-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H1Nt94kuT0oQGaTdK9uWIhDuIBjmGLDV2polAu5ICx2y/woX8p6asxgHIgNviR4K pEWktH3w7bP4A3God9h47w== 0001144204-07-043101.txt : 20070814 0001144204-07-043101.hdr.sgml : 20070814 20070814130645 ACCESSION NUMBER: 0001144204-07-043101 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070814 DATE AS OF CHANGE: 20070814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WITS BASIN PRECIOUS MINERALS INC CENTRAL INDEX KEY: 0000912875 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 841236619 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-12401 FILM NUMBER: 071053120 BUSINESS ADDRESS: STREET 1: 80 SOUTH 8TH STREET STREET 2: SUITE 900 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: (612)349-5277 MAIL ADDRESS: STREET 1: 80 SOUTH 8TH STREET STREET 2: SUITE 900 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: ACTIVE IQ TECHNOLOGIES INC DATE OF NAME CHANGE: 20010702 FORMER COMPANY: FORMER CONFORMED NAME: METEOR INDUSTRIES INC DATE OF NAME CHANGE: 19960313 10QSB 1 v084395_10qsb.htm
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-QSB

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

For the quarterly period ended June 30, 2007

OR

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

For the transition period from _______ to _______

 
Commission file number 1-12401
WITS BASIN PRECIOUS MINERALS INC.
(Exact Name of Registrant as specified in Its Charter)
 
Minnesota
  84-1236619
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
    
 900 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402-8773
     (Address of Principal Executive Offices)

612.349.5277
(Issuer’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  Noo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x
As of August 10, 2007, there were 107,139,199 shares of common stock, $.01 par value, outstanding.

Transitional Small Business Disclosure Format (check one): Yes o No x
 

WITS BASIN PRECIOUS MINERALS INC.
FORM 10-QSB INDEX
JUNE 30, 2007

PART I FINANCIAL INFORMATION

   
Page
Condensed Consolidated Financial Statements
4
     
 
Condensed Consolidated Balance Sheets -
  
 
As of June 30, 2007 and December 31, 2006
4
     
 
Condensed Consolidated Statements of Operations -
  
 
For the three months and six months ended
  
 
June 30, 2007 and June 30, 2006
5
     
 
Condensed Consolidated Statements of Cash Flows -
  
 
For the six months ended June 30, 2007 and June 30, 2006
6
     
 
Notes to the Condensed Consolidated Financial Statements
7
     
Item 2.
Management’s Discussion and Analysis of
  
 
Financial Condition and Results of Operations
20
     
Item 3.
Controls and Procedures
33
     
     
PART II
OTHER INFORMATION
  
     
     
Item 1.
Legal Proceedings
34
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
34
     
Exhibits
35
 
Signatures
36
2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-QSB contains certain statements which are forward-looking in nature and are based on the current beliefs of our management as well as assumptions made by and information currently available to management, including 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. In addition, when used in this Form 10-QSB, the words “may,” “could,” “should,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict” and similar expressions and their variants, as they relate to us or our management, may identify forward-looking statements. These statements reflect our judgment as of the date of this Form 10-QSB with respect to future events, the outcome of which is subject to risks, which may have a significant impact on our business, operating results 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 of Item 2 entitled “RISK FACTORS,” among others, may impact forward-looking statements contained in this Form 10-QSB.
 
3

WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets
(unaudited)

   
June 30,
  
December 31,
  
   
2007
  
2006
  
ASSETS
           
CURRENT ASSETS:
              
Cash and equivalents
  
$
293,338
  
$
85,910
  
Receivable
    
298
    
10,323
  
Investment - marketable securities
    
15,750
    
21,241
  
Prepaid expenses
    
804,862
    
53,815
  
Total current assets
    
1,114,248
   
171,289
  
               
PROPERTY AND EQUIPMENT, net
    
81,460
    
80,087
  
ADVANCE PAYMENTS ON EQUITY INVESTMENTS
    
7,795,000
    
—
  
DEBT ISSUANCE COSTS
    
37,811
    
—
  
   
$
9,028,519
  
$
251,376
  
               
LIABILITIES and SHAREHOLDERS’ EQUITY (DEFICIT)
              
CURRENT LIABILITIES:
              
Convertible notes payable, net of original issue discount
  
$
8,833,722
  
$
—
  
Accounts payable
    
124,463
    
68,622
  
Accrued expenses
    
787,396
    
143,000
  
Total current liabilities
    
9,745,581
    
211,622
  
               
               
COMMITMENTS and CONTINGENCIES
              
               
SHAREHOLDERS’ EQUITY (DEFICIT):
              
Common stock, $.01 par value, 150,000,000 shares
              
authorized; 107,139,199 and 94,747,739 shares issued
              
and outstanding, respectively
    
1,071,392
    
947,477
  
Additional paid-in capital
    
49,371,764
    
42,954,263
  
Stock subscriptions receivable
    
(30,000
)
  
(932,600
)
Warrants
    
4,695,735
    
7,515,487
  
Accumulated deficit
    
(22,932,460
)
  
(22,932,460
)
Deficit accumulated during exploration stage, subsequent
              
to April 30, 2003
    
(32,885,184
)
  
(27,509,595
)
Accumulated other comprehensive loss
    
(8,309
)
  
(2,818
)
Total shareholders’ equity (deficit)
    
(717,062
)
  
39,754
  
   
$
9,028,519
  
$
251,376
  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
4
 
WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
Condensed Consolidated Statements of Operations
(unaudited)

     
Three Months Ended June 30,
    
Six Months Ended June 30,
    
May 1, 2003
(inception)
to June 30,
  
     
2007
    
 2006
    
2007
    
 2006
    
2007
  
Revenues
  
$
—
  
$
—
  
$
—
  
$
—
  
$
—
  
                                 
Operating Expenses:
                                
General and administrative
    
1,719,750
    
1,016,680
    
2,773,702
    
2,063,712
    
14,654,115
  
Exploration expenses
    
552,503
    
417,571
    
1,276,121
    
581,284
    
8,886,371
  
Depreciation and amortization
    
4,127
    
10,455
    
7,796
    
13,976
    
468,060
  
Merger transaction costs
    
738,517
    
—
    
986,834
    
—
    
986,834
  
Stock issued as penalty
    
—
    
—
    
—
    
—
    
2,152,128
  
Loss on impairment of Kwagga
    
—
    
12,014
    
—
    
76,491
    
2,100,000
  
Loss on sale of Brazmin
    
—
    
—
    
—
    
—
    
667,578
  
Loss on disposal of assets
    
—
    
—
    
—
    
—
    
1,633
  
Total operating expenses
    
3,014,897
    
1,456,720
    
5,044,453
    
2,735,463
    
29,916,719
  
Loss from Operations
    
(3,014,897
)
  
(1,456,720
)
  
(5,044,453
)
  
(2,735,463
)
  
(29,916,719
)
                                 
Other Income (Expense):
                                
Other income (expense), net
    
731
    
3,901
    
3,447
    
3,901
    
36,794
  
Interest expense
    
(118,687
)
  
(821,046
)
  
(334,583
)
  
(1,495,082
)
  
(3,270,333
)
Total other expense
    
(117,956
)
  
(817,145
)
  
(331,136
)
  
(1,491,181
)
  
(3,233,539
)
Loss from Operations before Income Tax
                                
Benefit and Discontinued Operations
    
(3,132,853
)
  
(2,273,865
)
  
(5,375,589
)
  
(4,226,644
)
  
(33,150,258
)
Benefit from Income Taxes
    
—
    
—
    
—
    
—
    
243,920
  
Loss from Continuing Operations
  
$
(3,132,853
)
$
(2,273,865
)
$
(5,375,589
)
$
(4,226,644
)
$
(32,906,338
)
                                 
Discontinued Operations
                                
Gain from discontinued operations
    
—
    
—
    
—
    
—
    
21,154
  
Net Loss
  
$
(3,132,853
)
$
(2,273,865
)
$
(5,375,589
)
$
(4,226,644
)
$
(32,885,184
)
                                 
Basic and Diluted Net Loss
                                
Per Common Share:
                                
Continuing operations
  
$
(0.03
)
$
(0.03
)
$
(0.05
)
$
(0.06
)
$
(0.58
)
Discontinued operations
    
—
    
—
    
—
    
—
    
—
  
Net Loss
  
$
(0.03
)
$
(0.03
)
$
(0.05
)
$
(0.06
)
$
(0.58
)
                                 
Basic and diluted weighted average
                                
outstanding shares
    
105,181,207
    
81,451,709
    
101,268,623
    
74,633,474
    
56,607,553
  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
5
 
WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
Condensed Consolidated Statements of Cash Flows
(unaudited) 
 
                 
May 1, 2003
  
     
Six months ended June 30,
    
(inception) to
 
     
2007
    
 2006
    
June 30, 2007
  
                   
OPERATING ACTIVITIES:
                    
Net loss
  
$
(5,375,589
)
$
(4,226,644
)
$
(32,885,184
)
Adjustments to reconcile net loss to cash
                
flows from operating activities:
                    
Depreciation and amortization
    
7,796
    
13,976
    
468,060
  
Loss on disposal of assets
    
—
    
—
    
1,633
  
Loss on sale of Brazmin
    
—
    
—
    
667,578
  
Gain from discontinued operations
    
—
    
—
    
(21,154
)
Issuance of common stock for exploration rights
    
160,000
    
169,646
    
5,300,090
  
Loss on impairment of Kwagga
    
—
    
76,491
    
2,100,000
  
Amortization of debt issuance costs
    
13,729
    
4,662
    
152,587
  
Amortization of original issue discount
    
216,566
    
798,889
    
1,917,847
  
Amortization of prepaid consulting fees related to
issuance of warrants and common stock
    
