UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F
(Mark One)
[ ]    Registration Statement Pursuant to Section 12(b) or (g) of the Securities
       Exchange Act of 1934
                                       or

[X]    Annual Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934
                     FOR THE FISCAL YEAR ENDED MAY 31, 2006
                                       or

[ ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934
              For the transition period from _________ to _________
                                       or

[ ]    Shell Company Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934
           Date of event requiring this shell company report _________

                        Commission file number: 000-30390

                            ROCHESTER RESOURCES LTD.
             (Exact name of Registrant as specified in its charter)

                            ROCHESTER RESOURCES LTD.
                 (Translation of Registrant's name into English)

                            BRITISH COLUMBIA, CANADA
                 (Jurisdiction of incorporation or organization)

           400 - 535 HOWE STREET, VANCOUVER, BRITISH COLUMBIA, V6C 2Z4
                    (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act.
                                      NONE

 Securities registered or to be registered pursuant to Section 12(g) of the Act.
                           COMMON STOCK, NO PAR VALUE
                                (Title of Class)

        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act.
                                 NOT APPLICABLE
                                (Title of Class)

Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital  or common  stock as of the close of the  period  covered  by the annual
report.
                   11,237,735 COMMON SHARES AS OF MAY 31, 2006

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.
Yes               No     X
    ----------       ----------

If this report is an annual or transition report,  indicate by check mark if the
registrant  is not required to file  reports  pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Yes               No     X
    ----------       ----------

Note - Checking the box above will not relieve any  registrant  required to file
reports  pursuant to Section 13 or 15(d) of the Securities  Exchange Act of 1934
from their obligations under those Sections.


<PAGE>

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes     X         No
    ----------       ---------

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

Large accelerated filer       Accelerated filer       Non-accelerated filer   X
                        ----                    ----                        ----

Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17     X              Item 18
        ---------                  ---------

If this is an annual report, indicate by check mark whether the registrant  is a
shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes       No  X
                                                                 -----    -----


























                                      -2-

<PAGE>

GENERAL INFORMATION:

Unless  otherwise  indicated,  all  references  herein are to Canadian  dollars.
Unless otherwise  indicated  herein,  the term "Company" means  collectively the
Company and its subsidiaries.

The Company is required under Canadian law (National Instrument 43-101 Standards
Of Disclosure  For Mineral  Projects)  ("NI 43-101") to calculate and categorize
"mineral  reserve",  "proven  mineral  reserve",   "probable  mineral  reserve",
"mineral  resource",  "measured mineral resource",  "indicated mineral resource"
and  "inferred  mineral  resource"  under  the  Canadian   Institute  of  Mining
Metallurgy and Petroleum  ("CIM")  Standards on Mineral Resources and Reserves -
Definitions  and Guidelines  adopted by the CIM in August 2000.  These standards
establish   definitions   and   guidelines  for  the  reporting  of  exploration
information, mineral resources and mineral reserves in Canada. These definitions
have not been adopted for use in the United States of America by the  Securities
and Exchange Commission (the "SEC"). Under these guidelines, the CIM definitions
of proven and probable reserves equate to the definitions of proven and probable
reserves as set out in Guide 7 of the Securities Act Industry  Guides adopted by
the SEC ("Guide 7"). In addition,  Canadian law requires  disclosure  of mineral
resources that equate to measured, indicated and inferred resources.

                                    GLOSSARY

The following is a glossary of some of the terms used in the mineral exploration
industry and referenced herein:

AG                                  silver

ANDESITE                            a  fine  grained  intermediate volcanic rock
                                    composed of  andesine  and one or more mafic
                                    constituents.

AU                                  gold

CM                                  centimeter

DIAMOND DRILL                       a type of  rotary drill in which the cutting
                                    is done by abrasion using diamonds  embedded
                                    in a matrix rather than by  percussion.  The
                                    drill cuts a core of rock which is recovered
                                    in long cylindrical sections.

EPITHERMAL                          hydrothermal  mineral  deposit formed within
                                    about 1 kilometer of the earth's surface and
                                    within  a  temperature  range  of 50 to  200
                                    degrees  centigrade,   occurring  mainly  as
                                    veins.

G                                   gram

G/T OR GPT                          grams per tonne.

GRADE                               the  concentration  of each  ore  metal in a
                                    rock   sample,   usually   given  as  weight
                                    percent.  Where extremely low concentrations
                                    are involved, the concentration may be given
                                    in grams per tonne  (g/t) or ounces  per ton
                                    (oz/t).  The  grade  of an  ore  deposit  is
                                    calculated,    often   using   sophisticated
                                    statistical procedures, as an average of the
                                    grades of a very  large  number  of  samples
                                    collected from throughout the deposit.

INDICATED RESOURCE                  (NI 43-101 definition) means  that part of a
                                    mineral  resource for which quantity,  grade
                                    or quality,  densities,  shape and  physical
                                    characteristics  can  be  estimated  with  a
                                    level of confidence  sufficient to allow the
                                    appropriate  application  of  technical  and
                                    economic   parameters,   to   support   mine
                                    planning  and  evaluation  of  the  economic
                                    viability  of the  deposit.  The estimate is
                                    based on detailed and  reliable  exploration
                                    and  testing  information  gathered  through
                                    appropriate  techniques  from locations such
                                    as outcrops,  trenches,  pits,  workings and
                                    drill holes that are spaced  closely  enough
                                    for  geological  and grade  continuity to be
                                    reasonably assumed.


                                      -3-
<PAGE>


INFERRED RESOURCE                   (NI 43-101 definition) means that part of  a
                                    mineral  resource  for  which  quantity  and
                                    grade or  quality  can be  estimated  on the
                                    basis of  geological  evidence  and  limited
                                    sampling  and  reasonably  assumed,  but not
                                    verified,  geological and grade  continuity.
                                    The estimate is based on limited information
                                    and sampling  gathered  through  appropriate
                                    techniques  from locations such as outcrops,
                                    trenches, pits, workings and drill holes.

INTRUSION                           general  term  for  a  body of  igneous rock
                                    formed below the surface.

KM                                  kilometer

M                                   meters

MEASURED RESOURCE                   (NI 43-101 definition) means  that part of a
                                    mineral  resource for which quantity,  grade
                                    or  quality,   densities,   shape,  physical
                                    characteristics are so well established that
                                    they  can  be  estimated   with   confidence
                                    sufficient   to   allow   the    appropriate
                                    application   of   technical   and  economic
                                    parameters,  to support production  planning
                                    and evaluation of the economic  viability of
                                    the  deposit.   The  estimate  is  based  on
                                    detailed and reliable exploration,  sampling
                                    and  testing  information  gathered  through
                                    appropriate  techniques  from locations such
                                    as outcrops,  trenches,  pits,  workings and
                                    drill holes that are spaced  closely  enough
                                    to  confirm   both   geological   and  grade
                                    continuity.

MINERAL RESERVE                     (NI   43-101    definition)     means    the
                                    economically  mineable part of a measured or
                                    indicated resource  demonstrated by at least
                                    a preliminary  feasibility study. This study
                                    must include adequate information on mining,
                                    processing,   metallurgical,   economic  and
                                    other relevant factors that demonstrate,  at
                                    the  time  of   reporting,   that   economic
                                    extraction  can  be  justified.   A  mineral
                                    reserve  includes  diluting   materials  and
                                    allowances  for  losses  that may occur when
                                    the material is mined.

MINERAL RESOURCE                    (NI 43-101 definition) a body of mineralized
                                    material  which has not yet been  determined
                                    to be ore, and the  potential  for mining of
                                    which   has   not   yet   been   determined;
                                    categorized   as   possible,   probable  and
                                    proven, according to the degree of certainty
                                    with  which  their  grade  and  tonnage  are
                                    known;    sometimes   referred   to   as   a
                                    "geological     resource"     or    "mineral
                                    inventory".

ORE                                 naturally  occurring  rock  or material from
                                    which economic  minerals can be extracted at
                                    a profit.

OUNCE OR OZ.                        a  troy  ounce or  20  pennyweights  or  480
                                    grains or 31.103 grams.

PORPHYRY                            rock  type  with  mixed  crystal sizes, i.e.
                                    containing   phenocrysts   of  one  or  more
                                    minerals.

PROBABLE RESERVE                    (NI 43-101   definition)    the economically
                                    mineable part of an  indicated,  and in some
                                    circumstances     a    measured     resource
                                    demonstrated   by  at  least  a  preliminary
                                    feasibility  study.  This study must include
                                    adequate information on mining,  processing,
                                    metallurgical,  economic, and other relevant
                                    factors  that  demonstrate,  at the  time of
                                    reporting,  that economic  extraction can be
                                    justified.

PROBABLE (INDICATED) RESERVES       (SEC Guide  7 definition) reserves for which
                                    quantity  and  grade   and/or   quality  are
                                    computed  from  information  similar to that
                                    used for proven (measured) reserves, but the
                                    sites   for   inspection,    sampling,   and
                                    measurement   are   farther   apart  or  are
                                    otherwise less adequately spaced. The degree
                                    of assurance,  although  lower than that for
                                    proven (measured)  reserves,  is high enough
                                    to  assume  continuity   between  points  of
                                    observation.


                                      -4-
<PAGE>
PROFESSIONAL ASSOCIATION            for the  purposes  of  the  definition  of a
                                    Qualified    Person    below,     means    a
                                    self-regulatory  organization  of engineers,
                                    geoscientists    or   both   engineers   and
                                    geoscientists   that  (a)  has  been   given
                                    authority  or  recognition  by statute;  (b)
                                    admits  members  primarily  on the  basis of
                                    their    academic     qualifications     and
                                    experience; (c) requires compliance with the
                                    professional  standards  of  competence  and
                                    ethics established by the organization;  and
                                    (d) has disciplinary  powers,  including the
                                    power to suspend or expel a member.

PROVEN RESERVE                      (NI    43-101   definition)    means     the
                                    economically  mineable  part  of a  measured
                                    resource   demonstrated   by  at   least   a
                                    preliminary  feasibility  study.  This study
                                    must include adequate information on mining,
                                    processing,  metallurgical,   economic,  and
                                    other relevant factors that demonstrate,  at
                                    the  time  of   reporting,   that   economic
                                    extraction is justified.

PROVEN (MEASURED) RESERVES          (SEC Guide 7 definition) reserves  for which
                                    (a)  quantity  is computed  from  dimensions
                                    revealed in outcrops,  trenches, workings or
                                    drill  holes;   grade  and/or   quality  are
                                    computed   from  the   results  of  detailed
                                    sampling  and (b) the sites for  inspection,
                                    sampling  and   measurement  are  spaced  so
                                    closely  and the  geologic  character  is so
                                    well  defined  that size,  shape,  depth and
                                    mineral     content    of    reserves    are
                                    well-established.

QUALIFIED PERSON                    means an  individual  who (a) is an engineer
                                    or geoscientist  with at least five years of
                                    experience  in  mineral  exploration,   mine
                                    development or operation or mineral  project
                                    assessment, or any combination of these; (b)
                                    has  experience   relevant  to  the  subject
                                    matter  of  the  mineral   project  and  the
                                    technical  report;  and (c) is a  member  in
                                    good standing of a professional association.

RESERVE                             (SEC  Guide  7  definition)  that  part of a
                                    mineral  deposit which could be economically
                                    and  legally  extracted  or  produced at the
                                    time of the reserve determination.

RHYOLITE                            a  fine-grained  extrusive  volcanic   rock,
                                    similar to granite in composition.

SHEAR ZONE                          where a fault affects a width of rock rather
                                    than being a single clean  break,  the width
                                    of affected rock is referred to as the shear
                                    zone.  The  term  implies   movement,   i.e.
                                    shearing.

SULPHIDIZATION                      an ore forming  process where sulfur from an
                                    external   source  is  introduced  into  pre
                                    existing   rock  or  magma  and  bonds  with
                                    metallic  elements forming metallic sulphide
                                    minerals.

TAILINGS                            material   rejected   from   a   mill  after
                                    recoverable   valuable  minerals  have  been
                                    extracted.

TON                                 short ton (2,000 pounds).

TONNE                               metric tonne (2,204.6 pounds).

VEIN                                a tabular  body of rock  typically of narrow
                                    thickness and often mineralized  occupying a
                                    fault,    shear,    fissure   or    fracture
                                    crosscutting another pre-existing rock.


                                      -5-
<PAGE>


FORWARD LOOKING STATEMENTS

The Company cautions readers regarding  forward looking  statements found in the
following  discussion  and  elsewhere  in this  annual  report  and in any other
statement  made by, or on the  behalf of the  Company,  whether or not in future
filings  with  the  Securities  Exchange  Commission  ("SEC").  Forward  looking
statements are statements not based on historical  information  and which relate
to future  operations,  strategies,  financial  results  or other  developments.
Forward looking  statements are necessarily based upon estimates and assumptions
that are inherently  subject to significant  business,  economic and competitive
uncertainties and contingencies,  many of which are beyond the Company's control
and many of which,  with respect to future  business  decisions,  are subject to
change.  See "Item 3. Key Information - Risk Factors".  These  uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward looking  statements made by or on
behalf of the Company.  The Company  disclaims any  obligation to update forward
looking statements.

































                                      -6-
<PAGE>
                                     PART I


ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
--------------------------------------------------------------------------------

Not applicable.


ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.
--------------------------------------------------------------------------------

Not applicable.


ITEM 3.  KEY INFORMATION.
--------------------------------------------------------------------------------

SELECTED FINANCIAL DATA

The  selected  financial  data of the Company for the years ended May 31,  2006,
2005 and 2004,  was derived from the  consolidated  financial  statements of the
Company  which  have been  audited  by D & H Group  LLP,  independent  Chartered
Accountants,  as indicated  in their report which is included  elsewhere in this
annual report. The selected financial data set forth for the years ended May 31,
2003 and 2002,  are derived from the Company's  audited  consolidated  financial
statements, not included herein.

The  information  in the following  table was  extracted  from the more detailed
consolidated  financial  statements and related notes included herein and should
be read in conjunction  with such financial  statements and with the information
appearing  under  the  heading  "Item 5.  Operating  and  Financial  Review  and
Prospects".

Reference is made to Note 12 of the Company's  consolidated financial statements
included herein for a discussion of the material  differences  between  Canadian
generally accepted accounting  principles ("GAAP") and US GAAP, and their effect
on the Company's financial statements.

<TABLE>
<CAPTION>
                                                                         YEAR ENDED MAY 31,
                                                                 (IN '000S, EXCEPT PER SHARE DATA)

                                                          2006         2005         2004         2003          2002
                                                          ----         ----         ----         ----          ----
<S>                                                    <C>          <C>          <C>          <C>          <C>
Revenues                                                     -            -            -         $128          $362

Interest Income and Other                                  $78          $20         $119          $58        $1,339

Production Costs                                             -            -            -         $(84)        $(264)

General and Administrative                               $(484)       $(247)       $(341)       $(821)      $(1,280)

Stock-Based Compensation                                 $(256)       $(139)       $(154)           -             -

Interest Expense                                             -            -        $(234)       $(641)      $(1,079)

Depreciation, Depletion and Impairment                     $(2)         $(6)         $(2)     $(6,881)     $(39,482)

Write-off of Unproven Mineral Claims                         -        $(703)           -            -             -

Research Development & Marketing                             -            -            -        $(364)        $(793)

Impairment of Investment and Advances                        -            -            -        $(938)      $(1,101)

Other                                                     $(77)        $(34)         $30        $(247)        $(115)

Net Loss                                                 $(741)     $(1,109)       $(582)     $(9,791)     $(42,414)

Loss Per Share                                          $(0.17)      $(0.56)      $(0.57)     $(21.76)     $(116.52)

Weighted Average Number of Shares                        4,389        1,966        1,025          450           364

Dividends per Share                                          -            -            -            -             -

Working Capital (Deficiency)                            $3,536         $245         $551      $(1,494)       $1,059

Resource Assets                                         $1,129            -         $221            -        $7,822

Investment and Advances                                      -            -            -            -          $991


                                      -7-
<PAGE>

<CAPTION>
                                                                         YEAR ENDED MAY 31,
                                                                 (IN '000S, EXCEPT PER SHARE DATA)

                                                          2006         2005         2004         2003          2002
                                                          ----         ----         ----         ----          ----
<S>                                                    <C>          <C>          <C>          <C>          <C>
Other Assets                                               $92          $11          $85         $184          $341

Non-current Obligations                                      -            -            -            -             -

Shareholders' Equity                                    $4,757         $256         $857      $(1,310)       $4,505

Total Assets                                            $4,972         $287         $873         $411       $11,666

Capital Stock                                          $75,890      $70,970       70,594       67,568        61,316
</TABLE>

ADJUSTMENT TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The  consolidated  financial  statements  of  the  Company  have  been  prepared
according to Canadian  GAAP which differs in certain  material  respects from US
GAAP. Material  differences between Canadian and US GAAP and their effect on the
Company's consolidated financial statements are summarized in the tables below.

<TABLE>
<CAPTION>
                                                                          2006            2005            2004
                                                                            $               $              $
<S>                                                                   <C>             <C>            <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
    AND COMPREHENSIVE INCOME

Loss for the year
    Canadian GAAP                                                         (741,255)     (1,108,987)       (582,395)
    Mineral interests expensed (ii)                                       (642,068)         220,582       (220,582)
    Other compensation expense (iv)                                         (2,700)        (19,500)        (27,000)
    Accretion of liability component of long-term debt (v)                       -               -          92,139
                                                                      -------------   -------------  --------------
    US GAAP                                                             (1,386,023)       (907,905)       (737,838)
OTHER COMPREHENSIVE INCOME
    Unrealized holding gain (loss) on
       available-for-sale marketable securities (i)                              -          39,200          59,520
                                                                      -------------   -------------  --------------
Comprehensive (loss) for the year                                       (1,386,023)       (868,705)       (678,318)
                                                                      =============   =============  ==============
Loss per share basic and fully diluted - US GAAP                            $(0.32)         $(0.44)         $(0.66)
                                                                      =============   =============  ==============
</TABLE>

<TABLE>
<CAPTION>
                                                                          2006            2005
                                                                            $               $
<S>                                                                   <C>             <C>
CONSOLIDATED BALANCE SHEETS

Total Assets
    Canadian GAAP                                                         4,971,556         287,316
    Available for sale securities (i)                                             -          39,200
    Mineral interests expensed (ii)                                        (642,068)              -
                                                                      --------------  --------------
    US GAAP                                                               4,329,488         326,516
                                                                      ==============  ==============
Total Liabilities
    Canadian GAAP and US GAAP                                               214,447          31,006
                                                                      ==============  ==============
Shareholders' Equity
    Canadian GAAP                                                         4,757,109         256,310
    Available for sale securities (i)                                             -          39,200
    Mineral interests expensed (ii)                                        (642,068)              -
                                                                      --------------  --------------
    US GAAP                                                               4,115,041         295,510
                                                                      ==============  ==============
</TABLE>


                                      -8-
<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                          2006            2005            2004
                                                                            $               $              $
<S>                                                                   <C>             <C>            <C>
OPERATING ACTIVITIES
Cash used per Canadian GAAP                                               (354,170)       (271,651)       (247,942)
Mineral interests                                                         (791,152)       (415,255)       (220,582)
                                                                      -------------   -------------  --------------
Cash used per US GAAP                                                   (1,145,322)       (686,906)       (460,524)
                                                                      =============   =============  ==============
INVESTING ACTIVITIES
Cash used per Canadian GAAP                                               (833,638)       (388,800)       (289,401)
Mineral interests                                                          791,152         415,255         220,582
                                                                      -------------   -------------  --------------
Cash provided from (used) per US GAAP                                      (42,486)         26,455          68,819
                                                                      =============   =============  ==============
</TABLE>

(i)      Marketable Securities

         US  GAAP  requires  marketable   securities  which  are  classified  as
         available for sale to be carried at fair value, as determined by quoted
         published market prices,  with unrealized losses and gains on available
         for  sale  securities  to  be  included  as  a  separate  component  of
         shareholders'  equity.  In addition,  net realized  gains and losses on
         security   transactions   would   be   determined   on   the   specific
         identification cost basis and included in the determination of earnings
         for the year.

(ii)     Mineral Interests

         Mineral  property  costs  and  related  exploration   expenditures  are
         accounted for in accordance  with Canadian GAAP as disclosed in Note 2.
         For US GAAP purposes,  the Company expenses  exploration costs relating
         to mineral interests.  When proven and probable reserves are determined
         for an interest  and a  feasibility  study  prepared,  then  subsequent
         exploration and development costs of the property would be capitalized.
         The capitalized  costs of such properties would then be amortized using
         the unit of production  method over the estimated  life of the ore body
         based  on  proven  and   probable   reserves   and  would  be  assessed
         periodically for recoverability of carrying values.

         For US GAAP  purposes,  the Company has adopted the  provisions of EITF
         04-2,  "Whether  Mineral Rights are Tangible or Intangible  Assets" and
         FSP FAS  141-1  and 142-1  which  concluded  that  mineral  rights  are
         tangible assets.  Accordingly,  the Company  capitalizes  certain costs
         related to the acquisition of mineral rights.

(iii)    Private Placements of Common  Stock and Special  Warrants  with Related
         Parties

         US GAAP  requires  disclosure  of private  placements  conducted by the
         Company where directors and officers of the Company and their immediate
         family  members  are   participants.   During  the  2006  fiscal  year,
         directors,  officers  and  companies  controlled  by the  directors  or
         officers acquired 270,000 shares (2005 - 65,000;  2004 - 45,000) of the
         Company,  pursuant to private placements  conducted by the Company, for
         cash proceeds of $135,000 (2005 - $65,000; 2004 - $90,000);

(iv)     Private Placements of Common Stock

         The Company conducts the majority of its equity financings  pursuant to
         private  placements.  Under  the  policies  of the  TSXV,  on which the
         Company's  common  stock is listed,  the Company may provide a discount
         off the market price of the Company's  common  stock.  US GAAP does not
         permit  a  discount  from  the  market  price.  US  GAAP  requires  the
         recognition  of the market  value of the  Company's  common  stock as a
         credit to share capital, with a charge to operations for the portion of
         the discount relating to equity financings  conducted with officers and
         directors  of the Company and a charge to  shareholders'  equity,  as a
         capital  distribution,  for  the  discount  relating  to the  remaining
         portion of the equity financings.


                                      -9-
<PAGE>


         Under US GAAP, loss and capital  distributions for the 2006 fiscal year
         would increase by $2,700 (2005 - $19,500;  2004 - $27,000) and $127,300
         (2005 - $87,000; 2004 - $295,349),  respectively, and share capital, as
         at May 31, 2006 would increase by $3,559,578 (2005 -$3,429,578;  2004 -
         $3,323,078). There is no net change to shareholders' equity.

(v)      Accretion of Liability Component of Long-term Debt

         Under Canadian GAAP, compound financial instruments such as convertible
         debentures  are required to be accounted for at the fair value of their
         components.  Such  accounting is not permitted under US GAAP unless the
         components are detachable, which they are not in this case.

(vi)     Functional Currency

         The Company's functional currency is the Canadian dollar.

(vii)    Development Stage Company

         The Company is in the  exploration  stage and, as of June 1, 2003,  was
         considered  a  development  stage  company as defined by  Statement  of
         Financial  Accounting  Standards  ("SFAS") No. 7. To May 31, 2006,  the
         Company  has   accumulated  a  deficit  of  $2,432,637   while  in  the
         development stage.

Recent Accounting Pronouncements

UNITED STATES PRONOUNCEMENTS

In December  2004, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of Financial  Accounting  Standards  ("SFAS") No. 123R,  "Share Based
Payment"   ("SFAS  123R").   SFAS  123R   supersedes  APB  25  and  its  related
implementation  guidance by requiring entities to recognize the cost of employee
services  received in  exchange  for awards of equity  instruments  based on the
grant-date fair value of those awards (with limited exceptions) and revises SFAS
123 as follows:

(i)      Public  entities  are  required  to  measure  liabilities  incurred  to
         employees  in  share-based  payment  transactions  at  fair  value  and
         non-public entities may elect to measure their liabilities to employees
         incurred in share-based payment  transactions at their intrinsic value,
         whereas  under  SFAS  123  all  share-based  payment  liabilities  were
         measured at their intrinsic value.

(ii)     Non-public  entities  are  required  to  calculate  fair value using an
         appropriate  industry  sector index for the expected  volatility of its
         share  price,  if  it is  not  practicable  to  estimate  the  expected
         volatility of the entity's share price.

(iii)    Entities are required to estimate the number of  instruments  for which
         the  requisite  service  is  expected  to be  rendered  as  opposed  to
         accounting for forfeitures as they occur.

         SFAS 123R  also  clarifies  and  expands  guidance  in  several  areas,
         including  measuring  fair value,  classifying  an award as equity or a
         liability and attributing  compensation cost to reporting periods. SFAS
         123R does not change the accounting  guidance for  share-based  payment
         transactions with parties other than employees  provided in SFAS 123 as
         originally  issued in EITF  96-18.  SFAS 123R also does not address the
         accounting  for  employee  share  ownership  plans which are subject to
         Statement of Position 93-6,  "Employers'  Accounting for Employee Stock
         Ownership Plans". The Company will be required to apply SFAS 123R as of
         the first annual  reporting period that begins after June 15, 2005. The
         adoption of this new  pronouncement  is not expected to have a material
         effect on the Company's  consolidated  financial position or results of
         operations.

CANADIAN PRONOUNCEMENTS

The Company  believes that there are no new Canadian  pronouncements  which will
have a material  effect on the  Company's  consolidated  financial  position  or
results of operations.


                                      -10-
<PAGE>

EXCHANGE RATE HISTORY

The following table sets forth the average exchange rate for one Canadian dollar
expressed  in terms of one US dollar for the fiscal  years  ended May 31,  2006,
2005, 2004, 2003 and 2002.

           PERIOD                                  AVERAGE

           June 1, 2005 - May 31, 2006              0.8581
           June 1, 2004 - May 31, 2005              0.7984
           June 1, 2003 - May 31, 2004              0.7443
           June 1, 2002 - May 31, 2003              0.6574
           June 1, 2001 - May 31, 2002              0.6377


The  following  table sets forth high and low  exchange  rates for one  Canadian
dollar  expressed  in terms of one US  dollar  for the  six-month  period  ended
October 31, 2006.

           MONTH                        HIGH                 LOW

           October 2006                0.8965               0.8784
           September 2006              0.9048               0.8872
           August 2006                 0.9037               0.8840
           July 2006                   0.8999               0.8760
           June 2006                   0.9098               0.8896
           May 2006                    0.9100               0.8906


Exchange  rates are based upon the noon  buying  rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.

The noon rate of exchange on November  30, 2006,  reported by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United States dollars was CDN$1.1413 (US$0.8762 = CDN$1.00).

RISK FACTORS

The securities of the Company are highly speculative.  A prospective investor or
other person reviewing the Company should not consider an investment  unless the
investor is capable of sustaining an economic loss of the entire investment. The
Company has, in the past,  conducted  business in the  petroleum and natural gas
industry and computer software  industry.  As of the date of this annual report,
the  Company  no longer is active in these  industries,  and  instead  currently
conducts mineral exploration  activities and is in the process of constructing a
conventional  cyanidation  plant and  related  infrastructure  to produce  gold,
silver and other minerals from its mining  concessions in Mexico. The financing,
exploration,  development  and  production  of  any  of  the  Company's  mineral
properties is subject to a number of factors including  commodity  prices,  laws
and regulations,  political conditions, currency fluctuations,  hiring qualified
people and  obtaining  necessary  services  in  jurisdictions  where the Company
operates.  The current trends relating to these factors could change at any time
and negatively affect the Company's operations and business.

The  following  is  a  brief   discussion  of  those   distinctive   or  special
characteristics  of the  Company's  operations  and  industry  which  may have a
material  impact on, or  constitute  risk  factors  in respect of the  Company's
future financial performance.

THE  COMPANY'S  PROPERTIES  ARE  LOCATED IN MEXICO AND ARE SUBJECT TO CHANGES IN
POLITICAL CONDITIONS AND REGULATIONS.

In the past,  Mexico has been  subject to  political  instability,  changes  and
uncertainties,  which may cause  changes to  existing  governmental  regulations
affecting mineral  exploration and mining activities.  The Company's  operations
and properties are subject to a variety of governmental  regulations  including,
among others:  regulations  promulgated by the  Secretaria  del Medio  Ambiente,
Recursos  Naturales y Pesca  (Mexico,  Secretariat of the  Environment,  Natural
Resources and Fisheries) ("SEMARNAP"), Mexico's environmental protection agency;
the Mexican Mining Law; and the  regulations  of the Comision  National del Aqua
with respect to water rights.  The Company's mineral  exploration and any


                                      -11-
<PAGE>

future mining activities in Mexico may be adversely  affected in varying degrees
by changing government  regulations relating to the mining industry or shifts in
political  conditions that increase the costs related to the Company  activities
or  maintaining  its  properties.  Operations  may also be  affected  in varying
degrees by government  regulations  with respect to  restrictions on production,
price  controls,  export  controls,  income  taxes,  expropriation  of property,
environmental  legislation and mine safety. The Company does not carry political
risk insurance.

In addition,  the Company's properties may be affected by government regulations
and treaties, as well as by laws and policies of Canada affecting foreign trade,
investment and taxation.  In addition,  it may be difficult to enforce judgments
obtained in Canadian courts against assets located outside of Canada.

THE BUSINESS OF  EXPLORATION  FOR MINERALS AND MINING  INVOLVES A HIGH DEGREE OF
RISK,  AS FEW  PROPERTIES  THAT  ARE  EXPLORED  ARE  ULTIMATELY  DEVELOPED  INTO
PRODUCING MINES.

Continued   exploration  of  the  Company's   project  depends  on  satisfactory
exploration results.  Mineral exploration involves a high degree of risk and few
properties which are explored are ultimately developed into producing mines. The
long-term  profitability of the Company's  operations will be, in part, directly
related  to the cost and  success  of its  exploration  programs,  which  may be
affected by a number of factors beyond the Company's control.

Operations  in which the  Company  has a direct  or  indirect  interest  will be
subject  to all the  hazards  and  risks  normally  incidental  to  exploration,
development and production of gold ("Au"),  silver ("Ag") and other metals,  any
of which  could  result in work  stoppages,  damage to  property,  and  possible
environmental  damage.  Substantial  expenditures  are required to establish ore
reserves through  drilling,  to develop  metallurgical  processes to extract the
metal from the ore and, in the case of new  properties,  to develop the reserves
and to build the mining and processing facilities and infrastructure at any site
chosen  for  mining.  Although  substantial  benefits  may be  derived  from the
discovery  of a major  mineral  deposit,  no  assurance  can be  given  that the
contained  minerals  will be  discovered  in  sufficient  quantities  to justify
commercial operations or that the Company will be able to raise sufficient funds
for  development.  The  economics of developing  gold,  silver and other mineral
properties  is  affected  by many  factors  including  the  cost of  operations,
variations in the grade of ore mined,  fluctuations  in metal markets,  costs of
processing equipment and such other factors as government regulations, including
regulations relating to royalties, allowable production, importing and exporting
of minerals and environmental protection.

Unusual or unexpected  formations,  formation  pressures,  fires, power outages,
labour  disruptions,  flooding,  explorations,   cave-ins,  landslides  and  the
inability to obtain suitable adequate  machinery,  equipment or labour are other
risks  involved  in the  operation  of  mines  and the  conduct  of  exploration
programs.

The Company  does not have  producing  mines at this time.  Properties  on which
mineral reserves are not found will have to be discarded  causing the Company to
write each respective property off, thus sustaining a loss.

NO  ASSURANCE  CAN BE  GIVEN  REGARDING  THE  COMMERCIAL  VIABILITY  OF  MINERAL
DEPOSITS.

All of the Company's  property interests are in the exploration stage and do not
contain any "reserves",  as that term is defined in Guide 7. The term "reserves"
is  defined  in  Guide 7 as  "that  part of a  mineral  deposit  which  could be
economically  and  legally  extracted  or  produced  at the time of the  reserve
determination."   Guide   7  is   available   from   the   SEC's   website   at:
HTTP://WWW.SEC.GOV/DIVISIONS/CORPFIN/FORMS/INDUSTRY.HTM#SECGUIDE7. Additionally,
the Company has no Mineral  Resources or Reserves as defined by NI 43-101 and no
assurance can be given that any particular level of recovery of minerals will in
fact be realized or will ever  qualify as a  commercially  mineable  (or viable)
deposit which can be legally and economically  exploited. In addition, the grade
of mineralization  ultimately mined may differ from that indicated by the mining
and processing of bulk samples or drilling  results,  and such differences could
be  material.   Production  can  be  affected  by  such  factors  as  permitting
regulations  and  requirements,   weather,   environmental  factors,  unforeseen
technical difficulties,  unusual or unexpected geological formations, inaccurate
or  incorrect   geologic,   metallurgical   or   engineering   work,   and  work
interruptions,  among other  things.  Short term  factors,  such as the need for
orderly  development of deposits or the  processing of new or different  grades,
may have an adverse  effect on mining  operations or the results of  operations.
There can be no assurance  that  minerals  recovered in  small-scale  laboratory
tests will be duplicated  in  large-scale  tests under on-site  conditions or in
production scale operations.  Material changes in reserves or resources, grades,
stripping  ratios or  recovery  rates  may  affect  the  economic  viability  of
projects.


