UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of SEPTEMBER, 2006.
Commission File Number: 0-30390
ROCHESTER RESOURCES LTD
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
#1305 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7, Canada
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
ROCHESTER RESOURCES LTD
Date: September 28, 2006 /s/ Douglas Good
----------------------------- -------------------------------------
Doug Good,
President
- --------------------------------------------------------------------------------
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
MAY 31, 2006 AND 2005
- --------------------------------------------------------------------------------
D & H
group
Chartered
Accountants
AUDITORS' REPORT
To the Shareholders of
Rochester Resources Ltd. (formerly Hilton Resources Ltd.)
We have audited the consolidated balance sheets of Rochester Resources Ltd.
(formerly Hilton Resources Ltd.) as at May 31, 2006 and 2005 and the
consolidated statements of operations and deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at May 31, 2006 and
2005 and the results of its operations and cash flows for the years then ended
in accordance with Canadian generally accepted accounting principles.
On August 16, 2006 we reported separately to the shareholders of Rochester
Resources Ltd. (formerly Hilton Resources Ltd.) on consolidated financial
statements as at May 31, 2006 and 2005 and for the years ended May 31, 2006,
2005 and 2004 audited in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States) which include a reconciliation to United States generally
accepted accounting principles.
/s/ D&H GROUP LLP
Vancouver, B.C.
August 16, 2006, except as to Note 13,
which is as of September 5, 2006 CHARTERED ACCOUNTANTS
D&H Group LLP
a BC Limited Liability Partnership of Corporations
member of BHD Association with affiliated offices
across Canada and Internationally
10th Floor, 1333 West Broadway, Vancouver, B.C. V6H 4C1
www.dhgroup.ca F (604) 731-9923 T (604) 731-5881
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS AT MAY 31
2006 2005
$ $
ASSETS
CURRENT ASSETS
Cash 3,657,676 227,589
Amounts receivable 80,022 39,027
Prepaid expenses and deposits 12,825 9,636
------------ ------------
3,750,523 276,252
MINERAL INTERESTS (Note 3) 1,128,652 -
CAPITAL ASSETS, net of accumulated
depreciation of $7,989 (2005 - $5,840) 55,341 4,764
OTHER ASSETS (Note 4) 37,040 6,300
------------ ------------
4,971,556 287,316
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 214,447 31,006
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 5) 75,890,208 70,970,313
CONTRIBUTED SURPLUS (Note 7) 608,284 286,125
DEFICIT (71,741,383) (71,000,128)
------------ ------------
4,757,109 256,310
------------ ------------
4,971,556 287,316
============ ============
NATURE OF OPERATIONS AND CHANGE OF NAME (Note 1)
SUBSEQUENT EVENTS (Note 13)
APPROVED BY THE BOARD
/s/ DOUG GOOD , Director
- --------------------
/s/ ANDREW CARTER , Director
- --------------------
The accompanying notes are an integral part of these consolidated
financial statements.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED MAY 31
2006 2005
$ $
EXPENSES
Accounting and administration 53,415 78,788
Amortization 2,149 5,840
Audit 20,517 19,301
Corporate development 37,360 -
Corporate finance fee 30,500 -
General exploration 24,588 -
Investor relations 6,497 36,000
Legal 19,573 15,832
Management fees 113,838 -
Office 12,098 8,161
Professional fees 91,167 54,941
Regulatory 12,836 7,037
Rent 4,165 -
Salaries and benefits 6,410 -
Shareholder costs 9,251 3,767
Stock-based compensation (Note 6) 256,159 138,725
Transfer agent 17,420 10,612
Travel 24,207 12,173
------------ ------------
742,150 391,177
------------ ------------
LOSS BEFORE OTHER ITEMS (742,150) (391,177)
------------ ------------
OTHER ITEMS
Gain on sale of other assets (Note 4) 40,980 17,239
Loss on sale of capital assets - (1,717)
Bad debts (10,000) (27,827)
Write-off of mineral interests (Note 3(b)) - (703,058)
Interest and other income 36,566 2,362
Foreign exchange (66,651) (4,809)
------------ ------------
895 (717,810)
------------ ------------
NET LOSS FOR THE YEAR (741,255) (1,108,987)
DEFICIT - BEGINNING OF YEAR (71,000,128) (69,891,141)
------------ ------------
DEFICIT - END OF YEAR (71,741,383) (71,000,128)
============ ============
BASIC AND DILUTED LOSS PER SHARE $(0.17) $(0.56)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,388,853 1,966,152
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31
2006 2005
$ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (741,255) (1,108,987)
Adjustment for items not involving cash
Amortization 2,149 5,840
Loss on sale of capital assets - 1,717
Gain on sale of other assets (40,980) (17,239)
Write-off of mineral interests - 703,058
Corporate finance fees 30,500 -
Stock-based compensation 256,159 138,725
------------ ------------
(493,427) (276,886)
Increase in amounts receivable (40,995) (8,738)
Increase in prepaid expenses and deposits (3,189) (677)
Increasein accounts payable and accrued liabilities 183,441 14,650
------------ ------------
(354,170) (271,651)
------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 4,966,050 362,500
Share issue costs (348,155) (2,500)
------------ ------------
4,617,895 360,000
------------ ------------
INVESTING ACTIVITIES
Purchase of capital assets (52,726) -
Proceeds from sale of capital assets - 7,146
Mineral interests expenditures (791,152) (415,255)
Proceeds from sale of other assets 47,280 19,309
Additions to other assets (37,040) -
------------ ------------
(833,638) (388,800)
------------ ------------
INCREASE (DECREASE) IN CASH FOR THE YEAR 3,430,087 (300,451)
CASH - BEGINNING OF YEAR 227,589 528,040
------------ ------------
CASH - END OF YEAR 3,657,676 227,589
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION - Note 12
The accompanying notes are an integral part of these consolidated
financial statements.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
1. NATURE OF OPERATIONS AND CHANGE OF NAME
The Company is engaged in the acquisition, exploration and development
of mineral interests in Mexico. During the 2006 fiscal year, the
Company completed negotiations and entered into an option agreement to
acquire up to a 51% interest in the Mina Real Property in Mexico. The
Company is currently constructing the mill facility on the Mina Real
Property. Completion of the facility is scheduled for November 2006.
