**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-KSB**
 
 ANNUAL
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
        EXCHANGE ACT OF 1934
 For
        the
        Year Ended December 31, 2006
 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
 
 Check
        whether the issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act. o
 
 Check
        whether the Registrant (1) has filed all reports required to be filed by
        Section
        13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the registrant was required to file such reports), and (2) has
        been
        subject to such filing requirements for the past 90 days. Yes x No o
 
 Check
        if
        there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
        S-B contained herein, and will not be contained, to the best of Registrant’s
        knowledge, in definitive proxy or information statements incorporated by
        reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB
        o.
 
 Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act. Yes o     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 12, 2007 was approximately $81,000,000, based on the closing
        sale
        price as reported on the OTCBB for the Registrant’s common stock on April 12,
        2007.
 
 On
        April
        12, 2007, there were 104,251,674 shares of common stock issued and outstanding,
        which is the Registrant’s only class of voting stock.
 
 Documents
        Incorporated by Reference: None.
 
 Traditional
        Small Business Disclosure Format: Yes o     No x
  
  WITS
        BASIN PRECIOUS MINERALS INC.
 
 Annual
        Report on Form 10-KSB
 For
        the
        Year Ended December 31, 2006
 Table
        of
        Contents
  PagePART
                  IItem
                  1.
              Description
                  of Business
              
              4Item
                  2.
              Description
                  of Properties
              
              20Item
                  3.
              Legal
                  Proceedings
              
              20Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              
              20PART
                  IIItem
                  5.
              Market
                  for Common Equity and Related Shareholder Matters
              
              21Item
                  6.
              Management’s
                  Discussion and Analysis of Financial Conditionand
                  Results of Operations
              
              21Item
                  7.
              Financial
                  Statements
              
              27Item
                  8.
              Disagreements
                  with Accountants on Accounting and Financial Disclosure
              
              27Item
                  8A.
              Controls
                  and Procedures
              
              28Item
                  8B.
              Other
                  Information
              
              28PART
                  IIIItem
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance
                  withSection
                  16(a) of the Exchange Act
              
              29Item
                  10.
              Executive
                  Compensation
              
              31Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and
                  RelatedShareholder
                  Matters
              
              34Item
                  12.
              Certain
                  Relationships and Related Transactions
              
              35Item
                  13.
              Exhibits
              
              38Item
                  14.
              Principal
                  Accountant Fees and Services
              
              41Signatures
              
              42
 
 
  SPECIAL
        NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
 This
        Annual Report on Form 10-KSB contains both historical statements and statements
        that are forward-looking in nature. Historical statements are based on events
        that have already happened. Certain of these historical events provide some
        basis to our management, with which assumptions are made relating to events
        that
        are reasonably expected to happen in the future. Management also relies on
        information and assumptions provided by certain third party operators of
        our
        projects as well as assumptions made with the information currently available
        to
        predict future events. These future event predictions, or forward-looking
        statements, include (but are not limited to) statements related to the
        uncertainty of the quantity or quality of probable ore reserves, the
        fluctuations in the market price of such reserves, general trends in our
        operations or financial results, plans, expectations, estimates and beliefs.
        You
        can identify forward-looking statements by terminology such as “may,” “could,”
“should,” “anticipate,” “believe,” “estimate,” “continue,” “expect,” “intend,”
“plan,” “predict,” “potential” and similar expressions and their variants. These
        forward-looking statements reflect our judgment as of the date of this Annual
        Report with respect to future events, the outcome of which is subject to
        risks,
        which may have a significant impact on our business, operating results and/or
        financial condition. Readers are cautioned that these forward-looking statements
        are inherently uncertain. Should one or more of these risks or uncertainties
        materialize, or should underlying assumptions prove incorrect, actual results
        or
        outcomes may vary materially from those described herein. We undertake no
        obligation to update forward-looking statements. The risks identified in
        the
        section following Item 1 entitled “RISK FACTORS,” among others, may impact
        forward-looking statements contained in this Annual Report.
 
 3
  **PART
        I**
 
 **ITEM
        1. BUSINESS**
 
 **OVERVIEW**
 
 Wits
        Basin Precious Minerals Inc., and subsidiaries (“we,” “us,” “our,” “Wits Basin”
or the “Company”) is a minerals exploration and development company based in
        Minneapolis, Minnesota. As of December 31, 2006, we hold interests in mineral
        exploration projects in South Africa, Canada, Colorado and Mexico.
 
 ·
              We
                  hold a 35 percent equity interest in Kwagga Gold (Barbados) Limited
                  (“Kwagga”), 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.” The exploration efforts
                  being conducted are adjacent to the historic Witwatersrand Basin.
                  The last
                  completed drill hole on this property occurred in 2005. We acquired
                  the
                  FSC Project from Hawk Precious Minerals Inc., a corporation formed
                  under
                  the laws of the Providence of Ontario, Canada (“Hawk”) in June 2003. Hawk
                  is an affiliate of ours and H. Vance White (the Chairman of our
                  Board of
                  Directors) is also an officer and director of Hawk. See the heading
‘Our
                  Exploration Projects’ that follows for information about events that have
                  occurred subsequent to December 31,
                  2006.
  ·
              The
                  other project that we acquired from Hawk was the “Holdsworth Project,”
                  which is located near the village of Hawk Junction, Ontario, Canada.
                  Our
                  rights allow us to explore only through a limited surface depth,
                  with the
                  remaining below-surface rights belonging to Hawk. We have not expended
                  any
                  funds since the acquisition and none are required for the foreseeable
                  future to maintain our existing rights. Since the book value of
                  the
                  Holdsworth Project had been reduced to zero as of December 31,
                  2005, and
                  based on our estimated return on capital (against the estimated
                  cash
                  outlays to perform the required work) we deem this project immaterial
                  to
                  our project portfolio.
 
 ·
              On
                  September 20, 2006, we executed a formal asset purchase agreement
                  relating
                  to the purchase of assets of the Hunter GoldMining
                  Corporation, a corporation incorporated under the laws of British
                  Columbia, Canada, which assets includes the Bates-Hunter Mine,
                  a prior
                  producing gold mine from the 1860’s until the 1930’s located in Central
                  City, Colorado, the Golden Gilpin Mill located in Black Hawk, Colorado
                  and
                  the associated real and personal property assets. The closing of
                  the
                  transaction contemplated by the asset purchase agreement is currently
                  anticipated to occur sometime during the 2ndor
                  3rdquarter of 2007. See the heading ‘Our Exploration Projects’ that follows
                  for information about an extension subsequent to December 31, 2006.
                  The
                  Bates-Hunter Mine was a prior producing gold mine from the 1860’s until
                  the 1930’s.
 
 ·
              On
                  December 18, 2006, we entered into a 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, a
                  wholly
                  owned subsidiary of Journey. Pursuant to the terms of the joint
                  venture
                  agreement, we own a 25 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.  We also own the exclusive right and option
                  to acquire up to an additional 25 percent undivided beneficial
                  interest in
                  the project.
 
 ·
              On
                  June 29, 2006, we executed two agreements relating to a VMS (volcanogenic
                  massive sulphide) base metals project exploration project located
                  in
                  northern Ontario, Canada. The first agreement was pursuant to a
                  Memorandum
                  of Agreement between the Company and Hawk (the “Hawk Memorandum”) whereby
                  we acquired a 50 percent interest in five mining claims (the “MacNugget
                  Claims”) held by Hawk in consideration of the issuance of 40,000 shares
                  of
                  our common stock to Hawk. Under the terms of a second agreement,
                  we and
                  Hawk sold a portion of the MacNugget Claims to MacDonald Mines
                  Exploration
                  Ltd., (“MacDonald”), whereby MacDonald became a 51 percent owner in the
                  MacNugget Claims and the operator of the project. A formal joint
                  venture
                  agreement has been finalized and executed in February 2007. Other
                  than the
                  common stock issued to Hawk in June 2006, we have not incurred
                  any other
                  expenses related to this project. Due to the limited possibility
                  of return
                  on capital, we do not anticipate providing any significant funding
                  for the
                  foreseeable future and therefore, we deem this project immaterial
                  to our
                  project portfolio.
  4
  As
        of
        December 31, 2006, we do not directly own any permits, we possess only a
        few
        pieces of equipment and we employ insufficient numbers of personnel necessary
        to
        actually explore and/or mine for minerals. Therefore, we 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 on our properties.
  **OUR
        HISTORY**
 
 We
        were
        originally incorporated under Colorado law in December 1992 under the name
        Meteor Industries, Inc. In conjunction with our April 2001 merger with activeIQ
        Technologies Inc., we reincorporated under Minnesota law and changed our
        name to
        Active IQ Technologies, Inc. In June 2003, following our transaction to acquire
        the rights to the FSC and Holdsworth Projects, we changed our name to Wits
        Basin
        Precious Minerals Inc., in order to further associate our corporate name
        with
        our new business model.
 
 Until
        March 14, 2003, we provided industry-specific solutions for managing, sharing
        and collaborating on business information on the Internet through our Hosted
        Solutions Business and until April 30, 2003, we provided accounting software
        through our Accounting Software Business. We sold substantially all of the
        assets relating to our Hosted Solutions and Accounting Software Businesses
        as of
        such dates and as a result, we became an exploratory stage company effective
        May
        1, 2003. As of the date of this Annual Report, we have only one operating
        segment, that of minerals exploration and we will continue reporting as an
        exploration stage company until such time as an economic mineral deposit
        is
        discovered or if we otherwise complete acquisitions or joint ventures with
        business models that have revenues.
  **OUR
        EXPLORATION PROJECTS**
  **KWAGGA
        GOLD (BARBADOS) LIMITED and the FSC PROJECT**
 
 On
        June
        4, 2003, Hawk Precious Minerals Inc., a corporation formed under the laws
        of the
        Providence of Ontario, Canada (“Hawk”), AfriOre International (Barbados)
        Limited, a corporation formed under the laws of Barbados (“AfriOre”), and
        AfriOre’s wholly owned subsidiary, Kwagga Gold (Proprietary) Limited, a
        corporation formed under the laws of the Republic of South Africa (“Kwagga”),
        entered into a Heads of Agreement, whereby Hawk could earn an interest and
        rights in certain lands (held in Kwagga) located in the region of the main
        Witwatersrand Basin in the Republic of South Africa, referred to as the “FSC
        Project,” and the right to fund and participate in all operations conducted on
        the FSC Project for the purposes of exploring for and, if warranted, exploiting
        base and/or precious minerals discovered therein. The Heads of Agreement
        required a total investment of $3,500,000 from Hawk to acquire a 50 percent
        equity ownership of Kwagga Pty. Upon Hawk’s investment of $2,100,000 into
        Kwagga, such amount to be used toward exploration, it would acquire such
        number
        of Kwagga shares that represent 35 percent of Kwagga’s issued and outstanding
        shares of capital stock. Upon Hawk’s additional investment of $1,400,000, it
        would acquire such number of Kwagga shares that represent an additional 15
        percent of Kwagga’s outstanding equity.
  5
 
 On
        June
        26, 2003, the Company acquired Hawk’s interest and rights to the Heads of
        Agreement. In October 2003, the initial exploration efforts began at the
        FSC
        Project. On August 27, 2004, the Company entered into a new shareholders
        agreement, as amended on August 30, 2004, with AfriOre and its wholly owned
        subsidiary Kwagga Gold (Barbados) Limited) (collectively, the “New Agreement”).
        The New Agreement supersedes the Heads of Agreement, and provides the Company
        with additional rights relating to its participation in the FSC Project.
        Kwagga
        (Barbados) is the parent and holding company of Kwagga (Proprietary). In
        all
        further discussions, we will refer to the parent company of Kwagga (Barbados)
        and its wholly owned subsidiary Kwagga (Proprietary) collectively as “Kwagga.”
 
 Effective
        with the execution of the New Agreement, Kwagga Barbados was required to
        issue
        us shares representing approximately 33.6 percent of its outstanding equity
        in
        consideration for our investment of $2.025 million. In September 2004, we
        invested an additional $75,000 (for an aggregate of the required initial
        $2.1
        million commitment) in order to receive the additional number of shares to
        bring
        our aggregate ownership to 35 percent. With this 35 percent ownership, we
        would
        be deemed to be a minority shareholder of Kwagga Barbados.
  
 
 In
        October 2003, AfriOre commissioned the first drill hole, which was completed
        on
        June 8, 2004. This drill hole, 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 drill hole 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 the 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.
  6
 In
          our
          prior reports, we indicated that an initial five to seven drill hole program
          would be accomplished with the Kwagga investment. Many factors, including
          the
          exchange rate from the US Dollar to the South African Rand, to the lack
          of
          qualified drilling contractors had a significant impact on the actual number
          of
          drill holes completed. As of December 31, 2005, there was only $120,803
          remaining in reserve in the bank accounts of Kwagga and AfriOre, but the
          potential still existed for an additional drill hole to be commissioned
          and
          started. It would have required additional funds to be invested in order
          to
          complete a third drill hole, but nevertheless, a third hole could have
          been
          possible. In retrospect, the program did end up at a two hole only program.
          Since no drilling activity occurred in 2006, we believe that an impairment
          has
          occurred and accordingly we have written off the remaining funds held as
          no
          further drill holes will be commissioned.
 On
        February 16, 2007, Lonmin Plc announced that it acquired all of the equity
        interest of AfriOre Limited following the completion of compulsory redemption
        proceedings in accordance with the laws of the British Virgin Islands. Lonmin
        Plc is a primary producer of Platinum Group Metals (PGMs) with its headquarters
        in London. Company management has contacted Lonmin Plc management in order
        to
        further progress in the FSC Project, and we are currently in negotiations
        with
        Lonmin to revise the New Agreement, which is still valid.
  **BATES-HUNTER
        MINE**
 
 Overview
 
 On
        January 21, 2005, we completed the acquisition of an option to purchase all
        of
        the outstanding capital stock of the Hunter Gold Mining Corporation (a
        corporation incorporated under the laws of British Columbia, Canada) including
        its wholly owned subsidiary Hunter Gold Mining, Inc., (a corporation
        incorporated under the laws of Colorado). On July 21, 2006, we executed a
        stock
        purchase agreement intended to supersede the option agreement. On September
        20,
        2006, we executed a formal asset purchase agreement (the “Bates Asset Purchase
        Agreement”) to purchase the Bates-Hunter Mine on different economic terms than
        previously agreed upon. The Bates Asset Purchase Agreement is by and among
        Wits
        Basin and Hunter Gold Mining Corporation, Hunter Gold Mining Inc., Central
        City
        Consolidated Mining Corp., a Colorado corporation and George Otten, a resident
        of Colorado (collectively the “Sellers”) for the purchase of the following
        assets: the Bates-Hunter Mine (this was a prior producing gold mine when
        operations ceased during the 1930’s), Golden Gilpin Mill, a water treatment
        plant, mining properties, claims, permits and all ancillary equipment. The
        closing of the transaction contemplated by the Bates Asset Purchase Agreement
        is
        currently anticipated to occur sometime during the 2 nd or
        3 rd quarter
        of 2007. At the formal closing, we shall deliver to the Sellers **** (i)
        the
        sum of $250,000 Canadian Dollars, (ii) a note payable to Sellers in the original
        principal amount of $6,500,000 Canadian Dollars, (iii) a deed of trust with
        George Otten as trustee for the Sellers securing the note payable, and (iv)
        3,620,000 shares of our unregistered and restricted $.01 par value common
        stock.
        The Bates Asset Purchase Agreement would still require us to provide the
        following additional compensation to non-affiliate third parties: (i) a warrant
        to purchase up to 1,000,000 shares of our common stock, at an exercise price
        equal to the average prior 30-day sale price of our common stock; (ii) a
        two
        percent net smelter return royalty on all future production, with no limit;
        (iii) a one percent net smelter return royalty (up to a maximum payment of
        $1,500,000); and (iv) a fee of $300,000, payable in cash or common stock
        at our
        election.
 Kenneth
        Swaisland, an individual who previously assigned us certain rights relating
        to the Bates-Hunter property, has indicated to us his frustration with
        our delay in closing the purchase of the Bates-Hunter property as well as
        certain issues concerning the development of the property.  Mr. Swaisland
        has requested additional consideration from us and, absent such consideration,
        has threatened to pursue action against the Company to require the reassignment
        to him of our rights to the Bates-Hunter property as provided in the
        purchase agreement.  We have reviewed the terms of the underlying
        documents with Mr. Swaisland, and believe his potential claims against us
        are without merit, and that his rights under the purchase agreement are
        limited to the consideration that he is entitled in the event the purchase
        is completed.
  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.
  7
 
 The
        mine
        site is located in the middle of a residential district within the city limits
        of Central City and is generally zoned for mining or industrial use. The
        Bates-Hunter shaft is equipped with a two compartment 85 foot tall steel
        headframe and a single drum hoist using a one inch diameter rope to hoist
        two
        ton skips from at least 1,000 feet deep. Permit M-1990-41 covers the
        Bates-Hunter Mine and the Golden Gilpin Mill and is in good standing. Colorado
        permitting regulations allow for transfer of ownership or relocating the
        mine or
        mill site within 90 to 120 days based on technical considerations only. A
        state-of-the-art water treatment plant has been constructed adjacent to the
        mine
        headframe. This is a significant asset given the mine site location and
        environmental concerns. Substantial water rights are attached to the mine
        and
        mill permits. There is ample water to meet both present and future project
        needs. The Water Discharge Permit #0043168 is in good standing until July
        31,
        2007. Transfer of permit ownership requires an amendment showing the new
        owner
        and takes about 30 days to process.
 
  Geology
 
 The
        regional geology of the Central City district is not “simple” but the economic
        geology is classically simple. The Precambrian granites and gniesses in the
        area
        were intensely fractured during a faulting event resulting in the emplacement
        of
        many closely spaced and roughly parallel veins. The veins are the result
        of
        fracture filling by fluids that impregnated a portion of the surrounding
        gneisses and granites with lower grade gold concentrations “milling ore” and
        usually leaving a high grade “pay streak” of high grade gold sulphides within a
        quartz vein in the fracture. There are two veins systems present, one striking
        east-west and the other striking sub parallel to the more predominant east-west
        set. These veins hosted almost all of the gold in the camp. The veins vary
        from
        2 to 20 feet in width and dip nearly vertical. Where two veins intersect,
        the
        intersection usually widens considerably and the grade also increases, sometimes
        to bonanza grades. In the Timmins camp, this same feature was described as
        a
“blow out” and resulted in similar grade and thickness increases. The Bates vein
        in the area of the Bates-Hunter has been reported to have both sets of veins
        and
        extremely rich “ore” where the two veins intersected. These veins persist to
        depth and consist of gold rich sulphides that include some significant base
        metal credits for copper and silver.
 
 Previous
        Exploration Efforts
 
 The
        following is based on the information from a report titled “Exploration and
        Development Plan for the Bates-Hunter Project,” prepared by Glenn R. O’Gorman,
        P. Eng., dated March 1, 2004.
 
 Lode
        gold
        was first discovered in Colorado in 1859 by John H. Gregory. The first veins
        discovered were the Gregory and the Bates. This discovery started a gold
        rush
        into the area with thousands of people trying to stake their claims. The
        Central
        City mining district is the most important mining district in the Front Range
        mineral belt. Since 1859, more than 4,000,000 ounces of gold have been mined
        from this district. Over 25% of this production has come from the area
        immediately surrounding the Bates-Hunter 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.
  8
 
 The
        majority of production on the claims occurred during the period prior to
        1900.
        Technology at that time was very primitive in comparison to today's standards.
        Hand steel and hand tramming was the technology of the day. The above
        limitations coupled with limited claim sizes generally restricted mining
        to the
        top few hundred feet on any one claim.
 
 During
        the early 1900’s cyanidation and flotation recovery technologies were developed
        along with better hoists and compressed air operated drills. Consolidation
        of
        land was a problem. Production rates were still limited due to the lack of
        mechanized mucking and tramming equipment. Issues that were major obstacles
        prior to the 1900’s and 1930’s are easily overcome with modern
        technology.
 
 Colorado
        legislated their own peculiar mining problem by limiting claim sizes to 500
        feet
        in length by 50 feet wide and incorporated the Apex Law into the system as
        well.
        A typical claim was 100 to 200 feet long in the early days. This resulted
        in
        making it extremely difficult for any one owner to consolidate a large group
        of
        claims and benefit from economies of scale. The W.W.II Production Limiting
        Order
        # 208 effectively shut down gold mining in the area and throughout Colorado
        and
        the United States in mid 1942.
 
 Historical
        production records indicate that at least 350,000 ounces of gold were recovered
        from about half of the Bates Vein alone to shallow depths averaging about
        500
        feet below surface.
 
 GSR
        Goldsearch Resources drilled two reverse circulation holes on the property
        in
        1990. The first hole did not intersect the Bates Vein. However, the second
        drilled beneath the Bates-Hunter shaft bottom intersected the Bates Vein
        at
        about 900 feet below surface. The drill cuttings graded 0.48 oz. Au/ton over
        10
        feet. This drillhole intersected 3 additional veins as well with significant
        gold assays.
  Our
        Exploration Plans
 
 The
        Company has conducted a detailed and comprehensive exploration program on
        the
        Bates-Hunter property consisting of the following: de-watering the shaft
        (de-watering has reached approximately 350 feet below surface); underground
        and
        surface geologic mapping, sampling, and assaying; a detailed surface survey
        of
        claims and outcropping veins; computer modeling with state-of the art software
        (Autocad); surface drilling of deep holes to test selected targets below
        the 750
        foot depth of previous mining. Once de-watering has exposed a suitable level,
        underground diamond drilling of targets in veins adjacent to the Bates Vein
        will
        be undertaken.
 
 Two
        targets have been selected for surface drilling: (1) a prominent intersection
        between the Bates and Hartford veins, and (2) the down-plunge projection
        of the
        principal ore shoot in the Bates Vein. To date, our first surface hole has
        been
        drilled to a depth of 2,025 feet in an attempt to intersect the Bates-Hartford
        target. This hole experienced extreme deviation and did not reach the target;
        this target will now be re-drilled from a new drill site. A second hole is
        now
        in progress and is located to test the Bates down-plunge target. Wits Basin
        will
        continue its current minimum 8,000 foot drill program and expects to reach
        both
        of the principal targets in the Bates Vein at depths of approximately 1,000
        feet
        below surface. Extreme 2006-2007 winter conditions in the Colorado mountains
        have significantly slowed drilling progress.
  **VIANEY
        MINE CONCESSION**
 
 On
        June
        28, 2006, we entered into an option agreement with Journey Resources
        Corporation, a corporation duly organized pursuant to the laws of the Providence
        of British Columbia, and its wholly-owned subsidiary Minerales Jazz S.A.
        de
        C.V., a corporation duly organized pursuant to the laws of Mexico (collectively
        as “Journey”), whereby we may acquire up to an undivided 50 percent interest in
        certain mining claims comprising the Vianey Mine concession (“Vianey”) located
        in Guerrero State, Mexico.
  9
 
 As
        of
        December 31, 2006, we have acquired our first 25 percent interest in Vianey
        through the issuance of 500,000 shares of our common stock and $500,000,
        which
        is to be used for an exploration work program to be directed by Journey as
        identified in the 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., (the “Blakestad
        Report”).
 
 In
        order
        to acquire an additional 25 percent interest in Vianey, we issued an additional
        500,000 shares of our common stock on January 8, 2007, but must further provide
        an additional $500,000 on or before September 30, 2007, as directed by Journey,
        for further exploration work identified in the Blakestad Report.
 
  The
        Vianey Mine is located in the north-central part of the state of Guerrero,
        which
        lies in the southern part of Mexico, which 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.
  10
 
 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 consists of 44 hectares held under 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 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.
 
 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. There are no known or observed environmental
        liabilities respecting the Vianey or the land adjacent to it.
  11
 
 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.
 
 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.
  12
 
 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. At an absolute minimum,
        the
        results of exploration to date and the evaluations serve to form a strong
        basis
        for recommending aggressive exploration of the Vianey Mine.
  Our
        Exploration Plans
 
 Journey
        is the operator of the Vianey project. Journey’s consulting geologist and
        Qualified Person is Rodney Blakestad. Blakestad recommended a 2006 surface
        drill
        program to test the down-dip continuity of the principal veins; technical
        and
        drilling difficulties resulted in the fact that none of the 12 holes drilled
        reached sufficient depths to test the veins at deeper levels. The Company
        has
        recently requested that Journey proceed as soon as possible to (1) acquire
        significant additional claims surrounding the current property, (2) acquire
        available underground survey data, (3) acquire available additional underground
        geologic and assay data developed during previous programs, (4) enter all
        available underground data into a suitable computer software program, (5)
        complete underground industry-standard channel sampling to confirm data
        contained in Hawley’s resource and reserve calculation report. Following
        completion of this work, the Company looks forward to planning the next stage
        of
        exploration or development on the Vianey project.
  **HOLDSWORTH
        PROJECT**
 
 The
        Holdsworth Project is located near the village of Hawk Junction, Ontario,
        Canada. Our rights allow us to explore only through a limited surface depth,
        as
        the remaining below-surface rights belong to Hawk. We have expended no funds
        since the acquisition and no expenditures are required for the foreseeable
        future in order to maintain our rights. Since the book value of the Holdsworth
        Project had been reduced to zero as of December 31, 2005, and based on our
        estimated return on capital (against the estimated cash outlays to perform
        the
        required work) we deem this project not to be material to the Company’s project
        portfolio. If any significant event should occur relating to the Holdsworth
        Project after the date of this report, we will report it accordingly, otherwise
        this project will not be commented on in the future.
 