                                      -12-
<PAGE>

THE COMPANY HAS NOT OBTAINED AN INDEPENDENT FEASIBILITY REPORT

The Company has engaged expert  independent  technical  consultants to advise it
with respect to the  potential of its various  mineral  property  interests  and
project engineering, among other things. The Company believes that those experts
are  competent  and that they have  carried  out their work in  accordance  with
internationally recognized industry standards. However, if the work conducted by
those experts is ultimately  found to be incorrect or inadequate in any material
respect, the Company may experience delays and increased costs in developing its
properties.

The Company is in the final phase of  constructing a 200 tonne/day  conventional
mill near the Mina Real mine which is expected to be in  operation by the end of
December,  2006, but an independent  feasibility  study on the Mina Real project
has not been conducted,  which may increase the risk that the Company's  planned
operations are not  economically  viable.  The Company has relied on the work of
management,  an outside  consultant and the project  manager in Mexico,  who has
extensive  experience  in  similar  size  projects  from  the  construction  and
operational perspective.

THE  PRICES  OF METALS  FLUCTUATE  IN THE  MARKET  AND SUCH  FLUCTUATIONS  COULD
NEGATIVELY  IMPACT THE COMPANY'S  ABILITY TO RAISE FUNDING AND MAY CAUSE CERTAIN
ACTIVITIES TO BECOME UNECONOMIC.

The Company's revenues,  if any, are expected to be, in large part, derived from
the mining and sale of silver,  gold and other  minerals  either "as is" i.e. in
the ground,  or as refined metal.  Factors beyond the control of the Company may
affect the  marketability  of any substances  discovered  and/or  produced.  The
prices of  various  metals  have  experienced  significant  movement  over short
periods of time, and are affected by numerous  factors beyond the control of the
Company, including international economic and political trends,  expectations of
inflation, currency exchange fluctuations, interest rates and global or regional
consumption  patterns,  speculative  activities and increased  production due to
improved mining and production methods.  The supply of and demand for metals are
affected by various factors, including political events, economic conditions and
production costs in major mineral  producing  regions.  Variations in the market
prices of metals may impact on the Company's ability to raise funding to conduct
exploration of properties acquired by the Company. In addition,  any significant
fluctuations  in metal  prices  will  impact on the  economic  viability  of the
Company's  projects and it's decision to  accelerate  or reduce its  exploration
activities.

THE COMPANY MAY NOT HAVE PROPER TITLE TO ITS  PROPERTIES  AND, AS A RESULT,  MAY
INCUR  SIGNIFICANT  EXPENSES TO OBTAIN PROPER TITLE,  OR MAY HAVE TO ABANDON ANY
SUCH PROPERTY.

The Company has under option mineral claims or concessions  which constitute the
Company's  property  holdings.  The  ownership and validity of mining claims and
concessions  are often  uncertain and may be contested.  In those  jurisdictions
where the Company has property  interests,  the Company makes a search of mining
records in  accordance  with mining  industry  practices  to confirm that it has
acquired  satisfactory  title  to its  properties  but  does  not  obtain  title
insurance with respect to such properties.  The possibility exists that title to
one or more of its concessions,  particularly title to undeveloped claims, might
be defective  because of errors or  omissions  in the chain of title,  including
defects in conveyances  and defects in locating or maintaining  such claims,  or
concessions. The boundaries of some of the Company's property interests have not
been  surveyed  and,  therefore,  the precise  location and area of these mining
properties  may be in  doubt.  The  Company  is not aware of  challenges  to the
location or area of its  unpatented  mining  claims.  The Company  does not have
title to most of the  surface  rights to the Mina  Real  Property.  The  surface
rights to the property are mostly held by local  farmers.  The Company will need
to enter into  agreements with the holders of the title to the surface rights in
order to obtain such surface  rights to the property.  There can be no assurance
that these surface rights will be secured on terms acceptable to the Company.

MEXICO IS A DEVELOPING  COUNTRY AND OBTAINING  FINANCING OR FINDING,  HIRING AND
MAINTAINING QUALIFIED PEOPLE OR OBTAINING ALL NECESSARY SERVICES AND CONTRACTORS
FOR THE COMPANY'S OPERATIONS IN MEXICO MAY BE DIFFICULT.

The  Company's  principal  project is located in Mexico,  which is a  developing
country,  and it may be difficult for the Company to obtain necessary  financing
for its planned exploration or development activities in Mexico. Although all of
the Company's current senior  operational  management and employees are Mexican,
the Company will need to hire  additional  employees or consultants in Mexico to
assist the Company to conduct its  operations in  accordance  with local laws in
Mexico.  The Company  also plans to  purchase  certain  supplies  and retain the
services of various  companies in Mexico to meet its future  business  plans. It
may be difficult to find, hire or retain qualified people in the mining industry
who are  situated  in Mexico  or to  obtain  all of the  necessary  services  or
expertise  in Mexico or to conduct  operations  on


                                      -13-
<PAGE>

its projects at reasonable  rates. If qualified people and services or expertise
cannot be  obtained in Mexico,  the  Company  may need to seek and obtain  those
services from people  located  outside of Mexico which will require work permits
and compliance  with applicable laws and could result in delays and higher costs
to the Company to conduct its operations in Mexico.

THE COMPANY'S ACTIVITIES ARE SUBJECT TO ENVIRONMENTAL REGULATIONS.

The  operations  of  the  Company  are  subject  to  environmental   regulations
promulgated  by  government  agencies  from  time  to  time.  Specifically,  the
Company's activities are subject to regulation by SEMARNAP.  Regulations require
that an environmental  impact statement,  known in Mexico as a Manifesto Impacto
Ambiental,  be prepared for submission to SEMARNAP.  Studies required to support
the Manifesto  Impacto  Ambiental  include a detailed  analysis of the following
areas: soil, water, vegetation,  wildlife, cultural resources and socio-economic
impacts.  The Company must also provide proof of local  community  support for a
project  to gain  final  Manifesto  Impacto  Ambiental  approval.  Environmental
legislation  provides for restrictions  and prohibitions on spills,  releases or
emissions of various  substances  produced in  association  with certain  mining
industry  operations,  such as seepage from tailings disposal areas, which would
result in  environmental  pollution.  A breach of such legislation may result in
imposition  of fines and  penalties.  In addition,  certain  types of operations
require  the  submission  and  approval  of  environmental  impact  assessments.
Environmental   legislation  is  evolving  in  a  manner  which  means  stricter
standards,  and  enforcement,  fines and penalties for  non-compliance  are more
stringent.  Environmental  assessments  of proposed  projects carry a heightened
degree of responsibility for companies and directors, officers and employees.

Although the Company has received all the necessary  environmental approvals and
permitting  for its  mining and  milling  operations  at the Mina Real  project,
amendments  to current laws,  regulations  and permits  governing  activities of
mineral  exploration  companies or more stringent  implementation  thereof could
require increases in exploration or production  expenditures,  or require delays
in  exploration,  mining and milling  operations or  abandonment  of new mineral
properties.

Compliance  with new  requirements  could  impose  costs on the  Company  in the
future,  the  materiality of which cannot  reasonably be predicted at this time.
Any change in the applicable laws or regulations could have an adverse effect on
any mining  project which the Company  might  undertake.  Also,  the Company may
require additional  permits for its future  operations,  which may or may not be
obtainable on reasonable terms.

THE PRICE OF THE COMPANY'S  COMMON SHARES IS SUBJECT TO MARKET  FLUCTUATIONS AND
VOLATILITY  WHICH  MAY NOT BE  RELATED  TO THE  COMPANY'S  OPERATIONS  AND  SUCH
FLUCTUATIONS MAY IMPACT THE COMPANY'S ABILITY TO COMPLETE EQUITY FINANCINGS.

In recent years, the securities  markets in Canada have experienced a high level
of price and volume  volatility,  and the  market  price of  securities  of many
companies,  particularly junior natural resources  exploration  companies,  have
experienced  wide  fluctuations in price which have not necessarily been related
to the  operating  performance,  underlying  asset  values or  prospects of such
companies.  In  particular,  the per share price of the Company's  common shares
fluctuated  from a high of $1.55 to a low of $0.47  during the  12-month  period
ending October 31, 2006.  Continued price  fluctuations  will have a significant
impact on the Company's ability to complete equity financings.

THE  COMPANY'S  OPERATION  IN MEXICO  SUBJECTS  THE COMPANY TO FOREIGN  CURRENCY
FLUCTUATIONS  WHICH MAY INCREASE THE  COMPANY'S  EXPENSES  AND, IN THE EVENT THE
COMPANY ACHIEVES PROFITABILITY, REDUCE THE COMPANY'S PROFITABILITY.

The  Company's  operation  in  Mexico  makes  it  subject  to  foreign  currency
fluctuation and such  fluctuation may adversely  affect the Company's  financial
position and results.  The Canadian dollar varies under market  conditions.  The
Company maintains its cash and cash equivalent amounts primarily in Canadian and
U.S. denominated currencies. The currency exchange rate between U.S. dollars and
Canadian dollars  fluctuated  between US $0.8760 and US $0.9100 for one Canadian
dollar during the six-month period ending October 31, 2006. The Company does not
currently engage in hedging activities.

THE  COMPANY  IS  DEPENDENT  ON KEY  PERSONNEL  AND THE  ABSENCE OF ANY OF THESE
INDIVIDUALS COULD RESULT IN A SIGNIFICANTLY NEGATIVE EFFECT ON THE COMPANY.

The Company  strongly  depends on the  business and  technical  expertise of its
management and key personnel.  There is little  possibility that this dependence
will decrease in the near term. As the Company's  operations expand,  additional


                                      -14-
<PAGE>


general  management  resources  will  be  required,  especially  if the  Company
encounters risks that are inherent in doing business in foreign  countries.  The
Company is dependent,  in  particular,  on Douglas Good,  the  President,  Chief
Executive  Officer  ("CEO") and acting Chief  Financial  Officer  ("CFO") of the
Company,  the  experience  and  expertise of its board of directors and advisory
committee, and the expertise and experience of Mr. Alfredo Parra, a director and
in-house  Qualified  Person for the Company and the President of Mina Real.  The
Company  does not  maintain  key-man life  insurance  on any  personnel.  If the
services of the Company's  management and key personnel were lost, it could have
a material adverse effect on future operations.

THE  REGISTRANT'S  SUCCESS  DEPENDS ON  PERFORMANCE  AND SERVICE OF  INDEPENDENT
CONTRACTORS

The Registrant's  success depends to a significant extent on the performance and
continued  service  of  certain  independent  contractors.  The  Registrant  has
contracted  the  services  of  professional  miners,  drillers  and  others  for
exploration,  mining environmental,  construction and engineering services. Poor
performance  by such  contractors  or the loss of such services  could delay the
exploration  projects on the Registrant's  property  resulting in a reduction of
share value.

THE COMPANY IS IN  COMPETITION  WITH OTHER  MINING  COMPANIES  THAT HAVE GREATER
RESOURCES AND EXPERIENCE.

The mineral exploration and development business is intensely  competitive,  and
the Company competes with other exploration and mining companies,  many of which
have greater resources and experience. Competition in the precious metals mining
industry is primarily  for mineral rich  properties  which can be developed  and
produced  economically;  the technical expertise to find,  develop,  and produce
such properties;  the labour to operate the properties;  and the capital for the
purpose of financing  development of such properties.  Many competitors not only
explore for and mine precious  metals,  but also conduct  refining and marketing
operations on a worldwide  basis and some of these  companies  have much greater
financial and technical resources than the Company.  Such competition may result
in the Company  being unable to acquire  desired  properties,  recruit or retain
qualified  employees or acquire the capital necessary to fund its operations and
develop its  properties.  The  Company's  inability to compete with other mining
companies for these mineral deposits could have a material adverse effect on the
Company's results of operation and business.

THE COMPANY MAY INCUR LIABILITY FOR CERTAIN RISKS AGAINST WHICH THE COMPANY DOES
NOT HAVE INSURANCE, WHICH COULD REDUCE OR ELIMINATE ANY FUTURE PROFITABILITY AND
NEGATIVELY IMPACT THE PRICE OF THE COMPANY'S SHARES.

In the course of  exploration  of mineral  concessions,  certain  risks,  and in
particular, unexpected or unusual geological operating conditions including rock
bursts,  cave-ins,  fires,  flooding and earthquakes may occur. It is not always
possible to fully  insure  against  such risks and the Company may decide not to
take out  insurance  against  such risks as a result of high  premiums  or other
reasons.  Should such  liabilities  arise,  they could reduce or  eliminate  any
future  profitability  and result in increasing costs and a decline in the value
of the securities of the Company

THE  COMPANY  HAS LIMITED  FINANCIAL  RESOURCES  AND IF THE COMPANY IS UNABLE TO
SECURE  ADDITIONAL  FUNDING  OR  IF  THE  COMPANY'S   EXPLORATION  PROGRAMS  ARE
UNSUCCESSFUL, THE COMPANY MAY FAIL.

The Company has limited financial  resources,  a history of losses, no revenues,
and has no assurance that additional  funding will be available to it. As of May
31,  2006,  the  Company  had  working  capital of  $3,536,076.  The  Company is
currently  funding the  construction  of the  cyanidation  processing  plant and
related  infrastructure at its Mina Real Property. In addition,  exploration and
development  activities  may change due to ongoing  results and  recommendations
which may entail significant funding or exploration commitments. The Company may
also acquire additional properties.

At this time, the Company is unable to estimate how much capital it will need to
raise or the terms of any such financing.  The only significant  source of funds
presently  available to the Company is the sale of equity  capital.  The Company
may not be able to raise the  necessary  funds,  if any,  and may not be able to
raise such funds on terms which are acceptable to the Company. Failure to obtain
such additional  financing  could result in delay or indefinite  postponement of
the  acquisition of new properties by the Company or exploration and development
of any  projects  acquired  by the  Company  with  the  possible  loss  of  such
properties.  Any further additional equity financings  undertaken by the Company
may cause dilution to its shareholders. See "Item 4. Information on the Company"
and "Item 5. Operating and Financial Review and Prospects."


                                      -15-

<PAGE>


The Company's consolidated financial statements were prepared on a going concern
basis  which  assumes  that the  Company  will be able to realize its assets and
discharge its liabilities in the normal course of business.

THE COMPANY HAS NO HISTORY OR  EXPERIENCE  IN THE  START-UP  AND  OPERATION OF A
MINING  AND  MILLING  OPERATION  AND,  AS  A  RESULT,   ITS  ACTIVITIES  MAY  BE
UNSUCCESSFUL.

To date the Company has no  experience in the start-up and operation of a mining
and milling operation.  There can be no assurance that the Company will generate
profits in the future.  The Company has  experienced,  on a consolidated  basis,
losses in the years of its  operations.  There is no assurance  that the Company
will be able to achieve and maintain  profitable  operations.  The likelihood of
success of the Company must be considered  in light of the  problems,  expenses,
difficulties,  complication and delays frequently encountered in connection with
the  establishment  of any new business.  There is no assurance that the Company
can generate revenues, operate profitably, or provide a return on investment, or
that it will successfully implement its plans.

IF THE  COMPANY  ISSUES  SHARES OR OPTIONS  TO ITS  OFFICERS,  DIRECTORS  OR KEY
EMPLOYEES,  OR IF THE COMPANY  OBTAINS  FUNDING  THROUGH THE SALE OF  ADDITIONAL
COMMON SHARES, THE SHAREHOLDERS WILL EXPERIENCE DILUTION.

The Company may in the future grant to some or all of its  directors,  officers,
insiders and key employees  options to purchase the  Company's  common shares as
non-cash incentives to those employees.  Such options may be granted at exercise
prices equal to market prices,  or at prices as allowable  under the policies of
the TSX Venture Exchange ("TSXV"),  when the public market is depressed.  To the
extent that  significant  numbers of such options may be granted and  exercised,
the  interests of then existing  shareholders  of the Company will be subject to
additional dilution.

The  Company is  currently  without a source of revenue  and will most likely be
required  to issue  additional  shares to finance  its  activities,  acquire new
property  interests and,  depending on the outcome of any conducted  exploration
programs, may issue additional shares to finance additional exploration programs
on projects  acquired by the  Company.  The issuance of  additional  shares will
cause the  Company's  existing  shareholders  to  experience  dilution  of their
ownership interests.

TRADING OF THE COMPANY'S COMMON SHARES HAS BEEN LIMITED AND INVESTORS MAY NOT BE
ABLE TO RE-SELL THEIR SHARES IN A TIMELY MANNER.

To date,  there has been limited trading of the Company's shares of common stock
on the Over-the-Counter Bulletin Board system (the "OTCBB"), the Frankfurt Stock
Exchange Open Market and the TSXV.  Therefore,  persons purchasing shares of the
Company's common stock may not be able to resell the shares in a timely manner.

THE COMPANY'S OPERATIONS ARE SUBJECT TO GOVERNMENT REGULATIONS WHICH MAY SUBJECT
THE  COMPANY TO  PENALTIES  FOR  FAILURE  TO COMPLY AND MAY LIMIT THE  COMPANY'S
ABILITY TO CONDUCT  EXPLORATION  ACTIVITIES AND COULD CAUSE THE COMPANY TO DELAY
OR ABANDON ITS PROJECTS.

The  Company's  operations  are also  subject  to  national  and local  laws and
regulations governing prospecting, taxes, labor standards,  occupational health,
land use, environmental  protection,  mine safety, and others which currently or
in the future may have a substantial  adverse impact on the Company. In order to
comply with  applicable  laws,  the  Company  may be  required  to make  capital
expenditures  until a  particular  problem is  remedied.  Existing  and possible
future environmental  legislation,  regulation and action could cause additional
expense,  capital expenditures,  restriction and delays in the activities of the
Company,  the extent of which cannot be reasonably  predicted.  Violators may be
required to compensate  those suffering loss or damage by reason of their mining
activities and may be fined if convicted of an offence under such legislation.

Amendments  to current laws,  regulations  and permits  governing  activities of
mineral  exploration  companies or more stringent  implementation  thereof could
require increases in exploration expenditures,  or require delays in exploration
or abandonment of new mineral properties.

Exploration  activities  undertaken  by the  Company  may be subject to foreign,
federal,  state,  provincial  and  local  laws  and  regulations  governing  the
protection of the  environment,  including laws and regulations  relating to air
and  water  quality,


                                      -16-

<PAGE>



waste  disposal,  and the  protection of endangered or threatened  species.  The
Company's  exploration  activities  may be subject to foreign,  federal,  state,
provincial and local laws and  regulations  for protection of surface and ground
water.

If the Company  undertakes  exploration  activities it may be required to obtain
pre-construction  environmental  and land use review and comply with permitting,
control and mitigation requirements of the jurisdiction in which such operations
are to be located.  Compliance with new  requirements  could impose costs on the
Company in the future,  the materiality of which cannot  reasonably be predicted
at this time.  Any change in the applicable  laws or  regulations  could have an
adverse effect on any mineral project which the Company might  undertake.  Also,
the Company may require additional permits for its future operations,  which may
or may not be obtainable on reasonable terms.

If the Company is unable to obtain the necessary permits, the Company might have
to change its planned  exploration for such  non-permitted  properties and/or to
seek other joint  venture  arrangements.  If the Company were unable to mitigate
the problem, the Company might not be able to proceed with exploration.  In this
event,  the  Company  might  seek to  mitigate  any losses  through  sale of the
property, prior to abandonment.

THE COMPANY MAY NOT BE ABLE TO OBTAIN SUPPLIES AND  INFRASTRUCTURE  NECESSARY TO
CONDUCT FUTURE  EXPLORATION  PROGRAMS AND, AS SUCH, MAY HAVE TO DELAY OR ABANDON
ITS PROJECTS.

Property  interests acquired in the future may not be in developed areas and the
availability of infrastructure  (water and power, and in some areas roads) at an
economically  feasible cost cannot be assured.  Power is an integral requirement
of any  production  facility  on such  properties.  In the event the  Company is
unable to obtain  water or power at any of the  properties  in which the Company
may obtain an interest,  the Company may not be able to conduct its  exploration
activities,  or in the event the Company discovers  mineralization,  the Company
may not be able to begin a  development  program,  in which case the Company may
lose its interest in the property or may have to abandon the property.

CONFLICTS  OF INTEREST  MAY ARISE AMONG THE  MEMBERS OF THE  COMPANY'S  BOARD OF
DIRECTORS AND SUCH CONFLICTS MAY CAUSE THE COMPANY TO ENTER INTO TRANSACTIONS ON
TERMS WHICH ARE NOT BENEFICIAL TO THE COMPANY.

Certain of the  directors,  officers  and  shareholders  of the Company are also
directors,  officers  and  shareholders  of other  companies  and  conflicts  of
interest  may arise  between  their  duties as  directors  of the Company and as
directors of other  companies.  All such  possible  conflicts are required to be
disclosed in accordance with the requirements of the British  Columbia  Business
Corporations  Act, as amended (the  "BCBCA"),  and the  directors  concerned are
required to govern themselves in accordance with the obligations imposed on them
by law.

The  directors  of the Company are  required by law to act  honestly and in good
faith with a view to the best  interests  of the  Company  and to  disclose  any
interest which they may have in any project or opportunity of the Company.  If a
conflict of interest arises at a meeting of the board of directors, any director
in a conflict will disclose his interest and abstain from voting on such matter.
The Company  does not  currently  have a right of first  refusal  pertaining  to
opportunities that come to management's  attention insofar as such opportunities
may relate to the  Company's  proposed  business  operations.  The  officers and
directors are, so long as they are officers or directors of the Company, subject
to the restriction that all opportunities  contemplated by the Company's plan of
operation  which come to their  attention,  either in the  performance  of their
duties or in any other manner, will be considered  opportunities of, and be made
available to the Company and the companies that they are  affiliated  with on an
equal basis. If the Company or the companies in which the officers and directors
are affiliated with both desire to take advantage of the opportunities, the said
officers  and  directors  would  abstain  from  negotiating  and voting upon the
opportunity.  However,  all directors may still  individually  take advantage of
opportunities  if the Company  declines to do so. Except as set forth above, the
Company  has not adopted any  conflict of interest  policy with  respect to such
transactions.  In determining whether or not the Company will participate in any
project or opportunity,  the director will primarily consider the degree of risk
which the  Company  may be exposed and its  financial  position at the time.  No
members of  management  have entered into  non-competition  agreements  with the
Company.  As of the  date  of this  annual  report  all  material  conflicts  of
interests  which have arisen since June 1, 2003, have been described in "Item 7.
Major Shareholders and Related Party Transactions - Conflicts of Interest".

If a conflict of  interest  arises at a meeting of the board of  directors,  any
director in a conflict  will  disclose  his  interest and abstain from voting on
such matter,  and the minutes of the meeting will  reflect such  disclosure  and
abstention  from  voting.  In  determining  whether  or  not  the  Company  will
participate in any project or opportunity, the board of directors


                                      -17-
<PAGE>

will  primarily  consider the degree of risk to which the Company may be exposed
and its financial  position at that time.  The Company has no specific  internal
policy governing conflicts.

THE COMPANY DOES NOT PAY DIVIDENDS ON ITS COMMON  SHARES;  THEREFORE,  INVESTORS
SEEKING DIVIDEND INCOME SHOULD NOT PURCHASE THE COMMON SHARES.

The Company has never  declared or paid cash  dividends on its common shares and
does  not  anticipate  doing so in the  foreseeable  future.  Additionally,  the
determination as to the declaration of dividends is within the discretion of the
Company's  Board of  Directors,  which may never  declare cash  dividends on the
Company's  common  stock.  Investors  cannot expect to receive a dividend on the
Company's common shares in the foreseeable future, if at all.

THE  COMPANY'S  SHARES ARE  SUBJECT TO THE SEC'S PENNY  STOCK  RULES,  WHICH MAY
RESTRICT  THE  ABILITY  OF BROKERS TO SELL THE  COMPANY'S  COMMON  STOCK AND MAY
REDUCE THE SECONDARY MARKET FOR THE COMMON STOCK.

The SEC has adopted  rules that regulate  broker-dealer  practices in connection
with  transactions  in  "penny  stock".  Generally,   penny  stocks  are  equity
securities with a price of less than US $5.00 (other than securities  registered
on  certain  national  securities  exchanges  or  quoted  on  certain  automated
quotation  systems).  If the Company's shares are traded for less than US $5 per
share,  as they  currently  are,  the shares  will be subject to the SEC's penny
stock rules unless (1) the  Company's  net tangible  assets exceed US $5,000,000
during the Company's first three years of continuous operations or US $2,000,000
after the  Company's  first three  years of  continuous  operations;  or (2) the
Company has had  average  revenue of at least US  $6,000,000  for the last three
years. The penny stock rules require a broker-dealer,  prior to a transaction in
a penny stock not  otherwise  exempt from the rules,  to deliver a  standardized
risk disclosure document  prescribed by the SEC that provides  information about
penny  stocks and the nature and level of risks in the penny stock  market.  The
broker-dealer  also  must  provide  the  customer  with  current  bid and  offer
quotations for the penny stock,  the compensation of the  broker-dealer  and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a  transaction  in a penny stock not otherwise
exempt  from  those  rules,  the  broker-dealer  must  make  a  special  written
determination  that the penny stock is a suitable  investment  for the purchaser
and  receive  the  purchaser's  written  agreement  to  the  transaction.  These
requirements  may have the effect of reducing  the level of trading  activity in
the secondary  market for a stock that becomes subject to the penny stock rules.
Since the  Company's  shares are  traded  for less than US $5.00 per share,  the
Company's  common  stock is subject to the penny  stock  rules.  Therefore,  the
holders of the common  stock may find it  difficult  to sell the common stock of
the Company.  These rules may restrict the ability of brokers to sell the common
stock and may  reduce the  secondary  market  for the  common  stock.  A limited
secondary  market may result in a decrease  in the value of the shares  and/or a
partial or total loss of an investor's investment.

THE COMPANY MAY BE DEEMED TO BE A "PASSIVE FOREIGN INVESTMENT  COMPANY" FOR U.S.
TAX PURPOSES WHICH COULD SUBJECT U.S. SHAREHOLDERS TO INCREASED TAX LIABILITY.

The Company may be deemed to be a "Passive Foreign Investment Company" ("PFIC").
See "Item 10. Additional Information - Taxation." If the Company is deemed to be
a PFIC, a United States holder of the Company's  common shares would be required
to pay an interest  charge  together with tax calculated at maximum tax rates on
certain "excess distributions" (defined to include certain dividends from a PFIC
and any gain on the sale of stock of a PFIC) unless such holder made an election
either to (1) include in his or her taxable  income his or her pro rata share of
the PFIC's ordinary earnings and net capital gains under the Qualified  Electing
Fund rules or (2) mark to market his or her Company  common shares at the end of
each taxable  year as set forth in Section 1296 of the Internal  Revenue Code of
1986, as amended. The elections require certain conditions be met such as filing
on or before the due date, as extended,  for filing the shareholder's income tax
return for the first taxable year to which the election will apply.

THIS ANNUAL REPORT CONTAINS STATEMENTS ABOUT FUTURE EVENTS AND RESULTS WHICH MAY
NOT BE ACCURATE.

Statements  contained in this annual  report that are not  historical  facts are
forward-looking statements that involve risks and uncertainties. Such statements
may not prove to be accurate as actual  results and future  events  could differ
materially  from those  anticipated  in such  statements.  Without  limiting the
generality of the foregoing, such risks and uncertainties include interpretation
of results and geology,  results of  pre-feasibility  and  feasibility  studies,
recovery, accidents, equipment breakdowns, labor disputes or other unanticipated
difficulties  with  or  interruptions  in  production,   delays  in


                                      -18-
<PAGE>

exploration  activities,  political  risks  involving  doing  business  in other
nations and the policies of these other  nations,  the inherent  uncertainty  of
production  fluctuations  and failure to obtain  adequate  financing on a timely
basis.

THE COMPANY'S  OPERATIONS ARE NOT, AND MAY NOT BE, DIVERSIFIED AND, AS SUCH, THE
COMPANY MAY BE SUBJECT TO  FLUCTUATIONS IN THE BUSINESS OR INDUSTRY IN WHICH THE
COMPANY MAY OPERATE.

The Company's  inability to diversify its activities  into a number of areas may
subject it to economic  fluctuations  within a  particular  business or industry
and, therefore, increase the risks associated with its operations.

INVESTORS  IN THE  UNITED  STATES  MAY  NOT  BE  ABLE  TO  ENFORCE  THEIR  CIVIL
LIABILITIES AGAINST THE COMPANY OR ITS DIRECTORS AND OFFICERS.

It may be difficult to bring and enforce suits against the Company.  The Company
is a corporation domiciled in British Columbia.  None of the Company's directors
are residents of the United  States,  and all or a substantial  portion of their
assets  are  located  outside  of the  United  States.  As a  result,  it may be
difficult for U.S.  holders of the Company's  common shares to effect service of
process  on these  persons  within the  United  States or to  enforce  judgments
obtained in the U.S. based on the civil liability provisions of the U.S. federal
securities laws against the Company or its officers and directors.  In addition,
a  shareholder  should  not assume  that the courts of Canada (i) would  enforce
judgments of U.S. courts  obtained in actions against the Company,  its officers
or directors  predicated upon the civil liability provisions of the U.S. federal
securities  laws or other laws of the United States,  or (ii) would enforce,  in
original  actions,  liabilities  against the Company,  its officers or directors
predicated  upon the U.S.  federal  securities  laws or other laws of the United
States.

However, U.S. laws would generally be enforced by a Canadian court provided that
those laws are not contrary to Canadian  public  policy,  are not foreign  penal
laws or laws that deal with  taxation  or the  taking of  property  by a foreign
government  and provided that they are in compliance  with  applicable  Canadian
legislation regarding the limitation of actions.  Also, a judgment obtained in a
U.S.  court would  generally  be  recognized  by a Canadian  court  except,  for
example:

         a)       where the U.S.  court where the  judgment  was rendered had no
                  jurisdiction according to applicable Canadian law;

         b)       the judgment was subject to ordinary remedy (appeal,  judicial
                  review and any other  judicial  proceeding  which  renders the
                  judgment not final,  conclusive or enforceable  under the laws
                  of  the  applicable   state)  or  not  final,   conclusive  or
                  enforceable under the laws of the applicable state;

         c)       the judgment  was obtained by fraud or in any manner  contrary
                  to natural justice or rendered in contravention of fundamental
                  principles of procedure;

         d)       a dispute between the same parties,  based on the same subject
                  matter  has given rise to a  judgment  rendered  in a Canadian
                  court or has been decided in a third  country and the judgment
                  meets the necessary  conditions for  recognition in a Canadian
                  court;

         e)       the outcome of the judgment of the U.S. court was inconsistent
                  with Canadian public policy;

         f)       the judgment enforces  obligations  arising from foreign penal
                  laws or laws that deal with taxation or the taking of property
                  by a foreign government; or

         g)       there has not been  compliance  with  applicable  Canadian law
                  dealing with the limitation of actions.


ITEM 4.  INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------

HISTORY AND DEVELOPMENT OF THE COMPANY

The Company was incorporated under the British Columbia Company Act ("BC Company
Act") on September 7, 1989, as "No. 207 Sail View  Ventures  Ltd." On October 2,
1989,  the Company  changed its name from "No. 207 Sail View


                                      -19-
<PAGE>

Ventures Ltd." to "Ingot  Properties Ltd." On June 26, 1992, the Company changed
its name from "Ingot  Properties Ltd." to "San Pedro Resources Ltd." On July 15,
1994, the Company  changed its name from "San Pedro  Resources  Ltd." to "Hilton
Petroleum  Ltd." On March 2, 2004,  the Company  changed  its name from  "Hilton
Petroleum  Ltd." to "Hilton  Resources  Ltd." On August 25,  2005,  the  Company
changed its name from "Hilton Resources Ltd." to "Rochester Resources Ltd."

