Unassociated Document

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PART I	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements	4

	Condensed Consolidated Balance Sheets -
	As of September 30, 2007 and December 31, 2006	4

	Condensed Consolidated Statements of Operations -
	For the three months and nine months ended
	September 30, 2007 and September 30, 2006	5

	Condensed Consolidated Statements of Cash Flows -
	For the nine months ended
	September 30, 2007 and September 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	23

Item 3.	Controls and Procedures	36

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 4.	Submission of Matter to a Vote of Security Holders	39

Item 6.	Exhibits	40

	Signatures	41

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.

	September 30,			December 31,
	2007			2006
ASSETS
CURRENT ASSETS:
Cash and equivalents	$	126,414		$	85,910
Receivable		22,388			10,323
Investment - marketable securities		—			21,241
Prepaid expenses		420,380			53,815
Total current assets		569,182			171,289

PROPERTY AND EQUIPMENT, net		77,333			80,087
ADVANCE PAYMENTS ON EQUITY INVESTMENTS		7,795,000			—
DEBT ISSUANCE COSTS		25,082			—
	$	8,466,597		$	251,376

LIABILITIES and SHAREHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Convertible notes payable, net of original issue discount	$	9,707,412		$	—
Notes payable; net of original issue discount		135,921			—
Accounts payable		139,828			68,622
Accrued expenses		952,822			143,000
Total current liabilities		10,935,983			211,622

COMMITMENTS and CONTINGENCIES

SHAREHOLDERS’ EQUITY (DEFICIT):
Common stock, $.01 par value, 300,000,000 shares
authorized; 107,639,199 and 94,747,739 shares issued
and outstanding at September 30, 2007 and December 31, 2006, respectively		1,076,392			947,477
Additional paid-in capital		49,847,683			42,954,263
Stock subscriptions receivable		(30,000	)		(932,600	)
Warrants		4,653,870			7,515,487
Accumulated deficit		(22,932,460	)		(22,932,460	)
Deficit accumulated during exploration stage, subsequent
to April 30, 2003		(35,084,871	)		(27,509,595	)
Accumulated other comprehensive loss		—			(2,818	)
Total shareholders’ equity (deficit)		(2,469,386	)		39,754
	$	8,466,597		$	251,376

	Three Months Ended Sept. 30,						Nine Months Ended Sept. 30,						May 1, 2003 (inception) to Sept. 30,
	2007			2006			2007			2006			2007
Revenues	$	—		$	—		$	—		$	—		$	—

Operating Expenses:
General and administrative		1,256,998			1,589,776			4,030,700			3,653,488			15,911,113
Exploration expenses		519,391			592,668			1,795,512			1,173,952			9,405,762
Depreciation and amortization		4,127			3,569			11,923			17,545			472,187
Merger transaction costs		141,025			—			1,127,859			—			1,127,859
Gain on sale of Holdsworth		(47,260	)		—			(47,260	)		—			(47,260	)
Stock issued as penalty		—			—			—			—			2,152,128
Loss on impairment of Kwagga		—			4,484			—			80,975			2,100,000
Loss on sale of Brazmin		—			—			—			—			667,578
Loss on disposal of assets		—			—			—			—			1,633
Total operating expenses		1,874,281			2,190,497			6,918,734			4,925,960			31,791,000
Loss from Operations		(1,874,281	)		(2,190,497	)		(6,918,734	)		(4,925,960	)		(31,791,000	)

Other Income (Expense):
Other income (expense), net		66,265			19,892			69,712			23,793			103,059
Interest expense		(391,671	)		(363,000	)		(726,254	)		(1,858,082	)		(3,662,004	)
Total other expense		(325,406	)		(343,108	)		(656,542	)		(1,834,289	)		(3,558,945	)
Loss from Operations before Income Tax
Benefit and Discontinued Operations		(2,199,687	)		(2,533,605	)		(7,575,276	)		(6,760,249	)		(35,349,945	)
Benefit from Income Taxes		—			—			—			—			243,920
Loss from Continuing Operations		(2,199,687	)		(2,533,605	)		(7,575,276	)		(6,760,249	)		(35,106,025	)

