may not be
available to us at acceptable terms or at all.  Further, if we
increase our capitalization and 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 cease our search for additional business
opportunities, reduce our operating expenditures or to cease operations
altogether.





WE
HAVE VERY LIMITED ASSETS IN OPERATION.





After we
completed the sales of our Hosted Solutions Business and our Accounting Software
Business in 2003, we became an exploration stage company and do not anticipate
having any revenues from operations until an economic mineral deposit is
discovered or unless we complete other acquisitions or joint ventures with
business models that produce such revenues. As of April 13, 2009, we own the
past producing Bates-Hunter Mine in Colorado, a 35% equity interest in Kwagga
Gold (Barbados) Limited, which holds rights to properties located in South
Africa (the FSC Project) through its wholly owned subsidiary and certain rights
in the Vianey Concession in Mexico (currently no exploration activities are
being conducted at any of these three properties). None of these properties may
ever produce any significant mineral deposits.





Furthermore,
on March 17, 2009, we consummated the acquisition of the Nanjing Sudan Mining
Co, Ltd and the Xiaonanshan Mining Co, Ltd in a joint venture transaction with
London Mining Plc. We hold a 50% equity interest in the joint venture, but
London Mining holds a 99% priority dividend and certain other preferences until
the return of their investment. Both the Xiaonanshan mine and the Nanjing Sudan
processing plant are currently operating businesses in the PRC.





WE
ANTICIPATE INCURRING LOSSES FOR THE FORESEEABLE FUTURE.





Since
becoming an exploration stage company in May 2003 through December 31, 2008, we
have incurred an aggregate net loss of $52,276,001.  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, 2008 and 2007, and we
have an accumulated deficit as of December 31, 2008. 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 from operations 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.


20


CERTAIN
OF OUR AGREEMENTS REQUIRE PAYMENTS IN FOREIGN CURRENCIES AND ARE SUBJECT TO
EXCHANGE RATE FLUCTUATIONS.





Certain
of our acquisition agreements (including certain of those we hold in our
subsidiaries) and other agreements we have entered require payments in foreign
currencies, including the Canadian Dollar, the Chinese Renminbi and the South
African Rand. It is possible that we will enter into other agreements for future
acquisitions or work relating to our various mining interests that will require
payment in currencies other than the U.S. Dollar. Fluctuations in exchange
rates, in particular between the U.S. Dollar and other currencies, can affect
the actual amounts of these payments and potentially may be in excess of the
amounts we have budgeted for payment of these fees and other
payments.





RISKS
RELATING TO OUR BUSINESS





WE
WILL REQUIRE ADDITIONAL FINANCING TO CONTINUE TO FUND OUR CURRENT EXPLORATION
PROJECT INTERESTS OR TO ACQUIRE INTERESTS IN OTHER EXPLORATION
PROJECTS.





Substantial
additional financing will be needed in order to fund beyond the current
exploration programs underway 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 significant 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 2009.”





OUR
PERFORMANCE MAY BE SUBJECT TO FLUCTUATIONS IN MINERAL PRICES.





The
profitability of the exploration projects could be significantly affected by
changes in the market price of minerals. Demand for minerals 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.





In
particular, mine production and the willingness of third parties such as central
banks to sell or lease gold affects the supply of gold. Worldwide production
levels also affect mineral prices. In addition, the price of gold, silver and
iron ore have on occasion been subject to very rapid short-term changes due to
speculative activities. Fluctuations in gold prices may adversely affect the
value of any discoveries made at the sites with which we are
involved.





MINERAL
EXPLORATION IS EXTREMELY COMPETITIVE.





There is
a limited supply of desirable mineral properties available for claim staking,
lease or other acquisition in the areas where we contemplate participating in
exploration activities. We compete with numerous other companies and
individuals, including competitors with greater financial, technical and other
resources than we possess, in the search for and the acquisition of attractive
mineral properties. Our ability to acquire properties in the future will depend
not only on our ability to develop our present properties, but also on our
ability to select and acquire suitable producing properties or prospects for
future mineral exploration. We may not be able to compete successfully with our
competitors in acquiring such properties or prospects.





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 or other mineral deposit will become commercially viable depends on a
number of factors, including:





·
            financing
      costs;


21


·
            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 and environmental
      protection.





The
outcome of any of these factors may prevent us from receiving an adequate return
on invested capital.





CERTAIN
OF OUR DIRECTORS AND OFFICERS MAY HAVE CONFLICTS OF INTEREST WITH REGARD TO
CERTAIN TRANSACTIONS TO WHICH WE OR OUR AFFILIATES MAY BE PARTIES.





H. Vance
White, who is the Chairman of our Board of Directors, is both an officer and
director of Hawk Uranium Inc, (f/k/a Hawk Precious Minerals Inc.) a junior
exploration company, 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 conflicts of
interest to the extent the other companies with which they are affiliated
acquire rights in exploration projects that may be suitable for us to
acquire.





Stephen
D. King, our Chief Executive Officer, and William B. Green, our President of
Asia Operations, are both directors of China Global Mining Resources (BVI) Ltd.
(“CGMR”), our joint venture entity with London Mining Plc, and the subsidiaries
of CGMR.  Additionally, Mr. Green is the principal of Green Earth
Mining Resources, a Hong Kong corporation that will serve as operator of CGMR’s
operations in the PRC.  Mr. King serves as a consultant to Green
Earth. As a result of Mr. King’s and Mr. Green’s affiliation with each and any
of CGMR, its subsidiaries and Green Earth may result in conflicts of interest
with us.





THE
OPERATORS OF OUR EXPLORATION PROJECTS MAY NOT HAVE ALL NECESSARY TITLE TO THE
MINING EXPLORATION RIGHTS.





We expect
that Kwagga (Barbados), Kwagga (Proprietary) and Journey 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 our projects. 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.





LAWS
GOVERNING MINERAL RIGHTS OWNERSHIP HAVE CHANGED IN SOUTH AFRICA.





The South
African mining industry has undergone a series of significant changes
culminating in the enactment of the Mineral and Petroleum Resources Development
Act No. 28 of 2002 (“the Act”) on May 1, 2004. The Act legislates the abolition
of private mineral rights in South Africa and replaces them with a system of
state licensing based on the patrimony over minerals, as is the case with the
bulk of minerals in other established mining jurisdictions such as Canada and
Australia. On May 3, 2004 the Department of Minerals and Energy (the “DME”)
announced that it was seeking legal advice on the implications of the Act in
light of South Africa’s international agreements.





Holders
of old-order mining rights, of the type held by Kwagga (Proprietary), are
required within five years of the May 1, 2004 commencement date, to apply for
conversion of their old order rights into new order mining rights in terms of
the Act. Old order mining rights will continue to be in force during the
conversion period, subject to the terms and conditions under which they were
granted. Once a new order right is granted, security of tenure is guaranteed for
a period of up to 30 years, subject to ongoing compliance with the conditions
under which the right has been granted. A mining right may be renewed for
further periods of up to 30 years at a time, subject to fulfillment of certain
conditions.


22


In order
to be able to convert old order mining rights to new order mining rights, a
holder must primarily: apply in the correct form for conversion at the relevant
office of the DME before May 1, 2009; submit a prescribed social and labor plan;
and undertake to “give effect to” the black economic empowerment and
socio-economic objectives of the Act (the “Objectives”) and set out the manner
in which it will give effect to the Objectives.





In
general, the Objectives are embodied in the broad-based socio-economic
empowerment charter which was signed by the DME, the South African Chamber of
Mines and others on October 11, 2002 (the “Charter”), and which was followed on
February 18, 2003 by the release of the appendix to the Charter known as the
Scorecard. The Charter and Scorecard have since been published for information
during August 2004. The Charter is based on seven key principles, two of which
are focused on ownership targets for historically disadvantaged South Africans
(“HDSAs”) and beneficiation, and five of which are operationally oriented and
cover areas focused on improving conditions for HDSAs.





Regarding
ownership targets, the Charter (as read with the Scorecard) requires each mining
company to achieve the following HDSA ownership targets for the purpose of
qualifying for the grant of new order rights: (i) 15% ownership by HDSAs in that
company or its attributable units of production by May 1, 2009, and (ii) 26%
ownership by HDSAs in that company or its attributable units of production by
May 1, 2014. The Charter states that such transfers must take place in a
transparent manner and for fair market value. It also states that the South
African mining industry will assist HDSA companies in securing financing to fund
HDSA participation, in the amount of ZAR100 billion within the first five years.
The Charter does not specify the nature of the assistance to be
provided.





At
present, the financial implications and market-related risks brought about by
the various pieces of the new legislation (including the Mineral and Petroleum
Royalty Bill) cannot be assessed. It is not clear when the next draft of the
Mineral and Petroleum Royalty Bill will be released. The Government has,
however, indicated that no royalties will be payable until 2009. Material
impacts on both the ownership structure and operational costs at the FSC Project
are possible. Kwagga (Barbados) and AfriOre continue to explore their options
and monitor the implementation and interpretation of the Act and the progress of
other ancillary regulations and legislation.





DUE
TO LEGISLATION ENACTED IN SOUTH AFRICA, KWAGGA (PROPRIETARY) WILL BE REQUIRED TO
SELL A SUBSTANTIAL AMOUNT OF ITS STOCK, WHICH WOULD DILUTE OUR EQUITY POSITION
IN KWAGGA.





Kwagga
(Barbados) and AfriOre are actively engaged in discussions with DME officials
and others to ensure that Kwagga (Barbados) fulfills the ownership requirements
for conversion under the Act; however, the finalization of the means of
achieving that end will require greater certainty regarding the operation and
interpretation of the Act and pending related legislation.





In
accordance with the Broad-Based Socio-Economic Empowerment Charter for the South
African mining industry and under the terms of the new shareholders agreement,
as amended August 30, 2004, Kwagga (Proprietary) 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 (Proprietary)
and, accordingly, the right to receive profits generated from the FSC Project,
if any.





DOING
BUSINESS IN CHINA





Subsequent
to our fiscal year end, CGMR, our 50% owned joint venture with London Mining,
completed the acquisition of Nanjing Sudan Mining Co, Ltd. and the Xiaonanshan
Mining Co, Ltd., which constitute an operating iron ore mine and processing
plant in the Peoples Republic of China (“PRC”). Adverse changes in political and
economic policies of the PRC government could have a material adverse effect on
the overall economic growth of China, which could reduce the demand for CGMR’s
products and materially and adversely affect our investments in the PRC.
Accordingly, our financial condition and CGMR’s results of operations and
prospects could be affected significantly by economic, political and/or legal
developments in the PRC.


23


The
Chinese economy differs from the economies of most developed countries in many
respects, including:





·
            the
      amount of government involvement;


·
            the
      level of development;


·
            the
      growth rate;


·
            the
      control of foreign exchange; and


·
            the
      allocation of resources.





While the
Chinese economy has grown significantly in recent years, the growth has
been uneven, both geographically and among various sectors of the economy. The
PRC government has implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures benefit the overall
Chinese economy, but may also have a negative effect on us and CGMR. For
example, CGMR’s financial condition and results of operations, and our ability
to obtain distributions from CGMR’s operations, may be adversely affected by
government control over capital investments or changes in applicable tax
regulations.





The
Chinese economy has been transitioning from a planned economy to a more
market-oriented economy. Although in recent years the PRC government has
implemented measures emphasizing the utilization of market forces for economic
reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, a
substantial portion of the productive assets in China is still owned by the PRC
government. The continued control of these assets and other aspects of the
national economy by the PRC government could materially and adversely affect
CGMR’s business. The PRC government also exercises significant control over
Chinese economic growth through the allocation of resources, controlling payment
of foreign currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or
companies.





UNCERTAINTIES
WITH RESPECT TO THE CHINESE LEGAL SYSTEM COULD HAVE A MATERIAL ADVERSE EFFECT ON
US.





We could
conduct a substantial portion of our business through one or more China-based
entities or through third-party arrangements which may be subject to laws and
regulations applicable to foreign investment in China and, in particular, laws
applicable to foreign-owned enterprises. The PRC legal system is based on
written statutes. Prior court decisions may be cited for reference but have
limited precedential value. Since 1979, PRC legislation and regulations have
significantly enhanced the protections afforded to various forms of foreign
investments in China. However, since these laws and regulations are relatively
new and the PRC legal system continues to rapidly evolve, the interpretations of
many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involve uncertainties, which may limit legal
protections available to us. In addition, any litigation in China may be
protracted and result in substantial costs and diversion of resources and
management attention.





RESTRICTIONS
ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE ANY REVENUES
EFFECTIVELY.





Foreign
exchange transactions by companies under China’s capital account continue to be
subject to significant foreign exchange controls and require the approval of PRC
governmental authorities. There may be some restrictions for us to receive funds
from the PRC iron ore joint venture.





ITEM
1B.  UNRESOLVED STAFF COMMENTS





Not
applicable.


24


ITEM
2.  PROPERTIES





Our
corporate office is located at 900 IDS Center, 80 South Eighth Street,
Minneapolis, Minnesota 55402-8773, in which we occupy approximately 160 square
feet of office space, together with the use of related adjacent common areas,
pursuant to a lease agreement that expires May 31, 2009, which requires monthly
payments of $1,261.  We believe that our current corporate facilities
are adequate for our current needs.





On June
12, 2008, our wholly owned subsidiary, Hunter Bates Mining Corporation,
completed the acquisition of the Bates-Hunter Mine located in Central City,
Colorado, which includes a water treatment plant, headframe building and the
land, financed through a limited recourse promissory note  in the
principal amount of Cdn$6,750,000 ($5,514,703 US as of December 31,
2008).  We do not claim to have any mineral reserves at the
Bates-Hunter Mine and further development is contingent upon available
funds.





ITEM 3.  LEGAL
PROCEEDINGS





On
January 14, 2009, we were served with a complaint in the action Advanced
Drilling, Inc. v. Wits Basin Precious Minerals Inc., Hunter Bates Mining
Corporation, Hunter Gold Mining, Inc., George E. Otten, Mammoth Hill LLC
and Platinum Long Term Growth V, LLC, filed in the District Court, County of
Gilpin, Colorado.  The complaint alleges claims of breach of contract,
unjust enrichment and mechanic's lien foreclosure.  Advanced Drilling
seeks, among other unspecified damages, payment of approximately $409,000
(recorded in Other Accrued Expenses as of December 31, 2008) it believes it is
entitled pursuant to a contract with the Company for services and materials used
in mining exploration completed in Gilpin County, Colorado, and further seeks to
foreclose on the property upon which the services and work were provided if the
suit is successful.   The Company and Advanced Drilling have been in
discussions to resolve the matter, and the Company currently anticipates that
the matter will be resolved out of court.





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





None.


25


PART
II





ITEM
      5.
              MARKET FOR
      REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES





PRICE RANGE OF COMMON
STOCK





Our
common stock is quoted on the OTCBB under the symbol “WITM.”  As of
April 9, 2009 the last closing bid price of our common stock as reported by
OTCBB was $0.07 per share. The following table sets forth for the periods
indicating the range of high and low bid prices of our common
stock:





Period
                  
                  High
                  
                  
                  LowQuarter
      Ended March 31, 2007
                  
                  $
                  1.26
                  
                  
                  $
                  0.26Quarter
      Ended June 30, 2007
                  
                  $
                  1.27
                  
                  
                  $
                  0.76Quarter
      Ended September 30, 2007
                  
                  $
                  0.98
                  
                  
                  $
                  0.21Quarter
      Ended December 31, 2007
                  
                  $
                  0.30
                  
                  
                  $
                  0.15Quarter
      Ended March 31, 2008
                  
                  $
                  0.33
                  
                  
                  $
                  0.18Quarter
      Ended June 30, 2008
                  
                  $
                  0.25
                  
                  
                  $
                  0.14Quarter
      Ended September 30, 2008
                  
                  $
                  0.21
                  
                  
                  $
                  0.10Quarter
      Ended December 31, 2008
                  
                  $
                  0.15
                  
                  
                  $
                  0.05Quarter
      Ended March 31, 2009
                  
                  $
                  0.13
                  
                  
                  $
                  0.05





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
April 10, 2009, there were approximately 170 record holders of our common stock,
excluding shareholders holding securities in “street name.” Based on securities
position listings, we believe that there are approximately 3,200 beneficial
holders of our common stock in “street name.”





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 future
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 Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K during fiscal year ended
2008, we made the following sales of unregistered securities during the quarter
ended December 31, 2008.





In
October 2008, we authorized the continuance of a consulting agreement with an
unaffiliated public and investor relations consultant and issued an aggregate of
300,000 shares of our unregistered common stock.


26





In
October and December 2008, Platinum Long Term Growth V, LLC converted $147,650
of its senior secured convertible promissory note into 2,034,846 shares of our
unregistered common stock.





On
December 24, 2008, we issued 1,000,000 shares of our unregistered common stock
pursuant to a right-to-purchase option, which was exercised by Pacific Dawn
Capital, LLC. The right-to-purchase was set to expire on December 31, 2008 and
in order to induce Pacific Dawn to exercise their right, we reduced the exercise
price to $0.06 per share (the original exercise price was $0.20 per share, being
reduced in September 2007 to $0.15 per share and again in December 2007 to $0.10
per share). This right-to-purchase option was granted to Pacific Dawn stemming
from financing transactions from 2005.  Donald S. Stoica, a member of
our Board of Directors (effective April 2008) is a principal in Pacific
Dawn.





Except as
noted above, sales of the securities identified above were made pursuant to
privately negotiated transactions that did not involve a public offering of
securities and, accordingly, we believe that these transactions were exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof and rules promulgated thereunder. Based on representations from the
above-referenced investors, we have determined that such investors were
“accredited investors” (as defined by Rule 501 under the Securities Act) and
were acquiring the shares for investment and not distribution, and that they
could bear the risks of the investment and could hold the securities for an
indefinite period of time. The investors received written disclosures that the
securities had not been registered under the Securities Act and that any resale
must be made pursuant to a registration or an available exemption from such
registration. All of the foregoing securities are deemed restricted securities
for purposes of the Securities Act.





ITEM 6.  SELECTED
FINANCIAL DATA





Not
applicable.





ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
following discussion should be read in conjunction with the Financial Statements
of the Company and notes thereto included elsewhere in this Annual
Report.  See “—Financial Statements.”





Readers
are cautioned that the following discussion contains certain forward-looking
statements and should be read in conjunction with the “Special Note Regarding
Forward-Looking Statements” appearing at the beginning of this Annual
Report.





As of
December 31, 2008, we own a past producing gold mine in Colorado (Bates-Hunter
Mine), a 35% equity interest in Kwagga Gold (Barbados) Limited, which holds
rights to properties located in South Africa (the FSC Project) through its
wholly owned subsidiary and certain rights in the Vianey Concession in
Mexico.





On June
12, 2008, we completed the acquisition of the Bates-Hunter Mine, a prior
producing gold mine located in Central City, Colorado, which included real
property, mining claims, permits and equipment (the “Bates-Hunter
Mine”).  We consummated the acquisition by transferring our right to
purchase the Bates-Hunter Mine to a newly created wholly owned subsidiary of
ours, the Hunter Bates Mining Corporation, pursuant to a formal asset purchase
agreement dated September 20, 2006, in which we issued a limited recourse
promissory note for Cdn$6,750,000 and issued 3,620,000 shares of our common
stock.  Through August of 2008, approximately 12,000 feet of drilling
was accomplished, which provided detailed data, which has been added to our
existing 3-D map of the region. As of the date of this Report, we have completed
an initial surface drilling program and management is working on a revised work
program and will release details after its assessment has been
completed.


27


We hold a
35 percent equity interest in Kwagga Gold (Barbados) Limited (“Kwagga
Barbados”), which, through its wholly owned subsidiary Kwagga Gold (Proprietary)
Limited, holds mineral exploration rights in South Africa.  This
project is referred to as the “FSC Project” and is located adjacent to the
historic Witwatersrand Basin.  The last completed drillhole on the FSC
Project occurred in 2005. On December 12, 2007, we entered into an agreement
with AfriOre International (Barbados) Limited (“AfriOre”), the holder of the
other 65 percent of Kwagga Barbados, whereby we may acquire all of AfriOre’s
interest of Kwagga Barbados.  On March 3, 2008, we entered into a
letter of intent with Communications DVR Inc. (“DVR”), a capital pool company
then listed on the TSX Venture Exchange, whereby it is anticipated that DVR will
acquire the aforementioned 65 percent of Kwagga Barbados in exchange for 22
million common shares of DVR. Currently, no exploration activities are being
conducted at the FSC Project.





On
October 31, 2007, we executed an amendment to the formal joint venture agreement
with Journey Resources Corp., a corporation formed under the laws of the
Province of British Columbia (“Journey”) and Minerales Jazz S.A. De C.V., a
corporation duly organized pursuant to the laws of Mexico and a wholly owned
subsidiary of Journey. Pursuant to the terms of the amendment, we own a 50
percent undivided beneficial interest in “located mineral claims” in the
property known as the Vianey Mine Concession located in the State of Guerrero,
Mexico (“Vianey”).  In addition to located mineral claims, our
interest includes all surface rights, personal property and permits associated
with Vianey and all other claims, leases and interests in minerals acquired
within two kilometers of the external perimeter of Vianey.  All work being
performed at Vianey is under the supervision of Journey, which mainly consists
of cleaning the site for a future work program.





During
all of fiscal 2008 and a great majority of 2007, we have expended enormous time
and a substantial investment of our financial resources to acquire certain
mining properties located in the People’s Republic of China. In our endeavors,
we entered into various agreements with gold, nickel and iron ore property
owners. As of December 31, 2008, our only outstanding agreements were with iron
ore projects. Subsequently, on March 17, 2009, the Company and London Mining Plc
entered into a joint venture created for the purpose of acquiring certain of
those iron ore properties. That joint venture entity, China Global Mining
Resources (BVI) Ltd., a British Virgin Islands corporation, (which we hold a 50%
equity interest in) and through its wholly owned subsidiary, China Global Mining
Resources Ltd., a Hong Kong corporation acquired the Nanjing Sudan Mining Co.
Ltd. and Xiaonanshan Mining Co. Ltd.  See Note 20 to our annual
financial statements for the years ended December 31, 2008 and 2007 included
elsewhere in this Annual Report for details of the acquisitions.





RESULTS
OF OPERATIONS





FOR
THE YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED DECEMBER 31,
2007.





Revenues





We had no
revenues from continuing operations for the years December 31, 2008 and 2007.
Furthermore, we do not anticipate having any significant 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 $7,631,564 for 2008 as compared to $6,953,591
for 2007. Of the $7,631,564 recorded for general and administrative expenses in
2008, approximately $2,185,000 relates to our due diligence processes on the
China mining properties (travel and visa requirements, site visits and
significant costs with consultants and attorneys), $1,752,000 relates to public
relations services, consulting fees and shareowner services and $2,210,000
relates to non-cash compensation charges for options, warrants and common stock
issuances and/or modifications.  Of the $6,953,591 recorded for
general and administrative expenses in 2007, approximately $2,251,780 relates to
our due diligence processes on the China mining properties (travel and visa
requirements, site visits and significant costs with consultants and attorneys),
$2,353,642 relates to public relations services, consulting fees and shareowner
services and $1,299,005 relates to non-cash compensation charges for options,
warrants and common stock issuances and/or modifications. We anticipate that our
operating expenses will increase over the next fiscal year due to our continued
plans to develop or obtain additional exploration projects.


28


Exploration
expenses relate to the issuance of stock and warrants for acquiring mining
rights and cash expenditures being reported on the work-in-process from the
various project operators. Based on our success in obtaining dedicated funds and
the timeframe for receipt of such funds, we could anticipate the rate of
spending for fiscal 2009 Bates-Hunter Mine exploration expenses to
increase.





Components
of exploration expenses are as follows:





Years Ended December 31,
                
                
                May 1, 2003
                  (inception) toDecember 31,2008
                
                
                2007
                
                
                2008Expenditures
      related to Bates-Hunter Mine
                
                $
                1,412,154
                
                
                $
                1,938,387
                
                
                $
                5,072,661Expenditures
      related to Vianey
                
                
                —
                
                
                
                136,820
                
                
                
                645,106Expenditures
      related to other projects
                
                
                27,582
                
                
                
                89,701
                
                
                
                337,106Issuance
      of shares and warrant expense  (1)
                
                
                185,282
                
                
                
                590,583
                
                
                
                1,094,596Issuance
      of shares to Hawk USA
                
                
                —
                
                
                
                —
                
                
                
                4,841,290$
                1,625,018
                
                
                $
                2,755,491
                
                
                $
                11,990,759





(1) During 2008, we issued a three-year
warrant to purchase up to 750,000 shares of our common stock with an exercise
price of $0.20 per share valued at $185,282 (using the Black-Scholes pricing
model to calculate the fair value) relating to the Bates-Hunter
Mine.  During 2007, we issued 2,100,000 shares of common stock valued
at $560,000 to obtain the rights to the Vianey project and 100,000 shares of
common stock valued at $27,000 to a vendor for extending payment terms for
drilling services and recorded $3,583 in warrant expense for Bates-Hunter Mine
consultants.





Depreciation
for 2008 was $65,142 as compared to $16,050 for 2007, which represents
straight-line depreciation of fixed assets purchased for work being performed at
the Bates-Hunter Mine. We will recognize more depreciation expense in 2009
compared to 2008 due to the assets purchased with the closing of the
Bates-Hunter Mine in June 2008.





We
incurred costs for the uncompleted and terminated merger with Easyknit totaling
$1,238,619 for the year ended December 31, 2007. These costs represent fees
charged by our Hong Kong and US attorneys, various Hong Kong advisors and other
litigation costs.





We
recorded gains of $95,820 on the sale of two mining projects for the year ended
December 31, 2007.  In June 2003, we acquired the Holdsworth Project
from Hawk Uranium Inc. and in September 2007, we sold all of our rights and
claims in Holdsworth back to Hawk for Cdn$50,000 ($47,260 US). In June 2006, we
acquired an interest in five mining claims held by Hawk and in October 2007, we
sold our interest to both Hawk and MacDonald Mines for an aggregate sale price
of Cdn$50,000 ($48,560 US).





We
recorded $12,362 in losses related to certain assets that became damaged and
un-repairable, which were being utilized for de-watering at the Bates-Hunter
Mine site.





We
recorded $18,012 in losses related to a $60,000 advance of funds to the FSC
project in which we own a 35% interest. AfriOre informed us that they would not
be providing any additional funding and that it was our responsibility to
maintain the permits and land claims of the FSC Project. Therefore, in November
2008, we entered into a bridge financing arrangement with Hawk, whereby Hawk
made a loan to the Company of $60,000. We will recognize 100% of this $60,000
advance as an equity loss in an unconsolidated affiliate to coincide with the
funds being dispersed by Kwagga, all of which relate to such permit and land
claim maintenance.


29


Other
Income and Expenses





Our other
income and expense consists of interest income, interest expense, gains from
sale of marketable investment, losses recognized from the extinguishment of debt
and non-cash foreign currency adjustments. Other income for 2008 was $813 of
interest income, and $70,117 for 2007 (which included a $65,580 gain from sale
of marketable investments and $4,537 of interest income).





Interest
expense for 2008 was $3,292,448 and for 2007 it was $1,061,383. Interest expense
relates primarily to interest on significant new debt, extensions to debt
agreements and additional rights granted to the promissory note holders.
Components of interest expense for 2008 were: $1,333,604 in principal loan
interest and $1,958,844 representing the amortization of original issue discount
and beneficial conversion feature costs relating to the issuance of common stock
and warrants in connection with our loans. Components of interest expense for
2007 were: $529,294 in principal loan interest and $532,089 representing the
amortization of original issue discount relating to the issuance of common stock
and warrants in connection with notes payable.





During
the year ended December 31, 2008, various loans with China Gold, LLC were
refinanced several times, primarily to terminate the conversion feature, combine
the notes into one consolidated note, and extend the terms for an additional 13
months.  The refinancings included the issuance of 39,200,000 warrants
and were accounted for as an extinguishment of the old debt and a re-issuance of
new debt, resulting in a net loss on extinguishment of $1,485,558.





With the
consummation of the Bates-Hunter Mine acquisition in June 2008, we are recording
direct non-cash gains and losses due to our dealings with the recourse
promissory note in the amount of Cdn$6,750,000.  We recorded a
$1,222,082 gain for the period from June 12, 2008 (acquisition date) to December
31, 2008 due to the exchange rate between the US Dollar and the Canadian Dollar
as of December 31, 2008.





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 securities and
debt financing. We do not anticipate generating sufficient net positive cash
flows from our operations to fund the next twelve months. We had a working
capital deficit of $4,773,964 at December 31, 2008, compared to $11,393,352 at
December 31, 2007.  Cash and equivalents were $230,729 at December 31,
2008, representing an increase of $100,248 from the cash and equivalents of
$130,481 at December 31, 2007.





