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 OCTOBER, 2007.
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: October 31, 2007 /s/ Nick DeMare
----------------------------- -------------------------------------
Nick DeMare,
Chairman
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
AUGUST 31, 2007
(Unaudited - Prepared by Management)
MANAGEMENT'S COMMENTS ON UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements of
Rochester Resources Ltd. for the three months ended August 31, 2007, have been
prepared by and are the responsibility of the Company's management. These
statements have not been reviewed by the Company's external auditors.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited - Prepared by Management)
AUGUST 31, MAY 31,
2007 2007
$ $
ASSETS
CURRENT ASSETS
Cash 376,337 1,680,753
Amounts receivable (Note 3) 679,342 269,997
Prepaid expenses and deposits 39,867 52,580
Inventories (Note 4) 1,037,469 116,706
------------ ------------
2,133,015 2,120,036
IVA TAX RECEIVABLE 1,187,815 1,045,413
MINERAL PROPERTY INTERESTS (Note 5) 25,782,846 26,240,492
PROPERTY, PLANT AND EQUIPMENT (Note 6) 1,435,524 1,364,623
------------ ------------
30,539,200 30,770,564
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 497,389 388,386
Current portion of long-term debt (Note 7) 950,760 962,910
------------ ------------
1,448,149 1,351,296
LONG-TERM DEBT (Note 7) 368,740 615,193
ASSET RETIREMENT OBLIGATION (Note 15) 603,447 590,894
FUTURE INCOME TAX LIABILITIES 4,300,000 4,300,000
------------ ------------
6,720,336 6,857,383
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 8) 96,612,893 96,437,468
CONTRIBUTED SURPLUS (Note 10) 3,382,942 2,891,157
DEFICIT (76,176,971) (75,415,444)
------------ ------------
23,818,864 23,913,181
------------ ------------
30,539,200 30,770,564
============ ============
NATURE OF OPERATIONS (Note 1)
SUBSEQUENT EVENTS (Note 16)
APPROVED BY THE BOARD
/s/ ALFREDO PARRA , Director
- --------------------
/s/ NICK DEMARE , Director
- --------------------
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31
(Unaudited - Prepared by Management)
2007 2006
$ $
REVENUE 1,766,783 -
COST OF OPERATIONS (1,315,838) -
DEPLETION AND AMORTIZATION (237,407) -
------------ ------------
OPERATING PROFIT 213,538 -
------------ ------------
EXPENSES
General and administration 394,199 107,137
Amortization - 5,400
Accretion of reclamation obligation 12,553 -
Interest expense on long-term debt 34,546 -
Stock-based compensation 506,785 9,000
------------ ------------
948,083 121,537
------------ ------------
LOSS BEFORE OTHER ITEMS (734,545) (121,537)
------------ ------------
OTHER ITEMS
Interest and other income 4,168 24,270
Foreign exchange loss (31,150) (39,239)
------------ ------------
(26,982) (14,969)
------------ ------------
NET COMPREHENSIVE LOSS FOR THE PERIOD (761,527) (136,506)
DEFICIT - BEGINNING OF PERIOD (75,415,444) (71,741,383)
------------ ------------
DEFICIT - END OF PERIOD (76,176,971) (71,877,889)
============ ============
BASIC AND DILUTED LOSS PER SHARE $(0.03) $(0.01)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 29,719,129 11,993,291
============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31,
(Unaudited - Prepared by Management)
2007 2006
$ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (761,527) (136,506)
Adjustment for items not involving cash
Depletion and amortization 237,407 5,400
Accretion of reclamation obligation 12,553 -
Stock-based compensation 506,785 9,000
Interest expense 9,553 -
Foreign exchange (20,575) -
------------ ------------
(15,804) (122,106)
Increase in amounts receivable (409,345) (222,889)
Decrease in prepaid expenses and deposits 12,713 1,575
Increase in inventories (11,935) -
Increase in IVA tax receivable (142,402) -
Increase (decrease) in accounts payable and
accrued liabilities 77,631 (94,399)
------------ ------------
(489,142) (437,819)
------------ ------------
FINANCING ACTIVITIES
Payment on long-term debt (238,028) -
Issuance of common shares 160,425 1,800,000
Share issue costs - (18,623)
------------ ------------
(77,603) 1,781,377
------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (102,215) (14,537)
Additions to mineral property interests (635,456) (1,585,533)
------------ ------------
(737,671) (1,600,070)
------------ ------------
DECREASE IN CASH FOR THE PERIOD (1,304,416) (256,512)
CASH - BEGINNING OF PERIOD 1,680,753 3,657,676
------------ ------------
CASH - END OF PERIOD 376,337 3,401,164
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION (Note 14)
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
1. NATURE OF OPERATIONS
Pursuant to agreements entered into in January 2006 and December 2006,
Rochester Resources Ltd. (the "Company") has acquired a 100% undivided
interest in the Mina Real Property, located in Nayarit State, Mexico.
The Company, through its acquisition of the Mina Real Property is
engaged in silver mining, as well as related activities including
exploration and development in Mexico. As at the end of December 2006
the Company has completed construction of the cyanidation processing
plant and related infrastructure at the Mina Real Property.
Commissioning of the mill commenced in January 2007. Effective June 1,
2007, the Mina Real Property was determined by management to have
achieved commercial production.
As at August 31, 2007 the Company had working capital of $684,866. The
Company anticipates that it will require additional funding to conduct
a planned increase in the capacity of the mill facility, to provide
adequate working capital for operations, exploration and development
and to retire its long-term debt.
These interim 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. The Company's ability to continue as a going
concern is dependent on the Company's ability to raise equity or other
financing as required and ultimately achieve profitable operations.
These financial statements do not include any adjustments to the amount
and classification of recorded assets and liabilities that night be
necessary should the Company be unable to continue as a going concern.
See also Note 16.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the amounts reported in the interim consolidated financial statements
and accompanying notes. Actual results could differ from those
estimates. The interim consolidated financial statements have, in
management's opinion, been properly prepared using careful judgement
with reasonable limits of materiality. These interim consolidated
financial statements should be read in conjunction with the most recent
annual consolidated financial statements. The significant accounting
policies follow that of the most recently reported annual financial
statements.