 13
  **MACNUGGET
        CLAIMS**
 
 On
        June
        29, 2006, we executed two memorandum agreements relating to a VMS (volcanogenic
        massive sulphide) base metals project exploration project located in northern
        Ontario, Canada, between the Company, Hawk and MacDonald (the MacNugget Claims).
        On February 21, 2007, the Company executed a formal option and joint venture
        agreement, whereby both Hawk and the Company are 24.5 percent partners and
        MacDonald holds 51 percent. MacDonald, being the largest initial partner,
        will
        be the initial operator. The joint venture is to be managed by all three
        partners regarding exploration decisions. Other than the common stock issued
        to
        Hawk in June 2006, we have not incurred any other expenses related to this
        project, and due to the limited return on capital possibilities, do not
        anticipate providing any significant funding for the foreseeable future.
        Therefore, we deem this project to be immaterial to the Company’s project
        portfolio. If any significant event should occur relating to the MacNugget
        Claims after the date of this report, we will report it accordingly, otherwise
        this project will not be commented on in the future.
  **INDUSTRY
        BACKGROUND**
 
 The
        exploration for and development of mineral deposits involves significant
        capital
        requirements. While the discovery of an ore body may result in substantial
        rewards, few properties are ultimately developed into producing mines. Some
        of
        the factors involved in determining whether a mineral exploration project
        will
        be successful include, without limitation:
 
 ·
              competition;
 ·
              financing
                  costs;
 ·
              availability
                  of capital;
 ·
              proximity
                  to infrastructure;
 ·
              the
                  particular attributes of the deposit, such as its size and grade;
 ·
              political
                  risks, particularly in some in emerging third world countries;
                  and
 ·
              governmental
                  regulations, particularly regulations relating to prices, taxes,
                  royalties, infrastructure, land use, importing and exporting of
                  gold,
                  environmental protection matters, property title, rights and options
                  of
                  use, and license and permitting
                  obligations.
 
 All
        of
        which leads to a speculative endeavor of very high risk. Even with the formation
        of new theories and new methods of analysis, unless the minerals are simply
        lying exposed on the surface of the ground, exploration will continue to
        be a
“hit or miss” process.
  **PRODUCTS
        AND SERVICES**
 
 As
        of
        December 31, 2006, we hold interests in five exploration projects: the
        Bates-Hunter Mine in Colorado, the Vianey Mine Concession in Mexico, the
        FSC
        Project located in South Africa and the Holdsworth and MacNugget Projects
        located in Canada. We have determined that the Holdsworth Project and MacNugget
        Claims are not material to the Company’s project portfolio and will therefore no
        longer report on either until such time as an occurrence requires
        disclosure.
  **EXPLORATION
        AND DEVELOPMENT EXPENSES**
 
 If
        we
        acquire a project that has no revenues, exploration expenses will be charged
        to
        expense as incurred.
  14
  **EMPLOYEES**
 
 As
        of
        December 31, 2006, we employ ten people - our chief executive officer, our
        president, our chief financial officer and seven mine related employees at
        the
        Bates-Hunter. None of our employees are represented by a labor union and
        we
        consider our employee relations to be good.
  **FINANCIAL
        INFORMATION IN INDUSTRY SEGMENTS**
 
 During
        the year ended December 31, 2006, our continuing operations included one
        reportable segment: that of minerals exploration.
  **AVAILABLE
        INFORMATION**
 
 We
        make
        available free of charge, through our Internet web site www.witsbasin.com,
        our
        annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports
        on Form 8-K, and amendments to those reports filed or furnished pursuant
        to
        Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
        after we electronically file such material, or furnish it to the Securities
        and
        Exchange Commission. You can also request a free copy of the above filings
        by
        writing or calling us at:
 
 Wits
        Basin Precious Minerals Inc.
 Attention:
        Mark D. Dacko, Secretary
 900
        IDS
        Center, 80 South 8 th Street
 Minneapolis,
        Minnesota 55402-8773
 (612)
        349-5277
 
 **RISK
        FACTORS**
  **RISKS
        RELATING TO OUR COMMON STOCK**
 
 **TRADING
        OF OUR COMMON STOCK IS LIMITED.**
 
 Trading
        of our common stock is conducted on the National Association of Securities
        Dealers’ Over-the-Counter Bulletin Board, or “OTC Bulletin Board.” This has an
        adverse effect on the liquidity of our common stock, not only in terms of
        the
        number of shares that can be bought and sold at a given price, but also through
        delays in the timing of transactions and reduction in security analysts’ and the
        media’s coverage of us. This may result in lower prices for our common stock
        than might otherwise be obtained and could also result in a larger spread
        between the bid and asked prices for our common stock.
 
 **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.
 
 15
 
 **RISKS
        RELATING TO OUR FINANCIAL CONDITION**
 **WE
        CURRENTLY DO NOT HAVE ENOUGH CASH TO FUND OPERATIONS OR POTENTIAL ACQUISITIONS
        DURING 2007.**
 As
          of
          April 12, 2007, we had only approximately $2,200,000 of cash and cash
          equivalents on hand. Since we do not expect to generate any revenue from
          operations in 2007, we will be required to raise additional capital in
          financing
          transactions in order to satisfy our expected cash expenditures. We also
          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 NO OPERATING ASSETS.**
 
 After
        we
        completed the sales of our Hosted Solutions Business and our Accounting Software
        Business in 2003, we became an exploration stage company and do not anticipate
        having any revenues from operations until an economic mineral deposit is
        discovered or unless we complete other acquisitions or joint ventures with
        business models that produce such revenues. As of April 12, 2007 we hold
        certain
        rights in five projects: the Bates-Hunter Mine in Colorado, the Vianey
        Concession in Mexico, the FSC Project located in South Africa and the Holdsworth
        Project and MacNugget Claims in Canada. Furthermore, we have determined that
        the
        Holdsworth Project and MacNugget Claims are not material to the Company’s
        project portfolio at this time. None of these projects may ever produce any
        significant mineral deposits.
 
 **WE
        ANTICIPATE INCURRING LOSSES FOR THE FORESEEABLE FUTURE.**
 
 Since
        becoming an exploration stage company in May 2003 through December 31, 2006,
        we
        have incurred an aggregate net loss of $27,509,595. 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, 2006 and 2005, and
        we
        have an accumulated deficit as of December 31, 2006. Since the financial
        statements for each of these periods were prepared assuming that we would
        continue as a going concern, in the view of our independent auditors, these
        conditions raise substantial doubt about our ability to continue as a going
        concern. Furthermore, since we do not expect to generate any significant
        revenues for the foreseeable future, our ability to continue as a going concern
        depends, in large part, on our ability to raise additional capital through
        equity or debt financing transactions. If we are unable to raise additional
        capital, we may be forced to discontinue our business.
 
 **FOREIGN
        CURRENCY VERSUS THE US DOLLAR.**
 
 Since
        our
        entrance into the precious minerals arena, we have had very limited dealings
        with foreign currency transactions, even though most of our transactions
        have
        been with foreign entities. Most of the funds requests have required US Dollar
        denominations. Even though we may not record direct losses due to our dealings
        with market risk, we have an associated reduction in the productivity of
        our
        assets.
  16
  **RISKS
        RELATING TO OUR BUSINESS**
  **SINCE
        BECOMING ENGAGED IN THE MINERAL EXPLORATION BUSINESS IN JUNE 2003, WE HAVE
        RELIED ON AN EXCLUSION FROM THE DEFINITION OF “INVESTMENT COMPANY” IN ORDER TO
        AVOID BEING SUBJECT TO THE INVESTMENT COMPANY ACT OF 1940. TO THE EXTENT
        THE
        NATURE OF OUR BUSINESS CHANGES IN THE FUTURE, WE MAY BECOME SUBJECT TO THE
        REQUIREMENTS OF THE INVESTMENT COMPANY ACT, WHICH WOULD LIMIT OUR BUSINESS
        OPERATIONS AND REQUIRE US TO SPEND SIGNIFICANT RESOURCES IN ORDER TO COMPLY
        WITH
        SUCH ACT.**
 
 The
        Investment Company Act defines an “investment company,” among other things, as
        an issuer that is engaged in the business of investing, reinvesting, owning,
        holding or trading in securities and owns investment securities having a
        value
        exceeding 40 percent of the issuer’s unconsolidated assets, excluding cash items
        and securities issued by the federal government. Because the value of our
        interest in the FSC Project has exceeded 40
        percent of our unconsolidated assets, excluding cash and government securities,
        since June 2003, we
        may
        meet this threshold definition of “investment company.” However, the Investment
        Company Act also excludes from this definition any person substantially all
        of
        whose business consists of owning or holding oil, gas or other mineral royalties
        or leases or fractional interests therein, or certificates of interest or
        participation relating to such mineral royalties or leases. Based on an
        opinion of
        counsel, we believe
        that we satisfy
        this mineral
        company exception to the definition of
“investment company” for the period from June 26, 2003 through August 29, 2004.
        If our reliance on the mineral company exclusion from the definition of
        investment company during this period is misplaced, we may have been in
        violation of the Investment Company Act, the consequences of which can be
        significant. For example, investment companies that fail to register under
        the
        Investment Company Act are prohibited from conducting business in interstate
        commerce, which includes selling securities or entering into other contracts
        in
        interstate commerce. Section 47(b) of the Investment Company Act provides
        that a
        contract made, or whose performance involves, a violation of the act is
        unenforceable by either party unless a court finds that enforcement would
        produce a more equitable result than non-enforcement. Similarly, a court
        may not
        deny rescission to any party seeking to rescind a contract that violates
        the
        Investment Company Act, unless the court finds that denial of rescission
        would
        produce more equitable result than granting rescission. Accordingly, for
        example, certain investors who purchase our securities during any period
        in
        which we were required to register as investment company may seek to rescind
        their subscriptions.
 
 We
        further believe that we have continued to qualify for the mineral company
        exclusion from August 30, 2004 through the date of this Annual Report and are
        not
        therefore subject to the requirements of the Investment Company Act of 1940.
        If
        in the future the nature of our business changes such that the mineral company
        exception to the threshold definition of investment company is not available
        to
        us, we will be required to register as an investment company with the SEC.
        The
        ramifications of becoming an
        investment company, both in terms of the restrictions it would have on our
        Company and the cost of compliance, would be significant. For example, in
        addition to expenses related to initially registering as an investment company,
        the Investment Company Act also imposes various
        restrictions with regard to our ability to enter into affiliated transactions,
        the diversification of our assets and our
        ability to borrow money. If we became subject to the Investment Company Act
        at
        some point in the future, our ability
        to continue pursuing our business plan would be severely limited as it would
        be
        significantly more difficult for us to raise additional capital in a manner
        that
        would comply with the requirements of the Investment Company Act. To the
        extent
        we are unable to raise additional capital, we may be forced to discontinue
        our
        operations or sell or otherwise dispose of our mineral assets.
  **LAWS
        GOVERNING MINERAL RIGHTS OWNERSHIP HAVE CHANGED IN SOUTH AFRICA.**
 
 The
        South
        African mining industry has undergone a series of significant changes
        culminating in the enactment of the Mineral and Petroleum Resources Development
        Act No. 28 of 2002 (“the Act”) on May 1, 2004. The Act legislates the abolition
        of private mineral rights in South Africa and replaces them with a system
        of
        state licensing based on the patrimony over minerals, as is the case with
        the
        bulk of minerals in other established mining jurisdictions such as Canada
        and
        Australia. On May 3, 2004 the Department of Minerals and Energy (the “DME”)
        announced that it was seeking legal advice on the implications of the Act
        in
        light of South Africa’s international agreements.
  17
 
 Holders
        of old-order mining rights, of the type held by Kwagga, are required within
        five
        years of the May 1, 2004 commencement date, to apply for conversion of their
        old
        order rights into new order mining rights in terms of the Act. Old order
        mining
        rights will continue to be in force during the conversion period, subject
        to the
        terms and conditions under which they were granted. Once a new order right
        is
        granted, security of tenure is guaranteed for a period of up to 30 years,
        subject to ongoing compliance with the conditions under which the right has
        been
        granted. A mining right may be renewed for further periods of up to 30 years
        at
        a time, subject to fulfillment of certain conditions.
 
 In
        order
        to be able to convert old order mining rights to new order mining rights,
        a
        holder must primarily: apply in the correct form for conversion at the relevant
        office of the DME before May 1, 2009; submit a prescribed social and labor
        plan;
        and undertake to “give effect to” the black economic empowerment and
        socio-economic objectives of the Act (the “Objectives”) and set out the manner
        in which it will give effect to the Objectives.
 
 In
        general, the Objectives are embodied in the broad-based socio-economic
        empowerment charter which was signed by the DME, the South African Chamber
        of
        Mines and others on October 11, 2002 (the “Charter”), and which was followed on
        February 18, 2003 by the release of the appendix to the Charter known as
        the
        Scorecard. The Charter and Scorecard has since been published for information
        during August 2004. The Charter is based on seven key principles, two of
        which
        are focused on ownership targets for historically disadvantaged South Africans
        (“HDSAs”) and beneficiation, and five of which are operationally oriented and
        cover areas focused on improving conditions for HDSAs.
  Regarding
        ownership targets, the Charter (as read with the Scorecard) requires each
        mining
        company to achieve the following HDSA ownership targets for the purpose of
        qualifying for the grant of new order rights: (i) 15% ownership by HDSAs
        in that
        company or its attributable units of production by May 1, 2009, and (ii)
        26%
        ownership by HDSAs in that company or its attributable units of production
        by
        May 1, 2014. The Charter states that such transfers must take place in a
        transparent manner and for fair market value. It also states that the South
        African mining industry will assist HDSA companies in securing financing
        to fund
        HDSA participation, in the amount of ZAR100 billion within the first five
        years.
        The Charter does not specify the nature of the assistance to be
        provided.
  Kwagga
        and AfriOre are actively engaged in discussions with DME officials and others
        to
        ensure that Kwagga fulfills the ownership requirements for conversion under
        the
        Act; however, the finalization of the means of achieving that end will require
        greater certainty regarding the operation and interpretation of the Act and
        pending related legislation.
 
 At
        present, the financial implications and market-related risks brought about
        by
        the various pieces of the new legislation (including the Mineral and Petroleum
        Royalty Bill) cannot be assessed. It is not clear when the next draft of
        the
        Mineral and Petroleum Royalty Bill will be released. The Government has,
        however, indicated that no royalties will be payable until 2009. Material
        impacts on both the ownership structure and operational costs at the FSC
        Project
        are possible. Kwagga and AfriOre explored their options and monitored the
        implementation and interpretation of the Act and the progress of other ancillary
        regulations and legislation closely. We anticipate Lonmin PLC to continue
        in
        this manner, but there can be no assurance that it will.
 
 **DUE
        TO LEGISLATION ENACTED IN SOUTH AFRICA, KWAGGA WILL BE REQUIRED TO SELL A
        SUBSTANTIAL AMOUNT OF ITS STOCK, WHICH WOULD DILUTE OUR EQUITY POSITION IN
        KWAGGA.**
 
 In
        accordance with the Broad-Based Socio-Economic Empowerment Charter for the
        South
        African mining industry, Kwagga will offer up to 28 percent of its capital
        stock
        at fair market value to a HDSA investor group. Any investment by such a group
        will dilute our ownership of Kwagga and, accordingly, the right to receive
        profits generated from the FSC Project, if any.
  18
 
 **CERTAIN
        OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST WITH REGARD TO CERTAIN
        TRANSACTIONS THAT WE MAY ENTER.**
 
 H.
        Vance
        White, who is the Chairman of our Board of Directors, is both an officer
        and
        director of Hawk Precious Minerals Inc., a junior exploration company and
        the
        parent company of Hawk USA, and a partner in Brooks & White Associates, an
        unincorporated Canadian partnership that provides management, financial and
        investor relations services to junior mineral resource exploration companies.
        Additionally, Norman D. Lowenthal has held certain interests in SSC Mandarin
        Financial Services based in Hong Kong, which has various interests in mining
        properties. As a result of their positions with other companies that may,
        from
        time to time, compete with us, Messrs. White and Lowenthal 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.
 
 **THE
        OPERATORS OF OUR EXPLORATION PROJECTS MAY NOT HAVE ALL NECESSARY TITLE TO
        THE
        MINING EXPLORATION RIGHTS.**
 
 We
        expect
        that Kwagga, Hunter Gold 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.
 
 **WE
        WILL REQUIRE ADDITIONAL FINANCING TO CONTINUE TO FUND OUR CURRENT EXPLORATION
        PROJECT INTERESTS OR TO ACQUIRE INTERESTS IN OTHER EXPLORATION
        PROJECTS.**
 
 Additional
        financing will be needed in order to fund beyond the 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 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 2007.”
 
 **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 gold and silver. 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.
 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 has on occasion been subject
        to
        very rapid short-term changes due to speculative activities. Fluctuations
        in
        gold prices may adversely affect the value of any discoveries made at the
        sites
        with which we are involved.
 
 **MINERAL
        EXPLORATION IS EXTREMELY COMPETITIVE.**
 
 There
        is
        a limited supply of desirable mineral properties available for claim staking,
        lease or other acquisition in the areas where we contemplate participating
        in
        exploration activities. We compete with numerous other companies and
        individuals, including competitors with greater financial, technical and
        other
        resources than we possess, in the search for and the acquisition of attractive
        mineral properties. Our ability to acquire properties in the future will
        depend
        not only on our ability to develop our present properties, but also on our
        ability to select and acquire suitable producing properties or prospects
        for
        future mineral exploration. We may not be able to compete successfully with
        our
        competitors in acquiring such properties or prospects.
  19
 
 **THE
        NATURE OF MINERAL EXPLORATION IS INHERENTLY RISKY.**
 
 The
        exploration for and development of mineral deposits involves significant
        financial risks, which even experience and knowledge may not eliminate,
        regardless of the amount of careful evaluation applied to the process. Very
        few
        properties are ultimately developed into producing mines .
        Whether
        a gold deposit will be commercially viable depends on a number of factors,
        including:
 
 ·
              financing
                  costs;
 ·
              proximity
                  to infrastructure;
 ·
              the
                  particular attributes of the deposit, such as its size and grade;
                  and
 ·
              governmental
                  regulations, including regulations relating to prices, taxes, royalties,
                  infrastructure, land use, importing and exporting of gold and
                  environmental protection.
 
 The
        outcome of any of these factors may prevent us from receiving an adequate
        return
        on invested capital.
  **ITEM
        2. PROPERTIES**
 
 Our
        corporate office is located at 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, 2008, which requires monthly
        payments of $1,261. We believe that our current facilities are adequate for
        our
        current needs.
  **ITEM
        3. LEGAL PROCEEDINGS**
 
 None.
  **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None.
  20
  **PART
        II**
 
 **ITEM
        5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
        MATTERS**
  **PRICE
        RANGE OF COMMON STOCK**
 
 Our
        common stock is quoted on the OTCBB under the symbol “WITM.” As of April 12,
        2007 the last sale price of our common stock as reported by OTCBB was $0.96
        per
        share. The following table sets forth for the periods indicated the range
        of
        high and low bid prices of our common stock:
 
 **Period**
              
              **High**
              
              **Low**Quarter
                  Ended March 31, 2005
              
              $
              0.46
              
              $
              0.20Quarter
                  Ended June 30, 2005
              
              $
              0.29
              
              $
              0.14Quarter
                  Ended September 30, 2005
              
              $
              0.20
              
              $
              0.10Quarter
                  Ended December 31, 2005
              
              $
              0.27
              
              $
              0.08Quarter
                  Ended March 31, 2006
              
              $
              0.46
              
              $
              0.20Quarter
                  Ended June 30, 2006
              
              $
              0.29
              
              $
              0.14Quarter
                  Ended September 30, 2006
              
              $
              0.20
              
              $
              0.10Quarter
                  Ended December 31, 2006
              
              $
              0.27
              
              $
              0.08Quarter
                  Ended March 31, 2007
              
              $
              1.26
              
              $
              0.26
  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 12, 2007, there were approximately 240 record holders of our common
        stock,
        excluding shareholders holding securities in “street name.” Based on securities
        position listings, we believe that there are approximately 2,200 beneficial
        holders of our common stock, when including those 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 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**
 
 Other
        than the sales of unregistered securities that we reported in our quarterly
        reports on Form 10-QSB during fiscal 2006, we made no sales of unregistered
        securities during the fourth quarter of fiscal 2006.
  **ITEM
        6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 The
        following discussion should be read in conjunction with the Financial Statements
        of the Company and notes thereto included elsewhere in this Annual Report.
        See
“—Financial Statements.”
  21
 
 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, 2006, we hold interests in mineral exploration projects in South
        Africa, Canada, Colorado and Mexico.
 
 We
        hold a
        35 percent equity interest in the company Kwagga Gold (Barbados) Limited
        (“Kwagga”), 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.” The exploration efforts being conducted are
        adjacent to the historic Witwatersrand Basin. The last completed drill hole
        was
        accomplished during 2005 and no new drilling occurred during 2006. We acquired
        the FSC Project from Hawk Precious Minerals Inc., a corporation formed under
        the
        laws of the Providence of Ontario, Canada (“Hawk”) in June 2003. Hawk is an
        affiliate of ours and H. Vance White (the Chairman of our Board of Directors)
        is
        also an officer and director of Hawk. See the heading ‘Our Exploration Projects’
appearing elsewhere in this Annual Report for information about events that
        have
        occurred subsequent to December 31, 2006.
  The
        other
        project that we acquired from Hawk was the “Holdsworth Project,” which is
        located near the village of Hawk Junction, Ontario, Canada. Our rights allow
        us
        to explore only through a limited surface depth, as the remaining below-surface
        rights belong to Hawk. We have expended no funds since the acquisition and
        no
        expenditures are required for the foreseeable future in order to maintain
        the
        rights we currently hold. Since the book value of the Holdsworth Project
        had
        been reduced to zero as of December 31, 2005, and based on our estimated
        return
        on capital (against the estimated cash outlays to perform the required work)
        we
        deem this project not to be material to the Company’s project portfolio.
 
 On
        September 20, 2006, we executed a formal asset purchase agreement relating
        to
        the purchase of assets of the Hunter Gold  Mining
        Corporation, a corporation incorporated under the laws of British Columbia,
        Canada, which assets includes the Bates-Hunter Mine, a prior producing gold
        mine
        from the 1860’s until the 1930’s located in Central City, Colorado, the Golden
        Gilpin Mill located in Black Hawk, Colorado and the associated real and personal
        property assets. The closing of the transaction contemplated by the asset
        purchase agreement is currently anticipated to occur sometime during the
        2 nd or
        3 rd quarter
        of 2007. See the heading ‘Our Exploration Projects’ that follows for information
        about an extension subsequent to December 31, 2006.
 
 On
        December 18, 2006, we entered into a 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, a wholly owned subsidiary of Journey.
        Pursuant to the terms of the joint venture agreement, we own a 25 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.  We also own the exclusive right and
        option to acquire up to an additional 25 percent undivided beneficial interest
        in the project.
 
 On
        June
        29, 2006, we executed two agreements relating to a VMS (volcanogenic massive
        sulphide) base metals project exploration project located in northern Ontario,
        Canada. The first agreement was pursuant to a Memorandum of Agreement between
        the Company and Hawk (the “Hawk Memorandum”), whereby we acquired a 50 percent
        interest in five mining claims (the “MacNugget Claims”) held by Hawk in
        consideration of the issuance of 40,000 shares of our common stock to Hawk.
        Under the terms of a second agreement, we and Hawk sold a portion of the
        MacNugget Claims to MacDonald Mines Exploration Ltd., (“MacDonald”), whereby
        MacDonald became a 51 percent owner in the MacNugget Claims and the operator
        of
        the project. A formal joint venture agreement has been finalized and executed
        in
        February 2007. Other than the common stock issued to Hawk in June 2006, we
        have
        not incurred any other expenses related to this project. Due to the limited
        possibility of return on capital, we do not anticipate providing any significant
        funding for the foreseeable future and therefore, we deem this project
        immaterial to our project portfolio.
 22
 
 Until
        March 14, 2003, we provided industry-specific solutions for managing, sharing
        and collaborating on business information on the Internet through our Hosted
        Solutions Business and until April 30, 2003, we provided accounting software
        through our Accounting Software Business. We sold substantially all of the
        assets relating to our Hosted Solutions and Accounting Software Businesses
        as of
        such dates and as a result, we became an exploratory stage company effective
        May
        1, 2003.
  **RESULTS
        OF OPERATIONS**
 
 **FOR
        THE YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31,
        2005.**
 
 Revenues
 
 We
        had no
        revenues from continuing operations for the years December 31, 2006 and 2005.
        Furthermore, we do not anticipate having any future revenues until an economic
        mineral deposit is discovered or unless we make further acquisitions or complete
        other mergers or joint ventures with business models that produce such results.
 
 Operating
        Expenses
 
 General
        and administrative expenses were $4,963,481 for 2006 as compared to $3,777,977
        for 2005. After we completed the sale of our Hosted Solutions and Accounting
        Software Businesses, we became an exploratory stage company effective May
        1,
        2003, and all prior operating expenses associated with these two business
        models
        are included in discontinued operations. Of the $4,963,481 recorded for 2006,
        approximately $3,996,000 relates to public relations services, consulting
        fees
        and shareowner services. Of the $3,777,977 recorded for 2005, approximately
        $3,252,000 relates to public relations services, consulting fees and shareowner
        services. We anticipate that our operating expenses will increase over the
        next
        fiscal year due to our continued plans for exploration.
 
 Exploration
        expenses relate to the issuance of stock and warrants for acquiring mining
        rights, and expenditures being reported on the work-in-process from the project
        operators. We anticipate the rate of spending for fiscal 2007 exploration
        expenses should increase.
 