For the
years ended December 31, 2008 and 2007, we had net cash used in operating
activities of $5,134,235 and $6,666,746, respectively. Our primary capital
requirements have been the funding of our entrance into Chinese business
opportunities. We entered into and terminated a merger transaction with Easyknit
Enterprises Holdings Limited during 2007 and we recorded $1.2 million of direct
merger expenses for the year ended December 31, 2007.  During 2008, we
had interest expense of $1.3 million, we recorded $2.1 million of expense
directly related to acquisition of PRC properties and expended $1.4 million
towards exploration efforts.





For the
year ended December 31, 2008, we had net cash provided by investing activities
of $1,397,214 and we had net cash used in investing activities of $6,823,710 for
the comparative year in 2007.  Our primary investing requirements have
been the funding of our entrance into PRC business opportunities. During 2007,
we had invested $7 million in two PRC properties: $2 million for a nickel
operation and the $5 million into the PRC iron ore mining properties in order to
secure future rights to purchase.  During 2008, we terminated the
agreement for the nickel mine and received $1.85 million of the original $2
million invested as a partial refund.


30


For the
years ended December 31, 2008 and 2007, we had net cash provided by financing
activities of $3,837,269 and $13,535,027, respectively. During 2007, (i) through
the sale of common stock (net of offering costs related to the private
placements) and the exercise of options and warrants, we raised $3.6 million,
(ii) we received cash proceeds of $11.2 million from debt financing and (iii)
repaid $1.3 million of debt. During 2008, (i) through the sale of common stock
(net of offering costs related to the private placements) and the exercise of
warrants, we raised $1.5 million, (ii) we received cash proceeds of $3.0 million
from debt financing and (iii) repaid $555,000 of debt.





The
following table summarizes the Company’s debt as of December 31,
2008:





Face Amount
                
                
                Accrued Interest
                
                Maturity Date
                
                Type$
                110,000
                
                
                $
                5,349
                
                December
      8, 2008 (7)
                
                Conventional$
                50,000
                
                
                $
                564
                
                December
      31, 2008 (7)
                
                Conventional$
                822,350
                (1)
                
                $
                48,072
                
                February
      11, 2009 (7)
                
                Convertible
      (2)$
                110,000
                
                
                $
                11,651
                
                March
      31, 2009 (7)
                
                Convertible
      (3)$
                60,000
                
                
                $
                808
                
                April
      20, 2009
                
                Conventional$
                1,000,000
                
                
                $
                23,653
                
                August
      22, 2009
                
                Convertible
      (4)$
                10,421,107
                
                
                $
                31,520
                
                February
      15, 2010
                
                Conventional$
                5,139,637
                (5)
                
                
                
                (6)
                December
      31, 2015
                
                Conventional





1.
            The
      original face amount was $1,020,000, less $197,650 converted during
      2008.


2.
            Convertible
      at the lesser of $0.18 per share or 85% of the lowest VWAP
      (volume-weighted average price) for the 10 trading days preceding the
      conversion notice date.


3.
            Convertible
      at $0.20 per share.


4.
            As
      of December 31, 2008, convertible at $0.20 per share. Effective March 17,
      2009, with the consummation of the PRC iron ore properties (in a joint
      venture transaction with London Mining) the conversion price was reduced
      to $0.10 per share.


5.
            Includes
      $204,248 (the equivalent of Cdn$250,000) of current portion due April 30,
      2009.


6.
            Interest
      does not begin accruing until January 1,
2010.


7.
            Currently
      past due and being renegotiated; original terms apply in the default
      period.





Summary





Our
existing sources of liquidity will not provide enough cash to fund operations
for the next twelve months.  As of the date of this Annual Report, we
have estimated our cash needs over the next twelve months to be approximately
$10,000,000 (which includes approximately $2,400,000 for repayment of debt
during 2009, assuming some or all of such notes are not converted into equity
prior to maturity.  Additionally, should any projects or mergers be
completed during 2009, additional funds will be required.  We will
continue our attempt to raise additional capital.  Some of the
possibilities available to us are through private equity transactions, to
develop a credit facility with a lender or the exercise of options and warrants.
However, such additional capital may not be available to us at acceptable terms
or at all.  In the event that we are unable to obtain additional
capital, we would be forced to reduce operating expenditures and/or cease
operations altogether.





Foreign Exchange
Exposure





Since our
entrance into the metals and minerals arena, we have had very limited dealings
with foreign currency transactions, even though most of our transactions have
been with foreign entities. Most of the funds requests have required US Dollar
denominations. Even though we may not record direct losses due to our dealings
with market risk, we have an associated reduction in the productivity of our
assets.


31


Off-Balance Sheet
Arrangements





During
the year ended December 31, 2008, we did not engage in any off balance sheet
arrangements as defined in item 303(a)(4) of the SEC’s Regulation
S-K.





ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM 8.  FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA





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-K beginning on page F-1, which follows the signature page.





ITEM
      9.
              CHANGES IN AND
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.





ITEM
9A(T).  CONTROLS AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures





We
maintain disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in our reports filed
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer as appropriate, to allow
timely decisions regarding required disclosures. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance the objectives of the control system are met.
 
 As of
December 31, 2008, our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures as such term is defined
in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were not effective as of December 31, 2008,
because of the identification of the material weaknesses in internal control
over financial reporting described below. Notwithstanding the material
weaknesses that existed as of December 31, 2008, our Chief Executive Officer and
Chief Financial Officer have each concluded that the consolidated financial
statements included in this Annual Report on Form 10-K present fairly, in all
material respects, the financial position, results of operations and cash flows
of the Company and its subsidiaries in conformity with accounting principles
generally accepted in the United States of America (“GAAP”). We are currently
taking steps to remediate such material weakness as described
below.
 
 Since we
do not have a formal audit committee, our 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.
  32
 Management’s Report on
Internal Control over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
set of processes designed by, or under the supervision of, a company’s principal
executive and principal financial officers, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP and includes
those policies and procedures that:
 
 ·
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect our transactions and dispositions of our
      assets;
 
 ·
              Provide
      reasonable assurance our transactions are recorded as necessary to permit
      preparation of our financial statements in accordance with GAAP, and that
      receipts and expenditures are being made only in accordance with
      authorizations of our management and directors;
  and
 
 ·
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statement.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. It should be noted that any system of internal
control, however well designed and operated, can provide only reasonable, and
not absolute, assurance that the objectives of the system will be met. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting based on criteria
established in “Internal Control-Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), as of December
31, 2008.
 
 33
 As a
result of the material weaknesses described below, management has concluded
that, as of December 31, 2008, our internal control over financial reporting was
not effective based on the criteria in “Internal Control-Integrated Framework”
issued by COSO.
  Material Weakness in
Internal Control over Financial Reporting
 
 As
disclosed in our annual report on Form 10-K for the fiscal year ended
December 31, 2007, management identified certain material weaknesses in our
internal control over financial reporting. A material weakness is a control
deficiency, or combination of control deficiencies, that results in more than a
remote likelihood that a material misstatement of annual or interim financial
statements will not be prevented or detected. In connection with the assessment,
management identified the following control deficiencies that represent material
weaknesses at December 31, 2007:
 
 ·
                Management
      did not design and maintain effective control relating to the quarter end
      closing and financial reporting process due to lack of evidence of review
      surrounding various account reconciliations and properly evidenced journal
      entries.  Due to the Company’s limited resources, the Company
      has insufficient personnel resources and technical accounting and
      reporting expertise to properly address all of the accounting matters
      inherent in the Company’s global financial
      transactions.  Numerous GAAP audit adjustments were made to the
      financial statements for the year ended December 31,
      2007.  Additionally, the Company does not have a formal audit
      committee with a financial expert, and thus the Company lacks the board
      oversight role within the financial reporting process.  This
      material weakness was not corrected during 2008 and additional GAAP audit
      adjustments were made to the financial statements for the year ended
      December 31, 2008.  Management continues to search for
      additional board members that are independent and can add financial
      expertise, in an effort to remediate this
  weakness.
 
 ·
                The
      Company’s small size and “one-person” office prohibits the segregation of
      duties and the timely review of financial data and banking
      information.   The Company has very limited review
      procedures in place.  This material weakness was not corrected
      during 2008.  Management plans to establish a more formal review
      process by the board members in an effort to reduce the risk of fraud and
      financial misstatements.
 
 ·
                During
      2007, the Company entered into several material acquisition transactions
      without timely obtaining the appropriate signed agreements, stock
      certificates and board approval prior to releasing cash funds called for
      by the transaction.  There were no formal policy changes made in
      2008 because no similar transactions were encountered during
      2008.  Management believes the approval process currently in
      place is sufficient to alleviate any misappropriation of funds and will
      change procedures if and when circumstances indicate they are
      needed.
  We
undertook several steps in response to the identification of these material
weaknesses that resulted in certain changes over the past twelve months in our
internal control over financial reporting, but due to the Company’s limited
funds and inability to add certain staff personnel, the changes were limited and
not all completely effective.  Management continues to discuss
additional entity-level controls it can establish in an effort to address the
current lack of segregation of duties.  There were no additional
material weaknesses noted during 2008.
 This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
SEC that permit us to provide only management’s report in this annual
report.
 
 Changes in Internal Control
over Financial Reporting
 
 During
the fiscal quarter ended December 31, 2008, there was no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.




ITEM 9B.  OTHER
INFORMATION





None.


34


PART
III





ITEM
      10.
              DIRECTORS, EXECUTIVE
      OFFICERS AND CORPORATE
GOVERNANCE





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 April 13, 2009:





Name
                
                Age
                
                Positions with the
  CompanyH.
      Vance White
                
                64
                
                ChairmanStephen
      D. King
                
                52
                
                Chief
      Executive Officer and DirectorDr.
      Clyde L. Smith
                
                72
                
                PresidentMark
      D. Dacko
                
                57
                
                Chief
      Financial Officer and SecretaryNorman
      D. Lowenthal
                
                71
                
                DirectorJoseph
      Mancuso
                
                67
                
                DirectorDonald
      Stoica
                
                51
                
                Director





H. Vance
White was elected Chairman of the Board effective September 15, 2006 and has
served as a director since June 26, 2003. Mr. White also served as our Chief
Executive Officer from June 26, 2003 to September 15, 2006. Since January 2003,
Mr. White has also served as President of Hawk Uranium 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 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 40-50 percent of his time to the affairs of our
Company.





Stephen
D. King was appointed Chief Executive Officer effective September 15, 2006 and
has served as a director since July 8, 2004. Mr. King also served as our
President from May 15, 2006 to September 15, 2006. Since October 2000, Mr. King
has served as President of SDK Investments, Inc, a private investment firm
located in Atlanta, Georgia specializing in corporate finance and investing. He
has served as President, from January 1994 until July 2000 and Chairman until
October 2000, of PopMail.com, inc, a publicly traded company with businesses in
the hospitality and Internet sectors. Mr. King has no prior experience in the
mineral exploration or mining industry.





Dr. Clyde
L. Smith was appointed President effective September 15, 2006.  Since
1970, Dr. Smith has been sole owner and operator of CL Smith Consultants, an
independent geological consulting firm.  Dr. Smith holds a B.A. from
Carleton College, a M.Sc. from the University of British Columbia, and a Ph.D.
from the University of Idaho. Dr. Smith is a registered Professional Engineer
with the Association of Professional Engineers and Geoscientists of British
Columbia.  Dr. Smith has founded or co-founded five exploration
companies and is responsible for the discovery of four deposits: the Jason
lead-zinc-silver deposit, Yukon Territory, Canada; the Santa Fe gold deposit,
Nevada; the North Lake gold deposit, Saskatchewan, Canada; and the Solidaridad
gold-silver-copper deposit, Mexico.


35


Mark D.
Dacko has served as our Chief Financial Officer and Secretary since March 2003
and he served as our Controller from February 2001 to March 2003. Mr. Dacko also
served as a board member from June 2003 until April 10, 2008. 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
mineral exploration or mining industry.





Norman D.
Lowenthal was appointed to our board of directors on September 4,
2003.  Mr. Lowenthal is the past Chairman of the Johannesburg Stock
Exchange, for the years 1997 to 2000.  Since April 1997 to the
present, he has served as a member of the Securities Regulation Panel of South
Africa.  Mr. Lowenthal was the Chairman of SSC Mandarin Financial
Services Ltd for the period 2001 to 2007. Mr. Lowenthal is Vice-Chairman of the
Taylor Companies, a private bank located in Washington, D.C., serving since
2002.  Mr. Lowenthal has been involved in the mining industry since
1960. He has served as chairman of several listed companies in this field,
including in particular, gold and diamond producing companies.





Joseph
Mancuso was appointed to our board of directors on September 22, 2007. In 1977,
Mr. Mancuso founded The Chief Executive Officers Club, Inc, a non-profit
organization with chapters in the United States and abroad that is dedicated to
the continuing education of entrepreneurial managers, and has served as its
Chief Executive Officer since that time. In 1977, Mr. Mancuso also founded the
Center for Entrepreneurial Management, Inc, a non-profit organization. Mr.
Mancuso received a Ph. D. in Educational Administration from Boston University,
an MBA from the Harvard Business School, and a degree in Electrical Engineering
degree from Worcester Polytechnic Institute in Massachusetts.





Donald
Stoica was appointed to our board of directors on April 10, 2008. In February
1999, Mr. Stoica founded SSR Engineering, Inc, which is a privately held
corporation based in Anaheim, California that develops high performance radar
systems for use in security, navigation, defense and related applications. Mr.
Stoica has served as President and Chief Executive Officer of SSR Engineering
since its inception. From 1975-1998, Mr. Stoica worked at Hughes Aircraft
Company, including a Technical Director.  Mr. Stoica received his B.S.
in Electrical Engineering from California Polytechnic State University in
Pomona, California and his Masters Degree in Electrical Engineering from the
University of Southern California in Los Angeles, California. Mr. Stoica is also
a principle in Pacific Dawn Capital LLC, a company which we have had various
financing transactions with since 2005.





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





Significant
employee





William
B. Green has served as our President of Asia Operations since February 2007. Mr.
Green is a graduate of the University of Pennsylvania’s Wharton School of
Business.  Mr. Green has more than 15 years experience of working and
living in Asia and led efforts to establish joint venture partnerships on behalf
of American Standard Companies Inc. and Kohler Industries.





CODE
OF ETHICS





We have
adopted a Code of Ethics that applies to our principal executive officer,
principal financial officer and persons performing similar functions. The Code
of Ethics is available on our website at www.witsbasin.com.  If we
make any substantive amendments to the Code of Ethics or grant any waiver from a
provision of the Code of Ethics to an executive officer or director, we will
promptly disclose the nature of the amendment or waiver by filing with the SEC a
current report on Form 8-K.


36


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 2007 and 2008 were
filed on a timely basis, except for the following:





Joseph
Mancuso filed a Form 4 on October 2, 2007 relating to a transaction on September
24, 2007.


Stephen
King filed a Form 4 on June 2, 2008 relating to a transaction on March 12,
2007.


Joseph
Mancuso filed a Form 5 on June 3, 2008 relating to a transaction on December 31,
2007.


Mark
Dacko filed a Form 4 on March 6, 2009 relating to a transaction on April 10,
2008.





AUDIT
COMMITTEE AND FINANCIAL EXPERT





The
Company does not have a formal audit committee with a financial expert;
therefore our Board of Directors as a group acts in the capacity as the audit
committee. There were no audit committee meetings held during 2008. Financial
information relating to quarterly reports was disseminated to all board members
for review. The audited financial statements for the years ended December 31,
2008 and 2007 were provided to each member of the board in which any concerns by
the members were directed to management and the auditors.





ITEM
11.  EXECUTIVE COMPENSATION





SUMMARY
COMPENSATION TABLE





The
following table summarizes the compensation earned for services rendered in all
capacities by our chief executive officer and the other highest-paid executive
officers whose total compensation for the fiscal years ended December 31, 2008
and 2007 exceeded $100,000. No other executive officer of ours received
compensation in excess of $100,000 during fiscal year 2008.





Annual CompensationOption
              
              
              All OtherName and Principal Position
              Year
              
              Salary
              
              
              Bonus
              
              
              Awards (1)
              
              
              Compensation
              
              
              Total ($)Chief
      Executive OfficerStephen
      D. King
              2008
              
              $
              60,000
              
              
              $
              —
              
              
              $
              1,501,748
              
              
              $
              367,500
              (2)
              
              $
              1,929,2482007
              
              $
              60,000
              
              
              $
              —
              
              
              $
              420,345
              
              
              $
              171,745
              (3)
              
              $
              652,090PresidentDr.
      Clyde Smith
              2008
              
              $
              120,000
              
              
              $
              —
              
              
              $
              122,875
              
              
              $
              —
              
              
              $
              242,8752007
              
              $
              120,000
              
              
              $
              —
              
              
              $
              122,874
              
              
              $
              —
              
              
              $
              242,874Chief
      Financial OfficerMark
      D. Dacko
              2008
              
              $
              130,875
              
              
              $
              —
              
              
              $
              38,709
              
              
              $
              —
              
              
              $
              169,5842007
              
              $
              120,000
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              120,000President
      of Asia OperationsWilliam Green (4)
              2008
              
              $
              120,000
              
              
              $
              —
              
              
              $
              212,443
              
              
              $
              —
              
              
              $
              332,4432007
              
              $
              103,288
              
              
              $
              —
              
              
              $
              601,922
              
              
              $
              —
              
              
              $
              705,210





(1)
            Amount
      reflects the dollar amount recognized for financial statement reporting
      purposes for the fiscal years ended December 31, 2008 and 2007 in
      accordance with SFAS 123(R) of stock option awards, and may include
      amounts from awards granted in and prior to fiscal years 2007 and 2006.
      Assumptions used in the calculation of this amount for employees are
      identified in Note 16 to our annual financial statements for the years
      ended December 31, 2008 and 2007 included elsewhere in this Annual
      Report.


37


(2)
            Includes
      the following compensation: (i) pursuant to the employment agreement with
      Mr. King, he is entitled to receive up to $75,000 annually in lieu of any
      employee benefits, of which $68,750 was paid during 2008, (ii) $153,750
      paid to Corporate Resource Management, Inc, an entity wholly owned by Deb
      King, the spouse of Mr. King, pursuant to an amended and restated
      consulting agreement with Corporate Resource Management, executed in
      November 2008 relating to services provided to the Company and (iii)
      $145,000 (calculated using the Black Scholes pricing model) related to the
      extension of two warrants held by Mr. King’s spouse, such extension was
      negotiated as part of his employment
agreement.


(3)
            Includes
      the following compensation:  (i) $80,000 received pursuant to a
      consulting agreement dated January 27, 2005 with Mr. King for consulting
      services relating to strategic merger, acquisition and corporate advice
      with regard to the Company’s Colorado mining opportunities, (ii) $37,183
      in reimbursements to Mr. King for administrative assistance obtained by
      Mr. King for his Atlanta office; and (iii) $75,000 paid to Corporate
      Resource Management, Inc, an entity wholly owned by Deb King, the spouse
      of Mr. King, pursuant to a consulting agreement with Corporate Resource
      Management relating to its services to the Company to provide investment
      banking services relating to the purchase and sale of mining related
      assets.


(4)
            Mr.
      Green was hired as our President of Asia Operations effective February 19,
      2007.





EXECUTIVE
EMPLOYMENT AGREEMENTS





We have
entered into employment agreements with certain of our executives which include
provisions that entitle those executives to receive severance payments in
specified cases of termination without cause or change of control of the
Company. In the event that our executives qualify for severance payments, such
payments would be made on a monthly basis.





Stephen D.
King





On May
29, 2008, we entered into an employment agreement with Mr. King, our Chief
Executive Officer.  The term of the agreement is for a period of three
years, with automatic one-year renewals, subject to either party’s right to
terminate upon 30-day written notice.  Mr. King is entitled to a base
salary of $5,000 per month, and is eligible for an annual bonus at the
discretion of the Company’s compensation committee.  Mr. King is
further entitled to up to $75,000 annually in lieu of any employee benefits,
such amount to be payable in monthly installments and to be used by Mr. King in
his discretion.  In the event Mr. King is terminated by the Company
for any reason other than death or for “Cause” (as defined in the agreement), he
will be entitled to receive his accrued and unpaid compensation to the time of
the termination plus: (i) in the event the termination occurs prior to the first
anniversary of the agreement, $56,250 in cash; (ii) in the event the termination
occurs on or after the first anniversary of the agreement but prior to the
second anniversary, $112,500 in cash; (iii) in the event the termination occurs
on or after the second anniversary of the agreement but prior to the third
anniversary, $168,750 in cash; or (iv) in the event the termination occurs on or
after the third anniversary of this agreement, $225,000 in cash.  The
agreement includes standard confidentiality provisions, as well as a
non-competition and non-solicitation provision that runs for three months in the
event his employment with the Company is terminated prior to the first
anniversary of the agreement, and increases by a period of three months for each
additional year of service under the agreement to a maximum of one year in the
event the agreement is terminated on or following the three-year anniversary of
the agreement.





Pursuant
to the agreement, we issued Mr. King a ten-year option to purchase 2,000,000
shares of our common stock at an exercise price of $0.20 per
share.  The option shall vest in three equal annual installments
commencing on the first anniversary of the date of grant. The vesting of the
option shall accelerate (i) at such time the closing price of the Company’s
common stock (as quoted on the OTCBB or an exchange) remains at or above $1.00
per share for 30 trading days, (ii) upon Mr. King’s death, (iii) upon the
occurrence of a change of control or (iv) upon the Company’s termination of Mr.
King’s employment for any reason other than Cause (and there was no acceleration
due to (i) through (iv) as of December 31, 2008). Effective May 29, 2008, Mr.
King transferred the option agreement into the name of his spouse, Deborah
King.


38


Furthermore
and in consideration of the parties’ entry into the employment agreement, the
Company entered into an Amended and Restated Stock Option Agreement (the
“Amended Option Agreement”) with Deborah King, amending the terms of an option
agreement originally entered into with Mr. King dated March 9, 2007 (the
“Original Option”) but subsequently transferred to Deborah King on March 12,
2007.  The Amended Option Agreement amends the terms of the option to
purchase 3,000,000 shares of our common stock at an exercise price of $1.02 per
share to change the vesting schedule to provide for vesting in three equal
annual installments commencing March 9, 2008. Additionally, the Amended
Option Agreement provides that the vesting of the option shall accelerate (i) at
such time the closing price of the Company’s common stock (as quoted on the
OTCBB or an exchange) remains at or above $1.00 per share for 30 trading days,
(ii) upon Mr. King’s death, (iii) upon the occurrence of a change of control or
(iv) upon the Company’s termination of Mr. King’s employment for any reason
other than Cause (there was no acceleration due to (i) through (iv) as of
December 31, 2008).





Mark D.
Dacko





On April
10, 2008, we entered into an employment agreement with Mr. Dacko, our Chief
Financial Officer.  The term of the agreement is for a period of three
years, with automatic one-year renewals, subject to either party’s right to
terminate upon 30-day written notice.  Mr. Dacko is entitled to a base
salary of $11,250 per month and is eligible for an annual bonus at the
discretion of the Company’s compensation committee.  In the event Mr.
Dacko’s employment is terminated by the Company without “Cause” (as defined in
the agreement) or he voluntarily terminates his employment within 6 months
following a “Change in Control” (as defined in the agreement), he will be
entitled to receive his accrued and unpaid compensation to the time of the
termination plus a severance payment equal to his base salary for 9 months,
payable in accordance with the Company’s normal payroll over such period. The
agreement includes standard confidentiality provisions, as well as a one-year
non-solicitation provision.





Pursuant
to the agreement, we issued to Mr. Dacko a ten-year stock option to purchase up
to 600,000 shares of our common stock at an exercise price of $0.21, the closing
price of the Company’s common stock on the day prior to the
grant.  The option shall vest in equal quarterly installments of
50,000 shares over three years, with the first 50,000 vesting on April 10,
2008.





William
Green





On
February 19, 2007, we entered into an employment agreement with Mr. Green as
President of Asia Operations.  The term of the agreement is for a
period of three years, and is terminable by either party with one year written
notice.  Under the agreement, Mr. Green is entitled to a base salary
of $10,000 per month and standard benefits provided by the Company to its
management team.  Additionally, the Company has agreed to pay Mr.
Green an advance of $10,000 and reimburse him for certain expenses in excess of
such amount relating to his relocation to Hong Kong.





The
Company further issued Mr. Green a ten-year option to purchase up to 2,500,000
shares of the Company’s common stock at an exercise price of $0.43 per share,
the fair market value of the Company’s common stock on the date of
grant.  The option shall vest in three installments as
follows:  (i) with respect to 1,000,000 shares vested in February
2007; (ii) with respect to an additional 500,000 shares on the first anniversary
of the effective date and (iii) with respect to the remaining 1,000,000 shares
on the earlier of (a) the time the Company achieves certain performance criteria
to be established by the Company’s board of directors or (b) the third
anniversary of the option grant.  The remaining 1,000,000 shares have
not vested as of December 31, 2008.  The employment agreement further
provides standard confidentiality and one-year non-competition and
non-solicitation provisions.





Except as
reported above, we have not entered into any severance or change of control
provisions with any of our executive officers.


39





OUTSTANDING
EQUITY AWARDS TABLE





No
options were exercised by our named executive officers during the year ended
December 31, 2008.  The following table sets forth information of
outstanding option awards held by named executive officers as of December 31,
2008.





Name
                                      
                                      Number of
                                        Securities
                                        Underlying
                                        Unexercised
                                        Options
                                        Exercisable
                                      
                                      
                                      Number of
                                        Securities
                                        Underlying
                                        Unexercised
                                        Options
                                        Unexercisable
                                      
                                      
                                      Equity Incentive
                                        Plan Awards;
                                        Number of
                                        Securities
                                        Underlying
                                        Unexercised
                                        Unearned
                                        Options
                                      
                                      
                                      Option
                                        Exercise
                                        Price
                                      
                                      Option
                                        Exercise
                                        DateStephen
      King(1)
                                      
                                      
                                      250,000
                                      (2)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.40
                                      
                                      07/08/14250,000
                                      (3)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.26
                                      
                                      05/02/15200,000
                                      (4)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.15
                                      
                                      10/20/152,000,000
                                      (5)
                                      
                                      
                                      1,000,000
                                      (5)
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      1.02
                                      
                                      03/09/17—
                                      
                                      
                                      
                                      2,000,000
                                      (6)
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.20
                                      
                                      05/29/18Clyde
      Smith
                                      
                                      
                                      900,000
                                      (7)
                                      
                                      
                                      600,000
                                      (7)
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.31
                                      
                                      09/15/16200,000
                                      (8)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      300,000
                                      (8)
                                      
                                      $
                                      0.31
                                      
                                      09/15/16Mark
      Dacko
                                      
                                      
                                      40,000
                                      (9)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      2.75
                                      
                                      02/05/11350,000
                                      (10)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.56
                                      
                                      07/09/13125,000
                                      (11)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.23
                                      
                                      12/29/14250,000
                                      (3)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.26
                                      
                                      05/02/15200,000
                                      (4)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.15
                                      
                                      10/20/15150,000
                                      (12)
                                      
                                      
                                      450,000
                                      (12)
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      0.21
                                      
                                      04/10/18William
      Green
                                      
                                      
                                      1,500,000
                                      (13)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      1,000,000
                                      (13)
                                      
                                      $
                                      0.43
                                      
                                      02/19/17





(1)
            All
      options have been transferred into the name of Mr. King’s
      spouse.


(2)
            Options
      vested in portions of 125,000, 62,500 and 62,500 on July 8, 2004, January
      8, 2005 and July 8, 2005,
respectively.


(3)
            Options
      vested in their entirety on May 2,
2005.


(4)
            Options
      vested in their entirety on October 20,
2005.


(5)
            Effective
      with Mr. King’s May 29, 2008 employment agreement, the options vest in
      equal portions of 1,000,000 annually commencing on March 9, 2008 pursuant
      to that certain Amended and Restated Option Agreement, which provides for
      acceleration to the vesting schedule of the remaining options under
      certain conditions.


(6)
            Options
      vest in portions of 666,667, 666,667 and 666,666 annually commencing on
      May 29, 2009, with any portion subject to acceleration immediately upon
      completion of certain material
events.


(7)
            Options
      vest in equal portions of 300,000 annually commencing on September 15,
      2006.


(8)
            Options
      vest in equal portions of 100,000 annually commencing on September 15,
      2007 subject to the achievement of objective criteria determined by the
      Board of Directors from time to time with respect to each year prior to
      the commencement of such year.


(9)
            Options
      vested in portions of 10,000, 15,000 and 15,000 on May 5, 2001, February
      5, 2002 and February 5, 2003,
respectively.


(10)
            Options
      vested in portions of 175,000, 87,500 and 87,500 on July 9, 2003, January
      9, 2004 and July 9, 2004.


(11)
            Options
      were granted by our Board of Directors for Mr. Dacko’s voluntary deferment
      of salary for a six-month period during 2004.  Options vested
      December 29, 2004.


