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 January, 2008.
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: January 30, 2008 /s/ Nick DeMare
----------------------------- -------------------------------------
Nick DeMare,
Chairman
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
NOVEMBER 30, 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 six months ended November 30, 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)
NOVEMBER 30, MAY 31,
2007 2007
$ $
ASSETS
CURRENT ASSETS
Cash 3,331,439 1,680,753
Amounts receivable (Note 3) 1,818,339 269,997
Prepaid expenses and deposits 20,703 52,580
Inventories (Note 4) 610,862 116,706
------------ ------------
5,781,343 2,120,036
IVA TAX RECEIVABLE 1,357,882 1,045,413
MINERAL PROPERTY INTERESTS (Note 5) 26,047,768 26,240,492
PROPERTY, PLANT AND EQUIPMENT (Note 6) 1,470,351 1,364,623
------------ ------------
34,657,344 30,770,564
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 322,475 388,386
Current portion of long-term debt (Note 7) 900,720 962,910
------------ ------------
1,223,195 1,351,296
LONG-TERM DEBT (Note 7) 125,100 615,193
ASSET RETIREMENT OBLIGATION (Note 15) 615,217 590,894
FUTURE INCOME TAX LIABILITIES 4,300,000 4,300,000
------------ ------------
6,263,512 6,857,383
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 8) 29,827,463 96,437,468
CONTRIBUTED SURPLUS (Note 10) 4,216,922 2,891,157
DEFICIT (5,650,553) (75,415,444)
------------ ------------
28,393,832 23,913,181
------------ ------------
34,657,344 30,770,564
============ ============
NATURE OF OPERATIONS (Note 1)
SUBSEQUENT EVENT (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
(Unaudited - Prepared by Management)
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------------- ----------------------------
2007 2006 2007 2006
$ $ $ $
REVENUE 2,987,744 - 4,754,527 -
COST OF OPERATIONS (1,920,735) - (3,236,573) -
DEPLETION AND AMORTIZATION (261,933) - (499,340) -
------------ ------------ ------------ ------------
OPERATING PROFIT 805,076 - 1,018,614 -
------------ ------------ ------------ ------------
EXPENSES
General and administration 433,655 184,790 827,853 291,927
Amortization - 6,121 - 11,521
Accretion of reclamation obligation 11,769 - 24,323 -
Interest expense on long-term debt 28,322 - 62,868 -
Stock-based compensation (Note 9) 855,625 450,000 1,362,410 459,000
------------ ------------ ------------ ------------
1,329,371 640,911 2,277,454 762,448
------------ ------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (524,295) (640,911) (1,258,840) (762,448)
------------ ------------ ------------ ------------
OTHER ITEMS
Interest and other income 10,274 12,131 14,442 36,401
Foreign exchange gain (loss) 40,311 (15,265) 9,161 (54,504)
------------ ------------ ------------ ------------
50,585 (3,134) 23,603 (18,103)
------------ ------------ ------------ ------------
NET LOSS FOR THE PERIOD (473,710) (644,045) (1,235,237) (780,551)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $(0.02) $(0.05) $(0.04) $(0.06)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 30,894,046 13,680,654 30,307,517 12,733,363
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED STATEMENTS OF DEFICIT
(Unaudited - Prepared by Management)
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------------- ----------------------------
2007 2006 2007 2006
$ $ $ $
DEFICIT - BEGINNING OF PERIOD (76,176,971) (71,877,889) (75,415,444) (71,741,383)
ELIMINATION OF DEFICIT (Note 8(a)) 71,000,128 - 71,000,128 -
------------ ------------ ------------ ------------
(5,176,843) (71,877,889) (4,415,316) (71,741,383)
NET LOSS FOR THE PERIOD (473,710) (644,045) (1,235,237) (780,551)
------------ ------------ ------------ ------------
DEFICIT - END OF PERIOD (5,650,533) (72,521,934) (5,650,553) (72,521,934)
============ ============ ============ ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
ROCHESTER RESOURCES LTD.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Prepared by Management)