275,576
    
813,947
    
4,839,664
  
 Compensation expense related to stock options
    
725,275
    
—
    
848,148
  
Issuance of common stock and warrants for services
    
—
    
419,524
    
1,169,522
  
Contributed services by an executive
    
—
    
50,000
    
274,500
  
 Issuance of common stock as penalty related to
October 2003 private placement
    
—
    
—
    
2,152,128
  
Interest expense related to issuance of common stock and warrants
    
—
    
721,630
    
1,173,420
  
Changes in operating assets and liabilities:
                    
Accounts receivable, net
    
10,025
    
—
    
17,719
  
Prepaid expenses
    
(210,865
)
  
(305,164
)
  
(337,628
)
Accounts payable
    
55,841
    
(71,399
)
  
54,182
  
Accrued expenses
    
644,396
    
15,557
    
566,809
  
Net cash used in operating activities
    
(3,477,250
)
  
(1,518,885
)
  
(11,540,079
)
                     
INVESTING ACTIVITIES:
                    
Purchases of property and equipment
    
(9,169
)
  
(8,854
)
  
(115,523
)
Proceeds from sale of Brazmin
    
—
    
—
    
125,000
  
Purchases of investments
    
—
    
—
    
(2,244,276
)
Advance payments on equity investments
    
(7,795,000
)
  
—
    
(7,795,000
)
Net cash used in investing activities
    
(7,804,169
)
  
(8,854
)
  
(10,029,799
)
                     
FINANCING ACTIVITIES:
                    
Payments on short-term and long-term debt
    
(1,325,000
)
  
(1,100,000
)
  
(2,759,645
)
Cash proceeds from issuance of common stock, net of offering costs
    
680,000
    
—
    
5,525,272
  
Cash proceeds from exercise of stock options
    
30,000
    
—
    
199,900
  
Cash proceeds from exercise of warrants
    
2,010,387
    
3,635,415
    
6,496,047
  
Cash proceeds from short-term debt, net of origination fees totaling $180,000
    
10,145,000
    
350,000
    
11,245,000
  
Cash proceeds from long-term debt
    
—
    
—
    
650,000
  
Debt issuance costs
    
(51,540
)
  
—
    
(190,398
)
Net cash provided by financing activities
   
11,488,847
    
2,903,415
    
21,166,176
  
Increase (Decrease) in Cash and Equivalents
    
207,428
    
1,375,676
    
(403,702
)
Cash and Equivalents, beginning of period
    
85,910
    
117,816
    
697,040
  
Cash and Equivalents, end of period
  
$
293,338
  
$
1,493,492
  
$
293,338
  

The accompanying notes are an integral part of these consolidated financial statements.
 
6

WITS BASIN PRECIOUS MINERALS INC.
(AN EXPLORATION STAGE COMPANY)
Notes to Condensed Consolidated Financial Statements
June 30, 2007
(unaudited)

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 June 30, 2007, we hold interests in mineral exploration projects in Colorado (Bates-Hunter Mine), Mexico (Vianey), South Africa (FSC) and two immaterial projects in Canada. The following is a summary of our current projects:

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 in Central City, Colorado, the Golden Gilpin Mill located in Black Hawk, Colorado and the associated real and personal property assets. On March 1, 2007, we executed an amendment to the asset purchase agreement, whereby the Golden Gilpin Mill and adjacent real property were removed from the transaction. On May 31, 2007, we executed a further amendment to the asset purchase agreement, whereby the closing of the transaction contemplated by the asset purchase agreement has been extended to March 31, 2008, or sooner should we complete our due diligence. 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, which would require us to provide an additional $400,000 to Journey by September 30, 2007. 

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 that have been conducted are adjacent to the historic Witwatersrand Basin. The last completed drill hole on this property occurred in 2005. Kwagga is a subsidiary of AfriOre International (Barbados) Limited, a corporation formed under the laws of Barbados. On February 16, 2007, Lonmin Plc announced that it acquired all of the equity interest of AfriOre. Lonmin Plc is a primary producer of Platinum Group Metals (PGMs) with its headquarters in London. We are currently in negotiations with Lonmin to revise our current agreement in order to continue with the FSC Project.

On April 20, 2007, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Easyknit Enterprises Holdings Limited, a Bermuda corporation with its principal place of business in Hong Kong and listed on the Hong Kong Stock Exchange (SEHK: 0616) (“Easyknit”), and Race Merger, Inc., a Minnesota corporation and wholly owned subsidiary of Easyknit (“Merger Sub”), whereby Merger Sub will merge with and into us, and we will constitute the surviving corporation to the merger and a wholly owned subsidiary of Easyknit following completion of the merger. Pursuant to the merger, our shareholders immediately prior to the effective time of the merger, on a fully diluted basis, shall hold approximately 46 percent of the shares of common stock of Easyknit issued and outstanding immediately following the effective time of the merger, on a fully diluted basis (including therein certain proposed share issuances relating to our potential acquisitions). Each of the parties has made and will be required to make at the effective time of the merger standard representations and warranties in the Merger Agreement, and the consummation of the merger is subject to certain conditions, including, without limitation, the completion and satisfaction of due diligence by the parties, the approval of our stockholders, the approval of Easyknit’s stockholders (in accordance with the Hong Kong Stock Exchange Listing Rules, AMEX Listing Rules and certain other rules and regulations), the effectiveness of the registration statement to be filed with the Securities and Exchange Commission and other standard conditions.
 
7

On May 21, 2007, the parties to the Merger Agreement entered into Amendment No. 1 to Agreement and Plan of Merger and Reorganization (the “Amendment”), whereby the parties amended the Merger Agreement to, among other things, clarify the terms of the exchange ratio applicable to the merger and to set the break up fee applicable to the Merger Agreement at US$30 million, instead of three percent of the aggregate merger consideration. The Amendment further identifies an additional member of Easyknit’s board of directors.

This disclosure regarding the merger is issued pursuant to Rule 135 under the Securities Act of 1933, as amended, and shall not constitute an offer to exchange, sell or purchase or the solicitation of an offer to exchange, sell or purchase any securities. An offer of securities in the United States pursuant to a business combination transaction will only be made through a prospectus which is part of an effective registration statement filed with the Securities and Exchange Commission (the “SEC”). In connection with the proposed merger of Wits Basin and Easyknit, Easyknit will file a registration statement on Form F-4, which will include a proxy statement of Wits Basin that also constitutes a prospectus of Easyknit, and other documents with the SEC. Such registration statement, however, is not currently available. SHAREHOLDERS OF WITS BASIN ARE URGED TO READ THE DEFINITIVE REGISTRATION STATEMENT ON FORM F-4 AND OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC, INCLUDING THE DEFINITIVE PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE DEFINITIVE REGISTRATION STATEMENT ON FORM F-4, WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The final proxy statement/prospectus will be mailed to shareholders of Wits Basin. Investors and security holders will be able to obtain a free copy of the proxy statement/prospectus, as well as other filings containing relevant information about Wits Basin and Easyknit without charge, at the SEC’s website (http://www.sec.gov) once such documents are filed with the SEC. Copies of the proxy statement/prospectus will also be available, without charge, once they are filed with the SEC by directing a request to the Company.
 
Easyknit and Wits Basin, and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Wits Basin’s shareholders with respect to the proposed merger. Information about Easyknit’s directors and executive officers will be available in Wits Basin’s proxy statement to be filed with the SEC as referenced above. Information about Wits Basin’s directors and officers will be available in Wits Basin’s proxy statement to be filed with the SEC as referenced above, and is currently available in Wits Basin’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 filed with the SEC on April 16, 2007 and other public filings with the SEC made by Wits Basin. Other information about the participants in the proxy solicitation and a description of their direct and indirect interests (by security holdings or otherwise) will be contained in the proxy statement and other relevant materials after they are filed with the SEC.

As of June 30, 2007, 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.

NOTE 2 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Form 10-KSB filed April 16, 2007. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year as a whole.

 
8

NOTE 3 - 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 June 30, 2007, we have (i) 11,659,500 shares of common stock issuable upon the exercise of stock options with a weighted average exercise price of $0.57 per share issued under our stock option plans, (ii) 19,501,273 shares of common stock issuable upon the exercise of warrants with a weighted average exercise price of $0.70 per share, (iii) reserved 4,720,000 shares issuable upon the closing of the transaction contemplated by the asset purchase agreement pertaining to the Bates-Hunter Mine (3,620,000 shares of common stock and 1,100,000 shares of common stock for the exercise of warrants, exercisable at $0.75 per share), (iv) reserved an aggregate of 1,000,000 shares of common stock pursuant to amendments of a secured promissory note and subsequent extensions of certain purchase rights, with a per share purchase price of $0.20 per share and (v) reserved 9,000,000 shares of our common stock, at a conversion price of $1.00 per share, related to a Convertible Securities Purchase Agreement with China Gold, LLC, a Kansas limited liability company (“China Gold”), convertible at the option of China Gold. These 45,880,773 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.

Furthermore, to enable us to issue some of the aforementioned derivative securities in an effort to obtain necessary financing without exceeding our authorized capital of 150,000,000 shares, we have obtained the agreement of certain of our derivative securityholders holding securities exercisable or convertible into an aggregate of 6,263,000 shares of our common stock that such securityholders will not exercise (and are prohibited from exercising) their respective derivative securities unless and until such time that we increase the number of our authorized shares to permit the “re-authorization” of such shares underlying the derivative securities. Further, these securityholders have acknowledged that, absent our obtaining the required shareholder consent to increase the number of shares of authorized capital stock, they will lose all rights to the securities in question. We have also issued additional derivative securities exercisable or convertible into xxxx shares that would exceed our authorized capital, but each of these issuances is subject to a number of conditions, specifically including an increase in the number of our authorized shares. Absent such increase, these derivative securities will not be exercisable or convertible.

NOTE 4 - COMPANY’S CONTINUED EXISTENCE

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company during its exploration stage has sustained losses totaling $32,885,184. Furthermore, since we do not expect to generate any 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. 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. We have estimated our cash needs over the next twelve months, relating to our general and administrative needs along with the Bates-Hunter Mine, Vianey and FSC Project, to be approximately $4,400,000. However, this does not take into account our needs relating to any mergers or future acquisitions, which amounts we cannot estimate at this time. In the event that we are unable to obtain other additional capital in the future, we would be forced to reduce operating expenditures and/or cease operations altogether.  