 Components
        of exploration expenses are as follows:
  Years
                  Ended December 31,
              
              May
                  1, 2003 (inception) toReclassified(1)
              
              December
                  31,2006
              
              2005
              
              2006Expenditures
                  related to Bates-Hunter
              
              $
              1,235,965
              
              $
              415,776
              
              $
              1,722,120Expenditures
                  related to Vianey
              
              
              508,286
              
              
              —
              
              
              508,286Expenditures
                  related to discontinued projects
              
              
              —
              
              
              —
              
              
              219,823Issuance
                  of shares and warrant expense (2)
              
              
              213,978
              
              
              104,753
              
              
              318,731Issuance
                  of shares to Hawk USA
              
              
              —
              
              
              —
              
              
              4,841,290$
              1,958,229
              
              $
              520,529
              
              $
              7,610,250
 
 (1)
        Subsequent to the filing of our Form 10-KSB for the year ended December 31,
        2005, we determined that our investment in Kwagga Gold (Barbados) Limited
        (“Kwagga”) represented a passive equity position. Due to this being a passive
        investment in a non-controlled foreign corporation, the Company lacks
        significant influence to control the operational and financial decisions
        of
        Kwagga even though the Company has a 35% equity investment, the Company
        determined that the appropriate accounting for this investment in Kwagga
        was on
        the cost method of accounting. This investment was determined to not meet
        the
        guidance under the equity method of accounting according to Accounting
        Principles Board No. 18, “The Equity Method of Accounting for Investments in
        Common Stock.” We made reclassifications in the presentation of the exploration
        expenses section, which relates to all of the funds that have been invested
        in
        Kwagga for exploration of the FSC Project, having been removed from the
        exploration expenses category and reclassified as an impairment of the Kwagga
        investment.
  23
  (2)
        During fiscal 2006, we issued 650,000 shares of common stock related to our
        obtaining the rights to the Vianey project, valued at $192,000, 40,000 shares
        of
        common stock related to Hawk Precious Minerals Inc. to obtain the rights
        to the
        MacNugget Claims, valued at $12,800 and recorded $9,178 in warrant expense
        related to the grants of 150,000 warrants issued to two Bates-Hunter
        consultants. During fiscal 2005, we issued 275,000 shares of common stock
        for
        fees related to our obtaining the rights to purchase the Bates-Hunter, valued
        at
        $94,000 and recorded $10,753 in warrant expense related to the grants of
        150,000
        warrants issued to two Bates-Hunter consultants.
  Depreciation
        and amortization for 2006 was $21,214 as compared to amortization of $110,703
        for 2005. Of the $110,703 recorded in 2005, $5,053 is straight-line depreciation
        of fixed assets purchased for work at the Bates-Hunter and $105,650 is
        amortization of the participation mining rights related to the FSC and McFaulds
        Lake projects. As of December 31, 2005, all mining rights projects have been
        fully amortized and future projects will be charged to expense as incurred.
        We
        will recognize depreciation expense for 2007 on the fixed assets already
        purchased and possibly will be adding additional assets to the
        Company.
 
 Subsequent
        to the filing of our Form 10-KSB for the year ended December 31, 2005, we
        determined that our investment in Kwagga Gold (Barbados) Limited (“Kwagga”)
        represented a passive equity position. Due to this being a passive investment
        in
        a non-controlled foreign corporation, the Company lacks significant influence
        to
        control the operational and financial decisions of Kwagga even though the
        Company has a 35% equity investment, the Company determined that the appropriate
        accounting for this investment in Kwagga was on the cost method of accounting.
        This investment was determined to not meet the guidance under the equity
        method
        of accounting according to Accounting Principles Board No. 18, “The Equity
        Method of Accounting for Investments in Common Stock.” We made reclassifications
        in the presentation of the operating expenses section, which relates to all
        of
        the cash funds that have been invested in Kwagga for exploration of the FSC
        Project, having been removed from the exploration expenses category and
        reclassified as an impairment of the Kwagga investment. Therefore, we recorded
        a
        loss on impairment of Kwagga of $120,803 for 2006 as compared to $613,857
        for
        2005. See Note 3 and 8 in the financial statements for additional detail
        on this
        investment.
 
 Furthermore,
        we changed the wording relating to the “Loss (gain) on impairment of Brazmin”
category to read as “Loss (gain) on sale of Brazmin” since the final funds we
        received were specifically in conjunction with the sale of the asset and
        not
        impairment. We acquired and sold the South American project, Brazmin, during
        fiscal 2004. In June 2005, we received an additional $75,000 cash payment
        from
        the buyer for a release of a royalty right we held in Brazmin. We recorded
        this
        cash payment as a component of the loss (gain) on sale of Brazmin, since
        it was
        a form of recovery of a prior subsidiary.
 
 Other
        Income and Expenses
 
 Our
        other
        income and expense consists of interest income and interest expense. Interest
        income for 2006 was $31,122 and there was no interest income for 2005. Interest
        expense for 2006 was $1,858,082 and for 2005 it was $782,623. The
        interest expense relates primarily to extensions and additional rights granted
        to the promissory note holders. Components of interest expense for 2006 were: $40,450 in principal loan interest
        and $1,817,632 representing the amortization of original issue discount relating
        to the issuance of common stock and warrants in connection with notes payable
        (as described below). Components of interest expense for 2005 were: $44,219
        in
        principal loan interest and $738,404 representing the amortization of original
        issue discount and beneficial conversion feature (relating to the issuance
        of
        common stock and warrants in connection with the notes).
  24
 
 **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. For the years ended
        December 31, 2006 and 2005, we had net cash used in operating activities
        of
        $3,567,731 and $2,635,963, respectively.
  We
        had a
        working capital deficit of $40,333 at December 31, 2006, compared to $210,834
        at
        December 31, 2005. Cash and equivalents were $85,910 at December 31, 2006,
        representing a decrease of $31,906 from the cash and equivalents of $117,816
        at
        December 31, 2005.
 
 On
        June
        1, 2004 we received gross proceeds of $650,000 in consideration for issuing
        an
        18-month secured convertible promissory note to Pandora Select Partners LP
        (“Pandora”), a Virgin Islands limited partnership. The note was secured by
        substantially all of our assets and bore interest of 10 percent per annum.
        In
        lieu of cash, we could satisfy our repayment obligations by issuing shares
        of
        our common stock. On any payments we elected to pay in shares of common stock,
        the per-share value would be equal to 85 percent of the average of the high
        closing bid price of our common stock during the 20 trading days immediately
        preceding the payment date. From inception and through March 31, 2005, all
        payments were made in cash. From April through October 2005, all payments
        were
        paid by the issuance of common stock. The final November payment was a
        combination of cash and common stock. We paid $334,645 in principal payments
        during 2005 and issued an aggregate of 2,400,000 shares of our common stock.
        The
        note was repaid in full as of December 9, 2005.
 
 As
        of
        September 30, 2004, we had invested $2,100,000 in Kwagga to fund a drillhole
        exploration program on the FSC Project that commenced in October 2003.
        Subsequent to the filing of our Form 10-KSB for the year ended December 31,
        2005, we determined that our investment in Kwagga Gold (Barbados) Limited
        (“Kwagga”) represented a passive equity position. Due to this being a passive
        investment in a non-controlled foreign corporation, the Company lacks
        significant influence to control the operational and financial decisions
        of
        Kwagga even though the Company has a 35% equity investment, the Company
        determined that the appropriate accounting for this investment in Kwagga
        was on
        the cost method of accounting. This investment was determined to not meet
        the
        guidance under the equity method of accounting according to Accounting
        Principles Board No. 18, “The Equity Method of Accounting for Investments in
        Common Stock.” We made reclassifications in the presentation of the operating
        expenses section, which relates to all of the funds that have been invested
        in
        Kwagga for exploration of the FSC Project, having been removed from the
        exploration expenses category and reclassified as an impairment of the Kwagga
        investment. As of December 31, 2006, we have recorded a full impairment on
        the
        $2.1 million Kwagga investment.
 
 On
        January 7, 2005, we completed a private placement of units of our securities,
        each unit consisting of one share of our common stock and a warrant to purchase
        one-half share of common stock at an exercise price of $0.25 per share. We
        sold
        an aggregate of 25,050,000 units at a price per unit of $0.10, resulting
        in
        gross proceeds of $2,505,000. In connection with the private placement, we
        engaged a placement agent, Galileo Asset Management SA, Switzerland. As
        compensation for their services, we paid a commission of $22,750.
 
 On
        January 21, 2005, we completed the acquisition of an option to purchase all
        of
        the outstanding capital stock of the Hunter Gold Mining Corporation (a
        corporation incorporated under the laws of British Columbia, Canada) including
        its wholly owned subsidiary Hunter Gold Mining, Inc., (a corporation
        incorporated under the laws of Colorado). On July 21, 2006, we executed a
        stock
        purchase agreement intended to supersede the option agreement. On September
        20,
        2006, we executed a formal asset purchase agreement (the “Bates Asset Purchase
        Agreement”) to purchase the Bates-Hunter Mine on different economic terms than
        previously agreed upon. The Bates Asset Purchase Agreement is by and among
        Wits
        Basin and Hunter Gold Mining Corporation, Hunter Gold Mining Inc., Central
        City
        Consolidated Mining Corp., a Colorado corporation and George Otten, a resident
        of Colorado (collectively the “Sellers”) for the purchase of the following
        assets: the Bates-Hunter Mine, Golden Gilpin Mill and the associated real
        and
        personal property assets. The closing of the transaction contemplated by
        the
        Bates Asset Purchase Agreement is anticipated to occur sometime during the
        2 nd or
        3 rd quarter
        of 2007. If a formal closing occurs, we shall deliver to the Sellers **** (i)
        the
        sum of $250,000 Canadian Dollars, (ii) a note payable to Sellers in the original
        principal amount of $6,500,000 Canadian Dollars, (iii) a deed of trust with
        George Otten as trustee for the Sellers securing the note payable, and (iv)
        3,620,000 shares of our unregistered and restricted $.01 par value common
        capital stock. The Bates Asset Purchase Agreement would still require us
        to
        provide the following additional compensation to non-affiliate third parties:
        (i) a warrant to purchase up to 1,000,000 shares of our common stock, at
        an
        exercise price equal to the average prior 30-day sale price of our common
        stock;
        (ii) a two percent net smelter return royalty on all future production, with
        no
        limit; (iii) a one percent net smelter return royalty (up to a maximum payment
        of $1,500,000); and (iv) a fee of $300,000, payable in cash or common stock
        at
        our election.
  25
 
 In
        May
        2005, we entered into warrant exercise agreements with two consultants, allowing
        them a reduced exercise price on previously issued and outstanding warrants,
        which both expired on March 31, 2006. They held an aggregate of 3,063,834
        warrants exercisable with a range of original pricing was from $0.40 to $5.50
        per share. Each warrant exercise agreement allowed for monthly exercises
        with an
        exercise price of $0.20 per share. With the expiration of the agreements
        on
        March 31, 2006, an aggregate of 695,450 warrants were exercised into common
        stock and we received net proceeds of $139,090.
 
 As
        of
        April 1, 2006, we had promissory notes in the aggregate principal amount
        of
        $1,100,000 payable to three lenders. We entered into amendments to the
        arrangements with each of the note holders, extending the maturity of each
        of
        the notes for an additional 30 days. In consideration of these extensions,
        we
        (i) issued an aggregate of 110,000 shares of our common stock to the note
        holders and (ii) entitled each note holder, at any time on or prior to August
        31, 2006, to provide us (in cash or other immediately available funds) an
        amount
        equal to, but not greater than, the final principal and interest balance
        of
        their respective note and receive the number of shares of our common stock
        computed by dividing that amount by $0.20 per share. With the warrant exercises
        as described below, we paid the obligations under the three promissory notes
        in
        May 2006, which required an aggregate of $1,100,000 in cash principal payments.
        The notes had accumulated an aggregate of $69,239 in interest payable. We
        paid
        $3,353 in cash to one note holder and paid the remaining $65,886 by the issuance
        of 329,432 shares (valued at $0.20 per share) of our common stock. In August
        2006, we extended the August 31, 2006 option date to March 31, 2007 for two
        of
        the note holders upon their execution of standby joint venture financing
        agreements, which contemplates participation in joint venture or financing
        arrangements for the purposes of financing future mineral exploration projects.
        The standby agreements sets forth basic terms of any such future joint venture
        or financing arrangements, including terms relating to the payment of proceeds
        from any exploration project for which a joint venture or financing arrangement
        has been entered, but may be subject to written agreements relating to specific
        projects.
 
 On
        April
        28, 2006, we completed a round of financing through the exercise of issued
        and
        outstanding warrants (the “Exercise Offer”) to certain warrant holders who
        qualified as accredited investors. For each two warrants exercised by a warrant
        holder, the warrant holder received two shares of common stock and a new
        three-year warrant (Class C Redeemable Warrant) with an exercise price of
        $0.50
        per share. Certain of the warrant holders were offered a limited time reduction
        of the exercise price (in which the warrants were originally price from $5.50
        to
        $0.75 per share) of $0.25 per share.  We accepted subscription
        agreements to exercise 15,577,401 common stock purchase warrants and received
        approximately $3.84 million in cash (which includes $307,600 for which we
        accepted, in lieu of cash, a secured promissory note, which accrued interest
        of
        five percent per annum, was due December 29, 2006 and is secured by the stock
        issued). The secured promissory note was paid in February 2007 along with
        the
        $10,323 of interest receivable. No placement agents or broker/dealers were
        utilized.
  On
        December 18, 2006, we entered into a formal joint venture agreement (pursuant
        to
        an earlier option agreement dated June 28, 2006) with Journey, whereby the
        partners interest in certain mining claims of the Vianey are defined. We
        have
        provided $500,000 for exploration work by the required December 31, 2006
        due
        date and must further provide an additional $500,000 on or before September
        30,
        2007.
  26
 
 By
        December 31, 2006, we had received subscription exercise forms with a total
        value of $515,000 from 11 shareholders who held 2,060,000 stock purchase
        warrants, all with an exercise price of $0.25 per share, issued in connection
        with our private placement of 16,600,000 units of January 2005, all with
        an
        expiration date of December 31, 2006. All of these shareholders paid their
        respective subscription subsequent to December 31, 2006.
  In
        December 2006, a consultant exercised a stock option held into shares of
        common
        stock. The 200,000 stock option was issued in October 2005 with an exercise
        price of $0.15 per share. The $30,000 cash exercise amount was paid in February
        2007.
 
 Under
        provisions of the Loan Agreement with Pacific Dawn Capital, Pacific Dawn
        Capital
        had the right to purchase shares of our common stock (based on a $0.20 per
        share
        purchase price) of the principal balance. Of the available right to purchase
        option of 2,000,000 shares available, Pacific Dawn purchased 1,000,000 shares
        of
        common stock in December 2006. Pacific Dawn provided $120,000 in December
        2006
        and $80,000 in January 2007.
 
 During
        2006, other investors exercised on an aggregate of 1,475,000 stock purchase
        warrants with an exercise price of $0.25 per share and received 1,475,000
        shares
        of common stock. We received $368,750 in proceeds.
 
 Our
        existing sources of liquidity will not provide cash to fund operations for
        the
        next twelve months. As of the date of this Annual Report, we have estimated
        our
        cash needs over the next twelve months to be approximately $4,650,000 (to
        include $1,250,000 for the Bates-Hunter, $1,000,000 for Vianey and $1,400,000
        for Kwagga). Additionally, should any projects or mergers be completed during
        2007, 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 precious minerals arena, we have had very limited dealings
        with foreign currency transactions, even though most of our transactions
        have
        been with foreign entities. Most of the funds requests have required US Dollar
        denominations. Even though we may not record direct losses due to our dealings
        with market risk, we have an associated reduction in the productivity of
        our
        assets.
  **ITEM
        7. FINANCIAL STATEMENTS**
 
 The
        Financial Statements of the Company, the accompanying notes and the report
        of
        independent registered public accounting firm are included as part of this
        Form
        10-KSB beginning on page F-1, which follows the signature page.
  **ITEM
        8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 None.
 
 27
  **ITEM
        8A. CONTROLS AND PROCEDURES**
 
 (a)
        Evaluation of Disclosure Controls and Procedures.
 
 As
        of
        December 31, 2006, we carried out an evaluation, under the supervision and
        with
        the participation of our chief executive and chief financial officer, of
        the
        effectiveness of the design and operation of our disclosure controls and
        procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
        Exchange Act of 1934, as amended). Based upon that evaluation, our chief
        executive officer and chief financial officer concluded that our disclosure
        controls and procedures are effective in alerting them on a timely basis
        to
        material information required to be disclosed in our periodic reports to
        the
        Securities and Exchange Commission.
 
 Since
        the
        Company does not have a formal audit committee, its Board of Directors oversees
        the responsibilities of the audit committee. The Board is fully aware that
        there
        is lack of segregation of duties due to the small number of employees dealing
        with general administrative and financial matters. However, the Board has
        determined that considering the employees involved and the control procedures
        in
        place, risks associated with such lack of segregation are insignificant and
        the
        potential benefits of adding employees to clearly segregate duties does not
        justify the expenses associated with such increases at this time.
 
 (b)
        Changes in Internal Controls Over Financial Reporting.
 
 There
        have been no significant changes in internal control over financial reporting
        that occurred during the fiscal period covered by this Annual Report that
        have
        materially affected or are reasonably likely to materially affect the Company’s
        internal control over financial reporting.
  **ITEM
        8B. OTHER INFORMATION**
 
 None.
  28
  **PART
        III**
 
 **ITEM
        9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
        REGISTRANT**
 
 Set
        forth
        below are the names of all directors and executive officers of the Company,
        their respective ages and all positions and offices with the Company held
        by
        each person as of April 12, 2007:
 
 Name
              
              Age
              
              Positions
                  with the CompanyH.
                  Vance White
              
              62
              
              ChairmanStephen
                  D. King
              
              50
              
              Chief
                  Executive Officer and DirectorDr.
                  Clyde L. Smith
              
              70
              
              PresidentMark
                  D. Dacko
              
              55
              
              Chief
                  Financial Officer, Secretary and DirectorNorman
                  D. Lowenthal
              
              69
              
              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 Precious Minerals Inc., a
        Toronto
        based mineral exploration company. Since May 2005 to present, Mr. White serves
        on the board of directors of MacDonald Mines Exploration Ltd. Since April
        2001,
        Mr. White has also been a partner in Brooks & White Associates, an
        unincorporated partnership providing management, financial and/or investor
        relations services to junior companies primarily in the natural resources
        sector. Since 1989 to present, Mr. White serves on the board of directors
        of
        Kalahari Resources Inc., a publicly-held Junior Canadian Resources company.
        Since November 1995 to present, Mr. White has served as the Alpine Ski Race
        Administrator for the Osler Bluff Ski Club, and since September 1979 to present,
        Mr. White has served as President and Director of Brewis & White Limited, a
        private family investment company. From January 1991 to July 1998 he was
        the
        Franchisee for Alarm Force Industries in the Collingwood, Grey-Bruce Regions
        of
        Central Ontario, a provider of residential and commercial monitored alarm
        systems monitoring. From August 1993 to March 1995, Mr. White was the President
        of Amarado Resources Inc., a predecessor company of AfriOre Limited and a
        Director from August 1993 to June 1997. From September 1983 to September
        1995,
        Mr. White was President of Mid-North Engineering Services, a company providing
        services and financing to the junior mining sector prior to which he was
        President and Director of the Dickenson Group of Companies, gold producers
        in
        the Red Lake gold mining camp of North Western Ontario, Canada. Mr. White
        has
        been involved with the natural resource industry for over 30 years and intends
        to devote approximately 70-80 percent of his time to the affairs of our
        Company.
 
 Stephen
        D. King was elected 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
        precious mineral exploration or mining industry.
 
 Dr.
        Clyde
        L. Smith was elected 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. He 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.
  29
 
 Mark
        D.
        Dacko was appointed to our board of directors on June 26, 2003. Since March
        2003, Mr. Dacko has also served as Chief Financial Officer and Secretary
        and he
        served as our Controller from February 2001 to March 2003. Prior to joining
        the
        Company, Mr. Dacko was Controller for PopMail.com, inc., a publicly held
        email/marketing services and restaurant company, from January 1999 until
        January
        2001. From November 1994 to December 1998, Mr. Dacko was Controller for
        Woodroast Systems, Inc., a publicly held restaurant company based in
        Minneapolis, Minnesota. Mr. Dacko has no prior experience in the precious
        mineral exploration or mining industry.
 
 Norman
        D.
        Lowenthal was appointed to our board of directors on September 4, 2003. Since
        October 2002, Mr. Lowenthal has served as Vice-Chairman of the Taylor Companies,
        a private bank located in Washington, D.C., and since January 2001, he has
        served as Chairman of SSC Mandarin Financial Services based in Hong Kong.
        SSC
        Mandarin Financial Services is a joint venture partner with the China Gold
        Bureau, which is an advisor to the government operated association of China
        gold
        mines. Mr. Lowenthal was Chairman of the Johannesburg Stock Exchange from
        April
        1997 to April 2000 and, since April 1997, he has been a member of the Securities
        Regulation Panel of South Africa.
 
 There
        is
        no family relationship between any director and executive officer of the
        Company.
  **CODE
        OF ETHICS**
 
 The
        Company has adopted a Code of Ethics that applies to its principal executive
        officer, principal financial officer, controller and persons performing similar
        functions. The Code of Ethics is available on its website at www.witsbasin.com.
        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.
 
 **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 2005 and 2006 were
        filed on a timely basis, except for the following:
 
 Stephen
        D. King filed a Form 4 on October 20, 2005 relating to a transaction on October
        13, 2005.
 
 Norman
        D.
        Lowenthal filed a Form 4 on October 26, 2005 relating to a transaction on
        October 20, 2005.
 
 H.
        Vance
        White filed a Form 4 on October 26, 2005 relating to a transaction on October
        20, 2005.
 
 Stephen
        D. King filed a Form 4 on October 26, 2005 relating to a transaction on October
        20, 2005.
 
 Tom
        Brazil filed a Form 4 dated November 30, 2005 relating to transactions on
        November 17, 2005.
 
 Tom
        Brazil filed a Form 4 dated January 4, 2006 relating to transactions on December
        20, 2005.
 
 Stephen
        D. King filed a Form 4/A on February 21, 2006 relating to a transaction on
        May
        4, 2005.
 
 Stephen
        D. King filed a Form 4 on February 21, 2006 relating to a transaction on
        October
        27, 2005.
 
 Norman
        D.
        Lowenthal filed a Form 4 on May 4, 2006 relating to a transaction on April
        28,
        2006.
 
 Clyde
        L.
        Smith filed a Form 3 on September 21, 2006 relating to a transaction on
        September 15, 2006.
  30
 
 Clyde
        L.
        Smith filed a Form 4 on September 21, 2006 relating to a transaction on
        September 15, 2006.
 
 **AUDIT
        COMMITTEE AND FINANCIAL EXPERT**
 
 The
        Company does not have a formal audit committee. Our Board of Directors as
        a
        group acts in the capacity as the audit committee. There were no audit committee
        meetings held during 2006. Financial information relating to quarterly reports
        was disseminated to all board members for review. The audited financial
        statements for the years ended December 31, 2006 and 2005 were provided to
        each
        member of the board in which any concerns by the members were directed to
        our
        auditors: Carver Moquist & O’Connor, LLC.
 
 **ITEM
        10. 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 for the year ended December 31, 2006, whose compensation for that
        fiscal year was in excess of $100,000. No other executive officer of ours
        received compensation in excess of $100,000 during fiscal year
        2006.
 
 Name
                  and Principal Position
              
              Year
              
              Salary
                  ($)
              
              Bonus($)
              
              All
                  Other Compen-
                sation
                  ($)
              
              Total
                  ($)Stephen
                  D. King(1)
                Chief
                  Executive Officer,
                Former
                  President and
                Director
              
              
              2006
              
              $
              37,500
              
              $
              75,000
              (2)
              $
              196,746(3
              )
              $
              309,246Mark
                  D. Dacko(4)
                Chief
                  Financial Officer, Secretary and Director
              
              
              2006
              
              $
              120,000
              
              $
              10,000
              
              
              —
              
              $
              130,000H.
                  Vance White(5)
                Former
                  Chief Executive Officer
              
              
              2006
              
              
              —
              
              
              —
              
              
              —
              
              
              —
 
 (1)
              Stephen
                  D. King was elected Chief Executive Officer effective September
                  15, 2006
                  and served as our President from May 15, 2006 to September 15,
                  2006.
 (2)
                Relating
                    to a one-time bonus paid to Mr. King for his efforts relating
                    to our April
                    2006 warrant call.
 (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
                  Stephen D. 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.
                    Dacko was paid a one-time bonus as compensation for prior year
                    cost of
                    living raises never received.
 (5)
              Vance
                  White served as our Chief Executive Officer until September 15,
                  2006. Mr.
                  White did not receive compensation for his services in such
                  capacity.
  31
  **EXECUTIVE
        EMPLOYMENT AGREEMENTS**
 
 As
        of
        December 31, 2006, we have not entered into formal employment agreements
        with
        our executive officers, with the exception of our President, Dr. Clyde Smith.
        Pursuant to a letter agreement with Dr. Smith dated September 14, 2006 and
        amended September 21, 2006, Dr. Smith is entitled to receive an annual salary
        of
        $120,000. Additionally, Dr. Smith was granted (i) an option to purchase
        1,500,000 shares of common stock (the “Standard Options”) and (ii) a ten-year
        option to purchase 500,000 shares of common stock (the “Incentive Based Stock
        Options”), each of which have an exercise price of $0.31 per share (the closing
        sale price of our common stock as reported on the OTCBB on the day of grant).
        The Standard Options vest in equal parts annually over five years, with the
        first 300,000 vesting on the date of grant, September 15, 2006. The Incentive
        Based Stock Options vest in equal parts annually over five years, with the
        first
        100,000 vesting on September 15, 2007), subject to the Company’s satisfaction of
        certain criteria set by our Chief Executive Officer relating to our exploration
        projects. The agreement with Dr. Smith is at-will, and does not have any
        term of
        employment.
 
 Until
        September 15, 2006, Mr. White served as our chief executive officer and did
        not
        collect any salary. Stephen D. King, our Chief Executive Officer since September
        15, 2006 and our President from May 15, 2006 and September 15, 2006, is entitled
        to a monthly salary of $5,000. Mark D. Dacko, our Chief Financial Officer,
        is
        entitled to a monthly salary of $10,000. Neither of these individuals has
        a
        formal agreement with the Company.
 
 The
        Company has not entered into any severance or change of control provisions
        with
        any of its executive officers.
 
 **OUTSTANDING
        EQUITY AWARDS TABLE**
 
 The
        following table sets forth information of outstanding option awards held
        by our
        chief executive officer and our other most highly compensated executive officers
        as of December 31, 2006.
 