(12)
            Options
      vest in equal quarterly installments of 50,000 shares commencing on April
      10, 2008


(13)
            Options
      vest in three installments as follows: (i) with respect to 1,000,000
      shares vested in February 2007; (ii) with respect to an additional 500,000
      shares on February 19, 2008; and (iii) with respect to the remaining
      1,000,000 shares on the earlier of (a) the time the Company achieves
      certain performance criteria to be established by the Board of Directors
      or (b) the third anniversary of the option
  grant.


40




DIRECTOR
COMPENSATION





Members
of our board who are also employees of ours receive no compensation for their
services as directors. Non-employee directors 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
consideration of Mr. Mancuso’s agreement to serve on the board, and his future
service on the board, on September 24, 2007, we awarded Mr. Mancuso a ten-year
option to purchase up to 2,000,000 shares of our common stock at an exercise
price of $0.30 per share, the closing price of our common stock on the prior
business day. The option vests in equal biannual installments of 250,000 shares
each over four years, the first installment vested March 24, 2008.





In
consideration of Mr. Stoica’s agreement to serve on the board, and his future
service on the board, on April 10, 2008, we awarded Mr. Stoica a ten-year option
to purchase up to 400,000 shares of our common stock at an exercise price of
$0.21 per share, the closing price of our common stock on the prior business
day. The option vests in equal semiannual installments of 100,000 shares each
over two years, with the first installment vesting June 30, 2008.





The
following table sets forth the compensation earned by each of our non-employee
directors for the year ended December 31, 2008:





Name
                  Year
                  
                  Option Awards (1)
                  
                  
                  All Other
                    Compensation
                  
                  
                  TotalH.
      Vance White
                  2008
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Norman
      D. Lowenthal
                  2008
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Joseph
      Mancuso
                  2008
                  
                  $
                  148,091
                  
                  
                  $
                  —
                  
                  
                  $
                  148,091Donald
      S. Stoica
                  2008
                  
                  $
                  41,290
                  
                  
                  $
                  —
                  
                  
                  $
                  41,290





(1)Amount
reflects the dollar amount recognized for financial statement reporting purposes
in accordance with SFAS 123(R) of stock option awards, relating to stock option
grants to purchase shares of our common stock, at an exercise price equal to the
fair market value of our common stock on the dates of
grant.  Assumptions used in the calculation of this amount for
non-employees are identified in Note 16 to our financial statements for the year
ended December 31, 2008 included elsewhere in this Annual Report.





ITEM
      12.
              SECURITY OWNERSHIP OF
      CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
      MATTERS





The
following information sets forth the number and percentage of shares of the
Company’s common stock owned beneficially, as of April 13, 2009, 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.


41





Name and Address
                                              
                                              Amount of Beneficial Ownership (1)
                                              
                                              
                                              Percentage of ClassH.
      Vance White
                                              
                                              
                                              4,932,500
                                              (2)
                                              
                                              
                                              3.480
      South 8th
      Street, Suite 900Minneapolis,
      MN  55402Stephen
      D. King
                                              
                                              
                                              5,366,667
                                              (3)
                                              
                                              
                                              3.680
      South 8th
      Street, Suite 900Minneapolis,
      MN  55402Mark
      D. Dacko
                                              
                                              
                                              1,215,000
                                              (4)
                                              
                                              
                                              *80
      South 8th
      Street, Suite 900Minneapolis,
      MN  55402Clyde
      L. Smith
                                              
                                              
                                              1,100,000
                                              (5)
                                              
                                              
                                              *80
      South 8th
      Street, Suite 900Minneapolis,
      MN  55402Norman
      D. Lowenthal
                                              
                                              
                                              1,000,000
                                              (6)
                                              
                                              
                                              *Private
      Bag X60Saxonwold,
      2132 South AfricaJoseph
      Mancuso
                                              
                                              
                                              777,200
                                              (7)
                                              
                                              
                                              *80
      South 8th
      Street, Suite 900Minneapolis,
      MN  55402Donald
      S. Stocia
                                              
                                              
                                              7,408,976
                                              (8)
                                              
                                              
                                              5.080
      South 8th
      Street, Suite 900Minneapolis,
      MN  55402William
      Green
                                              
                                              
                                              2,700,000
                                              (9)
                                              
                                              
                                              1.880
      South 8th
      Street, Suite 900Minneapolis,
      MN  55402All
      directors and officers as a group
                                              
                                              
                                              24,500,343
                                              
                                              
                                              
                                              15.3(8
      persons)





*
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
      1,450,000 shares issuable upon the exercise of options that are currently
      exercisable.  Also includes 3,242,500 shares held by Hawk
      Uranium USA, Inc. (f/k/a Hawk Precious Minerals USA, Inc.), a wholly owned
      subsidiary of Hawk Uranium Inc. and 240,000 shares held by Hawk Uranium
      Inc, of which Mr. White is a director and executive
    officer.


(3)
            Includes
      3,366,667 shares issuable upon the exercise of options that are currently
      exercisable or will be exercisable within 60 days and 2,000,000 shares
      issuable upon exercise of certain warrants.  All options and
      warrants have been transferred into the name of Mr. King’s
      spouse.


(4)
            Represents
      shares issuable upon the exercise of options that are currently
      exercisable or will be exercisable within 60
  days.


(5)
            Represents
      shares issuable upon the exercise of options that are currently
      exercisable.


(6)
            Includes
      700,000 shares issuable upon the exercise of options that are currently
      exercisable and 100,000 shares issuable upon exercise of certain
      warrants.


(7)
            Includes
      750,000 shares issuable upon the exercise of options that are currently
      exercisable. All options have been transferred into the name of Mr.
      Mancuso’s daughter.


(8)
            Includes
      200,000 shares issuable upon the exercise of options that are currently
      exercisable. Also includes 4,502,309 shares of common stock and 2,666,667
      shares issuable upon the exercise of certain warrants held by Pacific Dawn
      Capital, LLC, of which Mr. Stoica is a
  principal.


(9)
            Includes
      1,500,000 shares issuable upon the exercise of an option that is currently
      exercisable.


42


EQUITY
      COMPENSATION





The
following table sets forth certain information regarding equity compensation
plan information as of December 31, 2008:




Number of securitiesremaining available forfuture issuance underequity compensationNumber of securities to
                        
                        
                        Weighted-average
                        
                        
                        plans (excludingbe issued upon exercise
                        
                        
                        exercise price of
                        
                        
                        securities reflected inPlan category
                        
                        of outstanding options
                        
                        
                        outstanding options
                        
                        
                        column (a))(a)
                        
                        
                        
                        
                        
                        (b)Equity
      compensationplans
      approved bysecurity
      holders
                        
                        
                        5,343,500
                        
                        
                        $
                        0.39
                        
                        
                        
                        1,214,000Equity
      compensationplans
      not approved bysecurity
      holders
                        
                        
                        11,300,000
                        
                        
                        $
                        0.50
                        
                        
                        
                        450,000
                        (1)Total
                        
                        
                        16,643,500
                        
                        
                        $
                        0.47
                        
                        
                        
                        1,664,000





(1) These
450,000 securities were added to the 2000 Director Stock Option Plan in July
2003 (a Plan previously approved by shareholders) but not yet presented for
shareholder approval.





ITEM
      13.
              CERTAIN RELATIONSHIPS,
      RELATED TRANSACTIONS AND DIRECTOR
  INDEPENDENCE





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.





Hawk Uranium
Inc.





Our
chairman, H. Vance White, is an officer and director of Hawk Uranium
Inc.





We
entered into a Memorandum of Agreement with Hawk in June 2006, whereby we
acquired a 50% interest in the MacNugget Claims, held entirely by Hawk by
issuing Hawk 40,000 shares of our common stock, valued at $12,800. Then in
November 2006, we both sold a portion of the MacNugget Claims to MacDonald Mines
Exploration Ltd. such that Hawk and the Company each owned a 24.5%
interest.  In October 2007, we sold our 24.5% interest to both Hawk
and MacDonald for an aggregate sale price of Cdn$50,000 ($48,560 US). Other than
the common stock issued to Hawk, we had not incurred any other expenses related
to this project.





In August
2007, we entered into a management services agreement with Hawk, which agreement
expired on December 31, 2007 and required a $100,000 payment, which has been
accrued but not paid as of December 31, 2008.





On
September 19, 2007, we sold all of our rights and claims in the Holdsworth
Project to Hawk for Cdn$50,000 ($47,260 US). We acquired the Holdsworth Project
from Hawk in June 2003.  The rights we held allowed us to explore only
through a limited surface depth, with the remaining below-surface rights
belonging to Hawk. We had not expended any funds on the Holdsworth since its
acquisition. We’ve retained a one percent gross gold royalty for any gold
extracted from the limited surface depth and Hawk retains the right to purchase
one half of the royalty from us for Cdn$500,000. We have estimated that the
value of the one percent royalty is immaterial and therefore have not recorded
the possibility of a future gain.


43


In
January 2008, we entered into a new management services agreement with Hawk,
which agreement expired on December 31, 2008 and required a $100,000 payment,
which has been accrued but not paid as of December 31, 2008.





In
November 2008, we entered into a bridge financing arrangement with Hawk, whereby
Hawk made a loan to the Company of $60,000 in consideration of a 90-day
promissory note, which bears interest at a rate of 10%. The proceeds of the
financing are being expressly used to maintain the permits and land claims of
the FSC Project in South Africa. In consideration of the loan, we issued a
five-year warrant to purchase up to 250,000 shares of our common stock and
granted a security interest in our right to acquire the 65% interest in Kwagga
Barbados, subject to any existing security interest granted by us prior to
November 12, 2008.  The security interest granted is to be construed
to the fullest extent permitted without violating any term or right of any
existing security interest or any holder of such security interest granted prior
to the grant date. In March 2009, we received an extension until April 20, 2009
on the maturity date and for such extension we reduced the exercise price of the
five-year warrant from $0.125 per share to $0.0625 per share.





Stephen D.
King





Stephen
D. King is our Chief Executive Officer and a member of our Board of
Directors.





Pursuant
to certain secured convertible promissory notes with Pacific Dawn Capital, LLC
and Andrew Green entered into during 2005, Mr. King, who only served as a board
member at that time, provided personal guaranties for the repayment of these
notes. In exchange for the guaranties, we issued two warrants to purchase up to
an aggregate of 2,000,000 shares of our common stock, with an exercise price of
$0.15 per share. Mr. King subsequently assigned both of the warrants to his
spouse.  The warrants had expiration dates of October 13 and November
4, 2007. In October 2007, our board of directors authorized an extension of the
expiration dates, granting a one-year extension.  We recorded a
non-cash expense of $139,054 related to these warrant modifications. In
September 2008, our board of directors authorized an additional extension of the
expiration dates, granting a two-year extension, until October 13 and November
4, 2010. We recorded a non-cash compensation charge of $145,000 related to these
warrant modifications.





Corporate Resource
Management, Inc.





On
November 12, 2008, we entered into an amended and restated consulting agreement
with Corporate Resource Management, Inc, a Minnesota corporation
(“CRM”).  CRM is an entity wholly owned by Deborah King, the spouse of
Stephen D. King.  CRM provides the Company with investment banking
services relating to the purchase and sale of mining related
assets.  Pursuant to the agreement, CRM is entitled to a fee of
$13,750 per month, plus reimbursement of normal out-of-pocket
expenses.  The term of the agreement is for one year, with automatic
renewals unless either party provides notice of termination.  Each
party has the right to terminate the agreement with a 30-day written notice,
provided that CRM is entitled to a $75,000 termination fee if the agreement is
terminated by the Company without cause. The amended agreement superseded in its
entirety the terms of the prior consulting agreement with CRM dated May 15,
2006.  Pursuant to the amendment, the Company eliminated a provision
for potential payment of commissions of up to two percent of the value of any
asset transactions completed during the term of the agreement and for a period
of one year following termination. For the years ended December 31, 2008 and
2007, we paid $153,750 and $120,000, respectively, pursuant to the terms of the
consulting agreement.





Pacific Dawn Capital
LLC





Donald S.
Stoica became a member of our Board of Directors effective April 2008 and he is
a principle in Pacific Dawn Capital LLC.


44


On
December 24, 2008, we issued 1,000,000 shares of our unregistered common stock
pursuant to a right-to-purchase option, which was exercised by Pacific Dawn. The
right-to-purchase was set to expire on December 31, 2008 and in order to induce
Pacific Dawn to exercise their right, we reduced the exercise price to $0.06 per
share (the original exercise price was $0.20 per share, being reduced in
September 2007 to $0.15 per share and again in December 2007 to $0.10 per
share). This right-to-purchase option was granted to Pacific Dawn stemming from
financing transactions from 2005.





DIRECTOR
INDEPENDENCE





In
determining whether the members of our Board are independent, we have elected to
use the definition of “independence” set forth by Section 121 of the Listing
Standards for the American Stock Exchange (“AMEX”), although we are not
currently listed on AMEX, whereby a majority of the members of a listed
company’s board of directors must qualify as “independent” as determined by the
board. Consistent with these considerations, and after review of all relevant
transactions or relationships between each director, or any of his family
members, and Wits Basin Precious Minerals Inc, its senior management and its
independent registered public accounting firm, the Board has determined that
only Joseph Mancuso is currently independent within the meaning of the
applicable listing standard of AMEX.





ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES





On March
12, 2009, 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, 2008 and on January 10, 2008, our Board ratified the engagement of
CMO to audit our financial statements for the year ended December 31,
2007.





AUDIT
FEES:


The
aggregate fees billed for professional services rendered by CMO for the audit of
the Company's annual financial statements and review of financial statements
included in the Company's Form 10-K and 10-Q for 2008 and 2007, and services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements was $102,890 for the year ended December 31,
2008 and $86,947 for the year ended December 31, 2007.





AUDIT
RELATED FEES:


There
were no fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit or review of the Company's financial
statements.





TAX
FEES:


There
were no fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning.





ALL
OTHER FEES:


There
were no other fees billed in each of the last two fiscal years for products and
services provided by the principal accountant, other than the services reported
above.





POLICY
ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT AUDITORS





At
present, we do not have an audit committee, but rather our entire Board of
Directors performs the functions of the audit committee.  Our Board
approves each engagement for audit or non-audit services before we engage our
independent auditor to provide those services. The Board has not established any
pre-approval policies or procedures that would allow our management to engage
our independent auditor to provide any specified services with only an
obligation to notify the audit committee of the engagement for those services.
None of the services provided by our independent auditors for fiscal 2008 was
obtained in reliance on the waiver of the pre-approval requirement afforded in
SEC regulations.


45


ITEM 15.  EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES





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





3.1
                                        
                                        Amended
      and Restated Articles of Incorporation, effective September 24, 2007,
      (incorporated by reference to Exhibit 3.1 to the Company’s Current Report
      on Form 8-K filed on September 27, 2007).3.2
                                        
                                        By-Laws
      (incorporated by reference to Exhibit 3.2 to Form 10-KSB for the year
      ended December 31, 2004 (File No. 1-12401)).4.1
                                        
                                        Form
      of Common Stock certificate (incorporated by reference to Exhibit 4.1 to
      the Company’s Form S-2 filed on November 26, 2003 (File No.
      333-110831)).4.2
                                        
                                        Form
      of Class C Redeemable Warrant (incorporated by reference to Exhibit 4.7 to
      the Company’s Form SB-2 filed on Form SB-2 filed on July 14, 2006 (File
      No. 333-135765)).4.3
                                        
                                        Form
      of Warrant to purchase 3,000,000 shares of the Company’s common stock
      issued to Platinum Long Term Growth V, LLC. (incorporated by reference to
      Exhibit 4.4 to Form 10-K for the year ended December 31, 2007 (File No.
      1-12401)).4.4
                                        
                                        Form
      of Warrant to purchase 2,100,000 shares of the Company’s common stock
      issued to Platinum Long Term Growth V, LLC. (incorporated by reference to
      Exhibit 4.5 to Form 10-K for the year ended December 31, 2007 (File No.
      1-12401)).4.5
                                        
                                        Warrant
      to Purchase 2,500,000 Shares of the Company’s common stock issued in favor
      of Platinum Long Term Growth V, LLC (incorporated by reference to Exhibit
      4.1 to the Company’s Current Report on Form 8-K filed on February 20,
      2008).4.6
                                        
                                        Warrant
      to Purchase 882,000 Shares of the Company’s common stock issued in favor
      of China Gold, LLC. (incorporated by reference to Exhibit 4.1 to Form 10-Q
      for the quarter ended September 30, 2008 (File No.
    1-12401)).4.7
                                        
                                        Warrant
      to Purchase 39,200,000 Shares of the Company’s common stock issued in
      favor of China Gold, LLC. (incorporated by reference to Exhibit 4.2 to
      Form 10-Q for the quarter ended September 30, 2008 (File No.
      1-12401)).10.1
                                        
                                        1999
      Employee Stock Option Plan, as amended (incorporated by reference to
      Exhibit 10.1 of the Company’s Form 8-K filed September 18,
      2006).10.2
                                        
                                        2000
      Director Stock Option Plan, as amended (incorporated by reference to
      Exhibit 4.1 to Company’s Form S-8 filed November 19, 2003 (File No.
      333-110590)).10.3
                                        
                                        2001
      Employee Stock Option Plan, as amended (incorporated by reference to
      Exhibit 10.2 to the Company’s Form 8-K filed January 18,
      2006).10.4
                                        
                                        2003
      Director Stock Option Plan (incorporated by reference to Exhibit 4.2 to
      Company’s Form S-8 filed November 19, 2003 (File No.
      333-110590)).10.5
                                        
                                        2007
      Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed on March 15,
    2007).


46




10.6
                                      
                                      Shareholders
      Agreement by and among AfriOre International (Barbados) Limited, the
      Company, and Kwagga Gold (Barbados) Limited, dated August 27, 2004
      (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed
      September 1, 2004).10.7
                                      
                                      Amendment
      to Shareholders Agreement by and among AfriOre International (Barbados)
      Limited, the Company, and Kwagga Gold (Barbados) Limited, dated August 30,
      2004 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K
      filed September 1, 2004).10.8
                                      
                                      NI
      43-101 Technical Report Pertaining To: The Vianey Mine – Guerrero State,
      Mexico (dated of October 18, 2004 and revised March 10, 2005) prepared by
      Rodney A. Blakestad J.D., C.P.G. (incorporated by reference to Exhibit
      10.2 of the Company’s Form 8-K filed June 30, 2006).10.9
                                      
                                      Warrant
      Agreement between the Company and American Stock Transfer & Trust
      Company, dated June 28, 2006 (incorporated by reference to Exhibit 10.32
      to the Company’s Form SB-2 filed on Form SB-2 filed on July 14, 2006 (File
      No. 333-135765)).10.10
                                      
                                      Employment
      Offer Letter by and among the Company and Dr. Clyde L. Smith dated
      September 14, 2006 (incorporated by reference to Exhibit 10.2 of the
      Company’s Form 8-K filed September 18, 2006).10.11
                                      
                                      Employee
      Stock Option Vesting Correction Letter by and among the Company and Dr.
      Smith dated September 21, 2006 (incorporated by reference to Exhibit 10.1
      of the Company’s Amendment to Form 8-K filed September 21,
      2006).10.12
                                      
                                      Asset
      Purchase Agreement by and among the Company and Hunter Gold Mining
      Corporation, a British Columbia corporation, Hunter Gold Mining Inc., a
      Colorado corporation, Central City Consolidated Mining Corp., a Colorado
      corporation and George Otten, a resident of Colorado, dated September 20,
      2006, (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K
      filed September 25, 2006).10.13
                                      
                                      Joint
      Venture Agreement dated December 18, 2006, by and among the Company,
      Journey Resources Corp., and Minerales Jazz S.A. De C.V. (incorporated by
      reference to Exhibit 10.1 of the Company’s Form 8-K filed December 19,
      2006).10.14
                                      
                                      Employment
      Agreement between the Company and William Green dated February 19, 2007
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed on February 23, 2007).10.15
                                      
                                      Stock
      Option Agreement between the Company and William Green dated February 19,
      2007 (incorporated by reference to Exhibit 10.2 to the Company’s Current
      Report on Form 8-K filed on February 23, 2007).10.16
                                      
                                      Stock
      Option Agreement between the Company and Stephen D. King dated March 9,
      2007 (incorporated by reference to Exhibit 10.2 to the Company’s Current
      Report on Form 8-K filed on March 15, 2007).10.17
                                      
                                      Convertible
      Notes Purchase Agreement dated April 10, 2007 by and between the Company
      and China Gold, LLC (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed on April 16,
    2007).10.18
                                      
                                      Agreement
      and Plan of Merger and Reorganization dated April 20, 2007 by and among
      the Company, Easyknit Enterprises Holdings Limited and Race Merger, Inc
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed on April 26,
2007).


47




10.19
                                      
                                      Amendment
      #1 to Agreement and Plan of Merger and Reorganization dated May 21, 2007
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed on May 25, 2007).10.20
                                      
                                      Amendment
      to Convertible Notes Purchase Agreement, dated June 19, 2007, by and
      between the Company and China Gold, LLC (incorporated by reference to
      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 25,
      2007).10.21
                                      
                                      Form
      of Secured Convertible Note of the Company to be issued pursuant to
      Convertible Notes Purchase Agreement dated April 10, 2007 (incorporated by
      reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
      filed on April 16, 2007).10.22
                                      
                                      Guaranty
      of Wits-China Acquisition Corp. dated April 10, 2007 in favor of China
      Gold, LLC (incorporated by reference to Exhibit 10.3 to the Company’s
      Current Report on Form 8-K filed on April 16, 2007).10.23
                                      
                                      Security
      Agreement dated June 19, 2007 by and between the Company and China Gold,
      LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current
      Report on Form 8-K filed on June 25, 2007).10.24
                                      
                                      Joint
      Venture Agreement dated April 14, 2007 by and between Shanxi Hua Ze Nickel
      Smelting Co. and China Global Mining Resources Limited (incorporated by
      reference to Exhibit 10.42 to Form 10-K for the year ended December 31,
      2007 (File No. 1-12401)).10.25
                                      
                                      Supplemental
      Agreement to Joint Venture Agreement, dated June 6, 2007 by and between
      Shanxi Hua Ze Nickel Smelting Co. and China Global Mining Resources
      Limited (incorporated by reference to Exhibit 10.43 to Form 10-K for the
      year ended December 31, 2007 (File No. 1-12401)).10.26
                                      
                                      Supply
      Contract dated June 15, 2007 by and among China Global Mining Resources
      Limited, Shaanxi Hua Ze Nickel and Cobalt Metals Co., Ltd. and Shaanxi
      Xingwang Import & Export Limited (incorporated by reference to Exhibit
      10.44 to Form 10-K for the year ended December 31, 2007 (File No.
      1-12401)).10.27
                                      
                                      Equity
      Transfer Heads of Agreement dated May 4, 2007 by and among China Global
      Mining Resources Limited, Lu Benzhao, Lu Nan and Jin Yao Hui (incorporated
      by reference to Exhibit 10.45 to Form 10-K for the year ended December 31,
      2007 (File No. 1-12401)).10.28
                                      
                                      Equity
      Transfer Heads of Agreement dated May 4, 2007 by and among China Global
      Mining Resources Limited, Lu Benzhao, Lu Nan, Nanjing Sudan Mining Co.,
      Ltd., Maanshan Zhaoyuan Mining Co., Ltd. and Xiaonanshan Mining Co. Ltd
      (incorporated by reference to Exhibit 10.46 to Form 10-K for the year
      ended December 31, 2007 (File No. 1-12401)).10.29
                                      
                                      Amendment
      to Joint Venture Agreement dated October 31, 2007 by and among the
      Company, Journey Resources Corp., and Minerales Jazz S.A. De C.V., whereby
      we issued 1,600,000 shares of common stock in lieu of the $400,000
      exploration work payment (incorporated by reference to Exhibit 10.3 to
      Form 10-QSB for the quarter ended September 30, 2007 (File No.
      1-12401)).10.30
                                      
                                      Letter
      Agreement dated October 31, 2007 by and among the Company and China Gold,
      LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current
      Report on Form 8-K filed on November 5, 2007).10.31
                                      
                                      Sale
      of Shares Agreement between and among the Company, AfriOre International
      (Barbados) Limited and Kwagga Gold (Barbados) Limited, dated December 12,
      2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current
      Report on Form 8-K filed on December 18,
2007).


48




10.32
                                        
                                        Operating
      Agreement between the Company and Kwagga Gold (Proprietary) Limited, dated
      December 12, 2007 (incorporated by reference to Exhibit 10.2 to the
      Company’s Current Report on Form 8-K filed on December 18,
      2007).10.33
                                        
                                        Fourth
      Amendment to Asset Purchase Agreement dated January 14, 2008 by and among
      the Company, Central City Mining Corp., George Otten, Hunter Gold Mining
      Corp. and Hunter Gold Mining Inc (incorporated by reference to Exhibit
      10.1 to the Company’s Current Report on Form 8-K filed on February 6,
      2008).10.34
                                        
                                        Note
      and Warrant Purchase Agreement dated February 11, 2008 by and between the
      Company and Platinum Long Term Growth V, LLC (incorporated by reference to
      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February
      20, 2008).10.35
                                        
                                        10%
      Senior Secured Convertible Promissory Note of the Company dated February
      11, 2008 in the principal amount of $1,020,000 issued in favor of Platinum
      Long Term Growth V, LLC (incorporated by reference to Exhibit 10.2 to the
      Company’s Current Report on Form 8-K filed on February 20,
      2008).10.36
                                        
                                        Security
      Agreement dated February 11, 2008 by and between the Company and Platinum
      Long Term Growth V, LLC (incorporated by reference to Exhibit 10.3 to the
      Company’s Current Report on Form 8-K filed on February 20,
      2008).10.37
                                        
                                        Subsidiary
      Guaranty of Gregory Gold Producers, Inc. dated February 11, 2008 in favor
      of Platinum Long Term Growth V, LLC (incorporated by reference to Exhibit
      10.4 to the Company’s Current Report on Form 8-K filed on February 20,
      2008).10.38
                                        
                                        Updated
      Payment Schedule dated January 25, 2008 by and between the Company, China
      Global Mining Resources Limited (BVI) and Lu Ben-Zhao (incorporated by
      reference to Exhibit 10.7 to Form 10-Q for the quarter ended March 31,
      2008 (File No. 1-12401)).10.39
                                        
                                        Iron
      Ore Contract Amendment dated March 14, 2008 by and between the Company,
      China Global Mining Resources Limited (BVI) and Lu Ben-Zhao +++
      (incorporated by reference to Exhibit 10.8 to Form 10-Q for the quarter
      ended March 31, 2008 (File No. 1-12401)).10.40
                                        
                                        Supplement
      Agreement to the Assets Transfer and the Liabilities of Breach executed on
      March 14, 2008 by and between the Company, China Global Mining Resources
      Limited (BVI) and Lu Ben-Zhao (incorporated by reference to Exhibit 10.9
      to Form 10-Q for the quarter ended March 31, 2008 (File No.
      1-12401)).10.41
                                        
                                        Employment
      Agreement with Mark Dacko dated April 10, 2008 (incorporated by reference
      to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April
      15, 2008).10.42
                                        
                                        Letter
      Amendment entered into with China Gold, LLC dated May 20, 2008
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed on May 21, 2008).10.43
                                        
                                        Employment
      Agreement between the Company and Stephen D. King dated May 29, 2008
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed on June 4, 2008).10.44
                                        
                                        Stock
      Option Agreement between the Company and Stephen D. King dated May 29,
      2008 (incorporated by reference to Exhibit 10.2 to the Company’s Current
      Report on Form 8-K filed on June 4, 2008).10.45
                                        
                                        Amended
      and Restated Stock Option Agreement between the Company and Deborah King
      dated May 29, 2008 (incorporated by reference to Exhibit 10.3 to the
      Company’s Current Report on Form 8-K filed on June 4,
    2008).