 
9

NOTE 5 - RECEIVABLE

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 held a secured promissory note of the subscriber dated April 28, 2006, the satisfaction of which was secured by the stock issued to the subscriber. The note accrued 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.

In January 2007, we entered into a three-year surface use agreement with an unrelated party (husband and wife owners) for the purpose of having access to their property located in Gilpin County, Colorado, which allows us access to, from and across the surface of their property and the right to enter upon their property for the purpose of conducting our mineral exploration and drilling activities. The agreement required an initial $15,000 payment and the establishment of an escrow account for the disbursement of two annual payments of $15,000 in January 2008 and 2009. The agreement is cancelable upon the immediate release of the remaining escrow funds to the owners of the property. The escrow balance accrues nominal interest, of which we have recorded $298 for the six months ended June 30, 2007.

NOTE 6- INVESTMENT - MARKETABLE SECURITIES

We hold 225,000 shares (nominal amount) 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 and received an additional 50,000 shares in 2006 with respect to certain Canadian projects.

NOTE 7 - PREPAID EXPENSES

Prepaid expenses consist of two components: prepaid consulting fees and other prepaid expenses. The prepaid consulting fees are calculated amounts from the issuance of common stock, warrants or options to consultants for various services that we do not have internal infrastructure to perform. The amortization periods coincide with terms of the agreements. In May 2007 and again in June 2007, we extended the expiration date on two warrants held by Thomas Brazil, a greater than five percent beneficial shareholder, for future services to be rendered during the remainder of 2007. The previously issued and outstanding warrants allow for the purchase of up to an aggregate of 1,380,000 shares of common stock at $1.00 per share, with an expiration date of December 31, 2007. An additional $815,758 resulted from the modification of these warrants, which was calculated using the Black-Scholes pricing model.

The other prepaid expenses contain miscellaneous amounts we have prepaid for general and administrative purposes and a $200,000 retainer paid to a law firm in Hong Kong handling the legal matters regarding the potential merger with Easyknit. These prepaid items are being expensed as utilized.

Included in the other prepaid expenses, as of December 31, 2006, are two bonds (held in the form of certificate of deposit, CD, $10,000 each) required by the State of Colorado for exploration activities. In April 2007, one of the CD’s was released and returned to the Company by the State. The remaining CD accrues nominal interest and will not be expensed unless an event requires us to release it to the State.

Components of prepaid expenses are as follows:

   
June 30,
  
December 31,
  
   
2007
  
2006
  
Prepaid consulting fees
  
$
566,009
  
$
25,827
  
Other prepaid expenses
    
238,853
    
27,988
  
   
$
804,862
  
$
53,815
  
 
10

NOTE 8 - 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:

   
June 30,
  
December 31,
  
   
2007
  
2006
  
Equipment purchases
  
$
115,522
  
$
106,353
  
Less accumulated depreciation
    
(34,062
)
  
(26,266
)
   
$
81,460
  
$
80,087
  
 
NOTE 9 - DEBT ISSUANCE COSTS

With respect to legal services relating to certain convertible notes payable (See Note 10 - Convertible Notes Payable) we paid $42,400 of debt issuance costs. The following table summarizes the amortization of debt issuance costs:
 
       
June 30,
    
December 31,
  
       
2007
    
2006
  
Gross debt issuance costs
    
$
42,400
  
$
—
  
Less: amortization of debt issuance costs
      
(4,589
)
  
—
  
Debt issuance costs, net
    
$
37,811
  
$
—
  
 
NOTE 10 - CONVERTIBLE NOTES PAYABLE

In April 2007, in consideration of a $625,000 loan from Andrew Green a significant shareholder, we issued a promissory note to Mr. Green in the principal amount of $625,000. The promissory note bore simple interest at a rate of 12% per annum and was paid in full in June 2007 along with $11,096 of interest. Additionally, we have provided Mr. Green a right of first refusal to acquire 10% of our interest in the option to acquire the equity interest in SSC-Sino Gold (See Note 11).

On April 10, 2007, we entered into a Convertible Securities Purchase Agreement with China Gold, LLC, a Kansas limited liability company (“China Gold”), whereby we agreed to offer and sell, and China Gold agreed to purchase, an aggregate of $12,000,000 in convertible secured promissory notes over 12 months, with up to an additional $13,000,000 in convertible secured promissory notes to be issued at the discretion of both parties. The issuance and sale of convertible secured promissory notes under the Convertible Securities Purchase Agreement is subject to certain conditions, including Wits Basin having a sufficient number of authorized and unissued shares available to permit the conversion of the outstanding promissory notes issued to China Gold. Promissory notes issued under the Convertible Securities Purchase Agreement are to have a five-year term, bear interest at a rate of 8.25%, and are convertible at the option of the holder, after the expiration of 120 days from the date of issue, into shares of our common stock at a conversion price of $1.00 per share. The notes are also subject to automatic conversion in certain conditions. On April 10, 2007, we issued and sold the initial promissory note under the Convertible Securities Purchase Agreement in the aggregate amount of $3,000,000, with a purchase discount of $60,000. Additionally, on May 7, 2007, we offered and sold to China Gold an additional convertible secured promissory note under the Convertible Securities Purchase Agreement in the aggregate amount of $2,000,000, with a purchase discount of $40,000.

On June 19, 2007, we entered into an Amendment to Convertible Notes Purchase Agreement with China Gold, whereby the parties amended the terms of the Convertible Notes Purchase Agreement discussed above (as amended, the “Purchase Agreement”) to (a) clarify that the obligations of the parties under the Purchase Agreement to sell and purchase convertible notes under the Purchase Agreement shall terminate at the earlier of (i) April 10, 2008 and (ii) the date of effectiveness of our proposed merger with Easyknit Enterprises Holdings Limited (“Easyknit”), (b) to provide us an opportunity to prepay our obligations under notes issued under the Purchase Agreement, in which case China Gold is entitled to a purchase right to acquire shares of our common stock at equivalent terms to its rights to otherwise convert the notes issued under the Purchase Agreement, and (c) extend certain registration rights of China Gold.
 
11

On June 19, 2007, we sold China Gold an additional note under the Purchase Agreement in the principal amount of $4,000,000, with a purchase discount of $80,000 (“Note 3”). Note 3 bears interest at a rate of 8.25% per annum, and is convertible at the option of China Gold into shares of our common stock at a conversion price of $1.00 per share, subject to anti-dilutive adjustments. Additionally, the outstanding balance on the Notes is subject to automatic conversion in the event we complete the proposed merger transaction with Easyknit. Note 3 is payable in full at the earlier of maturity or at such time that we and our subsidiaries receive financing in the aggregate of amount of at least $50,000,000 from a third party. The maturity date of Note 3 is September 17, 2007, but may be extended upon our request for additional periods of thirty (30) days, but in no event later than December 31, 2007, provided that at the time of each such extension we and Easyknit have not terminated the proposed merger. In the event the merger is terminated after September 17, 2007, our obligations under Note 3 shall become due and payable upon the expiration of fifteen (15) days following demand of China Gold. We have also provided China Gold demand and piggyback registration rights relating to the resale of the shares of common stock issuable upon conversion of Note 3.
 
In the event the Company and/or any of our majority-owned subsidiaries receive, at a time when any Notes remain outstanding, cumulative financing in the form of cash or immediately available funds from one or more third parties in the aggregate amount of at least $50,000,000 from and after June 19, 2007, (a “Substantial Financing”), the outstanding Notes issued under the Purchase Agreement shall be due and payable out of the proceeds from such Substantial Financing. In the event such prepayment of any or all outstanding Notes, the respective Holder of each such prepaid Note shall be entitled to receive from the Company, from the date of such prepayment until the earlier of (i) immediately prior to the proposed Easyknit merger or (ii) five (5) years from the date of such prepayment, at a purchase price of $1.00 per share, the right to purchase the number of shares of our common stock equal to the amount prepaid on such Note divided by $1.00.
 
As of June 30, 2007, we have issued an aggregate of $9,000,000 of notes under the Purchase Agreement and have received net proceeds of $8,820,000 pursuant to the issuance of the notes, less $180,000 paid to an affiliate of China Gold in the form of a loan discount fee. The resulting original issue discount is being amortized over the life of the notes using the straight-line method, which approximates the interest method. We also agreed to pay $40,000 in accountable expenses of China Gold with respect to notes issued under the Purchase Agreement. The following table summarizes the notes balance:
 
Original gross proceeds
  
$
9,000,000
  
Less: original issue discount at time of issuance of notes
    
(180,000
)
Less: principal payments
    
—
  
Add: amortization of original issue discount
    
13,722
  
Balance at June 30, 2007
  
$
8,833,722
  
 
12
 
NOTE 11 - ADVANCE PAYMENTS ON EQUITY INVESTMENTS

In the first quarter of 2007, we entered into an agreement, with board approval, to acquire from SSC Mandarin Financial Services Limited (“SSC Mandarin Financial”), a 40% equity interest in SSC Mandarin Africa (Proprietary) Limited, a South African corporation (“SSC Mandarin Africa”), which was previously a wholly owned subsidiary of SSC Mandarin Financial, for $400,000 USD, which has been paid. SSC Mandarin Africa holds certain finder agreements to locate iron ore properties for potential acquisition by a South African mining company. Norman Lowenthal, a director, was a non-executive chairman of SSC Mandarin Financial until June 2007.

In the first quarter of 2007, we entered into an option agreement with SSC Mandarin Financial to acquire an option to purchase, at an exercise price of $5,000,000 US Dollars, a 60% interest in SSC-Sino Gold Consulting Co. Limited (“SSC-Sino”), a corporation governed by the laws of the People’s Republic of China which is currently 70% owned by SSC Mandarin Financial and 30% owned by the China Gold Association. The price of the option was $100,000 USD, which has been paid. SSC-Sino holds an option to acquire 100% of an operating iron ore property located in China.