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------------- ----------------------------
2007 2006 2007 2006
$ $ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (473,710) (644,045) (1,235,237) (780,551)
Adjustment for items not involving cash
Depletion and amortization 261,933 6,121 499,340 11,521
Accretion of reclamation obligation 11,770 - 24,323 -
Stock-based compensation 855,625 450,000 1,362,410 459,000
Interest expense (1,053) - 8,500 -
Foreign exchange gain (71,088) - (91,663) -
------------ ------------ ------------ ------------
583,477 (187,924) 567,673 (310,030)
Increase in amounts receivable (1,138,997) (271,899) (1,548,342) (494,788)
(Increase) decrease in prepaid expenses
and deposits 19,164 (13,727) 31,877 (12,152)
Increase in inventories 426,607 - 414,672 -
Increase in IVA tax receivable (170,067) - (312,469) -
Increase (decrease) in accounts payable
and accrued liabilities (29,917) 34,939 47,714 (59,460)
------------ ------------ ------------ ------------
(309,733) (438,611) (798,875) (876,430)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 4,314,274 1,141,040 4,474,699 2,941,040
Share subscriptions received - 252,949 - 252,949
Share issue costs (121,221) - (121,221) (18,623)
Payment on long-term debt (222,592) - (460,620) -
------------ ------------ ------------ ------------
3,970,461 1,393,989 3,892,858 3,175,366
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (68,908) (2,902,566) (171,123) (4,502,636)
Additions to mineral property interests (636,718) - (1,272,174) -
------------ ------------ ------------ ------------
(705,626) (2,902,566) (1,443,297) (4,502,636)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH FOR THE PERIOD 2,955,102 (1,947,188) 1,650,686 (2,203,700)
CASH - BEGINNING OF PERIOD 376,337 3,401,164 1,680,753 3,657,676
------------ ------------ ------------ ------------
CASH - END OF PERIOD 3,331,439 1,453,976 3,331,439 1,453,976
============ ============ ============ ============
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 SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
1. NATURE OF OPERATIONS
Rochester Resources Ltd. (the "Company") is engaged in gold and silver
mining, as well as related activities including exploration and
development in Mexico. Construction of the cyanidation processing plant
and related infrastructure at the Mina Real Property was completed at
the end of December 2006 and 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.
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.
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.
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
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 November
30,2007 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 six month period ended November
30, 2007.
3. AMOUNTS RECEIVABLE
NOVEMBER 30, MAY 31,
2007 2007
$ $
Production receivable 1,624,967 190,812
Other receivables 193,372 79,185
------------ ------------
1,818,339 269,997
============ ============
4. INVENTORIES
NOVEMBER 30, MAY 31,
2007 2007
$ $
Stock-piled ore 409,367 -
Mine stores, supplies and other 201,495 116,706
------------ ------------
610,862 116,706
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
5. MINERAL PROPERTY INTERESTS
NOVEMBER 30, MAY 31,
2007 2007
$ $
Producing
Mina Real Property
Acquisition and other 18,458,507 18,458,507
Deferred exploration and development costs 8,016,742 7,948,907
Accumulated depletion (635,054) (201,108)
------------ ------------
25,840,195 26,206,306
------------ ------------
Non-Producing
Santa Fe Property
Acquisition and other 61,416 34,186
Deferred exploration 146,157 -
------------ ------------
207,573 34,186
------------ ------------
26,047,768 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 six concessions covering
approximately 7,358 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.
(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 near the Mina Real Property. The agreement
comprises one concession covering approximately 3,823
hectares. 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.