The amount shown as mineral properties and deferred costs represent net
costs to date, less amounts written off, and do not necessarily
represent present or future values. The recoverability of these amounts
and any additional amounts required to place these properties into
commercial production are dependent upon certain factors. These factors
include the existence of ore deposits sufficient for commercial
production and the Company's ability to obtain the required additional
financing necessary to develop its mineral properties.
As at May 31, 2006, the Company had working capital of $3,536,076.
Management anticipates that it will be required to raise additional
financing to complete construction of the mill facility and provide
adequate working capital. These consolidated financial statements have
been prepared in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP") applicable to a going concern which
assumes that the Company will realize its assets and discharge its
liabilities in the normal course of business. Realization values may be
substantially different from the carrying values shown in the
consolidated financial statements should the Company be unable to
continue as a going concern. The ability of the Company to settle its
liabilities as they come due and to fund ongoing operations is
dependent upon the ability of the Company to obtain additional funding
from equity financing. Failure to continue as a going concern would
require restatement of assets and liabilities on a liquidation basis,
which could differ materially from the going concern basis.
On August 25, 2005, the Company completed a consolidation of its share
capital on a basis of one new share for ten old shares and changed its
name from Hilton Resources Ltd. to Rochester Resources Ltd.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in
accordance with Canadian GAAP and include the accounts of the Company
and its 60% owned Mexican subsidiary, Compania Minera Nayarit S.A. de
C.V. Inter-company balances and transactions are eliminated on
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements, and the
reported amounts of revenues and expenditures during the period. Actual
results may differ from those estimates.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
MINERAL INTERESTS
Mineral interests costs and exploration, development and field support
costs directly relating to mineral interests are deferred until the
interests to which they relate is placed into production, sold or
abandoned. The deferred costs will be amortized over the life of the
orebody following commencement of production or written off if the
mineral interest is sold or abandoned. Administration costs and other
exploration costs that do not relate to any specific mineral interest
are expensed as incurred.
On a periodic basis, management reviews the carrying values of deferred
mineral interest acquisition and exploration expenditures with a view
to assessing whether there has been any impairment in value. Management
takes into consideration various information including, but not limited
to, results of exploration activities conducted to date, estimated
future metal prices, and reports and opinions of outside geologists,
mine engineers and consultants. When it is determined that a project or
interest will be abandoned or its carrying value has been impaired, a
provision is made for any expected loss on the project or interest.
Although the Company has taken steps to verify title to the mineral
interests, according to the usual industry standards for the stage of
exploration of such mineral interests, these procedures do not
guarantee the Company's title. Such mineral interests may be subject to
prior agreements or transfers and title may be affected by undetected
defects.
From time to time, the Company acquires or disposes of mineral
interests pursuant to the terms of option agreements. Options are
exercisable entirely at the discretion of the optionee and,
accordingly, are recorded as mineral interest costs or recoveries when
the payments are made or received.
CAPITAL ASSETS
Capital assets, which is comprised of vehicles and office equipment,
are recorded at cost less accumulated amortization. Amortization is
recorded on the declining balance basis at the following annual rates:
Vehicles 30%
Office equipment 20%
INVESTMENTS
Long-term investments are accounted for using the cost method.
ASSET RETIREMENT OBLIGATIONS
The fair value of a liability for an asset retirement obligation is
recognized when a reasonable estimate of fair value can be made. The
asset retirement obligation is recorded as a liability with a
corresponding increase to the carrying amount of the related long-lived
asset. Subsequently, the asset retirement cost is charged to earnings
using a systematic and rational method and is adjusted to reflect
period-to-period changes in the liability resulting from the passage of
time and revisions to either the timing or the amount of the original
estimate of undiscounted cash flow. As at May 31, 2006, the Company
does not have any asset retirement obligations.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are assessed for impairment when events and
circumstances warrant. The carrying value of a long-lived asset is
impaired when the carrying amount exceeds the estimated undiscounted
net cash flow from use and fair value. In that event, the amount by
which the carrying value of an impaired long-lived asset exceeds its
fair value is charged to earnings.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for at fair value as determined
by the Black-Scholes option pricing model using amounts that are
believed to approximate the volatility of the trading price of the
Company's stock, the expected lives of awards of stock-based
compensation, the fair value of the Company's stock and the risk-free
interest rate. The estimated fair value of awards of stock-based
compensation are charged to expense as awards vest, with offsetting
amounts recognized as contributed surplus.
TRANSLATION OF FOREIGN CURRENCIES
Monetary assets and liabilities are translated into Canadian dollars at
the balance sheet date rate of exchange and non-monetary assets and
liabilities at historical rates. Revenues and expenses are translated
at appropriate transaction date rates except for amortization,
depreciation and depletion, which are translated at historical rates.
Gains and losses resulting from the fluctuation of foreign exchange
rates have been included in the determination of income.
INCOME TAXES
Future income tax liabilities and assets are recognized for the
estimated income tax consequences attributable to differences between
the amounts reported in the consolidated financial statements and their
respective tax bases, using enacted income tax rates. The effect of a
change in income tax rates on future income tax liabilities and assets
is recognized in income in the period that the change is substantively
enacted. Future income tax assets are recognized to the extent that
they are considered more likely than not to be realized.
EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding during the period. The computation of diluted earnings per
share assumes the conversion, exercise or contingent issuance of
securities only when such conversion, exercise or issuance would have a
dilutive effect on earnings per share. The dilutive effect of
convertible securities is reflected in diluted earnings per share by
application of the "if converted" method. The dilutive effect of
outstanding options and warrants and their equivalents is reflected in
diluted earnings per share by application of the treasury stock method.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
3. MINERAL INTERESTS
-------------------------------------------- --------------------------------------------
2006 2005
-------------------------------------------- --------------------------------------------
ACQUISITION EXPLORATION ACQUISITION EXPLORATION
COSTS COSTS TOTAL COSTS COSTS TOTAL
$ $ $ $ $ $
Mina Real 486,584 642,068 1,128,652 - - -
============ ============ ============ ============ ============ ============
(a) During the 2006 fiscal year, the Company entered into an
option agreement with a private company to acquire up to a 51%
interest in the Mina Real Property located in Tepic, Mexico.