49




10.46
                                          
                                          Fifth
      Amendment to Asset Purchase Agreement by and among the Company, Hunter
      Gold Mining Corp, Hunter Gold Mining Inc., George E. Otten and Central
      City Consolidated, Corp. d/b/a Central City Consolidated Mining Co.,
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed on June 18, 2008).10.47
                                          
                                          Limited
      Recourse Promissory Note of Hunter Bates Mining Corp issued in favor of
      George E. Otten (incorporated by reference to Exhibit 10.2 to the
      Company’s Current Report on Form 8-K filed on June 18,
    2008).10.48
                                          
                                          Deed
      of Trust and Security Agreement of Hunter Bates Mining Corp issued in
      favor of Gilpin County Public Trustee (incorporated by reference to
      Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 18,
      2008).10.49
                                          
                                          Letter
      Amendment entered into with China Gold, LLC dated July 24, 2008
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed on July 30, 2008).10.50
                                          
                                          Equity
      Transfer Agreement (for the Nanjing Sudan Mining Co., Ltd.) by and among
      Lu Benzhoa, Lu Tinglan and Maanshan Global Mining Resources Limited, dated
      August 11, 2008 (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed on August 22,
      2008).10.51
                                          
                                          Equity
      Transfer Agreement (for the Maanshan Xiaonanshan Mining Co., Ltd.) by and
      among Lu Benzhoa, Lu Tinglan and Maanshan Global Mining Resources Limited,
      dated August 11, 2008 (incorporated by reference to Exhibit 10.2 to the
      Company’s Current Report on Form 8-K filed on August 22,
      2008).10.52
                                          
                                          Equity
      Transfer Agreement (for the Maanshan Zhaoyuan Mining Co., Ltd.) by and
      among Lu Benzhoa, Lu Tinglan and Maanshan Global Mining Resources Limited,
      dated August 11, 2008 (incorporated by reference to Exhibit 10.3 to the
      Company’s Current Report on Form 8-K filed on August 22,
      2008).10.53
                                          
                                          Termination
      Agreement by and among China Global Mining Resources Limited and Shaanxi
      Hua Ze Nickel and Cobalt Metals Co., Ltd., dated July 31, 2008
      (incorporated by reference to Exhibit 10.4 to the Company’s Current Report
      on Form 8-K filed on August 22, 2008).10.54
                                          
                                          Settlement
      Agreement  by and among China Global Mining Resources Limited
      and Shaanxi Hua Ze Nickel and Cobalt Metals Co., Ltd., dated July 31, 2008
      (incorporated by reference to Exhibit 10.5 to the Company’s Current Report
      on Form 8-K filed on August 22, 2008).10.55**
                                          
                                          Consulting
      Agreement dated August 11, 2008 by and between Wits Basin (BVI) Ltd.
      (f/k/a China Global Mining Resources Limited, a British Virgin Islands
      corporation) and Mr. Lu Benzhao.10.56
                                          
                                          Convertible
      Promissory Note of the Company dated August 22, 2008 in the principal
      amount of $1,000,000 issued in favor of London Mining, Plc. (incorporated
      by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed on August 29, 2008).10.57
                                          
                                          Secured
      Promissory Note of the Company dated October 28, 2008 in the principal
      amount of $441,000 issued in favor of China Gold, LLC (incorporated by
      reference to Exhibit 10.10 to Form 10-Q for the quarter ended September
      30, 2008 (File No. 1-12401)).10.58
                                          
                                          Assignment
      and Amendment Agreement On The Equity Transfer Of Sudan between Lu
      Benzhao, Lu Tinglan, Maanshan Global Mining Resources Limited, China
      Global Mining Resources Limited and the Company dated October 29, 2008
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed on November 4, 2008).10.59
                                          
                                          Supplementary
      and Amendment Agreement On The Equity Transfer Of XNS between Lu Benzhao,
      Lu Tinglan, Maanshan Global Mining Resources Limited, China Global Mining
      Resources Limited and the Company dated October 29, 2008 (incorporated by
      reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
      filed on November 4,
2008).


50




10.60
                                        
                                        Amended
      No. 2 to Convertible Notes Purchase Agreement dated November 10, 2008 by
      and between the Company and China Gold, LLC (incorporated by reference to
      Exhibit 10.11 to Form 10-Q for the quarter ended September 30, 2008 (File
      No. 1-12401)).10.61
                                        
                                        Amended
      and Restated Promissory Note of the Company dated November 10, 2008 in the
      principal amount of $9,800,000 issued in favor of China Gold, LLC
      (incorporated by reference to Exhibit 10.12 to Form 10-Q for the quarter
      ended September 30, 2008 (File No. 1-12401)).10.62
                                        
                                        Amended
      and Restated Consulting Agreement by and between the Company and Corporate
      Resource Management, Inc dated November 12, 2008 (incorporated by
      reference to Exhibit 10.13 to Form 10-Q for the quarter ended September
      30, 2008 (File No. 1-12401)).10.63
                                        
                                        Promissory
      Note of the Company dated November 12, 2008 in the principal amount of
      $60,000 issued in favor of Hawk Uranium Inc (incorporated by reference to
      Exhibit 10.14 to Form 10-Q for the quarter ended September 30, 2008 (File
      No. 1-12401)).10.64
                                        
                                        Amendment
      No. 3 to Convertible Notes Purchase Agreement dated December 22, 2008 by
      and between the Company and China Gold, LLC (incorporated by reference to
      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December
      29, 2008).10.65
                                        
                                        Second
      Amended and Restated Promissory Note of the Company dated December 22,
      2008 in the principal amount of $9,800,000 issued in favor of China Gold,
      LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current
      Report on Form 8-K filed on December 29, 2008).10.66
                                        
                                        Amended
      and Restated Security Agreement dated December 22, 2008 by and between the
      Company and China Gold, LLC (incorporated by reference to Exhibit 10.3 to
      the Company’s Current Report on Form 8-K filed on December 29,
      2008).10.67
                                        
                                        Second
      Amended and Restated Pledge Agreement dated December 22, 2008 by and
      between the Company and China Gold, LLC (incorporated by reference to
      Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December
      29, 2008).10.68**
                                        
                                        Transfer
      Agreement Relating to the Entire Issued Share Capital of China Global
      Mining Respurces Limited (Hong Kong) dated December 23, 2008 by and
      between the Company and China Global Mining Resources (BVI)
      Limited.10.69**
                                        
                                        Agreement
      on Amendment dated January 13, 2009 by and between Wits Basin (BVI) Ltd.
      (f/k/a China Global Mining Resources Limited, a British Virgin Islands
      corporation) and Mr. Lu Benzhao.10.70**
                                        
                                        Novation
      Agreement dated January 13, 2009 by and between Wits Basin (BVI) Ltd.
      (f/k/a China Global Mining Resources Limited, a British Virgin Islands
      corporation), China Global Mining Resources (BVI) Limited and Mr. Lu
      Benzhao.21**
                                        
                                        Subsidiaries
      of the Registrant.23.1**
                                        
                                        Consent
      of Carver Moquist & O’Connor, LLC.24**
                                        
                                        Power
      of Attorney (included on the signature page hereto).31.1**
                                        
                                        Certification
      by Chief Executive Officer.31.2**
                                        
                                        Certification
      by Chief Financial Officer.32.1**
                                        
                                        Certification
      by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2**
                                        
                                        Certification
      by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.





** Filed
herewith electronically





+++
Confidential treatment granted as to certain portions of this exhibit pursuant
to Rule 24b-2 of the Exchange Act of 1934, as amended.


51


SIGNATURES





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





WITS
      BASIN PRECIOUS MINERALS INC.(“COMPANY”)Dated:
      April 14, 2009
                By:
                /s/ Stephen D. KingStephen
      D. KingChief
      Executive Officer




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





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





Name
                                    
                                    Title
                                    
                                    Date/s/ H. Vance
    White
                                    
                                    Chairman
                                    
                                    April
      14, 2009H.
      Vance White/s/ Stephen D.
    King
                                    
                                    Chief
      Executive Officer and Director
                                    
                                    April
      14, 2009Stephen
      D. King
                                    
                                    (principal
      executive officer)/s/ Clyde Smith
                                    
                                    President
                                    
                                    April
      12, 2009Clyde
      Smith/s/ Mark D.
    Dacko
                                    
                                    Chief
      Financial Officer and Secretary
                                    
                                    April
      14, 2009Mark
      D. Dacko
                                    
                                    (principal
      financial and accountingofficer)DirectorNorman
      D. Lowenthal/s/ Joseph
      Mancuso
                                    
                                    Director
                                    
                                    April
      13, 2009Joseph
      Mancuso/s/Donald
                                  S. Stoica
                                    
                                    Director
                                    
                                    April
                                  15, 2009Donald
      S. Stoica


52





ITEM
8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA





Table of
Contents


PageReport
      of Independent Registered Public Accounting Firm of Carver Moquist &
      O’Connor, LLC
                              
                              F-2Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                              
                              F-3Consolidated
      Statements of Operations for the Years Ended December 31, 2008 and
      2007
                              
                              F-4Consolidated
      Statements of Shareholders’ Equity (Deficit) and Comprehensive Loss for
      the Years Ended December 31, 2008 and 2007
                              
                              F-5Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                              
                              F-9Notes
      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 sheets of Wits Basin Precious
Minerals Inc. and subsidiaries (an exploration stage company) as of December 31,
2008 and 2007, and the related consolidated statements of operations,
shareholders’ equity (deficit) and comprehensive loss, and cash flows for the
years ended December 31, 2008 and 2007, and the period from May 1, 2003
(inception of exploration stage) to December 31, 2008. Wits Basin Precious
Minerals Inc.’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, 2008 and 2007, and the results of its operations and its cash
flows for the years ended December 31, 2008 and 2007, and the period from May 1,
2003 (inception of exploration stage) to December 31, 2008 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, 2008 and 2007 and had an accumulated deficit at
December 31, 2008.  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


April 13,
2009


F-2


WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES


(AN
EXPLORATION STAGE COMPANY)


CONSOLIDATED
BALANCE SHEETS





December 31,2008
              
              
              2007AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              230,729
              
              
              $
              130,481Prepaid
      expenses
              
              
              89,813
              
              
              
              91,030Total
      current assets
              
              
              320,542
              
              
              
              221,511Property,
      plant and equipment, net
              
              
              2,047,222
              
              
              
              73,206Mineral
      properties and development costs
              
              
              5,255,635
              
              
              
              —Advance
      payments on equity investments
              
              
              5,000,000
              
              
              
              7,000,000Investment
      in partially-owned equity affiliate
              
              
              41,988
              
              
              
              —Debt
      issuance costs, net
              
              
              7,514
              
              
              
              16,415Total
      Assets
              
              $
              12,672,901
              
              
              $
              7,311,132Liabilities
      and Shareholders’ Equity (Deficit)Current
      liabilities:Convertible
      notes payable, net of original issue discount
              
              $
              1,871,628
              
              
              $
              9,843,283Short-term
      notes payable, net of original issue discount
              
              
              212,140
              
              
              
              234,220Current
      portion of long-term note payable
              
              
              204,248
              
              
              
              —Accounts
      payable
              
              
              252,215
              
              
              
              229,292Accrued
      interest
              
              
              121,617
              
              
              
              514,286Other
      accrued expenses
              
              
              2,432,658
              
              
              
              793,782Total
      current liabilities
              
              
              5,094,506
              
              
              
              11,614,863Long-term
      notes payable, net of discount
              
              
              13,493,131
              
              
              
              —Commitments
      and contingenciesShareholders’
      equity (deficit):Common
      stock, $0.01 par value, 300,000,000 shares authorized:142,180,749
      and 113,982,533 shares issued and outstanding at December 31, 2008 and
      2007, respectively
              
              
              1,421,807
              
              
              
              1,139,825Additional
      paid-in capital
              
              
              59,910,010
              
              
              
              51,147,313Warrants
      outstanding
              
              
              7,961,908
              
              
              
              5,710,383Accumulated
      deficit
              
              
              (22,932,460
              )
              
              
              (22,932,460
              )Deficit
      accumulated during the exploration stage, subsequent to April 30,
      2003
              
              
              (52,276,001
              )
              
              
              (39,368,792
              )Total
      shareholders’ equity (deficit)
              
              
              (5,914,736
              )
              
              
              (4,303,731
              )Total
      Liabilities and Shareholders’ Equity (Deficit)
              
              $
              12,672,901
              
              
              $
              7,311,132





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


F-3


WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES


(AN
EXPLORATION STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF OPERATIONS





May 1, 2003
                  (inception)December 31,
                
                
                To Dec. 31,2008
                
                
                2007
                
                
                2008Revenues
                
                $
                —
                
                
                $
                —
                
                
                $
                —Operating
      expenses:General
      and administrative
                
                
                7,631,564
                
                
                
                6,953,591
                
                
                
                26,465,568Exploration
      expenses
                
                
                1,625,018
                
                
                
                2,755,491
                
                
                
                11,990,759Depreciation
      and amortization
                
                
                65,142
                
                
                
                16,050
                
                
                
                541,456Merger
      transaction costs
                
                
                —
                
                
                
                1,238,619
                
                
                
                1,238,619Stock
      issued as penalty
                
                
                —
                
                
                
                —
                
                
                
                2,152,128Loss
      on impairment of Kwagga
                
                
                —
                
                
                
                —
                
                
                
                2,100,000Loss
      (gain) on sale of mining properties
                
                
                —
                
                
                
                (95,820
                )
                
                
                571,758Loss
      on disposal of assets
                
                
                12,362
                
                
                
                —
                
                
                
                13,995Loss
      from investment in partially-owned affiliate
                
                
                18,012
                
                
                
                —
                
                
                
                18,012Total
      operating expenses
                
                
                9,352,098
                
                
                
                10,867,931
                
                
                
                45,092,295Loss
      from operations
                
                
                (9,352,098
                )
                
                
                (10,867,931
                )
                
                
                (45,092,295
                )Other
      income (expense):Other
      income (expense), net
                
                
                813
                
                
                
                70,117
                
                
                
                104,277Interest
      expense
                
                
                (3,292,448
                )
                
                
                (1,061,383
                )
                
                
                (7,289,581
                )Loss
      on debt extinguishment, net
                
                
                (1,485,558
                )
                
                
                —
                
                
                
                (1,485,558
                )Foreign
      currency gains
                
                
                1,222,082
                
                
                
                —
                
                
                
                1,222,082Total
      other expense
                
                
                (3,555,111
                )
                
                
                (991,266
                )
                
                
                (7,448,780
                )Loss
      from operations before income tax benefit and discontinued
      operations
                
                
                (12,907,209
                )
                
                
                (11,859,197
                )
                
                
                (52,541,075
                )Benefit
      from income taxes
                
                
                —
                
                
                
                —
                
                
                
                243,920Loss
      from continuing operations
                
                
                (12,907,209
                )
                
                
                (11,859,197
                )
                
                
                (52,297,155
                )Discontinued
      operations:Gain
      from discontinued operations
                
                
                —
                
                
                
                —
                
                
                
                21,154Net
      loss
                
                $
                (12,907,209
                )
                
                $
                (11,859,197
                )
                
                $
                (52,276,001
                )Basic
      and diluted net loss per common share:Continuing
      operations
                
                $
                (0.10
                )
                
                $
                (0.11
                )
                
                $
                (0.71
                )Discontinued
      operations
                
                
                —
                
                
                
                —
                
                
                
                —Net
      loss
                
                $
                (0.10
                )
                
                $
                (0.11
                )
                
                $
                (0.71
                )Basic
      and diluted weighted average common shares outstanding
                
                
                129,674,425
                
                
                
                105,146,864
                
                
                
                73,872,883





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




F-4




WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES


(AN
EXPLORATION STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) AND


COMPREHENSIVE
LOSS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007





Additional
                
                
                StockCommon stock
                
                
                paid-in
                
                
                subscriptionShares
                
                
                Amount
                
                
                capital
                
                
                receivable
                
                
                WarrantsBALANCE,
      December 31, 2006
                
                
                94,747,739
                
                
                $
                947,477
                
                
                $
                42,954,263
                
                
                $
                (932,600
                )
                
                $
                7,515,487Issuance
      of 2,400,000 shares of common stock and warrants in private placement
      September  through December 2007 at $0.25 per unit (net of
      offering costs of $30,000)
                
                
                2,400,000
                
                
                
                24,000
                
                
                
                258,127
                
                
                
                —
                
                
                
                287,873Issuance
      of 2,193,334 shares of common stock in private placement Dec 2007 at $0.15
      per share (net of offering costs of $15,465)
                
                
                2,193,334
                
                
                
                21,933
                
                
                
                291,602
                
                
                
                —
                
                
                
                —Exercise
      of warrants with cash
                
                
                8,492,500
                
                
                
                84,925
                
                
                
                2,031,222
                
                
                
                —
                
                
                
                (898,360
                )Cash-less
      exercise of warrants
                
                
                398,960
                
                
                
                3,990
                
                
                
                156,975
                
                
                
                —
                
                
                
                (160,965
                )Exercise
      of Right-to-Purchase option provided under the terms of 2006 notes
      payable
                
                
                3,000,000
                
                
                
                30,000
                
                
                
                570,000
                
                
                
                —
                
                
                
                —Issuance
      of common stock to obtain exploration rights for Mexico
                
                
                2,100,000
                
                
                
                21,000
                
                
                
                539,000
                
                
                
                —
                
                
                
                —Issuance
      of 300,000 warrants and recording a beneficial conversion charge,
      re-pricing charges and maturity date extensions all related to 2007 notes
      payable
                
                
                —
                
                
                
                —
                
                
                
                331,801
                
                
                
                —
                
                
                
                40,305Issuance
      of 650,000 shares of common stock,5,350,000 warrants, 100,000 options and
      the associated charges for re-pricing and the extension of exercise dates
      all to consultants for services in 2007
                
                
                650,000
                
                
                
                6,500
                
                
                
                166,188
                
                
                
                —
                
                
                
                1,614,227Stock
      subscription receivable payments received
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                932,600
                
                
                
                —Stock
      option compensation expense
                
                
                —
                
                
                
                —
                
                
                
                1,159,951
                
                
                
                —
                
                
                
                —Warrants
      that expired during 2007 without exercise
                
                
                —
                
                
                
                —
                
                
                
                2,688,184
                
                
                
                —
                
                
                
                (2,688,184
                )Comprehensive
      loss:Net
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Realized
      gain on investment
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Total
      comprehensive loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —BALANCE,
      December 31, 2007
                
                
                113,982,533
                
                
                
                1,139,825
                
                
                
                51,147,313
                
                
                
                —
                
                
                
                5,710,383Issuance
      of 7,781,666 shares of common stock in private placements from $0.15 to
      $0.25 per share (net of offering costs of $68,130)
                
                
                7,781,666
                
                
                
                77,817
                
                
                
                992,827
                
                
                
                —
                
                
                
                154,598Exercise
      of warrants with cash (net of $1,500 of costs)
                
                
                6,000,000
                
                
                
                60,000
                
                
                
                1,087,655
                
                
                
                —
                
                
                
                (949,155
                )Cash-less
      exercise of warrants
                
                
                3,770,931
                
                
                
                37,709
                
                
                
                629,150
                
                
                
                —
                
                
                
                (666,859
                )Issuance
      of 3,620,000 shares of common stock and a warrant to purchase 100,000
      shares of common stock in connection with purchase of Bates-Hunter
      Mine
                
                
                3,620,000
                
                
                
                36,200
                
                
                
                705,900
                
                
                
                —
                
                
                
                16,019Issuance
      and modification of warrants related to extensions and extinguishment of
      convertible debt and notes payable, including recording a beneficial
      conversion feature
                
                
                —
                
                
                
                —
                
                
                
                496,633
                
                
                
                —
                
                
                
                4,200,382


F-5





Additional
                        
                        
                        StockCommon stock
                        
                        
                        paid-in
                        
                        
                        subscriptionShares
                        
                        
                        Amount
                        
                        
                        capital
                        
                        
                        receivable
                        
                        
                        WarrantsConversion
      of $197,650 of principal on convertible notes payable into common stock,
      including additional beneficial conversion charges for conversion price
      reductions totaling $294,994
                        
                        
                        2,573,030
                        
                        
                        
                        25,730
                        
                        
                        
                        466,914
                        
                        
                        
                        —
                        
                        
                        
                        —Common
      stock issued in lieu of cash for debt, interest, and accrued
      expenses
                        
                        
                        532,589
                        
                        
                        
                        5,326
                        
                        
                        
                        111,636
                        
                        
                        
                        —
                        
                        
                        
                        —Issuance
      of 2,920,000 shares of common stock and 6,000,000 warrants to consultants
      for services and exploration rights
                        
                        
                        2,920,000
                        
                        
                        
                        29,200
                        
                        
                        
                        544,400
                        
                        
                        
                        —
                        
                        
                        
                        963,966Exercise
      of Right-to-Purchase option provided under the terms of 2006 note payable
      with a price modification in 2008
                        
                        
                        1,000,000
                        
                        
                        
                        10,000
                        
                        
                        
                        50,000
                        
                        
                        
                        —
                        
                        
                        
                        —Stock
      option/warrant compensation expense
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        2,065,156
                        
                        
                        
                        —
                        
                        
                        
                        145,000Warrants
      that expired during 2008 without exercise
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,612,426
                        
                        
                        
                        —
                        
                        
                        
                        (1,612,426
                        )Comprehensive
      loss:Net
      loss
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Realized
      gain on investment
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Total
      comprehensive loss
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —BALANCE,
      December 31, 2008
                        
                        
                        142,180,749
                        
                        
                        $
                        1,421,807
                        
                        
                        $
                        59,910,010
                        
                        
                        $
                        —
                        
                        
                        $
                        7,961,908





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


F-6


WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES


(AN
EXPLORATION STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) AND


COMPREHENSIVE
LOSS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007


Accumulated
                                      deficit
                                    
                                    
                                    Deficit
                                      accumulated
                                      (1)
                                    
                                    
                                    Accumulated
                                      other
                                      compre-
                                      hensive
                                      loss/gain
                                    
                                    
                                    TotalBALANCE,
      December 31, 2006
                                    
                                    $
                                    (22,932,460
                                    )
                                    
                                    $
                                    (27,509,595
                                    )
                                    
                                    $
                                    (2,818
                                    )
                                    
                                    $
                                    39,754Issuance
      of 2,400,000 shares of common stock and warrants in private placement
      September through December 2007 at $0.25 per unit (net of offering costs
      of $30,000)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    570,000Issuance
      of 2,193,334 shares of common stock in private placement Dec 2007 at $0.15
      per share (net of offering costs of $15,465)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    313,535Exercise
      of warrants with cash
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,217,787Cash-less
      exercise of warrants
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Exercise
      of Right-to-Purchase option provided under the terms of 2006 notes
      payable
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    600,000Issuance
      of common stock to obtain exploration rights for Mexico
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    560,000Issuance
      of 300,000 warrants and recording a beneficial conversion charge,
      re-pricing charges and maturity date extensions all related to 2007 notes
      payable
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    372,106Issuance
      of 650,000 shares of common stock, 5,350,000 warrants, 100,000 options and
      the associated charges for re-pricing and the extension of exercise dates
      all to consultants for services in 2007
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,786,915Stock
      subscription receivable payments received
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    932,600Stock
      option compensation expense
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,159,951Warrants
      that expired during 2007 without exercise
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Comprehensive
      loss:Net
      loss
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (11,859,197
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Realized
      gain on investment
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2,818
                                    
                                    
                                    
                                    —Total
      comprehensive loss
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (11,856,379
                                    )BALANCE,
      December 31, 2007
                                    
                                    
                                    (22,932,460
                                    )
                                    
                                    
                                    (39,368,792
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (4,303,731
                                    )Issuance
      of 7,781,666 shares of common stock in private placements from $0.15 to
      $0.25 per share (net of offering costs of $68,130)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,225,242Exercise
      of warrants with cash (net of $1,500 of costs)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    198,500Cash-less
      exercise of warrants
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Issuance
      of 3,620,000 shares of common stock and a warrant to purchase 100,000
      shares of common stock in connection with purchase of Bates-Hunter
      Mine
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    758,119Issuance
      and modification of warrants related to extensions and extinguishment of
      convertible debt and notes payable, including recording a beneficial
      conversion feature
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    4,697,015


F-7





Accumulated
                  deficit
                
                
                Deficit
                  accumulated
                  (1)
                
                
                Accumulated
                  other
                  compre-
                  hensive
                  loss/gain
                
                
                TotalConversion
      of $197,650 of principal on  convertible notes payable into
      common stock,  including additional beneficial
      conversion  charges for conversion price
      reductions  totaling $294,994
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                492,644Common
      stock issued in lieu of cash for debt,  interest, and accrued
      expenses
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                116,962Issuance
      of 2,920,000 shares of common stock and  6,000,000 warrants to
      consultants for services  and exploration rights
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                1,537,566Exercise
      of Right-to-Purchase option provided under  the terms of 2006
      note payable with a price  modification in 2008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                60,000Stock
      option/warrant compensation expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,210,156Warrants
      that expired during 2008 without exercise
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Comprehensive
      loss:Net
      loss
                
                
                —
                
                
                
                (12,907,209
                )
                
                
                —
                
                
                
                —Realized
      gain on investment
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Total
      comprehensive loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (12,907,209
                )BALANCE,
      December 31, 2008
                
                $
                (22,932,460
                )
                
                $
                (52,276,001
                )
                
                $
                —
                
                
                $
                (5,914,736
                )





(1)
            Deficit
      accumulated during the exploration stage, subsequent to April 30,
      2003.