We have loaned an additional $7,295,000 of the proceeds from the China Gold notes to China Global Mining Resources Limited, a British Virgin Islands corporation (“CGMR”), for uses relating to the acquisition of certain nickel, gold and iron ore mines in which CGMR is involved.

In consideration of the loans to CGMR, CGMR has issued us promissory notes in the amounts of $5,000,000, $2,000,000 and $1,923,100.
 
·  
CGMR’s obligations under the $5,000,000 promissory note are secured by its rights to (i) an Equity Transfer Heads of Agreement dated May 4, 2007, in respect of purchase of 95% of the equity in Yun County Changjiang Mining Company Limited; and (ii) an Equity and Asset Transfer Heads of Agreement, dated May 4, 2007, in respect of purchase of 100% equity in Nanjing Sudan Mining Co., Ltd. and assets from both of Mannshan Zhaoyuan Mining Co., Ltd. and Xiaonanshan Mining Co., Ltd.
   
·  
CGMR’s obligations under the $2,000,000 promissory note are secured by its rights under (i) a Joint Venture Agreement dated April 14, 2007 and Supplemental Agreement dated June 6, 2007, in respect of acquisition of 80% equity interest in Sino-American Hua Ze Nickel & Cobalt Metal Co., Ltd; and (ii) a commodity purchase agreement dated June 15, 2007, for the purchase of 40 tons of electrolytic nickel.
   
·  
CGMR’s obligations under the $1,923,100 promissory note are secured by its rights under its entire interest in Equity Transfer Heads of Agreement, dated April 26, 2007 between SSC Sino-Gold Consulting Co., Ltd., and Ma Qianzhou in respect of the purchase of 80% equity in Tongguan Taizhou Gold Mining Co., Ltd.
 
As a result of the Company subsequently purchasing CGMR, see Note 17, these promissory notes were reclassified as “Advances on Equity Investments” in the Company’s financial statements.
 
There exists the need for additional funding in order to complete our participation in the above mining projects. If we are unable to obtain the necessary funding, we may not be able to recover the advances on a timely basis, or at all.
 
13
 
NOTE 12 - 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 a Loan Agreement entered into with Pacific Dawn Capital, and related promissory note issued to Pacific Dawn, Pacific Dawn had the right to purchase, at a price per share of $0.20, a number of shares of our common stock equal to the maximum principal amount drawn against the promissory note divided by $0.20. Of the available right to purchase option of 2,000,000 shares, Pacific Dawn purchased 1,000,000 shares of common stock in December 2006. Pacific Dawn paid $120,000 of the exercise price in December 2006 and the remaining $80,000 in January 2007.

By February 2007, all $932,600 of the stock subscriptions funds receivable as of December 31, 2006 have been received.

In January 2007, Relevant Marketing, a consultant, acquired 300,000 shares of common stock pursuant to its exercise of a stock purchase warrant, issued in April 2005, to purchase shares at an original exercise price of $0.50 per share, but which was subsequently re-priced to $0.15 per share. Relevant Marketing paid $15,000 of the aggregate $45,000 exercise price in March 2007. We have released 100,000 of the shares, and are holding the remaining 200,000 shares as collateral until the remaining $30,000 is paid. Relevant Marketing employs Deb Kramer, the spouse of our CEO, Stephen D. King.

In March 2007, a consultant exercised two stock purchase warrants held into an aggregate of 100,000 un-registered shares of common stock. The stock options were issued in October and December 2006 (exercisable at $0.29 per share). The consultant paid the $29,000 in April 2007.

NOTE 13 - 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 Condensed Consolidated Balance Sheets. The following table details the changes in our Accumulated Other Comprehensive Loss balance:

Balance at December 31, 2006
  
$
(2,818
)
Unrealized loss
    
(5,491
)
Balance at June 30, 2007
  
$
(8,309
)
 
14
 
NOTE 14 - STOCK OPTIONS

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. 

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 three and six months ended June 30, 2007, reflect the impact of SFAS 123(R).

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 three months ended March 31, 2007, we granted stock options to two employees allowing for the purchase of up to an aggregate of 5,500,000 shares of common stock. No options were granted during the three months ended June 30, 2007.

15

The Company recorded $725,275 of compensation expense for the six months ended June 30, 2007, relating to the 5,500,000 stock option grants in the first six months of 2007 and vesting amounts from options granted in 2006. This expense is included in selling, general and administrative expense. There was no tax benefit from recording this non-cash expense due to the Company having a full valuation allowance against its deferred tax assets. The compensation expense had no material impact on the loss per share for the three months ended June 30, 2007 and had a $0.01 per share impact on the six months ended June 30, 2007. There remains $3,854,936 of total unrecognized compensation expense, which is expected to be recognized over a period of approximately six years. No share-based employee compensation cost was recognized in the condensed consolidated financial statements for the six month period ended June 30, 2006.

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.

In determining the compensation expense of the options granted, the fair value of each option grant was estimated on the date of grant using the Black-Scholes pricing model and the weighted average assumptions used in those calculations were:
 
   
For the Six Months Ended June 30,
 
 
 
2007
 
2006
  
Risk free interest rate
    
4.62% - 4.87
%
  
4.25% - 4.87
%
Expected life of options granted
    
10 years
    
10 years
  
Expected volatility factor
    
155% - 160
%
  
178% - 186
%
Expected dividend yield
    
--
    
--
  
 
Option Grants

The Company has six stock option plans: the 1993 and 1999 Stock Option Plans, the 2000 and 2003 Director Stock Option Plans, the 2001 Employee Stock Option Plan and the 2007 Stock Incentive Plan. As of June 30, 2007, an aggregate of 17,250,000 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. On March 9, 2007, the board of directors of the Company adopted and approved the 2007 Stock Incentive Plan and reserved 5,000,000 shares of its common stock for issuance under the 2007 Plan. Additionally, the Company has one plan outside of its plans, designated under the title of “Non-Plan Stock Options.”

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

 
 
  
Number of Options
  
Weighted Average Exercise Price
  
Options outstanding December 31, 2006
    
6,512,000
  
$
0.56
  
Granted
    
5,500,000
    
0.75
  
Canceled or expired
    
(352,500
)
  
0.31
  
Exercised
    
—
    
—
  
Options outstanding - June 30, 2007
    
11,659,500
  
$
0.57
  
               
Weighted average fair value of options granted during the six months ended June 30, 2007
        
$
0.75
  
               
Weighted average fair value of options granted during the six months ended June 30, 2006
        
$
N/A
  
 
16
 
 
The following table summarizes information about stock options outstanding at June 30, 2007:

   
Options Outstanding
  
Range of
Exercise Prices
  
Number
Outstanding
  
Weighted
Remaining
Contractual
Life
  
Weighted
Average
Exercise
Price
  
Aggregate Intrinsic Value (1)
  
$0.15 to $0.43
    
6,775,000
    
8.4 years
  
$
0.33
  
$
4,395,750
  
$0.56 to $1.02
    
4,806,000
    
7.0 years
    
0.87
    
649,500
  
$2.75 to $4.25
    
78,500
    
1.5 years
    
3.13
    
—
  
$0.15 to $4.25
    
11,659,500
    
6.2 years
  
$
0.57
  
$
5,045,250
  

   
Options Exercisable
  
Range of
Exercise Prices
    
Number
Outstanding
    
Weighted
Remaining
Contractual
Life
    
Weighted
Average
Exercise
Price
    
Aggregate Intrinsic Value (1)
$0.15 to $0.43
    
3,575,000
    
8.0 years
  
$
0.30
  
$
3,043,750
  
$0.56 to $1.02
    
1,806,000
    
4.5 years
    
0.62
    
649,500
  
$2.75 to $4.25
    
78,500
    
1.5 years
    
3.13
    
—
  
$0.15 to $4.25
    
5,459,500
    
5.0 years
  
$
0.45
  
$
3,693,250
  

(1) The aggregate intrinsic value in the table represents the difference between the closing stock price on June 30, 2007 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 June 30, 2007. The total intrinsic value of options exercised during the six months ended June 30, 2007 and 2006 was zero as no options were exercised during the periods.
 
NOTE 15 - STOCK WARRANTS

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. No warrant grants were made during the six months ended June 30, 2007.

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

 
 
  
 
Number
  
Weighted Average
Exercise Price
  
Range of
Exercise Price
  
               
Outstanding at December 31, 2006
    
29,578,833
  
$
0.56
  
 
$0.12 - $7.15
  
Granted
    
—
    
—
    
— - —
  
Cancelled or expired
    
(935,060
)
  
1.21
    
0.83 - 1.25
  
Exercised
    
(9,142,500
)
  
0.16
    
0.09125 - 0.75
  
Outstanding at June 30, 2007
    
19,501,273
  
$
0.70
  
 
$0.12 - $7.15
  
                     
Warrants exercisable at June 30, 2007
    
19,501,273
  
$
0.70
  
 
$0.12 - $7.15
  
 
17

NOTE 16 - INCOME TAXES

The Company adopted the provisions of FASB Interpretation No 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Based on our evaluation, we have concluded that there are no significant unrecognized tax benefits. Our evaluation was performed for the tax years ended December 31, 2003, 2004, 2005, and 2006, the tax years that remain subject to examination by major tax jurisdictions as of June 30, 2007. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months.
 
We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In accordance with FIN 48, paragraph 19, the Company has decided to classify interest and penalties as a component of income tax expense.
 
NOTE 17 - SUBSEQUENT EVENTS

On July 9, 2007, we sold China Gold an additional note under the Purchase Agreement in the principal amount of $800,000 (“Note 4”). Note 4 bears interest at a rate of 8.25% per annum, and is convertible at the option of China Gold into shares of our common stock at a conversion price of $1.00 per share, subject to anti-dilutive adjustments. Additionally, the outstanding balance on Note 4 is subject to automatic conversion in the event we complete the proposed merger transaction with Easyknit. Note 4 is payable in full at the earlier of maturity or at such time that we and our subsidiaries receive financing in the aggregate of amount of at least $50,000,000 from a third party. The maturity date of Note 4 is October 7, 2007, but may be extended upon our request for additional periods of thirty (30) days, but in no event later than December 31, 2007, provided that at the time of each such extension we and Easyknit have not terminated their proposed merger. In the event the merger is terminated after October 7, 2007, our obligations under Note 4 shall become due and payable upon the expiration of fifteen (15) days following demand of China Gold. We have also provided China Gold demand and piggyback registration rights relating to the resale of the shares of common stock issuable upon conversion of Note 4.