ACCOUNTING POLICIES ADOPTED
Revenue Recognition
Revenue from the sale of metals is recognized, net of related royalties
and sales commissions, when: (i) persuasive evidence of an arrangement
exists; (ii) the risks and rewards of ownership pass to the purchaser
including delivery of the product; (iii) the selling price is fixed or
determinable; and (iv) collectibility is reasonably assured. Settlement
adjustments, if any, are reflected in revenue when the amounts are
known.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENT ACCOUNTING PRONOUNCEMENTS
Effective June 1, 2007 the Company has adopted two new accounting
standards related to financial instruments that were issued by the
Canadian Institute of Chartered Accountants. These accounting policy
changes were adopted on a prospective basis with no restatement of
prior period financial statements. The new standards and accounting
policy changes are as follows:
Financial Instruments - Recognition and Measurement (Section 3855)
In accordance with this new standard, the Company now classifies all
financial instruments as either held-to-maturity, available-for-sale,
held-for-trading, loans and receivables, or other financial
liabilities. Financial assets held-to-maturity, loans and receivables
and financial liabilities other than those held-for-trading are
measured at amortized cost. Available-for-sale instruments are measured
at fair value with unrealized gains and losses recognized in other
comprehensive income. Instruments classified as held-for-trading are
measured at fair value with unrealized gains and losses recognized on
the statement of loss.
Upon adoption of this new standard, the Company has designated its cash
and cash equivalents as held-for-trading, which are measured at fair
value. Exploration advances and other receivables are classified as
loans and receivables, which are measured at amortized cost. Accounts
payable and accrued liabilities are classified as other financial
liabilities, which are measured at amortized cost. As at August 31,2007
the Company did not have any financial assets classified as
available-for-sale and therefore the adoption of the standards noted
above had no effect on the presentation of the Company 's financial
statements.
Comprehensive Income (Section 1530)
Comprehensive income is the change in shareholders' equity during a
period from transactions and other events and circumstances from
non-owner sources. In accordance with this new standard, the Company
now reports a statement of comprehensive income and a new category,
accumulated other comprehensive income, in the shareholders' equity
section of the balance sheet. The components of this new category will
include unrealized gains and losses on financial assets classified as
available-for-sale.
COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform
with the presentation as at and for the three month period ended August
31, 2007.
3. AMOUNTS RECEIVABLE
AUGUST 31, MAY 31,
2007 2007
$ $
Production receivable 623,819 190,812
Other receivables 55,523 79,185
------------ ------------
679,342 269,997
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
4. INVENTORIES
AUGUST 31, MAY 31,
2007 2007
$ $
Finished product 19,881 -
Stock-piled ore 888,947 -
Mine stores, supplies and other 128,641 116,706
------------ ------------
1,037,469 116,706
============ ============
5. MINERAL PROPERTY INTERESTS
AUGUST 31, MAY 31,
2007 2007
$ $
Producing
Mina Real Property
Acquisition and other 18,458,507 18,458,507
Deferred exploration and development costs 7,588,071 7,948,907
Accumulated depletion (407,200) (201,108)
------------ ------------
25,639,378 26,206,306
------------ ------------
Non-Producing
Santa Fe Property
Acquisition and other 63,094 34,186
Deferred exploration 80,374 -
------------ ------------
143,468 34,186
------------ ------------
25,782,846 26,240,492
============ ============
(a) Mina Real Property
In January 2006 the Company entered into an option agreement
with ALB Holdings Ltd. ("ALB") 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 3,377 hectares. Under the agreement the Company
made an option payment of US $110,000 and issued 250,000
common shares, at a fair value of $337,500. The Company could
then earn its interests, as follows:
i) an initial 20% interest on funding the initial US
$750,000;
ii) a further 20% interest on funding a further US
$750,000; and
iii) a further 11% interest on payment of US $900,000, at
the minimum rate of US $75,000 per month, commencing
July 1, 2006, with each payment vesting at 0.9166%
interest.
On October 20, 2006 the Company and ALB completed negotiations
and ALB agreed to waive the requirement for any further
payments and the Company was deemed to have fully earned its
51% interest in the Mina Real Property. On December 1, 2006
the Company acquired the remaining 49% interest in the Mina
Real Property through the acquisition of ALB Holdings Ltd.
through the issuance of 10,500,000 common shares of the
Company.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
5. MINERAL PROPERTY INTERESTS (continued)
The Company has also staked an additional 3,981 hectares
adjacent to the Mina Real Property.
(b) Santa Fe Property
On March 12, 2007 the Company entered into an option agreement
to acquire a 70% interest in the Santa Fe Property located in
Tepic, Mexico. Under the terms of the agreement, the Company
has agreed to implement a program of exploration to determine
if the Santa Fe Property can be economically exploited. In
addition, if the exploration work is successful, the Company
has agreed to provide the necessary capital to construct a
processing plant capable of processing a minimum of 200 tonnes
per day. The Company will pay a monthly fee of US $10,000
while it is conducting exploration and development on the
Santa Fe Property.
6. PROPERTY, PLANT AND EQUIPMENT
AUGUST 31, 2007
--------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
Motor vehicles 69,907 11,339 58,568
Office equipment 17,071 829 16,242
Mill and mine equipment 945,802 45,722 900,080
Buildings 157,082 5,796 151,286
Land 309,348 - 309,348
------------ ------------ ------------
1,499,210 63,686 1,435,524
============ ============ ============
MAY 31, 2007
--------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
Motor vehicles 69,907 6,928 62,979
Office equipment 16,060 402 15,658
Mill and mine equipment 883,184 22,079 861,105
Buildings 118,495 2,962 115,533
Land 309,348 - 309,348
------------ ------------ ------------
1,396,994 32,371 1,364,623
============ ============ ============
7. LONG-TERM DEBT
AUGUST 31, MAY 31,
2007 2007
$ $
Amount due to Huajicari 1,319,500 1,578,103
Less: current portion (950,760) (962,910)
------------ ------------
368,740 615,193
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
7. LONG-TERM DEBT (continued)
The amount due to Compania Minera Huajicari ("Huajicari") is unsecured
and carries interest at a rate of 10% per annum, with repayment on a
monthly basis of US $75,000 plus accrued interest. As at August 31,
2007 interest of $9,553 remained outstanding and has been included in
accounts payable and accrued liabilities.