Discontinued Operations
Gain from discontinued operations		—			—			—			—			21,154
Net Loss	$	(2,199,687	)	$	(2,533,605	)	$	(7,575,276	)	$	(6,760,249	)	$	(35,084,871	)

Basic and Diluted Net Loss
Per Common Share:
Continuing operations	$	(0.02	)	$	(0.03	)	$	(0.07	)	$	(0.08	)	$	(0.59	)
Discontinued operations		—			—			—			—			—
Net Loss	$	(0.02	)	$	(0.03	)	$	(0.07	)	$	(0.08	)	$	(0.59	)

Basic and diluted weighted average
outstanding shares		107,156,590			89,460,384			103,231,278			79,575,777			59,415,833

							May 1, 2003
	Nine months ended September 30,						(inception) to
	2007			2006			Sept. 30, 2007
OPERATING ACTIVITIES:
Net loss	$	(7,575,276	)	$	(6,760,249	)	$	(35,084,871	)
Adjustments to reconcile net loss to cash
flows from operating activities:
Depreciation and amortization		11,923			17,545			472,187
Loss (gain) on disposal of assets		(112,840	)		—			(111,207	)
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		—			80,975			2,100,000
Amortization of debt issuance costs		27,814			4,662			166,672
Amortization of original issue discount		391,829			798,889			2,093,110
Amortization of prepaid consulting fees related to issuance of warrants and common stock		484,431			1,933,937			5,048,519
Compensation expense related to stock options		937,677			92,155			1,060,550
Issuance of common stock and warrants for services		27,000			439,524			1,196,522
Contributed services by an executive		—			70,000			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		—			1,084,630			1,173,420
Changes in operating assets and liabilities:
Accounts receivable, net		(12,065	)		(9,453	)		(4,371	)
Prepaid expenses		(35,239	)		(330,864	)		(162,002	)
Accounts payable		71,206			(59,793	)		69,547
Accrued expenses		809,822			46,765			732,235
Net cash used in operating activities		(4,813,718	)		(2,421,631	)		(12,876,547	)

INVESTING ACTIVITIES:
Purchases of property and equipment		(9,169	)		(11,741	)		(115,523	)
Proceeds from sale assets		136,899			—			261,899
Purchases of investments		—			—			(2,244,276	)
Advance payments on equity investments		(7,795,000	)		—			(7,795,000	)
Net cash used in investing activities		(7,667,270	)		(11,741	)		(9,892,900	)

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		780,000			—			5,625,272
Cash proceeds from exercise of stock options		30,000			—			199,900
Cash proceeds from exercise of warrants		2,010,387			3,878,415			6,496,047
Cash proceeds from short-term debt, net of origination fees of $196,000 fees		11,079,000			350,000			12,179,000
Cash proceeds from long-term debt		—			—			650,000
Debt issuance costs		(52,895	)		—			(191,753	)
Net cash provided by financing activities		12,521,492			3,128,415			22,198,821
Increase (Decrease) in Cash and Equivalents		40,504			695,043			(570,626	)
Cash and Equivalents, beginning of period		85,910			117,816			697,040
Cash and Equivalents, end of period	$	126,414		$	812,859		$	126,414

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. The joint venture agreement provided us with the exclusive right and option to acquire up to an additional twenty five percent undivided beneficial interest in the project. The additional twenty five percent interest required us to pay an additional $500,000 to Journey by September 30, 2007 (to be used for exploration work) of which $100,000 was paid in January 2007. We had been in negotiations with Journey regarding an amendment to the joint venture agreement prior to September 30, 2007, and on October 31, 2007, we executed an amendment to the joint venture agreement, whereby we issued 1,600,000 shares of our unregistered common stock to Journey in lieu of the $400,000 payment for funding work expenditures and received our additional twenty five percent interest.