 Number
                  of
              
              Option
              
              Optionexercisable
              
              exercise
              
              expirationoptions
              
              price
              
              dateMr.
                  King
              
              
              250,000
                  (a
              )
              $
              0.40
              
              
              07/08/14250,000
                  (b
              )
              $
              0.26
              
              
              05/02/15200,000
                  (c
              )
              $
              0.15
              
              
              10/20/15Mr.
                  Dacko
              
              
              40,000
                  (d
              )
              $
              2.75
              
              
              02/05/11350,000
                  (e
              )
              $
              0.56
              
              
              07/09/13125,000
                  (f
              )
              $
              0.23
              
              
              12/29/14250,000
                  (b
              )
              $
              0.26
              
              
              05/02/15200,000
                  (c
              )
              $
              0.15
              
              
              10/20/15Mr.
                  White
              
              
              1,000,000
                  (g
              )
              $
              0.56
              
              
              07/09/13250,000
                  (b
              )
              $
              0.26
              
              
              05/02/15200,000(c
              )
              $
              0.15
              
              
              10/20/15
 
 (a)
              These
                  options vested in portions of 125,000, 62,500 and 62,500 on 7/8/04,
                  1/8/05
                  and 7/8/05, respectively.
  (b)
              These
                  options vested in their entirety on
                  5/2/05.
  (c)
              These
                  options vested in their entirety on
                  10/20/05.
  (d)
              These
                  options vested 10,000, 15,000 and 15,000 on 5/5/01, 2/5/02 and
                  2/5/03,
                  respectively.
  (e)
              These
                  options vested 175,000, 87,500 and 87,500 on 7/9/03, 1/9/04 and
                  7/9/04,
                  respectively.
  (f)
              Our
                  Board of Directors granted Mr. Dacko a stock option for his voluntary
                  deferment of his salary for a six-month period during 2004: 125,000
                  shares
                  at $0.23 per share.
  (g)
              These
                  options vested 500,000, 250,000 and 250,000 on 7/9/03, 1/9/04 and
                  7/9/04,
                  respectively.
 
 32
  **DIRECTOR
        COMPENSATION**
 
 Non-employee
        directors of our Company are reimbursed for all reasonable and necessary
        costs
        and expenses incurred in connection with their duties as directors. In addition,
        we issue options to our directors as determined from time to time by the
        Board.
        In 2006, no option awards were issued. In 2005, we issued options to purchase
        a
        total of 900,000 shares of our common stock to two directors as follows:
        on May
        2, 2005, we granted an option to purchase 250,000 shares to Mr. Lowenthal and
        250,000 shares to Mr. King ;
        and on
        October 20, 2005 we granted an option to purchase 200,000 shares to Mr.
        Lowenthal and 200,000 shares to Mr. King. The grants to Messrs. Lowenthal
        and
        King were both pursuant to our 2003 Director Stock Option Plan.
  On
          January 27, 2005, the Board authorized a consulting agreement with Stephen
          D.
          King. The agreement was for consulting services to provide strategic merger,
          acquisition and corporate advice with regard to the Company’s Colorado mining
          opportunities, as well as other consulting services. Under this agreement,
          we
          paid Mr. King $207,000 in fiscal 2005 and $80,000 in fiscal 2006. This
          agreement
          was terminated by the parties upon Mr. King’s appointment as our President in
          May 2006.
 
 Additionally,
          in fiscal year 2005, when Mr. King served as only as a director, we issued
          Mr.
          King warrants to purchase an aggregate of 2,000,000 shares of common stock
          at an
          exercise price of $0.15 per share in consideration of personal guarantees
          securing our payment obligations relating to certain of our
          indebtedness.
  Members
        of our board who are also employees of ours receive no compensation for their
        services as directors.
 
 33
  **ITEM
        11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
        SHAREHOLDER MATTERS**
 
 The
        following information sets forth the number and percentage of shares of the
        Company’s common stock owned beneficially, as of April 12, 2007, by any person,
        who is known to the Company to be the beneficial owner of five percent or
        more
        of the Company’s common stock, and, in addition, by each director and each
        executive officer of the Company, and by all directors and executive officers
        as
        a group. Information as to beneficial ownership is based upon statements
        furnished to the Company by such persons.
 
 **Name
                  and Address**
              
              **Amount
                  of Beneficial Ownership (1)**
              
              **Percentage
                  of Class**H.
                  Vance White
              
              
              4,932,500
              (2)
              
              4.780
                  South 8thStreet, Suite 900Minneapolis,
                  MN 55402Stephen
                  D. King
              
              
              2,700,000
              (3)
              
              2.580
                  South 8thStreet, Suite 900Minneapolis,
                  MN 55402Mark
                  D. Dacko
              
              
              965,000
              (4)
              
              *80
                  South 8thStreet, Suite 900Minneapolis,
                  MN 55402Clyde
                  L. Smith
              
              
              300,000
              (5)
              
              *80
                  South 8thStreet, Suite 900Minneapolis,
                  MN 55402Norman
                  D. Lowenthal
              
              
              1,000,000
              (6)
              
              *Private
                  Bag X60Saxonwold,
                  2132 South AfricaAll
                  directors and officers as a group
              
              
              9,897,500
              
              
              9.0(5
                  persons)Andrew
                  Green
              
              
              9,550,000
              (7)
              
              9.05101
                  Creek RoadCincinnati,
                  OH 45242Thomas
                  Brazil
              
              
              8,185,367
              (8)
              
              7.617
                  Bayns Hill RoadBoxford,
                  MA 01921Pacific
                  Dawn Capital
              
              
              7,133,976
              (9)
              
              6.62566
                  W. Woodland DriveAnaheim,
                  CA 92801Hawk
                  Precious Minerals Inc.
              
              
              3,482,500
              (10)
              
              3.32500
                  - 120 Adelaide St. W.Toronto,
                  ON M5H 1T1
 
 *
        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 Precious
                  Minerals
                  USA, Inc., a wholly owned subsidiary of Hawk Precious Minerals
                  Inc., and
                  240,000 shares held by Hawk Precious Minerals Inc., of which Mr.
                  White is
                  a director and executive officer.
  (3)
              Includes
                  700,000 shares issuable upon the exercise of options that are currently
                  exercisable and 2,000,000 shares issuable upon exercise of certain
                  warrants.
                  All options and warrants have been transferred into the name of
                  Mr. King’s
                  spouse.
  (4)
              Represents
                  shares issuable upon the exercise of options that are currently
                  exercisable.
  34
  (5)
              Represents
                  shares issuable upon the exercise of options that are currently
                  exercisable or will be exercisable within 60
                  days.
 
 (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)
              Includes1,550,000
                  shares of common stock Mr. Green has the right to acquire (at $0.20
                  per
                  share) on or prior to December 31, 2007, pursuant to the terms
                  of a
                  standby joint venture financing agreement.
  (8)
              Includes
                  3,387,500 shares issuable upon the exercise of certain warrants
                  (held in
                  the name of Boston Financial Partners, Inc., which is owned and
                  controlled
                  by Mr. Brazil). Also includes 91,500 shares owned by Mr. Brazil’s spouse.
                  Mr. Brazil disclaims beneficial ownership of the shares held by
                  his
                  wife.
  (9)
              Includes
                  (i) 2,666,667 shares issuable upon the exercise of certain warrants
                  and
                  (ii) 1,000,000 shares of common stock Pacific has the right to
                  acquire (at
                  $0.20 per share) on or prior to December 31, 2007, pursuant to
                  the terms
                  of a standby joint venture financing
                  agreement.
 
 (10)
              Includes
                  3,242,500 shares held by Hawk Precious Minerals USA, Inc., a wholly
                  owned
                  subsidiary of Hawk Precious Minerals Inc., 200,000 shares held
                  by Hawk
                  Precious Minerals Inc., and 30,000 shares issuable upon exercise
                  of
                  certain warrants held by Hawk Precious Minerals
                  Inc.
  **EQUITY
        COMPENSATION**
 
 The
        following table sets forth certain information regarding equity compensation
        plan information as of December 31, 2006:
  Plan
                  category
              
              Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
              
              Weighted-average
                  exercise price of outstanding options, warrants and rights
              
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))(a)
              
              
              
              (b)Equity
                  compensationplans
                  approved bysecurity
                  holders (1)
              
              
              4,789,500
              
              $
              0.47
              
              
              2,234,000Equity
                  compensationplans
                  not approved bysecurity
                  holders
              
              
              1,722,500
              
              $
              0.83
              
              
              400,000Total
              
              
              6,512,000
              
              $
              0.56
              
              
              2,634,000
 
 (1)
        Includes 450,000 securities (in columns a and b) available from the 2000
        Director Stock Option Plan (a Plan previously approved by shareholders) approved
        by written board action on July 8, 2003 but not yet presented for shareholder
        approval.
  **ITEM
        12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 The
        following describes certain relationships and related transactions that we
        have
        with persons deemed to be affiliates of ours. We believe that each of the
        transactions described below were on terms at least as favorable to our Company
        as we would have expected to negotiate with unaffiliated third
        parties.
  35
 
 Hawk
 
 On
        April
        11, 2005, we entered into a management services agreement with Hawk Precious
        Minerals Inc., of which H. Vance White is an officer and
        director, whereby Hawk would provide certain management and administrative
        services to the Company. The term of the agreement was for one-year and required
        payment of $50,000. As of June 30, 2005, we had paid the entire yearly agreement
        amount to Hawk.
 
 On
        May
        15, 2006, we entered into a management services agreement with Hawk, whereby
        Hawk will provide certain management and administrative services to the Company.
        The term of the agreement was until December 31, 2006 and required a US $50,000
        payment.
 
 On
        June
        29, 2006, we executed a Memorandum of Agreement between the Company and Hawk
        (the “Hawk Memorandum”). Under the terms of the Hawk Memorandum, we acquired a
        50 percent interest in certain mining claims located in northern Ontario,
        held
        entirely by Hawk by issuing Hawk 40,000 shares of our common stock.
 
 Andrew
        Green
 
 In
        May
        2005, we entered into a short-term loan arrangement with Andrew Green, a
        holder
        of in excess of five percent of our common stock, whereby we borrowed $250,000
        from Mr. Green pursuant to a purchase agreement and unsecured promissory
        note.
        The note bore an initial interest rate of six percent per annum, which increased
        to 18 percent per annum on July 15, 2005 because we did not repay the note
        in
        full by July 15, 2005. As additional consideration for the note, we amended
        the
        terms of a warrant held by Mr. Green (originally issued as part of our October
        2003 private placement) to purchase up to 500,000 shares of our common stock
        to
        reduce the exercise price from $0.25 per share to $0.01 per share pursuant
        to a
        default provision in the note. Furthermore, since we had not repaid the note
        in
        full by July 15, 2005, we were required to issue 50,000 shares of our
        unregistered common stock for each month there remained an outstanding balance
        beginning August 15, 2005, up to a maximum issuance of 150,000 shares. We
        issued
        the maximum of 150,000 pursuant to this penalty provision.
 
 On
        November 1, 2005, we entered into a new loan and security agreement with
        Mr.
        Green (the “Green Note”) whereby his original $250,000 unsecured note (“Existing
        Financing”) was refinanced to allow us to draw up to an aggregate of $600,000.
        In consideration for refinancing the Existing Financing into the Green Note,
        we
        issued Mr. Green a five-year warrant to purchase up to 2,500,000 shares of
        our
        common stock with an exercise price of $0.12 per share, subject to adjustment
        as
        defined in the agreement. On November 9, 2005, we drew the initial monthly
        amount of $100,000 and issued to Mr. Green (i) 500,000 shares of our common
        stock and (ii) a five-year warrant to purchase up to 1,000,000 shares of
        our
        common stock with an exercise price of $0.12 per share. For each subsequent
        $100,000 monthly draw, we would be obligated to issue another five-year warrant
        to purchase up to 1,000,000 shares of our common stock with an exercise price
        of
        $0.12 per share. The Green Note was secured by substantially all of our assets
        and bore an interest rate of 12 percent per annum. The Green Note required
        no
        payments until the maturity date of April 30, 2006.
 
 In
        April
        2006, we entered into an amendment to the Green Note, extending the maturity
        date for an additional 30 days. In consideration of this extension, we issued
        60,000 shares of our common stock and we entitled Mr. Green the option, at
        any
        time on or prior to August 31, 2006, to purchase at a price of $0.20 per
        share,
        shares of our common stock in an amount equal to, but not greater than, the
        final principal and interest balance of the note and receive the number of
        shares of our common stock computed by dividing that amount by $0.20 per
        share.
 
 In
        May
        2006, we made a $600,000 Principal payment and paid the accrued interest
        of
        $44,091 by the issuance of 220,456 shares (valued at $0.20 per share) of
        our
        common stock.
 
 On
        August
        18, 2006, we executed a standby joint venture financing agreement (the
“Agreement”) with Mr. Green. The Agreement contemplates Mr. Green’s future
        participation in joint venture or financing arrangements presented to Mr.
        Green
        by us for the purposes of financing mineral exploration projects (“Projects”).
        The Agreement sets forth basic terms of any such future joint venture or
        financing arrangements, including terms relating to the payment of proceeds
        from
        any Project for which a joint venture or financing arrangement has been entered,
        but may be subject to written agreements relating to specific Projects.
  36
 
 As
        consideration for Mr. Green’s agreement to review and consider Projects
        presented by us, Mr. Green’s right to purchase up to 3,000,000 shares of our
        common stock at a purchase price per share of $0.20, as provided pursuant
        to
        that certain Amendment to Secured Convertible Promissory Note of the Company
        dated April 1, 2006 in favor of Mr. Green, was extended from August 31, 2006
        to
        March 31, 2007.
 
 Corporate
        Resource Management, Inc.
 
 The
        Company entered into a consulting agreement with Corporate Resource Management,
        Inc., a Minnesota corporation (“CRM”), effective May 15, 2006. CRM is an entity
        wholly owned by Deb King, the spouse of Stephen D. King, our Chief Executive
        Officer and a director. CRM will provide the Company with investment banking
        services relating to the purchase and sale of mining related assets. The
        terms
        of the agreement include the following: (i) a two-year initial term with
        the
        right to terminate with a 30-day written notice, subject to a $75,000
        termination fee payable to CRM if terminated by the Company without cause,
        (ii)
        a fee of $10,000 per month, plus reimbursement of normal out-of-pocket expenses,
        and (iii) commissions of up to two percent of the value of the transaction
        upon
        successful closings of any asset transactions during the term of the agreement
        and for a period of one year following termination.
 
 Stephen
        D. King
 
 On
        January 27, 2005, the Board authorized a consulting agreement with Stephen
        D.
        King, at the time a director, and who currently serves as our Chief Executive
        Officer and as a director. The agreement was for consulting services to provide
        strategic merger, acquisition and corporate advice with regard to the Company’s
        Colorado mining opportunities, as well as other consulting services. Under
        this
        agreement, we paid Mr. King $207,000 in fiscal 2005 and $80,000 in fiscal
        2006.
        Upon acceptance of Mr. King’s employment as the Company’s President in March
        2006, the agreement was terminated.
  In
          fiscal
          year 2005, we issued to Mr. King warrants to purchase an aggregate of 2,000,000
          shares of our common stock at an exercise price of $0.15 per share in
          consideration of his agreement to provide personal guarantees of our payment
          obligations under certain of our promissory notes.
 
 Boston
        Financial Partners, Inc.
 
 Effective
        June 1, 2006, we engaged Boston Financial Partners, Inc., a holder of in
        excess
        of 5% of our capital stock, on a fully diluted basis, as a non-exclusive
        consultant, to provide assistance to the Company in various matters pertaining
        to corporate growth, strategic planning, public relations and marketing
        services. As consideration for the services, we paid a one-time fee of $100,000
        and issued (i) 625,000 shares of our common stock and (ii) a two-year warrant
        to
        purchase up to 1,000,000 shares of our common stock, at an exercise price
        of
        $0.62 per share. Boston Financial Partners is controlled by Thomas
        Brazil.
  **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 none of our directors are currently independent within the
        meaning of the applicable listing standard of AMEX.
 
 37
  **ITEM
        13. EXHIBITS**
 
 The
        following exhibits are filed as part of this Annual Report on Form 10-KSB,
        or
        are incorporated herein by reference.
 Exhibit**
                
                Description
                    of Document
  3.1
                  
                  Articles
                      of Incorporation, as amended through July 10, 2003 (incorporated
                      by
                      reference to Exhibit 3.1 to the Registrant’s Form SB-2 filed on February
                      14, 2005 (File No. 333-122338)).3.2
                  
                  By-Laws
                      (incorporated by reference to Exhibit 3.2 to Form 10-KSB for
                      the year
                      ended December 31, 2004 (File No. 1-12401)).4.1
                  
                  Form
                      of Common Stock certificate (incorporated by reference to Exhibit
                      4.1 to
                      the Registrant’s Form S-2 filed on November 26, 2003 (File No.
                      333-110831)).4.2
                  
                  Form
                      of Warrant issued to Pandora Select Partners, L.P. (incorporated
                      by
                      reference to Exhibit 4.1 of the Registrant’s Form 8-K filed June 4,
                      2004).4.3
                  
                  Form
                      of Warrant issued to two affiliates of Pandora Select Partners,
                      L.P.
                      (incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K
                      filed June 4, 2004).4.4
                  
                  Form
                      of Warrant issued to Hawk Precious Minerals Inc. (incorporated
                      by
                      reference to Exhibit 4.1 of the Registrant’s Form 8-K filed October 15,
                      2004).4.5
                  
                  Form
                      of Common Stock Purchase Warrant (incorporated by reference
                      to Exhibit 4.1
                      of the Registrant’s Form 8-K filed December 16, 2004).4.6
                  
                  Form
                      of Common Stock Purchase Warrant dated November 1, 2005 (incorporated
                      by
                      reference to Exhibit 4.1 to Form 10-QSB for the quarter ended
                      September
                      30, 2005 (File No. 1-12401)).4.7
                  
                  Form
                      of Warrant issued to Boston Financial Partners, Inc., (incorporated
                      by
                      reference to Exhibit 4.1 of the Registrant’s Form 8-K filed July 13,
                      2006).4.8
                  
                  Form
                      of Class C Redeemable Warrant (incorporated by reference to
                      Exhibit 4.7 to
                      the Registrant’s Form SB-2 filed on Form SB-2 filed on July 14, 2006 (File
                      No. 333-135765)).5.1
                  
                  Opinion
                      of Maslon Edelman Borman & Brand, LLP, dated January 6, 2005,
                      regarding Registrant’s status under the Investment Company Act of 1940
                      (incorporated by reference to Exhibit 5.2 to the Registrant’s Form S-2
                      filed on January 10, 2005 (File No. 333-110831)).10.1
                  
                  Stock
                      Option Agreement (incorporated by reference to Exhibit 6.1
                      to Registrant’s
                      Form 1-A (File No. 24D-3802 SML)).10.2
                  
                  1997
                      Incentive Plan (incorporated by reference to Exhibit 10.23
                      to Registrant’s
                      Form 10-K for the year ended December 31, 1996 (File No.
                      0-27968)).10.3
                  
                  1999
                      Employee Stock Option Plan, as amended (incorporated by reference
                      to
                      Exhibit 10.1 of the Registrant’s Form 8-K filed September 18,
                      2006).10.4
                  
                  2000
                      Director Stock Option Plan, as amended (incorporated by reference
                      to
                      Exhibit 4.1 to Registrant’s Form S-8 filed November 19, 2003 (File No.
                      333-110590)).10.5
                  
                  2001
                      Employee Stock Option Plan, as amended (incorporated by reference
                      to
                      Exhibit 10.2 to the Registrant’s Form 8-K filed January 18,
                      2006).
 10.6
                
                2003
                    Director Stock Option Plan (incorporated by reference to Exhibit
                    4.2 to
                    Registrant’s Form S-8 filed November 19, 2003 (File No.
                    333-110590)).10.7
                
                Join
                    Venture and Joint Contribution Agreement dated June 26, 2003
                    by and among
                    the Registrant, Hawk Precious Minerals Inc. and Hawks Precious
                    Minerals
                    USA, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s
                    Form 8-K filed July 1, 2003).10.8
                
                Member
                    Control Agreement of Active Hawk Minerals, LLC dated June 26,
                    2003
                    (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K
                    filed July 1, 2003).10.9
                
                Purchase
                    Agreement by and among the Registrant and Pandora Select Partners
                    L.P.
                    dated May 28, 2004 (incorporated by reference to Exhibit 10.1
                    of the
                    Registrant’s Form 8-K filed June 4,
                    2004).
  38
  Exhibit**
                
                Description
                    of Document
  10.10
                  
                  Secured
                      Convertible Promissory Note by the Registrant to Pandora Select
                      Partners
                      L.P. dated May 28, 2004 (incorporated by reference to Exhibit
                      10.2 of the
                      Registrant’s Form 8-K filed June 4, 2004).10.11
                  
                  Registration
                      Rights Agreement by and among the Registrant and Pandora Select
                      Partners
                      L.P. dated May 28, 2004 (incorporated by reference to Exhibit
                      10.3 of the
                      Registrant’s Form 8-K filed June 4, 2004).10.12
                  
                  Security
                      Agreement by and between the Registrant and Pandora Select
                      Partners L.P.
                      dated May 28, 2004 (incorporated by reference to Exhibit 10.4
                      of the
                      Registrant’s Form 8-K filed June 4, 2004).10.13
                  
                  Assignment
                      of Option Agreement between and by the Registrant, Hawk Precious
                      Minerals
                      Inc. and Richard Nemis “In Trust” dated June 10, 2004 (incorporated by
                      reference to Exhibit 10.1 of the Registrant’s Form 8-K filed June 14,
                      2004).10.14
                  
                  Option
                      Agreement between the Registrant and Richard Nemis “In Trust” dated May
                      12, 2004 (incorporated by reference to Exhibit 10.2 of the
                      Registrant’s
                      Form 8-K filed June 14, 2004).10.15
                  
                  Shareholders
                      Agreement by and among AfriOre International (Barbados) Limited,
                      the
                      Registrant, and Kwagga Gold (Barbados) Limited, dated August
                      27, 2004
                      (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K
                      filed September 1, 2004).10.16
                  
                  Amendment
                      to Shareholders Agreement by and among AfriOre International
                      (Barbados)
                      Limited, the Registrant, and Kwagga Gold (Barbados) Limited,
                      dated August
                      30, 2004 (incorporated by reference to Exhibit 10.2 of the
                      Registrant’s
                      Form 8-K filed September 1, 2004).10.17
                  
                  Proposal
                      by and among the Registrant, Hunter Gold Mining Corporation,
                      Hunter Gold
                      Mining, Inc., and Ken Swaisland, dated September 16, 2004 (incorporated
                      by
                      reference to Exhibit 10.1 of the Registrant’s Form 8-K filed September 16,
                      2004).10.18
                  
                  Form
                      of Promissory Note by the Registrant to Hawk Precious Minerals
                      Inc., dated
                      October 13, 2004 (incorporated by reference to Exhibit 10.1
                      of the
                      Registrant’s Form 8-K filed October 15,
                      2004).
  10.19
                
                Form
                    of Subscription Agreement and Investment Representation (incorporated
                    by
                    reference to Exhibit 10.1 of the Registrant’s Form 8-K filed December 16,
                    2004).10.20
                
                Form
                    of Supplement to Subscription Agreement and Investment Representation
                    (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K
                    filed December 16, 2004).10.21
                
                Assignment
                    of Purchase Option Agreement by and between the Registrant and
                    Kenneth
                    Swaisland, dated August 12, 2004 (incorporated by reference to
                    Exhibit
                    10.24 to Form 10-KSB for the year ended December 31, 2004 (File
                    No.
                    1-12401)).10.22
                
                Letter
                    Agreement dated December 2, 2003 by and between Ken Swaisland
                    and Hunter
                    Gold Mining Corporation regarding purchase and sale of shares
                    of Hunter
                    Gold Mining Corporation (incorporated by reference to Exhibit
                    10.24 to the
                    Registrant’s Form SB-2 filed on February 14, 2005 (File No. 333-122338)).10.23
                
                Amended
                    and Restated Loan and Security Agreement by the Registrant to
                    Pacific Dawn
                    Capital, LLC dated November 1, 2005 (incorporated by reference
                    to Exhibit
                    10.1 to Form 10-QSB for the quarter ended September 30, 2005
                    (File No.
                    1-12401)).10.24
                
                Amended
                    Secured Convertible Promissory Note by the Registrant to Pacific
                    Dawn
                    Capital, LLC dated September 30, 2005 (incorporated by reference
                    to
                    Exhibit 10.2 to Form 10-QSB for the quarter ended September 30,
                    2005 (File
                    No. 1-12401)).10.25
                
                Loan
                    and Security Agreement by the Registrant to Andrew Green dated
                    November 1,
                    2005 (incorporated by reference to Exhibit 10.3 to Form 10-QSB
                    for the
                    quarter ended September 30, 2005 (File No. 1-12401)).10.26
                
                Secured
                    Convertible Promissory Note by the Registrant to Andrew Green
                    dated
                    November 1, 2005 (incorporated by reference to Exhibit 10.4 to
                    Form 10-QSB
                    for the quarter ended September 30, 2005 (File No.
                    1-12401)).
  39
  Exhibit**
                
                Description
                    of Document
  10.27
                  
                  Letter
                      Agreement dated December 31, 2005 by and between the Registrant
                      and Hunter
                      Gold Mining Corporation regarding amending the option agreement
                      for the
                      purchase of the shares of Hunter Gold Mining Corporation (incorporated
                      by
                      reference to Exhibit 10.1 of the Registrant’s Form 8-K filed January 18,
                      2006).10.28
                  
                  Consulting
                      Agreement by and among the Registrant and Corporate Resource
                      Management,
                      Inc., dated May 15, 2006 (incorporated by reference to Exhibit
                      10.1 to
                      Form 10-QSB for the quarter ended March 31, 2006 (File No.
                      1-12401)).10.29
                  
                  Management
                      Services Agreement by and between the Registrant and Hawk Precious
                      Minerals Inc., dated June 5, 2006 (incorporated by reference
                      to Exhibit
                      10.1 of the Registrant’s Form 8-K filed June 8, 2006).10.30
                  