The Company has also staked an additional two concessions
covering approximately 13,164 hectares adjacent to the Santa
Fe Property.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
6. PROPERTY, PLANT AND EQUIPMENT
NOVEMBER 30, 2007
--------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
Motor vehicles 91,081 17,191 73,890
Office equipment 37,131 1,802 35,329
Mill and mine equipment 967,387 70,002 897,385
Buildings 163,170 8,771 154,399
Land 309,348 - 309,348
------------ ------------ ------------
1,568,117 97,766 1,470,351
============ ============ ============
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
NOVEMBER 30, MAY 31,
2007 2007
$ $
Amount due to Huajicari - US $1,025,000
(May 31, 2007 - US $1,475,000) 1,025,820 1,578,103
Less: current portion - US $900,000 (900,720) (962,910)
------------ ------------
125,100 615,193
============ ============
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 November 30,
2007 accrued interest of $8,500 was recorded and has been included in
accounts payable and accrued liabilities.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
8. SHARE CAPITAL
Authorized: Unlimited common shares without par value
Issued: SIX MONTHS ENDED YEAR-ENDED
NOVEMBER 30, 2007 MAY 31,2007
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 29,665,438 96,437,468 11,237,735 75,890,208
Reduction of capital - (71,000,128) - -
------------ ------------ ------------ ------------
29,665,438 25,437,340 11,237,735 75,890,208
------------ ------------ ------------ ------------
Issued during the period
For cash
Private placements 2,000,000 4,000,000 4,600,456 6,575,524
Exercise of warrants 258,967 245,159 2,864,247 3,188,286
Exercise of options 300,500 229,540 463,000 302,360
For corporate finance fee 125,000 250,000 - -
For commission 126,113 252,226 - -
Reallocation from contributed surplus
relating to the exercise of options - 203,967 - 226,662
Reallocation from contributed surplus
relating to the exercise of agent's
option and related warrants - 11,823 - 32,965
For acquisition of ALB - - 10,500,000 10,500,000
------------ ------------ ------------ ------------
2,810,580 5,192,715 18,427,703 20,825,797
Less: share issue costs - (802,592) - (278,537)
------------ ------------ ------------ ------------
2,810,580 4,390,123 18,427,703 20,547,260
------------ ------------ ------------ ------------
Balance, end of period 32,476,018 29,827,463 29,665,438 96,437,468
============ ============ ============ ============
(a) On November 20, 2007 the shareholders of the Company passed a
special resolution to reduce the Company's capital by
$71,000,128, being an amount equal to the deficit of the
Company at May 31, 2005. This deficit arose as a result of
prior unsuccessful business activities previously carried out
by the Company under the direction of its former management
and board. The reduction of capital resulted in a
corresponding elimination of $71,000,128 of the deficit.
(b) 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 months. The Company paid
Canaccord Capital Corp. (the "Agent") a cash commission of
$40,274 and issued 126,113 units (the "Agent's Units"), at a
fair value of $252,226. Each Agent's Unit comprises one common
share 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 and issued 125,000
common shares, for a $250,000 corporate finance fee, and
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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
8. SHARE CAPITAL (continued)
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 - 78%; a
risk-free interest rate of 4.08%; and an expected life of 18
months. The value assigned to the Agent's Warrants was
$179,145.
The Company also incurred additional share issue costs of
$65,947 on this private placement.
(c) A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants at November 30, 2007 and
2006 and the changes for the six months ending on those dates
is as follows:
2007 2006
---------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
$ $
Balance, beginning of period 2,363,459 1.90 1,282,000 0.97
Issued 1,209,306 2.00 2,000,000 1.15
Exercised (258,967) 0.95 (927,000) 1.14
------------ ------------
Balance, end of period 3,313,798 2.09 2,355,000 1.06
============ ============
The following table summarizes information about the warrants
outstanding and exercisable at November 30, 2007:
EXERCISE
NUMBER PRICE EXPIRY DATE
$
75,000 2.25 February 2, 2008 (Note 16)
525,000 2.25 February 12, 2008 (Note 16)
240,992 0.80 May 3, 2008
700,000 2.75 November 17, 2008
563,500 1.40 December 11, 2008
1,063,056 2.25 April 25, 2009
146,250 2.00 April 25, 2009
------------
3,313,798
============
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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
9. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
During the six months ended November 30, 2007 the Company granted
1,254,000 (2006 - 650,000) stock options to the Company's directors,
employees and consultants and recorded compensation expense of
$1,255,910 (2006 - $450,000) on these stock options and $106,500 (2006
- $9,000) on stock options which vested during the period.