The Company was inactive until November 30, 1994, when it acquired approximately
96.63% of the issued and outstanding  shares of Hilton Petroleum,  Inc. ("Hilton
U.S.").  The Company  subsequently  made additional  capital  contributions  and
acquired  all of the  remaining  minority  interests  and Hilton  U.S.  became a
wholly-owned subsidiary of the Company. Hilton U.S. was incorporated on June 15,
1993 pursuant to the laws of the State of Nevada.

On April 1, 1999, the Company  changed its domicile  through  continuation  from
British  Columbia to the Yukon  Territory  under the Business  Corporations  Act
(Yukon) (the "YBCA").

On December 30, 2002, the Company completed a consolidation of its share capital
on a one new for ten old basis.

In October  2003,  the  Company  concluded  an option  agreement,  to acquire an
interest in a gold/silver project in Mexico. The option agreement was terminated
in fiscal 2005.

At the Company's annual and special meeting of shareholders held on November 18,
2004,  the Company  received  shareholder  approval to  continue  its  corporate
jurisdiction  into British  Columbia under the BCBCA and effective  November 23,
2004,  the Company  changed its  domicile  through  continuation  from the Yukon
Territory  to  British  Columbia  under the  BCBCA.  See  "Item  10.  Additional
Information - Memorandum and Articles of Association".

On January 8, 2006, the Company entered into an option agreement (the "Mina Real
Option Agreement") with ALB Holdings Ltd., a private BC holding company ("ALB"),
to acquire 51% of the issued and outstanding  shares in the capital of Mina Real
Mexico S.A. de C.V. ("Mina Real").  Mina Real is the beneficial  owner of a 100%
interest in a gold/silver  project  comprising  approximately  3,400 hectares of
mineral  properties  located  near the  capital  city of Tepic,  in the state of
Nayarit,  Mexico (the "Mina Real  Property").  In  satisfaction of the Mina Real
Option Agreement,  effective October 31, 2006, the Company paid $410,000 in cash
and issued  250,000  shares of its common  stock to ALB,  in  addition to making
payments of $1,500,000 towards the 2006 work program on the Mina Property and as
a result directly holds a 51% equity interest in Mina Real.

On October 20,  2006,  the Company  entered into an agreement to acquire 100% of
the issued and  outstanding  shares of ALB in exchange for 10,500,000  shares of
the Company's common stock (the "ALB Acquisition").  Effective December 1, 2006,
the ALB  Acquisition  was complete.  As a result of its  acquisition of ALB, the
Company owns the remaining 49% of the issued and outstanding shares of Mina Real
through  ALB,  and thus  holds a 100%  interest  in Mina  Real and the Mina Real
Property.  Additionally,  under the terms of the ALB  Acquisition,  the  Company
must,  subject to their  consent,  appoint  Dr.  Alfred  Parra and Nick  DeMare,
(formerly the Company's President, CEO and acting CFO) to the Board of Directors
of the Company.  As of the date of this filing,  Dr. Parra has been appointed to
the Board and Mr. DeMare has not has been appointed to the Board.

The  Company's  registered  office is located at Suite 1305 - 1090 West  Georgia
Street,  Vancouver,  British  Columbia,  V6E 3V7. The  Company's  head office is
located at Suite 400 - 535 Howe Street, Vancouver, British Columbia, V6C 2Z4 The
contact  person is  Douglas  Good,  the  President,  CEO and  acting  CFO of the
Company.  The telephone  number is (604)  484-6614 and the  facsimile  number is
(604)  688-3348.  The  Company  does not have a  registered  agent in the United
States.

The Company trades on the TSXV under the symbol "RCT".

The Company is a reporting issuer in British Columbia, Alberta and Saskatchewan.

The Company's  common stock trades on the  Over-the-Counter  Bulletin Board (the
"OTC Bulletin Board") operated by the National Association of Securities Dealers
under the symbol "RCTFF.OB".

The  Company's  common stock also trades on the  Frankfurt  Stock  Exchange Open
Market under the symbol "R5I".


                                      -20-
<PAGE>

BUSINESS OVERVIEW

The Company  was  originally  engaged in the  business  of  acquiring  leasehold
interests  in  petroleum  and natural gas rights,  and the  exploration  for and
development, production and sale of petroleum and natural gas in the continental
United States. The Company's remaining  investments in the petroleum and natural
gas rights were written off in fiscal 2003.

During fiscal 2003, the Company funded  research,  development  and marketing of
proprietary  software programs using artificial  intelligence.  These activities
were  unsuccessful  in  developing  a  marketable  product  and the  project was
terminated in fiscal 2003.

On October 7, 2003 the Company  finalized a heads of  agreement  with Minera San
Jorge S.A. de C.V.  ("MSJ"),  a private  Mexican  company at  arms-length to the
Company,  for an option to acquire a 60% interest in the El Nayar project in the
state of Nayarit,  Mexico.  After completing an exploration program, on June 15,
2005,  the Company  announced  it had no further  work  planned for the El Nayar
project in Nayarit,  Mexico,  because the  property  did not meet the  Company's
objective of providing near-term production.

MINA REAL PROPERTY

On January 8, 2006, the Company entered into the Mina Real Option Agreement with
ALB to acquire 51% of the issued and  outstanding  shares in the capital of Mina
Real.  Mina Real is the  beneficial  owner of a 100%  interest  in the Mina Real
Property,  a gold/silver  project  comprising  approximately  3,400  hectares of
mineral  properties  located  near the  capital  city of Tepic,  in the state of
Nayarit,  Mexico. In satisfaction of the Mina Real Option Agreement, the Company
paid $410,000 in cash and issued  250,000  shares of its common stock to ALB, in
addition to making payments of US$1,500,000 towards the 2006 work program on the
Mina Property and as a result  directly  acquired a 51% equity  interest in Mina
Real.

On June 20, 2006, the Company entered into a Development Facility Agreement with
ALB and Mina  Real  (the  "Development  Facility")  under the terms of which the
Company was to provide  financing for the mining and milling  operations  and in
return  receive  a net  profits  interest  in the Mina Real  project.  Since the
Company  now  effectively  owns  100% of Mina  Real,  the  Development  Facility
Agreement now represents an intra-company obligation.

As of June 2006,  environmental  approval and  permitting  were in place and the
Company  commenced  site  preparation  and  construction  of  a  200  tonnes/day
conventional cyanidation processing plant and related infrastructure at the Mina
Real Property. The mill is designed to allow for an increase in capacity to 300+
tonnes/day  once mining  operations are scaled up to support this volume of mill
feed and is expected to be completed by the end of December 2006.

On October 20,  2006,  the Company  entered into an agreement to acquire 100% of
the issued and  outstanding  shares of ALB in exchange for 10,500,000  shares of
the Company's  common stock and effective  December 1, 2006, the ALB Acquisition
was  completed.  The sole asset of ALB is the remaining  49% equity  interest in
Mina  Real and the  only  liabilities  of ALB are an  underlying  obligation  of
US$1.85 million to an ex-partner and a small net smelter  royalty  obligation on
its interest in the Mina Real project.  The net smelter royalty is initially set
at 1% reducing to 1/2 of 1% after net smelter royalty payments reach US$500,000.
The largest single  shareholder  of ALB was Dr. Alfredo Parra,  the President of
Mina Real Mexico and founder of the Mina Real project, who is now a director for
the Company and its in-house Qualified Person. As a result of its acquisition of
ALB, the Company owns the remaining 49% of the issued and outstanding  shares of
Mina Real through ALB, and thus holds a 100%  interest in Mina Real and the Mina
Real Property.

DISPOSITIONS

The Company did not dispose of any property  interests  during fiscal 2006, 2005
or 2004.

EXPLORATION EXPENDITURES

During fiscal 2006, 2005 and 2004, the Company capitalized $486,584, $66,536 and
$103,971,  respectively,  for mineral property  acquisition  costs and $642,068,
$415,940 and $116,611, respectively, for exploration expenditures on its mineral
property interests.


                                      -21-
<PAGE>


SALES AND REVENUE DISTRIBUTION

As of the date of this annual report, the Company has not generated any revenues
from its  mineral  exploration  activities.  Total  interest  and  other  income
reported for fiscal 2006, 2005 and 2004, were as follows:

                                                        ($ in 000's)
                                               -----------------------------
                                                     Years Ended May 31,
                                               -----------------------------

                                                 2006       2005       2004
         Interest and Other Income

              Canada                           $    78    $    20    $   119
                                               =======    =======    =======

PRINCIPAL PROPERTY-MINA REAL PROPERTY, MEXICO

INTRODUCTION

As of the date of this filing,  the Company has a 100% interest in the Mina Real
Property.  The  following  information  pertaining  to the Mina Real Property is
based,  in part,  upon a technical  report dated  January 22, 2006 entitled "The
Mina Real Gold-Silver  Property" (the "Technical Report") prepared by Mr. Victor
Jaramillo,  M.Sc.(A),  P.Geo.,  a  Qualified  Person.  The  Technical  Report is
incorporated  herein by  reference  and the full text is  available  on SEDAR at
www.sedar.com.

PROPERTY DESCRIPTION AND LOCATION

The Mina Real  Property  is  located  in the state of  Nayarit,  Mexico,  on the
Pacific coast  approximately 50 kilometers  southeast from the city of Tepic and
within the Santa Maria del Oro District,  State of Nayarit, Mexico. It comprises
four mineral  claims that total  approximately  3,377.33  hectares.  The surface
rights to these  properties  are held  mainly by local  farmers,  and  therefore
negotiations  are  required in order to gain access to the  property in order to
build  roads,  drill pads,  and dig  trenches.  The  on-site  housing and office
facilities,  mill and related infrastructure are located on leased property. The
property  on which the  Florida  Mine site is located is owned by the  Company's
Mexican subsidiary.

See the location map on the following page.

















                                      -22-
<PAGE>



                         MINA REAL PROPERTY LOCATION MAP

                 To view map please visit the Company's website:
               HTTP://WWW.ROCHESTERRESOURCESLTD.COM/S/MINAREAL.ASP































                                      -23-
<PAGE>


ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

Access  to the  property  is from the city of Tepic  via  Highway  15,  the main
north-south  route along the West Coast of Mexico, to Crucero La Lobera (40 km),
then 10 km by paved road to the town of Santa Maria Del Oro.  From Santa  Maria,
approximately 22 km by gravel road the Mine area is reached.

The climate is sub-tropical and  characterized  by a dry and a wet season.  From
November to February, the region is dry and enjoys moderate temperatures ranging
from lows of 10 degrees to 29 degrees Celsius. From March to July,  temperatures
and humidity increases with daytime temperatures up to 40 degrees Celsius.

The wet season  begins in late June to early July with almost daily  rainstorms.
During hurricane season, in September and October,  the region is prone to heavy
rains.

The area is serviced by a network of roads with good access to local  population
centers.  Highway 15, the main north-south route along the West Coast of Mexico,
provides  direct  access  to the  major  city of  Tepic,  where a full  range of
services is available. Most products  (fuel-groceries-hardware) are brought from
this city. The area has electric power and water.

Vegetation consists of thorn bushes, scrub oaks, a type of cedar and pine trees.
It is possible to work on the property  year-round basis, but seasonal rains may
occasionally inhibit local access.

GEOLOGY, DEPOSIT TYPES AND MINERALIZATION

The state of Nayarit lies within the physiographic  province known as the Sierra
Madre  Occidental,  an extensive  belt of mainly  volcanic  rocks  overlying and
intruding  Precambrian  to Jurassic  basement  rocks.  Also,  it lies within the
Province of the Pacific Coastal Plains and its south central area is lies within
the Neo-volcanic Axis Province.

The oldest rocks in the region  outcrop in the deepest parts of the Rio Santiago
and conform a sequence  of  intercalated  andesitic  tuffs with  sandstones  and
graywackes.  The age of  these  rocks  is early  Cretaceous  to upper  Jurassic.
Cretaceous   granite   to   granodiorite   intrusives   are   emplaced   in  the
volcano-sedimentary sequence.

Overlying  the previous  rocks is a series of andesite  and  rhyolite  volcanics
which are intruded by porphyry  granodiorite  and diabase  dikes.  This volcanic
sequence is known as the Lower Volcanic Sequence of Oligocene age.

The Upper Volcanic  Sequence  consists of rhyolitic  rocks (tuffs,  breccias and
ignimbrites)  of Miocene age.  Towards the late  Tertiary and early  Quaternary,
basalts,  rhyolitic  and andesitic  flows and pumice type tuffs were  deposited.
These later volcanics are known as the Neo-volcanic Axis.

The  structural  geology  of the  area  comprises  normal  faults  with  NNW-SSE
orientations  with subsided blocks to the east and west, which form deep canyons
and steep walls.  The main regional  lineaments  are oriented  NW-SE,  secondary
fracturing  and  faulting  have an  orientation  NW-SE  and  NE-SW  and the main
regional structure is the Tepic-Zacoalco Graben.

Within this  volcanic  belt lies the  Ceboruco  Volcano,  which is a  Cuaternary
strato-volcano typical of a subduction  environment.  Its last recorded eruption
was in 1870. The Santa Maria del Oro Lake,  just north of the town with the same
name,  comprises the basin of a Caldera within an 8 kilometer  diameter  graben.
The  Sanganguey  Volcano  is also a  strato-volcano  type.  Both  volcanoes  are
oriented  NW-SE and are  related to the  Caldera of the Lake Santa Maria del Oro
(Source: Mexican Geological Service, Tepic F13-8, 1998).

To the north and northwest of the mine area, most of the surface is covered by a
layer (0.50 up to 2.0m thick) of pumice volcanic pyroclastics.  This material is
very friable and of low density. It masks any vein outcrop and on top has growth
of  shrubs  and pine  trees.  The  pumice  dates  back to the year 1870 when the
Ceboruco  Volcano  last  erupted.  Most  outcrops  near the  mine are of  dacite
ignimbrites and andesite flows.

Mineral deposits types found in the area are mainly low sulphidation  epithermal
gold  silver  vein  deposits.  A typical  example of an  epithermal  gold-silver
deposit is the Yago Mine approximately 50 kilometers north of the city of Tepic.



                                      -24-
<PAGE>

The  Yago  Mine is  known  to have  been in  production  during  1993 to 1999 as
Compania  Minera Nueva Vizcaya S.A. de C.V.,  whose  president  was Dr.  Alfredo
Parra, a director and the in-house Qualified Person for the Company.

Low  sulphidation  veins are formed by fluids that originate from hot magma that
mix with a larger amount of groundwater.  The resulting fluids interact with the
rock for much longer than in high sulphidation fluids, in the process dissolving
silica,  which  is  later  precipitated  as  quartz.  Gold  is  precipitated  by
protracted boiling resulting in high grade gold silver deposits  associated with
veins.  High grade gold and silver in these veins is precipitated  over vertical
intervals of generally 300 to 600 meters.

In the Mine area the rocks that host the  mineralized  structures  are andesites
and  rhyo-dacites  at or near the boundary  between the Lower and Upper Volcanic
Sequences.

The  mineralized   structures  form  part  of  a  low  sulphidation   epithermal
gold-silver  system  which is composed  of quartz  veins that trend  NW-SE.  The
average dip of the veins is  approximately  75 degrees SW,  though the veins can
dip  vertically  or  greater  than 80  degrees to the NE. The width of the veins
varies from 0.40 to over 2.0 meters wide.

The host rock is a dacite which shows  silicification and quartz veinlets in the
wall rocks  adjacent to the quartz veins.  The  silicified  selvages are narrow,
generally 1 to 2 meters on each side.

The quartz veins are confined along faults and fractures with iron and manganese
oxides.  Some vein segments contain elevated gold and silver values,  mainly due
to secondary enrichment.

Structurally the mineralized area is bound by an uplifted block (horst),  within
which the Florida Veins are located,  and a down-dropped block (graben) in which
the  Tajos  Cuates  Veins  are  found.  These  blocks  are  controlled  by NE-SW
post-mineral  faults,  which  have also  displaced  the veins  horizontally  and
vertically.

HISTORY AND GEOLOGY

The mining  history of the area is not well  documented.  However,  older  local
residents near the mine area relate that minor mining was conducted  during 1940
and 1950.  After the acquisition of the Mine area in 2000 by the Company's joint
venture partner, access roads were built, old mine workings were made accessible
and development work was done.

During the period 2001 to 2003 approximately  4,000 tonnes of ore was mined with
an average gold content of 10 g/t gold (Mexican  Geological Service Report, July
2005).

During 2001 an  exploration  agreement was signed with Minas de San Luis S.A. de
C.V.  ("Luismin").  Work included  geological  mapping,  surface and underground
sampling of accessible workings. Two diamond drill holes were drilled.

The Mina Real  Property is an advanced  property on which  previous  owners have
spent  over  US $3  million  to  fund  the  initial  high-risk  exploration  and
development  costs,  including over 1,500 meters of mine development,  involving
five  separate  drifts at  different  elevations  ranging  from the 1,140  meter
elevation to the 1,260 meter  elevation as set out in the  following  diagram of
the underground workings:

In April through June of 2005, approximately 4,400 tonnes of gold-silver bearing
quartz  material was mined from the  aforementioned  segment of the Florida Vein
structure.

Access is good to the mine location through 2.5 kilometers of recently developed
road with water and power sources close to the proposed site for construction of
an initial milling operation capable of processing 200-300 tonnes per day.

To date four veins have been  identified on the Mina Real Property.  The Florida
quartz  veins 1, 2 and 3 and the Tajos  Cuates  vein.  Other  veins are known to
exist but require exploration  mapping and sampling.  Initial development at the
property  consisted  of five  portals  ranging  from 20 to 50  meters  apart  at
different elevations of the Florida vein system.

Recent geological field work, such as geological mapping,  limited trenching and
drill core  examination,  indicate  that the  Florida  Vein system may have good
continuity to the northwest  for at least another  kilometer  from the mine area
and may have a vertical  continuity of over 250 meters, as observed from surface
outcrop to the bottom  lowermost  developed adit.  Though there has been limited
diamond drilling on the property one hole,  F2-03, was drilled through the lower
levels of


                                      -25-
<PAGE>

the area  designated  by the  above  workings  diagram.  All  three  veins  were
intersected   at  elevations   below  the  lowermost   development   adits  with
intersections ranging in width from 1.1 to 2.5 meters with grades of 0.52 g/t Au
and 93.54 g/t Ag in the first  vein,  12.73 g/t Au and 172 g/t Ag in the  second
vein and 5.50 g/t Au and 171 g/t Ag in the third vein.

As part of its due  diligence  at the Mina Real  Property,  Mr.  Jaramillo,  the
author of the Technical Report, has taken 51 chip vein samples, 1 grab sample, 4
duplicates,  3 blanks and 6 standards.  Also, 20 pulp samples were assayed. Some
highlights of the underground chip vein samples taken include:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
   Sample No.           Vein          Width(m)      Gold g/t     Silver g/t              Description
-----------------------------------------------------------------------------------------------------------
<S>                 <C>                 <C>           <C>           <C>           <C>
     387322          Florida 3          1.00           8.4          226             Quartz Vein Level 260
-----------------------------------------------------------------------------------------------------------
     387324          Florida 3          0.98          9.62          67.2            Quartz Vein Level 260
-----------------------------------------------------------------------------------------------------------
     387325          Florida 3          1.07          11.5          123             Quartz Vein Level 260
-----------------------------------------------------------------------------------------------------------
     387334          Florida 2          0.70          2.44          848             Quartz Vein Level 210
-----------------------------------------------------------------------------------------------------------
     387339          Florida 3          2.10          9.61          202             Quartz Vein Level 160
-----------------------------------------------------------------------------------------------------------
     387342          Florida 3          1.30          14.25         260             Quartz Vein Level 160
-----------------------------------------------------------------------------------------------------------
     387362          Florida 2          1.55          6.27          501             Quartz Vein Level 185
-----------------------------------------------------------------------------------------------------------
     387367          Florida 2          1.10          14.55         336             Quartz Vein Level 185
-----------------------------------------------------------------------------------------------------------
     387369          Florida 3          1.60          9.15          119             Quartz Vein Level 185
-----------------------------------------------------------------------------------------------------------
     387393          Florida 3          0.80          16.80         115             Quartz Vein Level 140
-----------------------------------------------------------------------------------------------------------
     387397          Florida 3          1.13          4.66          723             Quartz Vein Level 140
-----------------------------------------------------------------------------------------------------------
     387398         Tajo Cuates         1.70          2.77          1330          Quartz Vein 1 - Main adit
-----------------------------------------------------------------------------------------------------------
</TABLE>

A vein system called Tajos Cuates,  located just south of the Florida Veins, has
also been visited and sampled by the Company's  Qualified Person. The vein where
sampled has a true width of 1.70 meters and is composed of fractured  quartz and
concentrations of limonite and manganese oxides.  The vein appears to be a large
zone of secondary enrichment. The assay returned 2.77 g/t Au and 1,330 g/t Ag.

The Mina Real Property has no mineral  resources or mineral  reserves  which are
compliant with the reporting requirements of NI 43-101 or Guide 7.

EXPLORATION AND MINE DEVELOPMENT ACTIVITIES BY THE COMPANY

In May 2006,  the Company  commenced  Phase 1 of the 2006 Work Program.  To date
five different vein  structures  have been identified that outcrop for more than
three  kilometres  within  the Mina  Real  concessions.  Development  mining  is
currently  taking place on three parallel vein structures  known as Florida 1, 2
and 3 which had about 1,500 metres of drift  development work completed prior to
the  commencement of the 2006 Work Program.  This  development area comprises an
estimated  average  of about  250  metres  of vein  structure  laterally  and an
estimated depth of over 250 metres. An intrusion has been identified  north-west
of the current Florida mine development followed by a continuous  outcropping of
the Florida vein system for about 1.1 kilometres more to the north-west.

The initial  mine  development  plan for 2006 was to develop the Florida  triple
vein structure  south-east of the intrusion on levels 1140,  1160, 1185 and 1210
which equates to an area  averaging  over 125 metres  vertically  and 225 metres
laterally.

Phase 1 of the 2006 Work Program was to continue the  excavation of Levels 1140,
1160 and 1185 of Florida 3 until the  underground  drift  reached the  projected
intrusion that  intersects the ore horizon on the NW portion of the  mineralized
structure.  By  November  2006,  the  2006  Work  Program  had  resulted  in the
excavation of Levels 1215,  1185, 1160 and 1140 of Florida 3 in mineralized rock
over a length of 725 metres as indicated by channel samples taken  approximately
every two metres.  Independent  assay results  received on 513 metres of the 725
metres of  channel  samples  have  averaged  12.60  grams/tonne  of gold and 238
grams/tonne  of silver and a width of 1.09 metres.  An additional 608 metres has
been developed in waste rock to prepare for ventilation,  ore transportation and
to cross a fault bringing the total to 1,333 metres of development mining.

                                      -26-
<PAGE>

Of  additional  importance is the  consistency  of the grade up to the confirmed
intrusive to the NW and the indication that the grade increases with depth. When
combined with the results of surface sampling to the NW of the intrusion,  these
results  support  management's  contention  that this high grade vein  structure
continues for a kilometer or more on the NW side of the intrusive.

The current phase of the 2006 Work Program  involves  extending the  development
mining to below the 1100 metre level to test grade and continuity to the base of
the structure estimated to be at the 900 metre level. In addition to duplicating
the development work carried out in Levels 1185, 1160 and 1140 of Florida 3 into
Florida 2 and 1, a short-hole  underground  diamond drill program will form part
of this phase of the exploration development of Florida veins 1 and 2 due to the
close  proximity of these two parallel  vein  structures.  The 2006 Work Program
will  allow the mine  engineers  to  develop a mining  strategy  to feed the 200
tonne/day mill from this explored area of Florida 1, 2 and 3.

CONSTRUCTION AND START-UP OF MILLING OPERATIONS

Site  preparation for a conventional  cyanidation  processing  plant and related
infrastructure is substantially  completed and the extensive concrete pad system
being  constructed  to  accommodate  the  various  components  of  the  mill  is
completed.  About 3.5 kilometres of new roadway  including  bridge workings have
been constructed  between the base camp and the mill site. Power is available to
the site and the local power company is proceeding  with an upgrade of the power
lines to the mill site to accommodate power demands in excess of a 300 tonne/day
milling operation.

Construction of the plant and related  infrastructure is nearing completion with
start-up of milling operations  expected to take place by the end of December of
2006.  Initial  start-up  capacity is designed for 200 tonnes/day with a modular
design that can be easily upgraded to at least 300 tonnes/day.

Dr.  Alfredo  Parra,  a  director  of the  Company  and the  Company's  in-house
Qualified  Person,  has reviewed the  technical  information  contained  herein.
Channel  samples  reported  were assayed by a  combination  of two certified and
independent  laboratories,  ALS  Chemex  of  North  Vancouver,  BC  and  SGS  of
Lakefield,  Ontario.  The Company has not conducted an  independent  feasibility
study on the Mina Real  project,  which may  increase  the risk that the planned
operations  are not  economically  viable.  The board has  relied on the work of
management, an outside consultant and the project management in Mexico, who have
extensive  experience  in  similar  size  projects  from  the  construction  and
operational perspective.

The Company's primary  strategic  objective is to bring the Mina Real project to
production  status before the end of 2006. The Florida mine  development plan is
on target and the results to date, as indicated above,  reinforces  managements'
view that  sufficient  mineralized  feed is available to provide initial support
for a 200 tonne/day mill. The material produced from the ongoing  excavations is
being stockpiled as initial mill feed and is estimated to exceed 6,000 tonnes by
the commencement of milling operations.

GOVERNMENT REGULATIONS

The Company's operations and exploration and development  activities are subject
to extensive  Canadian and Mexican federal,  state,  provincial  territorial and
local laws and regulations governing various matters, including:

         -    environmental protection;
         -    management and use of toxic substances and explosives;
         -    management of natural resources;
         -    exploration, development of  mines,  production  and  post-closure
              reclamation;
         -    exports;
         -    price controls;
         -    taxation;
         -    labour standards  and  occupational  health and safety,  including
              mine safety; and
         -    historic and cultural preservation.

The costs  associated  with  compliance  with  these  laws and  regulations  are
substantial  and  possible  future  laws  and  regulations,  or  more  stringent
enforcement of current laws and regulations by governmental  authorities,  could
cause additional expense,  capital expenditures,  restrictions on or suspensions
of the  Company's  proposed  operations  and  delays in the  development  of any
properties  acquired by the Company.  Moreover,  these laws and  regulations may
allow


                                      -27-
<PAGE>

governmental  authorities and private parties to bring lawsuits based upon
damages to  property  and injury to persons  resulting  from the  environmental,
health and safety impacts of the Company's past and future  operations and could
lead to the  imposition  of  substantial  fines,  penalties  or  other  civil or
criminal sanctions.

OTHER ASSETS

As at the date of this annual report, other than its Mina Real Property interest
and the construction of the mill facility the Company does not hold any material
assets.

EMPLOYEES

As of the date of this annual  report the Company and its  subsidiaries  have 38
full-time employees,  including its officers,  and 45 contract miners. A portion
of the Company's administrative functions is provided by a private company owned
by a former  officer  and  director of the  Company.  In  addition,  the Company
employs a number of consultants to perform specific  functions,  on an as needed
basis. See "Item 7. Major  Shareholders and Related Party Transactions - Related
Party  Transactions"  and "Item 6. Directors,  Senior Management and Employees -
Management Contracts."

ORGANIZATIONAL STRUCTURE

The  following  chart sets  forth the name of the  Company's  three  significant
subsidiaries,  its respective  jurisdiction of  incorporation  and the Company's
ownership interest therein as of the date of this annual report.

                               ORGANIZATION CHART

                         ----------------------------------
                         |    ROCHESTER RESOURCES LTD.     |
                         | (British Columbia Corporation)  |
                         ----------------------------------
                           |              |           |
                         100%             |           |
                           |              |           |
   ----------------------------------     |           |
   |        ALB HOLDINGS LTD.        |   51%         60%
   | (British Columbia Corporation   |    |           |
   ----------------------------------     |           |
                               |          |           |
                               |          |   ---------------------------------
                               |          |   |  MINERA NAYARIT S.A. DE C.V.   |
                              49%         |   |("Inactive" Mexico Corporation) |
                               |          |   ---------------------------------
                               |          |
            ---------------------------------
            | MINA REAL MEXICO S.A. DE C.V.  |
            |     (Mexico Corporation)       |
            ---------------------------------


Effective  December  1, 2006 the  Company  acquired a 100%  ownership  in ALB in
exchange for  10,500,000  common shares of the Company.  ALB's sole asset is its
49% equity  interest in Mina Real Mexico S.A. de C.V.  (Mina Real Mexico") which
was incorporated in Mexico in January,  2006. Mina Real Mexico owns and operates
the Mina Real Property.  The Company directly owns the remaining 51% interest in
Mina Real Mexico.

Minera Nayarit S.A. de C.V. ("Minera Nayarit"),  which was incorporated on April
29, 2004 in Mexico, is an inactive  corporation formed to hold and carry out the
Company's  earlier  Mexican  exploration  activities.  The Company is a recorded
holder of 60% of the issued and outstanding common shares of Minera Nayarit. The
remaining 40% of the issued and outstanding  common shares of Minera Nayarit are
held by MSJ,  the  optionor of the El Nayar  Project.  Although  the Company has
terminated  the option on the El Nayar  Project,  as of the date of this  annual
report,  it has not completed the transfer of its 60% interest in Minera Nayarit
to MSJ.

See  "Item 4.  Information  on the  Company  -  Business  Overview  - Mina  Real
Property."


                                      -28-
<PAGE>

PRINCIPAL OFFICES

The  Company's  corporate  office is located at Suite  #1305,  1090 West Georgia
Street,  Vancouver,  British  Columbia,  Canada,  V6E 3V7. The corporate  office
facility  is  provided  on a  month-to-month  basis  by  Chase  Management  Ltd.
("Chase") as part of its  agreement  with the  Company.  The Company also has an
executive  office at Suite #400 - 535 Howe Street,  Vancouver,  British Columbia
V6C 2Z4 that is leased on a month-to-month  basis at $900 per month. There is no
written lease agreement for this office.

The  Company's  Mexican  corporate  offices  are  located at Rio Tajo #6,  Entre
Everest y Andes, Colonia Lindavista,  Tepic, Mexico, C.P. 63110. The offices are
leased on a month-to-month  basis at US$700 per month. There is no written lease
agreement for this office.


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------

The  following  discussion  of the results of  operations of the Company for the
fiscal years ended May 31, 2006,  2005,  and 2004 should be read in  conjunction
with the  consolidated  financial  statements  of the Company and related  notes
included therein.

The Company's  consolidated financial statements are prepared in accordance with
Canadian GAAP, the application of which, in the case of the Company, conforms in
all  material  respects  for the periods  presented  with US GAAP except for the
differences  referred to in Note 12 of the consolidated  financial statements of
the Company included herein.

The noon rate of exchange on November  30, 2006,  reported by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United  States  dollars was  CDN$1.1413  (US$0.8762 = CDN$1.00).  The effects of
inflation  and price  changes  have not had a material  impact on the  Company's
income or net sales revenues during the past three years.

OVERVIEW

Since  inception the Company has primarily been engaged in the mineral  resource
and  petroleum  and natural gas  industries.  The Company is  currently a junior
mineral exploration company actively engaged in the acquisition, exploration and
development of the Mina Real Property,  comprising 3,400 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 is  constructing  a cyanidation  processing  plant with a
start-up  capacity of at least 200  tonnes/day,  expected to be in  operation in
late November 2006.

As of the date of this annual report,  the Company has not commenced its milling
operations and, consequently, has no current operating income or cash flow. As a
result, the Company is considered an exploration stage company.

The Company derives  interest  income on its bank deposits and other  short-term
deposits, which depend on the Company's ability to raise funds.

Through the exploration process,  management  periodically reviews results, both
internally and externally,  through mining related  professionals.  Decisions to
abandon,  reduce or expand  exploration  efforts  are  based  upon many  factors
including general and specific  assessments of mineral deposits,  the likelihood
of increasing  or decreasing  those  deposits,  land costs,  estimates of future
mineral  prices,  potential  extraction  methods and costs,  the  likelihood  of
positive or negative changes to the environment, permitting, taxation, labor and
capital costs.  Geological  and/or economic  circumstances  render each property
unique.

Costs incurred for general  exploration that do not result in the acquisition of
mineral  properties  with ongoing  exploration  or  developmental  potential are
charged to operations.  Exploration  costs relating to the Company's  properties
are  capitalized as mineral  properties and deferred  costs.  Should the Company
abandon a property or project,  the  related  deferred  costs will be charged to
operations.


                                      -29-

<PAGE>

The recoverability of amounts shown for mineral properties and deferred costs is
dependent upon the discovery of economically recoverable reserves, completion of
positive  feasibility  studies,  confirmation  of the Company's  interest in the
underlying  mineral  claims,  the  ability of the  Company  to obtain  necessary
financing  to  complete   exploration  and  development  and  future  profitable
production, or from the disposition of such properties.