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 would merge with and into us, and we would constitute the surviving corporation to the merger and would have become a wholly owned subsidiary of Easyknit following completion of the merger. On May 21, 2007, the parties entered into Amendment No. 1 to the Merger Agreement, 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, under certain specific conditions, instead of three percent of the aggregate merger consideration. On August 15, 2007, we filed a declaratory judgment action in the District Court in the Fourth Judicial District of the State of Minnesota against Easyknit and Race Merger pursuant to which we were seeking a declaration by the court that (i) we were entitled to terminate the Merger Agreement, in our sole and absolute discretion, (ii) that our due diligence has caused us to conclude that the merger transaction is not in the best interests of our shareholders and (iii) alternatively that there has been a material adverse change in the financial condition of Easyknit. By filing this action, we had not terminated the merger. Then on November 1, 2007, we delivered to Easyknit and Race Merger a formal notice of termination of the Merger Agreement pursuant to Sections 7.03(e), 7.03(g) and 8.01(i) of the Merger Agreement. See Legal Proceedings in Part II that follows for details relating to this litigation matter.

On July 27, 2007, we entered into (1) 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, whereby CGMR became a wholly owned subsidiary. CGMR holds rights to acquire interests in certain nickel (the Xing Wang Mine) and iron ore mining properties (Maanshan Zhaoyuan Mining Co. Ltd., Xiaonanshan Mining Co., Ltd., and Changjiang Mining Company Limited) located in the People’s Republic of China (the “PRC”); and (2) 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 a three-year option to purchase a 60% equity interest in SSC-Sino Gold. 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. The consummation of any of these transactions is subject to the completion of definitive agreements, receipt of various governmental approvals, the completion of due diligence, and the required capital funding, among other conditions. Until the consummation of any of these PRC properties, we hold only the right or option to acquire and as of the date of this report, we do not hold title to any of these properties. Furthermore, on October 15, 2007, we received a notice of termination of the CGMR Agreements from SSC Mandarin Group. See Legal Proceedings in Part II that follows for details relating to this litigation matter.

In June 2003, we acquired the Holdsworth Project from Hawk Uranium Inc. (f/k/a Hawk Precious Minerals Inc.) (“Hawk”). Hawk is an affiliate of ours as H. Vance White (our Chairman of the Board) is an officer and director of Hawk. The rights we held allowed us to explore only through a limited surface depth, with the remaining below-surface rights belonging to Hawk. We had not expended any funds on the Holdsworth since its acquisition. On September 19, 2007, we sold all of our rights and claims in the Holdsworth back to Hawk for $50,000 Canadian (US$47,260). We retained a one percent gross gold royalty for any gold extracted from the limited surface depth and Hawk retains the right to purchase one half of the royalty from us for $500,000 Canadian. We have estimated that the value of the one percent royalty is immaterial and therefore have not recorded the possibility of a future gain.

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 nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year as a whole.

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 September 30, 2007, we have (i) 13,659,500 shares of common stock issuable upon the exercise of stock options with a weighted average exercise price of $0.53 per share issued under our stock option plans, (ii) 19,831,988 shares of common stock issuable upon the exercise of warrants with a weighted average exercise price of $0.69 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 $0.15 per share and (v) reserved 9,800,000 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 49,011,488 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.

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 $35,084,871. 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 $4,500,000. However, this does not take into account our needs relating to the development of any PRC properties, 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.

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 related to the Bates-Hunter. 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 interest receivable of $487 for the nine months ended September 30, 2007.

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. On August 28, 2007, we entered into a management services agreement with Hawk Uranium Inc. (f/k/a Hawk Precious Minerals Inc.) whereby Hawk agreed to provide certain management and administrative services to us. The term of the agreement is until December 31, 2007 and requires a US $100,000 payment, which has been accrued and will be amortized during the remainder of fiscal 2007. Vance White, our Chairman of the Board, serves as President of Hawk.

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.

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 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.

On July 9, 2007, we sold China Gold an additional note under the Purchase Agreement in the principal amount of $800,000, with a purchase discount of $16,000 (“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 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 the 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.

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.