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 six months ended November 30, 2007 and 2006:
2007 2006
Risk-free interest rate 4.08% - 4.71% 3.96%
Estimated volatility 85% - 99% 103%
Expected life 2 years - 3 years 5 years
Expected dividend yield 0% 0%
The weighted average fair value of stock options granted during the
period to the Company's directors, employees and consultants was $1.00
(2006 - $0.90) 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.
A summary of the Company's outstanding stock options at November 30,
2007 and 2006 and the changes for the six months ending on those dates
is as follows:
2007 2006
---------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
$ $
Balance, beginning of period 2,582,000 1.57 720,000 0.62
Granted 1,254,000 1.94 650,000 1.02
Exercised (300,500) 0.76 (157,000) 0.54
Cancelled/Expired (330,000) 1.77 (100,000) 0.80
------------ ------------
Balance, end of period 3,205,500 1.70 1,113,000 0.85
============ ============
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
9. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
The following table summarizes information about the stock options
outstanding and exercisable at November 30, 2007:
NUMBER NUMBER EXERCISE
OUTSTANDING EXERCISABLE PRICE EXPIRY DATE
$
22,500 22,500 0.62 January 17, 2009
150,000 150,000 1.40 November 24, 2009
1,504,000 1,504,000 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
650,000 415,000 2.12 October 26, 2010
80,000 80,000 2.30 November 16, 2010
325,000 325,000 0.90 September 5, 2011
------------ ------------
3,205,500 2,820,500
============ ============
10. CONTRIBUTED SURPLUS
The Company's contributed surplus as November 30, 2007 and 2006 and the
changes for the six 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) 1,362,410 459,000
Stock-based compensation on agent's
warrants 179,145 -
Stock options exercised (203,967) (60,248)
Agent's warrants exercised (11,823) -
------------ ------------
Balance, end of period 4,216,922 1,007,036
============ ============
11. RELATED PARTY TRANSACTIONS
During the six months ended November 30, 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 52,590 69,746
Professional fees 67,425 15,000
------------ ------------
20,015 84,746
============ ============
These fees have been either expensed to operations or capitalized to
mineral property interest based on the nature of the expenditures. As
at November 30, 2007, accounts payable and accrued liabilities include
$26,978 (2006 - $5,939) 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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
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.
NOVEMBER 30, 2007
--------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES INCOME (LOSS)
$ $ $
Mineral operations (Mexico) 31,630,011 4,754,527 660,019
Corporate (Canada) 3,027,333 14,442 (1,895,256)
------------ ------------ ------------
34,657,344 4,768,969 (1,235,237)
============ ============ ============
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)
============ ============ ============
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments at November 30, 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 November 30,
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.
ROCHESTER RESOURCES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
14. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash activities were conducted by the Company during the six months
ended November 30, 2007 and 2006 as follows:
2007 2006
$ $
Financing activities
Share issue costs (681,371) -
Issuance of common shares non-cash
consideration 718,016 -
Contributed surplus (36,645) -
------------ ------------
- -
============ ============
Investing activity
Additions to mineral property interests (201,679) -
============ ============
Operating activity
Increase in accounts payable and
accrued liabilities 201,679 -
============ ============
Other supplemental cash flow information:
2007 2006
$ $
Interest paid in cash 65,894 -
============ ============
Income taxes paid in cash - -
============ ============
15. ASSET RETIREMENT OBLIGATION
A summary of the Company's reclamation obligation on the Mina Real
Property at November 30, 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 24,323 -
------------ ------------
Balance, end of period 615,217 -
============ ============
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 EVENT
Subsequent to November 30, 2007 the Company agreed to extend the expiry
dates by one year on the 75,000 warrants due February 2, 2008 and the
525,000 warrants due February 12, 2008.