The  Company  is not aware of any  governmental  economic  fiscal,  monetary  or
political policies or factors that have materially affected, or could materially
affect, directly or indirectly,  the Company's activities or investments by U.S.
shareholders except as set forth is "Item 10. Additional Information".

Foreign  currency  fluctuations  have not had a material impact on the Company's
activities  during the last three fiscal  years.  The Company does not engage in
any foreign currency hedging activities.

RESULTS OF OPERATIONS

YEAR ENDED MAY 31, 2006 COMPARED TO YEAR ENDED MAY 31, 2005

During fiscal 2006,  the Company  recorded a loss of $741,255  ($0.17 per share)
compared to a loss of $1,108,987 ($0.56 per share) for fiscal 2005. The $367,732
decrease in loss in fiscal 2006 compared to fiscal 2005 is primarily  attributed
to the  $703,058  write-off of the El Nayar  Project in fiscal  2005,  partially
offset by an increase in general and administrative expenses in fiscal 2006 as a
result of increased Company activities.

General and administrative expenses of $742,150 were reported in fiscal 2006, an
increase of $350,973,  from $391,177 in fiscal 2005.  Specific  expenses of note
during fiscal 2006 and 2005 are as follows:

         -    during fiscal 2006, the Company  incurred  accounting,  management
              and  administrative  fees of $53,415 (2005 - $78,788)  provided by
              Chase Management Ltd., a private company owned by Mr. Nick DeMare,
              a former director of the Company;
         -    during  fiscal 2006  compensation  totaling  $134,338  was paid to
              senior executives;
         -    during  fiscal 2006,  the Company  recorded a write-off of $10,000
              due to the uncertainty of collection of the amount receivable from
              the  Company's  former  joint  venture  partner.  The  Company  is
              pursuing collection;
         -    during  fiscal 2006,  the Company  incurred  professional  fees of
              $91,167.  The amount  includes  $42,500 paid to Canaccord  Capital
              Corporation  for fiscal  advisory  services  and  $31,917  paid to
              Company directors for professional services;
         -    regulatory  fees,   shareholder  costs  and  transfer  agent  fees
              increased  by $18,091,  from  $21,416 in fiscal 2005 to $39,507 in
              fiscal  2006,  mainly  due to the  costs  of the  Company's  share
              consolidation and name change conducted in fiscal 2006;
         -    during fiscal 2006, the Company issued 50,000 common shares,  at a
              fair  value of  $30,500,  to  Canaccord  Capital  Corporation  for
              corporate finance fees;
         -    recorded  general  exploration  costs  of  $24,588  for  remaining
              exploration  and related  costs on the El Nayar  Project in Mexico
              which was  discontinued  at the end of the 2005 fiscal  year,  and
              review of potential mineral properties;
         -    during fiscal 2006,  the Company sold  marketable  securities  for
              $47,280, resulting in a gain of $40,980;
         -    during  fiscal  2006,  the  Company  recorded   $256,159  (2005  -
              $138,725) for non-cash stock-based compensation on the granting of
              options;
         -    during fiscal 2006,  the Company  recorded  corporate  development
              costs  of  $37,360  relating  to  participation  in  international
              investment conferences to increase market awareness; and
         -    during fiscal 2006, the Company  incurred  travel costs of $24,207
              (2005 -  $12,173)  for  ongoing  mine site  visits  to Mexico  and
              investment conferences.

As the Company is in the exploration  stage, it has no revenue.  Interest income
is generated  from cash held with the Company's  financial  institution.  During
fiscal  2006,  the Company  reported  interest  income of $36,556 as compared to
$2,362 during  fiscal 2005.  The increase is attributed to higher levels of cash
held during fiscal 2006.

During fiscal 2006 the Company spent $791,152 on  exploration  activities on the
Mina  Real  Property.  Exploration  activities  conducted  in  fiscal  2006  are
described in "Exploration Projects" in this MD&A.


                                      -30-

<PAGE>


YEAR ENDED MAY 31, 2005 COMPARED TO YEAR ENDED MAY 31, 2004

During fiscal 2005 the Company  recorded a loss of $1,108,987  ($0.56 per share)
compared to a loss of $582,395  ($0.57 per share) for fiscal 2004.  The increase
in loss in fiscal 2005 is primarily  attributed to the $703,058 write-off of the
El Nayar Project

Excluding  stock  based  compensation,  general and  administrative  expenses of
$251,421 were  reported in fiscal 2005, a decrease of $36,637,  from $288,058 in
fiscal 2004.  In general,  costs  decreased  due mainly to the impact of reduced
operations and the abandonment in fiscal 2004 of the Company's  former petroleum
and proprietary  software  operations.  Specific  expenses of note during fiscal
2005 and fiscal 2004 are as follows:

         i)   during   fiscal   2005,   the   Company    incurred    accounting,
              administrative  and  management  fees of $78,788  (2004 - $70,840)
              provided  by a private  company  controlled  by Nick  DeMare,  the
              former President of the Company;
         ii)  during   fiscal   2004,   the   Company   incurred   general   and
              administrative  costs  of  $56,287  for the  proprietary  software
              program  activities,  mainly in professional  fees to arm's length
              parties and office  costs.  The Company  abandoned  this  business
              segment in May 2003;
         iii) effective  December  1, 2003,  the Company  resumed  its  investor
              relations  arrangement  at a rate of $3,000 per month.  A total of
              $36,000 was paid in fiscal 2005 (2004 - $18,000);
         iv)  legal fees  decreased  by $28,708  from  $44,540 in fiscal 2004 to
              $15,832 in fiscal 2005 mainly due to reduced  activities in fiscal
              2005;
         v)   during fiscal 2005, the Company  recorded bad debts of $27,827 due
              to the  uncertainty  of the  recoverability  of advances which had
              been made to the operator of the El Nayar Project; and
         vi)  regulatory  fees,   shareholder  costs  and  transfer  agent  fees
              decreased in fiscal 2005 due to reduced operations.

Stock-based  compensation  is  accounted  for at fair  value  based on an option
pricing  model  based on various  estimates,  and are not  cash-derived.  During
fiscal 2005, the Company recorded a compensation  expense of $138,725,  compared
to $154,000 in fiscal 2004.

During fiscal 2005, the Company sold  marketable  securities for $19,309 (2004 -
$9,845),  resulting in a gain of $17,239 (2004 - $2,645). In addition, in fiscal
2004, the Company  recovered  $23,792 for costs previously  incurred and $72,604
for recovery of advances due from a related  company  previously  written-off in
fiscal  2003.  These  recoveries  were  recorded in interest and other income in
fiscal 2004.

During  fiscal 2004,  the Company  recorded  interest  expense on  debentures of
$233,761. The debentures were retired in January 2004. Accordingly, there was no
interest expense in fiscal 2005.

During fiscal 2005,  the Company  spent  $66,536  (2004 - $103,971)  relating to
acquisition costs and $415,940 (2004 - $116,611) for exploration on the El Nayar
Project.  Due to the disappointing  exploration results achieved on the El Nayar
Project,  during fiscal 2005, the Company wrote-off  $703,058 of acquisition and
exploration costs.

LIQUIDITY AND CAPITAL RESOURCES

To date the Company has not received any revenues  from its mineral  exploration
activities  and has  relied  on equity  financing  to fund its  commitments  and
discharge its  liabilities as they come due. As at the date of this report,  the
Company  had  working  capital  of  $1,400,000.  In  addition  to the  estimated
US$900,000  required  to  complete  the  construction  of the mill  and  related
infrastructure,  the Company's 100% owned subsidiary, ALB, has an unsecured loan
obligation of US$1.85 million to an ex-partner which is repayable at the rate of
US$75,000  per month plus  interest  at 10% per annum,  calculated  and  payable
monthly. The Company does not have any other loans or bank debt and there are no
restrictions on the use of its cash resources.

While  the  Company  believes  that it has  sufficient  financial  resources  to
complete  construction of the mill facility and provide adequate working capital
for start-up  operations  through to profitability,  exploration and development
activities  may change  due to ongoing  results  and  recommendations  which may
entail significant additional funding or exploration  commitments.  As a result,
the  Company may be required  to obtain  additional  financing.  The Company has
relied solely


                                      -31-
<PAGE>

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.

The  Company  holds the  majority of its cash and cash  equivalents  in Canadian
funds.

TREND INFORMATION

The Company is not aware of any trends,  uncertainties,  demands, commitments or
events that are reasonably likely to have a material effect on the Company's net
revenues, income from continuing operations, profitability, liquidity or capital
resources, or that would cause reported financial information not necessarily to
be indicative of future operating results or financial condition.

RESEARCH AND DEVELOPMENT

During fiscal 2006, 2005 and 2004, the Company  incurred  $486,584,  $66,536 and
$103,971  respectively,  for mineral  property  acquisition  costs and $642,068,
$415,940  and  $116,611,  respectively,  for  exploration  costs on its  mineral
property interests.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any material off balance sheet  arrangements that have
or are  reasonably  likely to have a current or future  effect on the  Company's
financial  condition,  changes in  financial  condition,  revenues or  expenses,
results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS

Other than current  contractor  obligations  relating to the  completion  of the
construction of the mill and related infrastructure estimated at US$900,000, the
Company does not have any contractual obligations.  The construction of the mill
is scheduled to be completed by the end of December 2006.


ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
--------------------------------------------------------------------------------

DIRECTORS AND SENIOR MANAGEMENT

The names,  positions held with the Company and terms of office of each director
and officer of the Company as of the date of this annual report, are as follows:

<TABLE>
<CAPTION>
Name                            Position with the Company                         Term of Office (for each office
                                                                                  held)
<S>                             <C>                                               <C>

DOUGLAS GOOD (1)<F1>            President, Chief Executive                        November 2005 to present
                                Officer, Acting Chief Financial Officer
                                and Director

GIL LEATHLEY                    Director                                          January 2006 to present

ALFREDO  PARRA                  Director                                          December 1, 2006 to present

WILLIAM LEE (1)<F1>             Director                                          September 1995 to present

ANDREW CARTER (1)<F1>           Director                                          July 2003 to present

HARVEY LIM                      Corporate Secretary                               June 1997 to present

<FN>
(1)<F1>  Member of the Audit Committee.
</FN>
</TABLE>

Each officer's and director's  term of office shall expire at the Company's next
annual general  meeting.  The Company does not have an executive  committee or a
compensation  committee.  The  Company's  audit  committee  is  responsible  for
reviewing the  Company's  financial  statements  before they are approved by the
Company's directors.


                                      -32-
<PAGE>

There are no family relationships between any directors or executive officers of
the Company. To the best of the Company's  knowledge,  there are no arrangements
or understandings  with major  shareholders,  customers,  suppliers,  or others,
pursuant to which any of the Company's  officers or directors was selected as an
officer or director of the Company.

Set forth  below are  brief  descriptions  of  recent  employment  and  business
experience of the Company's officers and directors.

Douglas Good (Age 65), Director,  President,  Chief Executive Officer and Acting
Chief Financial Officer

Mr. Good has an extensive background in providing strategic planning,  corporate
restructuring, finance and senior management services to a range of companies in
the start-up  and early  development  phase.  He has served as a director and in
senior  management  positions  of various  public and private  companies  in the
healthcare,  software, mining and automotive industries in the US and in Canada.
Mr. Good was a co-founder of Sonus Corp., a hearing healthcare  provider,  which
grew from a single clinic in 1990 to a major North American  provider of hearing
healthcare.  Mr. Good also has a strong  background  in  commercial  banking and
leasing.  See "Item 7. Major  Shareholders  and  Related  Party  Transactions  -
Related Party Transactions - Conflicts of Interest."

Dr.  Alfredo Parra (Age 57),  Director and President and General  Manager,  Mina
Real Mexico S.A. de C.V.

Dr. Parra has an extensive  background in mining exploration and operations at a
senior management level. He was employed by CIA Minera Penoles from 1973-1978 in
roles ranging from Mine  Production  Superintendent  to General  Manager.  After
obtaining his MSc. and PhD in Mineral Economics in 1982 from the Colorado School
of Mines,  Dr.  Parra  returned  for a brief  period as General  Manager for CIA
Minera  Penoles  before  taking on the  position as Vice  President of Kennecott
where he stayed until 1985.  For the  following  seven years he assumed  various
executive  positions in the mining industry leading up to President and CEO from
the period 1987  through to 1992.  For the past 12 years,  Dr. Parra has run his
own exploration and development  company where, for the past three years, he has
concentrated on developing the Mina Real property to its current state. Dr Parra
is a QP Member of the Mining and  Metallurgical  Society of America with special
expertise  in  Mining.  See  "Item  7.  Major  Shareholders  and  Related  Party
Transactions - Related Party Transactions - Conflicts of Interest."

Gillyeard Leathley (Age 69), Director

Mr.  Leathley has worked in the mining  industry since 1962. He has held various
senior positions with major mining companies with his last position being Senior
Vice-President and Chief Operating Officer of Homestake  Resources.  Since 2000,
Mr.  Leathley has been an  independent  consultant to several  senior and junior
mining  companies.  His operating  experience in the planning,  construction and
operation  of  numerous  mining and milling  operations  will be an asset to the
Company.

William Lee (Age 53), Director

Mr. Lee holds a Bachelor  of  Commerce  degree  from the  University  of British
Columbia  and is a  member  in  good  standing  of the  Institute  of  Chartered
Accountants of British  Columbia.  He has been a financial officer or controller
of several public and private  companies since 1986 and, prior,  thereto,  was a
Senior  Audit  Manager at Deloitte & Touche.  Prior to March  1995,  Mr. Lee was
employed as the Chief Financial Officer of Sanctuary Woods Multimedia Corp. From
March 1995 to June 1996, Mr. Lee was employed as the Chief Financial  Officer of
Wildwood  Interactive Inc. From June 1996 to March 2004, Mr. Lee was employed as
the Chief Financial Officer of IMA Exploration Inc., a public company engaged in
the exploration of mineral properties.  From July 2004 to December 2005, Mr. Lee
was  employed  as a business  analyst of Ivanhoe  Mines Ltd.,  a public  company
engaged in the  exploration  for and  production  of oil and natural gas.  Since
January,  2006,  Mr. Lee has been  employed  as the Chief  Financial  Officer of
Jinshan Gold Mines Inc. a publicly trading mineral  exploration company based in
Vancouver, British Columbia. Mr. Lee currently serves as an officer and director
of other public reporting companies. See "Item 7. Major Shareholders and Related
Party Transactions - Related Party Transactions - Conflicts of Interest."


                                      -33-
<PAGE>

Andrew Carter (Age 59), Director

Mr. Carter  obtained a  certificate  in  accounting  from the Principal  Midland
College of TAFE (Western  Australia) in 1987.  Since 1992, Mr. Carter has been a
member of the  Australian  Institute  of Credit  Management.  Mr.  Carter has an
extensive background,  initially in the mining industry and then as a commercial
financial  executive.  During the 1970's,  Mr. Carter was involved in the mining
industry, where he managed exploration crews in the Leonora and Kimberly regions
in Western  Australia.  He subsequently  changed  professions  and, in 1988, was
appointed Chief  Executive of RAC Finance  Limited,  the largest  non-bank owned
commercial  financier in Western  Australia.  During this time, he was appointed
Chairman and Director of Australian  Finance  Conference Limited and represented
the industry as a panel member of the Commercial Tribunal for Western Australia.
In 1999, Mr. Carter relocated to Vancouver where he has been providing  services
as an independent corporate consultant. Since February 2003, Mr. Carter has been
the President of Tinka  Resources Ltd., a public company trading on the TSXV. In
addition, Mr. Carter serves as an officer and director of other public reporting
companies.  See "Item 7. Major  Shareholders  and Related Party  Transactions  -
Related Party Transactions - Conflicts of Interest".

Harvey Lim (Age 48), Corporate Secretary

Mr. Lim holds a Bachelor  of  Commerce  degree  from the  University  of British
Columbia  and is a  member  in  good  standing  of the  Institute  of  Chartered
Accountants of British Columbia.  Mr. Lim was employed by Coopers & Lybrand (now
PricewaterhouseCoopers  LLP) from 1981 to 1988.  From 1988 to 1991,  Mr. Lim was
employed as controller  with Ingot  Management Ltd. Since 1991, Mr. Lim has been
employed  by Chase as  controller.  Mr. Lim  currently  serves as an officer and
director of other public reporting companies.  Mr. Lim devotes approximately 10%
of his time  (approximately  four hours per week) to the affairs of the Company.
See "Item 7. Major  Shareholders and Related Party  Transactions - Related Party
Transactions - Conflicts of Interest."

COMPENSATION

During the fiscal year ended May 31,  2006,  the  directors  and officers of the
Company, as a group, had received or charged the Company a total of $115,137 for
services  rendered  by the  directors  and  officers or  companies  owned by the
individuals.

The Company is required,  under applicable securities  legislation in Canada, to
disclose to its shareholders  details of compensation  paid to its directors and
officers.  The  following  fairly  reflects all material  information  regarding
compensation  paid  by  the  Company  to  its  directors  and  officers,   which
information has been disclosed to the Company's  shareholders in accordance with
applicable Canadian law.

The Company  does not provide  pension,  retirement  or similar  benefits to its
officers of directors.

"Named Executive  Officers" means the Chief Executive  Officer ("CEO") and Chief
Financial  Officer  ("CFO")  of  the  Company,   regardless  of  the  amount  of
compensation  of those  individuals,  and each of the  Corporation's  three most
highly compensated  executive officers,  other than the CEO, who were serving as
executive  officers  at the end of the most  recent  fiscal year and whose total
salary and bonus  amounted to $150,000 or more. In addition,  disclosure is also
required for any individuals whose total salary and bonus during the most recent
fiscal year was $150,000 whether or not they are an executive officer at the end
of the fiscal year.

During the fiscal year ended May 31, 2006, the Company had three Named Executive
Officers, Douglas Good, the Company's current President, Chief Executive Officer
("CEO") and acting  Chief  Financial  Officer  ("CFO"),  and Des O'Kell and Nick
DeMare, the Company's former Presidents, CEOs and acting CFOs.







                                      -34-
<PAGE>


The following table sets forth the  compensation  awarded,  paid to or earned by
the Named Executive  Officer during the financial years ended May 31, 2006, 2005
and 2004:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                          Annual Compensation            Long Term Compensation
                                   ------------------------------ -------------------------------------
                                                                           Awards             Payouts
                                                                  -------------------------- ----------
                                                        Other      Securities   Restricted
                                                       Annual        Under       Shares or               All Other
       Name and                                        Compen-    Options/SARs  Restricted   LTIP         Compen-
  Principal Position       Year    Salary    Bonus     sation       Granted     Share Units   Payouts     sation
                                     ($)      ($)        ($)          (#)           (#)         ($)         ($)
------------------------------------------------------------------------------------------------------------------------
<S>                        <C>     <C>        <C>     <C>           <C>             <C>         <C>      <C>
Douglas Good(1)<F1>        2006    78,887     Nil        N/A        253,000         Nil         Nil      6,000(2)
President, CEO,         ------------------------------------------------------------------------------------------------
acting CFO and             2005      N/A      N/A        N/A          N/A           N/A         N/A         N/A
director                ------------------------------------------------------------------------------------------------
                           2004      N/A      N/A        N/A          N/A           N/A         N/A         N/A
------------------------------------------------------------------------------------------------------------------------
Des O'Kell(1)<F1>(3)<F3>   2006      Nil      Nil     20,500(4)<F4>  22,000         Nil         Nil         Nil
former President,       ------------------------------------------------------------------------------------------------
CEO, acting CFO            2005      N/A      N/A        N/A          N/A           N/A         N/A         N/A
and director            ------------------------------------------------------------------------------------------------
                           2004      N/A      N/A        N/A          N/A           N/A         N/A         N/A
------------------------------------------------------------------------------------------------------------------------
Nick DeMare(1)<F1>(3)<F3>  2006      Nil      Nil        Nil         50,000(5)<F5>  Nil         Nil      30,990(6)<F6>
former President,       ------------------------------------------------------------------------------------------------
CEO, acting CFO and        2005      Nil      Nil        Nil         20,500         Nil         Nil      78,788(6)<F6>
director                ------------------------------------------------------------------------------------------------
                           2004      Nil      Nil        Nil          8,500         Nil         Nil      72,100(6)<F6>
------------------------------------------------------------------------------------------------------------------------

NOTES:
<FN>
(1)<F1>  On November 25, 2005, Des O'Kell resigned as the President, CEO, acting
         CFO and a director of the Company and Douglas Good was appointed as the
         President, CEO, acting CFO and a director of the Company.
(2)<F2>  Salary paid to Barbara Good, spouse of Douglas Good.
(3)<F3>  On June 28, 2005, Nick DeMare resigned as the President, CEO and acting
         CFO of the Company and Des O'Kell was  appointed  as a director and the
         President, CEO and acting CFO of the Company. On November 25, 2005, Mr.
         DeMare resigned as a director of the Company.
(4)<F4>  Paid to Eland Jennings  Investor  Services Inc. ("Eland  Jennings"),  a
         private company owned by Des O'Kell.
(5)<F5>  Granted  to  Chase.  See "Management Contracts".
(6)<F6>  Paid to Chase Management Ltd.("Chase"), a private company owned by Nick
         DeMare,  a former director and officer of  the Company. Chase personnel
         provides  accounting,   professional,  secretarial  and  administrative
         services to the Company.
</FN>
</TABLE>

LONG-TERM INCENTIVE PLANS - AWARD IN MOST RECENTLY COMPLETED FINANCIAL YEAR

The Company has no long-term  incentive  plans in place and therefore there were
no  awards  made  under any  long-term  incentive  plan to the  Named  Executive
Officers  during  the  Company's  most  recently  completed  financial  year.  A
"Long-Term  Incentive  Plan" is a plan  under  which  awards  are made  based on
performance  over a period longer than one financial year, other than a plan for
options, SARs (stock appreciation rights) or restricted share compensation.

OPTIONS AND SHARE APPRECIATION RIGHTS

OPTION/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR

The  following  table sets forth stock  options  granted to the Named  Executive
Officers during the financial year ended May 31, 2006:


                                      -35-
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                           % of Total                          Market Value of
                          Securities      Options/SARs                           Securities
                            Under          Granted to                            Underlying
                         Options/SARs     Employees in       Exercise or       Options/SARs on       Expiration
Name                       Granted       Financial Year      Base Price       the Date of Grant         Date
                             (#)               (%)          ($/Security)        ($/Security)
-----------------------------------------------------------------------------------------------------------------
<S>                        <C>               <C>                <C>                 <C>              <C>
Douglas Good                60,500            8.40%             0.50                0.59             Nov. 10/08
                           192,500           26.74%             0.62                0.77             Jan. 17/09
                           253,000           35.14%
-----------------------------------------------------------------------------------------------------------------

Des O'Kell                   22,000            3.06%            0.50                0.59             Nov. 10/08
-----------------------------------------------------------------------------------------------------------------

Nick DeMare                50,000 (1)<F1>      6.94%            0.62                0.77             Jan. 17/09
-----------------------------------------------------------------------------------------------------------------
<FN>
NOTE:
(1)<F1>   Granted to Chase.
</FN>
</TABLE>

Aggregated  Option/ SAR Exercises During the Most Recently  Completed  Financial
Year and Financial Year -End Option/ SAR Values

The following  table sets out details of all the incentive  stock options,  both
exercised and unexercised, for the Named Executive Officers during the financial
year ended May 31, 2006:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                      Unexercised           Value of Unexercised
                             Securities                             Options/SARs at        in the Money Options at
                            Acquired on      Aggregate Value      Financial Year -End      Financial Year -End (1)<F1>
          Name                Exercise          Realized             Exercisable /              Exercisable /
                                (#)                ($)               Unexercisable              Unexercisable
                                                                          (#)                        ($)
---------------------------------------------------------------------------------------------------------------------
<S>                             <C>                <C>            <C>                           <C>
Douglas Good                    Nil                N/A               253,000 / Nil              103,400 / Nil
---------------------------------------------------------------------------------------------------------------------
Des O'Kell                      Nil                N/A               22,000 / Nil                11,000 / Nil
---------------------------------------------------------------------------------------------------------------------
Nick DeMare                     Nil                N/A            50,000(2)<F2> / Nil            19,000 / N/A
---------------------------------------------------------------------------------------------------------------------
<FN>
NOTE:
(1)<F1>  The closing price of the Company's shares on May 31, 2006 was $1.00.
(2)<F2>  Held by Chase.
</FN>
</TABLE>

TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS

The  Company   does  not  have  any   compensatory   plan(s),   contract(s)   or
arrangement(s)  with  respect  to  the  resignation,  retirement  or  any  other
termination of the Named Executive Officers' employment,  a change of control of
our  Company  or a change  in the  Named  Executive  Officers'  responsibilities
following a change in control, which entitle Named Executive Officers to receive
from the  Company an amount,  including  all period  payments  or  installments,
exceeding $100,000.


                                      -36-
<PAGE>

COMPENSATION OF DIRECTORS

CASH COMPENSATION

The directors  receive cash compensation in the form of professional fees in the
amount of $5,000  annually,  plus $500 per board  meeting  attended and $250 per
committee  meeting  attended.  During the financial year ended May 31, 2006, the
Company  paid a total of $36,250 for  professional  and  consulting  fees to its
directors who are not the Named Executive Officers of the Company.

NON-CASH COMPENSATION

The directors  receive non-cash  compensation in the form of stock option grants
from  time to time,  which  allocation  is made by the  Board  as a  whole.  The
following  table sets forth  stock  options  granted by the  Company  during the
financial  year  ended  May 31,  2006  to the  directors  who are not the  Named
Executive Officers of the Company:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                 % OF TOTAL                      MARKET VALUE OF
                                SECURITIES      OPTIONS/SARS                       SECURITIES
                                  UNDER          GRANTED TO                        UNDERLYING
                               OPTIONS/SARS     EMPLOYEES IN     EXERCISE OR     OPTIONS/SARS ON      EXPIRATION
           NAME                  GRANTED       FINANCIAL YEAR     BASE PRICE    THE DATE OF GRANT        DATE
                                   (#)               (%)         ($/SECURITY)     ($/SECURITY)
-----------------------------------------------------------------------------------------------------------------
<S>                               <C>              <C>               <C>              <C>             <C>
Directors as a group               85,000          11.81%            0.50             0.59            Nov. 10/08
who are not Named                  75,500          10.41%            0.62             0.77            Jan. 17/09
                                  -------          -----
Executive Officers                160,500          22.22%
                                  =======          =====
-----------------------------------------------------------------------------------------------------------------
</TABLE>

The following  table sets forth details of all exercises of stock options during
the  financial  year ended May 31, 2006 by the  directors  who are not the Named
Executive Officers, and the financial year-end value of unexercised options:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                     UNEXERCISED          VALUE OF UNEXERCISED IN
                               SECURITIES                          OPTIONS/SARS AT          THE MONEY OPTIONS AT
                               ACQUIRED ON      AGGREGATE        FINANCIAL YEAR -END      FINANCIAL YEAR -END (1)<F1>
           NAME                 EXERCISE      VALUE REALIZED        EXERCISABLE /              EXERCISABLE /
                                   (#)             ($)              UNEXERCISABLE              UNEXERCISABLE
                                                                         (#)                        ($)
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>              <C>                         <C>
Directors as a group
who are not Named                  Nil             N/A              160,000 / Nil               71,000 / N/A
Executive Officers
---------------------------------------------------------------------------------------------------------------------
<FN>
NOTE:
(1)<F1>  The closing price of the Company's shares on May 31, 2006 was $1.00.
</FN>
</TABLE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The  following  table sets out, as of the end of the  Company's  financial  year
ended May 31, 2006, all information  required with respect to compensation plans
under which equity securities of the Company are authorized for issuance:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                    NUMBER OF SECURITIES REMAINING
                             NUMBER OF SECURITIES TO                                 AVAILABLE FOR FUTURE ISSUANCE
                             BE ISSUED UPON EXERCISE    WEIGHTED-AVERAGE EXERCISE      UNDER EQUITY COMPENSATION
                             OF OUTSTANDING OPTIONS,       PRICE OF OUTSTANDING       PLANS (EXCLUDING SECURITIES
                               WARRANTS AND RIGHTS        OPTIONS, WARRANTS AND         REFLECTED IN COLUMN (A))
                                     RIGHTS
-------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                          <C>                        <C>
Plan Category                          (a)                         (b)                            (c)
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans            720,000                       0.62                      See Note (1)<F1>
approved by
securityholders
-------------------------------------------------------------------------------------------------------------------



                                      -37-
<PAGE>

<CAPTION>
-------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                          <C>                        <C>
Equity compensation plans              N/A                         N/A                            N/A
not approved by
securityholders
-------------------------------------------------------------------------------------------------------------------
Total                                720,000                       0.62                      See Note (1)<F1>
-------------------------------------------------------------------------------------------------------------------
<FN>
NOTE:
(1)<F1>  The  Company has in place a "rolling"  stock  option plan (the  "Plan")
         whereby the maximum  number of common  shares that may be reserved  for
         issuance  pursuant to the Plan will not exceed 10% of the issued shares
         of the Company at the time of the stock  option  grant.  As of the date
         hereof,  common  shares may be reserved  for  issuance  pursuant to the
         Plan.
</FN>
</TABLE>

INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS OF THE COMPANY

No executive  officers,  directors,  employees or former executive  officers and
directors  of the Company are indebted to the  Company.  None of the  directors,
executive  officers  or  proposed  nominees  of  neither  the  Company,  nor any
associate  or  affiliate of these  individuals,  is or has been  indebted to the
Company since June 1, 2005.

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

Other than as  disclosed  herein or in the  financial  statements,  no  informed
person  of  the  Corporation,  any  proposed  director  of the  Company,  or any
associate  or  affiliate  of any  informed  person or proposed  director has any
material interest, direct or indirect, in any transaction since the commencement
of our most recently  completed  financial  year or in any proposed  transaction
which has  materially  affected  or would  materially  affect  the  Company.  An
"informed  person" means a director or executive office of a reporting issuer; a
director or executive  officer of a person or company that is itself an informed
person  or  subsidiary  of  a  reporting  issuer;  any  person  or  company  who
beneficially owns,  directly or indirectly,  voting shares of a reporting issuer
or who exercises  control or direction over shares of the reporting  issuer or a
combination of both carrying more than 10% of the voting rights  attached to all
outstanding  voting securities of the reporting  issuer;  and a reporting issuer
that has purchased, redeemed or otherwise acquired any of its securities, for so
long as it holds any of its securities.

MANAGEMENT CONTRACTS

The Company has a management  contract with Chase Management Ltd.  ("Chase"),  a
company owned by Mr. Nick DeMare,  a former officer and director of the Company,
whereby the Company is currently  paying Chase $3,000 per month, for accounting,
administrative and professional  services provided to the Company.  In addition,
the Company may engage Chase to perform extra management  services in which case
Chase will charge the Company for its employees at competitive rates. During the
Company's  last  completed  financial  year, it was billed a total of $66,115 by
Chase for services performed.

DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES

Effective June 30, 2005,  NATIONAL  INSTRUMENT  58-101 - DISCLOSURE OF CORPORATE
GOVERNANCE  PRACTICES  ("NI  58-101")  was  adopted by the  Canadian  Securities
Administrators.   NI  58-101  requires  issuers  to  disclose  their  governance
practices in accordance with that instrument.  The Company is a "venture issuer"
within the  meaning of NI  58-101.  A  discussion  of the  Company's  governance
practices within the context of NI 58-101 is set out below:

BOARD OF DIRECTORS

The Company has three  independent  directors,  namely:  Messrs.  Gil  Leathley,
Andrew  Carter and  William  Lee.  The  Company  has two  directors  who are not
independent  because they are  executive  officers of the Company,  namely:  Mr.
Douglas Good, President, CEO and acting CFO and Dr. Alfredo Parra, President and
General Manager of the Company's 100% owned subsidiary, Mina Real.

ORIENTATION AND CONTINUING EDUCATION

The CEO and/or the CFO are  responsible  for  providing an  orientation  for new
directors. Director orientation and on-going training will include presentations
by senior  management to  familiarize  directors  with the  Company's  strategic



                                      -38-
<PAGE>

plans, its significant  financial,  accounting and risk management  issues,  its
compliance  programs,  its principal  officers and its internal and  independent
auditors.

ETHICAL BUSINESS CONDUCT

The Company  does not have a written  code of ethical  business  conduct for its
directors,  officers  and  employees.  Each  director,  officer and  employee is
expected  to comply with  relevant  corporate  and  securities  laws and,  where
applicable, the terms of their employment agreements.