The Mina Real Property comprises of four concessions covering
approximately 3,400 hectares. Under the agreement the Company
has made an option payment of US $110,000 and issued 250,000
common shares at a fair value of $337,500. The Company can
earn its interests, as follows:
i) an initial 20% interest on funding the initial US
$750,000 on exploration expenditures;
ii) a further 20% interest on funding a further US $750,000
on exploration expenditures; and
iii) a further11% interest on payment of US $900,000, at the
minimum rate of US $75,000 per month, commencing
September 1, 2006, with each payment vesting at 0.9166%
interest.
Subsequent to May 31, 2006, the Company has funded the
requisite US $1.5 million and made payments totalling US
$225,000, earning an approximate 42.75% interest in the Mina
Real Property.
(b) During the 2004 fiscal year, the Company entered into an
option agreement with a Mexican private corporation whereby
the Company could acquire up to a 100% interest in five
unproven mineral concessions (the "El Nayar Project") in
Mexico, covering approximately 6,766 hectares. The Company
conducted a comprehensive geological work program during the
2005 fiscal year. Based on the results the Company determined
to cease further work on the El Nayar Project and wrote-off
$703,058 of acquisition and exploration costs.
4. OTHER ASSETS
2006 2005
$ $
Investment - 6,300
Deposits on exploration equipment 37,040 -
------------ ------------
37,040 6,300
============ ============
During the 2005 fiscal year, the Company held 70,000 common shares of
Halo Resources Ltd. ("Halo"), a publicly traded company with common
officers and directors. During the 2006 fiscal year, the Company sold
the 70,000 shares of Halo (2005 - 23,000) for $ 47,280 (2005 -
$19,309), realizing a gain of $40,980 (2005 - $17,239).
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
5. SHARE CAPITAL
Authorized: Unlimited common shares without par value
Issued: 2006 2005
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of year 2,230,735 70,970,313 1,853,735 70,593,713
------------ ------------ ------------ ------------
Issued during the year
For cash
Private placements 6,000,000 3,220,000 355,000 355,000
Exercise of options - - 3,000 7,500
Exercise of warrants 2,557,000 1,671,050 - -
Exercise of agent's option 150,000 75,000 - -
Reallocation from contributed surplus
relating to the exercise of stock options - - - 6,600
Reallocation from contributed surplus
relating to the exercise of agent's option
and related warrants - 112,500 - -
For corporate finance fees 50,000 30,500
For mineral interests 250,000 337,500 10,000 10,000
Finder's fee - - 9,000 9,000
------------ ------------ ------------ ------------
9,007,000 5,446,550 377,000 388,100
Less: share issue costs - (526,655) - (11,500)
------------ ------------ ------------ ------------
9,007,000 4,919,895 377,000 376,600
------------ ------------ ------------ ------------
Balance, end of year 11,237,735 75,890,208 2,230,735 70,970,313
============ ============ ============ ============
(a) On August 25, 2005, the Company completed a consolidation of
its share capital on a basis of one new share for ten old
shares. All comparative share amounts and balances have been
restated.
(b) During the 2006 fiscal year, the Company completed:
i) a private placement totalling 5,000,000 units at $0.50 per
unit for gross proceeds of $2,500,000. Each unit comprised
one common share and one half share purchase warrant. One
full warrant was exercisable into one common share at
$0.65 per common share on or before January 16, 2008,
subject to a forced conversion provision. The Company paid
$22,000 as finders' fees on the non-brokered portion of
the private placement. On the brokered portion of the
private placement, the Company paid a commission of
$150,000 and issued 25,000 common shares, at a fair value
of $12,500, for a corporate finance fee. The Company also
granted an option to the agent entitling it to acquire
150,000 units at a price of $0.50 per unit, for a period
of two years. The agent's option was exercised during the
2006 fiscal year. The units issued to the agent had the
same terms as the units issued under the private
placements. In addition, the Company incurred $71,087 of
costs relating to the private placement. Certain directors
and officers of the Company have purchased 270,000 units
of the private placement.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
5. SHARE CAPITAL (continued)
The fair value of the agent's option and related warrants
have been estimated using the Black- Scholes option
pricing model. The assumptions used were: dividend yield -
0%; expected volatility - 136%; a risk-free interest rate
of 3.71%; and an expected life of twelve months. The value
assigned to the agent's option and related warrants was
$112,500.
During the 2006 fiscal year, the Company issued a total of
2,545,000 common shares for proceeds of $1,654,250, as a
result of the exercise of warrants under the forced
conversion provision. The remaining warrants for 30,000
common shares expired without exercise.
ii) a private placement of 1,000,000 units at $0.72 per unit.
Each unit comprised one common share and one share
purchase warrant. Each warrant is exercisable into one
common share at $0.80 per common share on or before May 3,
2008. The Company paid a commission of $72,000, issued
25,000 common shares, at a fair value of $18,000, for a
corporate finance fee and granted 100,000 agent's warrants
exercisable on the same basis as the warrants issued under
the private placement. The Company also incurred $33,068
of costs relating to the private placement.
The fair value of the agent's warrants have been estimated
using the Black-Scholes option pricing model. The
assumptions used were: dividend yield - 0%; expected
volatility - 137%; a risk-free interest rate of 4.12%; and
an expected life of twelve months. The value assigned to
the agent's warrants was $66,000.
(c) During the 2005 fiscal year, the Company completed a
non-brokered private placement financing of 355,000 units at a
price of $1.00 per unit, for gross proceeds of $355,000. Each
unit comprised one common share and one-half share purchase
warrant. Each full share purchase warrant entitles the holder
to purchase one additional common share for a period of two
years, at an exercise price of $1.50 per share on or before
February 7, 2006 and, thereafter, at $2.00 per share on or
before February 7, 2007. The Company issued 9,000 units having
the same terms as the private placement, at a fair value of
$9,000, in consideration as finder's fees on a portion of the
private placement. Certain directors of the Company and their
immediate family members have purchased 65,000 units of the
private placement.