ROCHESTER RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE SIX MONTH PERIOD ENDED NOVEMBER 30, 2007
The following Management's Discussion and Analysis ("MD&A") of Rochester
Resources Ltd. ("Rochester" or the "Company") is prepared as at January 25, 2008
and should be read in conjunction with the Company's unaudited interim
consolidated financial statements and accompanying notes for the three month
period ended November 30, 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.
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 production
and the continued exploration and development of its Mina Real and Santa Fe
Properties 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 is now generating cash flow from operations. The Company is also
implementing 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.
PROPERTY UPDATE
OVERVIEW
The Company holds a 100% interest in the Mina Real Property, a gold silver
property comprising 7,358 hectares located in the state of Nayarit, Mexico, east
of the capital city of Tepic. The Mina Real Property is held through Mina Real
Mexico SA de CV ("Mina Real Mexico"). The Company holds a 100% ownership
interest in Mina Real Mexico with 51% held directly and 49% held by ALB Holdings
Ltd., a wholly-owned subsidiary of the Compamy. The Company has an option
agreement to acquire a 70% interest in the Santa Fe gold/silver property located
- 1 -
immediately east of the Mina Real Property. The Santa Fe Property comprises one
concession covering approximately 3,823 hectares. Compania Minera Santa Fe SA de
CV was established to hold the Santa Fe concession and the Company holds a 70%
interest in this entity. In addition the Company added to its land position by
staking an additional 13,164 hectares adjacent to the Santa Fe concession.
MILL OPERATIONS
During the three months ended November 30, 2007 production at the mill has been
steady with an average throughput of just under 200 tons per day. During periods
of scheduled equipment maintenance the throughput is reduced.
During the three months ended November 30, 2007 a total of 17,765 tons were
processed through the mill. The average head grade into the plant during this
period was 6.3 grams per ton gold and 135.9 grams per ton silver. The total
number of ounces of gold and silver produced during the three months ended
November 30, 2007 were 3,143 ounces of gold and 31,885 ounces of silver.
For the six month period ended November 30, 2007, a total of 33,880 tons have
been processed with average grades of 6.63 per ton gold and 134.1 grams per ton
silver. The total number of ounces of gold and silver produced during the six
month period ended November 1, 2007 are 5,429 ounces of gold and 53,353 ounces
of silver.
All production from the mill is shipped and sold to MetMex Penoles SA de CV
("Penoles"), a major Mexican mining and processing company, at their smelter in
Torreon, located approximately 1,000 kilometres from the mill. Shipments from
the mill are made once per week. Final production quantities may vary slightly
from those reported herein due to slight variations arising from differences in
assaying between the smelter and the Company's assay lab. Any differences above
a certain parameter are always subject to re-assay by an independent umpire.
Pursuant to the Company's sales contract with Penoles, the Company is paid for
98.5% of the gold shipped and 97% of the silver shipped. The price paid by
Penoles is based on the average of the closing London final for the month
production is shipped. The Company is not limited to selling its production to
Penoles and, in an effort to improve terms of sale, has initiated negotiations
with an alternate buyer.
A priority project which is underway is the upgrade to the silver circuit in
order to significantly increase silver recovery. The Company is projecting to
complete the upgrades by the second quarter of 2008 and, based on tests
conducted by the Company's metallurgical consultant, Metcon Research of Tucson,
Arizona, are projecting to have silver recovery at between 85% and 90%.
The month of September 2007, saw a focus at the mill of improving quality
control. Significant progress was made in developing a strong data base and
system for controlling and supervising all variables which affect throughput in
the plant. Work was completed on the planning aspects for construction of the
new tailings dam. All required approvals are in place and work is ongoing.
During the month of October 2007, capital expenditures at the mill included the
purchase of a new pump. This Gould's Pump is a special purpose pump which will
allow the Company to increase the capacity of solution pumped to the press
filters and also improve the quality of precipitates produced.
During the month of November 2007, capital expenditures at the mill included an
upgrade to accommodations for mill workers and additional dormitories with
related amenities were completed. Work at the new tailings dam continued during
the quarter. This capital project should be completed in the second quarter of
2008.