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


F-8


WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES


(AN
EXPLORATION STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF CASH FLOWS





May 1, 2003(inception) toDecember 31,
                                    
                                    
                                    Dec. 31,2008
                                    
                                    
                                    2007
                                    
                                    
                                    2008OPERATING
      ACTIVITIES:Net
      loss
                                    
                                    $
                                    (12,907,209
                                    )
                                    
                                    $
                                    (11,859,197
                                    )
                                    
                                    $
                                    (52,276,001
                                    )Adjustments
      to reconcile net loss to cash  flows from operating
      activities:Depreciation
      and amortization
                                    
                                    
                                    65,142
                                    
                                    
                                    
                                    16,050
                                    
                                    
                                    
                                    541,456Loss
      (gain) on disposal of miscellaneous assets
                                    
                                    
                                    12,362
                                    
                                    
                                    
                                    (65,580
                                    )
                                    
                                    
                                    (51,585
                                    )Loss
      from investment in partially-owned equity affiliate
                                    
                                    
                                    18,012
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    18,012Loss
      (gain) on sale of mining projects
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (95,820
                                    )
                                    
                                    
                                    571,758Non-cash
      loss on nickel property (exploration)
                                    
                                    
                                    150,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    150,000Gain
      on foreign currency
                                    
                                    
                                    (1,222,082
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (1,222,082
                                    )Issuance
      of common stock and warrants for exploration rights
                                    
                                    
                                    185,282
                                    
                                    
                                    
                                    560,000
                                    
                                    
                                    
                                    5,885,372Issuance
      of common stock and warrants for services
                                    
                                    
                                    246,797
                                    
                                    
                                    
                                    932,418
                                    
                                    
                                    
                                    2,348,737Amortization
      of prepaid consulting fees related to issuance and modifications of
      warrants and issuance of common stock
                                    
                                    
                                    1,086,121
                                    
                                    
                                    
                                    944,581
                                    
                                    
                                    
                                    6,594,790Amortization
      of debt issuance costs
                                    
                                    
                                    76,374
                                    
                                    
                                    
                                    36,480
                                    
                                    
                                    
                                    251,712Amortization
      of original issue discount & beneficial conversion
    feature
                                    
                                    
                                    1,882,470
                                    
                                    
                                    
                                    495,609
                                    
                                    
                                    
                                    4,079,360Loss
      on debt extinguishment
                                    
                                    
                                    1,485,558
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,485,558Compensation
      expense related to stock options and warrants
                                    
                                    
                                    2,210,156
                                    
                                    
                                    
                                    1,159,951
                                    
                                    
                                    
                                    3,492,980Issuance
      of common stock and warrants for interest expense
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,173,420Loss
      on impairment of Kwagga Gold
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2,100,000Issuance
      of common stock as penalty related to private placement
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2,152,128Contributed
      services by an executive
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    274,500Gain
      from discontinued operations
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (21,154
                                    )Changes
      in operating assets and liabilities:Accounts
      receivable, net
                                    
                                    
                                    —
                                    
                                    
                                    
                                    10,323
                                    
                                    
                                    
                                    18,017Prepaid
      expenses
                                    
                                    
                                    20,583
                                    
                                    
                                    
                                    (127,299
                                    )
                                    
                                    
                                    (233,479
                                    )Accounts
      payable
                                    
                                    
                                    22,923
                                    
                                    
                                    
                                    160,670
                                    
                                    
                                    
                                    181,934Accrued
      expenses
                                    
                                    
                                    1,533,276
                                    
                                    
                                    
                                    1,165,068
                                    
                                    
                                    
                                    2,620,757Net
      cash used in operating activities
                                    
                                    
                                    (5,134,235
                                    )
                                    
                                    
                                    (6,666,746
                                    )
                                    
                                    
                                    (19,863,810
                                    )INVESTING
      ACTIVITIES:Purchases
      of property and equipment
                                    
                                    
                                    (28,106
                                    )
                                    
                                    
                                    (9,169
                                    )
                                    
                                    
                                    (143,629
                                    )Purchase
      of Bates-Hunter Mine (acquisition costs)
                                    
                                    
                                    (364,680
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (364,680
                                    )Advance
      to partially-owned equity affiliate
                                    
                                    
                                    (60,000
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (60,000
                                    )Proceeds
      from sale of mining projects
                                    
                                    
                                    —
                                    
                                    
                                    
                                    95,820
                                    
                                    
                                    
                                    220,820Proceeds
      from sale of miscellaneous assets
                                    
                                    
                                    —
                                    
                                    
                                    
                                    89,639
                                    
                                    
                                    
                                    89,639Purchases
      of investments
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (2,244,276
                                    )Refunds
      and (advance payments) on equity investments
                                    
                                    
                                    1,850,000
                                    
                                    
                                    
                                    (7,000,000
                                    )
                                    
                                    
                                    (5,150,000
                                    )Net
      cash provided by (used in) investing activities
                                    
                                    
                                    1,397,214
                                    
                                    
                                    
                                    (6,823,710
                                    )
                                    
                                    
                                    (7,652,126
                                    )




F-9





WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES


(AN
EXPLORATION STAGE COMPANY)


CONSOLIDATED
STATEMENTS OF CASH FLOWS, continued





May 1, 2003(inception) toDecember 31,
                            
                            
                            Dec. 31,2008
                            
                            
                            2007
                            
                            
                            2008FINANCING
      ACTIVITIES:Payments
      on short-term and long-term debt
                            
                            
                            (555,000
                            )
                            
                            
                            (1,325,000
                            )
                            
                            
                            (3,314,645
                            )Cash
      proceeds from issuance of common stock, net of offering
    costs
                            
                            
                            1,285,242
                            
                            
                            
                            1,563,535
                            
                            
                            
                            7,694,049Cash
      proceeds from exercise of stock options
                            
                            
                            —
                            
                            
                            
                            30,000
                            
                            
                            
                            199,900Cash
      proceeds from exercise of warrants
                            
                            
                            198,500
                            
                            
                            
                            2,040,387
                            
                            
                            
                            6,724,547Cash
      proceeds from short-term debt, net of OID of $10,000
                            
                            
                            2,976,000
                            
                            
                            
                            11,279,000
                            
                            
                            
                            15,355,000Cash
      proceeds from long-term debt
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            650,000Debt
      issuance costs
                            
                            
                            (67,473
                            )
                            
                            
                            (52,895
                            )
                            
                            
                            (259,226
                            )Net
      cash provided by financing activities
                            
                            
                            3,837,269
                            
                            
                            
                            13,535,027
                            
                            
                            
                            27,049,625INCREASE
      (DECREASE) IN CASH EQUIVALENTS
                            
                            
                            100,248
                            
                            
                            
                            44,571
                            
                            
                            
                            (466,311
                            )CASH
      AND EQUIVALENTS, beginning of period
                            
                            
                            130,481
                            
                            
                            
                            85,910
                            
                            
                            
                            697,040CASH
      AND EQUIVALENTS, end of period
                            
                            $
                            230,729
                            
                            
                            $
                            130,481
                            
                            
                            $
                            230,729Supplemental
      cash flow information:Cash
      paid for interest
                            
                            $
                            1,472,805
                            
                            
                            $
                            15,008
                            
                            
                            $
                            1,548,861Issuance
      of common stock, warrants and options forprepaid
      consulting fees
                            
                            $
                            1,105,487
                            
                            
                            $
                            854,497
                            
                            
                            $
                            5,807,065Issuance
      of common stock in lieu of cash for debt,interest
      and accrued expenses
                            
                            $
                            116,962
                            
                            
                            $
                            —
                            
                            
                            $
                            155,962Issuance
      of common stock and warrants for purchaseof
      Bates-Hunter Mine
                            
                            $
                            758,119
                            
                            
                            $
                            —
                            
                            
                            $
                            758,119Long-term
      debt incurred for purchase of Bates-Hunter Mine
                            
                            $
                            6,156,250
                            
                            
                            $
                            —
                            
                            
                            $
                            6,156,250Accrued
      interest added to debt principal
                            
                            $
                            180,107
                            
                            
                            $
                            —
                            
                            
                            $
                            180,107Conversion
      of debt principal to common stock
                            
                            $
                            197,650
                            
                            
                            $
                            —
                            
                            
                            $
                            197,650





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




F-10




WITS
BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES


(AN
EXPLORATION STAGE COMPANY)


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


DECEMBER 31, 2008 and
2007





NOTE 1 – NATURE OF
BUSINESS





Wits
Basin Precious Minerals Inc, and subsidiaries (“we,” “us,” “our,” “Wits Basin”
or the “Company”) is a minerals exploration and development company based in
Minneapolis, Minnesota.  As of December 31, 2008, we own a past
producing gold mine in Colorado (Bates-Hunter Mine), a 35% equity interest in
Kwagga Gold (Barbados) Limited, which holds rights to properties located in
South Africa (the FSC Project) through its wholly owned subsidiary and certain
rights in the Vianey Concession in Mexico. The following is a summary of our
projects:





·
            On
      June 12, 2008, we completed the acquisition of the Bates-Hunter Mine, a
      prior producing gold mine located in Central City, Colorado, which
      included real property, mining claims, permits and equipment (the
      “Bates-Hunter Mine”).  We consummated the acquisition by
      transferring our right to purchase the Bates-Hunter Mine to a newly
      created wholly owned subsidiary of ours, the Hunter Bates Mining
      Corporation, pursuant to a formal asset purchase agreement dated September
      20, 2006, in which we issued a limited recourse promissory note for
      Cdn$6,750,000 and issued 3,620,000 shares of our common
      stock.  Through August of 2008, a total of 12,039 feet of
      surface drilling was accomplished, which provided detailed data, which has
      been added to our existing 3-D map of the region. No further exploration
      activities will be conducted at the Bates-Hunter Mine until such time as
      we have funds available.





·
            We
      hold a 35 percent equity interest in Kwagga Gold (Barbados) Limited
      (“Kwagga Barbados”), which, through its wholly owned subsidiary Kwagga
      Gold (Proprietary) Limited, holds mineral exploration rights in South
      Africa.  This project is referred to as the “FSC Project” and is
      located adjacent to the historic Witwatersrand Basin.  The last
      completed drillhole on the FSC Project occurred in 2005. On December 12,
      2007, we entered into an agreement with AfriOre International (Barbados)
      Limited (“AfriOre”), the holder of the other 65 percent of Kwagga
      Barbados, whereby we may acquire all of AfriOre’s interest of Kwagga
      Barbados.  On March 3, 2008, we entered into a letter of intent
      with Communications DVR Inc. (“DVR”), a capital pool company then listed
      on the TSX Venture Exchange, whereby it is anticipated that DVR will
      acquire the aforementioned 65 percent of Kwagga Barbados in exchange for
      22 million common shares of DVR. Currently, no exploration activities
      (other than land use permit maintenance and filings with the South African
      government) are being conducted at the FSC
  Project.





·
            On
      October 31, 2007, we executed an amendment to the formal joint venture
      agreement with Journey Resources Corp., a corporation formed under the
      laws of the Province of British Columbia (“Journey”) and Minerales Jazz
      S.A. De C.V., a corporation duly organized pursuant to the laws of Mexico
      and a wholly owned subsidiary of Journey. Pursuant to the terms of the
      amendment, we own a 50 percent undivided beneficial interest in “located
      mineral claims” in the property known as the Vianey Mine Concession
      located in the State of Guerrero, Mexico (“Vianey”).  In
      addition to located mineral claims, our interest includes all surface
      rights, personal property and permits associated with Vianey and all other
      claims, leases and interests in minerals acquired within two kilometers of
      the external perimeter of Vianey.  All work being performed at Vianey
      is under the supervision of Journey, which mainly consists of cleaning the
      site for a future work program.





Additionally,
we have recorded an advanced payment of $5,000,000 related to the equity
investment of the iron ore mining properties of Nanjing Sudan Mining Co, Ltd.
Xiaonanshan Mining Co, Ltd and Maanshan Zhao Yuan Mining Co. Ltd located in the
People’s Republic of China (the “PRC”).  This initial investment
secured our right to acquire these iron ore properties.  Effective
March 17, 2009, we consummated the acquisition of the Nanjing Sudan Mining Co,
Ltd and the Xiaonanshan Mining Co, Ltd through a joint venture with London
Mining.  See Note 20 – Subsequent Events for details of the joint
venture.


F-11





As of
December 31, 2008, we possess only a few pieces of equipment and employ
insufficient numbers of personnel necessary to actually explore and/or mine for
minerals, we therefore remain substantially dependent on third party contractors
to perform such operations.  As of the date of this Annual Report, we
do not claim to have any mineral reserves at the Bates-Hunter Mine, the FSC
Project or the Vianey.





Going
Concern





The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
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, 2008, we incurred losses
from continuing operations of $12,907,209. At December 31, 2008, we had an
accumulated deficit of $75,208,461 and a working capital deficit of
$4,773,964.  Our ability to continue as a going concern is dependent
on our ability to raise the required additional capital or debt to meet short
and long-term operating requirements. We believe that private placements of
equity capital and debt financing may be adequate to fund our long-term
operating requirements. We may also encounter business endeavors that require
significant cash commitments or unanticipated problems or expenses that could
result in a requirement for additional cash. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our current shareholders could be reduced, and such securities
might have rights, preferences or privileges senior to our common stock.
Additional financing may not be available upon acceptable terms, or at
all.  If adequate funds are not available or are not available on
acceptable terms, we may not be able to take advantage of prospective business
endeavors or opportunities, which could significantly and materially restrict
our operations. We are continuing to pursue external financing alternatives to
improve our working capital position.  If we are unable to obtain the
necessary capital, we may have to cease operations.





NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





Principles of
Consolidation





The
consolidated financial statements include the accounts of Wits Basin Precious
Minerals Inc, and our wholly owned subsidiaries: (i) Gregory Gold Producers,
Inc; (ii) Wits-China Acquisition Corp; (iii) China Global Mining Resources
Limited, a British Virgin Islands corporation (effective January 2009 renamed to
Wits Basin (BVI) Ltd); (iv) Hunter Bates Mining Corporation, a Minnesota
corporation; (v) Maanshan Global Mining Resources Limited, a People’s Republic
of China corporation; and (vi) China Global Mining Resources (BVI) Limited, a
British Virgin Islands corporation and its wholly owned subsidiary China Global
Mining Resources Limited, a Hong Kong corporation.  All significant
intercompany transactions and balances have been eliminated in
consolidation.





Basis of
Presentation





All
dollar amounts are expressed in this Annual Report in US Dollars ($), unless
specifically noted as: certain PRC transactions are denominated in the Chinese
Dollar, referred to as the China Yuan Renminbi (“CNY” or “RMB”), certain
transactions are denominated in the Hong Kong Dollar (“HKD”) and certain
transactions are denominated in the Canadian Dollar (“Cdn$”).





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.


F-12





Property and
Equipment





Property
and equipment are recorded at cost and depreciated using the straight-line
method over estimated useful lives as follows:


YearsBuildings
                            
                            20Equipment
                            
                            2-7





Maintenance
and repairs are charged to expense as incurred; major renewals and betterments
are capitalized. As items of property or equipment are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in operating income.





Mineral
Properties





Mineral
property acquisition costs are recorded at cost and are deferred until the
viability of the property is determined. No properties have reached the
development stage at this time. Exploration, mineral property evaluation, option
payments, related acquisition costs for mineral properties acquired under an
option agreement, general overhead, administrative and holding costs to maintain
a property on a care and maintenance basis are expensed in the period they are
incurred. When reserves are determined for a property and a bankable feasibility
study is completed, subsequent exploration and development costs on the property
would be capitalized. If a project were to be put into production, capitalized
costs would be depleted on the unit of production basis.





Management reviews
the net carrying value of each mineral property pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Where information and conditions suggest impairment,
estimated future net cash flows from each property are calculated using
estimated future prices, proven and probable reserves and value beyond proven
and probable reserves, and operating, capital and reclamation costs on an
undiscounted basis. If it is determined that the future cash flows are less than
the carrying value, a write-down to the estimated fair value is made with a
charge to loss for the period. Where estimates of future net cash flows are not
available and where other conditions suggest impairment, management assesses if
the carrying value can be recovered.





Management's
estimates of gold prices, recoverable reserves, probable outcomes, operating
capital and reclamation costs are subject to risks and uncertainties that may
affect the recoverability of mineral property costs.





Although
the Company has taken steps to verify title to mineral properties in which it
has an interest, these procedures do not guarantee the Company's title. Such
properties may be subject to prior undetected agreements or transfers and title
may be affected by such defects.





Investment in
partially-owned equity affiliate





Investments
in companies over which the Company exercises significant influence, but does
not consolidate are accounted for using the equity method, whereby the
investment is carried at the Company's original cost plus its proportionate
share of undistributed earnings. The excess carrying value of the Company's
investment over its underlying equity in the net assets is included in the
consolidated balance sheet as “Investment in Partially-Owned Equity
Affiliate.”





Long-Lived
Assets





We will
periodically evaluate the carrying value of long-lived assets to be held and
used, including but not limited to, mineral properties, capital assets and
intangible assets, when events and circumstances warrant such a
review.  The carrying value of a long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value.  In that
event, a loss is recognized based on the amount by which the carrying value
exceeds the fair value of the long-lived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved.  Losses on long-lived assets to be disposed of
are determined in a similar manner, except that fair values are reduced for the
cost to dispose.


F-13





In
regards to the acquisition of the Bates-Hunter Mine, we have not commenced a
review of stated fair values of the related real and personal
property.  We have begun the process to locate dedicated funds in
order to resume the defined work program and such funds would also allow us to
complete the review of all purchased assets associated with the Bates-Hunter
Mine.





Segment
Reporting





We have a
single operating segment of minerals exploration.





Revenue Recognition and
Deferred Revenue





As of
December 31, 2008, none of our projects provided any revenues and we do not
expect them (Bates-Hunter Mine, FSC and Vianey) to generate revenues for the
foreseeable future.





Use of
Estimates





Preparing
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.





Stock Based
Compensation





The
Company accounts for stock-based compensation in accordance with Financial
Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based
Payment,” which requires the fair value of share-based payments, including
grants of employee stock options and employee stock purchase plan shares, to be
recognized in the income statement based on their estimated fair values. SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company's consolidated
statements of operations.





Off Balance Sheet
Arrangements





As of
December 31, 2008, we did not have any off-balance sheet activities (including
the use of structured finance or special purpose entities) or any trading
activities in non-exchange traded commodity contracts that have a current or
future effect on our financial condition, changes in the financial condition,
revenues or expenses, results of operation, liquidity, capital expenditures or
capital resources that are material to our investors.





Financial
Instruments





The
carrying amounts for all financial instruments approximates fair value. The
carrying amounts for cash and cash equivalents, accounts payable and accrued
liabilities approximated fair value because of the short maturity of these
instruments. The fair value of short-term debt approximated the carrying amounts
based upon our expected borrowing rate for debt with similar remaining
maturities and comparable risk.  The fair value of long-term debt was
assumed to approximate the carrying amount as most of the debt was incurred
recently.


F-14





Net Loss per Common
Share





Basic net
loss per common share is computed by dividing net loss applicable to common
shareholders by the weighted average number of common shares outstanding during
the periods presented.  Diluted net loss per common share is
determined using the weighted average number of common shares outstanding during
the periods presented, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon exercise of options,
warrants and conversion of convertible debt.  In periods where losses
are reported, the weighted average number of common shares outstanding excludes
common stock equivalents, because their inclusion would be
anti-dilutive.





Income
Taxes





Income
taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes, as clarified by
FIN No. 48, Accounting for Uncertainty in
Income Taxes, which requires an asset and liability approach to financial
accounting and reporting for income taxes.  Accordingly, deferred tax
assets and liabilities arise from the difference between the tax basis of an
asset or liability and its reported amount in the financial
statements.  Deferred tax amounts are determined using the tax rates
expected to be in effect when the taxes will actually be paid or refunds
received, as provided under currently enacted tax law.  Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.  Income tax expense or benefit is the
tax payable or refundable, respectively, for the period plus or minus the change
in deferred tax assets and liabilities during the period.




FIN
No. 48 requires the recognition of a financial statement benefit of a tax
position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit.  For tax
positions meeting the more-likely-than-not threshold, the amount recognized in
the financial statements is the largest benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement with the relevant
tax authority.





The
Company has recorded a full valuation allowance against the net deferred tax
asset due to the uncertainty of realizing the related benefits.





Recent Accounting
Pronouncements





In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (“SFAS 157”). This standard clarifies
the principle that fair value should be based on the assumptions that market
participants would use when pricing an asset or liability. Additionally, it
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. In February 2008, the FASB issued FASB Staff
Position No. 157-2 (“FSP 157-2”), which delayed the effective date by which
companies must adopt the provisions of SFAS 157 for non-financial assets
and liabilities. FSP 157-2 defers the effective date of SFAS 157 to fiscal
years beginning after November 15, 2008, and interim periods within those
fiscal years. The adoption of this standard is not anticipated to have a
material impact on our financial position, results of operations, or cash
flows.





In
February 2007, the FASB issued Statement of Financial Accounting Standards
Statement No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities—Including an
Amendment of FASB Statement No. 115 (“SFAS 159”). This standard
permits an entity to choose to measure many financial instruments and certain
other items at fair value. This standard is effective for financial statements
issued for fiscal years beginning after November 15, 2007. The Company did
not elect to measure any of our financial assets or liabilities using the fair
value option of SFAS 159. We will assess at each measurement date whether to use
the fair value option on any future financial assets or liabilities as permitted
pursuant to the provisions of SFAS 159.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141(R)”).  SFAS No. 141(R) retains the
fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. In general, the revised statement 1) broadens the guidance of SFAS
No. 141, extending its applicability to all events where one entity obtains
control over one or more other businesses, 2) broadens the use of fair value
measurements used to recognize the assets acquired and liabilities assumed, 3)
changes the accounting for acquisition related fees and restructuring costs
incurred in connection with an acquisition, and 4) increases required
disclosures. We are required to apply SFAS No. 141(R) prospectively to business
combinations for which the acquisition date is on or after January 1,
2009.  The impact of the adoption of SFAS 141R on our consolidated
financial position, results of operations will largely be dependent on the size
and nature of the business combinations completed after the adoption of this
statement.


F-15





In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51” (“SFAS No. 160”).  SFAS No. 160 will change the accounting and
reporting for minority interests, which will be re-characterized as
non-controlling interests and classified as a component of equity. This new
consolidation method will significantly change the accounting for transactions
with minority interest holders. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008, and will be adopted by us in the first
quarter 2009.  SFAS No. 160 is currently not expected to have any
effect on our results of operations, cash flows or financial
position.





In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133” (“SFAS No. 161”).  SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133 with the intent to
provide users of financial statements with an enhanced understanding of: 1) how
and why an entity uses derivative instruments; 2) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations and 3) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cash
flows.  SFAS No. 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008.
SFAS No. 161 is currently not expected to have a material effect on our results
of operations, cash flows or financial position.





In April
2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, Determination of the Useful Life of
Intangible Assets. This guidance is intended to improve the consistency
between the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), and the period of expected cash flows used to measure
the fair value of the asset under SFAS 141R when the underlying arrangement
includes renewal or extension of terms that would require substantial costs or
result in a material modification to the asset upon renewal or extension.
Companies estimating the useful life of a recognized intangible asset must now
consider their historical experience in renewing or extending similar
arrangements or, in the absence of historical experience, must consider
assumptions that market participants would use about renewal or extension as
adjusted for SFAS 142’s entity-specific factors. FSP 142-3 is effective for us
beginning January 1, 2009. FSP 142-3 is currently not expected to have a
material effect on our results of operations, cash flows or financial
position.





In June
2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.
This guidance states that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents are participating
securities and should be included in the computation of earnings per share using
the two-class method outlined in SFAS No. 128, Earnings per Share. The
two-class method is an earnings allocation formula that determines earnings per
share for each class of common stock and participating security according to
dividends declared and participation rights in undistributed earnings. The
adoption of this new guidance on January 1, 2009 should not have an effect on
our reported earnings per share.





In June
2008, the FASB ratified the consensus reached by the EITF on Issue
No. 07-5, Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock
(“EITF No. 07-5”). EITF No. 07-5 provides guidance for
determining whether an equity-linked financial instrument (or embedded feature)
is indexed to an entity’s own stock. EITF No. 07-5 applies to any
freestanding financial instrument or embedded feature that has all of the
characteristics of a derivative or freestanding instrument that is potentially
settled in an entity’s own stock (with the exception of share-based payment
awards within the scope of SFAS 123(R)). To meet the definition of “indexed
to one’s own stock,” an instrument’s contingent exercise provisions must not be
based on (a) an observable market, other than the market for the issuer’s
stock (if applicable), or (b) an observable index, other than an index
calculated or measured solely by reference to the issuer’s own operations, and
the variables that could affect the settlement amount must be inputs to the fair
value of a “fixed-for-fixed” forward or option on equity shares. EITF
No. 07-5 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company will evaluate
the effects of EITF No. 07-5 on the Company’s financial statements in the first
quarter of 2009.


F-16




NOTE 3 – PREPAID
EXPENSES





Prepaid
expenses consist of two components: prepaid consulting fees and other prepaid
expenses. The prepaid consulting fees include cash and calculated amounts from
the issuance of common stock, warrants or options to consultants for various
services that we do not have the internal infrastructure to
perform.  The amortization periods coincide with terms of the
agreements. The other prepaid expenses contain amounts we have prepaid for
general and administrative purposes and are being expensed as
utilized.





During
2007, we:


1.
            entered
      into two consulting agreements with unaffiliated third party consultants
      and issued the following: (i) an aggregate of 300,000 shares of
      un-registered common stock (with an aggregate value of $63,000 based on
      the closing sale price of our common stock), (ii) a two-year warrant to
      purchase up to 100,000 shares of common stock at exercise price of $0.30
      per share (valued at $16,051 using the Black-Scholes pricing model) and
      (iii) a ten-year option from our 2001 Employee Stock Option Plan to
      purchase up to 100,000 shares of common stock at exercise price of $0.30
      per share (valued at $22,688 using the Black-Scholes pricing
      model).





2.
            entered
      into a one-year management services agreement with Hawk Uranium Inc, which
      required a $100,000 payment by December 31, 2007 (which has been accrued
      but not paid as of December 31, 2008).  H. Vance White, our
      Chairman of the Board, is also an officer and director of
      Hawk.





3.
            extended
      the expiration date on two warrants for services to be rendered during the
      remainder of 2007.  The previously issued and outstanding
      warrants allow for the purchase of up to an aggregate of 1,380,000 shares
      of common stock at $1.00 per share for a term to May 22, 2007. The
      modifications extended the term to December 31, 2007 and resulted in an
      additional $815,758 of non-cash expense being recorded from the
      modification of the expiration dates (calculated using the Black-Scholes
      pricing model).




During
2008, we entered into five consulting agreements with unaffiliated third party
consultants and issued: (i) an aggregate of 2,020,000 shares of un-registered
common stock, with an aggregate value of $378,600 based on the closing sale
price of our common stock on the issuance date and (ii) two two-year warrants to
purchase up to an aggregate of 5,000,000 shares of common stock, with exercise
prices from $0.01 to $0.20 per share (valued at $726,887 using the Black-Scholes
pricing model).





Components
of prepaid expenses at December 31 are as follows:





2008
                  
                  
                  2007Prepaid
      consulting fees
                  
                  $
                  55,109
                  
                  
                  $
                  35,743Other
      prepaid expenses
                  
                  
                  34,704
                  
                  
                  
                  55,287$
                  89,813
                  
                  
                  $
                  91,030





NOTE 4 – ACQUISITION OF
BATES-HUNTER MINE





On June
12, 2008, we entered into a fifth amendment to that certain Asset Purchase
Agreement dated September 20, 2006 by and among the Company and the Sellers
(Hunter Gold Mining Corp, a British Columbia corporation, Hunter Gold Mining
Inc, a Colorado corporation, George E. Otten, a resident of Colorado and Central
City Consolidated, Corp. d/b/a Central City Consolidated Mining Co., a Colorado
corporation) to, among other changes, reflect the assignment by the Company of
its rights in the Asset Purchase Agreement to Hunter Bates Mining Corporation, a
Minnesota corporation and a wholly owned subsidiary of ours.


F-17





Pursuant
to the terms of the Asset Purchase Agreement, the Company and Hunter Bates
completed the acquisition of the Bates-Hunter Mine project, located in Central
City, Colorado, which included land, buildings, equipment, mining claims and
permits, financed through a limited recourse promissory note of Hunter Bates
payable to Mr. Otten in the principal amount of Cdn$6,750,000 ($6,736,785 and
$5,514,703 US as of June 12, 2008 and December 31, 2008, respectively) and the
issuance of 3,620,000 shares of our common stock with a fair value of $0.205 per
share (the closing sale price on June 11, 2008) totaling $742,100. We also
incurred acquisition costs of $380,698.  Additionally, the following
net smelter royalties were granted: (i) a two percent net smelter return royalty
on all future production, with no limit and (ii) a one percent net smelter
return royalty (up to a maximum payment of $1,500,000).





The
following table summarizes the initial allocation of the purchase price of the
assets acquired in the transaction.  As of December 31, 2008, due to
limited available cash funds, we did not undertake an independent valuation
study of the assets and as such, the allocation is preliminary and future
refinements are likely to be made based on the completion of final valuation
studies, which we would anticipate could be completed during the first half of
2009.





Recorded
                    US $ Value(1)Land
                  
                  $
                  610,423Buildings
                  
                  
                  1,330,902Equipment
                  
                  
                  82,089Mining
      claims
                  
                  
                  5,252,292Mining
      permits
                  
                  
                  3,343Total
      purchase price
                  
                  $
                  7,279,049





(1) The
US Dollar value reflects a discount ($580,534) relating to the Otten recourse
note being non-interest bearing until the first payment in 2010.





NOTE 5 – PROPERTY, PLANT AND
EQUIPMENT





Prior to
the acquisition in June 2008, we made purchases of various pieces of equipment
necessary to operate and de-water the Bates-Hunter Mine property. After the
acquisition of the Bates-Hunter Mine, we allocated the purchase price to the
land, buildings and additional equipment acquired. Depreciation on allowable
assets is calculated on a straight-line method over the estimated useful life,
presently ranging from two to twenty years.  Components of our
property, plant and equipment are as follows:





December 31,2008
                  
                  
                  2007Land
                  
                  $
                  610,423
                  
                  
                  $
                  —Buildings
                  
                  
                  1,330,902
                  
                  
                  
                  —Equipment
                  
                  
                  199,694
                  
                  
                  
                  115,522Less
      accumulated depreciation
                  
                  
                  (93,797
                  )
                  
                  
                  (42,316
                  )$
                  2,047,222
                  
                  
                  $
                  73,206




NOTE 6 – MINERAL PROPERTIES
AND DEVELOPMENT COSTS





The
following table summarizes the initial allocation of the purchase price to the
mining claims and permits acquired in the Bates-Hunter Mine
transaction.  Since the allocation is preliminary and future
refinements are likely to be made based on the completion of final valuation
studies, we have not recorded any amortization expense nor have we determined
that impairment has occurred for the period ended December 31,
2008.


F-18





Recorded
                    US $ ValueMining
      claims (1)
                  
                  $
                  5,252,292Mining
      permits (2)
                  
                  
                  3,343$
                  5,255,635





(1)
            We
      acquired some surface rights and some mining rights to 22 parcels located
      in Gilpin County, Colorado.


(2)
            We
      acquired various mining, special use, water discharge, stormwater and
      drilling permits, all of which require renewal at various
      times.





NOTE 7 – ADVANCE PAYMENTS ON
EQUITY INVESTMENTS





Background





As of
December 31, 2007, we had made loans through Wits Basin (BVI) Ltd. (f/k/a China
Global Mining Resources Limited) a British Virgin Islands corporation and wholly
owned subsidiary of ours (“Wits BVI”) in the aggregate amount of $7 million to
acquire interests in a nickel property and certain iron ore mining properties
located in the PRC. The loans to Wits BVI were made out of the proceeds from the
China Gold, LLC convertible promissory notes (see Note 10 – Convertible Notes
Payable).  As of December 31, 2008, we only hold the rights to acquire
the PRC iron ore mining properties and therefore, continue to record the
remaining $5 million as an advanced payment until such time as we complete a
transaction.





Nickel – Shaanxi Hua Ze
Nickel Smelting Co.





Wits BVI
was a party to that certain Joint Venture Agreement with Shaanxi Hua Ze Nickel
Smelting Co. (“Shaanxi Hua Ze”) dated April 14, 2007 (as supplemented on June 6,
2007) and a Supply Contract, pursuant to which the parties contemplated a joint
venture relating to the Xing Wang Mine, in which Wits BVI would purchase 40
metric tons of electrolytic nickel from Shaanxi Hua Ze.  Wits BVI
provided a $2 million advance payment, which payment also served as a prepayment
of the initial contribution outlined in the Joint Venture Agreement. The
consummation of the Joint Venture Agreement would have required an additional
investment of approximately 580 million RMB (or approximately $84 million US as
of June 2008, the anticipated closing timeframe).