On October 31, 2007, we entered into a letter agreement with China Gold whereby the parties amended the maturity date on each of the Notes to February 29, 2008. As additional consideration, we agreed to reduce the conversion price applicable to the Notes from $1.00 to $0.50 per share and to reduce the purchase price applicable to certain purchase rights of China Gold under the Notes from $1.00 to $0.50 per share. The letter agreement further gives us an option to obtain, at our sole discretion, an extension of the maturity dates of the respective Notes to May 31, 2008 in consideration for a further reduction in the conversion price applicable to the Notes and the purchase price relating to purchase rights provided under the Notes from $0.50 to $0.25 per share.

As of September 30, 2007, we have issued an aggregate of $9,800,000 of notes under the Purchase Agreement and have received net proceeds of $9,604,000 pursuant to the issuance of the notes, less $196,000 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 note balances:

On September 21, 2007, in consideration of a new $100,000 loan to the Company from Pacific Dawn Capital, LLC., the Company issued a promissory note in the principal amount of $100,000 to Pacific Dawn. The promissory note has a maturity date of October 21, 2007, and bears interest at a rate of 5% per annum. Under the terms of the promissory note and as additional consideration for the loan, the Company reduced the exercise price of certain rights to purchase up to 1,000,000 shares of our common stock from $0.20 to $0.15 per share and extended the expiration date December 31, 2007 to December 31, 2008 of said rights.

On September 27, 2007, in consideration of an unsecured $50,000 loan to the Company from Mrs. Nancy White, a Canadian citizen and the mother of H. Vance White, our Chairman, the Company issued a promissory note in the principal amount of $50,000 to Mrs. White. The promissory note has a maturity date of December 27, 2007, and bears interest at a rate of 10% per annum. Under the terms of the promissory note and as additional consideration for the loan, the Company issued a warrant to purchase up to 100,000 shares of our common stock at $0.27 per share with an expiration date of October 3, 2009. The proceeds of the unsecured loan were allocated based on the relative fair value of the loan and the warrant granted in accordance with APB 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.” The fair value of the warrant was $19,885 based on the Black Scholes pricing model.

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, and hold secured promissory notes of CGMR in consideration of such loans. 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. CGMR’s 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.

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.

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.

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. 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

The consummation of any of these transactions is subject to the completion of definitive agreements, receipt of various governmental approvals, the completion of due diligence, and the required capital funding, among other conditions. As of September 30, 2007, we hold only the right or option to acquire and do not hold title to any of these properties, therefore, we have recorded these as advanced payments until such time as (i) we complete a transaction, (ii) have reasonable assurance that such a transaction is under our control or (iii) have determined that such a transaction will not occur.

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.

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. This is the only stock subscription receivable as of September 30, 2007. Relevant Marketing employs Deb Kramer, the spouse of our CEO, Stephen D. King.

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 nine months ended September 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 September 30, 2007, we granted one stock option award. That award was to Joe Mancuso in consideration of his agreement to serve on our board of directors. Mr. Mancuso received a ten-year option to purchase up to 2,000,000 shares of our common stock at an exercise price of $0.30 per share (the closing price of our common stock on September 21, 2007). The option vests in equal bi-annual installments of 250,000 shares each over four years, with the first installment vesting March 24, 2008.

The Company recorded $212,402 and $937,677 of compensation expense for the three and nine months ended September 30, 2007, respectively, relating to the 7,500,000 stock option grants in the nine 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 September 30, 2007 and had a $0.01 per share impact on the nine months ended September 30, 2007. There remains $4,234,899 of total unrecognized compensation expense, which is expected to be recognized over a period of approximately six years. The Company recorded $92,155 of related compensation expense for the three month period ended September 30, 2006, relating to a 1,500,000 option grant.

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 disclosures related to the cash flow effects resulting from share-based compensation.

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 September 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. Additionally, the Company has two non-plans, titled “Non-Plan Stock Options” which are outside of the six plans listed above.

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.