NOMINATION OF DIRECTORS

When  a  board  vacancy  occurs  or  is  contemplated,  any  director  may  make
recommendations  to the board as to qualified  individuals for nomination to the
board.

In identifying new  candidates,  the directors will take into account the mix of
director  characteristics  and  diverse  experiences,  perspectives  and  skills
appropriate for the Company at that time.

COMPENSATION

From time to time,  the  independent  directors  of the Board  will  review  the
compensation  payable to the CEO and CFO.  Additionally,  the directors  receive
compensation in the form of professional  fees in the amount of $5,000 annually,
plus $500 per board meeting attended and $250 per committee meeting attended, as
well as the grant of stock options from time to time,  which  allocation is made
by the Board as a whole.

OTHER BOARD COMMITTEES

The board has no other standing committees.

ASSESSMENTS

The Board of Directors of the Company does not conduct any formal  evaluation of
the performance and  effectiveness  of the members of the Board,  the Board as a
whole or any committee of the Board.

AUDIT COMMITTEE

THE AUDIT COMMITTEE'S CHARTER

The following is the text of the Company's Audit Committee Charter:

"MANDATE

The primary  function of the audit committee (the  "Committee") is to assist the
board of directors in fulfilling  its financial  oversight  responsibilities  by
reviewing the financial reports and other financial  information provided by the
Company to regulatory  authorities and  shareholders,  the Company's  systems of
internal controls  regarding finance and accounting and the Company's  auditing,
accounting and financial reporting processes. The Committee's primary duties and
responsibilities are to:

         -    Serve  as an  independent  and  objective  party  to  monitor  the
              Company's  financial  reporting  and internal  control  system and
              review the Company's financial statements.

         -    Review and appraise  the  performance  of the  Company's  external
              auditors.

         -    Provide  an  open  avenue  of  communication  among  the Company's
              auditors,  financial  and  senior  management  and  the  Board  of
              Directors.


                                      -39-
<PAGE>

COMPOSITION

The Committee  shall be comprised of three  directors as determined by the Board
of Directors,  the majority of whom shall be free from any relationship that, in
the opinion of the Board of Directors,  would interfere with the exercise of his
independent  judgment as a member of the  Committee.  At least one member of the
Committee shall have accounting or related financial management  expertise.  All
members of the  Committee  that are not  financially  literate will work towards
becoming financially literate to obtain a working familiarity with basic finance
and accounting  practices.  For the purposes of the Audit Committee Charter, the
definition of "financially literate" is the ability to read and understand a set
of  financial  statements  that  present a breadth  and level of  complexity  of
accounting issues that are generally comparable to the breadth and complexity of
the  issues  that can  presumably  be  expected  to be raised  by the  Company's
financial statements.

The members of the  Committee  shall be elected by the Board of Directors at its
first meeting  following  the annual  shareholders'  meeting.  Unless a Chair is
elected  by the full  Board of  Directors,  the  members  of the  Committee  may
designate a Chair by a majority vote of the full Committee membership.

MEETINGS

The  Committee  shall  meet a  least  twice  annually,  or  more  frequently  as
circumstances  dictate.  As part of its job to foster  open  communication,  the
Committee will meet at least annually with the CFO and the external  auditors in
separate sessions.

RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties, the Committee shall:

DOCUMENTS/REPORTS REVIEW

(a)      Review and update the Charter annually.

(b)      Review  the  Company's  financial  statements,  MD&A and any annual and
         interim earnings,  press releases before the Company publicly discloses
         this  information  and  any  reports  or  other  financial  information
         (including quarterly financial statements),  which are submitted to any
         governmental  body,  or to the  public,  including  any  certification,
         report, opinion, or review rendered by the external auditors.

EXTERNAL AUDITORS

(a)      Review annually,  the performance of the external auditors who shall be
         ultimately  accountable  to the Board of Directors and the Committee as
         representatives of the shareholders of the Company.

(b)      Recommend  to  the  Board  of  Directors  the  selection   and,   where
         applicable, the replacement of the external auditors nominated annually
         for shareholder approval.

(c)      Review with management and the external auditors the audit plan for the
         year-end   financial   statements   and  intended   template  for  such
         statements.

(d)      Review and  pre-approve  all audit and  audit-related  services and the
         fees  and  other  compensation   related  thereto,  and  any  non-audit
         services, provided by the Company's external auditors.

Provided  the  pre-approval  of  the  non-audit  services  is  presented  to the
Committee's  first scheduled  meeting following such approval such authority may
be  delegated  by the  Committee  to  one or  more  independent  members  of the
Committee.

FINANCIAL REPORTING PROCESSES

(a)      In consultation with the external auditors,  review with management the
         integrity of the Company's financial  reporting process,  both internal
         and external.


                                      -40-
<PAGE>

(b)      Consider  the  external  auditors'  judgments  about  the  quality  and
         appropriateness  of the Company's  accounting  principles as applied in
         its financial reporting.

(c)      Consider and approve, if appropriate, changes to the Company's auditing
         and  accounting  principles  and practices as suggested by the external
         auditors and management.

(d)      Following  completion  of the  annual  audit,  review  separately  with
         management  and the  external  auditors  any  significant  difficulties
         encountered during the course of the audit,  including any restrictions
         on the scope of work or access to required information.

(e)      Review any significant  disagreement  among management and the external
         auditors  in  connection   with  the   preparation   of  the  financial
         statements.

(f)      Review with the external  auditors and  management  the extent to which
         changes and improvements in financial or accounting practices have been
         implemented.

(g)      Review any  complaints or concerns about any  questionable  accounting,
         internal accounting controls or auditing matters.

(h)      Review certification process.

(i)      Establish a procedure  for the  confidential,  anonymous  submission by
         employees of the Company of concerns regarding questionable  accounting
         or auditing matters.

OTHER

Review any related-party transactions."

COMPOSITION OF THE AUDIT COMMITTEE

The following are the members of the Committee (1):

--------------------------------------------------------------------------------
                                  INDEPENDENT (1)         FINANCIALLY LITERATE
--------------------------------------------------------------------------------
Douglas Good                             N                          Y
--------------------------------------------------------------------------------
William Lee                              Y                          Y
--------------------------------------------------------------------------------
Andrew Carter                            Y                          Y
--------------------------------------------------------------------------------

NOTE:
1  As defined by Multilateral Instrument 52-110 ("MI 52-110").

The Company is relying on the exemption provided under Section 6.1 of MI 52-110.

RELEVANT EDUCATION AND EXPERIENCE

William Lee is a Chartered  Accountant with significant  experience working with
resource issuers as a chief financial officer. In addition, from 2004 to January
2006, Mr. Lee provided consulting services to a resource energy group in meeting
their  compliance  obligations  under the  Sarbanes-Oxley  Act. Douglas Good and
Andrew Carter are business executives with extensive experience in the industry.
As such each has acquired a knowledge and  understanding of the financial issues
and  accounting  principles  that  are  relevant  in  assessing  this  Company's
financial disclosures and internal control systems.


                                      -41-
<PAGE>

AUDIT COMMITTEE OVERSIGHT

At no time since the  commencement  of the  Company's  most  recently  completed
financial year was a  recommendation  of the Committee to nominate or compensate
an external auditor not adopted by the Board of Directors.

RELIANCE ON CERTAIN EXEMPTIONS

At no time since the  commencement  of the  Company's  most  recently  completed
financial  year has the  Company  relied on the  exemption  in Section 2.4 of MI
52-110 (De Minimis Non-Audit Services), or an exemption from MI 52-110, in whole
or in part, granted under Part 8 of Multilateral Instrument 52-110.

PRE-APPROVAL POLICIES AND PROCEDURES

The Committee has adopted specific policies and procedures for the engagement of
non-audit services as described above under the heading "External Auditors".

REMUNERATION COMMITTEE

The Company does not have a separate Remuneration Committee.

TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL

Other than as described in the Summary Compensation Table and above, the Company
has no plans or arrangements in respect of remuneration  received or that may be
received by the Named Executive Officer in the Company's most recently completed
financial year or current  financial year in view of compensating  such officers
in  the  event  of  termination  of  employment  (as a  result  of  resignation,
retirement, change of control, etc.) or a change in responsibilities following a
change of control,  where the value of such  compensation  exceeds  $100,000 per
executive officer.

The Company and its subsidiaries do not have any contracts with the directors of
the  Company  (or any  entities  controlled  by the  directors  of the  Company)
providing for benefits upon termination of employment.

EMPLOYEES

As of the date of this annual  report the Company and its  subsidiaries  have 38
full-time employees,  including its officers, and 45 contract miners.  Corporate
accounting, management and administration are provided, in part, by Chase. Chase
provides its services to a number of public and private  companies and currently
employs six  full-time  employees,  including  Mr. Lim. The Company also retains
consultants to handle  specific  projects on a case by case basis.  In the event
the  Company  needs to  employ  personnel,  it will  need to  recruit  qualified
personnel to staff its  operations.  The Company  believes  that such  personnel
currently are available at reasonable salaries and wages in the geographic areas
in which the Company and its  subsidiaries  operate.  There can be no assurance,
however,  that such  personnel  will be  available  in the  future.  Exploration
activities are conducted by consultants,  laborers and technicians hired for the
duration of the exploration program.

SHARE OWNERSHIP

The following table sets forth certain  information  regarding  ownership of the
Company's shares by the Company's  officers and directors as of the date of this
annual report.

<TABLE>
<CAPTION>
                                                    SHARES AND RIGHTS BENEFICIALLY
TITLE OF CLASS        NAME OF OWNER                     OWNED OR CONTROLLED (1)<F1>      PERCENT OF CLASS (1)<F1>
<S>                   <C>                                          <C>                         <C>
Common Stock          Douglas Good                                 613,000(2)<F2>               2.38%

Common Stock          Alfredo Parra                                3,381,025                   13.25%

Common Stock          Gil Leathley                                 230,000(3)<F3>               0.90%



                                      -42-
<PAGE>


<CAPTION>
                                                    SHARES AND RIGHTS BENEFICIALLY
TITLE OF CLASS        NAME OF OWNER                     OWNED OR CONTROLLED (1)<F1>      PERCENT OF CLASS (1)<F1>
<S>                   <C>                                          <C>                         <C>
Common Stock          William Lee                                   79,050(4)<F4>               0.31%

Common Stock          Andrew Carter                                 87,500(5)<F5>               0.34%

Common Stock          Harvey Lim                                    92,500(6)<F6>               0.36%

<FN>
NOTES:
(1)<F1>  Where persons listed on this table have the right to obtain  additional
         shares of common stock through the exercise of  outstanding  options or
         warrants  within 60 days  from the date of this  annual  report,  these
         additional  shares  are  deemed to be  outstanding  for the  purpose of
         computing the percentage of common stock owned by such persons, but are
         not  deemed  to  be  outstanding  for  the  purpose  of  computing  the
         percentage  owned by any other person.  Based on  25,522,191  shares of
         common stock outstanding as of the date of this annual report.
(2)<F2>  Includes  250,000  common  shares  held and options to acquire  363,000
         common shares.
(3)<F3>  Includes  120,000  common  shares  held and options to acquire  110,000
         common shares.
(4)<F4>  Includes  16,650  common shares  held, options to acquire 60,000 common
         shares and warrants to acquire 2,500 common shares.
(5)<F5>  Includes  options  to  acquire  85,000  common  shares  and warrants to
         acquire 2,500 common shares.
(6)<F6> Includes 27,500 common  shares held and options to acquire 65,000 common
        shares.
</FN>
</TABLE>

All of the Company's shareholders have the same voting rights.

STOCK OPTION PLAN

The Company has a rolling stock option plan (the "Plan"), which makes a total of
10% of the issued and outstanding  shares of the Company  available for issuance
thereunder.  The Plan is approved  annually by the  shareholders.  In accordance
with the  policies of the TSXV,  a rolling  plan,  which is the type of plan the
Company has adopted, requires the approval of the shareholders of the Company on
an annual basis.

The purpose of the Plan is to provide the Company with a share related mechanism
to enable the  Company to  attract,  retain and  motivate  qualified  directors,
officers, employees and other service providers, to reward directors,  officers,
employees and other service  providers  for their  contribution  toward the long
term  goals of the  Company  and to enable and  encourage  such  individuals  to
acquire shares of the Company as long term investments.

The Plan  provides  that it is  solely  within  the  discretion  of the Board to
determine who should receive options and in what amounts. The Board of Directors
may issue a majority of the options to insiders  of the  Company.  However,  the
Plan provides that in no case will the Plan or any existing  share  compensation
arrangement  of the Company  result,  at any time, in the issuance to any option
holder,  within a one-year  period,  of a number of shares  exceeding  5% of the
Company's issued and outstanding share capital.

The following information is intended to be a brief description of the Plan:

1.       The maximum number of common shares that may be issued upon exercise of
         stock  options  granted  under the Plan  will be that  number of shares
         which is 10% of the issued and outstanding  shares of the Company.  Any
         outstanding options will form a part of the foregoing 10%. The exercise
         price of the stock options,  as determined by the Board of Directors in
         its sole  discretion,  shall not be less than the closing  price of the
         Company's  shares traded through the facilities of the TSXV on the date
         prior to the date of grant,  less  allowable  discounts,  in accordance
         with the  policies  of the TSXV or, if the shares are no longer  listed
         for trading on the TSXV,  then such other exchange or quotation  system
         on which the shares are listed and quoted for trading.

2.       The Board of Directors will not grant  options to any one person  which
         will,  when  exercised,  exceed 5% of the issued and outstanding shares
         of the Company.


                                      -43-
<PAGE>

3.       Upon  expiry of the  option,  or in the  event an  option is  otherwise
         terminated  for any reason,  without having been exercised in full, the
         number of shares in respect of the expired or  terminated  option shall
         again be available  for the purposes of the Plan.  All options  granted
         under the Plan may not have an expiry  date  exceeding  five years from
         the date on which  the  Board  of  Directors  grant  and  announce  the
         granting of the option.

4.       If the option  holder  ceases to be a director of the Company or ceases
         to be employed by the Company  (other than by reason of death),  as the
         case may be,  then the  option  granted  shall  expire  on the 90th day
         following  the date that the option  holder  ceases to be a director or
         ceases  to be  employed  by  the  Company,  subject  to the  terms  and
         conditions set out in the Plan.

The Plan may be  administered  by the  Company's  secretary or such other senior
officer or employee as may be designated by the Board of Directors  from time to
time. Upon the approval of the Plan by the Company's  shareholders,  shareholder
approval will not be required or sought on a case-by-case  basis for the purpose
of the  granting of options to and the  exercise of options by  employees of the
Company regularly  employed on a full-time or part-time basis,  directors of the
Company and persons who perform  services for the Company on an ongoing basis or
who have provided, or are expected to provide, services of value to the Company.

As of the date of this annual report, an aggregate of 1,113,000  incentive stock
options to purchase shares of the Company's  common stock remain  outstanding to
the following persons:

<TABLE>
<CAPTION>
                                           NATURE                      NO. OF      EXERCISE
OPTIONEE                                   OF OPTION                   OPTIONS    PRICE/SHARE    EXPIRY DATE
                                                                                       $
<S>                                        <C>                       <C>             <C>         <C>
Accent Marketing Ltd.                      Investor Relations           50,000       0.80        [Dec. 23, 2006]
Andrew Carter                              Director                     27,500       0.50        Nov. 10, 2008
Harvey Lim                                 Officer                      27,500       0.50        Nov. 10, 2008
Gil Leathley                               Director                     30,000       0.50        Nov. 10, 2008
William Lee                                Director                     27,500       0.50        Nov. 10, 2008
Douglas Good                               Officer                     153,000       0.62        Jan. 17, 2009
Gil Leathley                               Director                     30,000       0.62        Jan. 17, 2009
Andrew Carter                              Director                     27,500       0.62        Jan. 17, 2009
Harvey Lim                                 Officer                      22,500       0.62        Jan. 17, 2009
William Lee                                Director                     17,500       0.62        Jan. 17, 2009
Chase Management Ltd.                      Consultant                   50,000       0.62        Jan. 17, 2009
Empire Communications Inc.                 Investor Relations          150,000       1.40        Nov. 24, 2009
Douglas Good                               Officer                     210,000       0.90        Sept. 5, 2011
Nick DeMare                                Consultant                   50,000       0.90        Sept. 5, 2011
Gil Leathley                               Director                     50,000       0.90        Sept. 5, 2011
Andrew Carter                              Director                     30,000       0.90        Sept. 5, 2011
Harvey Lim                                 Officer                      15,000       0.90        Sept. 5, 2011
William Lee                                Director                     15,000       0.90        Sept. 5, 2011
Carlos Castro Villalobos                   Employee                    100,000       0.90        Sept. 5, 2011
Arabella Smith                             Consultant                    7,500       0.90        Sept. 5, 2011
Linda Liu                                  Consultant                    7,500       0.90        Sept. 5, 2011
Rosanna Wong                               Consultant                    7,500       0.90        Sept. 5, 2011
Betty Moody                                Consultant                    7,500       0.90        Sept. 5, 2011
                                                                     ---------
TOTAL:                                                               1,113,000
                                                                     =========
</TABLE>

As of the date of this annual report, the directors and officers of the Company,
as a group (5 persons), held options to purchase 683,000 shares of the Company's
common stock.

WARRANTS

The  Company  issues  warrants as part of its private  placements  of units.  No
portion of the purchase price of the units has been allocated to the warrants.


                                      -44-
<PAGE>


As of the date of this annual report, there were  non-transferable  common share
purchase warrants exercisable for the purchase of 3,055,456 common shares, which
expire at various  times  until  2008 and may be  exercised  at  various  prices
ranging from $0.80 per share to $2.00 per share, as follows:


    COMMON SHARES ISSUABLE          EXERCISE
   ON EXERCISE OF WARRANTS         PRICE/SHARE          EXPIRY
                                        $
                   182,000             2.00             February / March, 2007
                 1,073,000             0.80             May 3, 2008
                 1,100,000         1.15 / 1.30          July 28, 2007 / 2008
                   700,456            $1.40             December 8, 2008
                 ---------
                 3,055,456

As of the date of this annual report, the directors and officers of the Company,
as a group (5 persons),  held  warrants to purchase  5,000 common  shares of the
Company.

There are no  assurances  that the option or  warrants  described  above will be
exercised in whole or in part.


ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------

PRINCIPAL HOLDERS OF VOTING SECURITIES

To the best of the Company's  knowledge,  it is not directly or indirectly owned
or controlled  by another  Company or by any foreign  government.  The following
table sets forth certain information regarding ownership of the Company's shares
by all persons who own five  percent (5%) or more of the  Company's  outstanding
shares, as of the date of this report.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                     SHARES AND RIGHTS
TITLE OF CLASS          NAME AND ADDRESS OF OWNER                  BENEFICIALLY OWNED OR       PERCENT OF CLASS (1)<F1>
                                                                       CONTROLLED (1)<F1>
-----------------------------------------------------------------------------------------------------------------------
<S>                     <C>                                             <C>                           <C>
Common Stock            Burlingame Equity Investors LP.                 4,473,800(2)<F2>              16.66%
                        One Sansome Street, #2900
                        San Francisco, CA 94104
                        United States


                        Alfredo Parra                                    3,381,025                    13.25%
                        Rio Tajo#6,
                        Tepic, Nayarit
                        Mexico 63117

<FN>
(1)<F1>  Where persons listed on this table have the right to obtain  additional
         shares of common stock through the exercise of  outstanding  options or
         warrants within 60 days from the date of this report,  these additional
         shares are deemed to be  outstanding  for the purpose of computing  the
         percentage of common stock owned by such persons, but are not deemed to
         be outstanding for the purpose of computing the percentage owned by any
         other person. Based on 25,522,191 shares of common stock outstanding as
         of the date of this annual report.
(2)<F2>  Includes  3,136,900  common  shares  held  and  warrants  to acquire an
         additional 1,336,900 common shares of the Company.
</FN>
</TABLE>

None of the Company's  principal  shareholders have different voting rights than
any of the Company's other common shareholders.

ESCROW SHARES

As of the date of this annual report, no shares are held in escrow.


                                      -45-

<PAGE>


CHANGES IN SHAREHOLDINGS

There have been no significant changes to the above listed persons' ownership.

CHANGE OF CONTROL

As of the date of this annual  report,  there are no  arrangements  known to the
Company  which may at a  subsequent  date  result in a change of  control of the
Company.

UNITED STATES SHAREHOLDERS

As of October 31, 2006, there were  approximately  11 registered  holders of the
Company's  common  shares  in the  United  States,  with  combined  holdings  of
2,624,786 shares,  representing 19.70% of the issued shares of the Company.  The
Company  does not know how many  beneficial  shareholders  it has in the  United
States, but management believes there are less than 300 such shareholders.

CONTROL BY FOREIGN GOVERNMENT OR OTHER PERSONS

To the  best  of the  Company's  knowledge,  the  Company  is  not  directly  or
indirectly owned or controlled by another  corporation,  any foreign government,
or any other natural or legal person jointly or severally.

RELATED PARTY TRANSACTIONS

Other than as disclosed  below, for the period from June 1, 2005 through October
31, 2006, the Company has not entered into any transactions or loans between the
Company and any (a) enterprises that directly or indirectly  through one or more
intermediaries,  control or are controlled by, or are under common control with,
the Company; (b) associates;  (c) individuals owning, directly or indirectly, an
interest  in the  voting  power  of the  Company  that  gives  them  significant
influence over the Company,  and close members of any such individuals'  family;
(d) key management personnel and close members of such individuals' families; or
(e)  enterprises  in which a substantial  interest in the voting power is owned,
directly or indirectly, by any person described in (c) or (d) or over which such
a person is able to exercise significant influence.

1.       Mr. Doug Good was  appointed as a director and the  President,  CEO and
         acting CFO of the Company on November 25,  2005.  Mr. Good is currently
         remunerated  $6,500 per month and Mr. Good's  spouse,  Barbara Good, is
         paid a salary of $2,000 per month. During the period November 25, 2006,
         to May 31,  2006,  $78,887 and $6,000  were paid to Mr. and Mrs.  Good,
         respectively.  During the period from June 1, 2006 to October 31, 2006,
         the Company paid $19,500 and $6,000 to Mr. and Mrs. Good respectively.

2.       During the year ended May 31,  2005,  the  Company had  retained  Eland
         Jennings,  a company 50% owned by Mr. Des O'Kell,  to provide  investor
         relations services. In consideration therefor,  Eland Jennings was paid
         a monthly fee of $3,000.  On June 28, 2005,  Mr. O'Kell was appointed a
         director,  President, CEO and acting CFO of the Company and the monthly
         fee was  increased to $3,500.  Mr. O'Kell  resigned as President,  CEO,
         acting CFO and a director of the Company on November 25,  2005.  During
         the period  from June 1, 2005 to  November  25,  2005,  the date of Mr.
         O'Kell's resignation as the President,  CEO, acting CFO and director of
         the Company, Eland Jennings was paid $20,500 by the Company.

3.       The Company has  retained  Chase,  a company  wholly-owned  by Mr. Nick
         DeMare,  a  former  President,  CEO,  acting  CFO and  director  of the
         Company,  to provide office  premises,  administrative,  accounting and
         management services. In consideration therefor, Chase is paid a monthly
         fee of $3,000. Chase is also reimbursed for out-of-pocket disbursements
         incurred on behalf of the Company. In addition, Chase also provides the
         Company  additional  services  which are  billed at rates  which  Chase
         charges to unrelated third parties. Management believes the arrangement
         with Chase is fair to the Company.  During the period from June 1, 2005
         to  November  25,  2005,  the  date of Mr.  DeMare's  resignation  as a
         director of the Company, the Company paid $28,490 to Chase.



                                      -46-
<PAGE>

4.       From June 1, 2005 to June 28,  2005,  the Company paid Chase $2,500 for
         the services of Mr. Nick DeMare in his capacity as  President,  CEO and
         acting CFO of the Company.  Management  believes the  arrangement  with
         Chase for Mr. DeMare's services was fair to the Company.

5.       The Company has completed  previous  private  placements of securities,
         the subscribers of which include  directors and officers of the Company
         and their immediate family members.  The securities  issued pursuant to
         such  private  placements  were issued in  accordance  with the pricing
         policies of the TSXV.  During the year ended May 31, 2006,  the Company
         conducted the following private placements of common stock:

<TABLE>
<CAPTION>
                                                                                 PARTICIPATION  PURCHASE    MARKET
         PLACEE                                                                    BY INSIDERS    PRICE    PRICE(1)<F1>
                                                                                                    $         $
<S>                                                                                   <C>         <C>       <C>
         YEAR ENDED MAY 31, 2006

         5,000,000 units (one common share and one-half  warrant)                                 $0.50     $0.51
           -  Doug Good                                                                100,000
           -  Andrew Carter                                                             30,000
           -  William Lee                                                               20,000
           -  Judy Eng (spouse of Harvey Lim)                                           40,000
           -   Gil Leathley                                                             80,000
                                                                                       -------
                                                                                       270,000

<FN>
      (1)<F1>  Quoted closing  price on date of  price  reservation  of  private
               placement with the TSXV.
</FN>
</TABLE>

See also "Item 6.  Directors, Senior Management and Employees - Compensation."

INDEBTEDNESS OF DIRECTORS, OFFICERS, PROMOTERS AND OTHER MANAGEMENT

No executive  officers,  directors,  employees,  former  executive  officers and
directors or significant shareholders of the Company or affiliates of any of the
foregoing,  are  indebted  to the  Company.  None  of the  directors,  executive
officers,  employees,  significant shareholders of the Company nor any associate
or affiliate of these individuals,  is or has been indebted to the Company since
June 1, 2005.

CONFLICTS OF INTEREST

The table below shows that certain  directors of the Company are also directors,
officers or shareholders of other companies which are engaged in the business of
acquiring,  developing and exploiting natural resource properties. The directors
and  officers of the Company  will not be devoting all their time to the affairs
of the Company, but will be devoting such time as required to effectively manage
the Company.  Some of the  directors and officers of the Company are engaged and
will  continue  to be engaged in the search for  property  or assets or business
prospects on their own behalf or on behalf of others. Such associations may give
rise to conflicts of interest from time to time.

Certain of the  directors,  officers  and  shareholders  of the Company are also
directors,  officers  and  shareholders  of other  companies  and  conflicts  of
interest  may arise  between  their  duties as  directors  of the Company and as
directors of other  companies.  All such  possible  conflicts are required to be
disclosed in accordance with the  requirements  of the BCBCA,  and the directors
concerned are required to govern  themselves in accordance  with the obligations
imposed on them by law.

The  directors  of the Company are  required by law to act  honestly and in good
faith with a view to the best  interests  of the  Company  and to  disclose  any
interest which they may have in any project or opportunity of the Company.  If a
conflict of interest arises at a meeting of the board of directors, any director
in a conflict will disclose his interest and abstain from voting on such matter.
The Company  does not  currently  have a right of first  refusal  pertaining  to
opportunities that come to management's  attention insofar as such opportunities
may relate to the  Company's  proposed  business  operations.  The  officers and
directors are, so long as they are officers or directors of the Company, subject
to the restriction that all opportunities  contemplated by the Company's plan of
operation  which come to their  attention,  either in the  performance  of their
duties or in any other manner, will be considered  opportunities of, and be made
available to the Company and the companies that they are  affiliated  with on an
equal basis. If the Company or the companies in which the officers and



                                      -47-
<PAGE>

directors   are   affiliated   with  both  desire  to  take   advantage  of  the
opportunities,  the said officers and directors  would abstain from  negotiating
and voting upon the opportunity.  However,  all directors may still individually
take advantage of  opportunities if the Company declines to do so. Except as set
forth above,  the Company has not adopted any  conflict of interest  policy with
respect to such  transactions.  In  determining  whether or not the Company will
participate in any project or opportunity,  the director will primarily consider
the degree of risk which the Company may be exposed and its  financial  position
at the  time.  No  members  of  management  have  entered  into  non-competition
agreements with the Company.

The following table  identifies the name of each director of the Company and any
company,  which is a reporting  issuer in Canada or the United  States,  and for
which such director  currently serves as an officer or director,  other than the
Company:

<TABLE>
<CAPTION>
DIRECTOR              REPORTING ISSUER                   CAPACITY                          COMMENCED SERVICE
<S>                   <C>                                <C>                               <C>
Douglas Good          ComWest Enterprise Corp            Director and CFO                  June 2004

Gil Leathley          Golden Peaks Resources Ltd.        Director                          January 2006
                      Lariat Resources Ltd.              Director                          April 2003

William Lee           Golden Peaks Resources Ltd.        Director                          March 2006
                      Halo Resources Ltd.                Director                          February 2004
                      Jinshan Gold Mines Inc.            Director and CFO                  January 2006
                      Tinka Resources Limited            Director                          October 2002

Andrew Carter         Astral Mining Corporation          Director                          February 2004
                      Gold Point Energy Ltd.             Director                          October 2003
                      Halo Resources Ltd.                Director                          February 2004
                      Tinka Resources Ltd.               Director, President & CEO         February 2003
</TABLE>

There  are no known  existing  or  potential  conflicts  of  interest  among the
Company,  promoters,  directors,  officers,  principal holders of securities and
persons providing professional services to the Company which could reasonably be
expected to affect an investor's investment decision except as described in this
section.

The  Company  does not have any  agreements  with  its  officers  or  directors,
including any officers or directors with a conflict of interest, with respect to
the amount of time they must spend on the Company's business.


ITEM 8.  FINANCIAL INFORMATION.
--------------------------------------------------------------------------------

DESCRIPTION                                                          PAGE

Audited Consolidated Financial Statements for the Years Ended
May 31, 2006, 2005 and 2004                                          F-1 to F-24

SIGNIFICANT CHANGES

There have not been any significant changes since May 31, 2006.

DIVIDEND POLICY

The Company has not paid any  dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate  future.  Any decision to
pay  dividends  on its common  shares in the future will be made by the board of
directors on the Company on the basis of earnings,  financial  requirements  and
other such conditions that may exist at that time.


                                      -48-
<PAGE>

LEGAL PROCEEDINGS

The Company knows of no legal or arbitration  proceedings which may have or have
had in the recent past,  significant effects on the Company's financial position
or  profitability.  The  Company  is not aware of any  governmental  proceedings
pending or known to be contemplated.


ITEM 9.  THE OFFER AND LISTING.
--------------------------------------------------------------------------------

PRICE HISTORY

The  TSXV  classifies  listed  companies  into  two  different  tiers  based  on
standards, which include historical financial performance, stage of development,
and financial resources of the listed company. Tier 1 is the TSXV's premier tier
and is reserved for the TSXV's most advanced  issuers with the most  significant
financial  resources.  Tier 1 issuers benefit from decreased filing requirements
and improved service standards. The majority of the companies listed on the TSXV
are Tier 2 companies.  The Company trades on the TSXV under the symbol "RCT" and
is classified as a Tier 2 company.

There  have  been no  trading  suspensions  imposed  by the  TSXV  or any  other
regulatory authorities in the past three years.