8. SHARE CAPITAL
Authorized: Unlimited common shares without par value
Issued: THREE MONTHS ENDED YEAR-ENDED
AUGUST 31, 2007 MAY 31,2007
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 29,665,438 96,437,468 11,237,735 75,890,208
------------ ------------ ------------ ------------
Issued during the period
For cash
Private placements - - 4,600,456 6,575,524
Exercise of warrants 137,300 141,825 2,864,247 3,188,286
Exercise of options 30,000 18,600 463,000 302,360
Reallocation from contributed surplus
relating to the exercise of options - 15,000 - 226,662
Reallocation from contributed surplus
relating to the exercise of agent's
option and related warrants - - - 32,965
For acquisition of ALB - - 10,500,000 10,500,000
------------ ------------ ------------ ------------
167,300 175,425 18,427,703 20,825,797
Less: share issue costs - - - (278,537)
------------ ------------ ------------ ------------
167,300 175,425 18,427,703 20,547,260
------------ ------------ ------------ ------------
Balance, end of period 29,832,738 96,612,893 29,665,438 96,437,468
============ ============ ============ ============
A summary of the number of common shares reserved pursuant to the
Company's outstanding warrants at August 31, 2007 and 2006 and the
changes for the three months ending on those dates is as follows:
2007 2006
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
$ $
Balance, beginning of period 2,363,458 1.90 1,282,000 0.97
Issued - - 2,000,000 1.15
Exercised (137,300) 1.03 - -
------------ ------------
Balance, end of period 2,226,158 1.96 3,282,000 1.08
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
8. SHARE CAPITAL (continued)
The following table summarizes information about the warrants
outstanding and exercisable at August 31, 2007:
EXERCISE
NUMBER PRICE EXPIRY DATE
$
352,659 0.80 May 3, 2008
573,500 1.40 December 11, 2008
74,999 2.25 February 2, 2008
525,000 2.25 February 12, 2008
700,000 2.75 November 17, 2008
------------
2,226,158
============
See also Note 16.
9. 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 three months ended August 31, 2007 , the Company recorded
compensation expense of $44,625 (2006 - $9,000) on stock options
granted to consultants which vested during the period.
During the three months ended August 31, 2007, the Company granted
424,000 (2006 - nil) stock options to the Company's directors,
employees and consultants and recorded compensation expense of
$462,160.
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 the three months ended August 31, 2007 and 2006:
2007 2006
Risk-free interest rate 4.51% - 4.71% 4.12%
Estimated volatility 99% 109%
Expected life 2.3 years - 3 years 0.5 year
Expected dividend yield 0% 0%
The weighted average fair value of stock options granted during the
three months ended August 31, 2007 to the Company's directors,
employees and consultants was $1.09 (2006 - nil) 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.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
9. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
A summary of the Company's outstanding stock options at August 31, 2007
and 2006 and the changes for the three months ending on those dates is
as follows:
2007 2006
---------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE
$ $
Balance, beginning of period 2,582,000 1.57 720,000 0.62
Granted 524,000 1.65 - -
Exercised (30,000) 0.62 - -
Cancelled/Expired (330,000) 1.77 - -
------------ ------------
Balance, end of period 2,746,000 1.57 720,000 0.62
============ ============
The following table summarizes information about the stock options
outstanding and exercisable at August 31, 2007:
NUMBER NUMBER EXERCISE
OUTSTANDING EXERCISABLE PRICE EXPIRY DATE
$
27,500 27,500 0.50 November 10, 2008
204,500 204,500 0.62 January 17, 2009
150,000 112,500 1.40 November 24, 2009
355,000 355,000 0.90 September 5, 2011
1,535,000 1,535,000 1.85 January 8, 2010
50,000 - 2.15 February 14, 2010
100,000 - 1.65 June 8, 2010
324,000 324,000 1.65 June 12, 2010
------------ ------------
2,746,000 2,558,500
============ ============
See also Note 16(b).
10. CONTRIBUTED SURPLUS
The Company's contributed surplus as August 31, 2007 and 2006 and the
changes for the three months ending on those dates is presented below:
2007 2006
$ $
Balance, beginning of period 2,891,157 608,284
Stock-based compensation on stock
options (Note 9) 506,785 9,000
Stock options exercised (15,000) -
------------ ------------
Balance, end of period 3,382,942 617,284
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
11. RELATED PARTY TRANSACTIONS
During the three months ended August 31, 2007 and 2006 the Company was
charged for various services provided by companies controlled by
current and former directors and officers of the Company, as follows:
2007 2006
$ $
Accounting and administration 17,370 15,496
Management fees - 19,500
Professional fees 44,144 15,000
------------ ------------
61,514 49,996
============= ============
These fees have been either expensed to operations or capitalized to
mineral property interest based on the nature of the expenditures. As
at August 31, 2007, accounts payable and accrued liabilities include
$24,659 (2006 - $25,996) due to these related parties. These
transactions were measured at the exchanged amount which was the amount
of consideration established and agreed to by the related parties.
12. SEGMENTED INFORMATION
The Company operates in one industry segment, the acquisition,
exploration and development of mineral interests. The Company's mineral
operations are located in Mexico and its corporate assets are located
in Canada.
AUGUST 31, 2007
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES INCOME (LOSS)
$ $ $
Mineral operations(Mexico) 30,142,257 1,766,783 3,021
Corporate (Canada) 396,943 4,168 (764,548)
------------ ------------ ------------
30,539,200 1,770,951 (761,527)
============ ============ ============
MAY 31, 2007
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES LOSS
$ $ $
Mineral operations(Mexico) 29,217,261 - (113,548)
Corporate (Canada) 1,553,303 46,622 (3,560,513)
------------ ------------ ------------
30,770,564 46,622 (3,674,061)
============ ============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments at August 31, 2007 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 August 31,
2007 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 due to their relative short periods to maturity. In
addition, the fair value of long-term debt is approximated by their
carrying amount as the debt bears a fair market rate of interest.