(d) A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants at May 31, 2006 and 2005
and the changes for the years ending on those dates is as
follows:
2006 2005
Balance, beginning of year 688,500 582,365
Issued 3,675,000 182,000
Exercised (2,557,000) -
Expired (524,500) (75,865)
------------ ------------
Balance, end of year 1,282,000 688,500
============ ============
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
5. SHARE CAPITAL (continued)
The following table summarizes information about the warrants
outstanding and exercisable at May 31, 2006:
EXERCISE
PRICE NUMBER EXPIRY DATE
$
2.00 159,500 February 7, 2007
2.00 22,500 March 29, 2007
0.80 1,100,000 May 3, 2008
------------
1,282,000
============
(e) See also Note 13(a).
6. STOCK OPTIONS AND STOCK-BASED COMPENSATION
The Company has established a rolling stock option plan (the "Plan"),
in which the maximum number of common shares which can be reserved for
issuance under the Plan is 10% of the issued and outstanding shares of
the Company. The exercise price of the options is set at the Company's
closing share price on the day before the grant date, less allowable
discounts in accordance with the policies of the TSX Venture Exchange.
The options have a maximum term of five years.
During the 2006 fiscal year, the Company granted 720,000 (2005 -
178,500) stock options to the Company's directors, employees and
consultants and recorded compensation expense of $256,159 (2005 -
$138,725).
The fair value of stock options granted to directors, employees and
consultants is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for the grants
made during fiscal 2006 and 2005:
2006 2005
Risk-free interest rate 3.63% - 3.86% 2.69% - 3.07%
Estimated volatility 125% - 136% 146% - 147%
Expected life 9 months - 18 months 12 months - 18 months
Expected dividend yield 0% 0%
The weighted average fair value of stock options granted during the
year to the Company's directors, employees and consultants was $0.36
(2005 - $0.80) per share .
Option-pricing models require the use of estimates and assumptions
including the expected volatility. Changes in the underlying
assumptions can materially affect the fair value estimates and,
therefore, existing models do not necessarily provide reliable measure
of the fair value of the Company's stock options.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
6. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
A summary of the Company's outstanding stock options at May 31, 2006
and 2005 and the changes for the years ending on those dates is as
follows:
2006 2005
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE
$ $
Balance, beginning of year 217,500 1.30 70,000 2.50
Granted 720,000 0.62 178,500 1.04
Exercised - - (3,000) 2.50
Cancelled / expired (217,500) 1.30 (28,000) 2.50
------------ ------------
Balance, end of year 720,000 0.62 217,500 1.30
============ ============
The following table summarizes information about the stock options
outstanding and exercisable at May 31, 2006:
NUMBER NUMBER
OUTSTANDING EXERCISABLE EXERCISE PRICE EXPIRY DATE
$
220,000 220,000 0.50 November 10, 2008
350,000 350,000 0.62 January 17, 2009
150,000 25,000 0.80 August 21, 2007
------------ ------------
720,000 595,000
============ ============
See also Note 13(a).
7. CONTRIBUTED SURPLUS
The Company's contributed surplus as May 31, 2006 and 2005 is comprised
of the following:
2006 2005
$ $
Balance, beginning of year 286,125 154,000
Stock-based compensation on
stock options (Note 6) 256,159 138,725
Stock options exercised - (6,600)
Stock-based compensation on agent's
option and warrants (Note 5(b)) 178,500 -
Agent's option exercised (112,500) -
------------ ------------
Balance, end of year 608,284 286,125
============ ============
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
8. RELATED PARTY TRANSACTIONS
During fiscal 2006, the Company incurred $170,794 (2005 - $94,538) for
accounting and administration, management, professional and consulting
services provided by current and former directors and officers of the
Company. As at May 31, 2006, $17,210 (2005 - $15,615) remained
outstanding and has been included in accounts payable and accrued
liabilities.
See also Note 5.
9. INCOME TAXES
Future income tax assets and liabilities of the Company as at May 31,
2006 and 2005 are as follows:
2006 2005
$ $
Future income tax assets (liabilities)
Losses carried forward 2,492,600 2,516,300
Share issue costs 101,800 10,600
------------ -----------
2,594,400 2,526,900
Valuation allowance (2,594,400) (2,526,900)
------------ -----------
Net future income tax asset - -
============ ===========
The recovery of income taxes shown in the consolidated statements of
operations and deficit differs from the amounts obtained by applying
statutory rates to the loss before provision for income taxes due to
the following:
2006 2005
$ $
Income tax rate reconciliation
Combined federal and provincial
income tax rate 34.12% 35.62%
============ ============
Expected income tax recovery (252,700) (395,000)
Non-deductible stock-based compensation 87,400 49,400
Write-off of mineral resource interests - 250,400
Other (4,000) 2,400
Unrecognized benefit of income tax losses 169,300 92,800
------------ -------------
Actual income tax recovery - -
============ ============
As at May 31, 2006, the Company has accumulated non-capital losses for
income tax purposes of approximately $7.3 million, expiring from 2007
to 2016, the related benefits of which have not been recognized in
these financial statements as there is no reasonable assurance such
benefits will be realized.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
10. SEGMENTED INFORMATION
The Company operates in one industry segment, the exploration of
unproven mineral interests. The Company's current unproven mineral
interests are located in Mexico and its corporate assets are located in
Canada.