As the
seller’s inability to obtain the necessary permits for the joint venture and our
inability to meet the agreed upon timetables for contributions created
significant delays in forward progress, on July 31, 2008 Wits BVI entered into
(1) a Termination Agreement with Shaanxi Hua Ze whereby it was agreed to
terminate the Joint Venture Agreement and (2) a Settlement Agreement whereby the
parties terminated the Supply Contract.  As part of the Settlement
Agreement, Shaanxi Hua Ze agreed to refund to Wits BVI $1.85 million within 20
business days, representing a partial refund of the $2 million advanced to
Shaanxi Hua Ze.





In
anticipation of the refund, we recorded a $150,000 loss (as exploration
expenses) on this advance for the period ended June 30, 2008 and on October 20,
2008, we received a $1.85 million refund, thereby completing all of the
requirements specified by the Termination and Settlement
Agreements.




F-19


Iron Ore – Nanjing Sudan
Mining, Xiaonanshan Mining, Maanshan Zhao Yuan Mining




Wits
(BVI) Ltd was the original party to that certain Equity and Asset Transfer Heads
of Agreement, dated May 4, 2007 (the “Nanjing Heads of Agreement”) with Mr. Lu
and Ms. Tinglan, two related PRC nationals, Xiaonanshan Mining Co. Ltd (“XNS”)
and Maanshan Zhao Yuan Mining Co. Ltd (“MZM”) (Messrs. Lu and Nan, XNS and MZM
collectively, the “Sellers”). The Nanjing Heads of Agreement provided Wits (BVI)
or its nominee, the right to purchase 100% of the equity of the Nanjing Sudan
Mining Co., Ltd. (an iron ore processing plant, the “Sudan”) and the two iron
ore mining properties of XNS and MZM. The Nanjing Heads of Agreement stated a
purchase price of $66 million, to be paid in cash or in shares of stock of a
listed company, as agreed by the parties.





On
January 25, 2008, Wits Basin, Wits (BVI) and the Sellers entered into a letter
agreement establishing a revised purchase price and a payment schedule. The
letter agreement required the purchase price to be denominated in RMB Dollars
and required scheduled payments to be made based on verification of permits
issued.  The revised purchase price was 620 million RMB or
approximately $86 million US as of January 25, 2008.  The Sellers
renegotiated the purchase price due primarily to the fact that the iron ore spot
price had increased since May 2007 and the change to the RMB Dollar was due
primarily to the continual changes in the exchange rate applicable to the U.S.
Dollar.





On March
14, 2008, the parties executed two additional agreements. One of the agreements:
(i) reset the closing date to be on or around April 20, 2008 (the closing date
was subsequently extended again to be no later than July 31, 2008), (ii)
established a new purchase for just the Sudan and XNS at RMB 155 million, (iii)
removed the MZM from the first closing, and (iv) set parameters for an earn out
of shares of common stock by Mr. Lu. The other agreement defined that additional
assets would be included in the acquisition and provide third party appraisal
valuations for all of the assets to be acquired, and that the purchase price was
further subject to adjustments (increases or decreases) based on the valuation
of those assets at closing.





On August
11, 2008, Maanshan Global Mining Resources Limited (“MGMR”), a limited liability
company incorporated under the laws of the PRC and a wholly owned subsidiary of
Wits (BVI), and the Sellers entered into three separate Equity Transfer
Agreements:





· Pursuant
to the Equity Transfer Agreement for Nanjing Sudan Mining (“Sudan ETA”), MGMR
will acquire Sudan for the purchase price of 160 million RMB or the US Dollar
equivalent (approximately $23.3 million US at the agreed upon exchange rate
equal to 6.86 RMB to $1.00 US). The purchase price payment will be divided into
two installments: 90.8 million RMB within 20 working days of the satisfaction of
all conditions precedent identified in the Sudan ETA and 69.2 million RMB 15
days prior to the formal closing.  The Sellers had obligations to make
capital expenditures estimated to be approximately 120 million RMB, provide a
detailed ledger of the costs and have an independent accounting firm produce an
inventory listing of the assets. The Sellers are to be reimbursed for such
improvements upon validation.





· Pursuant
to the Equity Transfer Agreement for Xiaonanshan Mining (“XNS ETA”), MGMR will
acquire XNS for the purchase price of 130 million RMB or the US Dollar
equivalent (approximately $19 million US at the agreed upon exchange rate equal
to 6.86 RMB to $1.00 US). The purchase price payment will be divided into two
installments: 73.8 million RMB within 20 working days of the satisfaction of all
conditions precedent identified in the XNS ETA and 56.2 million RMB 15 days
prior to the formal closing.  The Sellers had obligations to make
expenditures relating to the increase in mine output production and have an
independent accounting firm produce an inventory listing of the
assets.





· Pursuant
to the Equity Transfer Agreement for Maanshan Zhao Yuan Mining (“MZM ETA”), MGMR
will acquire MZM for the purchase price of 80 million RMB or the US Dollar
equivalent (approximately $11.7 million US at the agreed upon exchange rate
equal to 6.86 RMB to $1.00 US).  The purchase price payment will
require the use of a Chinese escrow agent and be divided into two installments:
45.4 million RMB within 20 working days of the satisfaction of all conditions
precedent identified in the MZM ETA and 34.6 million RMB 15 days prior to the
formal closing.





F-20




On August
11, 2008, pursuant to the terms of the Equity Transfer Agreements, Wits (BVI)
also entered into a consulting agreement with Mr. Lu (“Lu Consulting
Agreement”), whereby he shall assist Wits (BVI) in operating the properties,
assist in obtaining and maintaining necessary governmental approvals and provide
strategic advice, among other services.  The term of the Lu Consulting
Agreement is two years, commencing upon the closing of the acquisition of the
Sudan and XNS.  In consideration of his services: (i) Wits (BVI) shall
be obligated to pay Mr. Lu a consulting fee of approximately $10 million within
1 day of the closing of the Sudan and XNS, (ii) Mr. Lu will also be eligible to
earn up to $44 million, such cash amount to be paid by December 31, 2009 (Wits
(BVI) can offset against the amount of this final payment any breaches by the
Sellers of any representations and warranties under the Equity Transfer
Agreements) and (iii) Wits (BVI) will procure that Mr. Lu receive up to 50
million shares of the Wits Basin common stock subject to fulfillment of Mr. Lu’s
guarantee to produce certain amounts and grades of iron ore concentrate within
certain periods of time.  On January 13, 2009, Wits (BVI) and Mr. Lu
entered into an Agreement on Amendment whereby the parties amended the term of
the Consulting Agreement to five years and the timing of certain payments under
the Consulting Agreement.  Also on January 13, 2009, Wits (BVI), Mr.
Lu and China Global Mining Resources (BVI) Ltd,, a newly created British Virgin
Islands corporation we formed to constitute our joint venture entity with London
Mining Plc in December 2008 (as discussed below), entered into a Novation
Agreement whereby Wits (BVI)’s rights and obligations under the Consulting
Agreement were assigned to, and assumed by, China Global Mining Resources (BVI)
Ltd.





On
October 29, 2008, MGMR entered into two amendment agreements with the Sellers,
whereby it assigned its rights under the Equity Transfer Agreements of the Sudan
and XNS to China Global Mining Resources Limited, a Hong Kong corporation (“CGMR
HK”), a wholly owned subsidiary of Wits Basin at that time.





· Pursuant
to that certain Assignment and Amendment Agreement on the Equity Transfer of
Sudan, the parties agreed to (1) assign the purchase rights of the Sudan ETA to
CGMR HK and (2) amend the payment schedule such that only 40 million RMB
(approximately $5.8 million US) is required to be deposited with the escrow
agent three days prior to closing, with the final 120 million RMB (approximately
$17.5 million US) to be paid within 90 days of closing. However, should
deficiencies of available cash from operations exist, the final 120 million RMB
payment can be extended out another 60 days and will then accrue interest at a
rate of 8 percent.





· Pursuant
to that certain Supplementary and Amendment Agreement on the Equity Transfer of
XNS, the parties agreed to (1) assign the purchase rights of the XNS ETA to CGMR
HK and (2) amend the payment schedule such that the entire 130 million RMB
(approximately $18.9 million US) is required to be deposited with the escrow
agent three days prior to closing.





On
December 17, 2008, we created a new British Virgin Islands corporation and
wholly owned subsidiary of ours under the name of China Global Mining Resources
(BVI) Limited (“CGMR (BVI)”) to serve as the joint venture entity with London
Mining Plc. On December 23, 2008, we sold our 100% equity ownership of CGMR HK
to CGMR (BVI), whereby CGMR HK became a wholly owned subsidiary of CGMR
(BVI).





Subsequent
to the end of the fiscal year, on March 17, 2009, London Mining Plc acquired 50%
equity in CGMR (BVI). Contemporaneously, CGMR (BVI) (through CGMR HK) completed
the acquisition of the Sudan and XNS from the Sellers pursuant to the August 11,
2008 Equity Transfer Agreements (as amended or supplemented). The joint venture
agreement for CGMR (BVI) and the acquisition of the Sudan and XNS are detailed
in Note 20.




Iron Ore – Yun County
Changjiang Mining Company Ltd.





Wits BVI
is also party to that certain Equity Transfer Heads of Agreement (“Changjiang
Heads of Agreement”) dated May 4, 2007 with three individual sellers, whereby
Wits BVI holds a right to acquire a 95% equity interest in Yun County Changjiang
Mining Company Limited (“Changjiang”), which holds licenses to explore for iron
ore in the Hubei province of the PRC, for an aggregate of $57
million.  The purchase price is to be paid with no more than $15
million in cash and the remainder in shares of stock of a listed
company.  Two of the sellers, holding an aggregate of 90% of the
interest in Changjiang, are parties to the Nanjing Heads of
Agreement.  Under the Changjiang Heads of Agreement, Wits BVI is
required to arrange for a loan to Changjiang in the amount of $10 million, such
loan to be secured by the capital stock of Changjiang. Additionally, in the
event Wits BVI and Changjiang enter into an exclusive supply agreement relating
to the purchase by Wits BVI of iron ore from Changjiang, Wits BVI will also be
required to arrange for an additional loan to Changjiang, the amount of such
loan to be determined based on the reserves of iron ore located on the related
mining properties, but not to exceed 1.2 billion RMB. In order to begin
production at the Changjiang, the involvement of the Chinese government will be
required, and as such, the Changjiang is a long-term project. As of December 31,
2008, no funds have been advanced for this project.


F-21





NOTE 8 – INVESTMENT IN
PARTIALLY-OWNED EQUITY AFFILIATE





We hold a
35% interest in Kwagga Gold (Barbados) Limited which is accounted for under the
equity method in accordance with APB 18, The Equity Method of Accounting for
Investments in Common Stock. Kwagga Gold (Proprietary) Limited, a wholly
owned subsidiary of Kwagga Gold (Barbados), holds the mineral exploration rights
in the FSC Project. Through December 31, 2007, our previous investment of
$2,100,000 was impaired to $0.





In an
effort to maintain the permits and land claims of the FSC Project, we entered
into a bridge financing arrangement with Hawk, whereby Hawk made a loan to us of
$60,000, which was then advanced to Kwagga. AfriOre, the majority owner (65%) of
Kwagga (Barbados), has decided not to commit any further resources to this
project at this time.  Under the guidance provided by EITF 98-13,
Accounting by an Equity Method
Investor for Investee Losses When the Investor Has Loans to and Investments in
Other Securities of the Investee, and EITF 99-10, Percentage Used to Determine the
Amount of Equity Method Losses, we will recognize 100% of this $60,000
advance as a loss from investment in partially-owned affiliate to coincide with
the funds being dispersed by Kwagga. Since the losses relate to exploration
activities, an integral part of our operations, the losses are shown in
operations under the caption, Loss from investment in partially-owned equity
affiliate.





The
following table summarizes the current activity:





Kwagga
      investment, December 31, 2007
                  
                  $
                  —Current
      year advances
                  
                  
                  60,0002008
      loss
                  
                  
                  (18,012
                  )Kwagga
      investment, December 31, 2008
                  
                  $
                  41,988





NOTE 9 – DEBT ISSUANCE
COSTS





We
recorded debt issuance costs with respect to legal services relating to
promissory notes issued during 2007 and 2008.  The following table
summarizes the amortization of debt issuance costs:





December 31,2008
                  
                  
                  2007Debt
      issuance costs, net, beginning of period
                  
                  $
                  16,415
                  
                  
                  $
                  —Add:
      additional debt issuance costs
                  
                  
                  67,473
                  
                  
                  
                  52,895Less:
      amortization of debt issuance costs
                  
                  
                  (76,374
                  )
                  
                  
                  (36,480
                  )Debt
      issuance costs, net, end of period
                  
                  $
                  7,514
                  
                  
                  $
                  16,415





NOTE 10 – CONVERTIBLE NOTES
PAYABLE





China Gold,
LLC





On April
10, 2007, we entered into a Convertible Notes Purchase Agreement (“CNPA”) with
China Gold, LLC, a Kansas limited liability company (“China Gold”), whereby we
issued and sold the initial convertible note in the amount of $3,000,000, with a
purchase discount of $60,000 (“Note 1”).  On May 7, 2007, we issued
and sold an additional convertible note in the amount of $2,000,000, with a
purchase discount of $40,000 (“Note 2”).  On June 19, 2007, we entered
into Amendment No. 1 to the CNPA, whereby, among other things, China Gold was
entitled to a Purchase Right to acquire shares of our common stock at equivalent
terms to its rights to otherwise convert the notes; and we issued and sold an
additional convertible note in the amount of $4,000,000, with a purchase
discount of $80,000 (“Note 3”). On July 9, 2007, we issued and sold an
additional convertible note in the amount of $800,000, with a purchase discount
of $16,000 (“Note 4” and collectively with Note 1, Note 2 and Note 3, the
“Notes”). The Notes bore an initial interest rate of 8.25% per annum and were
convertible at the option of China Gold into shares of our common stock,
originally at a conversion price of $1.00 per share. We received net proceeds of
$9,604,000, with $196,000 paid to an affiliate of China Gold in the form of loan
discount fees.  We have fully amortized the original issue discount
using the straight-line method, which approximated the interest
method.


F-22


On
October 31, 2007, we entered into a letter agreement with China Gold whereby the
parties amended the maturity date on each of the Notes to February 29, 2008. As
consideration for the Note extensions, we agreed to reduce the conversion price
applicable to the Notes and to the Purchase Right from $1.00 to $0.50 per share.
The letter agreement further gave us an option to obtain an extension of the
maturity dates of the Notes to May 31, 2008 in consideration for a further
reduction in the conversion price and the Purchase Right price from $0.50 to
$0.25 per share, which we exercised in February 2008.





On May
14, 2008, we entered into an additional letter agreement with China Gold whereby
the parties amended the maturity date of the Notes to July 14,
2008.  As consideration for the Notes extensions, we agreed to
increase the interest rate applicable to the Notes from 8.25% to 12.25%
(effective May 14, 2008) and to reduce the purchase price relating to the
Purchase Right from $0.25 to $0.18 per share. On May 14, 2008, the fair value of
our common stock was $0.17, therefore, there was no additional charge required
to be recorded for the reduction in the conversion price. We received an
additional extension until September 12, 2008 without further compensation
required by China Gold.





On
November 10, 2008, we entered into a second amendment to the CNPA, whereby the
Notes were refinanced and we issued to China Gold an Amended and Restated
Promissory Note in the aggregate principal amount of $9.8 million, which amongst
other amendments to the terms of the Notes, terminated the conversion feature
and terminated the Purchase Rights. See Note 11 – Short-Term Notes Payable
regarding the issuance of a short-term Amended and Restated Promissory
Note.





Other Third
Party





In
December 2007, in consideration of an unsecured loan from an unaffiliated third
party, we received net proceeds of $100,000 and issued a convertible promissory
note in the principal amount of $110,000. The promissory note had a maturity
date of March 31, 2008, and bears interest at a rate of 10% per
annum.  Furthermore, the note holder has the right to convert any
portion of the principal or interest of the outstanding note into shares of our
common stock based on a conversion rate equal to $0.20 per share and is
considered to be conventional convertible debt under the accounting guidance of
Emerging Issues Task Force (“EITF”) 05-2 “The Meaning of ‘Conventional
Convertible Debt’ in Issue No. 00-19”.  Under the terms of the
convertible promissory note and as additional consideration for the loan, we
issued a warrant to purchase up to 100,000 shares of our common stock at $0.20
per share with an expiration date of February 12, 2009. The application of the
provisions of EITF 98-5, “Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios,” and EITF
00-27, “Application of Issue 98-5 to Certain Convertible Instruments” resulted
in the proceeds of the loan being allocated based on the relative fair value of
the loan and warrants. Lastly, due to the reduced relative fair value assigned
to the convertible debt, the debt had a beneficial conversion feature that was
“in-the-money” on the commitment date which totaled $27,500.  The
lender provided an extension on the maturity date until September 30, 2008 and
as consideration for the extension, we issued a two-year warrant to purchase up
to 200,000 shares of our common stock at $0.20 per share and recorded the
Black-Scholes pricing model calculation of $20,000 as additional interest
expense. On September 30, 2008, the lender again provided an extension on the
maturity date until December 31, 2008 and as consideration for the extension, we
agreed to make a one-time cash payment of $3,100.  On March 6, 2009,
the lender again provided an extension until March 31, 2009 and has verbally
provided an additional extension. As of December 31, 2008, the note has accrued
interest of $11,651.


F-23





Platinum Senior Secured
Convertible Promissory Note





On
February 13, 2008, we entered into a Note and Warrant Purchase Agreement (the
“Platinum Agreement”) dated February 11, 2008 with Platinum Long Term Growth V,
LLC, a Delaware limited liability company (“Platinum”), pursuant to which we
issued to Platinum a 10% Senior Secured Convertible Promissory Note in the
principal amount of $1,020,000 (the “Platinum Note”).  The Platinum
Note has a maturity date of February 11, 2009.  Platinum has the
option to convert the Platinum Note at any time into shares of our common stock
at an initial conversion price of $0.18 per share.  The conversion
price is further subject to weighted-average anti-dilution adjustments in the
event we issue equity or equity-linked securities at a price below the
then-applicable conversion price.  The Platinum Note accrues interest
at a rate of 10% per annum, and such interest is payable on a quarterly basis
commencing March 31, 2008, with the principal balance of the Platinum Note,
together with any accrued and unpaid interest thereon, due and payable on the
maturity date. At any time after August 11, 2008, if the seven trailing trading
day volume-weighted average price (“VWAP”) of our common stock is less than
$0.30 per share (as appropriately adjusted for any splits, combinations or like
events relating to the common stock), Platinum shall have the option to: (Option
1) require us to prepay in cash all or any portion of the Platinum Note at a
price equal to 115% of the aggregate principal amount to be repaid together with
accrued and unpaid interest or (Option 2) demand that all or a portion of the
Platinum Note be converted into common stock at a conversion price equal to the
lesser of the then-applicable conversion price or 85% of the lowest VWAP for the
10 trading days preceding such demand. The number of shares issuable under the
Platinum Note is limited to 4.99% of the current aggregate common stock
outstanding (approximately 7.1 million shares at December 31,
2008).





Our
obligations under the Platinum Note are secured by a first priority security
interest in all of our assets with the exception of our equity interests and
assets held in CGMR BVI, Wits BVI and Wits-China Acquisition Corp, to the extent
such entities or assets are located in or relate to China and are subject to a
lien in favor of China Gold, LLC.  Platinum’s security interest
includes our equity interest in Gregory Gold Producers, Inc, Hunter Bates Mining
Corp and our 35% equity ownership in Kwagga Gold (Barbados) Limited (the FSC
Project). We also delivered to Platinum a guaranty of Gregory Gold Producers and
Hunter Bates Mining Corp.





Pursuant
to the Platinum Agreement, we issued Platinum a five-year warrant to purchase up
to 2.5 million shares of our common stock at an exercise price of $0.35 per
share, which contains a cashless exercise provision beginning any time after
August 11, 2008, and further provides for a weighted-average anti-dilution
adjustment to the exercise price in the event we issue equity or equity-linked
securities at a price below the then-applicable exercise price.





As
additional consideration pursuant to the terms of the Platinum Agreement, we
agreed to accelerate the vesting of a previously issued warrant (to MHG
Consultant LLC, an affiliate of Platinum) to purchase up to 3 million shares of
our common stock that was transferred to Platinum at closing, such that the
remaining 2.25 million unvested shares underlying such warrant became
immediately vested and exercisable.  We provided Platinum piggy-back
registration rights relating to the shares of common stock issuable upon
conversion of the Note and exercise of the warrants. The Platinum Agreement and
other transaction documents contain standard representations, warranties, and
covenants of the parties.





The
Platinum Note is considered to be conventional convertible debt under the
accounting guidance of Emerging Issues Task Force (“EITF”) 05-2 “The Meaning of
‘Conventional Convertible Debt’ in Issue No. 00-19.”  The application
of the provisions of EITF 98-5, “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,”
and EITF 00-27, “Application of Issue 98-5 to Certain Convertible Instruments”
resulted in the proceeds of the loan being allocated based on the relative fair
value of the debt and warrants.  Using the Black-Scholes pricing model
to value the 2.5 million warrant issued with the loan and the accelerated
vesting of the 2.25 million warrant transferred from MHG to Platinum during the
three month period ended March 31, 2008, the relative fair value allocated to
the warrants and recorded as a debt discount was
$523,367.  Furthermore, due to the reduced relative fair value
assigned to the convertible debt, the debt had a beneficial conversion feature
that was “in-the-money” on the commitment date which totaled
$496,633.





During
2008, Platinum gave notice to convert $197,650 of its principal balance into
2,573,030 shares of our common stock as follows:


F-24





Date of
                    Conversion
                
                Principal
                    Amount
                
                
                Conversion
                    Price (1)
                
                
                Shares
                    Issued
                
                
                Beneficial
                    Conversion
                    Charge (2)August
      27
                
                $
                50,000
                
                
                $
                0.092905
                
                
                
                538,184
                
                
                $
                52,081October
      10
                
                $
                100,000
                
                
                $
                0.090865
                
                
                
                1,100,533
                
                
                $
                108,995December
      3
                
                $
                7,650
                
                
                $
                0.051000
                
                
                
                149,999
                
                
                $
                21,500December
      4
                
                $
                40,000
                
                
                $
                0.051000
                
                
                
                784,314
                
                
                $
                112,418$
                197,650
                
                
                
                
                
                
                
                2,573,030
                
                
                $
                294,994





(1)
              The
      conversion price was calculated pursuant to Option 2 that became effective
      after August 11, 2008 as described
above.


(2)
              Because
      the reset feature occurred resulting in additional shares being issued, an
      additional beneficial conversion charge was recorded as interest expense
      and credited to additional paid in
capital.





As of
December 31, 2008, the principal balance is $822,350 with accrued interest of
$48,072 and remaining unamortized discount of $60,722. The accrued interest due
represents the September 30, 2008 and December 31, 2008 payments that are
required to be paid in cash under the terms of the Platinum Note.





London Mining
Plc





On August
22, 2008, we entered into a financing arrangement with London Mining, Plc, a
United Kingdom corporation (“London Mining”), pursuant to which we issued to
London Mining a Convertible Promissory Note in the principal amount of
$1,000,000 (the “LM Note”).  The LM Note is convertible at the option
of LM at any time into shares of our common stock at an original conversion
price of $0.20 per share (as appropriately adjusted for any splits, combinations
or like events relating to the common stock). Our obligations under the LM Note
are unsecured and the LM Note accrues interest at a rate of 8% per annum. There
was no beneficial conversion charge as the Company’s stock value on the
commitment date was $0.17. On August 27, 2008, we received an initial $500,000
advance, on September 19, 2008 we received an additional $300,000 advance and on
October 27, 2008, we received the final $200,000 advance. As of December 31,
2008, the outstanding principal balance is $1,000,000 with accrued interest of
$23,653.





Effective
March 17, 2009, upon the consummation of the Sudan and the Xiaonanshan
properties through a joint venture with London Mining, we executed an amendment
to the LM Note described above, whereby the maturity date was fixed at August
22, 2009 and the conversion price was reduced to $0.10 per share.  See
Note 20 – Subsequent Events for details of the joint venture.





Summary of All Convertible
Notes





The
following table summarizes the convertible note balances:





Original
      gross proceeds received in 2007
                    
                    $
                    9,910,000Less:
      original issue discount at time of issuance of notes
                    
                    
                    (206,000
                    )Less:
      principal payments
                    
                    
                    —Less:
      value assigned to beneficial conversion feature and
    warrants
                    
                    
                    (40,224
                    )Add:
      amortization of original issue discount and beneficial conversion
      feature
                    
                    
                    179,507Balance
      at December 31, 2007
                    
                    $
                    9,843,283Add:
      gross proceeds of 2008
                    
                    
                    2,020,000Less:
      value assigned to original beneficial conversion feature and
      warrants
                    
                    
                    (1,020,000
                    )Less:
      value assigned to additional beneficial conversion feature and
      warrants
                    
                    
                    (314,994
                    )Add:
      amortization of original issue discount and beneficial conversion
      feature
                    
                    
                    1,340,989Less:
      conversion of principal
                    
                    
                    (197,650
                    )Less:
      principal payments
                    
                    
                    —Less:
      refinancing of the four China Gold Notes
                    
                    
                    (9,800,000
                    )Balance
      at December 31, 2008
                    
                    $
                    1,871,628




F-25





The total
principal outstanding for all convertible notes payable – short term at December
31, 2008 is $1,932,350.





NOTE 11 – SHORT-TERM NOTES
PAYABLE





Andrew Green
Note


In
February 2007, we issued a promissory note in the principal amount of $700,000
to Andrew Green. The promissory note had a maturity date of March 31, 2007, and
bore interest at a rate of 6% per annum. The promissory note was paid in full on
March 29, 2007 along with accrued interest of $3,912. Under the terms of the
promissory note and as additional consideration for the loan, we reduced the
exercise price of certain of his pre-existing warrants to purchase up to an
aggregate of 3,550,000 shares of our common stock from $0.12 to $0.09125 and
extended the expiration date of his right-to-purchase option of up to 3,000,000
shares of common stock at a price per share of $0.20 from March 31, 2007 to
December 31, 2007. The fair value of these equity modifications totaling
$202,844 was recorded as a discount to the note and was amortized over the term
of the note.  Then in April 2007, we issued a new promissory note to
Mr. Green in the principal amount of $625,000.  That promissory note
bore simple interest at a rate of 12% per annum and was paid in full in June
2007 along with $11,096 of interest.





Pacific Dawn
Note


In
September 2007, we issued a promissory note in the principal amount of $100,000
to Pacific Dawn Capital, LLC, with an original maturity date of October 21, 2007
and an interest rate of 5% per annum. Under the terms of the promissory note and
as additional consideration for the loan, we reduced the exercise price to
Pacific Dawn of its right-to-purchase option, from a previous transaction, of up
to 1 million shares of our common stock from $0.20 to $0.15 per share and
extended the expiration date of said rights from December 31, 2007 to December
31, 2008.  In December 2007, we memorialized an extension to the
maturity date from October 21, 2007 to January 21, 2008 and provided a further
price reduction of its right-to-purchase from $0.15 to $0.10 per share. The fair
value of these equity modifications totaled $101,457 and was recorded as a
discount to the promissory note and was fully amortized by January 21, 2008 the
date the promissory note was repaid in full.  On April 10, 2008,
Donald S. Stoica, a member, officer and director of Pacific Dawn was appointed
to our board of directors. On December 24, 2008, Pacific Dawn exercised its
right-to-purchase the entire 1 million shares and was authorized a reduced
exercise price of $0.06 per share to induce Pacific Dawn to exercise.
Furthermore, Pacific Dawn is also a greater than five percent beneficial
shareholder of our securities.





Other
Notes


In
September 2007, we issued a promissory note in the principal amount of $50,000
with an original maturity date of December 21, 2007 and an interest of rate of
10% per annum. In December 2007, we negotiated an extension on the maturity date
to January 11, 2008. Under the terms of the promissory note and as additional
consideration for the initial loan, we issued a warrant to purchase up to
100,000 shares of our common stock, with an original exercise price of $0.27 per
share, to expire October 3, 2009. As additional consideration for the extension
of the maturity date, we agreed to a reduction in the exercise price of the
warrant from $0.27 per share to $0.20 per share. The proceeds of the unsecured
loan were allocated based on the relative fair value of the loan and the warrant
granted in accordance with APB 14, “Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants.” The fair value of the warrant (including
the reduction to the exercise price) was $15,443 based on the Black Scholes
pricing model and was fully amortized by January 14, 2008, the date the note was
repaid.