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.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash activities were conducted by the Company during the three
months ended August 31, 2007 and 2006 as follows:
2007 2006
$ $
Financing activities
Issuance of common shares non-cash
consideration 15,000 -
Contributed surplus (15,000) -
------------ ------------
- -
============ ============
Investing activity
Additions to mineral property interests (345,623) -
============ ============
Operating activity
Increase in accounts payable and
accrued liabilities 345,623 -
============ ============
Other supplemental cash flow information:
2007 2006
$ $
Interest paid in cash 37,031 -
============ ============
Income taxes paid in cash - -
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 2007
(Unaudited - Prepared by Management)
15. ASSET RETIREMENT OBLIGATION
A summary of the Company's reclamation obligation on the Mina Real
Property at August 31, 2007 and 2006 and the changes for the three
months ended on those dates is as follows:
2007 2006
$ $
Balance, beginning of period 590,894 -
Accretion 12,553 -
------------ ------------
Balance, end of period 603,447 -
============ ============
The total undiscounted amount of estimated cash flows required to
settle the Company's estimated obligation is $750,000 which has been
discounted using a credit adjusted risk free rate of 8.5% and inflation
rate of 4%. The present value of the reclamation liability may be
subject to change based on management's current estimates, changes in
remediation technology or changes to the applicable laws and
regulations. Such changes will be recorded in the accounts of the
Company as they occur.
16. SUBSEQUENT EVENTS
(a) On October 25, 2007 the Company completed a private placement
of 2,000,000 units at $2.00 per unit for gross proceeds of
$4,000,000. Each unit comprises one common share and one-half
share purchase warrant. One full warrant entitles the holder
to purchase an additional common share at an exercise price of
$2.25 per share for a period of 18 month. Canaccord Capital
Corp. (the "Agent") was paid a commission of $40,274 cash and
126,113 units (the "Agent's Units") at a fair value of
$252,226. Each Agent's Unit comprises one common shares and
one-half share purchase warrant, with the same exercise terms
as the purchase warrants. The Company also paid Canaccord an
administration fee of $15,000, a corporate finance fee of
125,000 common shares of the Company and issued 146,250
warrants (the "Agent's Warrants"). Each Agent's Warrant is
exercisable into a common share at an exercise price of $2.00
per share for a period of 18 months.
(b) On October 26, 2007, the Company granted stock options to its
officers, directors, employees and consultants to purchase up
to 650,000 shares of the Company at a price of $2.12 per
share, for a period of three years.
ROCHESTER RESORUCES LTD.
Management's Discussion and Analysis For the
Three Month Period Ended August 31, 2007
Suite 1305 - 1090 Georgia Street, Vancouver, B.C., Canada V6E 3V7
Tel: (604) 685-9316 Fax: (604) 683-1585 www.rochesterresourcesltd.com
RCT (TSX Venture Exchange)
ROCHESTER RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE MONTH PERIOD ENDED AUGUST 31, 2007
The following Management's Discussion and Analysis ("MD&A") of Rochester
Resources Ltd. ("Rochester" or the "Company") is prepared as at October 29, 2007
and should be read in conjunction with the Company's unaudited interim
consolidated financial statements and accompanying notes for the three month
period ended August 31, 2007, which are available along with further information
on the Company including any news releases and historical reports referred to in
this MD&A on the SEDAR website at www.sedar.com. 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 .
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This MD&A contains certain forward looking statements that involve risks and
uncertainties such as statements of the Company's plans, objectives, strategies,
expectations, and intentions. The words "may", "would", "could", "will",
"intend", "plan", "believe", "estimate", "expect" and similar expressions, as
they relate to the Company, or its management, are intended to identify such
forward looking statements. Many factors could cause the Company's actual
results, performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by such
forward looking statements, including those factors discussed below and in
filings made with the Canadian securities regulatory authorities. Should one or
more of these risk factors or uncertainties materialize, or should assumptions
underlying the forward looking statements prove incorrect, actual results may
vary materially from those described herein as intended, planned, anticipated,
believed, estimated or expected. The Company does not intend, and does not
assume any obligation to update these forward looking statements.
COMPANY OVERVIEW
The Company is a junior gold/silver producer actively engaged in the exploration
and development of its Mina Real and Santa Fe Properties, comprising 11,181
hectares of gold/silver mineral concessions located in the State of Nayarit,
Mexico. 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. The Company substantially completed the
construction of a cyanidation processing plant at the end of December 2006.
Initial milling operations commenced in January 2007 with the commissioning
process being completed by May 31, 2007. The Company has, in a very compressed
time frame, acquired, developed and brought into production a gold property in
Mexico. The Company now has an operating mill which should soon be generating
significant cash flow from operations. The Company is planning an aggressive
exploration development and expansion program utilizing funds raised in the
capital markets and cash flow from operations to assist in the expansion of its
property resource and production capabilities.
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.
CHANGES TO THE BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY
On June 8, 2007, Mr. Nick DeMare, was appointed to the Board and replaced Mr.
Douglas Good as Chairman.
On August 10, 2007 the Company announced that Mr. Eduardo Luna, Chairman of
Silver Wheaton Corp. and recently retired President of Goldcorp Inc's Mexican
mining operations, joined the board of Rochester. Mr. Luna replaced Mr. Gil
Leathley who moved to the Mining Advisory Board.
- 1 -
PROPERTY UPDATE
OVERVIEW
Effective December 1, 2006, the balance of the 49% interest in the Mina Real
Property was acquired by the Company though the issuance of 10,500,000 common
shares in exchange for all of the outstanding shares of ALB. The sole asset of
ALB is its 49% equity interest in Mina Real Mexico SA de CV ("Mina Real Mexico")
and the only liability of ALB is an underlying obligation which, as of August
31, 2007, stands at US $1,250,000 to an ex-partner and a 1% net smelter royalty
obligation on its interest in the Mina Real Project. On January 30, 2007, the
Company added to its land position by staking an additional 3,981 hectares
adjacent to the Mina Real property. The Company now holds a 100% interest in the
Mina Real gold/silver property comprising 7,358 hectares of exploration and
mining concessions located east of the capital city of Tepic, in the state of
Nayarit, Mexico.