--------------------------------------------
2006
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES LOSS
$ $ $
Mineral operations (Mexico) 1,337,075 - (12,091)
Corporate (Canada) 3,634,481 36,566 (729,164)
------------ ------------ ------------
4,971,556 36,566 (741,255)
============ ============ ============
--------------------------------------------
2005
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES LOSS
$ $ $
Mineral operations (Mexico) 39,585 - (732,601)
Corporate (Canada) 247,731 19,601 (376,386)
------------ ------------ ------------
287,316 19,601 (1,108,987)
============ ============ ============
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments at May 31, 2006 and 2005, were
estimated based on relevant market information and the nature and terms
of financial instruments. Management is not aware of any factors which
would significantly affect the estimated fair market amounts, however,
such amounts have not been comprehensively revalued for purposes of
these financial statements. Disclosure subsequent to the balance sheet
dates and estimates of fair value at dates subsequent to May 31, 2006
and 2005, may differ significantly from that presented.
Fair value approximates the amounts reflected in the financial
statements for cash, amounts receivable and accounts payable and
accrued liabilities.
The Company may be subject to currency risk due to the fluctuations of
exchange rates between the Canadian dollar and other foreign
currencies. However, the Company is not subject to significant interest
and credit risks arising from these instruments.
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 2006 AND 2005
12. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash activities were conducted by the Company during fiscal 2006
and 2005 as follows:
2006 2005
$ $
Operating activities
Drilling advance - 57,221
Corporate finance fee (30,500) -
------------ ------------
(30,500) (57,221)
============ ============
Financing activities
Issuance of common shares for
non-cash consideration 480,500 25,600
Share issue costs (178,500) (9,000)
Contributed surplus 66,000 (6,600)
------------ ------------
368,000 10,000
============ ============
Investing activity
Expenditures on mineral interests (337,500) (67,221)
============ ============
Other supplementary cash flow information:
2006 2005
$ $
Interest paid in cash - -
============ ============
Income taxes paid in cash - -
============ ============
13. SUBSEQUENT EVENTS
(a) Subsequent to May 31, 2006, the Company:
i) completed a non-brokered private placement for 2,000,000
units at a price of $0.90 per unit for gross proceeds of
$1,800,000. Each unit comprised one common share and one
transferable share purchase warrant. Each warrant entitles
the holder to purchase one additional common share at an
exercise price of $1.15 per share in year one and $1.30
per share in year two and are subject to a forced
conversion provision which comes into effect once the
Company's common shares trade at 150% or more per share of
the exercise price of the warrants for a period of 45
consecutive trading days; and
ii) granted stock options to the Company's directors,
employees and consultants to acquire 500,000 common shares
over a five year period at $0.90 per share.
(b) See also Note 3(a).
SCHEDULE I
ROCHESTER RESOURCES LTD.
(FORMERLY HILTON RESOURCES LTD.)
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL INTERESTS
FOR THE YEARS ENDED MAY 31
MINA REAL EL NAYAR
PROJECT PROJECT
2006 2005
$ $
BALANCE - BEGINNING OF YEAR - 220,582
------------ ------------
EXPLORATION COSTS DURING THE YEAR
Access road construction - 40,022
Assays - 5,483
Camp costs 27,642 7,633
Consulting 339,189 63,442
Drilling - 62,612
Equipment rental 7,416 -
Exploration office 44,843 20,363
Fuel 2,238 9,018
Geological - 122,230
Geophysics - 2,932
Legal - 4,664
Permits and fees - 13,583
Other - 4,549
Repairs and maintenance 1,619 -
Salaries 156,928 34,776
Supplies 52,283 -
Topography - 5,886
Transport - 3,905
Travel 1,437 14,842
Vehicles 8,473 -
------------ ------------
642,068 415,940
------------ ------------
ACQUISITION COSTS
Option payments and other 149,084 66,536
Issuance of common shares 337,500 -
------------ ------------
486,584 66,536
------------ ------------
1,128,652 482,476
------------ ------------
BALANCE BEFORE WRITE-OFF 1,128,652 703,058
WRITE-OFF OF MINERAL INTERESTS (Note 3) - (703,058)
------------ ------------
BALANCE - END OF YEAR 1,128,652 -
============ ============
ROCHESTER RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED MAY 31, 2006
BACKGROUND
This discussion and analysis of financial position and results of operation is
prepared as at September 27, 2006 and should be read in conjunction with the
audited consolidated financial statements and the accompanying notes for the
years ended May 31, 2006 and 2005 of Rochester Resources Ltd. (the "Company").
Those financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP"). Except as otherwise
disclosed, all dollar figures included therein and in the following management
discussion and analysis ("MD&A") are quoted in Canadian dollars. Additional
information relevant to the Company's activities, can be found on SEDAR at
WWW.SEDAR.COM .
COMPANY OVERVIEW
The Company is currently a junior mineral exploration company actively engaged
in the acquisition, exploration and development of precious metals on mineral
interests located Mexico. In January 2006, the Company obtained an option to
purchase a 51% interest in 3,400 hectares of gold/silver mineral concessions
located in the State of Nayarit, Mexico (the "Mina Real Property"). Nayarit is
located in the Sierra Madre Occidental range, the largest epithermal precious
metal region in the world, which hosts the majority of Mexico's gold and silver
deposits. To date the Company has earned a 42.75% interest in the Mina Real
Property and is actively engaged with its joint venture partner in the
construction of a conventional milling operation with a start-up capacity of at
least 200 tonnes/day scheduled for completion in November 2006
On August 25, 2005, the Company completed a consolidation of its share capital
on a 1 new for 10 old basis and changed its name from Hilton Resources Ltd. to
Rochester Resources Ltd.
The Company is a reporting issuer in British Columbia, Alberta and Saskatchewan.
The Company trades on the TSX Venture Exchange ("TSXV") under the symbol "RCT",
the Frankfurt Stock Exchange Open Market under the trading Symbol "R5I" and on
the Over the Counter Bulletin ("OTCBB") under the symbol "RCTFF". The Company is
also registered with the U.S. Securities and Exchange Commission ("SEC") as a
foreign private issuer under the Securities Act of 1934.
FORWARD LOOKING STATEMENTS
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different than those
expressed or implied. The Company disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events, or otherwise.