On June 29, 2006, we executed two agreements relating to a VMS (volcanogenic massive sulphide) base metals project exploration project located in the McFaulds Lake region of northern Ontario, Canada. The first agreement was pursuant to a Memorandum of Agreement between the Company and Hawk Uranium Inc. (f/k/a Hawk Precious Minerals Inc.) (“Hawk”) whereby we acquired a 50 percent interest in five mining claims (the “MacNugget Claims”) held by Hawk in consideration of the issuance of 40,000 shares of our common stock to Hawk. Under the terms of a second agreement, dated November 30, 2006, we and Hawk sold a portion of the MacNugget Claims to MacDonald Mines Exploration Ltd., (“MacDonald”), whereby MacDonald became a 51 percent owner in the MacNugget Claims and the operator of the project. Other than the common stock issued to Hawk in June 2006, we have not incurred any other expenses related to this project. On October 1, 2007, we transferred our 24.5% interest in the MacNugget Claims to both Hawk and MacDonald for an aggregate sale price of $50,000 Canadian (US $48,560).

On August 15, 2007, the Company filed a declaratory judgment action in the District Court in the Fourth Judicial District of the State of Minnesota against Easyknit Enterprises Holdings Limited, a British Virgin Islands corporation with its principal offices located in Hong Kong (“Easyknit”), and Race Merger, Inc., a Minnesota corporation and wholly owned subsidiary of Easyknit (“Race Merger”) (Easyknit and Race Merger collectively referred to as “Easyknit”), pursuant to which the Company was seeking a declaration by the court that the Company was entitled to terminate that certain Agreement and Plan of Merger and Reorganization dated April 20, 2007, as amended on May 21, 2007 (as amended, the “Merger Agreement”), by and among the Company and Easyknit, pursuant to the terms of the Merger Agreement based upon the determination by the Company, in its sole and absolute discretion, that the Company’s due diligence has caused it to conclude that the merger transaction was not in the best interests of the shareholders of the Company and alternatively that there has been a material adverse change in the financial condition of Easyknit. By filing this action, we had not terminated the merger.

On October 15, 2007, Easyknit, filed an Answer and Counterclaim. Easyknit’s answer largely denies the allegations in the Company’s Amended Complaint, denies any breaches of the Merger Agremeent and denies liability to the Company. Easyknit’s counterclaim seeks a judicial declaration that (1) Easyknit is entitled to a $30 million termination fee in the event that the Company terminates the Merger Agreement and (2) that Easyknit is entitled to a $30 million termination fee in the event that Easyknit terminates the Merger Agreement based on the Company’s alleged breach of the terms of the Merger Agreement. The Company does not believe Easyknit’s counterclaims are meritorious, and intends to vigorously defend against them.

On November 1, 2007, the Company delivered to Easyknit a notice of termination of Merger Agreement pursuant to Sections 7.03(e), 7.03(g) and 8.01(i) of the Merger Agreement. The Company’s bases for termination of the Merger Agreement include, but are not limited to, the occurrence of material adverse effects relating to Easyknit pursuant to the terms of the Merger Agreement, the dissatisfaction of the Company, in its sole and absolute discretion, with its findings during due diligence relating to Easyknit and Easyknit’s material breaches of covenants under the Merger Agreement.

On July 27, 2007, the Company entered into (i) that certain Sale of Shares and Claims Agreement by and among the Company, SSC Mandarin Group Limited (“SSC Mandarin”) and China Global Mining Resources Limited, a British Virgin Islands corporation (“China Global BVI”) and (ii) that certain Sale of Shares and Claims Agreement by and among the Company, SSC Mandarin and China Global Mining Resources Limited, a Hong Kong corporation (“China Global HK”) (the agreements shall collectively be referred to herein as the “CGMR Agreements”), pursuant to which Company acquired from SSC Mandarin 100% of the equity interest in China Global BVI and China Global HK for a purchase price of 10,000 Hong Kong Dollars (approximately $1,300) for each entity. China Global BVI holds rights to acquire interests in various mining properties located in the People’s Republic of China (the “PRC”). Prior to the acquisition of China Global BVI, the Company made loans to China Global BVI for the purpose of investments and financings used toward such mining properties, and holds promissory notes from China Global BVI in the aggregate amount of approximately $8.9 million. These notes had an original maturity date of December 31, 2007, and are secured by China Global BVI’s rights to a supply agreement relating to the purchase of nickel and in various agreements underlying China Global BVI’s interests in the mining properties. China Global HK is a shell corporation created for the purpose of obtaining rights to the name China Global in Hong Kong. The Company disclosed its entry into the CGMR Agreements and information relating to the holdings of China Global BVI in a Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2007. Company has yet to receive from SSC Mandarin documents of title relating to China Global BVI and China Global HK and other closing deliverables in accordance with the terms of the CGMR Agreements. The Company has on numerous occasions demanded that SSC Mandarin transfer such documents to Company in accordance with the terms of the CGMR Agreements.