The following table sets forth the market price ranges and the aggregate  volume
of trading  of the common  shares of the  Company on the TSXV,  and  predecessor
exchanges, for the periods indicated:

                           TSXV STOCK TRADING ACTIVITY


                                                         SALES PRICE
                                               ---------------------------------

YEAR ENDED              VOLUME                    HIGH                   LOW

May 31, 2006          2,526,246                   $1.49                $0.30
May 31, 2005            687,160                   $1.90                $0.30
May 31, 2004            541,315                   $3.70                $0.50
May 31, 2003            159,679                  $42.00                $0.90
May 31, 2002            246,761                 $171.00               $14.00


                                                         SALES PRICE
                                               ---------------------------------

QUARTER ENDED           VOLUME                    HIGH                   LOW

August 31, 2006       1,783,546                   $1.03                $0.61
May 31, 2006          1,727,496                   $1.49                $0.85
February 28, 2006       464,825                   $0.99                $0.52
November 30, 2005       114,825                   $0.80                $0.43
August 31, 2005         219,100                   $1.00                $0.30
May 31, 2005            108,920                   $1.50                $0.70
February 28, 2005       191,420                   $1.90                $1.10
November 30, 2004       182,470                   $1.50                $0.90
August 31, 2004         204,350                   $1.60                $0.70


                                                         SALES PRICE
                                               ---------------------------------

MONTH ENDED             VOLUME                    HIGH                   LOW

October 31, 2006      1,229,318                   $1.39                $0.86
September 30, 2006    1,609,968                   $1.55                $0.94
August 31, 2006         645,101                   $1.60                $0.70
July 31, 2006           368,230                   $0.90                $0.72
June 30, 2006           770,215                   $1.03                $0.61
May 31, 2006          1,506,972                   $1.29                $0.85


                                      -49-
<PAGE>

On February 7, 2001, the Company's  common shares were approved for quotation on
the OTCBB  operated by the  National  Association  of  Securities  Dealers.  The
Company currently trades on the OTCBB under the symbol "RCTFF.OB". The following
tables set forth the market price ranges and the aggregate  volume of trading of
the common shares of the Company on the OTCBB system for the periods indicated:

                             OTCBB TRADING ACTIVITY

                                                         SALES PRICE (US $)
                                                   -----------------------------

YEAR ENDED                  VOLUME                   HIGH              LOW

May 31, 2006                103,692                  $1.49             $0.21
May 31, 2005                 66,747                  $1.68             $0.41
May 31, 2004                 48,914                  $4.80             $0.00
May 31, 2003                 29,100                 $29.00             $1.10
May 31, 2002                 84,202                $109.00            $10.00
May 31, 2001 (1)             24,884                $109.00            $32.00

(1)  Period from February 7, 2001 through February 28, 2001


                                                         SALES PRICE (US $)
                                                   -----------------------------

QUARTER ENDED                VOLUME                  HIGH              LOW

August 31, 2006              122,542                 $0.96             $0.60
May 31, 2006                  54,310                 $1.49             $0.55
February 28, 2006             19,137                 $0.75             $0.35
November 30, 2005             20,769                 $0.57             $0.32
August 31, 2005                9,476                 $0.62             $0.21
May 31, 2005                   9,654                 $1.30             $0.41
February 28, 2005             26,529                 $1.64             $0.75
November 30, 2004              9,573                 $1.28             $0.66
August 31, 2004               20,991                 $1.50             $0.70


                                                         SALES PRICE (US $)
                                                   -----------------------------

MONTH ENDED                  VOLUME                  HIGH              LOW

October 31, 2006             389,838                 $1.25             $0.81
September 30, 2006           450,701                 $1.38             $0.73
August 31, 2006               29,000                 $0.73             $0.60
July 31, 2006                  1,300                 $0.60             $0.64
June 30, 2006                 92,242                 $0.96             $0.71
May 31, 2006                  46,210                 $1.49             $0.55


These above  quotations  reflect  inter-dealer  prices without  retail  mark-up,
markdown, or commissions and may not necessarily represent actual transactions.

The OTCBB is smaller and less liquid  than the major  securities  markets in the
United States.  The trading volume of the Company's shares on the OTCBB has been
volatile.  Consequently,  shareholders  in the United  States may not be able to
sell their shares at the time and at the price they desire.

ITEM 10.  ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------

ARTICLES OF CONTINUANCE AND ARTICLES

The  Company  was  incorporated  under the laws of British  Columbia,  Canada on
September 7, 1989 by  registration  of its Memorandum and Articles with the B.C.
Registrar of  Companies  (the "BC  Registrar")  under the  incorporation  number



                                      -50-
<PAGE>


372193.  On April 4, 1999,  the Company was  continued  to the Yukon  Territory,
Canada  by the  registration  of its  Articles  of  Continuance  with the  Yukon
Registrar of Corporations under the access number 27053 (the "Yukon Registrar").

On March 29,  2004,  the  British  Columbia  legislature  enacted  the BCBCA and
repealed  the BC  Company  Act.  The  BCBCA  removes  many  of the  restrictions
contained  in the BC Company Act,  including  restrictions  on the  residency of
directors,  the location of annual  general  meetings  and limits on  authorized
share  capital,  as well,  the  BCBCA  uses new forms  and  terminology  and has
replaced the Memorandum with a Notice of Articles.

On November 23, 2004, the Company was continued to British  Columbia,  Canada by
the  registration  of a  Continuation  Application  with  the  BC  Registrar  of
Companies.   The  Company's  registration  number  is  C0709247.  There  are  no
restrictions  in the Company's  Articles on the business which can be carried on
by the Company.

The following is a summary of certain  provisions of the Company's  Continuation
Application and Articles and certain provisions of the BCBCA,  applicable to the
Company:

         A.   DIRECTOR'S POWER TO VOTE ON A PROPOSAL, ARRANGEMENT OR CONTRACT IN
              WHICH THE DIRECTOR IS MATERIALLY INTERESTED.

              Under the  BCBCA,  subject to certain  exceptions,  a director  or
              senior officer of the Company must disclose any material  interest
              that he personally has, or that he as a director or senior officer
              of another  corporation  has in a contract or transaction  that is
              material to the Company and which the Company has entered  into or
              proposes to enter into.

              A  director  or  senior  officer  of the  Company  does not hold a
              disclosable interest in a contract or transaction if:

              1.  the  situation  that  would otherwise constitute a disclosable
                  interest arose before the coming into force of the BCBCA,  and
                  the interest was  disclosed  and  approved  under,  or was not
                  required to be disclosed under legislation that applied to the
                  Company before the coming into effect of the BCBCA;
              2.  both  the  Company  and  the  other  party to the  contract or
                  transaction   are  wholly  owned   subsidiaries  of  the  same
                  corporation;
              3.  the  Company  is  a wholly owned subsidiary of the other party
                  to the  contract  or  transaction;
              4.  the other  party to  the contract or  transaction  is a wholly
                  owned  subsidiary of the Company;  or
              5.  the director or senior officer  is the sole shareholder of the
                  Company or of a corporation  of which  the Company is a wholly
                  owned subsidiary.

              A  director  or  senior  officer  of the  Company  does not hold a
              disclosable interest in a contract or transaction merely because:

              1.  the  contract or  transaction  is an  arrangement  by way of a
                  security  granted  by the  Company  for  money  loaned  to, or
                  obligations  undertaken by, the director or senior officer, or
                  a person in whom the director or senior officer has a material
                  interest,  for the benefit of the Company or an  affiliate  of
                  the Company;
              2.  the  contract  or  transaction  relates  to  an  indemnity  or
                  insurance under the BCBCA;
              3.  the contract or transaction relates to the remuneration of the
                  director  or senior  officer,  in that  person's  capacity  as
                  director,  officer,  employee or agent of the Company or of an
                  affiliate of the Company;
              4.  the contract or transaction  relates to a loan to the Company,
                  and the  director or senior  officer,  or a person in whom the
                  director or senior officer has a material  interest,  is or is
                  to be a guarantor of some or all of the loan; or
              5.  the contract or  transaction  has been or will be made with or
                  for the benefit of a corporation  that is affiliated  with the
                  Company and the director or senior  officer is also a director
                  or senior officer of that  corporation or an affiliate of that
                  corporation.

              A director or senior  officer  who holds such a material  interest
              must  disclose the nature and extent of such  interest in writing.
              The  disclosure   must  be  evidenced  in  writing  in  a  consent
              resolution, the



                                      -51-
<PAGE>


              minutes  of a  meeting  or any  other  record  deposited  with the
              Company's record office. A director who has a disclosable interest
              in a  contract  or  transaction  is not  entitled  to  vote on any
              directors' resolution to approve that contract or transaction, but
              may be counted in the  quorum at the  directors'  meeting at which
              such vote is taken.

         B.   DIRECTORS' POWER, IN THE ABSENCE OF AN INDEPENDENT QUORUM, TO VOTE
              COMPENSATION TO THEMSELVES OR ANY MEMBERS OF THEIR BODY.

              The  compensation  of the  directors  is decided by the  directors
              unless the Board of Directors  specifically  requests  approval of
              the  compensation  from  the  shareholders.  If  the  issuance  of
              compensation  to the  directors  is  decided by the  directors,  a
              quorum is the majority of the directors in office.

         C.   BORROWING  POWERS  EXERCISABLE  BY  THE  DIRECTORS  AND  HOW  SUCH
              BORROWING POWERS MAY BE VARIED.

              The Company, if authorized by the directors, may:

              1.  borrow money in the manner and amount,  on the security,  from
                  the sources and on the terms and conditions that they consider
                  appropriate;
              2.  issue  bonds,  debentures  and other debt  obligations  either
                  outright or as security for any liability or obligation of the
                  Company or any other person and at such  discounts or premiums
                  and on such other terms as they consider appropriate;
              3.  guarantee  the  repayment  of money by any other person or the
                  performance of any obligation of any other person; and
              4.  mortgage,  charge,  whether  by way of  specific  or  floating
                  charge,  grant a security  interest in, or give other security
                  on, the whole or any part of the present and future assets and
                  undertaking of the Company.

              The borrowing powers may be varied by amendment to the Articles of
              the Company which  requires  approval of the  shareholders  of the
              Company by Special Resolution.

         D.   RETIREMENT  AND  NON-RETIREMENT  OF  DIRECTORS UNDER  AN AGE LIMIT
              REQUIREMENT.

              There are no such  provisions  applicable to the Company under the
              Notice of Articles, Articles or the BCBCA.

         E.   NUMBER OF SHARES REQUIRED FOR A DIRECTOR'S QUALIFICATION.

              A director of the  Company is not  required to hold a share in the
              capital of the Company as qualification for his office.

DESCRIPTION OF COMMON SHARES

The authorized  capital of the Company consists of an unlimited number of common
shares without par value.  A complete  description is contained in the Company's
Notice of Articles.

Of the Company's  unlimited share capital,  a total of 25,522,191  common shares
were issued and outstanding as of the date of this report.

All of the common  shares are fully paid and not  subject to any future  call or
assessment.  All of the common  shares of the Company  rank equally as to voting
rights,  participation  in a  distribution  of the  assets of the  Company  on a
liquidation,  dissolution  or winding-up of the Company and the  entitlement  to
dividends.  The holders of the common  shares are entitled to receive  notice of
all shareholder  meetings and to attend and vote at such meetings.  Shareholders
are not entitled to  cumulative  voting.  Each common share  carries with it the
right to one vote.  The  common  shares  do not have  preemptive  or  conversion
rights.  In  addition,  there  are no  sinking  fund  or  redemption  provisions
applicable to the common  shares or any  provisions  discriminating  against any
existing or prospective  holders of such securities as a result of a shareholder
owning a substantial number of shares. The Company's board of directors does not
stand for re-election at staggered intervals.


                                      -52-
<PAGE>

DIVIDEND RECORD

The Company has not paid any  dividends  on its common  shares and has no policy
with respect to the payment of dividends.

OWNERSHIP OF SECURITIES AND CHANGE OF CONTROL

Except for the Investment Canada Act,  discussed below, there are no limitations
on the rights to own securities, including the rights of non-resident or foreign
shareholders  to hold or exercise  voting  rights on the  securities  imposed by
foreign law or by the constituent documents of the Company.

Any person who beneficially owns or controls,  directly or indirectly, more than
10% of the Company's  voting  shares is considered an insider,  and must file an
insider  report  with the  British  Columbia,  Alberta  and  Ontario  Securities
Commissions  within ten days of  becoming  an insider  disclosing  any direct or
indirect  beneficial  ownership of, or control over direction over securities of
the Company. In addition, if the Company itself holds any of its own securities,
the Company must disclose such ownership.

There are no  provisions in the Company's  Continuation  Application,  Notice of
Articles  and  Articles  that would  have an effect of  delaying,  deferring  or
preventing a change in control of the Company  operating  only with respect to a
merger,  acquisition  or corporate  restructuring  involving  the Company or its
subsidiaries.

CHANGES TO RIGHTS AND RESTRICTIONS OF SHARES

Under the BCBCA and the Company's Articles,  if the Company wishes to change the
rights  and  restrictions  of the  common  shares the  Company  must  obtain the
approval of the shareholders by Special Resolution.

SHAREHOLDER MEETINGS

ANNUAL AND EXTRAORDINARY GENERAL MEETINGS

Under the BCBCA and the Company's Articles, the Company's annual general meeting
is to be held once in each  calendar  year and not more than 15 months after the
previous  meeting.  No advance  notice  will be required  to be  published  at a
meeting where directors are to be elected.  The Company,  under the BCBCA,  must
give  shareholders  not less than 21 days' notice of any general  meeting of the
shareholders.

An  extraordinary  general meeting of shareholders may be called at any time for
the  transaction of any business the general nature of which is specified in the
notice calling the meeting.

The BCBCA  contemplates  three ways for a general  meeting of shareholders to be
called: (a) by the directors; (b) by requisition by the shareholders;  or (c) by
court order.

         (a)      By the Directors.  The Company must give shareholders not less
                  than 21 days notice of any general meeting of the shareholders
                  and not more than two months  before the date of the  meeting.
                  The  directors  may fix in  advance a date,  which is no fewer
                  than 35 days or no more than 60 days  prior to the date of the
                  meeting,  whereby all the holders of common  shares as at that
                  date are entitled to attend and vote at a general meeting.

         (b)      Requisition by  Shareholders.  The requisition must be made by
                  shareholders  holding not less than 1/20 of the issued  shares
                  carrying  the right to vote at a general  meeting  at the time
                  the Company receives the requisition.  If a general meeting is
                  properly  requisitioned,  the  directors  must  call a general
                  meeting to transact the business specified in the requisition,
                  to  be  held  within  four  months   after  the  date  of  the
                  requisition  is  received  by the  Company.  The notice of the
                  meeting  must be sent at least 21 days and not more  than four
                  months before the date of the meeting.

         (c)      By Court  Order.  The court may on its own  motion,  or on the
                  application  of  the  Company,  a  director  or a  shareholder
                  entitled  to vote at the  meeting,  order  that a  meeting  of
                  shareholders  be called,  held and conducted in the manner the
                  court considers appropriate, any may give instructions to that
                  effect.  The


                                      -53-
<PAGE>

                  court  may  make  this  order  of it is  impracticable for the
                  Company to call or conduct the meeting in the required manner,
                  if the  Company fails  to  do so, or for any other reason that
                  the court considers appropriate.

On a show of hands,  every person who is present,  a shareholder or proxy holder
and entitled to vote shall have one vote. Whenever a vote by show of hands shall
have been taken upon a  question,  unless a ballot  thereon  is so  required  or
demanded,  a  declaration  by the Chairman of the meeting that the vote upon the
resolution has been carried or carried by the necessary  majority or is defeated
must be entered in the minutes of the meeting and shall be  conclusive  evidence
of the fact without proof of the number or  proportion of the votes  recorded in
favor of or against the  resolution and the result of the vote so taken shall be
the decision of the members upon the said question.

DIFFERENCES FROM REQUIREMENTS IN THE UNITED STATES

Except for the Company's quorum  requirements,  certain  requirements related to
related party transactions,  the requirement for notice of shareholder  meetings
and the approval of amendments to the  Company's  articles,  which are discussed
above,  there  are no  significant  differences  in the  law  applicable  to the
Company,  in the areas outlined  above,  in British  Columbia  versus the United
States. In most states in the United States, a quorum must consist of a majority
of the shares  entitled to vote. Some states allow for a reduction of the quorum
requirements  to less than a majority of the shares  entitled to vote.  Having a
lower  quorum  threshold  may  allow  a  minority  of the  shareholders  to make
decisions about the Company,  its management and operations.  In addition,  most
states  in the  United  States  require  that a notice of  meeting  be mailed to
shareholders  prior to the meeting date.  Additionally,  in the United States, a
director may not be able to vote on the approval of any transaction in which the
director has a interest.  Generally,  most states in the United  States  require
amendments  to a company's  articles of  incorporation  and certain  significant
transactions,  such as mergers and the sale or transfer of all or  substantially
all of a  company's  assets,  to be approved by at least a majority of the votes
cast by the holders of the issued and outstanding  shares.  Some states, or some
older  corporations,  may require approval of amendments and certain significant
transactions  by  2/3  of the  votes  cast  by the  holders  of the  issued  and
outstanding shares. In addition,  in the United States voting by separate voting
groups may be required on the  approval of any such  amendments  and/or  certain
significant corporate transactions.

MATERIAL CONTRACTS

The following are material  contracts entered into by the Company during the two
years preceding the date of this annual report:

1.  The Mina Real Option Agreement  dated January 8, 2006,  satisfied in full on
October 31, 2006. See "Item 4. Information on the Company - Business  Overview -
Mina Real Property."

2.  The Development  Facility  Agreement dated  June 20, 2006. Since the Company
now effectively owns 100% of Mina Real, the Development  Facility  Agreement now
represents an intra-company obligation.  See "Item 4. Information on the Company
- Business Overview - Mina Real Property."

3.  The ALB Acquisition  Agreement  dated October 20, 2006,  closed  December 1,
2006. See "Item 4.  Information  on the Company - Business  Overview - Mina Real
Property."

EXCHANGE CONTROLS

There are no governmental  laws,  decrees,  or regulations in Canada relating to
restrictions on the export or import of capital,  or affecting the remittance of
interest,  dividends, or other payments to non-resident holders of the Company's
common  stock.  Any  remittances  of dividends to United States  residents  are,
however,  subject  to  a  15%  withholding  tax  (5%  if  the  shareholder  is a
corporation  owning at least 10% of the outstanding common stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States. See "Item 10. Additional Information - Taxation".

Except as  provided  in the  Investment  Canada  Act (the  "Act"),  there are no
limitations  specific to the rights of  non-Canadians to hold or vote the common
stock of the  Company  under  the laws of  Canada  or the  Province  of  British
Columbia or in the charter documents of the Company.


                                      -54-
<PAGE>

Management  of the  Company  considers  that the  following  general  summary is
materially  complete and fairly  describes those provisions of the Act pertinent
to an investment by an American investor in the Company.

The Act requires a non-Canadian  making an investment  which would result in the
acquisition of control of a Canadian business,  the gross value of the assets of
which  exceed  certain  threshold  levels or the  business  activity of which is
related to Canada's cultural heritage or national identity, to either notify, or
file an  application  for review with,  Investment  Canada,  the federal  agency
created by the Investment Canada Act.

The notification  procedure  involves a brief statement of information about the
investment  in a prescribed  form which is required to be filed with  Investment
Canada by the investor at any time up to 30 days following implementation of the
investment.  It is intended that investments  requiring only  notification  will
proceed without government  intervention  unless the investment is in a specific
type of business  activity  related to Canada's  cultural  heritage and national
identity.

If an investment is reviewable  under the Act, an application  for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment  taking place and the investment may not be implemented until the
review has been completed and the Minister  responsible for Investment Canada is
satisfied that the  investment is likely to be of net benefit to Canada.  If the
Minister is not satisfied  that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been  implemented,  may be  required  to divest  himself  of  control of the
business that is the subject of the investment.

The following investments by non-Canadians are subject to notification under the
Act:

(a)      an investment to establish a new Canadian business; and
(b)      an investment to acquire control of a  Canadian  business  that  is not
         reviewable pursuant to the Act.

An  investment  is  reviewable  under  the Act if there is an  acquisition  by a
non-Canadian of a Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:

(a)      for  non-WTO  Investors,  the  threshold  is  $5,000,000  for a  direct
         acquisition  and over  $50,000,000  for an  indirect  acquisition.  The
         $5,000,000  threshold will apply however for an indirect acquisition if
         the asset value of the Canadian  business being acquired exceeds 50% of
         the asset value of the global transaction;
(b)      except as specified in paragraph  (c) below,  a threshold is calculated
         for  reviewable  direct  acquisitions  by or from  WTO  Investors.  The
         threshold for 2006 is $265,000,000.  Pursuant to Canada's international
         commitments,  indirect  acquisitions  by or from WTO  Investors are not
         reviewable; and
(c)      the  limits  set  out in  paragraph  (a)  apply  to all  investors  for
         acquisitions of a Canadian business that:

         (i)    engages in the production of uranium  and owns an  interest in a
                producing uranium property in Canada;
         (ii)   provides any financial services;
         (iii)  provides any transportation service; or
         (iv)   is a cultural business.

Notwithstanding   the  above  limits,  any  investment  which  is  usually  only
notifiable,  including the  establishment of a new Canadian  business engaged in
the  activity  of  publication,   distribution  or  sale  of  books,  magazines,
periodicals,  newspapers,  film  or  video  recordings,  audio  or  video  music
recordings,  or music in print or machine  readable  form may be  reviewed if an
Order-in-Council directing a review is made and a notice is sent to the investor
within 21 days following the receipt of a certified complete notification.

WTO Investor as defined in the Act means:

(a)      an individual, other than a Canadian, who is a national of a WTO Member
         or who has the right of  permanent  residence  in  relation to that WTO
         Member;
(b)      a government of a WTO Member,  whether  federal,  state or local, or an
         agency thereof;
(c)      an entity that is not a  Canadian-controlled  entity, and that is a WTO
         investor-controlled entity, as determined in accordance with the Act;
(d)      a corporation or limited partnership:

         (i)    that is not a Canadian-controlled entity, as determined pursuant
                to the Act;


                                      -55-
<PAGE>


         (ii)   that is not a WTO investor within the meaning of the Act;
         (iii)  of which less than a majority of its voting interests  are owned
                by WTO  investors;
         (iv)   that is not  controlled  in fact  through  the  ownership of its
                voting interests; and
         (v)    of which two thirds of the members of its board of directors, or
                of which two thirds of its  general  partners,  as the case  may
                be, are any combination of Canadians and WTO investors;
(e)      a trust:

         (i)    that is not a Canadian-controlled entity, as determined pursuant
                to the Act;
         (ii)   that is not a WTO investor within the meaning of the Act;
         (iii)  that is not controlled  in fact  through  the  ownership  of its
                voting interests, and
         (iv)   of  which  two  thirds  of  its  trustees are any combination of
                Canadians and WTO investors, or

(f)      any  other form  of business  organization specified by the regulations
         that is controlled by a WTO investor.

WTO Member as defined in the Act means a member of the World Trade Organization.

Generally  speaking,  an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its Canadian parent or grandparent and an
acquisition  is  indirect  if  it  involves  the  acquisition  of  control  of a
non-Canadian  parent  or  grandparent  of an  entity  carrying  on the  Canadian
business.  Control may be acquired  through the acquisition of actual or de jure
voting  control  of  a  Canadian  corporation  or  through  the  acquisition  of
substantially  all of the assets of the Canadian  business.  No change of voting
control  will be deemed to have  occurred if less than  one-third  of the voting
control of a Canadian corporation is acquired by an investor.

The Act specifically  exempts certain  transactions from either  notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting  interests  by any person in the ordinary  course of that
person's business as a trader or dealer in securities.

TAXATION

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES

Management of the Company considers that the following  discussion describes the
material  Canadian  federal  income tax  consequences  applicable to a holder of
Common  Stock of the Company  who is a resident of the United  States and who is
not a resident of Canada and who does not use or hold,  and is not deemed to use
or hold,  his shares of Common Stock of the Company in connection  with carrying
on a business in Canada (a "non-resident shareholder").

This summary is based upon the current provisions of the Income Tax Act (Canada)
(the  "ITA"),  the  regulations  thereunder  (the  "Regulations"),  the  current
publicly  announced  administrative  and  assessing  policies of Canada  Revenue
Agency and all specific  proposals  (the "Tax  Proposals")  to amend the ITA and
Regulations  announced  by the  Minister of Finance  (Canada)  prior to the date
hereof.  This  description  is not exhaustive of all possible  Canadian  federal
income tax  consequences  and, except for the Tax Proposals,  does not take into
account or anticipate any changes in law,  whether by legislative,  governmental
or judicial action.

DIVIDENDS

Dividends  paid on the common  stock of the  Company to a  non-resident  will be
subject  to  withholding  tax.  The  Canada-U.S.  Income Tax  Convention  (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a  corporation  resident  in Canada  (such as the  Company) to
residents of the United  States,  and also  provides for a further  reduction of
this rate to 5% where the  beneficial  owner of the  dividends is a  corporation
which is a resident of the United  States  which owns at least 10% of the voting
shares of the  corporation  paying  the  dividend.  In the event of the  Company
declaring and paying dividends it would withhold any applicable taxes.

CAPITAL GAINS

In general,  a  non-resident  of Canada is not subject to tax under the ITA with
respect  to a  capital  gain  realized  upon  the  disposition  of a share  of a
corporation  resident in Canada that is listed on a prescribed  stock  exchange.
For purposes of


                                      -56-

<PAGE>

the ITA, the Company is listed on a prescribed  stock  exchange.
Non-residents  of Canada who dispose of shares of the Company will be subject to
income tax in Canada with respect to capital gains if:

         (a)    the non-resident holder;
         (b)    persons with whom the non-resident  holder did not deal at arm's
                length; or
         (c)    the non-resident holder and persons  with whom the  non-resident
                holder did not deal with at arm's length,

owned  not less  than 25% of the  issued  shares  of any  class or series of the
Company at any time during the five-year period preceding the disposition.

In the case of a  non-resident  holder to whom shares of the  Company  represent
taxable Canadian  property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless:

         (a)    the  value  of  such  shares  is  derived  principally from real
                property situated in Canada;  or
         (b)    the non-resident holder is an individual who:
                (i)    was a resident of Canada for 120 months during any period
                       of 20 consecutive  years preceding the disposition of the
                       shares; and
                (ii)   was a  resident of Canada at any time during the 10 years
                       immediately  preceding the  disposition of  the  property
                       and  the  shares  (or  shares for  which such shares were
                       substituted  in  a disposition  the gain on which was not
                       recognized for purposes of taxation in Canada) were owned
                       by the  individual at the time he ceased to be a resident
                       of Canada.

In such cases, certain transitional relief under the Treaty may be available.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a general  discussion of certain  possible U.S.  federal income
tax consequences,  under current law, generally  applicable to a U.S. Holder (as
hereinafter  defined) of common shares of the Company.  This  discussion is of a
general  nature  only and does not take into  account the  particular  facts and
circumstances, with respect to U.S. federal income tax issues, of any particular
U.S.  Holder.  In addition,  this discussion does not cover any state,  local or
foreign tax consequences.

The following discussion is based upon the sections of the Internal Revenue Code
of 1986,  as amended (the  "Code"),  Treasury  Regulations,  published  Internal
Revenue Service ("IRS") rulings,  published  administrative positions of the IRS
and court decisions that are currently applicable,  any or all of which could be
materially and adversely  changed,  possibly on a retroactive basis, at any time
and which are subject to differing  interpretations.  This  discussion  does not
consider the potential  effects,  both adverse and  beneficial,  of any proposed
legislation  which,  if  enacted,  could be applied,  possibly on a  retroactive
basis, at any time.

This  discussion is for general  information  only and it is not intended to be,
nor should it be  construed  to be,  legal or tax  advice to any U.S.  Holder or
prospective  U.S.  Holder of common  shares of the  Company,  and no  opinion or
representation  with respect to the U.S.  federal income tax consequences to any
such U.S. Holder or prospective U.S. Holder is made.  Accordingly,  U.S. Holders
and  prospective  U.S.  Holders of common shares of the Company  should  consult
their own financial  advisor,  legal  counsel or  accountant  regarding the U.S.
federal,  state,  local and foreign tax  consequences of purchasing,  owning and
disposing of common shares of the Company.

U.S. HOLDERS

As used herein,  a "U.S.  Holder" means a holder of common shares of the Company
who is (i) a citizen or  individual  resident  of the U.S.,  (ii) a  corporation
created  or  organized  in or under  the laws of the  U.S.  or of any  political
subdivision  thereof,  (iii) an  estate  whose  income  is  taxable  in the U.S.
irrespective  of source or (iv) a trust subject to the primary  supervision of a
court  within the U.S.  and control of a U.S.  fiduciary as described in Section
7701(a)(30) of the Code. If a partnership or other "pass-


                                      -57-
<PAGE>

through"  entity treated as a partnership  for U.S.  federal income tax purposes
holds common shares of the Company, the U.S. federal income tax treatment of the
partners or owners of such  partnership or other  pass-through  entity generally
will depend on the status of such partners or owners and the  activities of such
partnership or pass-through entity.

PERSONS NOT COVERED

This  summary  does not  address the U.S.  federal  income tax  consequences  to
persons  (including  persons who are U.S. Holders) subject to special provisions
of U.S. federal income tax law,  including,  but not limited to, (i) persons who
are tax-exempt organizations,  qualified retirement plans, individual retirement
accounts and other  tax-deferred  accounts,  financial  institutions,  insurance
companies,  real estate investment trusts,  regulated investment  companies,  or
brokers,  dealers or traders in securities,  (ii) persons who have a "functional
currency" other than the U.S.  dollar,  (iii) persons subject to the alternative
minimum tax,  (iv) persons who own their common shares of the Company as part of
a  straddle,  hedging,  conversion  transaction,   constructive  sale  or  other
arrangement  involving  more than one position,  (v) persons who acquired  their
common shares of the Company  through the exercise of employee  stock options or
otherwise as compensation for services,  (vi) persons that own an interest in an
entity that owns common shares of the Company (vii) persons who own, exercise or
dispose of any options, warrants or other rights to acquire common shares of the
Company,  (viii)  persons who are  partners or owners of  partnerships  or other
pass-through entities or (ix) persons who own their common shares of the Company
other than as a capital asset within the meaning of Section 1221 of the Code.

DISTRIBUTION ON COMMON SHARES OF THE COMPANY

U.S.  Holders   receiving   distributions   (including   constructive   indirect
distributions)  with  respect to common  shares of the Company  are  required to
include in gross income for U.S. federal income tax purposes the gross amount of
such distributions,  equal to the U.S. dollar value of such distributions on the
date of receipt  (based on the exchange  rate on such date),  to the extent that
the Company has current or accumulated  earnings and profits,  without reduction
for any Canadian income tax withheld from such distributions.  Such Canadian tax
withheld  may be  credited,  subject to certain  limitations,  against  the U.S.
Holder's U.S. federal income tax liability or, alternatively, may be deducted in
computing the U.S.  Holder's U.S.  federal  taxable  income by those who itemize
deductions. (See more detailed discussion at "Foreign Tax Credit" below). To the
extent  that  distributions  from the  Company  exceed  current  or  accumulated
earnings and profits of the Company, such distributions will be treated first as
a return of capital,  to the extent of the U.S.  Holder's  adjusted basis in the
common  shares,  and  thereafter as gain from the sale or exchange of the common
shares of the Company.  (See more detailed  discussion at "Disposition of Common
Shares of the Company" below)

To the extent  that the  Company is a Passive  Foreign  Investment  Company,  as
defined below, in the current or prior year as discussed below, the Company will
not be a "qualified  foreign  corporation" as defined in Section  1(h)(11)(C) of
the Code. Accordingly,  distributions from the Company received by U.S. Holders,
who are subject to tax under  Section 1 of the Code and for which the Company is
a PFIC,  would not be eligible to be taxed at the  preferred  long-term  capital
gains tax rate.

In the case of foreign currency received as a distribution that is not converted
by the recipient into U.S.  dollars on the date of receipt,  a U.S.  Holder will
have a tax basis in the foreign  currency equal to its U.S.  dollar value on the
date of receipt. Generally any gain or loss recognized upon a subsequent sale or
other  disposition  of the foreign  currency,  including  the  exchange for U.S.
dollars,  will be ordinary income or loss. However, an individual whose realized
gain does not exceed $200 will not recognize that gain, to the extent that there
are no expenses  associated with the transaction  that meet the requirements for
deductibility  as a trade or business  expense  (other  than travel  expenses in
connection with a business trip) or as an expense for the production of income.

Dividends  paid on the  common  shares  of the  Company  generally  will  not be
eligible  for  the   "dividends   received   deduction"   allowed  to  corporate
shareholders receiving dividends from certain U.S.  corporations.  Under certain
circumstances,  a U.S.  Holder  that  is a  corporation  and  that  owns  shares
representing  at least 10% of the total  voting power and the total value of the
Company's  outstanding  shares may be entitled to a 70%  deduction  of the "U.S.
source"  portion of  dividends  received  from the  Company  (unless the Company
qualifies  as  a  "Foreign  Personal  Holding  Company"  or a  "Passive  Foreign
Investment  Company"  as  defined  below).  The  availability  of the  dividends
received  deduction is subject to several complex  limitations  which are beyond
the scope of this  discussion,  and U.S. Holders of common shares of the Company
should  consult  their  own  financial  advisor,  legal  counsel  or  accountant
regarding the dividends received deduction.


                                      -58-
<PAGE>

Certain  information  reporting  and  backup  withholding  rules may apply  with
respect  to  certain  payments  related  to  the  Company's  common  shares.  In
particular,  a payor or middleman  within the U.S.,  or in certain cases outside
the U.S.,  will be required to withhold 28% of any payments to a U.S.  Holder of
the Company's  common shares of dividends on, or proceeds from the sale of, such
common  shares  within the U.S.,  if a U.S.  Holder fails to furnish its correct
taxpayer  identification  number or otherwise fails to comply with, or establish
an exemption from, the backup withholding tax requirements. Any amounts withheld
under the U.S.  backup  withholding  tax rules  will be allowed as a refund or a
credit against the U.S. Holder's U.S. federal income tax liability, provided the
required information is furnished to the IRS.