The Company has planned for an increase in daily throughput from 200 tons per
day to between 300 and 350 tons per day. In order to achieve these new levels of
production additional crushing and grinding capacity is required. Subsequent to
November 30, 2007, the Company ordered a 10 foot X 10 foot Allis Chambers ball
mill as well as a Symons 4 1/4 standard secondary crusher. This new equipment is
scheduled to arrive on site by the end of January 2008. Foundations for the mill
and power supply should be completed in late February and this equipment is
expected to be operational and on-line in April 2008.
- 2 -
MINING OPERATIONS
During the three months ended November 30, 2007 development and stoping
continued at the Florida triple vein structure. The gold grade has ranged from
6.25 grams per ton to 7.76 grams per ton. The silver grade has ranged from 126
grams per ton to 131 grams per ton. The average grades have been below projected
with the main factor for this lower than projected grade being on-going dilution
control. Dilution has been approximately 15% rather than the projected 8% to
10%. The problem has been analyzed and a plan developed to improve the average
head. This plan will not be fully implemented until early March 2008. Until then
head grade to the mill is expected to remain around 7.5 grams per ton gold and
200 grams per ton silver.
The next significant development program at Florida is to develop the northwest
area. The development here had been delayed due to negotiation of surface
rights. Subsequent to November 30, 2007 the Company finalized the surface rights
agreement. With this agreement in place the Company can proceed to develop roads
and drifts to access the veins in this area.
Access and development of the northwest area of Florida is a key component of
the Company's plans to increase production. This northwest area of Florida has
been sampled from surface and grades were similar to those at the Florida
southeast area. The Florida northwest area will be a major source of future mill
feed.
Work is ongoing at Tajos Cuates to advance development. During the quarter ended
November 30, 2007 the Company developed 350 metres in order to reach the two
vein systems. Development work will continue for several more months.
GEOLOGY OF PROPERTIES & RECENT EXPLORATION ACTIVITIES
The Company has an ongoing extensive exploration program. During the quarter
ended November 30, 2007 the focus of the Company's efforts was at two areas -
Santa Fe and Tajos Cuates.
At Santa Fe the Company completed a program of geological mapping and sampling
of the central area of the Santa Fe Project. The results of this work program
have been successful and numerous mineralized surface structures have been
identified.
The future work planned at Santa Fe is a two-pronged approach comprising drift
development and diamond drilling to test the extensive vein systems identified
by surface sampling and mapping. The program will comprise approximately 800
metres of drift development and 3,000 metres of diamond drilling. Crews were
mobilized in late November to commence this second phase program.
Exploration and development activities continued at Tajos Cuates during the
quarter ending November 30, 2007. The focus of efforts at Tajos Cuates is to
develop the existing veins in order to augment mill feed and also to explore and
identify new structures and expand known structures.
The Company has completed a 95 metre drift at level 976 which intersected the
extension of the Tajos Cuates vein system to the northwest of the existing drift
development workings. This appears to be part of the same vein system that, from
surface sampling and old workings, is believed to extend for a further 1.5
kilometers to the northwest. A vertical raise of eight metres was completed at
the intersection of the Tajos Cuates vein which confirmed the existence of two
additional parallel high grade gold/silver veins. These veins pinch and swell
and are between two and eight metres apart from one another. Both parallel veins
are open vertically and open along strike.
Surface work has also identified two new mineralized vein systems in the Tajos
Cuates area, called Tomas and El Crudo. Preliminary surface channel sampling has
returned widths of 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.
As is typical with epithermal vein systems, grades and width vary throughout the
Tajos Cuates structure. The Tajos Cuates vein system is located one 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. The
vein system is a robust low sulphidation epithermal vein which has been traced
on surface over 1.8 kilometres. Known workings and one historical drill
intercept has defined a vertical horizon of minimally 200 metres.
- 3 -
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 detail. The multiple vein systems at Tajos Cuates a primary
target for expansion of the Company's mining operations.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Omitted graphic is drawing showing the Florida Area and Project 1300 Level and
Project 980 Level
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Omitted graphic is drawing showing Tajos Cuates Area showing location of various
veins.