                  Option
                      Agreement by and between the Registrant, Journey Resources
                      Corporation and
                      Minerales Jazz S.A. de C.V., dated June 28, 2006 (incorporated
                      by
                      reference to Exhibit 10.1 of the Registrant’s Form 8-K filed June 30,
                      2006).10.31
                  
                  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 Registrant’s Form 8-K filed June 30, 2006).10.32
                  
                  Memorandum
                      of Agreement between the Registrant and Hawk Precious Minerals
                      Inc., dated
                      June 29, 2006 (incorporated by reference to Exhibit 10.3 of
                      the
                      Registrant’s Form 8-K filed June 30, 2006).10.33
                  
                  Memorandum
                      of Agreement between the Registrant, Hawk Precious Minerals
                      Inc., and
                      MacDonald Mines Exploration Ltd., dated June 29, 2006 (incorporated
                      by
                      reference to Exhibit 10.4 of the Registrant’s Form 8-K filed June 30,
                      2006).10.34
                  
                  Consulting
                      Agreement by and among the Registrant and Boston Financial
                      Partners, Inc.,
                      dated June 1, 2006 (incorporated by reference to Exhibit 10.1
                      of the
                      Registrant’s Form 8-K filed July 13, 2006).10.35
                  
                  Warrant
                      Agreement between the Registrant and American Stock Transfer
& Trust
                      Company, dated June 28, 2006 (incorporated by reference to
                      Exhibit 10.32
                      to the Registrant’s Form SB-2 filed on Form SB-2 filed on July 14, 2006
                      (File No. 333-135765)).10.36
                  
                  Standby
                      Joint Venture Financing Agreement by and among the Registrant
                      and Andrew
                      Green dated August 18, 2006 (incorporated by reference to Exhibit
                      10.1 of
                      the Registrant’s Form 8-K filed August 23, 2006).10.37
                  
                  Employment
                      Offer Letter by and among the Registrant and Dr. Clyde L. Smith
                      dated
                      September 14, 2006 (incorporated by reference to Exhibit 10.2
                      of the
                      Registrant’s Form 8-K filed September 18, 2006).10.38
                  
                  Employee
                      Stock Option Vesting Correction Letter by and among the Registrant
                      and Dr.
                      Smith dated September 21, 2006 (incorporated by reference to
                      Exhibit 10.1
                      of the Registrant’s Amendment to Form 8-K filed September 21,
                      2006).10.39
                  
                  Asset
                      Purchase Agreement by and among the Registrant 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 Registrant’s Form
                      8-K filed September 25, 2006).10.40
                  
                  Form
                      of Subscription Agreement and Investment Representation Offer
                      Letter
                      relating to the Registrant’s October 2003 Private Placement of Units of
                      Common Stock and Warrants (incorporated by reference to Exhibit
                      10.36 to
                      the Registrant’s Form SB-2 filed on October 13, 2006 (File No.
                      333-135765)).10.41
                  
                  Form
                      of Supplement to the October 2003 Private Placement Subscription
                      Agreement
                      and Investment Representation Offer Letter (incorporated by
                      reference to
                      Exhibit 10.37 to the Registrant’s Form SB-2 filed on October 13, 2006
                      (File No. 333-135765)).10.42
                  
                  Form
                      of Subscription Agreement and Investment Representation Offer
                      Letter
                      relating to the Registrant’s January 2005 Private Placement of Units of
                      Common Stock and Warrants (incorporated by reference to Exhibit
                      10.38 to
                      the Registrant’s Form SB-2 filed on October 13, 2006 (File No.
                      333-135765)).10.43
                  
                  Form
                      of Supplement to the January 2005 Private Placement Subscription
                      Agreement
                      and Investment Representation Offer Letter (incorporated by
                      reference to
                      Exhibit 10.39 to the Registrant’s Form SB-2 filed on October 13, 2006
                      (File No. 333-135765)).10.44
                  
                  Form
                      of Warrant Exercise Offer Letter dated March 13, 2006 to Warrantholders
                      from the Registrant’s January 2005 Private Placement (incorporated by
                      reference to Exhibit 10.40 to the Registrant’s Form SB-2 filed on October
                      13, 2006 (File No. 333-135765)).
  40
  Exhibit**
                
                Description
                    of Document
  10.45
                
                Warrant
                    Exercise Offer Letter dated March 13, 2006 to Caribbean Consultants
                    Holdings Associated, S.A., dated March 13, 2006 (incorporated
                    by reference
                    to Exhibit 10.41 to the Registrant’s Form SB-2 filed on October 13, 2006
                    (File No. 333-135765)).10.46
                
                Form
                    of Warrant Exercise Price Reduction Offer Letter dated April
                    3, 2006 to
                    Warrantholders from the Registrant’s October 2003 Private Placement
                    (incorporated by reference to Exhibit 10.42 to the Registrant’s Form SB-2
                    filed on October 13, 2006 (File No. 333-135765)).10.47
                
                Joint
                    Venture Agreement dated December 18, 2006, by and among the Registrant,
                    Journey Resources Corp., and Minerales Jazz S.A. De C.V. (incorporated
                    by
                    reference to Exhibit 10.1 of the Registrant’s Form 8-K filed December 19,
                    2006).16.1
                
                Letter
                    from Virchow, Krause & Company, LLP dated January 3, 2005
                    (incorporated by reference to Exhibit 16.1 of the Registrant’s Form 8-K
                    filed January 3, 2005).16.2
                
                Letter
                    from Walter E. Brooks dated January 12, 2005 (incorporated by
                    reference to
                    Exhibit 16.1 of the Registrant’s Form 8-K filed January 18,
                    2005).
  21**
                  
                  Subsidiaries
                      of the Registrant.23.1**
                  
                  Consent
                      of Carver Moquist & O’Connor, LLC.24**
                  
                  Power
                      of Attorney (included on the signature page hereto).31.1**
                  
                  Certification
                      by Chief Executive Officer.31.2**
                  
                  Certification
                      by Chief Financial Officer.32.1**
                  
                  Certification
                      by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
                      as Adopted
                      Pursuant to Section 906 of the Sarbanes-Oxley Act of
                      2002.32.2**
                  
                  Certification
                      by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
                      as Adopted
                      Pursuant to Section 906 of the Sarbanes-Oxley Act of
                      2002.
  **
        Filed
        herewith electronically
 
 **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 On
        February 8, 2007, 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, 2006 and on January 23, 2006, our Board ratified
        the
        engagement of CMO to audit our financial statements for the year ended December
        31, 2005.
 
 **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-KSB and 10-QSB for 2006 and 2005, and services
        that are normally provided by the accountant in connection with statutory
        and
        regulatory filings or engagements was $77,912 for the year ended December
        31,
        2006 and $37,440 for the year ended December 31, 2005.
 
 **AUDIT
        RELATED FEES:**
  There
        were no fees billed in each of the last two fiscal years for assurance and
        related services by the principal accountant that are reasonably related
        to the
        performance of the audit or review of the Company's financial statements.
 
 **TAX
        FEES:**
  There
        were no fees billed in each of the last two fiscal years for professional
        services rendered by the principal accountant for tax compliance, tax advice,
        and tax planning.
 
 **ALL
        OTHER FEES:**
  There
        were no other fees billed in each of the last two fiscal years for products
        and
        services provided by the principal accountant, other than the services reported
        above.
  **POLICY
        ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES
        OF
        INDEPENDENT AUDITORS**
 
 At
        present, we do not have an audit committee, but rather our entire Board of
        Directors performs the functions of the audit committee. Our Board approves
        each
        engagement for audit or non-audit services before we engage our independent
        auditor to provide those services. The Board has not established any
        pre-approval policies or procedures that would allow our management to engage
        our independent auditor to provide any specified services with only an
        obligation to notify the audit committee of the engagement for those services.
        None of the services provided by our independent auditors for fiscal 2006
        was
        obtained in reliance on the waiver of the pre-approval requirement afforded
        in
        SEC regulations.
  41
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
        the
        registrant caused this report to be signed on its behalf by the undersigned,
        thereunto duly authorized.
 WITS
                  BASIN PRECIOUS MINERALS INC.
                (“REGISTRANT”)Dated:
                April 16, 2007
              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 Registrant, in the capacities
        and dates indicated.
 
 
 **Name**
              
              **Title**
              
              **Date**/s/
                  H. Vance White
                
                H.
                  Vance White
              
              Chairman
              
              April
                  16, 2007/s/
                  Stephen D. King
                
                Stephen
                  D. King
              
              Chief
                  Executive Officer and Director (principal executive officer)
              
              April
                  16, 2007/s/
                  Clyde L. Smith
                
                Clyde
                  Smith
              
              President
              
              April
                  13, 2007/s/
                  Mark D. Dacko
                
                Mark
                  D. Dacko
              
              Chief
                  Financial Officer, Secretary and Director (principal financial
                  and
                  accounting officer)
              
              April
                  16, 2007/s/
                  Norman D. Lowenthal
                
                Norman
                  D. Lowenthal
              
              Director
              
              April
                  13, 2007
 
 42


**ITEM
      7. 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, 2006 and 2005
            F-3Consolidated
                Statements of Operations for the Years Ended December 31, 2006 and
                2005
            F-4Consolidated
                Statements of Shareholders’ Equity and Comprehensive Loss for the Years
                Ended December 31, 2006 and 2005
            F-5Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2006 and
                2005
            F-7Notes
                to Consolidated Financial Statements
            F-8





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, 2006 and 2005, and the related consolidated statements of operations,
      shareholders’ equity and comprehensive loss, and cash flows for the years ended
      December 31, 2006 and 2005, and the period from May 1, 2003 (inception of
      exploration stage) to December 31, 2006. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. 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, 2006 and 2005, and the results of its operations and its
      cash
      flows for the years ended December 31, 2006 and 2005, and the period from May
      1,
      2003 (inception of exploration stage) to December 31, 2006 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, 2006 and 2005 and had an accumulated deficit at December
      31,
      2006. 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,
      2007





F-2


**WITS
      BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**


**(AN
      EXPLORATION STAGE COMPANY)**


**CONSOLIDATED
      BALANCE SHEETS**




December
                31,2006
            
            2005AssetsCurrent
                assets:Cash
            
            $
            85,910
            
            $
            117,816Receivables
            
            
            10,323
            
            
            —Investment
            
            
            21,241
            
            
            11,260Prepaid
                expenses
            
            
            53,815
            
            
            163,396Total
                current assets
            
            
            171,289
            
            
            292,472Property
                and equipment, net
            
            
            80,087
            
            
            89,559Investment
                in Kwagga Gold (Barbados) Limited
            
            
            —
            
            
            120,803Debt
                issuance costs, net
            
            
            —
            
            
            4,662Total
                Assets
            
            $
            251,376
            
            $
            507,496Liabilities
                and Shareholders’ EquityCurrent
                liabilities:Notes
                payable, net of original issue discount
            
            $
            —
            
            $
            301,111Accounts
                payable
            
            
            68,622
            
            
            136,223Accrued
                expenses
            
            
            143,000
            
            
            65,972Total
                current liabilities
            
            
            211,622
            
            
            503,306Commitments
                and contingenciesShareholders’
                equity:Common
                stock, $.01 par value, 150,000,000 sharesauthorized:
                94,747,739 and 65,674,329 shares issued andoutstanding
                at December 31, 2006 and 2005, respectively
            
            
            947,477
            
            
            656,743Additional
                paid-in capital
            
            
            42,954,263
            
            
            34,487,774Stock
                subscriptions receivable
            
            
            (932,600
            )
            
            —Warrants
            
            
            7,515,487
            
            
            6,418,685Accumulated
                deficit
            
            
            (22,932,460
            )
            
            (22,932,460
            )Deficit
                accumulated during the exploration stage,subsequent
                to April 30, 2003
            
            
            (27,509,595
            )
            
            (18,618,908
            )Accumulated
                other comprehensive loss
            
            
            (2,818
            )
            
            (7,644
            )Total
                shareholders’ equity
            
            
            39,754
            
            
            4,190Total
                Liabilities and Shareholders’ Equity
            
            $
            251,376
            
            $
            507,496





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




*Certain
      reclassifications have been applied for presentation purposes*




F-3


**WITS
      BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**


**(AN
      EXPLORATION STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




May
                1, 2003(inception)
                toDecember
                31,
            
            Dec.
                31,2006
            
            2005
            
            2006Revenues
            
            $
            —
            
            $
            —
            
            $
            —Operating
                expenses:General
                and administrative
            
            
            4,963,481
            
            
            3,777,977
            
            
            11,880,413Exploration
                expenses
            
            
            1,958,229
            
            
            520,529
            
            
            7,610,250Depreciation
                and amortization
            
            
            21,214
            
            
            110,703
            
            
            460,264Stock
                issued as penalty
            
            
            —
            
            
            —
            
            
            2,152,128Loss
                on impairment of Kwagga Gold
            
            
            120,803
            
            
            613,857
            
            
            2,100,000Loss
                (gain) on sale of Brazmin
            
            
            —
            
            
            (75,000
            )
            
            667,578Loss
                on disposal of assets
            
            
            —
            
            
            —
            
            
            1,633Total
                operating expenses
            
            
            7,063,727
            
            
            4,948,066
            
            
            24,872,266Loss
                from operations
            
            
            (7,063,727
            )
            
            (4,948,066
            )
            
            (24,872,266
            )Other
                income (expense):Interest
                income
            
            
            31,122
            
            
            —
            
            
            33,347Interest
                expense
            
            
            (1,858,082
            )
            
            (782,623
            )
            
            (2,935,750
            )Total
                other expense
            
            
            (1,826,960
            )
            
            (782,623
            )
            
            (2,902,403
            )Loss
                from operations before income tax
              benefit
                and discontinued operations
            
            
            (8,890,687
            )
            
            (5,730,689
            )
            
            (27,774,669
            )Benefit
                from income taxes
            
            
            —
            
            
            —
            
            
            243,920Loss
                from continuing operations
            
            
            (8,890,687
            )
            
            (5,730,689
            )
            
            (27,530,749
            )Discontinued
                operations:Gain
                from discontinued operations
            
            
            —
            
            
            —
            
            
            21,154Net
                loss
            
            $
            (8,890,687
            )
            $
            (5,730,689
            )
            $
            (27,509,595
            )Basic
                and diluted net loss per common share:Continuing
                operations
            
            $
            (0.11
            )
            $
            (0.09
            )
            $
            (0.54
            )Discontinued
                operations
            
            
            —
            
            
            —
            
            
            —Net
                loss
            
            $
            (0.11
            )
            $
            (0.09
            )
            $
            (0.54
            )Basic
                and diluted weighted averagecommon
                shares outstanding
            
            
            82,503,278
            
            
            61,637,933
            
            
            50,652,744




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


*Certain
      reclassifications have been applied for presentation purposes* ****




F-4


**WITS
      BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**


**(AN
      EXPLORATION STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY AND**


**COMPREHENSIVE
      LOSS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Additional
              
              StockCommon
                  stock
              
              paid-in
              
              subscriptionShares
              
              Amount
              
              capital
              
              receivable
              
              WarrantsBALANCE,
                  December 31, 2004
              
              
              42,601,612
              
              $
              426,016
              
              $
              31,388,817
              
              $
              —
              
              $
              5,238,405Issuance
                  of common stock and warrants in January2005
                  private placement at $0.10 per unit (net ofoffering
                  costs of $31,331)
              
              
              16,600,000
              
              
              166,000
              
              
              1,015,159
              
              
              —
              
              
              447,510Issuance
                  of 275,000 shares of common stock inJanuary
                  2005 for purchase option rights ofBates-Hunter
                  Mine
              
              
              275,000
              
              
              2,750
              
              
              91,250
              
              
              —
              
              
              —Conversion
                  of note payable principal and interestinto
                  common stock from April thru November 2005
              
              
              2,400,000
              
              
              24,000
              
              
              304,861
              
              
              —
              
              
              —Additional
                  compensation for re-pricing of3,063,834
                  warrants granted to two consultants
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              209,817Exercise
                  of warrants with cash
              
              
              794,150
              
              
              7,941
              
              
              204,147
              
              
              —
              
              
              (53,258
              )Issuance
                  of 1,353,567 shares of common stock,200,000
                  options and 2,800,000 warrants toconsultants
                  during 2005 for services
              
              
              1,353,567
              
              
              13,536
              
              
              289,566
              
              
              —
              
              
              905,120Exercise
                  of warrants in lieu of interestdue
                  on note payable
              
              
              500,000
              
              
              5,000
              
              
              81,264
              
              
              —
              
              
              (81,264
              )Issuance
                  of 150,000 shares of common stock andre-pricing
                  of 500,000 warrants for latepayment
                  penalty on note payable
              
              
              150,000
              
              
              1,500
              
              
              18,500
              
              
              —
              
              
              55,284Issuance
                  of 1,000,000 shares of common stock and9,500,000
                  warrants and recording a beneficialconversion
                  charge related to 2005 notes payable
              
              
              1,000,000
              
              
              10,000
              
              
              214,011
              
              
              —
              
              
              477,270Warrants
                  that expired during 2005 without exercise
              
              
              —
              
              
              —
              
              
              780,199
              
              
              —
              
              
              (780,199
              )Contributed
                  services by an executive
              
              
              —
              
              
              —
              
              
              100,000
              
              
              —
              
              
              —Comprehensive
                  loss:Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Unrealized
                  gain (loss) on investment
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
                  comprehensive loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
                  December 31, 2005
              
              
              65,674,329
              
              
              656,743
              
              
              34,487,774
              
              
              —
              
              
              6,418,685Exercise
                  of warrants with cash
              
              
              21,141,184
              
              
              211,412
              
              
              4,644,069
              
              
              (822,600
              )
              
              149,841Issuance
                  of 5,452,794 shares of common stock and4,000,000
                  warrants to consultants during 2006for
                  services
              
              
              5,452,794
              
              
              54,528
              
              
              1,677,160
              
              
              —
              
              
              1,015,712Issuance
                  of shares of common stock for maturitydate
                  extensions and conversion of interest due;issuance
                  of 3,500,000 warrants and recording abeneficial
                  conversion charge all related to2006
                  notes payable
              
              
              439,432
              
              
              4,394
              
              
              1,178,222
              
              
              —
              
              
              252,014Conversion
                  of accounts payable into common stockat
                  $0.26 per share in March 2006
              
              
              150,000
              
              
              1,500
              
              
              37,500
              
              
              —
              
              
              —Issuance
                  of common stock to obtain explorationrights
                  for Mexico and Canada
              
              
              690,000
              
              
              6,900
              
              
              197,900
              
              
              —
              
              
              —Exercise
                  of Right-to-Purchase option provided underthe
                  terms of 2006 notes payable
              
              
              1,000,000
              
              
              10,000
              
              
              190,000
              
              
              (80,000
              )
              
              —Exercise
                  of stock options in December 2006
              
              
              200,000
              
              
              2,000
              
              
              28,000
              
              
              (30,000
              )
              
              —Stock
                  option compensation expense
              
              
              —
              
              
              —
              
              
              122,873
              
              
              —
              
              
              —Warrants
                  that expired during 2006 without exercise
              
              
              —
              
              
              —
              
              
              320,765
              
              
              —
              
              
              (320,765
              )Contributed
                  services by an executive
              
              
              —
              
              
              —
              
              
              70,000
              
              
              —
              
              
              —Comprehensive
                  loss:Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Unrealized
                  gain (loss) on investment
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
                  comprehensive loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
                  December 31, 2006
              
              
              94,747,739
              
              $
              947,477
              
              $
              42,954,263
              
              $
              (932,600
              )
              $
              7,515,487





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




F-5


**WITS
      BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**


**(AN
      EXPLORATION STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY AND**


**COMPREHENSIVE
      LOSS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




Accumulated
              deficit
            
            Deficit
              accumulated
              (1)
            
            Accumulated
              other
              comprehensive
              loss
            
            TotalBALANCE,
                December 31, 2004
            
            $
            (22,932,460
            )
            $
            (12,888,219
            )
            $
            —
            
            $
            1,232,559Issuance
                of common stock and warrants in January2005
                private placement at $0.10 per unit (net ofoffering
                costs of $31,331)
            
            
            —
            
            
            —
            
            
            —
            
            
            1,628,669Issuance
                of 275,000 shares of common stock inJanuary
                2005 for purchase option rights ofBates-Hunter
                Mine
            
            
            —
            
            
            —
            
            
            —
            
            
            94,000Conversion
                of note payable principal and interestinto
                common stock from April thru November 2005
            
            
            —
            
            
            —
            
            
            —
            
            
            328,861Additional
                compensation for re-pricing of3,063,834
                warrants granted to two consultants
            
            
            —
            
            
            —
            
            
            —
            
            
            209,817Exercise
                of warrants with cash
            
            
            —
            
            
            —
            
            
            —
            
            
            158,830Issuance
                of 1,353,567 shares of common stock,200,000
                options and 2,800,000 warrants toconsultants
                during 2005 for services
            
            
            —
            
            
            —
            
            
            —
            
            
            1,208,222Exercise
                of warrants in lieu of interestdue
                on note payable
            
            
            —
            
            
            —
            
            
            —
            
            
            5,000Issuance
                of 150,000 shares of common stock andre-pricing
                of 500,000 warrants for latepayment
                penalty on note payable
            
            
            —
            
            
            —
            
            
            —
            
            
            75,284Issuance
                of 1,000,000 shares of common stock and9,500,000
                warrants and recording a beneficialconversion
                charge related to 2005 notes payable
            
            
            —
            
            
            —
            
            
            —
            
            
            701,281Warrants
                that expired during 2005 without exercise
            
            
            —
            
            
            —
            
            
            —
            
            
            —Contributed
                services by an executive
            
            
            —
            
            
            —
            
            
            —
            
            
            100,000Comprehensive
                loss:Net
                loss
            
            
            —
            
            
            (5,730,689
            )
            
            —
            
            
            —Unrealized
                gain (loss) on investment
            
            
            —
            
            
            —
            
            
            (7,644
            )
            
            —Total
                comprehensive loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (5,738,333
            )BALANCE,
                December 31, 2005
            
            
            (22,932,460
            )
            
            (18,618,908
            )
            
            (7,644
            )
            
            4,190Exercise
                of warrants with cash
            
            
            —
            
            
            —
            
            
            —
            
            
            4,182,722Issuance
                of 5,452,794 shares of common stock and4,000,000
                warrants to consultants during 2006for
                services
            
            
            —
            
            
            —
            
            
            —
            
            
            2,747,400Issuance
                of shares of common stock for maturitydate
                extensions and conversion of interest due;issuance
                of 3,500,000 warrants and recording abeneficial
                conversion charge all related to2006
                notes payable
            
            
            —
            
            
            —
            
            
            —
            
            
            1,434,630Conversion
                of accounts payable into common stockat
                $0.26 per share in March 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            39,000Issuance
                of common stock to obtain explorationrights
                for Mexico and Canada
            
            
            —
            
            
            —
            
            
            —
            
            
            204,800Exercise
                of Right-to-Purchase option provided underthe
                terms of 2006 notes payable
            
            
            —
            
            
            —
            
            
            —
            
            
            120,000Exercise
                of stock options in December 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                option compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            122,873Warrants
                that expired during 2006 without exercise
            
            
            —
            
            
            —
            
            
            —
            
            
            —Contributed
                services by an executive
            
            
            —
            
            
            —
            
            
            —
            
            
            70,000Comprehensive
                loss:Net
                loss
            
            
            —
            
            
            (8,890,687
            )
            
            —
            
            
            —Unrealized
                gain (loss) on investment
            
            
            —
            
            
            —
            
            
            4,826
            
            
            —Total
                comprehensive loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (8,885,861
            )BALANCE,
                December 31, 2006
            
            $
            (22,932,460
            )
            $
            (27,509,595
            )
            $
            (2,818
            )
            $
            39,754





(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-6


**WITS
      BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**


**(AN
      EXPLORATION STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





May
                1, 2003(inception)
                toDecember
                31,
            
            Dec.
                31,2006
            
            2005
            
            2006OPERATING
                ACTIVITIES:Net
                loss
            
            $
            (8,890,687
            )
            $
            (5,730,689
            )
            $
            (27,509,595
            )Adjustments
                to reconcile net loss to cashflows
                from operating activities:Depreciation
                and amortization
            
            
            21,214
            
            
            110,703
            
            
            460,264Loss
                on disposal of assets
            
            
            —
            
            
            —
            
            
            1,633Loss
                (gain) on sale of Brazmin
            
            
            —
            
            
            (75,000
            )
            
            667,578Gain
                from discontinued operations
            
            
            —
            
            
            —
            
            
            (21,154
            )Issue
                of common stock for exploration rights
            
            
            204,800
            
            
            94,000
            
            
            5,140,090Loss
                on impairment of Kwagga Gold
            
            
            120,803
            
            
            613,857
            
            
            2,100,000Amortization
                of debt issuance costs
            
            
            4,662
            
            
            83,058
            
            
            138,858Amortization
                of original issue discount
            
            
            798,889
            
            
            649,613
            
            
            1,701,281Amortization
                of prepaid consulting fees related to issuance of
              warrants
                and common stock
            
            
            2,744,326
            
            
            1,155,679
            
            
            4,564,088Compensation
                expense related to stock options
            
            
            122,873
            
            
            —
            
            
            122,873Issuance
                of common stock and warrants for services
            
            
            419,524
            
            
            280,500
            
            
            1,169,522Contributed
                services by an executive
            
            
            70,000
            
            
            100,000
            
            
            274,500Issuance
                of common stock as penalty related to October 2003
              private
                placement
            
            
            —
            
            
            —
            
            
            2,152,128Interest
                expense related to issuance of common stock
              and
                warrants
            
            
            1,084,630
            
            
            88,790
            
            
            1,173,420Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            (10,323
            )
            
            5,817
            
            
            7,694Prepaid
                expenses
            
            
            (306,869
            )
            
            135,740
            
            
            (126,763
            )Accounts
                payable
            
            
            (28,601
            )
            
            (55,408
            )
            
            (1,659
            )Accrued
                expenses
            
            
            77,028
            
            
            (92,623
            )
            
            (77,587
            )Net
                cash used in operating activities
            
            
            (3,567,731
            )
            
            (2,635,963
            )
            
            (8,062,829
            )INVESTING
                ACTIVITIES:Purchases
                of property and equipment
            
            
            (11,742
            )
            
            (94,612
            )
            
            (106,354
            )Proceeds
                from sale of Brazmin
            
            
            —
            
            
            100,000
            
            
            125,000Purchases
                of investments
            
            
            (5,155
            )
            
            —
            
            
            (2,244,276
            )Net
                cash provided by (used in) investing activities
            
            
            (16,897
            )
            
            5,388
            
            
            (2,225,630
            )FINANCING
                ACTIVITIES:Payments
                on short-term and long-term debt
            
            
            (1,100,000
            )
            
            (169,145
            )
            
            (1,434,645
            )Private
                placement advances held in escrow
            
            
            —
            
            
            (734,950
            )
            
            —Cash
                proceeds from issuance of common stock, netof
                offering costs
            
            
            120,000
            
            
            1,628,669
            
            
            4,845,272Cash
                proceeds from exercise of stock options
            
            
            —
            
            
            —
            
            
            169,900Cash
                proceeds from exercise of warrants
            
            
            4,182,722
            
            
            158,830
            
            
            4,485,660Cash
                proceeds from short-term debt
            
            
            350,000
            
            
            750,000
            
            
            1,100,000Cash
                proceeds from long-term debt
            
            
            —
            
            
            —
            
            
            650,000Debt
                issuance costs
            
            
            —
            
            
            (7,361
            )
            
            (138,858
            )Net
                cash provided by financing activities
            
            
            3,552,722
            
            
            1,626,043
            
            
            9,677,329INCREASE
                (DECREASE) IN CASH EQUIVALENTS
            
            
            (31,906
            )
            
            (1,004,532
            )
            
            (611,130
            )CASH
                AND EQUIVALENTS, beginning of period
            
            
            117,816
            
            
            1,122,348
            
            
            697,040CASH
                AND EQUIVALENTS, end of period
            
            $
            85,910
            
            $
            117,816
            
            $
            85,910





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


*Certain
      reclassifications have been applied for presentation purposes* ****




F-7


**WITS
      BASIN PRECIOUS MINERALS INC. AND SUBSIDIARIES**


**(AN
      EXPLORATION STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006 and 2005**





**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, 2006, we hold interests in mineral
      exploration projects in South Africa (FSC), Canada (Holdsworth and MacNugget),
      Colorado (Bates-Hunter) and Mexico (Vianey). The following is a summary of
      our
      projects:





·
            We
                hold a 35 percent equity interest in Kwagga Gold (Barbados) Limited
                (“Kwagga”), 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.” The exploration efforts
                being conducted are adjacent to the historic Witwatersrand Basin.
                The last
                completed drill hole on this property occurred in 2005. We acquired
                the
                FSC Project from Hawk Precious Minerals Inc., a corporation formed
                under
                the laws of the Providence of Ontario, Canada (“Hawk”) in June 2003. Hawk
                is an affiliate of ours and H. Vance White (the Chairman of our Board
                of
                Directors) is also an officer and director of Hawk. See Note 18 -
                Subsequent Events for an update regarding the FSC
                Project.