On October 15, 2007, the Company received a notice of termination of the CGMR Agreements from SSC Mandarin. SSC Mandarin alleges that the parties agreed to certain amended terms to the CGMR Agreements, and that Company has breached those amended terms. The Company denies that such amended terms were ever agreed upon, and asserts that the CGMR Agreements have been executed and delivered by the respective parties and that consideration for the transfer of equity interest has been paid by Company to SSC Mandarin. Accordingly, Company believes that the CGMR Agreements have been consummated and are not terminable. The Company is in discussions with SSC Mandarin to resolve the issue, and intends to fully exercise its rights in enforcing the terms of the CGMR Agreements and its equity interest in both China Global BVI and China Global HK.

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.

General and administrative expenses were $1,256,998 for the three months ended September 30, 2007 as compared to $1,589,776 for the same period in 2006. General and administrative expenses were $4,030,700 for the nine months ended September 30, 2007 as compared to $3,653,488 for the same period in 2006. Of the expenses reported in 2007, the majority related primarily to our direct expenses relating to the proposed 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 $519,391 for the three months ended September 30, 2007 as compared to $592,668 for the same period in 2006. Exploration expenses were $1,795,512 for the nine months ended September 30, 2007 as compared to $1,173,952 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.

We have recorded merger transaction costs of $141,025 and $1,127,859 for the three and nine months ended September 30, 2007, respectively. These costs represent fees charged by our Hong Kong attorneys and advisors. On November 1, 2007, the Company delivered to Easyknit a notice of termination of Merger Agreement pursuant to Sections 7.03(e), 7.03(g) and 8.01(i) of the Merger Agreement. We anticipate having additional costs associated with the litigation of this merger.

On September 19, 2007, we sold all of our rights and claims in the Holdsworth Project back to Hawk Uranium Inc. (f/k/a Hawk Precious Minerals Inc.) for $50,000 Canadian (US$47,260).

Other income and expense consists of interest income, gain on sale of marketable securities, interest expense and other expense. Interest income for the three months ended September 30, 2007 was $685 compared to $19,892 for the same period in 2006. Interest income for the nine months ended September 30, 2007 was $4,132 compared to $23,793 for the same period in 2006. During September 2007, we sold all of the shares of MacDonald Mines Exploration Ltd., we held. The sale of these marketable securities generated a gain of $65,580 for the three and nine months ended September 30, 2007. Interest expense for the three months ended September 30, 2007 was $391,671 compared to $363,000 for the same period in 2006. Interest expense for the nine months ended September 30, 2007 was $726,254 compared to $1,858,082 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 2008, if any such acquisitions occur.

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; (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.

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 partner’s 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, a further $100,000 in January 2007 and on October 31, 2007, we executed an amendment to the joint venture agreement, whereby we issued 1,600,000 shares of our unregistered common stock to Journey in lieu of a remaining $400,000 payment for funding work expenditures and received an additional twenty five percent interest.

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. On September 21, 2007, in consideration of a new $100,000 loan to the Company from Pacific Dawn, and as additional consideration for the loan, the Company reduced the exercise price of its right to purchase option relating to the other 1,000,000 shares from $0.20 to $0.15 per share and extended the expiration date December 31, 2007 to December 31, 2008.