Acquisition of China Global Mining Resources Limited

On July 27, 2007, we entered into a Sale and Shares and Claims Agreement with SSC Mandarin Group Limited (“SSC Mandarin Group”) and China Global Mining Resources Limited, a company incorporated under the laws of the British Virgin Islands (“CGMR”), pursuant to which we acquired from SSC Mandarin Group 100% of the equity interest in CGMR for a purchase price of $10,000 Hong Kong dollars (approximately US$1,300), which was paid on August 1, 2007. Prior to this acquisition, the Company had loaned an aggregate of approximately US$8 million to CGMR for the purpose of investments and financings used toward various mining properties which are referenced below. William Green, our President of Asia Operations, also serves as the President of CGMR. On July 27, 2007, pursuant to a Sale and Shares and Claims Agreement with SSC Mandarin Group and China Global Mining Resources Limited, a company incorporated under the laws of Hong Kong (“China Global HK”), we also acquired from SSC Mandarin Group a 100% equity interest in China Global HK for HK$10,000, which was paid on August 1, 2007. China Global HK is currently a shell corporation, incorporated mainly for the purpose of retaining the rights to use the name “China Global Mining Resources” in Hong Kong.

CGMR holds rights to acquire interests in various nickel, gold and iron ore mining properties located in the People’s Republic of China (the “PRC”). CGMR has entered into a Joint Venture Agreement with Shaanxi Hua Ze Nickel Smelting Co. (“Shaanxi Hua Ze”) dated April 14, 2007, as supplemented on June 6, 2007, providing for a joint venture relating to the Xing Wang Mine, a nickel mine located in the Qinghai province of the PRC. Pursuant to the agreement, CGMR would be required to provide approximately 425 million Chinese Renminbi, or RMB, (approximately US$52 million) to the joint venture, to be used for the development and improvement of the mining property and production facility and other purposes, in exchange for 40% of the interest in the joint venture. CGMR would also have an obligation to provide an additional 155 million RMB (approximately $19 million) to the joint venture in the event the joint venture secures rights to property with an additional 200,000 tonnes of nickel. Finally, CGMR would have the right to acquire an additional 40% interest in the joint venture for an additional contribution of approximately 580 million RMB (approximately US$71 million). CGMR has entered into a supply agreement with Shaanxi Hua Ze to purchase forty tonnes of nickel for approximately $2 million, which serves as a prepayment of contribution to the joint venture. CGMRs obligations under the Joint Venture Agreement are subject to the receipt of certain government approvals and CGMR’s completion of, and satisfaction with, due diligence.
 
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CGMR also holds a right to acquire 100% of Nanjing Sudan Mining Co. Ltd. (which holds a processing plant), two iron ore mining properties located in the Anhui province of the PRC (Maanshan Zhaoyuan Mining Co. Ltd. and Xiaonanshan Mining Co., Ltd.), and related assets. The final purchase price is dependent upon proven tonnage of these mines. CGMR has advanced an aggregate of $5 million to the sellers to date. The consummation of the transaction is subject to the completion of definitive agreements, receipt of various governmental approvals, the completion of due diligence, and satisfaction of certain indicated iron ore reserve requirements, among other conditions. Additionally, in the event the transaction is consummated, CGMR will be required to enter into an eight-year management services contract with one of the sellers. The amounts advanced to the sellers to date, and the payment obligations under the management services contract, may be applied by CGMR against the purchase price.

CGMR holds a right to acquire a 95% equity interest in Yun County Changjiang Mining Company Limited (“Changjiang”), which holds licenses to explore for iron ore in the Hubei province of the PRC, for an aggregate of $57 million to be paid in cash and stock. CGMR is required to arrange for a loan to Changjiang in the amount of $10 million, secured by the capital stock of Changjiang. Additionally, in the event CGMR and Changjiang enter into an exclusive supply agreement relating to the purchase by CGMR of iron ore from Changjiang, CGMR will also be required to arrange for an additional loan to Changjiang, the amount of such loan to be determined based on the reserves of iron ore located on the related mining properties. The consummation of the transaction is subject to the completion of definitive agreements, receipt of various governmental approvals, the completion of due diligence, and satisfaction of certain indicated iron ore reserve requirements, among other conditions. Additionally, in the event the transaction is consummated, CGMR will be required to enter into an eight-year management services contract with one of the sellers.

Acquisition of interest in SSC Mandarin Africa (Proprietary) Limited

On July 27, 2007, we also entered into a Sale of Shares and Claims Agreement with SSC Mandarin Financial Services Limited (“SSC Mandarin Financial”) and SSC Mandarin Africa (Proprietary) Limited, a company incorporated under the laws of the Republic of South Africa (“Mandarin Africa”), pursuant to which we acquired from SSC Mandarin Financial a 40% equity interest in SSC Mandarin Africa for a purchase price of US$400,000. Mandarin Africa’s only current asset is a two-year contract with Kumba Iron Ore, an affiliate of Anglo-American, dated August 4, 2006, whereby Mandarin Africa will introduce Kumba to iron ore mining projects located in the PRC. Norman D. Lowenthal, a director of ours, served as Chairman of SSC Mandarin Financial until June 2007.

 Acquisition of Option to acquire interest in SSC-Sino Gold Consulting Co. Limited

On July 27, 2007, we entered into an Option Agreement with SSC Mandarin Financial and SSC-Sino Gold Consulting Co. Limited, a company incorporated under the laws of the PRC (“SSC-Sino Gold”), pursuant to which we acquired, for US$100,000, a three-year option to purchase a 60% equity interest in SSC-Sino Gold for an exercise price of US$5,000,000. SSC-Sino Gold holds rights to acquire an 80% interest in Tongguan Taizhou Gold Mining Co., Ltd., which holds licenses relating to a gold mine located in the Shaanxi province of the PRC, for 320 million RMB (approximately US$39 million), payable in a combination of cash and stock. SSC-Sino Gold is obligated to arrange for a loan to Tongguan Taizhou in the amount of 120 million RMB (approximately US$15 million), subject to completion of a feasibility report relating to the mining property. The consummation of the transaction is subject to the completion of definitive agreements, receipt of various governmental approvals, the completion of due diligence, and satisfaction of certain indicated iron ore reserve requirements and an increase in production of ore material, among other conditions. Additionally, in the event the transaction is consummated, SSC-Sino Gold will be required to enter into an eight-year management services contract with the seller. In addition to the option price of $100,000, we have agreed to guaranty up to an aggregate of $2 million loaned to SSC-Sino Gold by William Green, our President of Asia Operations, and Andrew Green, a significant shareholder of ours and the brother of William Green. The proceeds of the loan are to be used for the expansion of exploration and mining rights on property adjacent to the mining property.
 
NOTE 18 - EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, FAIR VALUE MEASUREMENTS (“SFAS No. 157”). This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information to develop those assumptions. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this statement. We believe the adoption of SFAS No. 157 will not have a material impact on our consolidated financial position or results of operations.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We believe the adoption of SFAS No. 159 will not have a material impact on our consolidated financial position or results of operations.
 
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WITS BASIN PRECIOUS MINERALS INC.
(AN EXPLORATION STAGE COMPANY)
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

The following management’s discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the Company’s Form 10-KSB for the fiscal year ended December 31, 2006.

OVERVIEW

We are a minerals exploration and development company based in Minneapolis, Minnesota. As of June 30, 2007, we hold interests in mineral exploration projects in Colorado (Bates-Hunter Mine), Mexico (Vianey), South Africa (FSC) and two immaterial projects in Canada. The following is a summary of our current projects:

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 in Central City, Colorado, the Golden Gilpin Mill located in Black Hawk, Colorado and the associated real and personal property assets. On March 1, 2007, we executed an amendment to the asset purchase agreement, whereby the Golden Gilpin Mill and adjacent real property were removed from the transaction. On May 31, 2007, we executed a further amendment to the asset purchase agreement, whereby the closing of the transaction contemplated by the asset purchase agreement has been extended to March 31, 2008, or sooner should we complete our due diligence. 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, which would require us to provide an additional $400,000 to Journey by September 30, 2007. 

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 that have been conducted are adjacent to the historic Witwatersrand Basin. The last completed drill hole on this property occurred in 2005. Kwagga is a subsidiary of AfriOre International (Barbados) Limited, a corporation formed under the laws of Barbados. On February 16, 2007, Lonmin Plc announced that it acquired all of the equity interest of AfriOre. Lonmin Plc is a primary producer of Platinum Group Metals (PGMs) with its headquarters in London. We are currently in negotiations with Lonmin to revise our current agreement in order to continue with the FSC Project.

As of June 30, 2007, 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.

In the future, we will continue to seek new areas for exploration and the rights that would allow us to be either owners or participants. These rights may take the form of direct ownership of mineral exploration or, like our interest in Kwagga, these rights may take the form of ownership interests in entities holding exploration rights. Furthermore, although our main focus is in gold exploration projects, future projects may involve other minerals.
 
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Our principal office is located at 900 IDS Center, 80 South Eighth Street, Minneapolis, Minnesota 55402-8773. Our telephone number is (612) 349-5277 and our Internet address is www.witsbasin.com. Our securities trade on the Over-the-Counter Bulletin Board under the symbol “WITM.”

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2006.

Revenues

We had no revenues from continuing operations for the three and six months ended June 30, 2007 and 2006. Furthermore, we do not anticipate having any future revenues until an economic mineral deposit is discovered or unless we make further acquisitions or complete other mergers or joint ventures with business models that produce such results.