·
            The
                other project that we acquired from Hawk was the “Holdsworth Project,”
                which is located near the village of Hawk Junction, Ontario, Canada.
                Our
                rights allow us to explore only through a limited surface depth,
                with the
                remaining below-surface rights belonging to Hawk. We have not expended
                any
                funds since the acquisition and none are required for the foreseeable
                future to maintain our existing rights. Since the book value of the
                Holdsworth Project had been reduced to zero as of December 31, 2005,
                and
                based on our estimated return on capital (against the estimated cash
                outlays to perform the required work) we deem this project immaterial
                to
                our project portfolio.





·
            On
                September 20, 2006, we executed a formal asset purchase agreement
                relating
                to the purchase of assets of the Hunter GoldMining
                Corporation, a corporation incorporated under the laws of British
                Columbia, Canada, which assets includes the Bates-Hunter Mine, a
                prior
                producing gold mine from the 1860’s until the 1930’s located in Central
                City, Colorado, the Golden Gilpin Mill located in Black Hawk, Colorado
                and
                the associated real and personal property assets. The closing of
                the
                transaction contemplated by the asset purchase agreement is currently
                anticipated to occur in the 2ndquarter of 2007. (See Note 18 - Subsequent Events for an update regarding
                the extension to the asset purchase agreement). The Bates-Hunter
                Mine was
                a prior producing gold mine from the 1860’s until the 1930’s. We are
                continuing with a defined work program, which includes dewatering
                the
                existing mine shaft and performing a surface drilling
                program.





·
            On
                December 18, 2006, we entered into a 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, a wholly
                owned subsidiary of Journey. Pursuant to the terms of the joint venture
                agreement, we own a twenty five 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.  We also own the exclusive
                right and option to acquire up to an additional twenty five percent
                undivided beneficial interest in the
                project.




F-8




·
            On
                June 29, 2006, we executed two agreements relating to a VMS (volcanogenic
                massive sulphide) base metals project exploration project located
                in
                northern Ontario, Canada. The first agreement was pursuant to a Memorandum
                of Agreement between the Company and Hawk (the “Hawk Memorandum”) whereby
                we acquired a 50 percent interest in five mining claims (the “MacNugget
                Claims”) held by Hawk in consideration of the issuance of 40,000 shares
                of
                our common stock to Hawk. Under the terms of a second agreement,
                we and
                Hawk sold a portion of the MacNugget Claims to MacDonald Mines Exploration
                Ltd., (“MacDonald”), whereby MacDonald became a 51 percent owner in the
                MacNugget Claims and the operator of the project. A formal joint
                venture
                agreement has been finalized and executed in February 2007 (see Note
                18 -
                Subsequent Events for an update regarding the formal joint venture
                agreement). Other than the common stock issued to Hawk in June 2006,
                we
                have not incurred any other expenses related to this project. Due
                to the
                limited possibility of return on capital, we do not anticipate providing
                any significant funding for the foreseeable future and therefore,
                we deem
                this project immaterial to our project portfolio.




Until
      March 14, 2003, we provided industry-specific solutions for managing, sharing
      and collaborating on business information on the Internet through our Hosted
      Solutions Business and until April 30, 2003, we provided accounting software
      through our Accounting Software Business. We sold substantially all of the
      assets relating to our Hosted Solutions and Accounting Software Businesses
      as of
      such dates and as a result, we became an exploratory stage company effective
      May
      1, 2003.





As
      of
      December 31, 2006, we do not directly own any permits, we possess only a few
      pieces of equipment and we employ insufficient numbers of personnel necessary
      to
      actually explore and/or mine for minerals. Therefore, we are substantially
      dependent on the third party contractors we engage to perform such
      operations.




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, 2006, we incurred losses from continuing operations
      of $8,890,687. At December 31, 2006, we had an accumulated deficit of
      $50,442,055 and working capital deficit of $40,333. 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.





As
      of the
      date of this Annual Report, we do not claim to have any mineral reserves on
      our
      properties.




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





Principles
      of Consolidation





The
      consolidated financial statements include the accounts of Wits Basin Precious
      Minerals Inc., and our wholly owned subsidiaries: (i) Gregory Gold Producers,
      Inc; (ii) Active Hawk Minerals, LLC; (iii) Red Wing Business Systems, Inc;
      and
      (iv) Champion Business Systems, Inc. After the sale of our Accounting Software
      Business in 2003, Red Wing Business Systems, Inc., and Champion Business
      Systems, Inc., became inactive subsidiaries. All significant intercompany
      transactions and balances have been eliminated in consolidation.





F-9




Cash
      and Cash Equivalents





We
      include as cash equivalents: (a) certificates of deposit, and (b) all other
      investments with maturities of three months or less, which are readily
      convertible into known amounts of cash. We maintain our cash in high-quality
      financial institutions. The balances, at times, may exceed federally insured
      limits.





Property
      and Equipment





Property
      and equipment are recorded at cost and depreciated using the straight-line
      method over estimated useful lives ranging from five to seven
      years.





Long-Lived
      Assets





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





Segment
      Reporting





Due
      to
      the reclassification of our Hosted Solutions Business into discontinued
      operations, we have a single operating segment. The single operating segment
      is
      that of minerals exploration.





Revenue
      Recognition and Deferred Revenue





We
      currently do not have the ability to generate revenues from our investments
      in
      any of our projects. Furthermore, we do not expect to generate revenues for
      the
      foreseeable future.





Exploration
      Expenses





Any
      exploration expenses incurred relating to our projects will be charged as
      incurred.





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





On
      January 1, 2006, the Company adopted 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 fair values unless a fair value is not reasonably
      estimable. Prior to the Company’s adoption of SFAS No. 123(R), the Company
      followed the intrinsic value method prescribed in Accounting Principles Board
      (“APB”) Opinion No. 25, “Accounting
      for Stock Issued to Employees” ,
      and its
      related interpretations, as permitted by Statement of Financial Accounting
      Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” The
      fair
      value of the Company’s stock options issued prior to the adoption of SFAS No.
      123(R) was estimated using a Black-Scholes pricing model, which assumes no
      expected dividends and estimates the option expected life, volatility and
      risk-free interest rate at the time of grant.  Prior to the adoption of
      SFAS No. 123(R), the Company used historical and implied market volatility
      as a
      basis for calculating expected volatility.




F-10





The
      Company elected to adopt the modified prospective transition method, under
      which
      prior periods have not been restated to reflect, and do not include, the impact
      of SFAS No. 123(R). The valuation provisions of SFAS No. 123(R) apply
      to new grants and to grants that were outstanding as of the effective date
      and
      are subsequently modified. The Company had no remaining estimated compensation
      for grants that were outstanding as of the effective date that would need to
      be
      recognized over the remaining service period using the compensation cost
      estimated for the SFAS No. 123 pro forma disclosures. The Company's
      condensed consolidated
      financial statements as of and for the year ended December 31, 2006, reflect
      the
      impact of SFAS 123(R). As
      required by SFAS 123(R), the following pro forma table illustrates the effect
      on
      net loss as if the fair-value-based approach of SFAS No. 123 (R) had been
      applied during the year ended December 31, 2005.





December
                31,
            
            May
                1, 2003 (inception) to December 31,2005
            
            2005Net
                loss as reported:
            
            $
            (5,730,689
            )
            $
            (18,618,908
            )Stock-based
                employee compensationexpense
                included in net loss, netof
                related tax effects
            
            
            —
            
            
            88,764Stock
                based employeecompensation
                expensedetermined
                under the fairvalue
                based method (1)
            
            $
            (428,679
            )
            $
            (5,125,023
            )Pro
                forma net loss
            
            $
            (6,159,368
            )
            $
            (23,655,167
            )Loss
                per share (basic and diluted)As
                reported
            
            $
            (0.09
            )
            $
            (0.48
            )Pro
                forma
            
            $
            (0.10
            )
            $
            (0.61
            )




(1)
      Reported net of related tax effect.





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. During the year ended December 31, 2006, we granted
      our President, Dr. Clyde Smith an option to purchase 1,500,000 shares of our
      common stock (the “Standard Options”) and an option to purchase 500,000 shares
      of our common stock (the “Incentive Based Stock Options”), each at $0.31 per
      share (which was equal to the closing sale price of our common stock as reported
      on the OTCBB on the day of grant). The Standard Options vest as follows: 300,000
      vested immediately and 300,000 vest each anniversary thereafter (September
      15,
      2007, 2008, 2009 and 2010). The Incentive Based Stock Options vest at 100,000
      shares on each anniversary of the grant (September 15, 2007, 2008, 2009, 2010
      and 2011) assuming certain performance targets have been met. The Company
      recorded $122,873 of related compensation expense for the year
      ended December 31, 2006, relating to the 2,000,000 share option grants. This
      expense is included in selling, general and administrative expense. There was
      no
      tax benefit from recording this non-cash expense. The compensation expense had no impact on
      the
      loss per share for the year ended December 31, 2006. As of December 31, 2006,
      $491,499 of total unrecognized compensation expense (related to non-vested
      portion of the 2,000,000 share option grants in 2006) is expected to be
      recognized over a period of approximately five years.





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), which is the
      same pricing model used in prior years to calculate pro forma compensation
      expense under  SFAS
      123
      footnote disclosures. Compensation expense for employee stock awards is
      recognized on a straight-line basis over the vesting period of the
      award. 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.




F-11





In
      determining the compensation cost of the options granted during fiscal 2006
      and
      2005, 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:





2006
            
            2005Weighted
                average fair value ofoptions
                granted
            
            $
            0.31
            
            $
            .021Risk-free
                interest rate
            
            
            4.5%
                - 5.0
            %
            
            4.5%
                - 7.0
            %Expected
                volatility factor
            
            
            164%
                - 172
            %
            
            176%
                - 190
            %Expected
                dividend
            
            
            —
            
            
            —Expected
                option term
            
            
            10
                years
            
            
            10
                years




Off
      Balance Sheet Arrangements





As
      of
      December 31, 2006, 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 long-term debt approximated the carrying amounts
      based upon our expected borrowing rate for debt with similar remaining
      maturities and comparable risk.





Comprehensive
      Income (Loss)





Comprehensive
      income (loss) includes net income (loss) and items defined as other
      comprehensive income (loss). Items defined as other comprehensive income (loss)
      include such items as foreign currency translation adjustments and unrealized
      gains (losses) on certain marketable securities.





Net
      Loss per Common Share





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





As
      of
      December 31, 2006, we have (i) 6,512,000 shares of common stock issuable upon
      the exercise of stock options with a weighted average exercise price of $0.56
      per share issued under our stock option plans, (ii) 29,578,833 shares of common
      stock issuable upon the exercise of warrants with a weighted average exercise
      price of $0.56 per share, (iii) 3,620,000 shares issuable upon the closing
      of
      the transaction contemplated by the purchase agreement pertaining to the assets
      of the Bates-Hunter Mine, (iv) reserved an aggregate of 4,000,000 shares of
      common stock pursuant to amendments of secured promissory notes and subsequent
      extensions of certain purchase rights, with a per share price of $0.20 per
      share
      and (v) 1,000,000 shares of common stock reserved for the exercise of a warrant
      to be issued should we complete the purchase of the Bates-Hunter Mine. These
      44,710,833 shares 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.




F-12





Income
      Taxes





The
      Company accounts for income taxes using the liability method to recognize
      deferred income tax assets and liabilities. Deferred income taxes are provided
      for temporary differences between the financial reporting and tax bases of
      our
      assets and liabilities at currently enacted tax rates. Deferred tax assets
      are
      reduced by a valuation allowance when, in the opinion of management, it is
      more
      likely than not that some portion or all of the deferred tax asset will not
      be
      realized.





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





Recent
      Accounting Pronouncements





In
      June
      2006, the FASB issued FASB Interpretation No. 48, Accounting for
      Uncertainty in Income Taxes (“FIN 48”). FIN 48 is an interpretation of FASB
      Statement No. 109, which provides comprehensive guidance on the recognition
      and
      measurement of tax positions in previously filed tax returns or positions
      expected to be taken in future tax returns. The benefit from an uncertain tax
      position must meet a “more-likely-than-not” recognition threshold and is
      measured at the largest amount of benefit greater than 50% determined by
      cumulative probability of being realized upon ultimate settlement with the
      taxing authority. The interpretation also provides guidance on derecognition,
      classification, interest and penalties, as well as disclosure in financial
      statements of uncertain tax positions. The interpretation is effective for
      fiscal years beginning after December 15, 2006. Effective for January 1, 2007,
      we will be required to adjust the opening balance of retained earnings (or
      other
      components of shareholders’ investment in the statement of financial position)
      for the cumulative effect of the difference in the net amount of assets and
      liabilities for all open tax positions at the effective date. We do not expect
      the effect of adoption of FIN 48 to have a material effect on the Company’s
      results of operations, cash flows or financial position.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, Fair Value Measurements. This statement defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles, and expands disclosures about fair value measurements.
      The statement is effective in the fiscal first quarter of 2008 and we will
      adopt
      the statement at that time. We believe that the adoption of
      SFAS No. 157 will not have a material effect on the Company’s results
      of operations, cash flows or financial position.




In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) 108, which
      expresses the Staff’s views regarding the process of quantifying financial
      statement misstatements. The bulletin was effective at fiscal year end 2006.
      The
      implementation of this bulletin had no impact on the Company’s results of
      operations, cash flows or financial position.




**NOTE
      3 - RECLASSIFICATIONS OF PREVIOUSLY ISSUED FINANCIAL
      STATEMENTS**




Balance
      Sheet Reclassification for the Year Ended December 31, 2005





Subsequent
      to the filing of our Form 10-KSB including the consolidated financial statements
      for the year ended December 31, 2005, we determined that our investment in
      Kwagga Gold (Barbados) Limited (“Kwagga”) represented a passive equity position.
      We have made a name change within the Assets section of the balance sheet (that
      was not previously reflected in the consolidated financial statements as of
      December 31, 2005) to signify that the remaining balance of our investment
      in
      Kwagga is no longer associated with the Participation Mining Rights category,
      which includes prepaid mining expenses for related properties. All of the cash
      funds that have been invested in Kwagga for exploration of the FSC Project,
      have
      been removed from the Participation Mining Rights category and reclassified
      as
      an investment in the Kwagga. Therefore, the description of the asset now reads
      “Investment in Kwagga (Barbados) Limited” for both periods reported in these
      consolidated financial statements, since the remaining balance of $120,803
      previously reported in the December 31, 2005 consolidated financial statements
      was the ending balance of the value in the Kwagga investment only. And as such,
      since there was no remaining balance after the reclassification of the
“Participation Mining Rights” category for the Kwagga investment, the
      description no longer existed at December 31, 2005. These reclassifications
      had
      no change to total assets as of December 31, 2005.





F-13




Statement
      of Operations Reclassified for the Year Ended December 31, 2005





As
      our
      interest in Kwagga is a passive investment in a non-controlled foreign
      corporation, the Company lacks significant influence to control the operational
      and financial decisions of Kwagga despite the Company’s 35% equity investment,
      and has thus determined that the appropriate accounting for the investment
      in
      Kwagga was the cost method of accounting. This investment was determined not
      to
      meet the guidance under the equity method of accounting according to Accounting
      Principles Board No. 18, “The Equity Method of Accounting for Investments in
      Common Stock.” We made reclassifications in the presentation of the “Operating
      expenses” section only, which relates to all of the funds that have been
      invested in Kwagga for exploration of the FSC Project, having been removed
      from
      the exploration expenses category and reclassified as an impairment of the
      Kwagga investment.





Furthermore,
      we changed the wording relating to the “Loss (gain) on impairment of Brazmin”
category to read as “Loss (gain) on sale of Brazmin” since the final funds we
      received were specifically in conjunction with the sale of the asset and not
      an
      impairment.





These
      reclassifications required no change to the loss from operations amounts for
      any
      periods reported and had no impact on the loss per common share for any periods
      reported.





Statement
      of Cash Flows Reclassified for the Year Ended December 31, 2005





We
      made
      reclassifications in the presentation of the cash flow statements within the
      “Operating Activities” and the “Investing Activities” sections, which relate to:
      (i) the recording of proceeds received on the sale of Brazmin, and not the
      impairment of Brazmin; (ii) the reclass of the investment made in Kwagga; (iii)
      the reclass of participation mining rights due to the reclass of Kwagga and
      (iv)
      the reclass of discontinued operations.





We
      changed the wording relating to the “Loss (gain) on impairment of Brazmin”
category to read as “Loss (gain) on sale of Brazmin” since the final funds we
      received were specifically in conjunction with the sale of the asset and not
      an
      impairment. We further reclassed funds between the “Operating Activities” and
“Investing Activities” sections only to reflect selling verses impairment
      activity.





We
      made
      reclassifications in the presentation of the “Operating Activities” section
      only, which relates to all of the funds that have been invested in Kwagga for
      exploration of the FSC Project, being removed from the amortization of
      participation mining rights category and reclassified as a loss on impairment
      of
      Kwagga.





We
      made
      reclassifications in the presentation of the “Change in Cash and Cash
      Equivalents of Discontinued Operations” to comply with SFAS 95, which affects
      only the inception period column. This reclass eliminated the prior reported
      “Discontinued Operations” line item of ($77,293) and the reclassed components
      where moved into the “Operating Activities” section as (i) a new line item of:
“Gain from discontinued operations” with its associated non-cash expense of
      $21,154 and (ii) the balance being netted together with Changes in operating
      assets and liabilities: “Accounts Payable.”




F-14





The
      following tables present a summary of the effects of these reclassifications
      on
      the Company’s Consolidated Financial Statements for the year ended December 31,
      2005.





December
                31, 2005
            
            Consolidated
                Balance SheetPreviously
            
            
            
            AsReported
            
            Adjustment
            
            ReclassedParticipation
                mining rights, net
            
            $
            120,803
            
            $
            (120,803
            )
            $
            —Investment
                in Kwagga Gold (Barbados) Limited
            
            
            —
            
            $
            120,803
            
            
            120,803




Year
                Ended December 31, 2005
            
            Consolidated
                Statements of OperationsPreviously
            
            
            
            AsOperating
                expenses:
            
            Reported
            
            Adjustment
            
            ReclassedExploration
                expenses
            
            $
            1,134,386
            
            $
            (613,857
            )
            $
            520,529Loss
                on impairment of Kwagga Gold
            
            
            —
            
            
            613,857
            
            
            613,857




Year
                Ended December 31, 2005
            
            Consolidated
                Statements of Cash FlowsPreviously
            
            
            
            AsOperating
                Activities:
            
            Reported
            
            Adjustment
            
            ReclassedLoss
                (gain) on sale of Brazmin (1)
            
            $
            —
            
            $
            (75,000
            )
            $
            (75,000
            )Amortization
                of participation mining rights
            
            
            613,857
            
            
            (613,857
            )
            
            —Loss
                on impairment of Kwagga
            
            
            —
            
            
            613,857
            
            
            613,857Accounts
                receivable, net
            
            
            30,817
            
            
            (25,000
            )
            
            5,817Net
                cash used in operating activities
            
            
            (2,535,963
            )
            
            (100,000
            )
            
            (2,635,963
            )Investing
                Activities:Proceeds
                from sale of Brazmin
            
            $
            —
            
            $
            100,000
            
            $
            100,000Net
                cash provided by (used in) investing activities
            
            
            (94,612
            )
            
            100,000
            
            
            5,388





(1)
      Originally labeled: Loss on impairment of Brazmin




**NOTE
      4 - RECEIVABLES**





Pursuant
      to a stock subscription agreement for which we accepted, in lieu of cash, a
      secured promissory note in payment of the subscription price, we hold a secured
      promissory note of the subscriber dated April 28, 2006, the satisfaction of
      which is secured by the stock issued to the subscriber. The note accrues
      interest at a rate of five percent per annum and the accrued and unpaid interest
      on December 31, 2006 was $10,323. We collected this receivable in February
      2007.




**NOTE
      5 - INVESTMENT**





We
      hold
      225,000 shares of MacDonald Mines Exploration Ltd., a Toronto Stock Exchange
      listed company (TSX-V:BMK), that we received under joint venture agreements
      with
      MacDonald. We received 175,000 of the shares in 2004 with respect to a northern
      Canadian project and received an additional 50,000 shares in 2006 with respect
      to the MacNugget Claims.





F-15





**NOTE
      6 - 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 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
      2005, and as a component of prepaid expenses, we entered into various consulting
      agreements and issued the following to six unaffiliated third party consultants:
      (i) an aggregate of 50,000 shares of un-registered common stock (valued at
      $7,000 based on the closing sale prices of our common stock on the dates of
      issuance), (ii) two-year warrants to purchase an aggregate of 2,300,000 shares
      of common stock at exercise prices from $0.225 to $0.75 per share (with an
      aggregate value of $772,326 using the Black-Scholes pricing model) with certain
      of the warrants issued below market price on date of such grant and (iii)
      options to purchase 200,000 shars of common stock under our 2001 Employee Stock
      Option Plan, with an exercise price of $0.15 (at such time the closing sale
      price of our common stock was $0.13) as compensation to a former board member
      for advisory services relating to investment capital markets outside of the
      US.
      The options were valued at $20,401 using the Black-Scholes pricing model and
      were completely amortized by December 31, 2006.





In
      April
      2005, we entered into a consulting agreement for website marketing and
      monitoring programs with Relevant Marketing, Inc., and as compensation issued
      (i) 300,000 shares of our common stock (valued at $73,200 based on an average
      five day closing sale price of our common stock) and (ii) 300,000 two-year
      warrants exercisable at $0.50 per share (valued at $54,794 using the
      Black-Scholes pricing model).





In
      May
      2005, we entered into warrant exercise agreements with two consultants,
      providing for a reduced exercise price, for a period of one-year, on previously
      issued and outstanding warrants to purchase an aggregate of 3,063,834 warrants
      with a range of original exercise prices from $0.40 to $5.50 per share. Under
      each of the warrant exercise agreements, a predetermined number of warrants
      can
      be exercised per month at an exercise price of $0.20 per share. An additional
      expense ($209,817) resulted from the modification of these warrants, which
      was
      calculated using the Black-Scholes pricing model and was completely amortized
      by
      December 31, 2006.





During
      2006, and as a component of prepaid expenses, we entered into various consulting
      agreements and issued the following to nine unaffiliated third party
      consultants: (i) an aggregate of 3,700,000 shares of un-registered common stock
      (with an aggregate value of $1,196,000 based on closing sale prices of our
      common stock), (ii) warrants to purchase an aggregate of 2,550,000 shares of
      common stock at exercise prices from $0.25 to $1.00 per share (with an aggregate
      value of $614,575 using the Black-Scholes pricing model) with certain of the
      warrants issued below market price on date of grant and (iii) $150,000 in cash
      to one of the consultants. All of these are being amortized over monthly periods
      to coincide with the consulting agreements.