- 4 -
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Omitted graphic is drawing of Santa Fe Area showinglocation of 180m long Adit.
FUTURE EXPLORATION AND DEVELOPMENT
Florida Vein System
An initial 200 metre drill program will be implemented during February 2008 and
March 2008 at Florida northwest. The Company will initially develop 200 metres
to reach the vein and from there will develop the two vein system at different
levels, accessing these levels by a ramp.
Tajos Cuates Vein System
The Company is developing three different levels within the vein and will
continue for 500 metres in each level. A drill program will be developed in the
last part of the first quarter of 2008. Also there will be a program to select
the veins with greater potential in order to develop these new areas.
Santa Fe Property
The development of the drill program and the drifts in this area are the most
important activities. The information obtained from these programs will define
the potential of the area.
Mill Production
The Company plans to increase production up to 300 tons per day by the second
quarter of 2008. Most of the equipment and parts have been ordered and the
construction program will start in February 2008.
- 5 -
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 NOV 30/05 AUG 31/07 MAY 31/07 FEB 28/07 NOV 30/06 AUG 31/06 MAY 31/06 FEB 28/06
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues 2,987,744 1,766,783 Nil Nil Nil Nil Nil Nil
Cost of operations (1,920,735) (1,315,838) Nil Nil Nil Nil Nil Nil
Depletion and amortization (261,933) (237,407) Nil Nil Nil Nil Nil Nil
Expenses (1,329,371) (948,083) (545,036) (2,039,218) (640,911) (121,537) (237,338) (343,844)
Other items 50,585 (26,982) (45,534) (263,722) (3,134) (14,969) (22,415) 230
Net loss (473,710) (761,527) (590,570) (2,302,940) (644,045) (136,506) (259,753) (343,614)
Basic and diluted loss per
share (0.02) (0.03) (0.04) (0.09) (0.05) (0.01) (0.06) (0.07)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital 4,558,148 684,866 768,740 1,227,597 1,898,776 3,595,277 3,536,076 2,098,783
Total assets 34,657,344 30,539,200 30,770,564 23,019,599 7,765,911 6,531,028 4,971,556 2,338,844
Total long-term liabilities 125,100 368,740 615,193 936,000 Nil Nil Nil Nil
Asset retirement 615,217 603,447 590,894 Nil Nil Nil Nil Nil
Future income tax liability 4,300,000 4,300,000 4,300,000 Nil Nil Nil Nil Nil
RESULTS OF OPERATIONS
During the six months ended November 30, 2007 (the "2007 period") the Company
reported a net loss of $1,235,237 compared to a net loss of $780,551 for the
three months ended November 30, 2006 (the "2006 period"), an increase in loss of
$454,686. 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 2006
period. As a result, no depletion on mineral property interests or amortization
on property, plant and equipment was taken until the 2007 period.
The Company recognized net revenue during the 2007 period of $4,754,527
generated on the sale of 6,400 ounces of gold equivalents, for an average of
$743 net revenue per ounce (net of royalty and treatment charges).
General and administrative expenses for the six months ended November 30, 2007
and 2006 are as follows:
2007 2006
$ $
Accounting and administrative 52,590 41,565
Audit 54,821 9,407
Consulting 82,769 27,296
Corporate development 84,965 51,406
Insurance 15,418 -
Investor relations 40,000 34,908
Legal 15,091 3,540
Office 126,654 16,598
Regulatory fees 10,481 9,588
Rent 9,047 5,100
Salaries and benefits 240,345 51,822
Shareholder costs 16,225 4,837
Transfer agent fees 9,443 7,610
Travel 70,004 28,250
------------ ------------
827,853 291,927
============ ============
- 6 -
General and administrative expenses of $827,853 were reported in the 2007
period, an increase of $535,926, from $291,927 in the 2006 period. Specific
expenses of note during the 2007 period as compared to the 2006 period are as
follows:
- accounting and administrative fees of $52,590 (2006 - $41,565) charged
by Chase Management Ltd. ("Chase") a private corporation owned by Mr.