Operating Expenses

General and administrative expenses were $1,719,750 for the three months ended June 30, 2007 as compared to $1,016,680 for the same period in 2006. General and administrative expenses were $2,773,702 for the six months ended June 30, 2007 as compared to $2,063,712 for the same period in 2006. Of the expenses reported in 2007, the majority related primarily to our direct expenses relating to the Easyknit merger, the acquisition of China mining projects and consulting fees, which included direct mailing and emailing campaigns, minerals trade publications, research analysts, public relations, luncheons and special invite events and improvements to our website. Of the expenses reported in 2006, the majority related primarily to our marketing programs and consulting fees. We anticipate the future marketing dollar expenditures will decrease for the remainder of fiscal 2007.

Exploration expenses were $552,503 for the three months ended June 30, 2007 as compared to $429,585 for the same period in 2006. Exploration expenses were $1,276,121 for the six months ended June 30, 2007 as compared to $657,775 for the same period in 2006. Exploration expenses for 2007 relate to the expenditures of the Bates-Hunter Mine and Vianey projects. We anticipate the rate of spending for the remaining fiscal 2007 exploration expenses will increase due to the additional drill rigs at the Bates-Hunter Mine and our due diligence exploratory work continuing at Vianey. Exploration expenses for 2006 related to the expenditures being reported by Kwagga at the FSC Project and the Bates-Hunter Mine project.

Depreciation and amortization expenses were $4,127 for the three months ended June 30, 2007 as compared to $10,455 for the same period in 2006. Depreciation and amortization expenses were $7,796 for the six months ended June 30, 2007 as compared to $13,976 for the same period in 2006. Related to our due diligence process at the Bates-Hunter Mine, we have made certain purchases of equipment ($115,522) necessary to operate and de-water the property. Depreciation of these purchases is calculated on a straight-line method.
 
Other Income and Expense

Other income and expense consists of interest income, interest expense and other expense. Interest income for the three months ended June 30, 2007 was $731 compared to $3,901 for the same period in 2006. Interest income for the six months ended June 30, 2007 was $3,447 compared to $3,901 for the same period in 2006. Interest expense for the three months ended June 30, 2007 was $118,687 compared to $821,046 for the same period in 2006. Interest expense for the six months ended June 30, 2007 was $334,583 compared to $1,495,082 for the same period in 2006. The 2007 and 2006 interest expense relates to promissory notes payable. With the possible acquisition of mining properties in the People’s Republic of China (the “PRC”), we anticipate that interest expense may increase in fiscal 2007, if any such acquisitions occur.
 
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Liquidity and Capital Resources

Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual and operating needs as they arise. We have funded our operations and satisfied our capital requirements primarily through the sale of our business assets and the sale of securities. We do not generate sufficient net positive cash flows from our operations to fund the next twelve months. For the six months ended June 30, 2007 and 2006, we had net cash used in operating activities of $3,477,251 and $1,518,885, respectively.
 
We had working capital deficits of $8,631,333 at June 30, 2007, compared to $40,333 at December 31, 2006. Cash and equivalents were $293,338 at June 30, 2007, representing an increase of $207,428 from the cash and equivalents of $85,910 at December 31, 2006.

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. On March 1, 2007, we executed an amendment to the asset purchase agreement, whereby the Golden Gilpin Mill and adjacent real property were removed from the transaction. On May 31, 2007, we executed a further amendment to the asset purchase agreement, whereby the closing of the transaction contemplated by the asset purchase agreement has been extended to March 31, 2008, or sooner should we complete our due diligence. If a formal closing occurs, we shall deliver to the Sellers (i) the sum of $250,000 Canadian Dollars (or approximately $225,000 US as of March 31, 2007), (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 $0.01 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) warrants to purchase up to 1,100,000 shares of our common stock, at an exercise price of $0.75 per share; (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 to an unrelated third party.

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 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. Prior to 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 acquire a number of shares of our common stock, at a price per share of $0.20, equal to the maximum amount of principal drawn against their respective promissory notes divided by $0.20. 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 (Pacific Dawn Capital and Andrew Green, each as discussed below) upon their execution of standby joint venture financing agreements, each of which contemplates participation in joint venture or financing arrangements by such holder 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.
 
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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 priced from $5.50 to $0.75 per share) to $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.

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 a Loan Agreement entered into with Pacific Dawn Capital, and related promissory note issued to Pacific Dawn, Pacific Dawn had the right to purchase, at a price per share of $0.20, a number of shares of our common stock equal to the maximum principal amount drawn against the promissory note divided by $0.20. Of the available right to purchase option of 2,000,000 shares, Pacific Dawn purchased 1,000,000 shares of common stock in December 2006. Pacific Dawn paid $120,000 of the exercise price in December 2006 and the remaining $80,000 in January 2007. In consideration of Pacific Dawn’s agreement to exercise its right to purchase 1,000,000 shares of common stock, we agreed to extend its right to purchase option relating to the other 1,000,000 shares from March 31, 2007 to December 31, 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.

In January 2007, Relevant Marketing, a consultant, acquired 300,000 shares of common stock pursuant to its exercise of a stock purchase warrant, issued in April 2005, to purchase shares at an original exercise price of $0.50 per share, but which was subsequently re-priced to $0.15 per share. Relevant Marketing paid $15,000 of the aggregate $45,000 exercise price in March 2007. We have released 100,000 of the shares, and are holding the remaining 200,000 shares as collateral until the remaining $30,000 is paid. Relevant Marketing employs Deb Kramer, the spouse of our CEO, Stephen D. King.
 
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On February 23, 2007, in consideration of a $700,000 loan to the Company from Andrew Green, a significant shareholder of the Company, the Company issued a promissory note in the principal amount of $700,000 to Mr. Green. The promissory note had a maturity date of March 31, 2007, and bore interest at a rate of 6% per annum. The promissory note was paid in full by March 29, 2007 along with the accrued interest of $3,912. Under the terms of the promissory note, and as additional consideration for the loan, the Company reduced the exercise price of certain warrants to purchase an aggregate of 3,550,000 shares of our common stock from $0.12 to $0.09125 and extended the expiration date of an outstanding right to purchase up to 3,000,000 shares of the Company’s common stock at a price per share of $0.20 from March 31, 2007 to December 31, 2007.

In January 2007, Mr. Green exercised 1,250,000 stock purchase warrants with an exercise price of $0.12 per share and received 1,250,000 shares of common stock and we received $150,000 in proceeds. Then in March 2007, he exercised his remaining outstanding warrants to purchase 3,550,000 shares of the Company’s common stock, with the reduced exercise price of $0.09125 per share and we received $323,937 in proceeds. During the months of March and June 2007, he exercised his right-to-purchase option to purchase 3,000,000 shares of the Company’s common stock at $0.20 per share and we received $600,000 in gross proceeds.

In March 2007, we issued 323,935 shares of our common stock to a consultant, who, pursuant to a cashless exercise clause, surrendered 226,065 of the available shares to pay for the exercise. We previously issued five two-year warrants to the consultant to purchase 550,000 shares of our common stock during fiscal 2005 and 2006, with a range of exercise prices from $0.25 to $0.75 per share.

In March 2007, a consultant exercised a warrant to purchase 100,000 shares of common stock with an exercise price of $0.29 per share. The $29,000 cash exercise amount was paid in April 2007, at which time the shares were delivered to the consultant.

On April 10, 2007, we entered into a Convertible Securities Purchase Agreement with China Gold, LLC, a Kansas limited liability company (“China Gold”), whereby we agreed to offer and sell, and China Gold agreed to purchase, an aggregate of $12,000,000 in convertible secured promissory notes over 12 months, with up to an additional $13,000,000 in convertible secured promissory notes to be issued at the discretion of both parties. Promissory notes issued under the Convertible Securities Purchase Agreement are to have a five-year term, bear interest at a rate of 8.25%, and are convertible at the option of the holder, after the expiration of 120 days from the date of issue, into shares of our common stock at a conversion price of $1.00 per share. The notes are also subject to automatic conversion in certain conditions. On April 10, 2007, we issued and sold the initial promissory note under the Convertible Securities Purchase Agreement in the aggregate amount of $3,000,000. Additionally, on May 7, 2007, we offered and sold to China Gold an additional convertible secured promissory note under the Convertible Securities Purchase Agreement in the aggregate amount of $2,000,000. On June 19, 2007, we entered into an Amendment to Convertible Notes Purchase Agreement with China Gold, whereby the parties amended the terms of the Convertible Notes Purchase Agreement discussed above (as amended, the “Purchase Agreement”) to (a) clarify that the obligations of the parties under the Purchase Agreement to sell and purchase convertible notes under the Purchase Agreement shall terminate at the earlier of (i) April 10, 2008 and (ii) the date of effectiveness of our proposed merger with Easyknit Enterprises Holdings Limited (“Easyknit”), (b) to provide us an opportunity to prepay our obligations under notes issued under the Purchase Agreement, in which case China Gold is entitled to a purchase right to acquire shares of our common stock at equivalent terms to its rights to otherwise convert the notes issued under the Purchase Agreement, and (c) extend certain registration rights of China Gold.

On June 19, 2007, we sold China Gold an additional note under the Purchase Agreement in the principal amount of $4,000,000 (“Note 3”). Note 3 bears interest at a rate of 8.25% per annum, and is convertible at the option of China Gold into shares of our common stock at a conversion price of $1.00 per share, subject to anti-dilutive adjustments. Additionally, the outstanding balance on the Notes is subject to automatic conversion in the event we complete the proposed merger transaction with Easyknit. Note 3 is payable in full at the earlier of maturity or at such time that we and our subsidiaries receive financing in the aggregate of amount of at least $50,000,000 from a third party. The maturity date of Note 3 is September 17, 2007, but may be extended upon our request for additional periods of thirty (30) days, but in no event later than December 31, 2007, provided that at the time of each such extension we and Easyknit have not terminated their proposed merger. In the event the merger is terminated after September 17, 2007, our obligations under Note 3 shall become due and payable upon the expiration of fifteen (15) days following demand of China Gold. We have also provided China Gold demand and piggyback registration rights relating to the resale of the shares of common stock issuable upon conversion of Note 3.
 