In
      June
      2006, we entered into two agreements with related parties. The first is a
      management agreement with Hawk Precious Minerals Inc., (“Hawk”), whereby Hawk
      will provide certain management and administrative services to the Company
      in
      consideration of US$50,000. This agreement expired on December 31, 2006. H.
      Vance White, our Chairman of the Board, is also an officer and director of
      Hawk.
      The second agreement is a consulting agreement with Boston Financial Partners
      Inc. (a greater that five percent shareholder) as a non-exclusive consultant,
      pursuant to which Boston Financial shall provide assistance in various matters
      pertaining to corporate growth, strategic planning, public relations and
      marketing services in consideration of $100,000 in cash, 625,000 shares of
      our
      common stock (valued at $212,500 based on closing sale price of our common
      stock) and a two-year warrant to purchase up to an aggregate of 1,000,000 shares
      of our common stock (valued at 304,802 using the Black-Scholes pricing model),
      at an exercise price of $0.62 per share.




F-16





Included
      in the other prepaid expenses are two bonds (held in the form of certificate
      of
      deposit, CD, $10,000 each) required by the State of Colorado for exploration
      activities. The CD’s accrue nominal interest and will not be expensed unless an
      event requires us to release them to the State.





Components
      of prepaid expenses are as follows:




December
                31,2006
            
            2005Prepaid
                consulting fees
            
            $
            25,827
            
            $
            142,276Other
                prepaid expenses
            
            
            27,988
            
            
            21,120$
            53,815
            
            $
            163,396




**NOTE
      7 - PROPERTY AND EQUIPMENT**





Related
      to our on-going exploration efforts at the Bates-Hunter Mine in Colorado, we
      have made certain purchases of equipment necessary to operate and de-water
      the
      property. Depreciation of these purchases is calculated on a straight-line
      method over the estimated useful life, presently ranging from five to seven
      years. Components of our depreciable assets are as follows:





December
                31,2006
            
            2005Equipment
                purchases
            
            $
            106,353
            
            $
            94,612Less
                accumulated depreciation
            
            
            (26,266
            )
            
            (5,053
            )$
            80,087
            
            $
            89,559




**NOTE
      8 - KWAGGA GOLD (BARBADOS) LIMITED**





On
      June
      4, 2003, Hawk, AfriOre International (Barbados) Limited, a corporation formed
      under the laws of Barbados (“AfriOre”), and AfriOre’s wholly owned subsidiary,
      Kwagga Gold (Proprietary) Limited, a corporation formed under the laws of the
      Republic of South Africa (“Kwagga”), entered into a Heads of Agreement, whereby
      Hawk could earn an interest and rights in certain lands (held in Kwagga) located
      in the region of the main Witwatersrand Basin in the Republic of South Africa,
      referred to as the “FSC Project,” and the right to fund and participate in all
      operations conducted on the FSC Project for the purposes of exploring for and,
      if warranted, exploiting base and/or precious minerals discovered therein.
      The
      Heads of Agreement required a total investment of $3,500,000 from Hawk to
      acquire a 50 percent equity ownership of Kwagga Pty. Upon Hawk’s investment of
      $2,100,000 into Kwagga, such amount to be used toward exploration, it would
      acquire such number of Kwagga shares that represent 35 percent of Kwagga’s
      issued and outstanding shares of capital stock. Upon Hawk’s additional
      investment of $1,400,000, it would acquire such number of Kwagga shares that
      represent an additional 15 percent of Kwagga’s outstanding equity.





On
      June
      26, 2003, the Company acquired Hawk’s interest and rights to the Heads of
      Agreement. In October 2003, the initial exploration efforts began at the FSC
      Project. On August 27, 2004, the Company entered into a new shareholders
      agreement, as amended on August 30, 2004, with AfriOre and its wholly owned
      subsidiary Kwagga Gold (Barbados) Limited) (collectively, the “New Agreement”).
      The New Agreement supersedes the Heads of Agreement, and provides the Company
      with additional rights relating to its participation in the FSC Project. Kwagga
      (Barbados) is the parent and holding company of Kwagga (Proprietary). In all
      further discussions, we will refer to the parent company of Kwagga (Barbados)
      and its wholly owned subsidiary Kwagga (Proprietary) collectively as “Kwagga.”





Effective
      with the execution of the New Agreement, Kwagga Barbados was required to issue
      us shares representing approximately 33.6 percent of its outstanding equity
      in
      consideration for our investment of $2.025 million. In September 2004, we
      invested an additional $75,000 (for an aggregate of the required initial $2.1
      million commitment) in order to receive the additional number of shares to
      bring
      our aggregate ownership to 35 percent. With this 35 percent ownership, we would
      be deemed to be a minority shareholder of Kwagga Barbados.




F-17





Due
      to
      this being a passive investment in a non-controlled foreign corporation, the
      Company lacks significant influence to control the operational and financial
      decisions of Kwagga. Accordingly, the Company determined that the appropriate
      accounting for the investment in Kwagga was on the cost method of accounting.
      This investment was determined to not meet the guidance under the equity method
      of accounting according to Accounting Principles Board No. 18, “The Equity
      Method of Accounting for Investments in Common Stock.”




The
      Company also assessed at each reporting period whether this investment had
      a
      loss in value which was other than a temporary decline. The Company determined
      that because this investment was in a risky exploratory mining project that
      only
      held mining rights in the South Africa, the Company would write down its
      investment as the funds advanced to the project were used for exploration
      activities.





The
      following table summarizes the activity of the Company’s investment in Kwagga as
      of:




December
                31,2006
            
            2005Beginning
                balance (1)
            
            $
            120,803
            
            $
            734,660Advances
            
            
            —
            
            
            —Other
                than temporary decline in value
            
            
            120,803
            
            
            613,857Ending
                balance
            
            $
            —
            
            $
            120,803




(1)
      See
      Note 3 - Reclassification for a discussion on prior period description of the
      investment in Kwagga.





See
      Note
      18 - Subsequent Events for information on AfriOre, Kwagga and the FSC
      Project.





**NOTE
      9 - DEBT ISSUANCE COSTS**





With
      respect to legal services relating to two secured convertible promissory notes
      (See Note 10 - Notes Payable) issued in the fourth quarter of 2005, we paid
      $7,361 of debt issuance costs. The following table summarizes the amortization
      of debt issuance costs:




December
                31,2006
            
            2005Gross
                debt issuance costs
            
            $
            7,361
            
            $
            7,361Less:
                amortization of debt issuance costs
            
            
            (7,361
            )
            
            (2,699
            )Debt
                issuance costs, net
            
            $
            —
            
            $
            4,662




**NOTE
      10 - NOTES PAYABLE**





Promissory
      Note with Andrew Green





In
      May
      2005, we entered into a short-term loan arrangement with a beneficial holder
      of
      in excess of 5 percent of our common stock, Andrew Green, whereby we borrowed
      $250,000 from Mr. Green pursuant to a purchase agreement and an unsecured
      promissory note. The note bore an initial interest rate of six percent per
      annum. Since we had not repaid the note in full by July 15, 2005 the applicable
      interest rate from July 15 forward increased to 18 percent per annum. In
      February 2007, Mr. Green’s brother, William B. Green, became our President of
      Asia Operations.





As
      additional consideration for the note, we agreed to amend the terms of a warrant
      held by Mr. Green (originally issued as part of our October 2003 private
      placement) to purchase up to 500,000 shares of our common stock to reduce the
      exercise price from $0.25 per share to $0.01 per share pursuant to a default
      provision in the note. We recorded a non-cash interest charge of $55,284 based
      on the Black-Scholes pricing model. Furthermore, since we had not repaid the
      note in full by July 15, 2005, we were required to issue 50,000 shares of our
      unregistered common stock for each month there remained an outstanding balance
      beginning August 15, 2005, up to a maximum issuance of 150,000 shares. As of
      October 15, 2005, we issued 150,000 of such penalty shares. We recorded the
      issuance of these penalty shares as an additional interest component, valuing
      each issuance with the closing sale price of our common stock, thereby recording
      $20,000 in additional non-cash interest expense.




F-18





In
      August
      2005, Mr. Green exercised the warrant to purchase 500,000 shares of common
      stock
      and we deducted the new warrant exercise price ($0.01 per share) of $5,000
      from
      the accrued interest owed to him under the note.





The
      note
      had a due date of September 15, 2005. On October 18, 2005, Mr. Green informed
      us
      that he did not consider us in default as of September 16, 2005.





Secured
      Convertible Promissory Note with Pacific Dawn Capital, LLC and Andrew
      Green





On
      September 30, 2005, we issued Pacific Dawn Capital, LLC, a California limited
      liability company (“Pacific”) a six-month secured convertible promissory note
      (the “Pacific Note”) in the principal amount of $600,000, or such lesser amount
      that is actually drawn by us pursuant to a loan and security agreement with
      Pacific dated September 30, 2005 (the “Pacific Loan Agreement”). The Pacific
      Note was secured by substantially all of our assets and bore an interest rate
      of
      six percent per annum. In order to effectuate the note. Stephen D. King, who
      only served as a board member at that time, provided a personal guaranty. In
      exchange for agreeing to personally guaranty our obligations under the Pacific
      Note, we issued Mr. King a two-year warrant to purchase 1,000,000 shares of
      our
      common stock at a price of $0.15 per share.





Under
      the
      Pacific Loan Agreement, beginning October 1, 2005, we had the right to draw
      up
      to $100,000 per month (up to an aggregate of $600,000) by providing Pacific
      notice of our intent to exercise a monthly draw along with a report of the
      exploration operations for Bates-Hunter. Pacific had the right to reject the
      draw if it was not satisfied with the report. If we failed to exercise a draw
      during any month, we waived our right to draw the $100,000 for that month.





On
      October 3, 2005, we drew the initial monthly amount of $100,000 and issued
      to
      Pacific (i) 500,000 shares of our un-registered common stock (with piggyback
      registration rights) and (ii) issued a five-year warrant to purchase up to
      1,000,000 shares of our common stock with an exercise price of $0.12 per share,
      subject to adjustment as defined in the agreement. For each subsequent $100,000
      monthly draw, we were required to issue another five-year warrant to purchase
      up
      to 1,000,000 shares of our common stock with an exercise price of $0.12 per
      share.





We
      also
      provided Pacific certain preemptive rights under the Pacific Loan Agreement.
      Furthermore, Pacific has the right to convert any portion of the principal
      or
      interest of the Pacific Note outstanding into shares of our common stock based
      on a conversion rate equal to $0.20 per share and is considered to be
      conventional convertible debt under the accounting guidance of Emerging Issues
      Task Force (“EITF”) 05-2. We held the right to call the Pacific Note at any time
      the average over 20 consecutive trading days of the daily average of the high
      and low fair market value of our common stock is at or above $0.50 per share
      and
      the shares have been registered.





On
      November 1, 2005, we entered into a new loan and security agreement with Andrew
      Green (the “Green Note”) whereby his original $250,000 unsecured note (“Existing
      Financing”) which became due was refinanced to allow us to draw up to an
      aggregate of $600,000, on terms similar to the Pacific Loan Agreement, as
      amended. In consideration for the Existing Financing, we issued Mr. Green a
      five-year warrant to purchase up to 2,500,000 shares of our common stock with
      an
      exercise price of $0.12 per share, subject to adjustment as defined in the
      agreement. On November 9, 2005, we drew the initial monthly amount of $100,000
      and issued to Mr. Green (i) 500,000 shares of our un-registered common stock
      (with piggyback registration rights) and (ii) issued a five-year warrant to
      purchase up to 1,000,000 shares of our common stock with an exercise price
      of
      $0.12 per share. The Green Note bore interest of 12 percent per annum. The
      Green
      Note required no payments until the maturity date of April 30, 2006. The Green
      Note was convertible at Mr. Green’s option at a conversion rate of $0.20 per
      share and was considered to be conventional convertible debt under the
      accounting guidance of EITF 05-2. We had a call option that triggered at any
      time the average over 20 consecutive trading days of the daily average of the
      high and low fair market value of our common stock was at or above $0.50 per
      share and the shares were registered. In order to effectuate the Green Note,
      Stephen D. King, who only served as a board member at that time, provided a
      personal guaranty. In exchange for agreeing to personally guaranty our
      obligations under the Green Note, we issued a two-year warrant to purchase
      1,000,000 shares of our common stock at a price of $0.15 per share to Mr.
      King.




F-19





Contemporaneously,
      we amended the Pacific Loan Agreement and Pacific Note to allow for similar
      terms between Mr. Green and Pacific and to enable the parties to have equal
      security interests in our Company. Pursuant to an intercreditor agreement
      between Mr. Green and Pacific, Mr. Green and Pacific were *pari
      passu* in a
      secondary security interest to the assets of the Company. The amended note
      allowed Pacific to receive a monthly interest rate of 12 percent per annum
      (versus the original rate of six percent). Furthermore, the amended note
      required no payments until the maturity date of April 30, 2006 and the monthly
      interest payments had been modified to allow prepaying interest in cash or
      common stock.





The
      application of the provisions of EITF 98-5, “Accounting for Convertible
      Securities with Beneficial Conversion Features or Contingently Adjustable
      Conversion Ratios,” and EITF 00-27, “Application of Issue 98-5 to Certain
      Convertible Instruments” resulted in the proceeds of two of the loans being
      allocated based on the relative fair value of the loan, common stock and
      warrants. Lastly, due to the reduced relative fair value assigned to the
      convertible debt, the debt had a beneficial conversion feature that was
“in-the-money” on the commitment date. Based on EITF 98-5, “Accounting for
      Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios,” the amount of the discount assigned to the
      beneficial conversion feature was limited to the amount of the proceeds
      allocated to the debt instrument.





Unsecured
      Promissory Note





On
      October 10, 2005, we entered into a short-term loan arrangement with Patrick
      Sweeney, a shareholder whereby we borrowed $100,000 from Mr. Sweeney pursuant
      to
      a purchase agreement and an unsecured promissory note. The promissory note
      bore
      an interest rate of six percent per annum and matured on April 10, 2006. As
      further consideration for the financing, we issued Mr. Sweeney a five-year
      warrant to purchase up to 1,000,000 shares of our common stock with an exercise
      price of $0.12 per share, subject to adjustment as defined in the agreement.





The
      proceeds of the loan were allocated based on the relative fair value of the
      loan
      and the warrants granted in accordance with APB 14, “Accounting for Convertible
      Debt and Debt Issued with Stock Purchase Warrants.”




Amendment
      to Notes





In
      April
      2006, we entered into amendments to the arrangements with each of the three
      note
      holders, Pacific and Messrs. Green and Sweeney, extending the maturity of each
      of the notes for an additional 30 days. In consideration of these extensions,
      we
      issued an aggregate of 110,000 shares of our common stock to the note holders
      (with an aggregate fair value of $27,100, based on the closing sale price of
      our
      common stock on the date of issuance as listed on the OTCBB) and we gave each
      note holder an option, at any time on or prior to August 31, 2006, to purchase
      a
      number of shares of our common stock, at a price per share of $0.20, equal
      to,
      but not greater than, the final principal and interest balance of their
      respective note divided by the $0.20 per share price. We had reserved an
      aggregate of 5,516,767 shares of our common stock for issuance under the terms
      of the amendments of each promissory note until August 31, 2006. One of the
      note
      holders right to purchase expired on August 31, 2006 and therefore we removed
      from our reserved shares 516,767 shares. During the three months ended June
      30,
      2006, we recorded an expense relating to the right of the three note holders
      (to
      purchase shares of our common stock at a set price of $0.20 per share) of
      $628,643, with the fair value of the aggregate shares calculated using the
      Black-Scholes pricing model, resulting in a non-cash interest expense.




F-20





In
      August
      2006, we entered into standby joint venture financing agreements with Pacific
      and Mr. Green setting forth the terms of each note holders contemplations of
      potential participation in joint venture or financing arrangements with the
      Company for the purposes of financing future mineral exploration projects,
      including terms relating to the payment of proceeds from any exploration project
      for which a joint venture or financing arrangement has been entered, subject
      to
      written agreements between the Company and the note holder relating to specific
      projects. As partial consideration for such note holders entering into their
      respective standby joint venture financing agreements, we extended the term
      of
      each of their options to purchase shares of our common stock at $0.20 per share
      from August 31, 2006 to March 31, 2007. Since the purchase price of $0.20 was
      below the fair value of our underlying stock on the modification date, we
      calculated an additional fair value of $363,000 using the Black-Scholes pricing
      model. Since the note holders are not required to participate in any joint
      venture or financing during the period of the agreements, the entire $363,000
      was expensed as interest expense for the three months ended September 30,
      2006.





We
      paid
      off the obligations under the three promissory notes in May 2006, which required
      an aggregate of $1,100,000 in cash principal payments. The notes had accumulated
      an aggregate of $69,239 in interest payable. We paid $3,353 in cash to one
      note
      holder and paid the remaining $65,886 by the issuance of 329,432 shares (valued
      at $0.20 per share) of our common stock.





The
      following table summarizes the note payable balances:





Original
                gross proceeds received in 2005
            
            $
            750,000Less:
                original issue discount at time of issuance of note
              for
                common stock and warrants
            
            
            (521,304
            )Less:
                beneficial conversion feature
            
            
            (179,977
            )48,719Less:
                principal payments
            
            
            —Add:
                amortization of original issue discount and
              beneficial
                conversion feature
            
            
            252,392Balance
                at December 31, 2005
            
            
            301,111Add:
                additional draws received in the 1stQuarter 2006
            
            
            350,000Less:
                original issue discount at time of issuance of note
              for
                warrants
            
            
            (252,014
            )Less:
                beneficial conversion feature
            
            
            (97,986
            )Add:
                amortization of original issue discount and
              beneficial
                conversion feature
            
            
            798,889Less:
                principal payments
            
            
            (1,100,000
            )Balance
                at December 31, 2006
            
            $
            —




**NOTE
      11 - 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, 2008. Under the lease, we are required
      to
      make monthly payments of $1,201 through May 2007 and $1,261 through May 2008.
      Total rent expense under operating leases for the years ended December 31,
      2006
      and 2005, was $16,485 and $13,872, respectively.





Future
      minimum operating lease commitments are as follows for the years ending December
      31:





2007
            
            $
            14,8372008
            
            
            6,307$
            21,144





F-21





**NOTE
      12 - SHAREHOLDERS’ EQUITY**





Common
      Stock Issuances





In
      January 2005, we completed a private placement of 16,600,000 units of our
      securities, each unit consisting of one share of our common stock and a warrant
      to purchase one-half share of common stock at an exercise price of $0.25 per
      share, resulting in gross proceeds of $1,660,000.





In
      January 2005, we closed on an assignment of a purchase agreement by and among
      us, Hunter Gold Mining Corporation and Ken Swaisland, whereby Swaisland sold
      us
      his rights to purchase the assets of the Hunter Corporation. The Hunter
      Corporation owns a 100% interest in the Bates-Hunter Mine located in Central
      City, Colorado. We issued 250,000 shares of our common stock to Swaisland
      (valued at $0.34 per share, the closing sale price on January 21, 2005) and
      a
      further 25,000 shares to an unrelated third party for the assignment on February
      2, 2005 (valued at $0.36 per share).




In
      May
      2005, we entered into warrant exercise agreements with two consultants,
      providing for a reduced exercise price, for a period of one-year, on previously
      issued and outstanding warrants to purchase an aggregate of 3,063,834 warrants
      with original exercise price ranging from $0.40 to $5.50 per share. Each warrant
      exercise agreement allowed for an exercise price of $0.20 with respect to a
      certain number of warrant shares per month. An additional expense of $209,817
      resulted from the modification of these warrants. For the year ending December
      31, 2005, an aggregate of 794,150 warrants were exercised into common
      stock.





In
      August
      2005, as additional consideration to Mr. Green, we agreed to amend the terms
      of
      a warrant to purchase up to 500,000 shares of our common stock, with the
      reduction of the exercise price from $0.25 per share to $0.01 per share. Mr.
      Green exercised the entire 500,000 shares.





During
      fiscal 2005, we entered into various agreements with consultants for services
      in
      public and investor relations. A total of 1,353,567 shares of our un-registered
      common stock were issued as follows: in March we issued 75,000 shares; in April
      we issued 500,000 shares; in May we issued 60,000 shares; in June we issued
      576,000 shares; in September we issued 50,000 shares and in December we issued
      92,567 shares.





As
      of
      October 15, 2005, we issued to Mr. Green, 150,000 shares of our un-registered
      common stock as penalty charges due for not paying the principal due as
      specified in the note.





As
      of
      December 31, 2005, we issued two promissory note holders, an aggregate of
      1,000,000 shares of our un-registered common stock as additional consideration
      for extending the notes.





From
      April through October 2005, all payments to Pandora Select Partners were paid
      through the issuance of common stock. The final November payment was a
      combination of cash and common stock. We issued an aggregate of 2,400,000 shares
      of our common stock in lieu of cash principal and interest
      payments.





In
      January 2006, as a continuation of the May 2005 warrant exercise agreements
      with
      two consultants as discussed above, we provided the consultants a reduced
      exercise price (at $0.20 per share) on previously issued and outstanding
      warrants (originally priced from $0.40 to $5.50 per share), whereby an
      additional 695,450 warrants were exercised into common stock.




F-22





In
      March
      2006, we issued 150,000 shares of our common stock to the principal owner of
      a
      public relations firm, in exchange for amounts due them for services rendered
      totaling $39,000, which we had previously recorded as accounts
      payable.





In
      April
      2006, we entered into amendments to the arrangements with each of three
      promissory note holders, extending the maturity of each of the notes for an
      additional 30 days. In consideration of these extensions, we issued an aggregate
      of 110,000 shares of our common stock to the note holders.





In
      May
      2006, we issued 20,794 shares of our common stock to a consultant, who, pursuant
      to a cashless exercise clause, surrendered 29,206 of the available shares to
      pay
      for the exercise. We issued the 50,000 two-year warrant to purchase shares
      of
      our common stock in May 2005, with an exercise price of $0.25 per
      share.




We
      paid
      off the obligations under the three promissory notes in May 2006, which had
      accumulated an aggregate of $69,239 in interest payable. We paid $3,353 in
      cash
      to one note holder and paid the remaining $65,886 by the issuance of 329,432
      shares (valued at $0.20 per share) of our common stock.





Under
      provisions of the Pacific Loan Agreement, Pacific had the right to purchase
      shares of our common stock (based on a $0.20 per share purchase price) of the
      principal balance. Of the available right to purchase option of 2,000,000 shares
      available, Pacific purchased 1,000,000 shares of common stock in December
      2006.





In
      December 2006, a consultant exercised a stock option held into 200,000 shares
      of
      common stock. The stock option was issued in October 2005.





During
      fiscal 2006, we issued an aggregate of 690,000 shares of our common stock to
      acquire exploration rights on two projects: we issued 40,000 shares to Hawk
      for
      rights to the MacNugget Claims and a total of 600,000 shares to Journey and
      50,000 shares to an unrelated third party for rights to Vianey.





During
      fiscal 2006, we entered into various agreements with consultants for services
      in
      public and investor relations. A total of 5,432,000 shares of our un-registered
      common stock were issued as follows: in January we issued 1,257,000 shares;
      in
      February we issued 500,000 shares; in March we issued 950,000 shares; and in
      June we issued 2,725,000 shares.





During
      fiscal 2006, shareholders exercised an aggregate of 20,445,734 stock purchase
      warrants into common stock.





Warrant
      Grants





In
      January 2005, we issued two-year warrants to purchase an aggregate of 8,300,000
      shares of common stock at a price of $0.25 per share, in connection with our
      private placement of 16,600,000 units. Additionally, we issued two-year warrants
      to purchase an aggregate of 195,000 shares of common stock at a price of $0.25
      per share, as compensation for placement agent services rendered in connection
      with our private placement.





In
      January 2005, we issued a two-year warrant to purchase 2,000,000 shares of
      common stock at $0.225 per share for consultant services, valued at
      $710,664.





In
      March
      2005, we issued a three-year warrant to purchase 200,000 shares of common stock
      at $0.30 per share for consultant services, valued at $78,000.





In
      April
      2005, we issued two-year warrants to purchase an aggregate of 600,000 shares
      of
      common stock as follows: 50,000 at $0.25 per share; 350,000 at $0.50 per share;
      150,000 at $0.30 per share and 50,000 at $0.75 per share all for consultant
      services, valued at $116,456.




F-23





During
      fiscal 2005, relating to our issuance of three promissory notes, we issued
      five-year warrants to purchase an aggregate of 7,500,000 shares of common stock
      at $0.12 per share as additional consideration. Furthermore, in order to
      effectuate two of the notes, Stephen D. King, who only served as a board member
      at that time, provided a personal guaranty. In exchange for agreeing to
      personally guaranty our obligations, we issued two-year warrants to purchase
      an
      aggregate of 2,000,000 shares of our common stock at a price of $0.15 per share
      to Mr. King (or his assigns).





During
      January and February 2006, relating to our issuance of two promissory notes,
      we
      issued five-year warrants to purchase an aggregate of 3,500,000 shares of common
      stock at $0.12 per share as additional consideration.





In
      January 2006, we issued two 100,000 two-year warrants to purchase common stock
      at $0.20 per share for consultant services, valued at $53,104.





In
      February 2006, we issued two-year warrants to purchase an aggregate of 1,150,000
      shares of common stock as follows: 150,000 at $0.25 per share; 500,000 at $0.50
      per share; and 500,000 at $1.00 per share all for consultant services, valued
      at
      $253,335.





Effective
      March 31, 2006, we terminated an exclusive private placement agreement (entered
      into on January 30, 2006) with the issuance of a five-year stock purchase
      warrant to purchase up to 250,000 shares of our common stock, with an exercise
      price of $0.25 per share, valued at $55,020.





In
      April
      2006, we issued two-year warrants to purchase an aggregate of 500,000 shares
      of
      common stock as follows: 200,000 at $0.30 per share and 300,000 at $0.50 per
      share all for consultant services, valued at $103,531.





In
      April
      2006, we completed a round of financing through the exercise of issued and
      outstanding warrants. One incentive of the exercise offer was the receipt of
      one
      Class C Redeemable Warrant for each two shares purchased upon exercise of
      previously held warrants. We issued Class C Redeemable Warrants to purchase
      an
      aggregate of up to 7,788,700 shares of our common stock, at an exercise price
      of
      $0.50 per share, which expire on April 28, 2009.





In
      May
      2006, we issued a two-year warrant to purchase 150,000 shares of common stock
      at
      $0.50 per share for consultant services, valued at $49,889.