PROPERTY UPDATE
On January 8, 2006, the Company entered into an option agreement to acquire up
to a 51% interest in the Mina Real gold/silver property comprising approximately
3,400 hectares located near Tepic, Nayarit, Mexico. Pursuant to the option
agreement, the Company paid an initial payment of US $110,000 and issued 250,000
common shares to the optionor entitling it to earn the following interests in
the Mina Real Property:
- an initial 20% interest on funding the first US $750,000 towards the
2006 Work Program;
- a further 20% interest on funding the second US $750,000 towards the
2006 Work Program; and
- a further 11% interest on payment of US $900,000, at the minimum rate
of US $75,000 per month commencing July 2006, with each payment vesting
a 0.9166% interest.
-1-
The Company has advanced the US $1.5 million under its 2006 Work Program
commitment and earned an initial 40% interest in the Mina Real Property. A
further 2.75% has been earned through payment of US $225,000, representing the
first three of twelve option installments that could increase the Company's
interest in Mina Real Property to 51% if all installments were made.
Negotiations are continuing with the Company's joint venture partner for
acquisition of the remaining interest.
In May 2006, the Company commenced Phase 1 of the 2006 Work Program. This was
completed in August 2006. To date five different vein structures have been
identified that outcrop for more than three kilometres within the Mina Real
concessions. Development mining is currently taking place on three parallel vein
structures known as Florida 1, 2 and 3 which had about 1,500 metres of drift
development work completed prior to the commencement of the 2006 Work Program.
This development area comprises an estimated average of about 250 metres of vein
structure laterally and an estimated depth of over 250 metres. An intrusion has
been identified north-west of the current Florida mine development followed by a
continuous outcropping of the Florida vein system for about 1.1 kilometres more
to the north-west.
The initial mine development plan for 2006 was to develop the Florida triple
vein structure south-east of the intrusion on levels 1140, 1160, 1185 and 1210
which equates to an area averaging over 125 metres vertically and 225 metres
laterally.
Phase 1 of the 2006 Work Program was to continue the excavation of Levels 1140,
1160 and 1185 of Florida 3 until the underground drift reached the projected
intrusion that intersects the ore horizon on the NW portion of the mineralized
structure. To date, the 2006 Work Program has resulted in the excavation of
Levels 1185, 1160 and 1140 of Florida 3 in mineralized rock over a length of 457
metres as indicated by channel samples taken approximately every two metres.
Independent assay results received on 290 metres of the 457 metres of channel
samples have averaged 12.10 grams/tonne of gold and 232.25 grams/tonne of silver
and a width of 1.09 metres. An additional 263 metres has been developed in waste
rock to prepare for ventilation, ore transportation and to cross a fault
bringing the total to 720 metres of development mining completed so far in 2006.
Assay results from Level 1185 channel samples produced an average grade of 16.6
grams/tonne of gold and 445 grams/tonne of silver and an average width of 1.08
metres over 80 of the 148 metres developed in mineralized rock. Level 1160, some
25 metres below, was excavated this year for a length of 223 metres in
mineralized rock averaging 10.78 grams/tonne of gold and 137 grams/tonne of
silver and 1.14 metres in width over the 140 metres independently assayed to
date. Level 1140 located approximately 20 metres below Level 1160, has been
excavated a total of 86 metres in mineralized rock with assay results received
to date on 70 metres averaging 9.6 grams/tonne of gold and 179 grams/tonne of
silver and 1.0 metre in width. Management is pleased with the fact that these
channel assay results average over 40% higher than the grade of the previously
announced 2005 bulk sample of 4,400 tonnes which produced an average mill head
grade of 8.3 grams/tonne of gold and 165 grams/tonne of silver. A further 90-100
metres of development mining will be initiated shortly on Level 1140 of Florida
3.
Phase 2 of the 2006 Work Program is underway and the plan is to duplicate the
development work carried out in Levels 1185, 1160 and 1140 of Florida 3 into
Florida 2 and 1. A short-hole underground diamond drill program will form part
of the Phase 2 exploration development of Florida veins 1 and 2 due to the close
proximity of these two parallel vein structures.
Completion of Phase 2 would allow the mine engineers to develop a mining
strategy to feed the 200 tonne/day mill from this explored area of Florida 1, 2
and 3. As indicated in earlier reports this segment of the Florida vein system
has been tested for continuity and grade at depth. In 2003, drill hole F2-03
intercepted the three Florida veins at about 50 metres below Level 1140. The
average length of the drill intersections was 2 metres and the grades ranged
from 0.52 - 12.73 grams/tonne of gold and 93.5 - 172 grams/tonne of silver. The
host rock in this structure appears competent which should result in reasonable
mine operating costs and efficient ore extraction.
Site preparation for a conventional cyanidation processing plant and related
infrastructure is substantially completed and the extensive concrete pad system
being constructed to accommodate the various components of the mill is nearing
completion. About 3.5 kilometres of new roadway including bridge workings have
been constructed between the base camp and the mill site. Power is available to
the site and agreement has been reached with the local power company to upgrade
the power lines to the mill site to accommodate power demands in excess of a 300
tonne/day milling operation.
-2-
Firm contracts for the purchase and delivery of key components of the mill have
been placed with suppliers with deliveries scheduled over the coming two months.
The plant is scheduled for completion by November of 2006 and will have an
initial start-up capacity of 200 tonnes/day and a design that can be easily
upgraded to at least 300 tonnes/day.
Dr. Alfredo Parra, the President of Mina Real Mexico S.A de C.V., is the
Company's in-house Qualified Person and QP Member of the Mining and
Metallurgical Society of America with special expertise in Mining. Dr. Parra has
reviewed the technical information contained herein. Channel samples reported
were assayed by a combination of two certified and independent laboratories, ALS
Chemex of North Vancouver, BC and SGS of Lakefield, Ontario. The Company has not
conducted an independent feasibility study on the Mina Real Project, which may
increase the risk that the planned operations are not economically viable. The
board has relied on the work of management, an outside consultant and the
project management in Mexico, who have extensive experience in similar size
projects from the construction and operational perspective.