FOREIGN TAX CREDIT

A U.S.  Holder who pays (or has withheld from  distributions)  Canadian or other
foreign income tax with respect to the ownership of common shares of the Company
may be entitled, at the option of the U.S. Holder, to either receive a deduction
or a tax  credit  for U.S.  federal  income tax  purposes  with  respect to such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces U.S. federal income taxes on a dollar-for-dollar
basis,  while a deduction  merely reduces the taxpayer's  income subject to U.S.
federal income tax. This election is made on a year-by-year basis and applies to
all foreign taxes paid by (or withheld from  distributions  to) the U.S.  Holder
during that year.

There are  significant  and  complex  limitations  that apply to the foreign tax
credit,  among which is the general limitation that the credit cannot exceed the
proportionate share of the U.S. Holder's U.S. income tax liability that the U.S.
Holder's  "foreign source" income bears to his or its worldwide  taxable income.
In applying this  limitation,  the various items of income and deduction must be
classified as either  "foreign  source" or "U.S.  source."  Complex rules govern
this  classification   process.  In  addition,  this  limitation  is  calculated
separately with respect to specific classes of income such as "passive  income,"
"high withholding tax interest," "financial services income," "shipping income,"
and  certain  other  classifications  of income.  Dividends  distributed  by the
Company  will  generally   constitute  "foreign  source"  income,  and  will  be
classified  as  "passive  income"  or,  in the  case of  certain  U.S.  Holders,
"financial services income" for these purposes.

In addition,  U.S. Holders that are corporations and that own 10% or more of the
voting stock of the Company may be entitled to an "indirect"  foreign tax credit
under  Section 902 of the Code with  respect to the payment of  dividends by the
Company   under  certain   circumstances   and  subject  to  complex  rules  and
limitations.  The  availability of the foreign tax credit and the application of
the  limitations  with respect to the foreign tax credit are fact specific,  and
each U.S.  Holder  of common  shares of the  Company  should  consult  their own
financial advisor,  legal counsel or accountant regarding the foreign tax credit
rules.

DISPOSITION OF COMMON SHARES OF THE COMPANY

A U.S.  Holder  will  recognize  gain or loss  upon the  sale or  other  taxable
disposition  of common  shares of the Company equal to the  difference,  if any,
between  (i) the  amount  of cash and the  fair  market  value  of any  property
received,  and (ii) the  shareholder's  tax  basis in the  common  shares of the
Company. This gain or loss will be capital gain or loss if the common shares are
a  capital  asset in the  hands  of the U.S.  Holder,  which  generally  will be
long-term  capital gain or loss if the common shares of the Company are held for
more than one year.

Preferential tax rates apply to long-term capital gains of U.S. Holders that are
individuals, estates or trusts. If the common shares of the Company are held for
more than five years, a lower long-term capital gains tax rate may apply.  There
are currently no preferential  tax rates for long-term  capital gains for a U.S.
Holder that is a corporation  (other than a corporation  subject to Subchapter S
of the Code).  Deductions  for net  capital  losses are  subject to  significant
limitations.  For U.S. Holders that are not corporations,  any unused portion of
such net  capital  loss may be carried  over to be used in later tax years until
such  net  capital  loss  is  thereby  exhausted.  For  U.S.  Holders  that  are
corporations  (other than corporations  subject to Subchapter S of the Code), an
unused net capital loss may be carried back three years and carried forward five
years  from the loss year to be offset  against  capital  gains  until  such net
capital loss is thereby exhausted.

OTHER CONSIDERATIONS FOR U.S. HOLDERS

In the following  circumstances,  the above sections of this  discussion may not
describe the U.S. federal income tax consequences to U.S. Holders resulting from
the ownership and disposition of common shares of the Company:


                                      -59-
<PAGE>

CONTROLLED FOREIGN CORPORATION

If more than 50% of the total voting  power or the total value of the  Company's
outstanding shares is owned, directly or indirectly, by citizens or residents of
the U.S.,  U.S.  partnerships  or  corporations,  or U.S.  estates or trusts (as
defined  by the Code  Section  7701(a)(30)),  each of  which  own,  directly  or
indirectly,  10% or more of the total voting power of the Company's  outstanding
shares (each a "10% Shareholder"), the Company could be treated as a "Controlled
Foreign Corporation" ("CFC") under Section 957 of the Code.

The classification of the Company as a CFC would have many complex implications,
including that 10% Shareholders of the Company would generally (i) be treated as
having received a current  distribution of the Company's  "Subpart F income" and
(ii) would also be subject to current U.S.  federal income tax on their pro rata
shares of the Company's  earnings  invested in "U.S.  property." The foreign tax
credit may  reduce the U.S.  federal  income tax on these  amounts  for such 10%
Shareholders  (See more detailed  discussion at "Foreign Tax Credit" above).  In
addition,  under  Section 1248 of the Code,  gain from the sale or other taxable
disposition  of common  shares of the Company by a U.S.  Holder that is or was a
10% Shareholder at any time during the five-year  period ending with the date of
sale is treated as ordinary  income to the extent of earnings and profits of the
Company attributable to the common shares sold or exchanged.

If the Company is classified  as both a Passive  Foreign  Investment  Company as
described  below and a CFC,  the  Company  generally  will not be  treated  as a
Passive Foreign Investment  Company with respect to 10% Shareholders.  This rule
generally  will be effective  for taxable  years of 10%  Shareholders  beginning
after 1997 and for  taxable  years of the  Company  ending  with or within  such
taxable years of 10% Shareholders.

PASSIVE FOREIGN INVESTMENT COMPANY

Certain U.S. income tax legislation  contains rules governing  "Passive  Foreign
Investment  Companies"  ("PFIC") which can have  significant tax effects on U.S.
Holders of foreign  corporations.  Section  1297 of the Code defines a PFIC as a
corporation that is not formed in the U.S. and, for any taxable year, either (i)
75% or more of its  gross  income  is  "passive  income"  or  (ii)  the  average
percentage,  by fair market value (or, if the corporation is not publicly traded
and either is a controlled foreign corporation or makes an election, by adjusted
tax  basis),  of its  assets  that  produce  or are held for the  production  of
"passive  income"  is 50% or  more.  "Passive  income"  includes,  for  example,
dividends, interest, certain rents and royalties, certain gains from the sale of
stock and securities, and certain gains from commodities transactions.  However,
gains resulting from commodities  transactions  are generally  excluded from the
definition of passive income if "substantially all" of a merchant's,  producer's
or  handler's  business  is as an active  merchant,  producer or handler of such
commodities.

For  purposes  of the  PFIC  income  test  and the  assets  test,  if a  foreign
corporation  owns (directly or indirectly) at least 25% by value of the stock of
another corporation, such foreign corporation shall be treated as if it (a) held
a proportionate share of the assets of such other corporation,  and (b) received
directly its proportionate share of the income of such other corporation.  Also,
for purposes of such PFIC tests,  passive  income does not include any interest,
dividends,  rents or  royalties  that are  received or accrued  from a "related"
person to the extent  such amount is  properly  allocable  to the income of such
related  person which is not passive  income.  For these  purposes,  a person is
related  with respect to a foreign  corporation  if such person  "controls"  the
foreign  corporation or is controlled by the foreign  corporation or by the same
persons  that control the foreign  corporation.  For these  purposes,  "control"
means  ownership,  directly or indirectly,  of stock possessing more than 50% of
the total voting power of all classes of stock  entitled to vote or of the total
value of stock of a corporation.

While the Company has not  determined  whether it is a PFIC, if the Company were
to be a PFIC, a U.S.  Holder who holds stock in the Company  would be subject to
U.S.  federal income taxation under one of three  alternative  tax regimes.  The
following is a discussion of such three alternative tax regimes.

QEF ELECTION

A U.S.  Holder who elects in a timely  manner to treat the  Company as a QEF (an
"Electing  U.S.  Holder")  will be subject,  under  Section 1293 of the Code, to
current  U.S.  federal  income  tax for any  taxable  year in which the  Company
qualifies  as a PFIC on his pro rata  share of the  Company's  (i) "net  capital
gain" (the excess of net  long-term  capital  gain over net  short-term  capital
loss), which will be taxed as long-term capital gain to the Electing U.S. Holder
and (ii)  "ordinary


                                      -60-
<PAGE>

earnings" (the excess of earnings and profits over net capital gain), which will
be taxed as ordinary income to the Electing U.S.  Holder,  in each case, for the
shareholder's  taxable year in which (or with which) the Company's  taxable year
ends, regardless of whether such amounts are actually distributed.

The effective QEF election also allows the Electing U.S. Holder to (i) generally
treat any gain realized on the  disposition  of the Company's  common shares (or
deemed to be realized on the pledge of his shares) as capital  gain;  (ii) treat
his share of the Company's  net capital gain, if any, as long-term  capital gain
instead of ordinary income;  and (iii) either avoid interest  charges  resulting
from PFIC  status  altogether,  or make an annual  election,  subject to certain
limitations,  to defer  payment of current  taxes on his share of the  Company's
annual realized net capital gain and ordinary earnings subject,  however,  to an
interest  charge.  If the Electing  U.S.  Holder is not a  corporation,  such an
interest  charge would  generally be treated as "personal  interest" that is not
deductible.

SECTION 1291 RULES

If a U.S.  Holder does not make a timely QEF election  during a year in which it
holds (or is deemed to have held) the common  shares in question and the Company
is a PFIC (a  "Non-Electing  U.S.  Holder"),  then special  taxation rules under
Section 1291 of the Code will apply to (i) gains realized on the disposition (or
deemed to be realized by reasons of a pledge) of the Company's common shares and
(ii) certain "excess  distributions"  (generally,  distributions received in the
current  taxable  year that are in excess of 125% of the  average  distributions
received  during the three  preceding  years or, if shorter,  the U.S.  Holder's
holding period) by the Company.

A Non-Electing  U.S.  Holder  generally  would be required to pro rate all gains
realized  on the  disposition  of the  Company's  common  shares  and all excess
distributions  on the Company's common shares over the entire holding period for
the common shares. All gains or excess distributions allocated to prior years of
the U.S. Holder (other than years prior to the first taxable year of the Company
during such U.S. Holder's holding period and beginning after January 1, 1987 for
which it was a PFIC)  would be taxed at the highest tax rate for each such prior
year applicable to ordinary income.  The Non-Electing  U.S. Holder also would be
liable for  interest on the  foregoing  tax  liability  for each such prior year
calculated  as if such  liability  had been due with  respect to each such prior
year. A Non-Electing  U.S. Holder that is not a corporation must generally treat
this interest charge as "personal interest" which, as discussed above, is wholly
nondeductible.  The  balance  of the  gain or the  excess  distribution  will be
treated as ordinary income in the year of the disposition or  distribution,  and
no interest charge will be incurred with respect to such balance.

If the Company is a PFIC for any taxable year during which a  Non-Electing  U.S.
Holder holds Company common shares, then the Company will continue to be treated
as a PFIC with respect to such Company  common  shares,  even if it is no longer
definitionally a PFIC. A Non-Electing U.S. Holder may terminate this deemed PFIC
status by  electing  to  recognize  gain  (which  will be taxed  under the rules
discussed above for Non-Electing  U.S. Holders) as if such Company common shares
had been sold on the last day of the last taxable year for which it was a PFIC.

MARK-TO-MARKET ELECTION

Effective for tax years of U.S. Holders  beginning after December 31, 1997, U.S.
Holders who hold, actually or constructively,  marketable stock (as specifically
defined in the Treasury  Regulations) of a foreign corporation that qualifies as
a PFIC may  annually  elect to mark such stock to the market (a  "mark-to-market
election").  If such an election is made, such U.S. Holder will generally not be
subject to the special  taxation rules of Section 1291  discussed  above. A U.S.
Holder  who makes the  mark-to-market  election  will  include in income for the
taxable year for which the  election was made an amount equal to the excess,  if
any,  of the fair  market  value of the common  shares of the  Company as of the
close of such tax year over such U.S.  Holder's  adjusted  basis in such  common
shares.  In addition,  the U.S. Holder may be allowed a deduction for the lesser
of (i) the  excess,  if any,  of such U.S.  Holder's  adjusted  tax basis in the
common  shares over the fair market  value of such shares as of the close of the
tax year, or (ii) the excess,  if any, of (A) the  mark-to-market  gains for the
common shares in the Company  included by such U.S.  Holder for prior tax years,
including  any amount which would have been  included for any prior tax year but
for the Section 1291 interest on tax deferral rules discussed above with respect
to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that
were allowed as deductions  for prior tax years.  A U.S.  Holder's  adjusted tax
basis in the common shares of the Company will be adjusted to reflect the amount
included in or deducted from income as a result of a mark-to-market  election. A
mark-to-market  election  applies to the taxable  year in which the  election is
made and to each  subsequent  taxable year,  unless the Company's  common shares
cease  to be  marketable,  as  specifically  defined,  or the  IRS  consents  to


                                      -61-
<PAGE>

revocation  of the  election.  U.S.  Holders  should  consult  their tax advisor
regarding the manner of making such an election.

INSPECTION OF DOCUMENTS

Copies of the  documents  referred  to in this  report may be  inspected  at the
Company's registered office at Suite 1305 - 1090 West Georgia Street, Vancouver,
British Columbia V6E 3V7, during normal business hours.


ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------

Not applicable.


ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------

Not applicable


                                     PART II


ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------

Not applicable.


ITEM 14.  MATERIAL  MODIFICATIONS  TO  THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS.
--------------------------------------------------------------------------------

Not applicable.


ITEM 15.  CONTROLS AND PROCEDURES
--------------------------------------------------------------------------------

An evaluation was performed under the supervision and with the  participation of
the Company's management,  including Mr. Good, the Company's President,  CEO and
acting CFO, of the  effectiveness  of the design and  operation of the Company's
disclosure  controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of
the  Securities  Exchange Act of 1934 (the  "Exchange  Act") as of May 31, 2005.
Based upon that evaluation,  Mr. Good,  concluded that the Company's  disclosure
controls and procedures are effective to ensure that information  required to be
disclosed by the Company in reports that it files or submits  under the Exchange
Act is recorded,  processed,  summarized  and  reported  within the time periods
specified in Securities and Exchange Commission's rules and forms.

During  the  fiscal  year  ended May 31,  2006,  there  were no  changes  in the
Company's  internal  control  over  financial  reporting  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


ITEM 16.  [RESERVED]
--------------------------------------------------------------------------------

Not applicable.


ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT.
--------------------------------------------------------------------------------

The Board of Directors  has  determined  that the Company has at least one audit
committee  financial expert,  Mr. William Lee, who serves on the Company's audit
committee. Mr. Lee is considered to be an "independent director" as that term is
defined in Rule 4200(a)(15) of the National Association of Securities Dealers.


                                      -62-
<PAGE>

ITEM 16B.  CODE OF ETHICS.
--------------------------------------------------------------------------------

The Company has not yet adopted a code of ethics that  applies to the  Company's
principal executive officer,  principal financial officer,  principal accounting
officer,  or controller,  or persons  performing  similar  functions.  Given the
Company's  current  operations,  management does not believe a code of ethics is
necessary at this stage of the Company's development.


ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.
--------------------------------------------------------------------------------

AUDIT FEES

For the  fiscal  years  ended May 31,  2006 and 2005,  the  Company's  principal
accountant  billed  $17,517  and  $17,793,  respectively,  for the  audit of the
Company's annual financial  statements or services that are normally provided by
the  accountant  in  connection   with  statutory  and  regulatory   filings  or
engagements for those fiscal years.


AUDIT-RELATED FEES

For the  fiscal  years  ended May 31,  2006 and 2005,  the  Company's  principal
accountant  billed  $nil and  $nil,  respectively,  for  assurance  and  related
services that were reasonably  related to the performance of the audit or review
of the Company's  financial  statements  outside of those fees  disclosed  above
under "Audit Fees".

TAX FEES

For the  fiscal  years  ended May 31,  2006 and 2005,  the  Company's  principal
accountant billed $nil and $nil, respectively,  for tax compliance,  tax advice,
and tax planning services.

ALL OTHER FEES

For the  fiscal  years  ended May 31,  2006 and 2005,  the  Company's  principal
accountant billed $nil and $nil,  respectively,  for products and services other
than those set forth above.

PRE-APPROVAL POLICIES AND PROCEDURES

Prior to engaging the Company's accountants to perform a particular service, the
Company's audit  committee  obtains an estimate for the service to be performed.
The  Company's  audit  committee   reviews  and   pre-approves   all  audit  and
audit-related  services and the fees and other compensation related thereto, and
any non-audit services provided by the Company's external auditors. Provided the
pre-approval  of the  non-audit  services is presented to the audit  committee's
first scheduled  meeting following such approval such authority may be delegated
by  the  audit  committee  to one  or  more  independent  members  of the  audit
committee.  The audit  committee in accordance  with  procedures for the Company
approved all of the services described above.

At no time since the  commencement  of the  Company's  most  recently  completed
financial year has the Company relied on the waiver in paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.

To the best of the Company's knowledge,  no more than fifty percent of the hours
expended on the auditors' engagement to audit the Company's financial statements
for the fiscal  year ended May 31, 2006 were  attributed  to work  performed  by
persons other than the auditor's full-time, permanent employees.


ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
--------------------------------------------------------------------------------

Not applicable.


                                      -63-
<PAGE>

ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS.
--------------------------------------------------------------------------------

During the fiscal year ended May 31, 2006, there were no purchases made by or on
behalf  of  the  Company  or an  "affiliated  purchaser"  (as  defined  in  Rule
10b-18(a)(3)  adopted under the Securities Exchange Act of 1934),  including any
officer or director of the  Company,  of shares or other units of the  Company's
common shares.


                                    PART III


ITEM 17.  FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------

See pages F-1 through F-24.


ITEM 18.  FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------

Not applicable.

ITEM 19.  EXHIBITS.
--------------------------------------------------------------------------------

  EXHIBIT NUMBER                                           DESCRIPTION

  1.1             Certificate  of Continuation and Notice of Articles for Hilton
                  Resources Ltd. (2)

  1.2             Articles for Hilton Resources Ltd. (2)

  1.3             Notice of Alteration (Name Change) - Form 11 (3)

  4.1             Stock Option Plan 2004 (1)

  4.2             Stock Option Plan 2005 (2)

  4.3             Mineral Property Option Agreement dated January 8, 2006

  4.4             Development Facility Agreement dated June 20, 2006

  4.5             ALB Acquisition Agreement dated October 20, 2006

  8.1             List of Subsidiaries

  12.1            Certification of Douglas Good Pursuant to Rule 13a-14(a)

  13.1            Certification  of  Douglas  Good Pursuant to 18 U.S.C. Section
                  1350

(1)  Previously filed as an exhibit to the Company's annual Report on Form 20-F,
     filed with the Commission on December 19, 2003.  File number 000-30390.
(2)  Previously filed as an exhibit to the Company's annual Report on Form 20-F,
     filed with the  Commission on December 2, 2004.  File number 000-30390.
(3)  Previously filed as an exhibit to the Company's annual Report on Form 20-F,
     filed with the Commission on November 17, 2005.  File number 000-30390.









                                      -64-
<PAGE>


                                   SIGNATURES


The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the  undersigned to sign
this annual report on its behalf.


                                       ROCHESTER RESOURCES LTD.



Dated:   DECEMBER 14, 2006             /s/ DOUGLAS GOOD
                                       -----------------------------------------
                                       Douglas Good
                                       President, Chief Executive Officer,
                                       acting Chief Financial Officer and
                                       Director
























                                      -65-
<PAGE>


















--------------------------------------------------------------------------------


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                          MAY 31, 2006, 2005, AND 2004

            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


--------------------------------------------------------------------------------




                                      F-1
<PAGE>

                                                     [D & H GROUP LETTERHEAD]



AUDITORS' REPORT




To the Shareholders of
Rochester Resources Ltd. (formerly Hilton Resources Ltd.)


We have audited the  consolidated  balance  sheets of Rochester  Resources  Ltd.
(formerly  Hilton  Resources  Ltd.)  as  at  May  31,  2006  and  2005  and  the
consolidated  statements  of  operations,  deficit  and cash flows for the years
ended  May  31,  2006,  2005  and  2004.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian  generally accepted auditing
standards and the standards of the Public  Company  Accounting  Oversight  Board
(United  States).  Those standards  require that we plan and perform an audit to
obtain  reasonable  assurance  whether  the  financial  statements  are  free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects,  the financial position of the Company as at May 31, 2006 and
2005 and the results of its operations and cash flow for the years ended May 31,
2006, 2005 and 2004 in accordance with Canadian  generally  accepted  accounting
principles.

Canadian generally accepted  accounting  principles vary in certain  significant
respects from  accounting  principles  generally  accepted in the United States.
Application  of accounting  principles  generally  accepted in the United States
would have affected assets,  liabilities and shareholders'  equity as at May 31,
2006 and 2005 and results of operations  for the years ended May 31, 2006,  2005
and  2004 to the  extent  summarized  in Note 12 to the  consolidated  financial
statements.

On August 16, 2006 we  reported  separately  to the  shareholders  of  Rochester
Resources Ltd.  (formerly  Hilton  Resources Ltd.) on the  consolidated  balance
sheets as at May 31, 2006 and 2005 and the consolidated statements of operations
and  deficits  for the  years  ended  May 31,  2006,  2005 and 2004  audited  in
accordance with Canadian generally accepted auditing standards.




Vancouver, B.C.
August 16, 2006, except as to Note 14,                        "D&H Group LLP"
which is as of December 11, 2006                           Chartered Accountants



                                  D&H Group LLP
              a B.C. Limited Liability Partnership of Corporations
                member of BHD Association with affiliated offices
                        across Canada and Internationally
             10th Floor, 1333 West Broadway, Vancouver, B.C. V6H 4C1
             * www.dhgroup.ca * F (604) 731-9923 * T (604) 731-5881

                                      F-2
<PAGE>
                                                     [D & H GROUP LETTERHEAD]










COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING DIFFERENCE




In the United States,  reporting  standards for auditors require the addition of
an explanatory  paragraph  (following the opinion  paragraph) when the financial
statements are affected by conditions and events that cast substantial  doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements.  Our report to the shareholders dated August
16, 2006, is expressed in accordance with Canadian reporting  standards which do
not permit a reference to such events and  conditions  in the  auditors'  report
when these are adequately disclosed in the financial statements.




Vancouver, B.C.
August 16, 2006 except as to Note 14,                        "D&H Group LLP"
which is as of December 11, 2006                          Chartered Accountants















                                  D&H Group LLP
              a B.C. Limited Liability Partnership of Corporations
                member of BHD Association with affiliated offices
                        across Canada and Internationally
             10th Floor, 1333 West Broadway, Vancouver, B.C. V6H 4C1
             * www.dhgroup.ca * F (604) 731-9923 * T (604) 731-5881

                                      F-3
<PAGE>







                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                                  AS AT MAY 31
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


                                                       2006            2005
                                                         $               $

                                     ASSETS

CURRENT ASSETS

Cash                                                  3,657,676         227,589
Amounts receivable                                       80,022          39,027
Prepaid expenses and deposits                            12,825           9,636
                                                   ------------    ------------
                                                      3,750,523         276,252

MINERAL INTERESTS (Note 3)                            1,128,652               -

CAPITAL ASSETS, net of accumulated amortization
   of $7,989 (2005 -$5,840)                              55,341           4,764

OTHER ASSETS (Note 4)                                    37,040           6,300
                                                   ------------    ------------
                                                      4,971,556         287,316
                                                   ============    ============

                                   LIABILITIES

CURRENT LIABILITIES

Accounts payable and accrued liabilities                214,447          31,006
                                                   ------------    ------------

                              SHAREHOLDERS' EQUITY

SHARE CAPITAL (Note 5)                               75,890,208      70,970,313

CONTRIBUTED SURPLUS (Note 7)                            608,284         286,125

DEFICIT                                             (71,741,383)    (71,000,128)
                                                   ------------    ------------
                                                      4,757,109         256,310
                                                   ------------    ------------
                                                      4,971,556         287,316
                                                   ============    ============
NATURE OF OPERATIONS (Note 1)

SUBSEQUENT EVENTS (Note 14)


APPROVED BY THE BOARD

/s/ DOUG GOOD        , Director
--------------------

/s/ ANDREW CARTER    , Director
--------------------


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


                                      F-4
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
                           FOR THE YEARS ENDED MAY 31
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)

<TABLE>
<CAPTION>

                                                       2006            2005            2004
                                                         $               $               $
<S>                                               <C>             <C>             <C>

EXPENSES

Accounting and administration                            53,415          78,788          70,840
Amortization                                              2,149           5,840           1,976
Audit                                                    20,517          19,301          19,348
Corporate development                                    37,360               -               -
Corporate finance fee                                    30,500               -               -
General exploration                                      24,588               -               -
Investor relations                                        6,497          36,000          18,000
Legal                                                    19,573          15,832          44,540
Management fees                                         113,838               -          24,466
Office                                                   12,098           8,161          14,360
Professional fees                                        91,167          54,941          96,943
Regulatory                                               12,836           7,037          15,518
Rent                                                      4,165               -           1,769
Salaries and benefits                                     6,410               -               -
Shareholder costs                                         9,251           3,767           7,884
Stock-based compensation (Note 6)                       256,159         138,725         154,000
Transfer agent                                           17,420          10,612          15,442
Travel                                                   24,207          12,173          11,404
                                                   ------------    ------------    ------------
                                                        742,150         391,177         496,490
                                                   ------------    ------------    ------------
LOSS BEFORE OTHER ITEMS                                (742,150)       (391,177)       (496,490)
                                                   ------------    ------------    ------------
OTHER ITEMS

Interest and other income                                36,566           2,362         119,191
Foreign exchange                                        (66,651)         (4,809)         43,077
Bad debts                                               (10,000)        (27,827)        (14,412)
Gain on sale of other assets (Note 4)                    40,980          17,239               -
Write-off of mineral interests (Note 3(b))                    -        (703,058)              -
Interest expense on debentures                                -               -        (233,761)
Loss on sale of capital assets                                -          (1,717)              -
                                                   ------------    ------------    ------------
                                                            895        (717,810)        (85,905)
                                                   ------------    ------------    ------------
NET LOSS FOR THE YEAR                                  (741,255)     (1,108,987)       (582,395)

DEFICIT - BEGINNING OF YEAR                         (71,000,128)    (69,891,141)    (69,308,746)
                                                   ------------    ------------    ------------
DEFICIT - END OF YEAR                               (71,741,383)    (71,000,128)    (69,891,141)
                                                   ============    ============    ============


BASIC AND DILUTED LOSS PER SHARE                         $(0.17)         $(0.56)         $(0.57)
                                                   ============    ============    ============

WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES OUTSTANDING                        4,388,853       1,966,152       1,025,146
                                                   ============    ============    ============

</TABLE>

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

                                      F-5
<PAGE>

                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE YEARS ENDED MAY 31
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)

<TABLE>
<CAPTION>

                                                                       2006            2005            2004
                                                                         $               $               $
<S>                                                               <C>             <C>             <C>

CASH PROVIDED FROM (USED FOR)

OPERATING ACTIVITIES

Net loss for the year                                                  (741,255)     (1,108,987)       (582,395)
Adjustment for items not involving cash
     Amortization                                                         2,149           5,840           1,976
     Loss on sale of capital assets                                           -           1,717               -
     Gain on sale of other assets                                       (40,980)        (17,239)         (2,645)
     Write-off of mineral interests                                           -         703,058               -
     Corporate finance fees                                              30,500               -               -
     Stock-based compensation                                           256,159         138,725         154,000
     Amortization of deferred financing charges                               -               -          26,200
     Accretion of liability component of debentures                           -               -          92,139
     Impairment of other assets                                               -               -           5,516
     Interest expense settled through issuance of shares                      -               -          65,371
     Unrealized foreign exchange                                              -               -         (44,506)
                                                                   ------------    ------------    ------------
                                                                       (493,427)       (276,886)       (284,344)

Decrease (increase) in amounts receivable                               (40,995)         (8,738)          1,996
Decrease (increase) in prepaid expenses and deposits                     (3,189)           (677)         38,288
Increase (decrease) in accounts payable and accrued liabilities         183,441          14,650          (3,882)
                                                                   ------------    ------------    ------------
                                                                       (354,170)       (271,651)       (247,942)
                                                                   ------------    ------------    ------------
FINANCING ACTIVITIES

Issuance of common shares                                             4,966,050         362,500         934,350
Share issue costs                                                      (348,155)         (2,500)        (16,075)
                                                                   ------------    ------------    ------------
                                                                      4,617,895         360,000         918,275
                                                                   ------------    ------------    ------------
INVESTING ACTIVITIES

Additions to mineral interests                                         (791,152)       (415,255)       (220,582)
Purchase of capital assets                                              (52,726)              -         (21,443)
Proceeds from sale of capital assets                                          -           7,146               -
Proceeds from sale of other assets                                       47,280          19,309           9,845
Additions to other assets                                               (37,040)              -               -
Drilling advances                                                             -               -         (57,221)
                                                                   ------------    ------------    ------------
                                                                       (833,638)       (388,800)       (289,401)
                                                                   ------------    ------------    ------------
INCREASE (DECREASE) IN CASH FOR THE YEAR                              3,430,087        (300,451)        380,932

CASH - BEGINNING OF YEAR                                                227,589         528,040         147,108
                                                                   ------------    ------------    ------------
CASH - END OF YEAR                                                    3,657,676         227,589         528,040
                                                                   ============    ============    ============
</TABLE>

Supplementary  disclosure  with respect to the  consolidated  statements of cash
flows (Note 13).


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

                                      F-6
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


1.       NATURE OF OPERATIONS AND CHANGE OF NAME

         The Company is engaged in the acquisition,  exploration and development
         of mineral  interests  in  Mexico.  During the 2006  fiscal  year,  the
         Company completed  negotiations and entered into an option agreement to
         acquire up to a 51% interest in the Mina Real  Property in Mexico.  The
         Company is currently  constructing  the mill  facility on the Mina Real
         Property. Completion of the facility is scheduled for November 2006.

         The amount shown as mineral  interests and deferred costs represent net
         costs  to  date,  less  amounts  written  off,  and do not  necessarily
         represent present or future values. The recoverability of these amounts
         and any  additional  amounts  required to place these  properties  into
         commercial production are dependent upon certain factors. These factors
         include  the  existence  of  ore  deposits  sufficient  for  commercial
         production and the Company's ability to obtain the required  additional
         financing necessary to develop its mineral interests.

         As at May 31,  2006,  the Company had  working  capital of  $3,536,076.
         Management  anticipates  that it will be required  to raise  additional
         financing  to complete  construction  of the mill  facility and provide
         adequate working capital.  These consolidated financial statements have
         been prepared in accordance with Canadian generally accepted accounting
         principles  ("Canadian  GAAP")  applicable  to a  going  concern  which
         assumes  that the Company  will  realize its assets and  discharge  its
         liabilities in the normal course of business. Realization values may be
         substantially   different  from  the  carrying   values  shown  in  the
         consolidated  financial  statements  should  the  Company  be unable to
         continue as a going  concern.  The ability of the Company to settle its
         liabilities  as  they  come  due  and to  fund  ongoing  operations  is
         dependent upon the ability of the Company to obtain additional  funding
         from equity  financing.  Failure to continue as a going  concern  would
         require  restatement of assets and liabilities on a liquidation  basis,
         which could differ materially from the going concern basis.

         On August 25, 2005, the Company  completed a consolidation of its share
         capital  on a basis of one new common  share for ten old common  shares
         and changed its name from Hilton Resources Ltd. to Rochester  Resources
         Ltd.

         See also Note 14.


2.       SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION

         These   consolidated   financial   statements  have  been  prepared  in
         accordance  with Canadian GAAP.  The  significant  differences  between
         these  principles  and those that would be applied  under United States
         generally accepted  accounting  principles ("US GAAP") are disclosed in
         Note 12. The  consolidated  financial  statements have, in management's
         opinion, been properly prepared within reasonable limits of materiality
         and  within  the  framework  of  the  significant  accounting  policies
         summarized below.

         These  consolidated  financial  statements  include the accounts of the
         Company and its 60% owned Mexican  subsidiary,  Compania Minera Nayarit
         S.A. de C.V.  Inter-company balances and transactions are eliminated on
         consolidation.



                                      F-7
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         USE OF ESTIMATES

         The  preparation  of financial  statements in conformity  with Canadian
         GAAP requires  management to make estimates and assumptions that affect
         the  reported  amount of  assets  and  liabilities  and  disclosure  of
         contingent liabilities at the date of the financial statements, and the
         reported amounts of revenues and expenditures during the period. Actual
         results may differ from those estimates.