On March 12, 2007, the Company entered into an option agreement to acquire a 70%
interest in the Santa Fe gold-silver property located immediately east of its
high-grade Mina Real Property in the State of Nayarit, Mexico. The Santa Fe
Property covers approximately 3,823 hectares, and previous work has identified
ten zones of epithermal veining and mineralization on the property. This brings
the Company's total land package to 11,181 hectares.
MILL OPERATIONS
Commissioning of the Mina Real mill began in January 2007 and the first gold and
silver precipitate was delivered to the refinery in early February. Since May
31, 2007 the mill has been in commercial production and operating in a
satisfactory manner with some disruptions in production being experienced. June
production was particularly impacted due to down time associated with
intermittent power outages being experienced from our primary supplier of
electricity. A second back-up power generator has been put into operation which
now provides the power capacity to operate when there is disruption in service
from the main grid. Further improvements are being implemented to attain more
accurate and continuous reconciliation of the throughput tonnage, production,
and deliveries to the refinery.
Since May 2007, production has ramped up steadily from average production levels
of 150 tonnes/day to average levels of about 200 tonnes/day by the end of the
first fiscal quarter. The current recovery rate for gold is surpassing 90% and
beginning to approach our initial target of 94%. Recovery rates for silver are
still averaging between 40% and 60%. Additional metallurgical testing is in
process to define the necessary modifications to improve the silver recovery.
MINING OPERATIONS
During the three month period ended August 31, 2007 the Company continued with
development mining activities in order to prepare the initial mining area at
Florida for increased production. As at August 31, 2007, the stockpile of
mineralized material was estimated at 11,669 tonnes.
Mine development activities are continuing at the Florida triple vein structure
with current activities concentrating on ramping down to level 1090 and below to
determine the base of the mineralization which remains open to depth.
A comprehensive sampling of the ramp development from Level 1115 down to Level
1090 was undertaken during the last quarter and assays were received from SGS
Laboratories, an independent ISO 2000 certified laboratory. The independent
assays from 58 ramp channel samples taken over approximately 120 metres of
development within the vein system indicate an average vein width of 1.35 metres
with average grades of 17 grams/tonne gold and 139 grams/tonne silver. On the
upper ramp to Level 1115, grades on 11 contiguous channel samples taken over
approximately 20 metres of vein structure averaged 30.8 grams/tonne gold and 212
grams/tonne silver and an average width of 1.33 metres. Six of these samples
ranged between 26.7 and 59.1 grams/tonne gold. The lower ramp has so far
produced an average grade of 15.1 grams/tonne gold and 116 grams/tonne silver
from 19 channel samples taken over approximately 38 metres.
- 2 -
GEOLOGY OF PROPERTIES & RECENT EXPLORATION ACTIVITIES
Mina Real Property
In January 2007, the Company announced that it had staked an additional 3,981
hectares adjacent to the 3,377 hectares previously comprising the Mina Real
concessions in Nayarit, Mexico. In addition to protecting the continuity of five
vein structures - La Florida, El Puerto 1, El Puerto 2, Tajos Cuates 1 and Tajos
Cuates 2 - as well as three recently discovered veins on the property, there is
potential that this additional ground could add to the Company's resource base
and provide additional mill feed to the recently constructed conventional mill
on the property. The Company also announced that it had located several outcrops
on the properties that indicate the existence of additional veins that were
previously undiscovered. A drilling and exploration program is being developed
to define the potential of the vein structures uncovered to date on both the
existing and recently acquired ground.
The north end of the Florida Veins within the mine workings is defined by a late
dacite intrusive which truncates the veins. On surface further north, a number
of quartz veins oriented parallel to the Florida trend have been identified in
scattered outcrops up to 1.5 kilometres further to the north. Initial
exploration for the projected northern continuation of the Florida Vein system
was done by means of an underground drive across the intrusive on the 1160 level
of the Florida Mine. This work successfully crossed through 180 metres of the
intrusive and emerged into highly faulted and altered volcanic rocks to the
northwest. The next phase of exploration work will consist of more extensive
surface trenching, sampling and mapping of the Florida North system combined
with a drill program to identify the exact location of the vein system in
Florida North and continued drift development in the form of a cross-cut
approached from the northeast.
The Tajos Cuates vein system is located 1 kilometre southwest of the Florida
Mine site and is a primary target in the near term to outline additional
potential ore sources for the existing milling operation. This vein system is a
robust low sulphidation epithermal vein which has been traced on surface over
1.8 kilometres, and known workings and a historical drill intercept extend over
a vertical horizon of at least 200 metres. The mineralization is silver rich
compared to the Florida Vein system - a 1.70 metre wide sample collected by
Victor Jaramillo P.Geo. from the Chalata Adit assayed 2.7 g/t gold and 1300 g/t
silver. Three drill holes completed in 2006 provided confirmation that the
mineralized vein structure continues to depth and established a base of the
mineralized horizon at about the 900 metre level. Drill hole No. 800-7-04
intersected 2.42 metres (estimated true width 1.5 metres) of mineralization
which assayed 4.9 grams/tonne of gold and 310 grams/tonne of silver at the 915
metre elevation.
Recent work has extended road access to Tajos Cuates, and initial underground
rehabilitation work is underway to allow exploration and bulk sampling of the
vein system in more detail. In addition, surface work has identified two new
mineralized systems in the area, Tomas and El Crudo. Preliminary surface
sampling has returned 2.10 metres grading 3.7 g/t gold and 137 g/t silver from
Tomas, and 0.70 metres grading 4.9 g/t gold and 106 g/t silver from El Crudo.
The veins systems at Tajos Cuates are the primary target for expansion of our
mining operations. Drift development activities are already underway to
supplement more extensive trenching and surface sampling activities.
Santa Fe Property
Initial exploration activities on the recently acquired Santa Fe Property (70%
interest), which adjoins the Florida tenements to the east and northeast, has
concentrated on developing approximately 8 kilometres of new road access to the
central portion of the property, thereby allowing systematic sampling and
development of the multiple vein systems in that area.
The work to date has better defined the three main vein systems, all of which
trend northwesterly and are sub-parallel with some cross veining. From west to
east, these are the Jonas system, the Clavellino system, and the Tajitos system.