The Company's primary strategic objective is to bring the Mina Real Project to
production status before the end of 2006. The Florida mine development plan is
on target and the results to date, as indicated above, reinforces managements'
view that sufficient mineralized feed is available to provide initial support
for a 200 tonne/day mill. The material produced from the ongoing excavations is
being stockpiled as initial mill feed and is estimated to reach over 6,000
tonnes by early November 2006. Tests will be carried out on this stockpile to
determine if screening out some oversize material could increase the grade of
the remaining mineralized mill feed. In addition, the channel samples from the
drift development completed so far in 2006 indicate there could be some ability
to selectively mine higher than average grade during the start-up months of the
mill.
SELECTED FINANCIAL DATA
The following selected financial information is derived from the audited annual
consolidated financial statements of the Company prepared in accordance with
Canadian GAAP.
--------------------------------------------
YEARS ENDED MAY 31,
--------------------------------------------
2006 2005 2004
$ $ $
------------ ------------ ------------
OPERATIONS:
Revenues Nil Nil Nil
Expenses (742,150) (391,177) (444,034)
Other items 895 (717,810) (138,361)
Income (loss) (741,255) (1,108,987) (582,395)
Basic and diluted income (loss)
per share (0.17) (0.56) (0.06)
Dividends per share Nil Nil Nil
BALANCE SHEET:
Working capital 3,536,076 245,246 550,932
Total assets 4,971,556 287,316 872,928
Total long-term liabilities Nil Nil Nil
The following selected financial information is derived from the unaudited
consolidated interim financial statements of the Company prepared in accordance
with Canadian GAAP.
------------------------------------------------- -------------------------------------------------
FISCAL 2006 FISCAL 2005
------------------------------------------------- -------------------------------------------------
THREE MONTH PERIODS ENDING MAY 31 FEB 28 NOV 30 AUG 31 MAY 31 FEB 28 NOV 30 AUG 31
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues Nil Nil Nil Nil Nil Nil Nil Nil
Expenses (237,338) (343,844) (118,492) (42,476) (62,813) (162,968) (129,420) (35,976)
Other items (22,415) 230 (17,003) 40,083 (718,338) 10,216 (20,034) 10,346
Net income (loss) (259,753) (343,614) (135,495) (2,393) (781,151) (152,752) (149,454) (25,630)
Basic and diluted
income (loss) per share (0.06) (0.07) (0.06) (0.00) (0.40) (0.08) (0.09) (0.01)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital 3,536,076 2,098,783 192,592 249,510 245,246 313,811 235,799 390,778
Total assets 4,971,556 2,338,844 214,439 274,800 287,316 1,060,962 783,112 860,506
Total long-term liabilities Nil Nil Nil Nil Nil Nil Nil Nil
------------------------------------------------- -------------------------------------------------
-3-
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 2006 COMPARED TO THREE MONTHS ENDED MAY 31, 2005
During the three months ended May 31, 2006 (the "May 2006 Quarter") the Company
reported a net loss of $259,753, compared to a net loss of $781,151 for the
three months ended May 31, 2005 (the "May 2005 Quarter"), a decrease in loss of
$521,398. The primary factor for the decrease was due to a $703,058 write-off of
mineral interests during the May 2005 Quarter, partially offset by an overall
increase in general expenses due to increased Company activities in the May 2006
Quarter.
YEAR ENDED MAY 31, 2006 COMPARED TO YEAR ENDED MAY 31, 2005
During fiscal 2006, the Company recorded a loss of $741,255 ($0.17 per share)
compared to a loss of $1,108,987 ($0.56 per share) for fiscal 2005. The $367,732
decrease in loss in fiscal 2006 compared to fiscal 2005 is primarily attributed
to the $703,058 write-off of the El Nayar Project in fiscal 2005, partially
offset by an increase in general and administrative expenses in fiscal 2006 as a
result of increased Company activities.
General and administrative expenses of $742,150 were reported in fiscal 2006, an
increase of $350,973, from $391,177 in fiscal 2005. Specific expenses of note
during fiscal 2006 and 2005 are as follows:
- during fiscal 2006, the Company incurred accounting, management
and administrative fees of $53,415 (2005 - $78,788) provided by
Chase Management Ltd., a private company owned by Mr. Nick
DeMare, a former director of the Company;
- during fiscal 2006 compensation totalling $134,338 was paid to
senior executives;
- during fiscal 2006, the Company recorded a write-off of $10,000
due to the uncertainty of collection of the amount receivable
from the Company's former joint venture partner. The Company is
pursuing collection;
- during fiscal 2006, the Company incurred professional fees of
$91,167. The amount includes $42,500 paid to Canaccord Capital
Corporation for fiscal advisory services and $31,917 paid to
Company directors for professional services;
- regulatory fees, shareholder costs and transfer agent fees
increased by $18,091, from $21,416 in fiscal 2005 to $39,507 in
fiscal 2006, mainly due to the costs of the Company's share
consolidation and name change conducted in fiscal 2006;
- during fiscal 2006, the Company issued 50,000 common shares, at a
fair value of $30,500, to Canaccord Capital Corporation for
corporate finance fees;
- recorded general exploration costs of $24,588 for remaining
exploration and related costs on the El Nayar Project in Mexico
which was discontinued at the end of the 2005 fiscal year, and
review of potential mineral properties;
- during fiscal 2006, the Company sold marketable securities for
$47,280, resulting in a gain of $40,980;
- during fiscal 2006, the Company recorded $256,159 (2005 -
$138,725) for non-cash stock-based compensation on the granting
of options;
- during fiscal 2006, the Company recorded corporate development
costs of $37,360 relating to participation in international
investment conferences to increase market awareness; and
- during fiscal 2006, the Company incurred travel costs of $24,207
(2005 - $12,173) for ongoing mine site visits to Mexico and
investment conferences.
As the Company is in the exploration stage, it has no revenue. Interest income
is generated from cash held with the Company's financial institution. During
fiscal 2006, the Company reported interest income of $36,506 as compared to
$2,362 during fiscal 2005. The increase is attributed to higher levels of cash
held during fiscal 2006.
During fiscal 2006 the Company spent $791,152 on exploration activities on the
Mina Real Property. Exploration activities conducted in fiscal 2006 are
described in "Exploration Projects" in this MD&A.