F-26


In
November 2007, we received net proceeds of $100,000 and issued a promissory note
in the principal amount of $110,000 with an original maturity date of February
11, 2008 and interest at a rate of 10% per annum. Under the terms of the
promissory note and as additional consideration for the loan, we issued a
warrant to purchase up to 100,000 shares of our common stock at $0.20 per share
with an expiration date of November 12, 2009. The proceeds of the unsecured loan
were allocated based on the relative fair value of the principal amount and the
warrant granted in accordance with APB 14, “Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants.” The fair value of the warrant was
$12,138 based on the Black Scholes pricing model and was fully amortized by
February 11, 2008.  In February 2008, we repaid $100,000 of the
principal amount. In June 2008, we satisfied the final $10,000 of principal and
accrued interest ($3,364) by the issuance of 77,273 shares of common stock,
valued at $17,000 and simultaneously entered into a new unsecured loan in the
principal amount of $50,000. The new promissory note had an original
maturity date of August 8, 2008, and bears interest at a rate of 2% per annum.
Under the terms of the new promissory note and as additional consideration for
the loan, we issued a two-year warrant to purchase up to 50,000 shares of our
common stock at $0.20 per share. The proceeds of the unsecured loan were
allocated based on the relative fair value of the principal amount and the
warrant granted in accordance with APB 14, “Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants.” The fair value allocated to the
warrant was $7,139 based on the Black-Scholes pricing model and was fully
amortized by August 8, 2008.  The lender provided an extension on the
maturity date until December 31, 2008 and as consideration for the extension, we
issued a two-year warrant to purchase up to 100,000 shares of our common stock
at $0.15 per share and recorded the Black-Scholes pricing model calculation of
$11,000 which was fully amortized by December 31, 2008. As of December 31, 2008,
outstanding principal is $50,000, has accrued interest of $564 and is still
currently past due.





In July
2008, Gregory Gold Producers entered into an unsecured promissory note in the
principal amount of $20,000, which bore interest of 10% per annum and was repaid
in full on December 22, 2008. The lender is a member of the board of directors
for Gregory Gold.





Pioneer
Notes


In June
2008, we issued a promissory note in the principal amount of $160,000 to Pioneer
Holdings, LLC, a Kansas limited liability company (“Pioneer”), which had an
original maturity date of September 4, 2008 and was issued as a zero interest
note. Under the terms of the promissory note and as additional consideration for
the loan, we issued a two-year warrant to purchase up to 160,000 shares of our
common stock at $0.15 per share. Then in July 2008, we issued another promissory
note in the principal amount of $100,000 to Pioneer, which had an original
maturity date of October 10, 2008 and was also issued as a zero interest note.
Under the terms of this promissory note and as additional consideration for the
loan, we issued a two-year warrant to purchase up to 100,000 shares of our
common stock at $0.15 per share. The proceeds of both unsecured loans were
allocated based on the relative fair value of the principal amounts and the
warrants granted in accordance with APB 14, “Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants.” The fair value allocated to the
160,000 share warrant was $22,297 and the 100,000 share warrant was $9,674, both
based on the Black-Scholes pricing model and both fully amortized by October 10,
2008. We entered into negotiations with Pioneer for extensions to the maturity
dates on the $160,000 and $100,000 loans and as consideration for the
extensions, we agreed to amend the terms of the loans, such that an interest
rate of 12.25% would be retroactively applied to the $260,000 principal. Both
notes were repaid on October 23, 2008. For details, see the August 6, 2008
Pioneer transaction that follows.





On August
6, 2008, Pioneer made a direct $25,000 payment to one of the investment banking
companies we have engaged in negotiating the financing of the PRC iron ore
properties and our proposed joint venture agreement with London
Mining.  We agreed to pay interest of 12.25% on this direct payment.
On October 23, 2008, we repaid the three loans from Pioneer in the aggregate
amount of $296,865, which included interest of $11,865 as we had negotiated with
Pioneer for extensions to the maturity dates on the $160,000 and $100,000 loans
(as described above) and as consideration for the extensions, we agreed to amend
the terms of the loans, such that an interest rate of 12.25% would be
retroactively applied to the $285,000 principal.





Platinum
Note


On July
10, 2008, we entered into a new 90-day 10% Senior Secured Promissory Note with
Platinum Long Term Growth V, LLC, a Delaware limited liability company
(“Platinum”), in which we issued a promissory note in the principal amount of
$110,000 with an original maturity date of October 8, 2008 (subsequently
extended to December 8, 2008) and we received net proceeds of $100,000. The
promissory note is secured by a continuing first priority security interest in
all of our assets with the exception of our equity interests and assets, to the
extent such entities or assets are located in or relate to the PRC iron ore
properties and are subject to a lien in favor of China Gold, LLC (see Note 10
regarding Platinum’s February 11, 2008 10% Senior Secured Convertible Promissory
Note of $1,020,000). As of December 31, 2008, the note has accrued interest of
$5,349.


F-27


China Gold
Notes


On
October 28, 2008, in consideration of a secured loan from China Gold, LLC, we
issued a secured promissory note in the principal amount of $441,000 to China
Gold. The secured promissory note bore interest at a rate of 12.25% per annum
and had a maturity date of the earlier of (i) December 31, 2008 or (ii) such
time as the Company completed its proposed acquisitions of the PRC iron ore
properties. Under the terms of the secured promissory note and as additional
consideration for the loan, we issued a two-year warrant to purchase up to
882,000 shares of our common stock at $0.11 per share. The proceeds of the
secured loan were allocated based on the relative fair value of the principal
amount and the warrant granted in accordance with APB 14, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants.” The fair value
allocated to the warrant was $62,063 based on the Black-Scholes pricing model
and was fully amortized by December 22, 2008, the date that this note was
refinanced and consolidated with the $9.8 million China Gold Amended Note
described below.





On
November 10, 2008, we entered into a second amendment to the Convertible Notes
Purchase Agreement (as described in Note 10 – Convertible Notes Payable),
whereby the four Notes were refinanced and we issued to China Gold an Amended
and Restated Promissory Note (the “China Gold Amended Note”) in the aggregate
principal amount of $9.8 million (which amongst other amendments to the terms of
the original Notes) terminated the conversion feature.  The China Gold
Amended Note interest rate was 12.25% per annum with the principal and interest
due at the earlier of (i) China Gold’s demand at any time on or after December
31, 2008 or (ii) to the extent funds became available should a formal closing
occur related to our proposed acquisition of the PRC iron ore
properties.  In consideration thereof, we issued China Gold a
five-year warrant to purchase up to an aggregate of 39,200,000 shares of the our
common stock at an exercise price of $0.15 per share.





Under the
guidance of APB 26, Early
Extinguishment of Debt and EITF 96-19, Debtor’s Accounting for a
Modification or Exchange of Debt Instruments, this refinancing was
accounted for as an extinguishment of the old debt and re-issuance of new
debt.  Accordingly, the fair value of the new warrants ($3,528,000
using Black-Scholes) and the fair value of the new note compared to the carrying
amount of the original note, resulted in a loss on extinguishment of
$3,348,900.





On
December 22, 2008, we entered into Amendment No. 3 to the Convertible Notes
Purchase Agreement (“Amendment No. 3”) with China Gold.  Pursuant to
Amendment No. 3, the parties consolidated that certain Secured Promissory Note
dated October 28, 2008 in the principal amount of $441,000 and that certain
Amended and Restated Promissory Note date November 10, 2008 in the principal
amount of $9.8 million into a Second Amended and Restated Promissory Note in the
aggregate principal amount of $10,421,107 (the “Consolidated Note”), which
reflects the outstanding principal of both notes together with any accrued and
unpaid interest (totaling $180,107).  The note bears interest at
12.25% with a maturity date of February 15, 2010.  This refinancing
was also accounted for as an extinguishment of debt which resulted in a gain of
$1,863,342, and a discount to the new Consolidated Note of
$1,894,948.  The discount on the new note will be amortized using the
effective interest method over the life of the note through February 15,
2010.  The two extinguishments of the China Gold notes amounted to a
net loss on extinguishment of $1,485,558 which has been classified as “Other
Expense” in the Statement of Operations.





Hawk
Note


On
November 12, 2008, we entered into a bridge financing arrangement with Hawk
Uranium, Inc. (“Hawk”), whereby Hawk would loan the Company $60,000 in
consideration of a 90-day promissory note, which bears interest at a rate of
10%.  The proceeds of the financing are being expressly used to
maintain the permits and land claims of the FSC Project in South Africa. Our
chairman, Vance White, is an officer and director of Hawk Uranium. In
consideration of the loan, we issued a 5-year warrant to purchase up to 250,000
shares of our common stock (with an original exercise price of $0.125 per share)
and granted a security interest in our right to acquire the 65% interest in
Kwagga Barbados, subject to any existing security interest granted by us prior
to November 12, 2008.  The security interest granted is to be
construed to the fullest extent permitted without violating any term or right of
any existing security interest or any holder of such security interest granted
prior to the grant date. The proceeds of the loan were allocated based on the
relative fair value of the principal amount and the warrant granted in
accordance with APB 14, “Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants.” The fair value allocated to the warrant was $16,842
based on the Black-Scholes pricing model and is being amortized over the 90-day
loan period. As of December 31, 2008, the note has accrued interest of
$808.


F-28


In March
2009, we received an extension until April 20, 2009 on the maturity date and for
such extension we reduced the exercise price of the five-year warrant from
$0.125 per share to $0.0625 per share.





Summary





The
following table summarizes the short-term notes payable balances:





Balance
      at December 31, 2006
                  
                  $
                  —Add:
      additional loans received in 2007
                  
                  
                  1,585,000Less:
      original issue discount at time of issuance
                  
                  
                  (341,882
                  )Add:
      amortization of original issue discount
                  
                  
                  316,102Less:
      principal payments
                  
                  
                  (1,325,000
                  )Balance
      at December 31, 2007
                  
                  $
                  234,220Add:
      gross proceeds of 2008
                  
                  
                  966,000Add:
      refinancing of China Gold Promissory Notes
                  
                  
                  9,800,000Less:
      original issue discount at time of issuance
                  
                  
                  (10,000
                  )Less:
      value assigned to warrants
                  
                  
                  (308,116
                  )Add:
      amortization of original issue discount
                  
                  
                  304,430Less:
      principal payments
                  
                  
                  (565,000
                  )Less:
      refinancing of short-term China Gold Notes into long-term
                  
                  
                  (10,209,394
                  )Balance
      at December 31, 2008
                  
                  $
                  212,140





The total
principal outstanding for all short-term notes payable at December 31, 2008 is
$220,000.





NOTE 12 – OTHER ACCRUED
EXPENSES





The
Company has recorded a number of expenses relating to its transactions for the
acquisition of various global mining properties, the terminated Easyknit merger
from 2007, consulting agreements and general and administrative expenses. The
following table summarizes the ending balances of other accrued expense by
relevant transaction:





December 31,2008
                    
                    
                    2007China
      related transactions
                    
                    $
                    1,115,234
                    
                    
                    $
                    371,245Bates-Hunter
      Mine
                    
                    
                    790,519
                    
                    
                    
                    126,793Hawk
      Uranium’s management services agreements
                    
                    
                    200,000
                    
                    
                    
                    100,000FSC
      Project and proposed transaction with DVR
                    
                    
                    96,804
                    
                    
                    
                    —Other
      expenses
                    
                    
                    230,101
                    
                    
                    
                    195,754$
                    2,432,658
                    
                    
                    $
                    793,792




F-29


NOTE 13 – LONG-TERM NOTES
PAYABLE





Long-term limited recourse
promissory note of Hunter Bates





On June
12, 2008, the Company and Hunter Bates Mining Corporation, a Minnesota
corporation and a wholly owned subsidiary of the Company (“Hunter Bates”),
completed the acquisition of the Bates-Hunter Mine project, located in Central
City, Colorado, which included land, buildings, equipment, mining claims and
permits, financed through a limited recourse promissory note of Hunter Bates
payable to Mr. Otten in the principal amount of Cdn$6,750,000. The note required
Hunter Bates to pay to Mr. Otten Cdn$250,000 (valued at $204,248 as of December
31, 2008) on or before December 1, 2008, which was subsequently extended to
January 30, 2009 and further extended to April 30, 2009. Furthermore, commencing
on April 1, 2010, a quarterly installment of accrued interest plus a Production
Revenue Payment (as defined in the note) becomes payable.  The note is
interest-free until January 1, 2010, and from such date shall bear interest at a
rate of 6% per annum, with a maturity date of December 31,
2015.  Hunter Bates’ payment of the Note is secured by a deed of trust
relating to the all of the property acquired in favor of Gilpin County Public
Trustee for the benefit of Mr. Otten. The note balance reflects a discount
(originally $580,534) relating to the recourse note being non-interest bearing
until the first payment in 2010.





Second Amended and Restated
Promissory Note with China Gold LLC





As
previously discussed in Note 11, on December 22, 2008, we entered into Amendment
No. 3 to Convertible Notes Purchase Agreement (“Amendment No. 3”) with China
Gold. Pursuant to Amendment No. 3, the parties consolidated that certain Secured
Promissory Note dated October 28, 2008 in the principal amount of $441,000 and
that certain Amended and Restated Promissory Note dated November 10, 2008 in the
principal amount of $9.8 million into a Second Amended and Restated Promissory
Note in the aggregate principal amount of $10,421,107 (the “Consolidated Note”),
which reflected the outstanding principal and accrued interest under the
existing notes. The amendments to these notes have been treated as
extinguishments for accounting purposes and the resulting discount of $1,894,948
was recorded against the new Consolidated Note.





Pursuant
to the Consolidated Note, we received an extension on the maturity dates
relating to the prior notes from December 31, 2008 to February 15, 2010. The
Consolidated Note accrues interest at a rate of 12.25% per annum with the
principal and interest due on demand at any time on or after February 15,
2010.





We
entered into Amendment No. 3 to facilitate that certain Subscription Agreement
dated November 17, 2008 by and between us and London Mining Plc (“London
Mining”), which sets forth the terms of London Mining’s subscription into a
joint venture entity formed with us to acquire and operate (through CGMR HK) the
Sudan and Xiaonanshan. As required under the London Mining Subscription
Agreement, and Amendment No. 3, China Gold released its security interest in
CGMR HK, which holds the rights to acquire the PRC iron ore
properties.





Pursuant
to Amendment No. 3 (effective December 22, 2008) and contemporaneously with the
closing of the London Mining Subscription Agreement and related acquisition of
the Sudan and Xiaonanshan properties (effective March 17, 2009), we will: (i)
make a prepayment to China Gold under the Consolidated Note in the amount of
$5.6 million and (ii) reduce the exercise price of two warrants to purchase up
to an aggregate of 40,082,000 shares of our common stock issued to China Gold to
$0.075 per share (from $0.15 and $0.11 under the respective
warrants).





Summary





The
following table summarizes the long-term notes payable balances:





Second
      Amended and Restated China Gold Note
                  
                  $
                  10,421,107Less:
      discount on China Gold Note
                  
                  
                  (1,894,948
                  )Otten
      limited recourse note converted into US Dollar equivalent
                  
                  
                  6,736,786Less:
      discount for imputed interest of the Otten limited recourse
      note  atDecember
      31, 2008
                  
                  
                  (580,535
                  )Less:
      unrealized foreign currency gain from the Otten limited recourse note atDecember
      31, 2008
                  
                  
                  (1,222,082
                  )Add:
      amortization of OID
                  
                  
                  237,051Balance
                  
                  
                  13,697,379Less:
      current portion
                  
                  
                  (204,248
                  )Balance
      at December 31, 2008
                  
                  $
                  13,493,131


F-30





Long-term
debt has the following scheduled annual maturities for the years ending December
31:





2009
                  
                  $
                  204,2482010
                  
                  
                  10,421,1072011
                  
                  
                  —2012
                  
                  
                  —2013
                  
                  
                  —Thereafter
                  
                  
                  5,310,455Total
                  
                  $
                  15,935,810





NOTE 14 – COMMITMENTS AND
CONTINGENCIES





Operating
Leases





We
currently occupy approximately 160 square feet of office space, together with
the use of related adjacent common areas, in Minneapolis, Minnesota pursuant to
a lease agreement that expires May 31, 2009.  Under the lease, we are
required to make monthly payments of $1,261 through May 2009. Total rent expense
under operating leases for the years ended December 31, 2008 and 2007, was
$15,140 and $14,837, respectively.  Future minimum operating lease
commitments for 2009 is approximately $6,305.





NOTE 15 – LEGAL
MATTERS





The
Company is subject to legal proceedings in the normal course of business.
Management believes these proceedings will not have a material adverse effect on
the financial statements.





NOTE 16 – SHAREHOLDERS’
EQUITY





Common Stock
Issuances





During
fiscal 2007, we issued the following shares of our unregistered common
stock:





(1)
              We
      issued 100,000 shares to a non-US vendor, who provided extended terms on
      payables due to him.


(2)
              We
      entered into agreements with two consultants for services in public and
      investor relations and issued an aggregate of 550,000 shares with a fair
      value totaling $123,000.


(3)
              We
      issued 500,000 shares to Journey Resources Corporation relating to our
      joint venture agreement to earn our first 25% interest in the Vianey Mine
      and we executed an amendment to the joint venture agreement with Journey
      to earn the final 25% by issuing 1,600,000 shares to Journey in lieu of
      the $400,000 payment due under the
agreement.


(4)
              Pursuant
      to the exercise of a right-to-purchase option held by Andrew Green, Mr.
      Green received 3,000,000 shares at an exercise price $0.20 per share for
      total proceeds to the Company of
$600,000.


(5)
              Pursuant
      to the exercise of warrants as
follows:


(a)
              Relevant
      Marketing, LLC, exercised warrants (issued in April 2005 with an original
      exercise price of $0.50 per share) into 300,000 shares re-priced to $0.15
      per share (the President of Relevant Marketing is the step-daughter of our
      CEO, Stephen D. King, at the time of
exercise);


(b)
              Andrew
      Green exercised warrants into 4,800,000 shares with exercise prices
      ranging from $0.09125 to $0.12 per share for total proceeds to the Company
      of $473,937;


(c)
              William
      Green exercised a warrant into 1,200,000 shares with an exercise price
      $0.12 per share (Mr. Green is our President of Asia Operations and the
      brother of Andrew Green);


(d)
              Two
      lenders exercised warrants into 1,800,000 shares with exercise prices of
      $0.12 and $0.40 per share related to promissory
  notes;


(e)
              An
      individual private placement holder exercised his Class C Redeemable
      Warrant into 62,500 shares at $0.50 per
share;


F-31


(f)
              We
      issued 398,960 shares to two consultants, who, pursuant to a cashless
      exercise clause, surrendered 251,040 of the available shares to pay for
      the exercise, with a range of exercise prices from $0.25 to $0.75 per
      share; and


(g)
              Four
      consultants exercised warrants into an aggregate of 330,000 shares with a
      range of exercise prices from $0.12 to $0.30 per
  share.


(6)
              Through
      two private placements:


(a)
              We
      sold 2,400,000 units (each unit consisting of one share of common stock
      and a five-year warrant to purchase one share of common stock at an
      exercise price of $0.25 per share) at $0.25 per unit resulting in gross
      proceeds of $600,000 less offering costs of $30,000;
  and


(b)
              We
      sold 2,193,334 shares of common stock at $0.15 per share, resulting in
      gross proceeds of $329,000 less offering costs of
  $15,465.





During
fiscal 2008, we issued the following shares of our unregistered common
stock:





(1)
              We
      issued 5,000,000 shares through the exercise of warrants at prices ranging
      from $0.01 to $0.15 per share and we received net proceeds of
      $188,500.


(2)
              We
      entered into agreements with six third party consultants for services in
      public and investor relations and issued an aggregate of 2,920,000 shares
      at prices ranging from $0.14 to $0.27 per share, valued at
      $573,600.


(3)
              We
      issued an aggregate of 272,321 shares in lieu of cash payments for debt
      and accrued expenses totaling
$62,908.


(4)
              We
      issued 3,620,000 shares at $0.205 per share pursuant to the acquisition of
      the Bates-Hunter Mine totaling
$742,100.


(5)
              We
      issued 1,000,000 shares pursuant to Pacific Dawn Capital’s
      right-to-purchase option, re-priced to $0.06 per share and we received net
      proceeds of $60,000.


(6)
              Through
      private placements:


(a)
              We
      sold 6,456,666 shares of our common stock at $0.15 per share, resulting in
      net proceeds of $900,894;


(b)
              We
      sold 125,000 shares of our common stock at $0.20 per share, resulting in
      net proceeds of $24,348; and


(c)
              We
      sold 1,200,000 units (which included one common share and one warrant) at
      $0.25 per share, resulting in net proceeds of
  $300,000.


(7)
              Platinum
      Long Term Growth V, LLC received an aggregate of 7,604,229 shares as
      follows (see Note 10 – Convertible Notes
  Payable):


(a)
              We
      issued Platinum 260,268 shares at $0.20 per share in lieu of its interest
      payment due on June 30, 2008 under its senior secured convertible
      promissory note (valued at
$52,053);


(b)
              We
      issued Platinum 1,000,000 shares through the exercise of a warrant at
      $0.01 per share and we received net proceeds of
  $10,000;


(c)
              Platinum
      exercised certain warrants and received 3,770,931 shares of our common
      stock by surrendering 266,333 of its available shares to pay for the
      exercise, via the cashless exercise provision;
  and


(d)
              Platinum
      converted $197,650 of its senior secured convertible promissory note into
      2,573,030 shares at conversion rates ranging from $0.051 to
      $0.093.





Stock Purchase Warrant
Grants





For
warrants granted to non-employees in exchange for services, we account for such
warrants in accordance with EITF Issue No. 96-18 “Accounting For Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services”.  We recorded the fair
value of the equity instrument using the Black-Scholes pricing model unless the
value of the services is more reliably measurable.


F-32


During
fiscal 2007, we granted the following warrant issuances:
 
 (1)
              In
      July 2007, we entered into a one-year consulting agreement with MHG
      Consultant LLC (an affiliate of Platinum Long Term Growth V) and delivered
      into escrow two warrants to purchase up to an aggregate of 5,100,000
      shares of common stock with an exercise price of $0.01 per share. One
      warrant to purchase up to 2,100,000 shares that was immediately vested and
      (ii) one warrant to purchase up to 3,000,000 shares vested at 250,000 per
      month for 12 months as earned under the consulting agreement. The total
      fair value was $588,400. All of these warrants have vested as of December
      31, 2008.
 (2)
              In
      consideration of three loans, we issued three two-year warrants (100,000
      each) to purchase up to an aggregate of 300,000 shares of our common stock
      (100,000 at $0.27 per share and 200,000 at $0.20 per share). The fair
      value of the warrants totaled
$40,305.
 (3)
              We
      issued warrants to purchase up to 2,400,000 shares of our common stock
      through a private placement of units of our securities (each unit
      consisting of one share of our common stock and a five-year warrant to
      purchase one share of common stock at an exercise price of $0.25 per
      share). The fair value of the warrants totaled
  $287,873.
 (4)
              We
      issued warrants to two consultants to purchase an aggregate of 350,000
      shares of common stock as follows: a two year warrant to purchase up to
      100,000 shares at $0.30 per share and a five-year warrant to purchase up
      to 250,000 at $0.25 per share all for consultant services.  The
      fair value of the warrants totaled
$71,015.
 
 During
fiscal 2008, we granted the following warrant issuances:
 
 (1)  Relating
      to the acquisition of the Bates-Hunter
Mine:
 (a)
      We entered into a common stock purchase agreement with Kenneth Swaisland
      who previously assigned us certain rights relating to the
      Bates-Hunter Mine and held the right to receive a warrant to purchase up
      to 1 million shares of our common stock, which would be granted upon
      closing of our purchase of the Bates-Hunter Mine. That purchase agreement
      allowed him the right-to-purchase 125,000 shares of our unregistered
      common stock at $0.20 per share and provided for the issuance of a new
      three-year warrant to purchase up to 875,000 shares of our common stock at
      $0.20 per share in exchange for the termination of his right to receive
      the 1 million share warrant and thereby provide the Company with
      cash.  In February 2008, Mr. Swaisland purchased the 125,000
      shares for $25,000 and we finalized the agreement by issuing a three-year
      warrant to purchase up to 875,000 shares with an exercise price of $0.20
      per share.  Since the ratio of shares to warrants exceeded our
      customary terms pursuant to other private placements that we have
      conducted, we allocated only 125,000 of the 875,000 warrant to the
      purchase price of the 125,000 shares. The balance of the 750,000 warrant
      was valued (utilizing the same assumptions for the 125,000 allocated
      portion of the warrant issued) at $185,282 and was recorded as a non-cash
      mining expense, as were all previous transactions with Mr. Swaisland that
      related to the Bates-Hunter Mine.  We received net proceeds of
      $24,348 (less the $652 of offering costs), which were allocated between
      the common stock and the 125,000 share warrant based on the relative fair
      value of the securities at the time of issuance;
  and
 (b)
      We issued a two-year warrant to purchase up to 100,000 shares of our
      common stock at $0.20 per share to an unaffiliated third party as
      compensation for introductions relating to the Bates-Hunter Mine,
      negotiated during 2006.  The fair value of the warrant totaled
      $16,019 and is being recorded as an acquisition
  cost.
 (2)  We
      issued two-year warrants to two consultants to purchase an aggregate of
      5,000,000 shares of common stock as follows: a warrant to purchase up to
      1,000,000 shares at $0.20 per share, which includes a cash-less exercise
      provision, valued at $126,887 and a warrant to purchase up to 4,000,000 at
      $0.01 per share, valued at $600,000, which was exercised for
      $40,000.
 (3)  We
      issued a five-year warrant to purchase up to 1,200,000 shares of our
      common stock through a private placement of units of our securities (each
      unit consisting of one share of our common stock and a five-year warrant
      to purchase one share of common stock at an exercise price of $0.25 per
      share). The fair value of the warrant totaled
  $143,398.
 (4)  Relating
      to loans made to the Company:
 (a)
      We entered into a Note and Warrant Purchase Agreement with Platinum Long
      Term Growth V, LLC, pursuant to a 10% Senior Secured Convertible
      Promissory Note in the principal amount of $1,020,000 and issued a
      five-year warrant to purchase up to 2,500,000 shares of our common stock
      at an exercise price of $0.35 per share, which contains a cashless
      exercise provision and further provides for a weighted-average
      anti-dilution adjustment to the exercise price in the event we issue
      equity or equity-linked securities at a price below the then-applicable
      exercise price. The fair value of the warrant totaled
      $262,135;
  F-33
  (b)
      In consideration of a $160,000 loan, we issued a two-year warrant to
      purchase up to 160,000 shares of our common stock at $0.15 per share,
      which includes a cash-less exercise provision. The fair value of the
      warrant totaled $22,297;
 (c)
      In consideration of a $50,000 loan, we issued a two-year warrant to
      purchase up to 50,000 shares of our common stock at $0.20 per share. The
      fair value of the warrant totaled
$7,139;
 (d)
      In consideration of a $100,000 loan, we issued a two-year warrant to
      purchase up to 100,000 shares of our common stock at $0.15 per share,
      which includes a cashless exercise provision. The fair value of the
      warrant totaled $9,674;
 (e)
      In consideration of a secured loan of $441,000, we issued a two-year
      warrant to purchase up to 882,000 shares of our common stock at $0.11 per
      share. The fair value of the warrant totaled
  $62,063;
 (f)
      We entered into a second amendment with China Gold, LLC relating to the
      Convertible Notes Purchase Agreement, whereby the four Notes were
      cancelled and we issued an Amended and Restated Promissory Note in the
      aggregate principal amount of $9,800,000 and in consideration we issued a
      five-year warrant to purchase up to 39,200,000 shares of the our common
      stock at an exercise price of $0.15 per share.  The fair value
      of the warrant totaled $3,528,000;
 (g)
      In consideration of a $60,000 loan, we issued a five-year warrant to
      purchase up to 250,000 shares of our common stock at $0.125 per share to
      Hawk Uranium, Inc. The fair value of the warrant totaled $16,842;
      and
 (h)
      In consideration of extensions on maturity dates from various note
      holders, we issued:
 (i)
      a warrant to purchase up to 200,000 shares of our common stock at $0.20
      per share for the maturity date extension on a $110,000
    loan;
 (ii)
      a warrant to purchase up to 100,000 shares of our common stock at $0.15
      per share for the maturity date extension on a $50,000 loan;
      and
 (iii)
      the aggregate fair value of the warrants totaled
  $31,000.
 
 Using the
Black-Scholes pricing model, the following assumptions were used to calculate
the fair value of the stock purchase warrants granted, for which the fair value
of the services were not more reliably measurable: (i) during 2008: dividend
yield of 0%, risk-free interest rate of 2.0% to 3.1%, expected life equal to the
contractual life between two and five years, and volatility of 147% to 152% and
(ii) during 2007: dividend yield of 0%, risk-free interest rate of 2.6% to 4.9%,
expected life equal to the contractual life between two and ten years, and
volatility of 154% to 156%.
 