- 3 -
[GRAPHIC OMITTED][GRAPHIC OMITTED]
[GRAPHIC OMITTED][GRAPHIC OMITTED]
OMITTED GRAPHIC MAY BE VIEWED AT THE COMPANY'S WEBSITE:
www.rochesterresourcesltd.com
[Graphic is a diagram of the Florida Mine showing the location of the Florida
Mine in relation to the Talitos Vein, Clavelino System and Jonas System.]
Of the three, initial indications are that the Clavellino system is the most
extensive, having been traced over a length of more than 3 kilometres. The width
of this structure varies from 1 metre to 40 metres. At the south end, multiple
quartz veins occur over a width of 30 to 40 metres, with some values in the
intervening wallrocks. At the north end (El Picacho), the vein structure is more
discrete, consisting of a 5.4 metre wide zone of silicification. The central 0.5
metres returned values of 3.36 g/t gold and 163 g/t silver .
Two samples taken from old surface workings in the Tepehuaje section of
Clavellino returned a grade of 2 grams/tonne of gold and 235 grams/tonne of
silver over a 1.6 metre average width. A centre section of 0.7 metres produced 5
grams/tonne of gold and 481 grams/tonne of silver.
Sampling along new exposures created by recent road building has exposed the
Jonas system in a number of places. Jonas is a silver-rich system, with one main
and several subsidiary northwest-trending quartz structures. Continuous sampling
by the Company has shown that silver values are not just confined to the main
veins however, and occur in some of the intervening altered volcanic wallrocks.
Many sample results have yet to be received, however sampling to date on the
main level has defined three parallel zones grading 0.27 g/t gold and 162 g/t
silver over 2.40 metres, 0.81 g/t gold and 378 g/t silver over 0.62 metres, and
0.23 g/t gold and 234 g/t silver over 0.83 metres. Individual sample results for
gold range from less than 0.03 g/t to 3.6 g/t and silver from less than 3 g/t to
796 g/t, which includes samples taken from the intervening rock.
The Tajitos system is relatively narrow (1-1.5 metres true width) exposed in a
series of old workings, but well mineralized over more than 300 metres of the
700 metre length identified to date. A sample from the north end of the system
produced 4.68 g/t gold and 1,380 g/t silver over 0.7 metres width.
A significant feature of these systems at the Santa Fe Property is the
identification of gold and silver mineralization over a vertical extent of
almost 700 metres (833 metres above sea level at the El Bagre vein and at the
1522 metre elevation at the north end of the Tajitos system), twice that found
on the Mina Real Property. It is also important to note that these types of
epithermal vein systems vary in width and grade over strike and depth. Grades
obtained from surface outcrops may or may not be depleted from exposure to the
elements with significantly higher grades potentially occurring at depth and
then tapering back to lower grades as the base of the system is approached.
However, the Santa Fe structures appear to be very similar to those encountered
at Mina Real where strong gold and silver grades have been experienced and
reported from mining activities between the 1090 to 1200 metre elevations.
- 4 -
The Santa Fe Property is within trucking distance of the Mina Real mill and has
the potential to provide additional mill feed to support a material increase in
capacity at the Mina Real mill or possibly support the development of a second
mill in the area.
FUTURE EXPLORATION AND DEVELOPMENT
Florida Vein System
The Company will be implementing a 2000 metre diamond drill program and a 600
metre drift development program at the Florida North project to identify the
continuation of the Florida triple vein system. The mineralization at Florida
North has been traced at surface for approximately 1.5km to the N-NW of the
Florida mine.
Tajos Cuates Vein System
Over the past six months the Company has been conducting drift development at
the Tajos Cuates vein system 800 meters southwest of Florida. The Company has
discovered an additional two off-shoot veins at this system and like Florida
North, the vein system has been traced at surface for approximately 1.5
kilometers. There are significantly higher reported grades of silver at Tajos
Cuates versus Florida. The Company will be implementing a 2000 metre diamond
drill program and a 600 metre drift development program over the coming months.
Santa Fe Property
Earlier this year the Company's Phase 1 exploration program, combined with road
development, successfully unveiled a very large vein system at surface called
"Clavellinos". Santa Fe is the Company's highest priority exploration target;
the Company will be implementing a 3000 metre diamond drill program and an 800
metre drift development program at Clavellinos and several other parallel vein
systems. The Company believes there is significant potential to discover a
stand-alone deposit capable of supporting its own mill. In addition, the Company
has identified 26 other vein systems across the Santa Fe property with several
vein systems striking greater than 4 kilometers traced along surface. Of note,
the "Clavellinos" vein system, at its north end, has a 40 meter wide mineralized
alteration zone with three sub-parallel high-grade epithermal veins emplaced
within, including a horizon potentially up to 700 meters (twice the horizon
found at the Florida Mine). 4+ kilometers away at the south end, the Clavellinos
vein system has variable widths between 5 meters and 8 meters traced at surface.
Mill Production
The Mina Real mill is currently in production, processing 200 tonnes/day, and as
of the end of August 2007, it is generating positive cash flow from operations.
Studies are underway to investigate increasing production up to 300 tonnes/day
by early 2008.
SELECTED FINANCIAL DATA
The following selected financial information is derived from the unaudited
interim consolidated financial statements of the Company prepared in accordance
with Canadian GAAP.