Nick DeMare, a director of the Company;
- consulting fees totalling $82,769 (2006 - $27,296) were paid mainly to
current and former directors and officers;
- corporate development expenses of $84,965 (2006 - $51,406) for ongoing
market awareness and promotional campaign and participation in
international investment conferences;
- $40,000 was paid to Empire Communications inc. ("Empire") to provide
investor relations services. During the 2006 period, $34,908 was paid
to Accent Marketing Limited ("Accent") to provide a market awareness
campaign and investor relation activities in Europe;
- travel expenses of $70,004 (2006 - $28,250) for ongoing mine site
visits to Mexico and participation in international investment
conferences;
- incurred $15,418 for director and officers' insurance for the 2007
period;
- audit fees of $54,821 (2006 - $9,403) were recorded. The increase is
attributed to the timing and recording of audit fees for the 2007
year-end.
- during the 2006 period management fees of $39,000 were paid to the
President of the Company;
- office expenses of $126,654 (2006 - $16,598) were incurred, of which
$112,582 was for costs associated with the mining office in Mexico; and
- during the 2007 period salaries and benefits expense of $240,345 (2006
- $12,822) was paid mainly for the administrative staff in Mexico.
Interest income is generated from cash held with the Company's financial
institution. During the 2007 period, the Company reported interest and other
income of $14,442 as compared to $36,401 during the 2006 period. The decrease is
attributed to higher levels of cash held during the 2006 period.
During the 2007 period the Company recorded a total of $241,222 for additions to
mineral property interests, of which $173,387 was attributed to exploration
activities on the Santa Fe Property and $67,835 for exploration activities on
the Mina Real Project. Exploration, development and pre-production activities
conducted in the 2007 period are described in "Exploration Projects" in this
MD&A.
FINANCIAL CONDITION / CAPITAL RESOURCES
During the 2007 period the Company completed a 2,000,000 unit brokered private
placement for gross proceeds of $4,000,000. As at November 30, 2007, the Company
had working capital of $4,558,148 compared to $768,740 as of May 31, 2007. The
Company believes that it currently has sufficient financial resources to conduct
anticipated exploration programs, make capacity and recovery improvements to the
mill and related infrastructure and provide adequate working capital for the
upcoming year. However, exploration activities may change due to ongoing results
and recommendations, or the Company may acquire additional properties, which may
entail significant funding or exploration commitments. In the event that the
occasion arises, the Company may be required to obtain additional financing. The
Company has relied solely on equity financing to raise the requisite financial
resources. 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.
CONTRACTUAL OBLIGATIONS
The following table summarizes the Company's contractual obligations as of
November 30, 2007
PAYMENTS DUE BY PERIOD
-------------------------------------------------
LESS THAN 1 TO 2 GREATER THAN
1 YEAR YEARS 2 YEARS TOTAL
$ $ $ $
---------- ---------- ---------- ----------
Contractual Obligations
Long-term debt 900,720 125,100 - 1,025,820
========== ========== ========== ==========
- 7 -
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.
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 November 30, 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.
- 8 -
TRANSACTIONS WITH RELATED PARTIES
During the six months ended November 30, 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 52,590 69,746
Professional fees 67,425 15,000
------------ ------------
120,015 84,746
============ ============
These fees have been either expensed to operations or capitalized to mineral
property interest based on the nature of the expenditures. As at November 30,
2007, accounts payable and accrued liabilities include $26,978 (2006 - $5,939)
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.
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 2007 period, the Company paid $40,000 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 January 25, 2008, there were 32,501,018 issued and outstanding
common shares. In addition there were 3,185,500 stock options outstanding at
exercise prices ranging from $0.62 to $2.15 per share and 3,308,797 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.
- 9 -
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.
- 10 -
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 November 30, 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: January 29, 2008
/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 November 30, 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: January 29, 2008
/s/ Jose Manuel Silva
- -----------------------
Jose Manuel Silva,
Chief Financial Officer