 The
following table summarizes information about the Company’s
warrants:
 
 Number
                        
                        
                        Weighted
      Average
                          Exercise Price
                        
                        
                        Range
      of
                          Exercise PriceOutstanding
      at December 31, 2006
                        
                        
                        29,578,833
                        
                        
                        $
                        0.56
                        
                        
                        $
                        0.12 - $7.15Granted
                        
                        
                        8,150,000
                        
                        
                        
                        0.10
                        
                        
                        
                        0.01
      – 0.27Cancelled
      or expired
                        
                        
                        (1,156,095
                        )
                        
                        
                        1.14
                        
                        
                        
                        0.25
      – 1.25Exercised
                        
                        
                        (9,142,500
                        )
                        
                        
                        0.16
                        
                        
                        
                        0.09125 – 0.75Outstanding
      at December 31, 2007
                        
                        
                        27,430,238
                        
                        
                        $
                        0.53
                        
                        
                        $
                        0.01
      - $7.15Granted
                        
                        
                        50,617,000
                        
                        
                        
                        0.15
                        
                        
                        
                        0.01
      – 0.35Cancelled
      or expired
                        
                        
                        (6,258,800
                        )
                        
                        
                        1.39
                        
                        
                        
                        0.12
      – 7.15Exercised
      (1)
                        
                        
                        (10,037,264
                        )
                        
                        
                        0.02
                        
                        
                        
                        0.01 – 0.15Outstanding
      at December 31, 2008
                        
                        
                        61,751,174
                        
                        
                        $
                        0.21
                        
                        
                        $
                        0.01 - $1.50Warrants
      exercisable at December 31, 2008
                        
                        
                        61,751,174
                        
                        
                        $
                        0.21
                        
                        
                        $
                        0.01 - $1.50
 
 (1)
Pursuant to a cashless exercise provision, Platinum surrendered 266,333 of its
available shares to pay for its cashless exercise of 3,770,931 shares, with an
exercise price of $0.01 per share.
  F-34
  Option
Grants
 
 We have
five stock option plans: the 1999 Stock Option Plan, the 2000 and 2003 Director
Stock Option Plans, the 2001 Employee Stock Option Plan and the 2007 Stock
Incentive Plan.  Stock options, stock appreciation rights, restricted
stock and other stock and cash awards may be granted under the plans. In
general, options vest over a period ranging from immediate vesting to five years
and expire 10 years from the date of grant. Additionally, we have two non-plans,
each titled “Non-Plan Stock Options” which are outside of the five plans listed
above.  As of December 31, 2008, an aggregate of 21,250,000 shares of
our common stock may be granted under our plans and non-plans as determined by
the board of directors, of which 1,664,000 are available for future
issuances.
 
 On
February 19, 2007, we entered into an employment agreement with William Green as
President of Asia Operations and issued Mr. Green a ten-year option to purchase
up to 2,500,000 shares of our common stock at an exercise price of $0.43 per
share, the fair market value of our common stock on the date of grant. The
option vests in three installments as follows: (i) 1,000,000 shares vested in
February 2007; (ii) with respect to an additional 500,000 shares on (A) the
earliest of the first anniversary of the effective date or (B) the achievement
of a milestone, as determined by the board of directors or (C) the termination
of Mr. Green’s employment; and (iii) with respect to the remaining 1,000,000
shares on the earlier of (a) the time the Company achieves certain performance
criteria to be established by its board of directors or (b) the third
anniversary of the option grant. Mr. Green is a sibling of Andrew Green, a
significant shareholder of the Company.
 
 On March
9, 2007, we issued a ten-year option to Stephen D. King to purchase up to
3,000,000 shares of our common stock at an exercise price of $1.02 per share,
the fair market value of our common stock on the date of grant, in consideration
for his services as Chief Executive Officer.  The option vests in six
equal annual installments commencing on the first anniversary of the grant
date.  The option shall be accelerated upon the completion of a
material acquisition of mining related assets by the Company, at the sole
discretion of the board of directors of the Company.  In the event the
Company attempts to obtain listing of its common stock on a stock exchange and
such stock exchange, as a condition to listing, requires that the Company reduce
the number of shares issued to Mr. King pursuant to the option, the Company
shall be entitled to reduce the number of unvested shares available to Mr. King
as necessary to obtain listing on that exchange.
 
 On
September 21, 2007, we granted a stock option Joe Mancuso in consideration of
his agreement to serve on our board of directors. Mr. Mancuso received a
ten-year option to purchase up to 2,000,000 shares of our common stock at an
exercise price of $0.30 per share (the closing price of our common stock on
September 21, 2007). The option vests in equal bi-annual installments of 250,000
shares each over four years, with the first installment vesting March 24,
2008.
 
 On
December 1, 2007, we entered into an agreement with a consultant for services in
public and investor relations and granted a ten-year option to purchase up to
100,000 shares of our common stock at an exercise price of $0.30 per share (the
closing price of our common stock on the grant date) all which vested
immediately.
 
 On April
10, 2008, we entered into an employment agreement and stock option agreement
with our Chief Financial Officer, Mark D. Dacko, whereby we issued Mr. Dacko a
ten-year stock option to purchase up to 600,000 shares of our common stock at an
exercise price of $0.21, the closing price on the day prior to the
grant.  The option shall vest in equal quarterly installments of
50,000 shares over three years, with the first 50,000 vesting on April 10,
2008.
 
 On April
10, 2008, we appointed Donald S. Stoica, to serve as a member of our board of
directors. In consideration of Mr. Stoica’s agreement to serve on the board, we
awarded Mr. Stoica a ten-year option to purchase up to 400,000 shares of our
common stock at an exercise price of $0.21 per share, the closing price on the
prior business day.  The option vests in equal semiannual installments
of 100,000 shares each over two years, with the first installment vesting June
30, 2008.
  F-35
  On May
29, 2008, we entered into an employment agreement and a stock option agreement
with Stephen D. King, whereby we issued Mr. King a ten-year option to purchase
up to 2,000,000 shares of our common stock at an exercise price of $0.20 per
share (the “2008 Option”).  The 2008 Option shall vest in three equal
annual installments commencing on the first anniversary of the date of the
grant.  Effective May 29, 2008, Mr. King transferred the 2008 Option
into the name of his spouse, Deborah King.  As further consideration
of the employment agreement, we entered into an amended and restated stock
option agreement with Mrs. King to purchase up to 3,000,000 shares of our common
stock at an exercise price of $1.02 per share (the “2007 Option”), amending the
terms of an option agreement originally entered into with Mr. King dated March
9, 2007, but subsequently transferred to Mrs. King on March 12,
2007.  The 2007 Option amends the terms of the vesting schedule,
whereby the vesting is reduced from six years to provide for vesting in three
equal annual installments commencing March 9, 2008.  The vesting
of both the 2008 Option and the 2007 Option shall accelerate (i) at such time
the closing price of our common stock (as quoted on the OTCBB or an exchange)
remains at or above $1.00 per share for 30 trading days, (ii) upon Mr. King’s
death, (iii) upon the occurrence of a change of control or (iv) upon our
termination of Mr. King’s employment for any reason other than
Cause.
 
 The
Company uses the Black-Scholes pricing model as a method for determining the
estimated fair value for employee stock awards under SFAS 123(R). Compensation
expense for employee stock awards is recognized on a straight-line basis over
the vesting period of service awards and for performance based awards, the
Company recognizes the expense when the performance condition is probable of
being met. The adoption of SFAS 123(R) also requires certain changes to the
accounting for income taxes and the method used in determining diluted shares,
as well as additional disclosure related to the cash flow effects resulting from
share-based compensation.
 
 In
determining the compensation cost of the options granted during fiscal 2008 and
2007, 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:
 
 2008
                              
                              
                              2007Risk-free
      interest rate
                              
                              
                              3.13%
                              
                              
                              
                              4.6%
      - 4.9%Expected
      volatility factor
                              
                              
                              150%
      - 151%
                              
                              
                              
                              154%
      - 160%Expected
      dividend
                              
                              
                              —
                              
                              
                              
                              —Expected
      option term
                              
                              10
      years
                              
                              
                              10
      years
 
 The
weighted average Black-Scholes fair value of options granted during 2008 and
2007 was $0.20 and $0.63, respectively. We recorded $2,065,156 and $1,159,951
related to employee stock compensation expense for the years ended December 31,
2008 and 2007, respectively, relating to share options granted and modifications
to existing options. All stock compensation expense is included in general and
administrative expense. There was no tax benefit from recording this non-cash
expense due to our income tax valuation allowance and due to a portion of the
options being incentive stock options. The compensation expense had a $0.02 and
$0.01 per share impact on the loss per share for the years ended December 31,
2008 and 2007, respectively. As of December 31, 2008, approximately $2,527,000
of total unrecognized compensation expense is expected to be recognized over a
period of approximately three years.
  F-36
  The
following table summarizes information about the Company’s stock
options:
 
 Number
      of
                    Options
                  
                  
                  Weighted
                    Average
                    Exercise
                    PriceOptions
      outstanding - December 31, 2006
                  
                  
                  6,512,000
                  
                  
                  $
                  0.56Granted
                  
                  
                  7,600,000
                  
                  
                  
                  0.63Canceled
      or expired
                  
                  
                  (452,500
                  )
                  
                  
                  0.37Exercised
                  
                  
                  —
                  
                  
                  
                  —Options
      outstanding - December 31, 2007
                  
                  
                  13,659,500
                  
                  
                  $
                  0.53Granted
                  
                  
                  3,000,000
                  
                  
                  
                  0.20Canceled
      or expired
                  
                  
                  (16,000
                  )
                  
                  
                  4.25Exercised
                  
                  
                  —
                  
                  
                  
                  —Options
      outstanding - December 31, 2008
                  
                  
                  16,643,500
                  
                  
                  $
                  0.47Options
      exercisable - December 31, 2008
                  
                  
                  8,593,500
                  
                  
                  $
                  0.47
 
 The
following tables summarize information about stock options outstanding at
December 31, 2008:
 
 Options
      OutstandingRange
      of
                          Exercise
      Prices
                      
                      Number
                          Outstanding
                      
                      Weighted
                          Remaining
                          Contractual
                          Life
                      
                      Weighted
                          Average
                          Exercise
                          Price
                      
                      
                      Aggregate
                          Intrinsic
                          Value(1)$0.15
      to $0.30
                      
                      
                      7,025,000
                      
                      7.9
      years
                      
                      $
                      0.23
                      
                      
                      $
                      —$0.31
      to $0.43
                      
                      
                      4,850,000
                      
                      6.7
      years
                      
                      $
                      0.38
                      
                      
                      $
                      —$0.56
      to $1.02
                      
                      
                      4,706,000
                      
                      5.0
      years
                      
                      $
                      0.87
                      
                      
                      $
                      —$2.75
      to $4.25
                      
                      
                      62,500
                      
                      2.2
      years
                      
                      $
                      2.84
                      
                      
                      $
                      —$0.15
      to $4.25
                      
                      
                      16,643,500
                      
                      6.7
      years
                      
                      $
                      0.47
                      
                      
                      $
                      —
 
 Options
      ExercisableRange
      of
                        Exercise
      Prices
                    
                    Number
                        Exercisable
                    
                    Weighted
                        Remaining
                        Contractual
                      Life
                    
                    Weighted
                        Average
                        Exercise
                        Price
                    
                    
                    Aggregate
                        Intrinsic
                        Value(1)$0.15
      to $0.30
                    
                    
                    2,875,000
                    
                    7.7
      years
                    
                    $
                    0.23
                    
                    
                    $
                    —$0.31
      to $0.43
                    
                    
                    2,950,000
                    
                    6.6
      years
                    
                    $
                    0.38
                    
                    
                    $
                    —$0.56
      to $1.02
                    
                    
                    2,706,000
                    
                    3.7
      years
                    
                    $
                    0.76
                    
                    
                    $
                    —$2.75
      to $4.25
                    
                    
                    62,500
                    
                    2.2
      years
                    
                    $
                    2.84
                    
                    
                    $
                    —$0.15
      to $4.25
                    
                    
                    8,593,500
                    
                    5.7
      years
                    
                    $
                    0.47
                    
                    
                    $
                    —
 
 (1)  The
aggregate intrinsic value in the table represents the difference between the
closing stock price on December 31, 2008 and the exercise price, multiplied by
the number of in-the-money options that would have been received by the option
holders had all option holders exercised their options on December 31, 2008. No
options were exercised during 2008 or 2007.
  F-37
 
 NOTE 17 – RELATED PARTY
TRANSACTIONS
 
 Hawk Uranium
Inc.
 
 Our
chairman, H. Vance White, is an officer and director of Hawk Uranium Inc, (f/k/a
Hawk Precious Minerals Inc.) a corporation formed under the laws of the
Providence of Ontario, Canada.
 
 We
entered into a Memorandum of Agreement with Hawk in June 2006, whereby we
acquired a 50% interest in the MacNugget Claims, held entirely by Hawk by
issuing Hawk 40,000 shares of our common stock, valued at $12,800. Then in
November 2006, we both sold a portion of the MacNugget Claims to MacDonald Mines
Exploration Ltd. such that Hawk and the Company each owned a 24.5%
interest.  In October 2007, we sold our 24.5% interest to both Hawk
and MacDonald for an aggregate sale price of Cdn$50,000 ($48,560 US). Other than
the common stock issued to Hawk, we had not incurred any other expenses related
to this project.
 
 In August
2007, we entered into a management services agreement with Hawk, which agreement
expired on December 31, 2007 and required a $100,000 payment, which has been
accrued but not paid as of December 31, 2008.
 
 On
September 19, 2007, we sold all of our rights and claims in the Holdsworth
Project to Hawk for Cdn$50,000 ($47,260 US). We acquired the Holdsworth Project
from Hawk in June 2003.  The rights we held allowed us to explore only
through a limited surface depth, with the remaining below-surface rights
belonging to Hawk. We had not expended any funds on the Holdsworth since its
acquisition. We’ve retained a one percent gross gold royalty for any gold
extracted from the limited surface depth and Hawk retains the right to purchase
one half of the royalty from us for Cdn$500,000. We have estimated that the
value of the one percent royalty is immaterial and therefore have not recorded
the possibility of a future gain.
 
 In
January 2008, we entered into a new management services agreement with Hawk,
which agreement expired on December 31, 2008 and required a $100,000 payment,
which has been accrued but not paid as of December 31, 2008.
 
 In
November 2008, we entered into a bridge financing arrangement with Hawk, whereby
Hawk made a loan to the Company of $60,000 in consideration of a 90-day
promissory note, which bears interest at a rate of 10%. The proceeds of the
financing are being expressly used to maintain the permits and land claims of
the FSC Project in South Africa. In consideration of the loan, we issued a
five-year warrant to purchase up to 250,000 shares of our common stock and
granted a security interest in our right to acquire the 65% interest in Kwagga
Barbados, subject to any existing security interest granted by us prior to
November 12, 2008.  The security interest granted is to be construed
to the fullest extent permitted without violating any term or right of any
existing security interest or any holder of such security interest granted prior
to the grant date. In March 2009, we received an extension until April 20, 2009
on the maturity date and for such extension we reduced the exercise price of the
five-year warrant from $0.125 per share to $0.0625 per share. Interest expense
of $808 was recorded in the period ended December 31, 2008.
 
 Stephen D.
King
 
 Stephen
D. King is our Chief Executive Officer and a member of our Board of
Directors.
 
 Pursuant
to certain secured convertible promissory notes with Pacific Dawn Capital, LLC
and Andrew Green entered into during 2005, Mr. King, who only served as a board
member at that time, provided personal guaranties for the repayment of these
notes. In exchange for the guaranties, we issued two warrants to purchase up to
an aggregate of 2,000,000 shares of our common stock, with an exercise price of
$0.15 per share. Mr. King subsequently assigned both of the warrants to his
spouse.  The warrants had expiration dates of October 13 and November
4, 2007. In October 2007, our board of directors authorized an extension of the
expiration dates, granting a one-year extension. In September 2008, our board of
directors authorized an additional extension of the expiration dates, granting a
two-year extension, until October 13 and November 4, 2010.  The
warrant modifications resulted in non-cash compensation expense of $145,000 and
$139,054 for the years ended December 31, 2008 and 2007,
respectively.
  F-38
 
 Corporate Resource
Management, Inc.
 
 On
November 12, 2008, we entered into an amended and restated consulting agreement
with Corporate Resource Management, Inc, a Minnesota corporation
(“CRM”).  CRM is an entity wholly owned by Deborah King, the spouse of
Stephen D. King.  CRM provides the Company with investment banking
services relating to the purchase and sale of mining related
assets.  Pursuant to the agreement, CRM is entitled to a fee of
$13,750 per month, plus reimbursement of normal out-of-pocket
expenses.  The term of the agreement is for one year, with automatic
renewals unless either party provides notice of termination.  Each
party has the right to terminate the agreement with a 30-day written notice,
provided that CRM is entitled to a $75,000 termination fee if the agreement is
terminated by the Company without cause. The amended agreement superseded in its
entirety the terms of the prior consulting agreement with CRM dated May 15,
2006. Pursuant to the amendment, the Company eliminated a provision for
potential payment of commissions of up to two percent of the value of any asset
transactions completed during the term of the agreement and for a period of one
year following termination. For the years ended December 31, 2008 and 2007, we
paid $153,750 and $120,000, respectively, pursuant to the terms of the
consulting agreement.
 
 Pacific Dawn Capital
LLC
 
 Donald S.
Stoica became a member of our Board of Directors effective April 2008 and he is
a principle in Pacific Dawn Capital LLC.  In December 2008, we issued
1,000,000 shares of our unregistered common stock pursuant to a
right-to-purchase option held by Pacific Dawn Capital, LLC, exercised at $0.06
per share (re-priced from $0.10 per share). This right-to-purchase option was
granted to Pacific Dawn stemming from financing transactions during 2005. The
original exercise price was set at $0.20 per share.
 
 NOTE 18 – INCOME
TAXES
 
 The
Company estimates that at December 31, 2008 it had cumulative net operating loss
carryforwards for tax purposes of approximately $18,807,000 for both federal and
state purposes.  These carryforwards, if not used, will begin to
expire in 2023.  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.
During 2006, the Company had a change of ownership as defined under IRC Section
382.  Although the Company has not performed a formal Section 382
study, it appears that the NOL Carryforward from 2006 would be limited to
approximately $740,000 per year. Future ownership changes could significantly
further limit the use of the NOL.  Due to the number of additional
shares issued in 2007 and 2008, it appears that the Company may have another
Section 382 limitation in 2009.  In addition, a number of the
Company's deferred tax assets will likely be considered capital assets and
therefore, if the transactions result in a loss, they would create a capital
loss. Capital losses have a five year carryforward and can only be offset by
capital gains.  There can be no assurance of future capital gain
income to offset any potential capital losses.
 
 Significant
components of the Company’s estimated deferred tax assets and liabilities at
December 31:
 
 2008
                            
                            
                            2007Deferred
      tax assets:Net
      operating loss carryforwards
                            
                            $
                            7,711,000
                            
                            
                            $
                            6,014,000Exploration
      rights
                            
                            
                            3,274,000
                            
                            
                            
                            3,198,000Expenses
      related to warrants and options
                            
                            
                            2,168,000
                            
                            
                            
                            1,736,000Accrued
      liabilities and other
                            
                            
                            1,632,000
                            
                            
                            
                            413,000Total
      deferred tax asset
                            
                            
                            14,785,000
                            
                            
                            
                            11,361,000Valuation
      allowance
                            
                            
                            (14,785,000
                            )
                            
                            
                            (11,361,000
                            )$
                            —
                            
                            
                            $
                            —
  F-39
 
 The
income tax provision consists of the following for the years ended December
31:
 
 2008
                    
                    
                    2007Current
      tax provision
                    
                    $
                    —
                    
                    
                    $
                    —Deferred
      tax provision
                    
                    
                    (3,424,000
                    )
                    
                    
                    (2,783,000
                    )Valuation
      allowance
                    
                    
                    3,424,000
                    
                    
                    
                    2,783,000Total
      income tax provision
                    
                    $
                    —
                    
                    
                    $
                    —
 
 Reconciliation
between the statutory rate and the effective tax rate for the years ended
December 31:
 
 2008
                    
                    
                    2007Federal
      statutory tax rate
                    
                    
                    (35.0
                    )%
                    
                    
                    (35.0
                    )%State
      taxes, net of federal benefit
                    
                    
                    (6.0
                    )%
                    
                    
                    (6.0
                    )%Permanent
      differences
                    
                    
                    14.0
                    %
                    
                    
                    17.0
                    %Valuation
      allowance
                    
                    
                    27.0
                    %
                    
                    
                    24.0
                    %Effective
      tax rate
                    
                    
                    —
                    
                    
                    
                    —
 
 At
December 31, 2008, the Company fully reserved its net deferred tax assets
totaling $14,785,000, recognizing that the Company has incurred losses during
the last several years and there is no assurance that future years will be
profitable.
 
 NOTE
19 – EARNINGS (LOSS) PER SHARE
 
 The
following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share for the years ended
December 31:
 
 2008
                  
                  
                  2007Basic
      earnings (loss) per share calculation:Net
      income (loss) to common shareholders
                  
                  $
                  (12,907,209
                  )
                  
                  $
                  (11,859,197
                  )Weighted
      average of common shares outstanding
                  
                  
                  129,674,425
                  
                  
                  
                  105,146,864Basic
      net earnings (loss) per share
                  
                  $
                  (0.10
                  )
                  
                  $
                  (0.11
                  )Diluted
      earnings (loss) per share calculation:Net
      income (loss) per common shareholders
                  
                  $
                  (12,907,209
                  )
                  
                  $
                  (11,859,197
                  )Basic
      weighted average common shares outstanding
                  
                  
                  129,674,425
                  
                  
                  
                  105,146,864Options,
      convertible debentures and warrants
                  
                  
                  
                  (1)
                  
                  
                  
                  (2)Diluted
      weighted average common shares outstanding
                  
                  
                  129,674,425
                  
                  
                  
                  105,146,864Diluted
      net income (loss) per share
                  
                  $
                  (0.10
                  )
                  
                  $
                  (0.11
                  )
 
 (1)
              As
      of December 31, 2008, we had (i) 16,643,500 shares of common stock
      issuable upon the exercise of outstanding stock options, (ii) 61,751,174
      shares of common stock issuable upon the exercise of outstanding warrants
      and (iii) reserved an aggregate of 19,547,528 shares of common stock
      issuable under outstanding convertible debt agreements.  These
      97,942,202 shares, which would be reduced by applying the treasury stock
      method, were excluded from diluted weighted average outstanding shares
      amount for computing the net loss per common share, because the net effect
      would be antidilutive for each of the periods
      presented.  Additionally, we have reserved 50 million shares
      that could be issued upon satisfactory performance of a consultant (for
      services to be performed after December 31, 2008) and the potential
      consummation of various mining project acquisitions, subject to the
      satisfaction of certain conditions under the respective
      agreements.
  F-40
 
 (2)
              As
      of December 31, 2007, we had (i) 13,659,500 shares of common stock
      issuable upon the exercise of stock options, (ii) 24,930,238 shares of
      common stock issuable upon the exercise of warrants and (iii) reserved an
      aggregate of 21,150,000 shares of common stock issuable under convertible
      debt agreements.  These 59,739,738 shares, which would be
      reduced by applying the treasury stock method, were excluded from the
      basic and diluted weighted average outstanding shares amount for computing
      the net loss per common share, because the net effect would be
      antidilutive for each of the periods
presented.
 
 NOTE
20 – SUBSEQUENT EVENTS
 
 Platinum Note
Conversions
 
 On
January 16, 2009, Platinum Long Term Growth V, LLC gave notice to convert an
additional $50,000 of the principal balance of their 10% Senior Secured
Convertible Promissory Note (see Note 10 – Convertible Notes Payable) into
1,056,077 shares of our common stock.  Pursuant to the terms of the
convertible promissory note, the conversion price was adjusted from $0.18 to
$0.047345 per share, which was 85% of the lowest VWAP for the 10 trading days
preceding January 16, 2009. On February 26, 2009, they converted $25,000 into
342,465 shares at $0.073 per share.  On March 9, 2009, they converted
$25,000 into 368,568 shares at $0.06783 per share.  On March 16, 2009,
they converted $65,000 into 1,026,450 shares at $0.063325 per
share.
 
 Joint Venture for the
Nanjing Sudan Mining Co. Ltd. and Xiaonanshan Mining Co.
Ltd.
 
 On March
17, 2009, the Company and London Mining Plc (“London Mining”) entered into a
joint venture created for the purpose of acquiring Nanjing Sudan Mining Co. Ltd.
(“Sudan”) and Xiaonanshan Mining Co. Ltd. (“XNS”, and with Sudan collectively
referred to as the “PRC Properties”). Following the subscription by London
Mining into the joint venture entity, London Mining and the Company each hold a
50% equity interest in China Global Mining Resources (BVI) Ltd., a British
Virgin Islands corporation (“CGMR (BVI)”).  The acquisition of the PRC
Properties was completed through China Global Mining Resources Ltd., a Hong Kong
corporation and wholly owned subsidiary of CGMR (BVI) (“CGMR HK”), pursuant to
the terms of those certain Equity Transfer Agreements dated August 11, 2008 (as
amended or supplemented). The aggregate purchase prices for the acquisitions of
Sudan and XNS were approximately $23.3 million (160 million RMB) and $18.9
million (130 million RMB), respectively. Additionally, CGMR (BVI) is required to
pay one of the sellers an aggregate of approximately $54 million pursuant to a
consulting agreement dated August 11, 2008 (as amended and
assigned).
 
 The
Company and London Mining entered into an amended and restated subscription
agreement (the “Subscription Agreement”) pursuant to which London Mining
purchased 100 ordinary A shares (the “A Shares”) of CGMR
(BVI).  London Mining paid an aggregate of $38.75 million for the A
Shares, which constitute a 50% equity interest in CGMR (BVI).  The
Company holds the remaining 50% equity interest in CGMR (BVI) in the form of 100
ordinary B shares (the “B Shares”). Pursuant to the Subscription Agreement,
London Mining further loaned the Company an aggregate of $5.75 million pursuant
to a loan agreement dated March 17, 2009 (the “WB Loan
Agreement”).  The WB Loan Agreement provides for interest at a rate
equal to the prime rate plus 2% per annum (subject to a cap of 8%), and the
obligation matures in January 2014 or upon the earlier termination of the
Shareholders’ Agreement (as defined below).  The Company used the
proceeds of the loan to make payments toward certain of its obligations,
including a $5.6 million prepayment under its promissory note dated December 22,
2008 in the principal face amount of $10,241,107 issued in favor of China Gold,
LLC.
  F-41
  Pursuant
to the Subscription Agreement, the Company and London Mining entered into a
shareholders’ agreement (the “Shareholders’ Agreement”) setting forth certain
preferences of the A Shares and governance terms applicable to CGMR
(BVI).  The A Shares carry a preference with respect to return of
capital and distributions until such time as an aggregate of $44.5 million is
returned or distributed to the holders of the A Shares (the
“Repayment”).  The A Shares are further entitled to 99% of the
distributions of CGMR (BVI) until Repayment, after which time they will be
entitled to 60% of the distributions until the PRC Properties achieve an annual
production output of 850,000 tons of iron ore. Upon achievement of such
production, the respective holders of the A Shares and the B Shares, each as a
class, will be entitled to 50% of the distributions.  London Mining is
entitled under the Shareholders’ Agreement to a management fee in the amount of
$5.5 million for the first year following the acquisition and $4.5 million
annually thereafter until Repayment.
 
 As part
of the completion of the subscription, the parties completed the issuance of a
promissory note of CGMR (BVI) issued in favor of the Company in the aggregate
principal amount of $4.8 million (the “WB Note”), issued in consideration of the
Company’s transfer to CGMR (BVI) of 100% of the equity of CGMR HK which was
effected on December 23, 2008.  The WB Note does not bear interest,
and has a maturity date of December 31, 2014.  Pursuant to the WB
Note, CGMR (BVI) is not required to make payments until 2011, and annual
payments thereafter are based on a percentage of the outstanding principal under
the WB Note.  All payments of the WB Note prior to maturity will be
subject to the available profits of CGMR (BVI).  Any payments under
the WB Note are required to be used to make payments toward any outstanding note
obligations of the Company in favor of China Gold, LLC.
  In
conjunction with the joint venture and consummation of the acquisition, a
five-year consulting agreement between Mr. Lu (one of the sellers) and CGMR
(BVI) became effective.  Under the terms of the agreement, Mr. Lu is
obligated to assist in operating the properties, obtaining and maintaining
necessary government approvals, and providing strategic advice, among other
services.  In consideration of his services: (i) CGMR (BVI) is obligated to
pay Mr. Lu a consulting fee of approximately $10 million within one day of the
closing, (ii) Mr. Lu is eligible to earn up to an additional $44 million in
cash, and (iii) CGMR (BVI) will procure that Mr. Lu receive up to 50 million
shares of the Wits Basin common stock subject to fulfillment of certain
production guarantees by Mr. Lu.
  F-42