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As of June 30, 2007, we have issued an aggregate of $9,000,000 of notes under the Purchase Agreement and have received net proceeds of $8,820,000 pursuant to the issuance of the notes, less $180,000 paid to an affiliate of China Gold in the form of a loan fee. We also agreed to pay $40,000 in accountable expenses of China Gold with respect to notes issued under the Purchase Agreement.

In April 2007, we entered into option agreements to acquire from SSC Mandarin Group Limited (“SSC Mandarin Group”) 100% of the equity interest in two corporations, each of which were shell corporations or had nominal assets at the time: (i) China Global Mining Resources Limited, a British Virgin Islands corporation (“China Global BVI”), for $10,000 HK Dollars, and (ii) China Global Mining Resources Limited, a Hong Kong corporation, for $10,000 HK Dollars. On August 1, 2007, we paid the purchase price of $10,000 Hong Kong dollars (approximately US$1,300) for both entities.

As of June 30, 2007, we loaned an aggregate of $7,295,000 to China Global BVI under 3 secured promissory notes. Each of the promissory notes accrues interest at a rate of 8 percent. Effective with our payment on August 1, 2007, in which we completed our acquisition of China Global BVI, these loans are held in a wholly owned subsidiary of ours.

In April 2007, in consideration of a $625,000 loan from Andrew Green, we issued a promissory note to Mr. Green in the principal amount of $625,000. The promissory note had a maturity date of May 28, 2007, and bore simple interest at a rate of 12% per annum and was repaid in June 2007. We have provided Mr. Green a right of first refusal to acquire 10% of our interest in the option to acquire the equity interest in SSC-Sino Gold.

On April 20, 2007, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Easyknit Enterprises Holdings Limited, a Bermuda corporation with its principal place of business in Hong Kong and listed on the Hong Kong Stock Exchange (SEHK: 0616) (“Easyknit”), and Race Merger, Inc., a Minnesota corporation and wholly owned subsidiary of Easyknit (“Merger Sub”), whereby Merger Sub will merge with and into us, and we will constitute the surviving corporation to the merger and a wholly owned subsidiary of Easyknit following completion of the merger. Pursuant to the merger, our shareholders on a fully diluted basis shall hold approximately 46 percent of the shares of common stock of Easyknit issued and outstanding immediately following the effective time of the merger, on a fully diluted basis (including therein certain proposed share issuances relating to our potential acquisitions). Each of the parties has made and will be required to make at the effective time of the merger standard representations and warranties in the Merger Agreement, and the consummation of the merger is subject to certain conditions, including, without limitation, the completion and satisfaction of due diligence by the parties, the approval of our stockholders, the approval of Easyknit’s stockholders (in accordance with the Hong Kong Stock Exchange Listing Rules, AMEX Listing Rules and certain other rules and regulations), the effectiveness of the registration statement to be filed with the Securities and Exchange Commission and other standard conditions.

On May 21, 2007, the parties to the Merger Agreement entered into Amendment No. 1 to Agreement and Plan of Merger and Reorganization (the “Amendment”), whereby the parties amended the Merger Agreement to, among other things, clarify the terms of the exchange ratio applicable to the merger and to set the break up fee applicable to the Merger Agreement at US$30 million, instead of three percent of the aggregate merger consideration. The Amendment further identifies an additional member of Easyknit’s board of directors.

This disclosure regarding the merger is issued pursuant to Rule 135 under the Securities Act of 1933, as amended, and shall not constitute an offer to exchange, sell or purchase or the solicitation of an offer to exchange, sell or purchase any securities. An offer of securities in the United States pursuant to a business combination transaction will only be made through a prospectus which is part of an effective registration statement filed with the Securities and Exchange Commission (the “SEC”). In connection with the proposed merger of Wits Basin and Easyknit, Easyknit will file a registration statement on Form F-4, which will include a proxy statement of Wits Basin that also constitutes a prospectus of Easyknit, and other documents with the SEC. Such registration statement, however, is not currently available. SHAREHOLDERS OF WITS BASIN ARE URGED TO READ THE DEFINITIVE REGISTRATION STATEMENT ON FORM F-4 AND OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC, INCLUDING THE DEFINITIVE PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE DEFINITIVE REGISTRATION STATEMENT ON FORM F-4, WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The final proxy statement/prospectus will be mailed to shareholders of Wits Basin. Investors and security holders will be able to obtain a free copy of the proxy statement/prospectus, as well as other filings containing relevant information about Wits Basin and Easyknit without charge, at the SEC’s website (http://www.sec.gov) once such documents are filed with the SEC. Copies of the proxy statement/prospectus will also be available, without charge, once they are filed with the SEC by directing a request to the Company.
 
25
 
Easyknit and Wits Basin, and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Wits Basin’s shareholders with respect to the proposed merger. Information about Easyknit’s directors and executive officers will be available in Wits Basin’s proxy statement to be filed with the SEC as referenced above. Information about Wits Basin’s directors and officers will be available in Wits Basin’s proxy statement to be filed with the SEC as referenced above, and is currently available in Wits Basin’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 filed with the SEC on April 16, 2007 and other public filings with the SEC made by Wits Basin. Other information about the participants in the proxy solicitation and a description of their direct and indirect interests (by security holdings or otherwise) will be contained in the proxy statement and other relevant materials after they are filed with the SEC

In May 2007, a shareholder exercised his Class C Redeemable warrant to purchase 62,500 shares of common stock with an exercise price of $0.50 per share and we received $31,250.

In June 2007, we issued 75,025 shares of our common stock to a consultant, who, pursuant to a cashless exercise clause, surrendered 100,000 of the available shares to pay for the exercise.

During the six months ended June 30, 2007, a total of six warrant holders exercised on an aggregate of 3,230,000 stock purchase warrants with exercise prices ranging from $0.12 to $0.40 per share and received 3,230,000 shares of common stock. We received $653,600 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 report, we have estimated our cash needs over the next twelve months, relating to our general and administrative needs along with the exploration expenses for the Bates-Hunter Mine, Vianey and FSC Project, to be approximately $4,400,000 (to include $1,000,000 for the Bates-Hunter Mine, $400,000 for Vianey and $1,500,000 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.


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

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

RISKS RELATING TO OUR FINANCIAL CONDITION

WE CURRENTLY DO NOT HAVE ENOUGH CASH TO FUND OPERATIONS DURING 2007.

As of August 10, 2007, we had only approximately $320,000 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 will 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 would require 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 MINIMAL 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 June 30, 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 two immaterial projects in Canada. 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 June 30, 2007, we have incurred an aggregate net loss of $32,885,184. We expect operating losses to continue for the foreseeable future and may never be able to operate profitably.

OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS 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 June 30, 2007. 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.
 
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FOREIGN CURRENCY EXCHANGE RATES.

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.

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

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

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

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

In general, the Objectives are embodied in the broad-based socio-economic empowerment charter which was signed by the DME, the South African Chamber of Mines and others on October 11, 2002 (the “Charter”), and which was followed on February 18, 2003 by the release of the appendix to the Charter known as the Scorecard. The Charter and Scorecard has since been published for information during August 2004. The Charter is based on seven key principles, two of which are focused on ownership targets for historically disadvantaged South Africans (“HDSAs”) and beneficiation, and five of which are operationally oriented and cover areas focused on improving conditions for HDSAs.
 
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.
 
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DUE TO LEGISLATION ENACTED IN SOUTH AFRICA, KWAGGA WILL BE REQUIRED TO SELL A SUBSTANTIAL AMOUNT OF ITS STOCK, WHICH WOULD DILUTE OUR EQUITY POSITION IN KWAGGA.

In accordance with the Broad-Based Socio-Economic Empowerment Charter for the South African mining industry, Kwagga will offer up to 28 percent of its capital stock at fair market value to a HDSA investor group. Any investment by such a group will dilute our ownership of Kwagga and, accordingly, the right to receive profits generated from the FSC Project, if any.

WE ARE SUBSTANTIALLY DEPENDENT UPON OUR OFFICERS AND DIRECTORS.

We are substantially dependent on the expertise and industry knowledge of certain of our officers and directors: H. Vance White, the Chairman of our Board of Directors, Norman D. Lowenthal, a director, and Dr. Clyde Smith, our President. The loss of their respective services could have an adverse effect on us and we do not currently have key person insurance with respect to these individuals.

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 Uranium Inc. (f/k/a Hawk Precious Minerals Inc.) a junior exploration company and a partner in Brooks & White Associates, an unincorporated Canadian partnership that provides management, financial and investor relations services to junior mineral resource exploration companies. Additionally, until June 2007, 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.

WE DO NOT BELIEVE THAT WE HAVE ANY INDEPENDENT DIRECTORS.

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.

OUR SUCCESS IN CONNECTION WITH THE FSC PROJECT IS SUBSTANTIALLY DEPENDENT ON THE PROJECT’S OPERATOR.

We will be relying heavily on the ability of AfriOre, the FSC Project operator, to make prudent use of all future funds in connection with the exploration of the FSC Project. If AfriOre does not use these funds wisely, we may not realize any return on our investment. We also depend on AfriOre to obtain and maintain various governmental licenses and permits necessary to explore and develop the properties. The failure to obtain and maintain such licenses and permits may cause significant delays in exploring and developing the properties, or even may prevent the completion of any of these activities altogether. AfriOre was recently acquired by Lonmin PLC. We have been in negotiations with Lonmin with respect to its intensions as to the FSC Project.

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.
 
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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 GOLD PRICES.

The profitability of a gold exploration project could be significantly affected by changes in the market price of gold. Mine production and the willingness of third parties such as central banks to sell or lease gold affects the supply of gold. Demand for gold can be influenced by economic conditions, attractiveness as an investment vehicle and the relative strength of the US Dollar and local investment currencies. Other factors include the level of interest rates, exchange rates, inflation and political stability. The aggregate effect of these factors is impossible to predict with accuracy. Worldwide production levels also affect gold prices. In addition, the price of gold has on occasion been subject to very rapid short-term changes due to speculative activities. Fluctuations in gold prices may adversely affect the value of any discoveries made at the sites with which we are involved.