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.

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.

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 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.

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 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 the 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.

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 required purchase prices of $10,000 Hong Kong dollars (approximately US$1,300 each).

On September 21, 2007, in consideration of a new $100,000 loan to the Company from Pacific Dawn Capital, the Company issued a promissory note in the principal amount of $100,000 to Pacific Dawn. The promissory note has a maturity date of October 21, 2007, and bears interest at a rate of 5% per annum. Under the terms of the promissory note and as additional consideration for the loan, the Company reduced the exercise price of certain rights to purchase up to 1,000,000 shares of our common stock from $0.20 to $0.15 per share and extended the expiration date December 31, 2007 to December 31, 2008 of said rights.

Our existing sources of liquidity will not provide sufficient 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 $4,500,000 (to include $1,000,000 for the Bates-Hunter Mine, $1,000,000 for Vianey and $1,500,000 for Kwagga). Additionally, should we consummate any other projects 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.

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.

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.

As of November 14, 2007, we had only approximately $100,000 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. 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.

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 September 30, 2007 we hold certain rights in three projects: the Bates-Hunter Mine in Colorado, the Vianey Concession in Mexico and the FSC Project located in South Africa. None of these projects may ever produce any significant mineral deposits.

We have had net losses for each of the years ended December 31, 2006 and 2005, and we have an accumulated deficit as of September 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.

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.

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 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.

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.

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 will be relying heavily on the ability of the project operators we engage, to make prudent use of all funds in connection with the exploration at our three projects. If the operators do not use these funds wisely, we may not realize any return on our exploration investments. We also depend on the operators 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.

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.

Additional financing will be needed in order to fund beyond the current three 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.”

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.

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.

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.

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.

On October 15, 2007, Easyknit filed an Answer and Counterclaim. Easyknit’s answer largely denies the allegations in the Company’s Amended Complaint, denies any breaches of the Merger Agreement and denies liability to the Company. Easyknit’s counterclaim seeks a judicial declaration that (1) Easyknit is entitled to a $30 million termination fee in the event that the Company terminates the Merger Agreement and (2) that Easyknit is entitled to a $30 million termination fee in the event that Easyknit terminates the Merger Agreement based on the Company’s alleged breach of the terms of the Merger Agreement. The Company does not believe Easyknit’s counterclaims are meritorious, and intends to vigorously defend against them.

On November 1, 2007, the Company delivered to Easyknit a notice of termination of Merger Agreement pursuant to Sections 7.03(e), 7.03(g) and 8.01(i) of the Merger Agreement. The Company’s bases for termination of the Merger Agreement include, but are not limited to, the occurrence of material adverse effects relating to Easyknit pursuant to the terms of the Merger Agreement, the dissatisfaction of Company, in its sole and absolute discretion, with its findings during due diligence relating to Easyknit and Easyknit’s material breaches of covenants under the Merger Agreement.

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 September 30, 2007, we have sold an aggregate of $9,800,000 in convertible secured promissory notes (“Notes”) to China Gold, and have received net proceeds of $9,604,000 pursuant to the sale of the Notes, less $196,000 paid to an affiliate of China Gold in the form of a loan fee. We have reserved 9,800,000 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. On October 31, 2007, we entered into a letter agreement with China Gold whereby the parties amended the maturity date on each of the Notes to February 29, 2008. As additional consideration, we agreed to reduce the conversion price applicable to the Notes from $1.00 to $0.50 per share and to reduce the purchase price applicable to certain purchase rights of China Gold under the Notes from $1.00 to $0.50 per share. The letter agreement further gives us an option to obtain, at our sole discretion, an extension of the maturity dates of the respective Notes to May 31, 2008 in consideration for a further reduction in the conversion price applicable to the Notes and the purchase price relating to purchase rights provided under the Notes from $0.50 to $0.25 per share.

Neither the securities offered and sold pursuant to the China Gold 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 Company 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 Company 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 Company has obtained representations from the purchaser indicating that it was an accredited investor and purchasing for investment only.