---------- ------------------------------------------------- ------------------------------------
FISCAL 2008 FISCAL 2007 FISCAL 2006
---------- ------------------------------------------------- ------------------------------------
THREE MONTH PERIODS ENDING AUG 31/07 MAY 31/07 FEB 28/07 NOV 30/06 AUG 31/06 MAY 31/06 FEB 28/06 NOV 30/05
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues 1,766,783 Nil Nil Nil Nil Nil Nil Nil
Cost of operations (1,315,838) Nil Nil Nil Nil Nil Nil Nil
Depletion and amortization (237,407) Nil Nil Nil Nil Nil Nil Nil
Expenses (948,083) (545,036) (2,039,218) (640,911) (121,537) (237,338) (343,844) (118,492)
Other items (26,982) (45,534) (263,722) (3,134) (14,969) (22,415) 230 (17,003)
Net loss (761,527) (590,570) (2,302,940) (644,045) (136,506) (259,753) (343,614) (135,495)
Basic and diluted loss per
share (0.03) (0.04) (0.09) (0.05) (0.01) (0.06) (0.07) (0.06)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
---------- ------------------------------------------------- ------------------------------------
- 5 -
---------- ------------------------------------------------- ------------------------------------
FISCAL 2008 FISCAL 2007 FISCAL 2006
---------- ------------------------------------------------- ------------------------------------
THREE MONTH PERIODS ENDING AUG 31/07 MAY 31/07 FEB 28/07 NOV 30/06 AUG 31/06 MAY 31/06 FEB 28/06 NOV 30/05
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET:
Working capital 684,866 768,740 1,227,597 1,898,776 3,595,277 3,536,076 2,098,783 192,592
Total assets 30,539,200 30,770,564 23,019,599 7,765,911 6,531,028 4,971,556 2,338,844 214,439
Total long-term liabilities 5,272,187 5,506,087 936,000 Nil Nil Nil Nil Nil
---------- ------------------------------------------------- ------------------------------------
RESULTS OF OPERATIONS
During the three months ended August 31, 2007 (the "2008 First Quarter") the
Company reported a net loss of $761,527 compared to a net loss of $136,506 for
the three months ended August 31, 2006 (the "2007 First Quarter"), an increase
in loss of $625,021. The quarters are not comparable as the Company was not in
commercial production prior to June 1, 2007 and had no production in the
corresponding 2007 First Quarter. As a result, no depletion on mineral property
interests or amortization on property, plant and equipment was taken until the
2008 First Quarter.
The Company recognized net revenue during the 2008 First Quarter of $1,766,783
on 2,656 oz. of gold shipped by the Company (2007 First Quarter - $nil). This
represents a significant increase over the previous quarter's sales of $503,680
from the sale of 782 oz. of gold equivalent which was credited against
production costs during the commissioning period.
General and administrative expenses for the three months ended August 31, 2007
and 2006 are as follows:
2007 2006
$ $
Accounting and administrative 17,370 17,645
Consulting 51,313 14,326
Corporate development 30,030 7,425
Insurance 7,756 -
Investor relations 18,000 19,850
Legal 1,180 103
Management fees - 19,500
Office 65,017 5,905
Regulatory fees 2,150 1,475
Rent 7,411 2,400
Salaries and benefits 154,183 6,411
Shareholder costs 4,605 1,339
Transfer agent fees 2,853 3,436
Travel 32,331 7,322
---------- ----------
394,199 107,137
========== ==========
General and administrative expenses of $394,199 were reported in the 2008 First
Quarter, an increase of $287,062, from $107,137 in the 2007 First Quarter.
Specific expenses of note during the 2008 First Quarter as compared to the 2007
First Quarter are as follows:
- accounting and administrative fees of $17,370 (2007 First Quarter -
$17,645) charged by Chase Management Ltd. ("Chase") a private
corporation owned by Mr. Nick DeMare, a director of the Company;
- consulting fees totalling $44,144 (2007 First Quarter - $114,326) were
paid to current and former directors and officers;
- corporate development expenses of $30,030 (2007 First Quarter - $7,425)
for ongoing market awareness and promotional campaign and participation
in an investment conferences in Frankfurt;
- $18,000 was paid to Empire Communications inc. ("Empire") to provide
investor relations services. During the 2007 First Quarter, $19,850 was
paid to Accent Marketing Limited ("Accent") to provide a market
awareness campaign and investor relation activities in Europe;
- travel expenses of $32,331 (2007 First Quarter - $7,322) for ongoing
mine site visits to Mexico and participation in an investment
conferences in Frankfurt;
- 6 -
- incurred $7,756 for director and officers' insurance for the 2008 First
Quarter;
- during the 2007 First Quarter management fees of $19,500 were paid to
the President of the Company;
- office expenses of $65,017 (2007 First Quarter - $5,905) were incurred,
of which $58,638 was for costs associated with the mining office in
Mexico; and
- salaries and benefits expense of $154,183 (2007 First Quarter - $6,411)
was paid mainly for the administrative staff in Mexico.
Interest income is generated from cash held with the Company's financial
institution. During the 2008 First Quarter, the Company reported interest and
other income of $4,168 as compared to $24,270 during the 2007 First Quarter. The
decrease is attributed to higher levels of cash held during the 2007 First
Quarter versus the 2008 First Quarter.
During the 2008 First Quarter the Company recorded a total of $635,456 for
additions to mineral property interests, of which $109,282 was attributed to
exploration activities on the Santa Fe Property and $526,174 for exploration
activities on the Mina Real Project. Exploration, development and pre-production
activities conducted in the 2008 First Quarter are described in "Exploration
Projects" in this MD&A.
FINANCIAL CONDITION / CAPITAL RESOURCES
As at August 31, 2007, the Company had working capital of $684,866 compared to
$768,740 as of May 31, 2007. The Company anticipated that additional financing
may be required to adopt a more aggressive exploration program, make capacity
and recovery improvements to the mill and related infrastructure, and provide
adequate working capital for operations. As a result the Company completed a
brokered private placement on October 27, 2007 which raised gross proceeds of
$4,000,000 through the issuance of 2,000,000 units at a price of $2.00 per unit
(the "Units"). Each Unit comprised one common share and one-half warrant. Each
full warrant entitles the holder to acquire an additional common share for $2.25
for a period of 18 months.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations as of
August 31, 2007
PAYMENTS DUE BY PERIOD
-------------------------------------------------
LESS THAN 1 TO 2 GREATER THAN
1 YEAR YEARS 2 YEARS TOTAL
$ $ $ $
---------- ---------- ---------- ----------
Contractual Obligations
Long-term debt 950,760 368,740 - 1,319,500
========== ========== ========== ==========
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, 2007 audited consolidated financial
statements.
CHANGES IN ACCOUNTING POLICIES
Revenue Recognition
Revenue from the sale of metals is recognized, net of related royalties and
sales commissions, when: (i) persuasive evidence of an arrangement exists; (ii)
the risks and rewards of ownership pass to the purchaser including delivery of
the product; (iii) the selling price is fixed or determinable; and (iv)
collectibility is reasonably assured. Settlement adjustments, if any, are
reflected in revenue when the amounts are known.