In
      June
      2006, we issued two-year warrants to purchase an aggregate of 1,500,000 shares
      of common stock as follows: 250,000 at $0.50 per share; 250,000 at $0.60 per
      share and 1,000,000 at $0.62 per share all for consultant services, valued
      at
      $459,671.





In
      August
      2006, we issued a two-year warrant to purchase 150,000 shares of common stock
      at
      $0.50 per share for consultant services, valued at $30,548.





In
      October 2006, we issued a two-year warrant to purchase 100,000 shares of common
      stock at $0.29 per share for consultant services, valued at
      $22,403.




For
      warrants issued to non-employees in exchange for services, we account for such
      warrants in accordance with EITF Issue No. 96-18. We value the fair value of
      the
      equity instrument using the Black-Scholes pricing model unless the value of
      the
      services is more reliably measurable.





Using
      the
      Black-Scholes pricing model, the following assumptions were used to value the
      fair value of warrants granted during the years 2006 and 2005 for which the
      fair
      value of the services were not more reliably measurable: dividend yield of
      0%,
      risk-free interest rate of 4.25% to 4.875%, expected life equal to the
      contractual life between two and ten years, and volatility of 163% to
      186%.




F-24




The
      following table summarizes information about the Company’s
      warrants:





Number
            
            Weighted
                Average
              Exercise
                Price
            
            Range
                of
              Exercise
                PriceOutstanding
                at December 31, 2004
            
            
            22,074,691
            
            $
            1.96
            
            $
            0.10
                - $37.50Granted
            
            
            20,795,000
            
            
            0.20
            
            
            0.12
                - 0.75Cancelled
                or expired
            
            
            (1,448,543
            )
            
            1.21
            
            
            0.62-37.50Exercised
            
            
            (1,294,150
            )
            
            0.13
            
            
            0.01
                - 0.20Outstanding
                at December 31, 2005
            
            
            40,126,998
            
            $
            1.10
            
            $
            0.10
                - $7.15Granted
            
            
            15,288,700
            
            
            0.42
            
            
            0.12
                - 1.00Cancelled
                or expired
            
            
            (4,674,887
            )
            
            4.12
            
            
            0.10
                - 5.50Exercised
            
            
            (21,161,978
            )
            
            0.24
            
            
            0.12
                - 0.25Outstanding
                at December 31, 2006
            
            
            29,578,833
            
            $
            0.56
            
            $
            0.12
                - $7.15Warrants
                exercisable at December 31, 2006
            
            
            29,578,833
            
            $
            0.56
            
            $
            0.12
                - $7.15




Option
      Grants





The
      Company has six stock option plans: the 1994 Stock Option Plan, the 1998
      Incentive Equity Plan, the 1999 Stock Option Plan, the 2000 and 2003 Director
      Stock Option Plans and the 2001 Employee Stock Option Plan. As of December
      31,
      2006, an aggregate of 14,750,000 shares of our common stock may be granted
      under
      these plans as determined by the board of directors. Stock options, stock
      appreciation rights, restricted stock and other stock and cash awards may be
      granted under the plans. In general, options vest over a period ranging from
      immediate vesting to five years and expire 10 years from the date of grant.
      Effective January 13, 2006, the 2001 Employee Stock Option Plan was amended
      to
      increase the total shares of stock which may be issued under the Plan from
      1,450,000 to 2,500,000. Effective September 13, 2006, the 1999 Stock Option
      Plan
      was amended to increase the total shares of stock which may be issued under
      the
      Plan from 4,250,000 to 6,250,000.




For
      the
      year ended December 31, 2005, we granted
      2,350,000 options to purchase common stock at prices ranging from $0.14 to
      $0.26
      per share. We granted 1,800,000 options (valued collectively at $378,679) to
      officers and directors of the Company with exercise prices equal to or greater
      than the fair market value of our common stock on the date of grant. We
      accounted for share-based payments to officers and directors using the intrinsic
      value method under APB Opinion No. 25 and the disclosure requirements of SFAS
      123 for the year ended December 31, 2005. There was no compensation expense
      recorded, pursuant to APB Opinion 25 and related interpretations, for the year
      ended December 31, 2005.





In
      January 2006, we granted options to purchase 1,000,000 shares of common stock
      to
      a consultant as compensation for services, with the exercise price greater
      than
      the fair market value of our common stock on the date of grant. The aggregate
      consulting option was valued at $200,000 and such value was recorded as a
      component of Prepaid Expenses in 2006. The entire amount was expensed during
      2006, coinciding with the consulting agreement timeline for services to be
      rendered. See Note 6 - Prepaid Expenses for detailed information.





During
      the year ended December 31, 2006, we granted our President, Dr. Clyde Smith
      an
      option to purchase 1,500,000 shares of common stock (the “Standard Options”) and
      an option to purchase 500,000 shares of common stock (the “Incentive Based Stock
      Options”), each an exercise price of $0.31 per share (the closing sale price of
      our common stock as reported on the OTCBB on the day of grant). The Standard
      Options vest as follows: 300,000 vested immediately and 300,000 vest each
      anniversary thereafter (September 15, 2007, 2008, 2009 and 2010). The Incentive
      Based Stock Options vest at 100,000 shares on each anniversary (September 15,
      2007, 2008, 2009, 2010 and 2011). The Company recorded $122,873 of related
      compensation expense for the year
      ended December 31, 2006, relating to the 2,000,000 share option grants. This
      expense is included in selling, general and administrative expense. There was
      no
      tax benefit from recording this non-cash expense. The compensation expense had no impact on
      the
      loss per share for the year ended December 31, 2006. As of December 31, 2006,
      $491,499 of total unrecognized compensation expense (related to non-vested
      portion of the 2,000,000 share option grants) is expected to be recognized
      over
      a period of approximately five years.




F-25





The
      following table summarizes information about the Company’s stock
      options:





Number
                of
              Options
            
            Weighted
              Average
              Exercise
              PriceOptions
                outstanding - December 31, 2004
            
            
            5,000,000
            
            $
            1.16Granted
            
            
            2,350,000
            
            
            0.21Canceled
                or expired
            
            
            (868,000
            )
            
            0.79Exercised
            
            
            (350,000
            )
            
            0.23Options
                outstanding - December 31, 2005
            
            
            6,132,000
            
            $
            0.88Granted
            
            
            3,000,000
            
            
            0.27Canceled
                or expired
            
            
            (1,420,000
            )
            
            0.61Exercised
            
            
            (1,200,000
            )
            
            0.18Options
                outstanding - December 31, 2006
            
            
            6,512,000
            
            $
            0.56Weighted
                average fair value of optionsgranted
                during the year ended December 31, 2006
            
            
            
            
            $
            0.27Weighted
                average fair value of optionsgranted
                during the year ended December 31, 2005
            
            
            
            
            $
            0.17




The
      following tables summarize information about stock options outstanding at
      December 31, 2006





Options
                OutstandingRange
                of
              Exercise
                Prices
            
            Number
              Outstanding
            
            Weighted
              Remaining
              Contractual
              Life
            
            Weighted
              Average
              Exercise
              Price
            
            Aggregate
                Intrinsic Value(1)$0.15
                to $0.40
            
            
            4,275,000
            
            
            8.2
                years
            
            $
            0.27
            
            $
            502,000$0.56
                to $1.00
            
            
            1,806,000
            
            
            4.7
                years
            
            $
            0.62
            
            $
            —$2.75
                to $5.00
            
            
            431,000
            
            
            1.2
                years
            
            $
            3.20
            
            $
            —$0.15
                to $5.00
            
            
            6,512,000
            
            
            6.8
                years
            
            $
            0.56
            
            $
            502,000




Options
                ExercisableRange
                of
              Exercise
                Prices
            
            Number
              Exercisable
            
            Weighted
              Remaining
              Contractual
              Life
            
            Weighted
              Average
              Exercise
              Price
            
            Aggregate
                Intrinsic Value(1)$0.15
                to $0.40
            
            
            2,575,000
            
            
            8.1
                years
            
            $
            0.25
            
            $
            366,000$0.56
                to $1.00
            
            
            1,806,000
            
            
            4.7
                years
            
            $
            0.62
            
            $
            —$2.75
                to $5.00
            
            
            431,000
            
            
            1.2
                years
            
            $
            3.20
            
            $
            —$0.15
                to $5.00
            
            
            4,812,000
            
            
            6.2
                years
            
            $
            0.65
            
            $
            366,000





(1)
            The
                aggregate intrinsic value in the table represents the difference
                between
                the closing stock price on December 31, 2006 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, 2006. The total intrinsic value of options
                exercised during years ended December 31, 2006 and 2005 was approximately
                $212,000 and $0, respectively.





F-26





**NOTE
      13 - STOCK SUBSCRIPTIONS RECEIVABLE**





On
      April
      28, 2006, we completed a round of financing through the exercise of issued
      and
      outstanding warrants to certain warrant holders who qualified as accredited
      investors. Certain of the warrant holders were offered a limited time reduction
      of the exercise price of $0.25 per share.  We accepted subscription
      agreements to exercise 15,577,401 common stock purchase warrants and received
      approximately $3.84 million in cash (which includes $307,600 for which we
      accepted, in lieu of cash, a secured promissory note, bearing interest at five
      percent per annum, was due December 29, 2006 and is secured by the stock
      issued). Of those warrants exercised, warrants representing 1,230,401 shares,
      which were held by a former director of ours, Wayne W. Mills, during: (i) April
      2001 (340,734 issued with an original exercise price of $3.00 per share), (ii)
      October 2003 (208,000 issued with an original exercise price of $0.50 per
      share); (iii) May 2004 (475,000 issued with an original exercise price of $0.40
      per share) and (iv) 206,667 warrants he purchased in a private transaction
      from
      another shareholder. The secured promissory note was paid in February 2007
      along
      with the $10,323 of interest receivable.





By
      December 31, 2006, we had received subscription exercise forms from 11
      shareholders who held 2,060,000 stock purchase warrants, all with an exercise
      price of $0.25 per share, totaling $515,000, issued in connection with our
      private placement of 16,600,000 units of January 2005, all with an expiration
      date of December 31, 2006. All of these shareholders paid their respective
      subscription subsequent to December 31, 2006.




In
      December 2006, we issued a consultant 200,000 shares upon the exercise of a
      stock option originally granted in October 2005 at an exercise price of $0.15
      per share. The $30,000 cash exercise amount was paid in February
      2007.





Under
      provisions of the Pacific Loan Agreement, Pacific had the right to purchase
      shares of our common stock (based on a $0.20 per share purchase price) of the
      principal balance. Of the available right to purchase option of 2,000,000 shares
      available, Pacific purchased 1,000,000 shares of common stock in December 2006.
      Pacific provided $120,000 in December 2006 and $80,000 in January
      2007.





By
      February 2007, all $932,600 of the stock subscriptions funds have been received.




**NOTE
      14 - COMPREHENSIVE LOSS**





Comprehensive
      loss includes our net loss and the change in unrealized gain (loss) on available
      for sale investments (the 225,000 shares of MacDonald common stock held). We
      report the unrealized gain (loss) on the investment in securities in our
      Consolidated Balance Sheets. The following table details the changes in our
      Accumulated Other Comprehensive Loss balance:





December
                31,2006
            
            2005Beginning
                balance
            
            $
            (7,644
            )
            $
            —Unrealized
                gain (loss)
            
            
            4,826
            
            
            (7,644
            )Ending
                balance
            
            $
            (2,818
            )
            $
            (7,644
            )




F-27




**NOTE
      15 - RELATED PARTY TRANSACTIONS**




Wayne
      W. Mills





The
      following transaction occurred when Mr. Mills beneficially owned more than
      five
      percent of our securities. As of December 31, 2005, Mr. Mills is a less than
      five percent beneficial owner of our securities as indicated in his Schedule
      13G
      filings: In May 2005, we entered into a consulting agreement with Blake
      Advisors, LLC (which is wholly owned by Mr. Mills) related to strategic merger,
      acquisition and corporate finance services for a period of one-year. The
      agreement required monthly payments of $15,875 in cash and the reimbursement
      of
      reasonable out-of-pocket expenses. The agreement was cancelled December 31,
      2005. And in May 2005, we entered into a warrant exercise agreement with Mr.
      Mills, allowing him a reduced exercise price on previously issued and
      outstanding warrants, granted in his name or one of his wholly owned entities.
      He held an aggregate of 1,906,334 warrants exercisable with a range of original
      pricing from $0.40 to $5.50 per share. The warrant exercise agreement allowed
      for a predetermined number of warrants available for monthly exercise at $0.20
      per share, which expired on March 31, 2006. Mr. Mills exercised warrants to
      purchase a total of 882,600 shares.





Hawk





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





On
      May
      15, 2006, we entered into a management services agreement with Hawk, whereby
      Hawk will provide certain management and administrative services to the Company.
      The term of the agreement was until December 31, 2006 and required a US $50,000
      payment.





On
      June
      29, 2006, we executed a Memorandum of Agreement between the Company and Hawk
      (the “Hawk Memorandum”). Under the terms of the Hawk Memorandum, we acquired a
      50 percent interest in certain mining claims located in northern Ontario, held
      entirely by Hawk by issuing Hawk 40,000 shares of our common stock, valued
      at
      $12,800.





Andrew
      Green





In
      May
      2005, we entered into a short-term loan arrangement with a holder of in excess
      of five percent of our common stock, Andrew Green, whereby we borrowed $250,000
      from Mr. Green pursuant to a purchase agreement and unsecured promissory note.
      The note bore an initial interest rate of six percent per annum, which increased
      to 18 percent per annum on July 15, 2005 because we did not repay the note
      in
      full by July 15, 2005. As additional consideration for the note, we amended
      the
      terms of a warrant held by Mr. Green (originally issued as part of our October
      2003 private placement) to purchase up to 500,000 shares of our common stock
      to
      reduce the exercise price from $0.25 per share to $0.01 per share pursuant
      to a
      default provision in the note. Furthermore, since we had not repaid the note
      in
      full by July 15, 2005, we were required to issue 50,000 shares of our
      unregistered common stock for each month there remained an outstanding balance
      beginning August 15, 2005, up to a maximum issuance of 150,000 shares. We issued
      the maximum of 150,000 pursuant to this penalty provision.





On
      November 1, 2005, we entered into a new loan and security agreement with Mr.
      Green (the “Green Note”) whereby his original $250,000 unsecured note (“Existing
      Financing”) was refinanced to allow us to draw up to an aggregate of $600,000.
      In consideration for refinancing the Existing Financing into the Green Note,
      we
      issued Mr. Green a five-year warrant to purchase up to 2,500,000 shares of
      our
      common stock with an exercise price of $0.12 per share, subject to adjustment
      as
      defined in the agreement. On November 9, 2005, we drew the initial monthly
      amount of $100,000 and issued to Mr. Green (i) 500,000 shares of our common
      stock and (ii) a five-year warrant to purchase up to 1,000,000 shares of our
      common stock with an exercise price of $0.12 per share. For each subsequent
      $100,000 monthly draw, we would be obligated to issue another five-year warrant
      to purchase up to 1,000,000 shares of our common stock with an exercise price
      of
      $0.12 per share. The Green Note was secured by substantially all of our assets
      and bore an interest rate of 12 percent per annum. The Green Note required
      no
      payments until the maturity date of April 30, 2006.




F-28





In
      April
      2006, we entered into an amendment to the Green Note, extending the maturity
      date for an additional 30 days. In consideration of this extension, we issued
      60,000 shares of our common stock and we entitled Mr. Green the option, at
      any
      time on or prior to August 31, 2006, to purchase at a price of $0.20 per share,
      shares of our common stock in an amount equal to, but not greater than, the
      final principal and interest balance of the note and receive the number of
      shares of our common stock computed by dividing that amount by $0.20 per
      share.





In
      May
      2006, we made a $600,000 principle payment and paid the accrued interest of
      $44,091 by the issuance of 220,456 shares (valued at $0.20 per share) of our
      common stock.





On
      August
      18, 2006, we executed a standby joint venture financing agreement (the
“Agreement”) with Mr. Green. The Agreement contemplates Mr. Green’s future
      participation in joint venture or financing arrangements presented to Mr. Green
      by us for the purposes of financing mineral exploration projects (“Projects”).
      The Agreement sets forth basic terms of any such future joint venture or
      financing arrangements, including terms relating to the payment of proceeds
      from
      any Project for which a joint venture or financing arrangement has been entered,
      but may be subject to written agreements relating to specific Projects.





As
      consideration for Mr. Green’s agreement to review and consider Projects
      presented by us, Mr. Green’s right to purchase up to 3,000,000 shares of our
      common stock at a purchase price per share of $0.20, as provided pursuant to
      that certain Amendment to Secured Convertible Promissory Note of the Company
      dated April 1, 2006 in favor of Mr. Green, was extended from August 31, 2006
      to
      March 31, 2007. This modification was valued and recorded at
      $273,000.





Stephen
      D. King





Pursuant
      to the secured convertible promissory notes with Pacific Dawn Capital, LLC
      and
      Andrew Green, Mr. King, who only served as a board member at that time, provided
      a personal guaranty for the repayment of these notes. In exchange for agreeing
      to personally guaranty our obligations under the Pacific Note, we issued Mr.
      King a two-year warrant to purchase 1,000,000 shares of our common stock at
      a
      price of $0.15 per share and in exchange for agreeing to personally guaranty
      our
      obligations under the Green Note, we issued Mr. King a two-year warrant to
      purchase 1,000,000 shares of our common stock at a price of $0.15 per share.
      The
      fair value of these warrants was valued at $70,913.





Corporate
      Resource Management, Inc.





The
      Company entered into a consulting agreement with Corporate Resource Management,
      Inc., a Minnesota corporation (“CRM”), effective May 15, 2006. CRM is an entity
      wholly owned by Deb King, the spouse of Stephen D. King (at which time he was
      our president and board member). CRM will provide the Company with investment
      banking services relating to the purchase and sale of mining related assets.
      The
      terms of the agreement include the following: (i) a two-year initial term with
      the right to terminate with a 30-day written notice, subject to a $75,000
      termination fee payable to CRM if terminated by the Company without cause,
      (ii)
      a fee of $10,000 per month, plus reimbursement of normal out-of-pocket expenses,
      and (iii) commissions of up to two percent of the value of the transaction
      upon
      successful closings of any asset transactions during the term of the agreement
      and for a period of one year following termination.





Boston
      Financial Partners, Inc.





Effective
      June 1, 2006, we engaged Boston Financial Partners, Inc., as a non-exclusive
      consultant, to provide assistance to the Company in various matters pertaining
      to corporate growth, strategic planning, public relations and marketing
      services. As consideration for the services, we paid a one-time fee of $100,000
      and issued (i) 625,000 shares of our common stock valued at $212,500 and (ii)
      a
      two-year warrant to purchase up to 1,000,000 shares of our common stock, at
      an
      exercise price of $0.62 per share, valued at $304,802. Boston Financial Partners
      is controlled by Thomas Brazil, a greater than five percent beneficial
      shareholder of the Company’s securities.





F-29




**NOTE
      16 - INCOME TAXES**





The
      Company estimates that at December 31, 2006, it had cumulative net operating
      loss carryforwards for tax purposes of approximately $9,000,000 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.
      Significant components of the Company’s estimated deferred tax assets and
      liabilities at December 31, 2006 and 2005 are as follows:





2006
            
            2005Deferred
              tax
              assets:Net
                operating loss carryforwards
            
            $
            3,719,000
            
            $
            2,800,000Exploration
                rights
            
            
            2,959,000
            
            
            2,450,000Expenses
                related to warrants and options
            
            
            1,900,000
            
            
            —Accrued
                liabilities and other
            
            
            —
            
            
            123,000Total
                deferred tax asset
            
            
            8,578,000
            
            
            5,373,000Valuation
                allowance
            
            
            (8,578,000
            )
            
            (5,373,000
            )$
            —
            
            $
            —





The
      income tax provision consists of the following for the years ended December
      31:




2006
            
            2005Current
                tax provision
            
            $
            —
            
            $
            —Deferred
                tax provision
            
            
            (3,205,000
            )
            
            (2,333,000
            )Valuation
                allowance
            
            
            3,205,000
            
            
            2,333,000Total
                income tax provision
            
            $
            —
            
            $
            —





Reconciliation
      between the statutory rate and the effective tax rate for the years ended
      December 31:




2006
            
            2005Federal
                statutory tax rate
            
            
            (35.0
            %)
            
            (35.0
            %)State
                taxes, net of federal benefit
            
            
            (6.0
            %)
            
            (6.0
            %)Permanent
                differences
            
            
            5.0
            %
            
            —Valuation
                allowance
            
            
            36.0
            %
            
            41.0
            %Effective
                tax rate
            
            
            —
            
            
            —




At
      December 31, 2006, the Company fully reserved its net deferred tax assets
      totaling $8,578,000, recognizing that the Company has incurred losses during
      the
      last several years and there is no assurance that future years will be
      profitable.





F-30




**NOTE
      17 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION**





May
                1, 2003(inception)December
                31,
            
            to
                Dec. 31,2006
            
            2005
            
            2006Supplemental
                cash flow information:Cash
                paid for interest
            
            $
            3,353
            
            $
            21,578
            
            $
            61,048Issuance
                of common stock for accounts payable
            
            $
            39,000
            
            $
            —
            
            $
            39,000Issuance
                of common stock, warrants and options for prepaid consulting
                fees
            
            $
            2,327,876
            
            $
            1,137,538
            
            $
            3,847,081




**NOTE
      18- SUBSEQUENT EVENTS**





On
      February 2, 2007, the Company executed a heads of agreement (the “Agreement”)
      with Easyknit Enterprises Holdings Limited, a company incorporated in Bermuda
      (“Easyknit”). The Agreement records further material terms as discussed in a
      November 29, 2006 non-binding memorandum of understanding regarding the
      potential merger of Easyknit and the Company. Easyknit Enterprises Holdings
      Limited is a Bermuda incorporated company with its principal office in Hong
      Kong
      and its securities are listed for trading on the Hong Kong Stock Exchange under
      the symbol “616.” The non-binding memorandum of understanding was expanded to
      include material terms whereby all outstanding common shares of Wits Basin
      will
      be exchanged for three billion (3,000,000,000) shares of Easyknit, which
      represents approximately 43 percent of the issued capital.





On
      February 16, 2007, Lonmin Plc announced that it acquired all of the equity
      interest of AfriOre Limited following the completion of compulsory redemption
      proceedings in accordance with the laws of the British Virgin Islands. Lonmin
      Plc is a primary producer of Platinum Group Metals (PGMs) with its headquarters
      in London. Company management has contacted Lonmin Plc management in order
      to
      further progress in the FSC Project, and we are currently in negotiations with
      Lonmin to revise the New Agreement, which is still valid.





On
      February 19, 2007, the Company entered into an employment agreement with William
      Green as the Company’s 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. 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 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 at such time Mr. Green relocates to Hong Kong
      and establishes a home office for the Company in Hong Kong; (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 Executive’s employment by the Company;
      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 Company entered into a stock option agreement with Mr. Green dated
      February 19, 2007 memorializing the terms of the option grant and providing
      other standard option terms. The employment agreement further provides standard
      confidentiality and one-year non-competition and non-solicitation provisions.
      Mr. Green is a sibling of Andrew Green, a significant shareholder and creditor
      of the Company.




F-31





On
      February 23, 2007, in consideration of a $700,000 loan to the Company from
      Andrew Green (“Green”) a significant shareholder of the Company, the Company
      issued a promissory note in the principal amount of $700,000 to Green. The
      note
      had a maturity date of March 31, 2007, and bore interest at a rate of 6% per
      annum. Under the terms of the note, and as additional consideration for the
      loan, the Company reduced the exercise price of the 3,550,000 warrants held
      by
      Green from $0.12 to $0.09125 and extended the expiration date (from March 31,
      2007 to December 31, 2007) on an outstanding right held by Green to purchase
      up
      to 3,000,000 shares of the Company’s common stock at a price per share of $0.20.
      On March 26, 2007, Green exercised 3,550,000 warrants (at $0.09125 per share)
      and purchased 1,450,000 shares (at $0.20 per share) of common stock provided
      by
      his right-to-purchase, providing $613,937. On March 28, 2007, we paid the note
      and accrued interest to Green totaling $703,912.





On
      March
      1, 2007, we entered into an amendment to the asset purchase agreement with
      the
      parties of the Bates-Hunter Mine, allowing the Company an extended period of
      time to complete further due diligence relating to the title of the real estate
      and mining claims to be purchased. Furthermore, the Company has excluded the
      Golden Gilpin Mill from the purchase agreement. The Golden Gilpin Mill, located
      in Black Hawk, Colorado, is listed in the EPA’s Super Fund Site Register. We
      believe that all title work should be completed by mid 2007.




On
      March
      9, 2007, the Board of Directors of the Company adopted and approved the
      Company’s 2007 Stock Incentive Plan (the “2007 Plan”) and reserved 5,000,000
      shares of the Company’s common stock for issuance under the 2007
      Plan.





On
      March
      9, 2007, the Company issued a ten-year option to Stephen D. King, its CEO,
      to
      purchase 3,000,000 shares of the Company’s common stock at an exercise price of
      $1.02 per share, the fair market value of the Company’s common stock on the date
      of grant, in consideration for his services as chief executive officer of the
      Company. The option vests in six equal annual installments commencing on the
      first anniversary of the grant date. Under certain circumstances, the vesting
      of
      the option shall be accelerated, in part: (a) upon the completion of a merger
      between the Company (or a subsidiary of the Company formed for that purpose)
      and
      Easyknit Enterprises Holdings Limited (or a subsidiary of Easyknit Enterprises
      Holdings Limited formed for that purpose), the then last remaining annual
      installment shall immediately vest and (b) upon the completion of each material
      acquisition of mining related assets by the Company, the then last remaining
      annual installment shall immediately vest, provided that, the board of directors
      of the Company, in its sole discretion, shall determine whether an acquisition
      is “material”. 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
      (to
      be determined in the sole discretion of the board of directors of the Company),
      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
      shares accordingly to obtain listing on that exchange, provided that the shares
      are not then vested.




F-32