THE NATURE OF MINERAL EXPLORATION IS INHERENTLY RISKY.

The exploration for and development of mineral deposits involves significant financial risks, which even experience and knowledge may not eliminate, regardless of the amount of careful evaluation applied to the process. Very few properties are ultimately developed into producing mines. Whether a gold deposit will be commercially viable depends on a number of factors, including:

·  
financing costs;
   
·  
proximity to infrastructure;
   
·  
the particular attributes of the deposit, such as its size and grade; and
   
·  
governmental regulations, including regulations relating to prices, taxes, royalties, infrastructure, land use, importing and exporting of gold and environmental protection.

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

MINERAL EXPLORATION IS EXTREMELY COMPETITIVE.

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

OUR PROPOSED MERGER TRANSACTION IS SUBJECT TO A NUMBER OF CONDITIONS, AND MAY NOT BE CONSUMMATED AS CURRENTLY PLANNED, OR AT ALL.

The consummation of our merger transaction with Easyknit Enterprises Holdings Limited remains subject to the satisfaction of a number of conditions, including, without limitation, the completion and satisfaction of due diligence, the approval of our shareholders, the approval of Easyknit’s stockholders (in accordance with the Hong Kong Stock Exchange Listing Rules, AMEX Listing Rules and certain other rules and regulations), the effectiveness of the registration statement to be filed with the SEC and other standard conditions. There can be no assurance that all of these conditions will be satisfied or waived by the parties, and that we and Easyknit will consummate the merger at the current terms specified in the merger agreement, or at all. In the event the merger agreement is terminated or the transaction is otherwise not consummated, it is likely we will be unable to recover any costs and expenses relating to this transaction. Furthermore, in the event we terminate the merger agreement and certain other conditions are satisfied with respect to our negotiation and entry into another significant competing transaction as set forth in our merger agreement, we may be required to pay a break up fee of up to $30 million.

OUR ACQUISITION OF RIGHTS TO VARIOUS MINING PROPERTIES WILL REQUIRE SUBSTANTIAL ADDITIONAL INVESTMENT, ALL OF WHICH MIGHT BE LOST IN THE EVENT WE ARE UNABLE TO CONTINUE FUNDING SUCH INVESTMENT.

We have, either directly or through acquired subsidiaries, entered into a number of agreements to acquire equity or other rights in various mining properties located in China. The consummation of each of these various transactions is subject to a number of conditions, including without limitation, our completion and satisfaction of due diligence, the receipt of various governmental approvals, and in some cases the satisfaction of certain indicated metal reserve requirements and the completion of definitive agreements, among other conditions. In the event we pursue these transactions, each will require significant additional investment to further their respective mining operations. In the event we are unable to obtain additional financing to complete each of these transactions, through either debt or equity financing or otherwise, we may lose our ability to obtain rights in the respective mining properties and may lose any investment previously made into these respective properties.
 
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Item 3. Controls and Procedures

Under the supervision of, and the participation of, our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-QSB to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation and taking into account the lack of segregation of duties noted below, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Since the Company does not have a formal audit committee, its Board of Directors oversees the responsibilities of the audit committee. The Board is fully aware that there is lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, the Board has determined that considering the employees involved and the control procedures in place, risks associated with such lack of segregation are insignificant and the potential benefits of adding employees to clearly segregate duties does not justify the expenses associated with such increases at this time.

During the period covered by this report, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting subsequent to such evaluation.
 
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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Kenneth Swaisland, an individual who previously assigned us certain rights relating to the Bates-Hunter Mine, has indicated to us his frustration with our delay in closing the purchase of the Bates-Hunter Mine property as well as certain issues concerning the development of the property.  Effective August 1, 2007, we executed an agreement with Mr. Swaisland, whereby he irrevocably and unconditionally releases and forever discharges the Company and the sellers of the Bates-Hunter Mine, of and from any and all claims, obligations, causes of action, demands, damages, compensation and expenses of any kind or nature, known or unknown, that he has or may have against the Company or the sellers of the Bates-Hunter Mine for setting the price of the warrant to be issued should the Company complete the acquisition of the Bates-Hunter Mine at $0.75 per share.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In May 2007, we issued 62,500 shares of common stock to an investor upon exercise of an outstanding warrant at $0.50 per share.

In May 2007, we issued 1,200,000 shares of common stock to William Green, our President of Asia Operations, upon his exercise of a warrant at $0.12 per share.

In June 2007, we issued Andrew Green 1,550,000 shares of our common stock upon his exercise of a right-to-purchase option of our common stock at $0.20 per share.

In June 2007, we issued 75,025 shares of our common stock to a consultant, who, pursuant to a cashless exercise clause, surrendered 100,000 of the available shares to pay for the exercise of stock purchase warrant.

On April 10, 2007, we entered into a Convertible Securities Purchase Agreement with China Gold, LLC, a Kansas limited liability company (“China Gold”), whereby we agreed to offer and sell, and China Gold agreed to purchase, an aggregate of $12,000,000 in convertible secured promissory notes over 12 months. As of June 30, 2007, we have sold an aggregate of $9,000,000 in convertible secured promissory notes to China Gold, and have received net proceeds of $8,820,000 pursuant to the sale of the notes, less $180,000 paid to an affiliate of China Gold in the form of a loan fee. We have reserved 9,000,000 shares of our common stock, at a conversion price of $1.00 per share, related to the Purchase Agreement with China Gold, convertible at the option of China Gold. Neither the securities offered and sold pursuant to the Purchase Agreement nor the shares of common stock underlying such securities were registered under the Securities Act, and therefore may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Registrant offered and sold the above-referenced securities in reliance on the statutory exemption from registration in Section 4(2) of the Securities Act, and on Rule 506 promulgated thereunder. The Registrant relied on this exemption and/or the safe harbor rule thereunder based on the fact that (i) the purchaser had knowledge and experience in financial and business matters such that it was capable of evaluating the risks of the investment, and (ii) the Registrant has obtained representations from the purchaser indicating that it was an accredited investor and purchasing for investment only.
 
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Item 6. Exhibits

Exhibit
  
Description
10.1
  
Convertible Notes Purchase Agreement dated April 10, 2007 by and between Wits Basin Precious Minerals Inc. and China Gold, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 16, 2007).
     
10.2
  
Amendment to Convertible Notes Purchase Agreement, dated June 19, 2007, by and between Wits Basin Precious Minerals Inc. and China Gold, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 25, 2007).
     
10.3
  
Form of Secured Convertible Note of Wits Basin Precious Minerals Inc. to be issued pursuant to Convertible Notes Purchase Agreement dated April 10, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 16, 2007).
     
10.4
  
Form of Secured Convertible Note #3 dated June 19, 2007 issued to China Gold, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 25, 2007).
     
10.5
  
Pledge Agreement dated April 10, 2007 by and between Wits Basin Precious Minerals Inc. and China Gold, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 16, 2007).
     
10.6
  
Guaranty of Wits-China Acquisition Corp. dated April 10, 2007 in favor of China Gold, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 16, 2007).
     
10.7
  
Agreement and Plan of Merger and Reorganization dated April 20, 2007 by and among Wits Basin Precious Minerals Inc., Easyknit Enterprises Holdings Limited and Race Merger, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 26, 2007).
     
10.8
  
Amendment #1 to Agreement and Plan of Merger and Reorganization dated May 21, 2007 by and among Wits Basin Precious Minerals Inc., Easyknit Enterprises Holdings Limited and Race Merger, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 25, 2007)
     
10.9
  
Security Agreement dated June 19, 2007 by and between Wits Basin Precious Minerals Inc. and China Gold, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 25, 2007).
     
31.1**
  
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2**
  
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1**
  
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2**
  
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
** Filed herewith electronically
 
35

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     
  WITS BASIN PRECIOUS MINERALS INC.
 
 		  
 		  
 
Date: August 14, 2007  By:   /s/ Stephen D. King 
 
Stephen D. King
Chief Executive Officer
 
     
By:   /s/Mark D. Dacko 
 
Mark D. Dacko
Chief Financial Officer
 
36
 
 EX-31.1 2 v084395_ex31-1.htm
EXHIBIT 31.1

CERTIFICATION

I, Stephen D. King, certify that:

1. I have reviewed this report on Form 10-QSB of Wits Basin Precious Minerals Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
     
 
 		  
 		  
 
Dated: August 14, 2007 By:   /s/ Stephen D. King
 
Stephen D. King
   Chief Executive Officer
Wits Basin Precious Minerals Inc.

 
 EX-31.2 3 v084395_ex31-2.htm
       
EXHIBIT 31.2
CERTIFICATION

I, Mark D. Dacko, certify that:

1. I have reviewed this report on Form 10-QSB of Wits Basin Precious Minerals Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
     
 
 		  
 		  
 
Dated: August 14, 2007 By:   /s/ Mark D. Dacko
 
Mark D. Dacko
 
Chief Financial Officer  
Wits Basin Precious Minerals Inc.   
 
 
 
 
 EX-32.1 4 v084395_ex32-1.htm
EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the report of Wits Basin Precious Minerals Inc. (the “Company”) on Form 10-QSB for the quarter ending June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen D. King, the Chief Executive Officer of the Company, hereby certifies, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
 
 		  
 		  
 
Dated: August 14, 2007 By:   /s/ Stephen D. King
 
Stephen D. King
Chief Executive Officer


 
 
 
 
 EX-32.2 5 v084395_ex32-2.htm
EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the report of Wits Basin Precious Minerals Inc. (the “Company”) on Form 10-QSB for the quarter ending June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark D. Dacko, the Chief Financial Officer of the Company, hereby certifies, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
 
 		  
 		  
 
Dated: August 14, 2007 By:   /s/ Mark D. Dacko
 
Mark D. Dacko
  Chief Financial Officer   
 
 
 
 
 
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