On September 28, 2007, through a private placement of units of our securities (each unit consisting of one share of our common stock and a five-year warrant to purchase one share of common stock at an exercise price of $0.25 per share) we sold 400,000 units at a price per unit of $0.25, resulting in gross proceeds of $100,000. There were no fees paid in connection with the private placement. The offering was conducted as a private placement pursuant to the exemption from registration provided by Rule 506 of Regulation D under Section 4(2) of the Securities Act of 1933, as amended. The Company believes that the investor is an “accredited investor” as such term is defined in Rule 501(a) promulgated under the Securities Act.

Exhibit		Description
3.1		Amended and Restated Articles of Incorporation (effective as of September 24, 2007) (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 27, 2007).

10.1**		Bill of Sale dated September 19, 2007 by and among Active Hawk Minerals, LLC (a wholly owned subsidiary of the Company) and Hawk Uranium Inc., for the sale of the Holdsworth Project.

10.2**		Transfer Agreement dated October 1, 2007 by and among the Company, Hawk Uranium Inc. and MacDonald Mines Exploration Ltd., for the sale of the MacNugget Claims.

10.3**		Amendment to Joint Venture Agreement dated October 31, 2007 by and among the Company, Journey Resources Corp., and Minerales Jazz S.A. De C.V., whereby we issued 1,600,000 shares of common stock in lieu of the $400,000 exploration work payment.

10.4		Letter Agreement dated October 31, 2007 by and among Company and China Gold, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 5, 2007).

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

Minnesota	84-1236619
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)

Original gross proceeds	$	9,800,000
Less: original issue discount at time of issuance of notes		(196,000	)
Less: principal payments		—
Add: amortization of original issue discount		103,412
Balance at September 30, 2007	$	9,707,412

	For the Nine Months Ended September 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	156% - 160%	164% - 186%
Expected dividend yield	—	—

	Number of Options			Weighted Average Exercise Price
Options outstanding December 31, 2006		6,512,000		$	0.56
Granted		7,500,000			0.63
Canceled or expired		(352,500	)		0.31
Exercised		—			—
Options outstanding - September 30, 2007		13,659,500		$	0.53

Weighted average fair value of options granted during the nine months ended September 30, 2007				$	0.62

Weighted average fair value of options granted during the nine months ended September 30, 2006				$	0.27

	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		8,775,000		8.6 years	$	0.32	$	168,750
$0.56 to $1.02		4,806,000		6.5 years		0.87		—
$2.75 to $4.25		78,500		1.0 years		3.13		—
$0.15 to $4.25		13,659,500		6.4 years	$	0.53	$	168,750

	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		3,975,000		7.7 years	$	0.30	$	168,750
$0.56 to $1.02		1,806,000		3.9 years		0.62		—
$2.75 to $4.25		78,500		1.0 years		3.13		—
$0.15 to $4.25		5,859,500		4.8 years	$	0.44	$	168,750

	Number			Weighted Average Exercise Price		Range of Exercise Price

Outstanding at December 31, 2006		29,578,833		$	0.56	$	0.12 - $7.15
Granted		500,000			0.25		0.25 - 0.27
Cancelled or expired		(1,104,345	)		1.18		0.83 - 1.25
Exercised		(9,142,500	)		0.16		0.09125 - 0.75
Outstanding at September 30, 2007		19,831,988		$	0.69	$	0.12 - $7.15

Warrants exercisable at September 30, 2007		19,831,988		$	0.69	$	0.12 - $7.15

	Shares Voted For		Withheld
H. Vance White		75,919,840		2,337,762
Stephen D. King		75,439,725		2,817,893
Mark D. Dacko		75,832,709		2,424,893
Norman D. Lowenthal		76,210,103		2,047,499

Shares Voted For		Against			Abstain			Broker Non-Vote
73,129,256			5,026,749			101,594			—


	WITS BASIN PRECIOUS MINERALS INC.

Date: November 19, 2007	By:	/s/ Stephen D. King
		Stephen D. King Chief Executive Officer