- 7 -
Recent Accounting Pronouncements
Effective June 1, 2007 the Company has adopted two new accounting standards
related to financial instruments that were issued by the Canadian Institute of
Chartered Accountants. These accounting policy changes were adopted on a
prospective basis with no restatement of prior period financial statements. The
new standards and accounting policy changes are as follows:
Financial Instruments - Recognition and Measurement (Section 3855)
In accordance with this new standard, the Company now classifies all financial
instruments as either held-to-maturity, available-for-sale, held-for-trading,
loans and receivables, or other financial liabilities. Financial assets
held-to-maturity, loans and receivables and financial liabilities other than
those held-for-trading are measured at amortized cost. Available-for-sale
instruments are measured at fair value with unrealized gains and losses
recognized in other comprehensive income. Instruments classified as
held-for-trading are measured at fair value with unrealized gains and losses
recognized on the statement of loss.
Upon adoption of this new standard, the Company has designated its cash and cash
equivalents as held-for-trading, which are measured at fair value. Exploration
advances and other receivables are classified as loans and receivables, which
are measured at amortized cost. Accounts payable and accrued liabilities are
classified as other financial liabilities, which are measured at amortized cost.
As at August 31,2007 the Company did not have any financial assets classified as
available-for-sale and therefore the adoption of the standards noted above had
no effect on the presentation of the Company 's financial statements.
Comprehensive Income (Section 1530)
Comprehensive income is the change in shareholders' equity during a period from
transactions and other events and circumstances from non-owner sources. In
accordance with this new standard, the Company now reports a statement of
comprehensive income and a new category, accumulated other comprehensive income,
in the shareholders' equity section of the balance sheet. The components of this
new category will include unrealized gains and losses on financial assets
classified as available-for-sale.
TRANSACTIONS WITH RELATED PARTIES
During the 2008 and 2007 First Quarter the Company was charged for various
services provided by companies controlled by current and former directors and
officers of the Company, as follows:
2008 2007
FIRST FIRST
QUARTER QUARTER
$ $
Accounting and administration 17,370 15,496
Management fees - 19,500
Professional fees 44,144 15,000
---------- ----------
61,514 49,996
========== ==========
These fees have been either expensed to operations or capitalized to mineral
property interest based on the nature of the expenditures. As at August 31,
2007, accounts payable and accrued liabilities include $24,659 (August 31, 2006
- - $25,996) due to these related parties. These transactions were measured at the
exchanged amount which was the amount of consideration established and agreed to
by the related parties.
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.
- 8 -
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.
INVESTOR RELATIONS ACTIVITIES
Effective November 23, 2006, the Company entered into an agreement with Empire,
to provide investor relations services under which the Company has agreed to pay
a monthly fee of $6,000. The options vest on a quarterly basis over a twelve
month period. The agreement may be terminated with written 30 days notice.
During the 2008 First Quarter, the Company paid $18,000 to Empire. On October
26, 2007, the Company granted Empire a further 35,000 options with an exercise
price of $2.15 per share, subject to vesting provisions.
OUTSTANDING SHARE DATA
The Company's authorized share capital is unlimited common shares without par
value. As at October 29, 2007, there were 32,305,351 issued and outstanding
common shares. In addition there were 3,229,500 stock options outstanding at
exercise prices ranging from $0.62 to $2.15 per share and 3,380,464 warrants
outstanding, with exercise prices ranging from $0.80 to $2.75 per share.
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance
that material information is gathered and reported to senior management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to permit timely decisions regarding public disclosure.
Management, including the Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer has concluded that the Company's
disclosure controls and procedures, as defined in Multilateral Instrument 52-109
- - Certification of Disclosure in Issuer's Annual and Interim Filings ("52-109"),
are effective to ensure that the information required to be disclosed in reports
that are filed or submitted under Canadian Securities legislation are recorded,
processed, summarized and reported within the time period specified in those
rules. In conducting the evaluation it has become apparent that management
relies upon certain informal procedures and communication, and upon "hands-on"
knowledge of senior management. Management intends to formalize certain of its
procedures. Due to the small staff, however, the Company will continue to rely
on an active Board and management with open lines of communication to maintain
the effectiveness of the Company's disclosure controls and procedures. Lapses in
the disclosure controls and procedures could occur and/or mistakes could happen.
Should such occur, the Company will take whatever steps necessary to minimize
the consequences thereof.
INTERNAL CONTROLS AND PROCEDURES OVER FINANCIAL REPORTING
Management is also responsible for the design of the Company's internal control
over financial reporting in order to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Canadian generally accepted accounting
principles. During the process of management's review and evaluation of the
design of the Company's internal control over financial reporting, it was
determined that certain weaknesses existed in internal controls over financial
reporting. As is indicative of many small companies, the lack of segregation of
duties and effective risk assessment were identified as areas where weaknesses
existed. The existence of these weaknesses is to be compensated for by senior
management monitoring which exists. The Company is taking steps to augment and
improve the design of procedure and controls impacting these areas of weakness
over internal control over financial reporting. It should be noted that a
control system, no matter how well conceived or operated, can only provide
reasonable assurance, not absolute assurance, that the objectives of the control
system are met.
- 9 -
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Alfredo Parra, a Director and Chief Executive Officer of Rochester Resources
Ltd., certify that:
1. I have reviewed the interim 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 interim period ending August 31, 2007;
2. Based on my knowledge, the interim 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 interim filings;
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim 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 interim 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 interim filings are being prepared; and
(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
5. I have caused the Issuer to disclose in the interim 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: October 29, 2007
/s/ Alfredo Parra
- ----------------------------------
Alfredo Parra,
Director & Chief Executive Officer
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Jose Manual Silva, the Chief Financial Officer, of Rochester Resources Ltd.,
certify that:
1. I have reviewed the interim 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 interim period ending August 31, 2007;
2. Based on my knowledge, the interim 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 interim filings;
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim 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 interim 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 interim filings are being prepared; and
(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
5. I have caused the Issuer to disclose in the interim 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: October 29, 2007
/s/ Jose Manuel Silva
- -----------------------
Jose Manuel Silva,
Chief Financial Officer