FINANCIAL CONDITION / CAPITAL RESOURCES
During fiscal 2006, the Company completed private placements for 5 million units
at $0.50 per unit for gross proceeds of $2.5 million and for 1 million units at
$0.72 per unit for gross proceeds of $720,000. The Company also received
$1,671,050 on the exercises of warrants and agent's option.
-4-
As at May 31, 2006, the Company had working capital of $3,536,076. Subsequent to
May 31, 2006, the Company completed a private placement for 2 million units at a
price of $0.90 per unit for gross proceeds of $1,800,000.
Since May 31, 2006 the Company has advanced a further US $853,000 representing
the balance of its US $1.5 million commitment under the 2006 Mina Real Work
Program and US $1.54 million under the US $2.5 million development funding
facility arranged in June 2006 to finance the construction of the mill and
related infrastructure. The Company's current cash position of $2.2 million is
sufficient to meet the balance of its current funding commitment to the Mina
Real Property but may not be sufficient to accommodate a significant increase in
this commitment if required to complete construction of the mill facility and
provide adequate working capital for start-up operations at the Mina Real
Property. In addition, exploration and development activities may change due to
ongoing results and recommendations, or the Company may acquire additional
properties which may entail significant funding or exploration commitments. As a
result, the Company may be required to obtain additional financing. While it has
been successful in the past, there can be no assurance that the Company will be
successful in raising future financing should the need arise.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
PROPOSED TRANSACTIONS
The Company has no proposed transactions.
CRITICAL ACCOUNTING ESTIMATES
A detailed summary of all the Company's significant accounting policies is
included in Note 2 to the May 31, 2006 audited consolidated financial
statements.
CHANGES IN ACCOUNTING POLICIES
The Company has no changes in accounting policies.
TRANSACTIONS WITH RELATED PARTIES
During fiscal 2006, the Company incurred $170,794 (2005 - $94,538) for
accounting and administration, management, professional and consulting services
provided by current and former directors and officers of the Company. As at May
31, 2006, $17,210 (2005 - $15,615) remained outstanding and has been included in
accounts payable and accrued liabilities.
During fiscal 2006, certain directors and officers of the Company have purchased
270,000 units (2005 - 65,000 units) on a private placement.
RISKS AND UNCERTAINTIES
The Company competes with other mining companies, some of which have greater
financial resources and technical facilities, for the acquisition of mineral
concessions, claims and other interests, as well as for the recruitment and
retention of qualified employees.
The Company is in compliance in all material regulations applicable to its
exploration activities. Existing and possible future environmental legislation,
regulations and actions could cause additional expense, capital expenditures,
restrictions and delays in the activities of the Company, the extent of which
cannot be predicted. Before production can commence on any properties, the
Company must obtain regulatory and environmental approvals. There is no
assurance that such approvals can be obtained on a timely basis or at all. The
cost of compliance with changes in governmental regulations has the potential to
reduce the profitability of operations.
The Company's activities are conducted in Mexico. Consequently, the Company is
subject to certain risks, including currency fluctuations and possible political
or economic instability which may result in the impairment or loss of mining
title or other mineral rights, and mineral exploration and mining activities may
be affected in varying degrees by political stability and governmental
regulations relating to the mining industry.
-5-
INVESTOR RELATIONS ACTIVITIES
The Company had an investor relations arrangement with Eland Jennings Inc.
("Eland Jennings") at a rate of $3,000 per month. The arrangement was terminated
on June 28, 2005. During fiscal 2006, the Company paid $3,000 (2005 - $36,000)
to Eland Jennings.
Effective February 28, 2006, the Company entered into an agreement with Accent
Marketing Limited ("Accent") to provide market awareness and investor relation
activities in Europe. During fiscal 2006, the Company paid $6,497. The Company
has granted stock options to Accent to acquire 150,000 common shares at a price
of $0.80 per common share, expiring on August 21, 2007. The options vest on a
quarterly basis over an eighteen month period.
OUTSTANDING SHARE DATA
The Company's authorized share capital is unlimited common shares without par
value. As at September 27, 2006, there were 13,237,735 issued and outstanding
common shares. In addition there were 1,220,000 stock options outstanding and
exercisable at exercise prices ranging from $0.50 to $0.90 per share and
3,282,000 warrants outstanding, with exercise prices ranging from $0.80 to $2.00
per share.
-6-
FORM 52-109F1 CERTIFICATION OF ANNUAL FILINGS
I, Douglas Good, the President and Chief Executive Officer of Rochester
Resources Ltd., certify that:
1. I have reviewed the annual filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of Rochester Resources Ltd. (the issuer)
for the period ending May 31, 2006;
2. Based on my knowledge, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the annual filings;
3. Based on my knowledge, the annual financial statements together with
the other financial information included in the annual filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the annual filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the annual filings are being prepared;
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
(c) evaluated the effectiveness of the issuer's disclosure
controls and procedures as of the end of the period covered by
the annual filings and have caused the issuer to disclose in
the annual MD&A our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by the annual filings based on such evaluation; and
5. I have caused the issuer to disclose in the annual MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: September 28, 2006
/s/ DOUGLAS GOOD
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Douglas Good, President & CEO
FORM 52-109F1 CERTIFICATION OF ANNUAL FILINGS
I, Douglas Good, the President and Chief Executive Officer of Rochester
Resources Ltd., and performing similar functions to that of a Chief Financial
Officer, certify that:
1. I have reviewed the annual filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of Rochester Resources Ltd. (the issuer)
for the period ending May 31, 2006;
2. Based on my knowledge, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the annual filings;
3. Based on my knowledge, the annual financial statements together with
the other financial information included in the annual filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the annual filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the annual filings are being prepared;
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
(c) evaluated the effectiveness of the issuer's disclosure
controls and procedures as of the end of the period covered by
the annual filings and have caused the issuer to disclose in
the annual MD&A our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by the annual filings based on such evaluation; and
5. I have caused the issuer to disclose in the annual MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: September 28, 2006
/s/ DOUGLAS GOOD
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Douglas Good, President & CEO