         MINERAL INTERESTS AND DEFERRED EXPLORATION COSTS

         Mineral interests costs and exploration,  development and field support
         costs  directly  relating to mineral  interests are deferred  until the
         interests  to which  they  relate is placed  into  production,  sold or
         abandoned.  The deferred  costs will be amortized  over the life of the
         orebody  following  commencement  of  production  or written off if the
         mineral interest is sold or abandoned.  Administration  costs and other
         exploration  costs that do not relate to any specific  mineral interest
         are expensed as incurred.

         On a periodic basis, management reviews the carrying values of deferred
         mineral interest  acquisition and exploration  expenditures with a view
         to assessing whether there has been any impairment in value. Management
         takes into consideration various information including, but not limited
         to,  results of  exploration  activities  conducted to date,  estimated
         future metal  prices,  and reports and opinions of outside  geologists,
         mine engineers and consultants. When it is determined that a project or
         interest will be abandoned or its carrying value has been  impaired,  a
         provision is made for any expected loss on the project or interest.

         Although  the Company  has taken  steps to verify  title to the mineral
         interests,  according to the usual industry  standards for the stage of
         exploration  of  such  mineral  interests,   these  procedures  do  not
         guarantee the Company's title. Such mineral interests may be subject to
         prior  agreements  or transfers and title may be affected by undetected
         defects.

         From  time to  time,  the  Company  acquires  or  disposes  of  mineral
         interests  pursuant  to the terms of  option  agreements.  Options  are
         exercisable   entirely  at  the   discretion   of  the  optionee   and,
         accordingly,  are recorded as mineral interest costs or recoveries when
         the payments are made or received.

         CAPITAL ASSETS

         Capital  assets,  which is comprised of vehicles and office  equipment,
         are recorded at cost less  accumulated  amortization.  Amortization  is
         recorded on the declining balance basis at the following annual rates:

                         Vehicles                           30%
                         Office equipment                   20%

         INVESTMENTS

         Long-term investments are accounted for using the cost method.




                                      F-8
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         ASSET RETIREMENT OBLIGATIONS

         The fair value of a liability  for an asset  retirement  obligation  is
         recognized  when a reasonable  estimate of fair value can be made.  The
         asset  retirement   obligation  is  recorded  as  a  liability  with  a
         corresponding increase to the carrying amount of the related long-lived
         asset.  Subsequently,  the asset retirement cost is charged to earnings
         using a  systematic  and  rational  method and is  adjusted  to reflect
         period-to-period changes in the liability resulting from the passage of
         time and  revisions  to either the timing or the amount of the original
         estimate  of  undiscounted  cash flow.  As at May 31,  2006 and May 31,
         2005, the Company does not have any asset retirement obligations.

         IMPAIRMENT OF LONG-LIVED ASSETS

         Long-lived   assets  are  assessed  for  impairment   when  events  and
         circumstances  warrant.  The carrying  value of a  long-lived  asset is
         impaired when the carrying  amount  exceeds the estimated  undiscounted
         net cash flow from use and fair  value.  In that  event,  the amount by
         which the carrying  value of an impaired  long-lived  asset exceeds its
         fair value is charged to earnings.

         STOCK-BASED COMPENSATION

         Stock-based  compensation  is accounted for at fair value as determined
         by the  Black-Scholes  option  pricing  model  using  amounts  that are
         believed to  approximate  the  volatility  of the trading  price of the
         Company's   stock,   the  expected   lives  of  awards  of  stock-based
         compensation,  the fair value of the Company's  stock and the risk-free
         interest  rate.  The  estimated  fair  value of awards  of  stock-based
         compensation  are charged to expense as awards  vest,  with  offsetting
         amounts recognized as contributed surplus.

         TRANSLATION OF FOREIGN CURRENCIES

         Monetary assets and liabilities are translated into Canadian dollars at
         the balance  sheet date rate of exchange  and  non-monetary  assets and
         liabilities at historical  rates.  Revenues and expenses are translated
         at  appropriate   transaction  date  rates  except  for   amortization,
         depreciation and depletion,  which are translated at historical  rates.
         Gains and losses  resulting from the  fluctuation  of foreign  exchange
         rates have been included in the determination of income.

         INCOME TAXES

         Future  income  tax  liabilities  and  assets  are  recognized  for the
         estimated income tax consequences  attributable to differences  between
         the amounts reported in the consolidated financial statements and their
         respective tax bases,  using enacted income tax rates.  The effect of a
         change in income tax rates on future income tax  liabilities and assets
         is recognized in income in the period that the change is  substantively
         enacted.  Future  income tax assets are  recognized  to the extent that
         they are considered more likely than not to be realized.

         EARNINGS (LOSS) PER SHARE

         Basic  earnings per share is computed by dividing  income  available to
         common  shareholders  by the weighted  average  number of common shares
         outstanding  during the period. The computation of diluted earnings per
         share  assumes  the  conversion,  exercise  or  contingent  issuance of
         securities only when such conversion, exercise or issuance would have a
         dilutive  effect  on  earnings  per  share.   The  dilutive  effect  of
         convertible


                                      F-9
<PAGE>

                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         securities is reflected in diluted earnings per share by application of
         the "if converted" method.  The dilutive effect of outstanding  options
         and warrants and their equivalents is reflected in diluted earnings per
         share by application of the treasury stock method.


3.       MINERAL INTERESTS
<TABLE>
<CAPTION>

                                   --------------------------------------------    --------------------------------------------
                                                       2006                                            2005
                                   --------------------------------------------    --------------------------------------------
                                    ACQUISITION     EXPLORATION                     ACQUISITION     EXPLORATION
                                       COSTS           COSTS           TOTAL           COSTS           COSTS           TOTAL
                                         $               $               $               $               $               $
        <S>                       <C>             <C>             <C>             <C>             <C>             <C>

         Mina Real                      486,584         642,068       1,128,652               -               -               -
                                   ============    ============    ============    ============    ============    ============
</TABLE>

         (a)      During the 2006  fiscal  year,  the  Company  entered  into an
                  option  agreement  with a private  company,  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  3,400
                  hectares.  Under the  agreement the Company has made an option
                  payment of US $110,000 and issued  250,000  common shares at a
                  fair value of $337,500. The Company can earn its interests, as
                  follows:

                  i)       an initial  20%  interest  on funding  the initial US
                           $750,000 on exploration expenditures;
                  ii)      a further  20%  interest  on  funding  a  further  US
                           $750,000 on exploration expenditures; and
                  iii)a    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.

                  See also Note 14(d).

         (b)      During the 2004  fiscal  year,  the  Company  entered  into an
                  option  agreement with a Mexican private  corporation  whereby
                  the  Company  could  acquire  up to a 100%  interest  in  five
                  unproven  mineral  concessions  (the "El  Nayar  Project")  in
                  Mexico,  covering  approximately  6,766 hectares.  The Company
                  conducted a  comprehensive  geological work program during the
                  2005 fiscal year. Based on the results the Company  determined
                  to cease  further work on the El Nayar  Project and  wrote-off
                  $703,058 of acquisition and exploration costs.


4.       OTHER ASSETS

                                                       2006            2005
                                                         $               $

         Investment                                           -           6,300
         Deposits on exploration equipment               37,040              -
                                                   ------------    ------------
                                                         37,040           6,300
                                                   ============    ============

         During the 2005 fiscal year,  the Company held 70,000  common shares of
         Halo Resources  Ltd.  ("Halo"),  a publicly  traded company with common
         officers and  directors.  During the 2006 fiscal year, the Company sold
         the 70,000  shares of Halo (2005 - 23,000;  2004 - 80,000) for $ 47,280
         (2005 - $19,309;  2004 -  $9,845),  realizing  a gain of $40,980  (2005
         -$17,239; 2004 - 2,645).


                                     F-10
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


5.       SHARE CAPITAL


         Authorized:  Unlimited common shares without par value
         Issued:
<TABLE>
<CAPTION>

                                   ----------------------------    ----------------------------    ----------------------------
                                               2006                            2005                            2004
                                   ----------------------------    ----------------------------    ----------------------------
                                      SHARES          AMOUNT          SHARES          AMOUNT          SHARES          AMOUNT
                                                         $                               $                               $
        <S>                       <C>             <C>             <C>             <C>             <C>             <C>

         Balance, beginning of year   2,230,735      70,970,313       1,853,735      70,593,713         487,691      67,568,135
                                   ------------    ------------    ------------    ------------    ------------    ------------
         Issued during the year

         For cash
            Private placements        6,000,000       3,220,000         355,000         355,000         613,000         865,750
            Exercise of options               -               -           3,000           7,500               -               -
            Exercise of warrants      2,557,000       1,671,050               -               -          49,000          68,600
            Exercise of agent's
               options                  150,000          75,000               -               -               -               -

         Reallocation from
         contributed surplus
         relating to the exercise
         of stock options                     -               -               -           6,600               -               -

         Reallocation from
         contributed surplus
         relating to the exercise
         of agent's option and
         related warrants                     -         112,500               -               -               -               -

         For corporate finance fees      50,000          30,500               -               -               -               -
         For mineral interests          250,000         337,500          10,000          10,000               -               -
         Retirement of debentures             -               -               -               -         623,384       2,041,932
         Debenture interest                   -               -               -               -          64,037          65,371
         Finders fee                          -               -           9,000           9,000          16,623          16,623
                                   ------------    ------------    ------------    ------------    ------------    ------------
                                      9,007,000       5,446,550         377,000         388,100       1,366,044       3,058,276
         Less:  share issue costs             -        (526,655)              -         (11,500)              -         (32,698)
                                   ------------    ------------    ------------    ------------    ------------    ------------
                                      9,007,000       4,919,895         377,000         376,600       1,366,044       3,025,578
                                   ------------    ------------    ------------    ------------    ------------    ------------
         Balance, end of year        11,237,735      75,890,208       2,230,735      70,970,313       1,853,735      70,593,713
                                   ============    ============    ============    ============    ============    ============
</TABLE>

         (a)      On August 25, 2005, the Company  completed a consolidation  of
                  its share  capital on a basis of one new common  share for ten
                  old common shares.  All comparative share amounts and balances
                  have been restated.

         (b)      During the 2006 fiscal year, the Company completed:

                  i)  a private placement totalling 5,000,000 units at $0.50 per
                      unit for gross proceeds of $2,500,000. Each unit comprised
                      one common share and one half share purchase warrant.  One
                      full  warrant  was  exercisable  into one common  share at
                      $0.65 per  common  share on or before  January  16,  2008,
                      subject to a forced conversion provision. The Company paid
                      $22,000 as finders'  fees on the  non-brokered  portion of
                      the  private  placement.  On the  brokered  portion of the
                      private  placement,  the  Company  paid  a  commission  of
                      $150,000 and issued 25,000 common shares,  at a fair value
                      of $12,500,  for a corporate finance fee. The Company also
                      granted  an option to the agent  entitling  it to  acquire
                      150,000  units at a price of $0.50 per unit,  for a period
                      of two years.


                                      F-11
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


5.       SHARE CAPITAL (continued)

                      The agent's  option was  exercised  during the 2006 fiscal
                      year.  The units issued to the agent had the same terms as
                      the  units  issued  under  the  private   placements.   In
                      addition,  the Company  incurred $71,087 of costs relating
                      to the private  placement.  Certain directors and officers
                      of the Company have purchased 270,000 units of the private
                      placement.

                      The fair value of the agent's option and related  warrants
                      have  been  estimated  using  the  Black-  Scholes  option
                      pricing model. The assumptions used were: dividend yield -
                      0%; expected  volatility - 136%; a risk-free interest rate
                      of 3.71%; and an expected life of twelve months. The value
                      assigned to the agent's  option and related  warrants  was
                      $112,500.

                      During the 2006 fiscal year, the Company issued a total of
                      2,545,000  common shares for proceeds of $1,654,250,  as a
                      result  of the  exercise  of  warrants  under  the  forced
                      conversion  provision.  The remaining  warrants for 30,000
                      common shares expired without exercise.

                  ii) a private  placement of 1,000,000 units at $0.72 per unit.
                      Each  unit  comprised  one  common  share  and  one  share
                      purchase  warrant.  Each warrant is  exercisable  into one
                      common share at $0.80 per common share on or before May 3,
                      2008.  The Company  paid a commission  of $72,000,  issued
                      25,000 common  shares,  at a fair value of $18,000,  for a
                      corporate finance fee and granted 100,000 agent's warrants
                      exercisable on the same basis as the warrants issued under
                      the private  placement.  The Company also incurred $33,068
                      of costs relating to the private placement.

                      The fair value of the agent's warrants have been estimated
                      using  the   Black-Scholes   option  pricing  model.   The
                      assumptions  used  were:  dividend  yield  - 0%;  expected
                      volatility - 137%; a risk-free interest rate of 4.12%; and
                      an expected life of twelve  months.  The value assigned to
                      the agent's warrants was $66,000.

         (c)      During  the  2005  fiscal  year,   the  Company   completed  a
                  non-brokered private placement financing of 355,000 units at a
                  price of $1.00 per unit, for gross proceeds of $355,000.  Each
                  unit  comprised one common share and one-half  share  purchase
                  warrant.  Each full share purchase warrant entitles the holder
                  to purchase  one  additional  common share for a period of two
                  years,  at an  exercise  price of $1.50 per share on or before
                  February  7,  2006 and,  thereafter,  at $2.00 per share on or
                  before February 7, 2007. The Company issued 9,000 units having
                  the same terms as the  private  placement,  at a fair value of
                  $9,000,  in consideration as finder's fees on a portion of the
                  private placement.  Certain directors of the Company and their
                  immediate  family members have  purchased  65,000 units of the
                  private placement.

         (d)      During  the  2004  fiscal  year,  the  Company  completed  the
                  following private placements:

                  i)  403,000  units at $1.00 per unit,  for gross  proceeds  of
                      $403,000.  Each unit  comprised  one common  share and one
                      share purchase  warrant.  Each warrant entitles the holder
                      to purchase an additional  common share at $1.40 per share
                      on or before  November 25, 2005. The Company issued 10,000
                      units, on the same terms as the private  placement  units,
                      and 6,623  common  shares in  consideration  of $16,623 of
                      finders' fees and incurred $8,330 of costs associated with
                      the private placement. On November 25, 2005, the remaining
                      352,000 warrants expired without exercise;


                                     F-12
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


5.       SHARE CAPITAL (continued)

                  ii) 67,500  units at $2.00 per unit,  for  gross  proceeds  of
                      $135,000.  Each unit  comprised  one common  share and one
                      share purchase  warrant.  Each warrant entitled the holder
                      to purchase an additional  common share at $2.60 per share
                      on or before  February  19,  2005.  The  Company  incurred
                      $7,745 of costs  associated  with the  private  placement.
                      Certain   directors,   officers  and  a  private   company
                      controlled by a director  purchased  45,000 units.  During
                      the  2005  fiscal  year  the  warrants   expired   without
                      exercise; and

                  iii)142,500 units at $2.30 per unit, for proceeds of $327,750.
                      Each  unit  comprised  one  common  share  and  one  share
                      purchase  warrant.  Each  warrant  entitles  the holder to
                      purchase an  additional  common  share for a period of two
                      years  at $3.10  per  share on or  before  March 4,  2006.
                      During the 2006 fiscal year, the warrants  expired without
                      exercise.

         (e)      A  summary  of  the   Company's   warrants   outstanding   and
                  exercisable  at May 31, 2006,  2005 and 2004,  and the changes
                  for the years ending on those dates is presented below:
<TABLE>
<CAPTION>

                                   ----------------------------    ----------------------------    ----------------------------
                                               2006                            2005                            2004
                                   ----------------------------    ----------------------------    ----------------------------
                                                      WEIGHTED                        WEIGHTED                        WEIGHTED
                                      NUMBER          AVERAGE         NUMBER          AVERAGE         NUMBER          AVERAGE
                                    OF WARRANTS       EXERCISE      OF WARRANTS       EXERCISE      OF WARRANTS       EXERCISE
                                    OUTSTANDING        PRICE        OUTSTANDING        PRICE        OUTSTANDING        PRICE
                                                         $                               $                               $
                 <S>              <C>                <C>          <C>                 <C>         <C>                <C>

                  Balance,
                     beginning of
                        year            688,500         1.78            582,365         4.60             34,002        67.40
                  Issued              3,675,000         0.70            182,000         1.50            623,000         1.90
                  Exercised          (2,557,000)        0.66                  -          -              (49,000)        1.40
                  Expired              (524,500)        1.82            (75,865)       23.04            (25,637)       28.10
                                   ------------                    ------------                    ------------
                  Balance,
                     end of year      1,282,000         1.11            688,500         1.78            582,365         4.60
                                   ============                    ============                    ============
</TABLE>

                  The following table summarizes  information about the warrants
                  outstanding and exercisable at May 31, 2006:

                  EXERCISE
                   PRICE                 NUMBER           EXPIRY DATE
                     $
                    2.00                159,500           February 7, 2007
                    2.00                 22,500           March 29, 2007
                    0.80              1,100,000           May 3, 2008
                                   ------------
                                      1,282,000
                                   ============

         (e) See also Note 14.



                                      F-13
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


6.       STOCK OPTIONS AND STOCK-BASED COMPENSATION

         The Company has  established  a rolling stock option plan (the "Plan"),
         in which the maximum  number of common shares which can be reserved for
         issuance under the Plan is 10% of the issued and outstanding  shares of
         the Company.  The exercise price of the options is set at the Company's
         closing  share price on the day before the grant date,  less  allowable
         discounts in accordance  with the policies of the TSX Venture  Exchange
         ("TSXV"). The options have a maximum term of five years.

         During the 2006  fiscal  year,  the  Company  granted  720,000  (2005 -
         178,500;  2004 - 70,000)  stock  options  to the  Company's  directors,
         employees and consultants and recorded compensation expense of $256,159
         (2005 - $138,725; 2004 - $154,000).

         The fair value of stock  options  granted to  directors,  employees and
         consultants  is estimated on the date of grant using the  Black-Scholes
         option pricing model with the following assumptions used for the grants
         made during fiscal 2006, 2005 and 2004:
<TABLE>
<CAPTION>

                                                2006                      2005                      2004
        <S>                          <C>                         <C>                            <C>

         Risk-free interest rate           3.63% - 3.86%              2.69% - 3.07%                 2.54%
         Estimated volatility               125% - 136%                146% - 147%                  140%
         Expected life                  9 months - 18 months      12 months - 18 months           18 months
         Expected dividend yield                 0%                        0%                        0%
</TABLE>

         The weighted  average fair value of stock  options  granted  during the
         year to the Company's  directors,  employees and  consultants was $0.36
         (2005 - $0.80; 2004 - $2.20) 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 May 31, 2006,
         2005 and 2004 and the changes for the years ending on those dates is as
         follows:
<TABLE>
<CAPTION>

                                   ----------------------------    ----------------------------    ----------------------------
                                               2006                            2005                            2004
                                   ----------------------------    ----------------------------    ----------------------------
                                                      WEIGHTED                        WEIGHTED                        WEIGHTED
                                       NUMBER         AVERAGE          NUMBER         AVERAGE          NUMBER         AVERAGE
                                     OF OPTIONS       EXERCISE       OF OPTIONS       EXERCISE       OF OPTIONS       EXERCISE
                                    OUTSTANDING        PRICE        OUTSTANDING        PRICE        OUTSTANDING        PRICE
                                                         $                               $                               $
        <S>                       <C>                <C>          <C>                <C>          <C>                <C>

         Balance, beginning of year     217,500         1.30             70,000         2.50             18,620        113.80
         Granted                        720,000         0.62            178,500         1.04             70,000          2.50
         Exercised                            -          -               (3,000)        2.50                  -           -
         Cancelled/expired             (217,500)        1.30            (28,000)        2.50            (18,620)       113.80
                                   ------------                    ------------                    ------------
         Balance, end of year           720,000         0.62            217,500         1.30             70,000          2.50
                                   ============                    ============                    ============

</TABLE>

                                      F-14
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


6.       STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)

         The  following  table  summarizes  information  about the stock options
         outstanding and exercisable at May 31, 2006:


             NUMBER           NUMBER
          OUTSTANDING      EXERCISABLE    EXERCISE PRICE      EXPIRY DATE
                                                 $
              220,000          220,000          0.50          November 10, 2008
              350,000          350,000          0.62          January 17, 2009
              150,000           25,000          0.80          August 21, 2007
         ------------     ------------
              720,000          595,000
         ============     ============

         See also Note 14.


7.       CONTRIBUTED SURPLUS

         The Company's  contributed  surplus as May 31, 2006,  2005 and 2004 and
         the changes for the years ending on those dates is as follows:
<TABLE>
<CAPTION>

                                                                       2006            2005            2004
                                                                         $               $               $
        <S>                                                       <C>             <C>             <C>

         Balance, beginning of year                                     286,125         154,000               -
         Stock-based compensation on stock options (Note 6)             256,159         138,725         154,000
         Stock options exercised                                              -          (6,600)              -
         Stock-based compensation on agent's option and
              warrants (Note 5(b))                                      178,500               -               -
         Agent's option exercised                                      (112,500)              -               -
                                                                   ------------    ------------    ------------
         Balance, end of year                                           608,284         286,125         154,000
                                                                   ============    ============    ============
</TABLE>


8.       RELATED PARTY TRANSACTIONS

         During fiscal 2006, the Company incurred $170,794 (2005 - $94,538; 2004
         - $110,066) for accounting and administration, management, professional
         and consulting  services  provided by current and former  directors and
         officers of the Company.  As at May 31, 2006,  $17,210 (2005 - $15,615;
         2004 - $nil)  remained  outstanding  and has been  included in accounts
         payable and accrued liabilities.

         See also Note 5.




                                      F-15
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


9.       INCOME TAXES

         Future income tax assets and  liabilities  of the Company as at May 31,
         2006 and 2005 are as follows:
                                                       2006            2005
                                                         $               $

         Future income tax assets (liabilities)
            Losses carried forward                    2,492,600      2,516,300
            Share issue costs                           101,800         10,600
                                                   ------------    -----------
                                                      2,594,400      2,526,900
         Valuation allowance                         (2,594,400)    (2,526,900)
                                                   ------------    -----------
         Net future income tax asset                          -              -
                                                   ============    ===========

         The recovery of income taxes shown in the  consolidated  statements  of
         operations  and deficit  differs from the amounts  obtained by applying
         statutory  rates to the loss before  provision  for income taxes due to
         the following:
                                                       2006            2005
                                                         $               $

         Income tax rate reconciliation
         Combined federal and provincial
            income tax rate                              34.12%          35.62%
                                                   ============    ============

         Expected income tax recovery                  (252,700)       (395,000)
         Non-deductible stock-based compensation         87,400          49,400
         Write-off of mineral resource interests              -         250,400
         Other                                           (4,000)          2,400
         Unrecognized benefit of income tax losses      169,300          92,800
                                                   ------------    -------------
         Actual income tax recovery                           -               -
                                                   ============    ============

         As at May 31, 2006, the Company has accumulated  non-capital losses for
         income tax purposes of approximately  $7.3 million,  expiring from 2007
         to 2016,  the  related  benefits of which have not been  recognized  in
         these  financial  statements as there is no reasonable  assurance  such
         benefits will be realized.


10.      SEGMENTED INFORMATION

         The Company  operates  in one  industry  segment,  the  exploration  of
         mineral interests.  The Company's current mineral interests are located
         in Mexico and its corporate assets are located in Canada.
                                   --------------------------------------------
                                                       2006
                                   --------------------------------------------
                                   IDENTIFIABLE                         NET
                                      ASSETS         REVENUES          LOSS
                                         $               $               $

         Mineral operations (Mexico)  1,337,075               -         (12,091)
         Corporate (Canada)           3,634,481          36,566        (729,164)
                                   ------------    ------------    ------------
                                      4,971,556          36,566        (741,255)
                                   ============    ============    ============


                                      F-16
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


10.      SEGMENTED INFORMATION (continued)
                                   --------------------------------------------
                                                       2005
                                   --------------------------------------------
                                   IDENTIFIABLE                         NET
                                      ASSETS         REVENUES          LOSS
                                         $               $               $

         Mineral operations (Mexico)     39,585               -        (732,601)
         Corporate (Canada)             247,731          19,601        (376,386)
                                   ------------    ------------    ------------
                                        287,316          19,601      (1,108,987)
                                   ============    ============    ============

                                   --------------------------------------------
                                                       2004
                                   --------------------------------------------
                                   IDENTIFIABLE                         NET
                                      ASSETS         REVENUES          LOSS
                                         $               $               $

         Mineral operations (Mexico)    293,529               -               -
         Corporate (Canada)             579,399         119,191        (582,395)
                                   ------------    ------------    ------------
                                        872,928         119,191        (582,395)
                                   ============    ============    ============


11.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The fair values of financial instruments at May 31, 2006 and 2005, were
         estimated based on relevant market information and the nature and terms
         of financial instruments.  Management is not aware of any factors which
         would significantly affect the estimated fair market amounts,  however,
         such  amounts  have not been  comprehensively  revalued for purposes of
         these financial statements.  Disclosure subsequent to the balance sheet
         dates and  estimates of fair value at dates  subsequent to May 31, 2006
         and 2005, may differ significantly from that presented.

         Fair  value   approximates  the  amounts  reflected  in  the  financial
         statements  for cash,  amounts  receivable  and  accounts  payable  and
         accrued liabilities.

         The Company may be subject to currency risk due to the  fluctuations of
         exchange   rates   between  the  Canadian   dollar  and  other  foreign
         currencies. However, the Company is not subject to significant interest
         and credit risks arising from these instruments.





                                      F-17
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


12.      DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
         ACCEPTED ACCOUNTING PRINCIPLES

         (a)      The consolidated financial statements of the Company have been
                  prepared  according  to Canadian  GAAP which differ in certain
                  material respects from US GAAP.  Material  differences between
                  Canadian  and US  GAAP  and  their  effect  on  the  Company's
                  consolidated financial statements are summarized in the tables
                  below.
<TABLE>
<CAPTION>

                                                                       2006            2005            2004
                                                                         $               $               $
                <S>                                               <C>             <C>             <C>

                  CONSOLIDATED STATEMENTS OF OPERATIONS
                      AND COMPREHENSIVE INCOME

                  Loss for the year
                      Canadian GAAP                                    (741,255)     (1,108,987)       (582,395)
                      Mineral interests expensed (ii)                  (642,068)        220,582        (220,582)
                      Other compensation expense (iv)                    (2,700)        (19,500)        (27,000)
                      Accretion of liability component of
                       long-term debt (v)                                     -               -          92,139
                                                                   ------------    ------------    ------------
                      US GAAP                                        (1,386,023)       (907,905)       (737,838)

                  OTHER COMPREHENSIVE INCOME
                      Unrealized holding gain (loss) on
                       available-for-sale marketable securities (i)           -          39,200          59,520
                                                                   ------------    ------------    ------------
                  Comprehensive (loss) for the year                  (1,386,023)       (868,705)       (678,318)
                                                                   ============    ============    ============

                  Loss per share basic and fully diluted - US GAAP       $(0.32)         $(0.44)         $(0.66)
                                                                   ============    ============    ============
</TABLE>
<TABLE>
<CAPTION>

                                                                       2006            2005
                                                                         $               $
                <S>                                               <C>             <C>

                  CONSOLIDATED BALANCE SHEETS

                  Total Assets
                      Canadian GAAP                                   4,971,556         287,316
                      Available for sale securities (i)                       -          39,200
                      Mineral interests expensed (ii)                  (642,068)              -
                                                                   ------------    ------------
                      US GAAP                                         4,329,488         326,516
                                                                   ============    ============

                  Total Liabilities
                      Canadian GAAP and US GAAP                         214,447          31,006
                                                                   ============    ============

                  Shareholders' Equity
                      Canadian GAAP                                   4,757,109         256,310
                      Available for sale securities (i)                       -          39,200
                      Mineral interests expensed (ii)                  (642,068)              -
                                                                   ------------    ------------
                      US GAAP                                         4,115,041         295,510
                                                                   ============    ============
</TABLE>


                                      F-18
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


12.      DIFFERENCES  BETWEEN  CANADIAN  AND UNITED  STATES  GENERALLY  ACCEPTED
         ACCOUNTING PRINCIPLES (continued)

<TABLE>
<CAPTION>

                                                                       2006            2005            2004
                                                                         $               $               $
                <S>                                               <C>             <C>             <C>

                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                  OPERATING ACTIVITIES

                  Cash used per Canadian GAAP                          (354,170)       (271,651)       (247,942)
                  Mineral interests                                    (791,152)       (415,255)       (220,582)
                                                                   ------------    ------------    ------------
                  Cash used per US GAAP                              (1,145,322)       (686,906)       (460,524)
                                                                   ============    ============    ============
                  INVESTING ACTIVITIES

                  Cash used per Canadian GAAP                          (833,638)       (388,800)       (289,401)
                  Mineral interests                                     791,152         415,255         220,582
                                                                   ------------    ------------    ------------
                  Cash provided from (used) per US GAAP                 (42,486)         26,455          68,819
                                                                   ============    ============    ============
</TABLE>

                  (i)    Marketable Securities

                         US  GAAP  requires  marketable   securities  which  are
                         classified  as available for sale to be carried at fair
                         value, as determined by quoted published market prices,
                         with unrealized  losses and gains on available for sale
                         securities  to be included as a separate  component  of
                         shareholders'  equity. In addition,  net realized gains
                         and losses on security transactions would be determined
                         on the specific  identification cost basis and included
                         in the determination of earnings for the year.

                  (ii)   Mineral Interests

                         Mineral   property   costs  and   related   exploration
                         expenditures  are  accounted  for  in  accordance  with
                         Canadian  GAAP as  disclosed  in  Note  2.  For US GAAP
                         purposes,   the  Company  expenses   exploration  costs
                         relating to mineral interests. When proven and probable
                         reserves   are   determined   for  an  interest  and  a
                         feasibility study prepared, then subsequent exploration
                         and   development   costs  of  the  property  would  be
                         capitalized.  The capitalized  costs of such properties
                         would then be  amortized  using the unit of  production
                         method over the estimated life of the ore body based on
                         proven  and  probable  reserves  and would be  assessed
                         periodically for recoverability of carrying values.

                         For US GAAP  purposes,  the  Company  has  adopted  the
                         provisions of EITF 04-2,  "Whether  Mineral  Rights are
                         Tangible  or  Intangible  Assets" and FSP FAS 141-1 and
                         142-1 which  concluded that mineral rights are tangible
                         assets.  Accordingly,  the Company  capitalizes certain
                         costs related to the acquisition of mineral rights.



                                      F-19
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


12.      DIFFERENCES  BETWEEN  CANADIAN  AND UNITED  STATES  GENERALLY  ACCEPTED
         ACCOUNTING PRINCIPLES (continued)

                  (iii) Private  Placements of Common Stock and Special Warrants
                        with Related Parties

                         US  GAAP  requires  disclosure  of  private  placements
                         conducted by the Company  where  directors and officers
                         of the Company and their  immediate  family members are
                         participants.  During the 2006 fiscal year,  directors,
                         officers and  companies  controlled by the directors or
                         officers acquired 270,000 shares (2005 - 65,000; 2004 -
                         45,000) of the Company,  pursuant to private placements
                         conducted by the Company, for cash proceeds of $135,000
                         (2005 - $65,000; 2004 - $90,000);

                  (iv)   Private Placements of Common Stock

                         The  Company   conducts  the  majority  of  its  equity
                         financings  pursuant to private  placements.  Under the
                         policies  of the TSXV,  on which the  Company's  common
                         stock is listed, the Company may provide a discount off
                         the market price of the Company's common stock. US GAAP
                         does not permit a discount  from the market  price.  US
                         GAAP  requires the  recognition  of the market value of
                         the  Company's  common  stock  as  a  credit  to  share
                         capital, with a charge to operations for the portion of
                         the discount  relating to equity  financings  conducted
                         with officers and directors of the Company and a charge
                         to shareholders' equity, as a capital distribution, for
                         the discount  relating to the remaining  portion of the
                         equity financings.

                         Under US GAAP, loss and capital  distributions  for the
                         2006  fiscal  year  would  increase  by $2,700  (2005 -
                         $19,500;  2004 - $27,000) and $127,300 (2005 - $87,000;
                         2004 - $295,349),  respectively,  and share capital, as
                         at May 31, 2006 would  increase by  $3,559,578  (2005 -
                         $3,429,578; 2004 - $3,323,078).  There is no net change
                         to shareholders' equity.

                  (v)    Accretion of Liability Component of Long-term Debt

                         Under Canadian  GAAP,  compound  financial  instruments
                         such  as  convertible  debentures  are  required  to be
                         accounted  for at the fair  value of their  components.
                         Such  accounting is not permitted  under US GAAP unless
                         the  components are  detachable,  which they are not in
                         this case.

                  (vi)   Functional Currency

                         The  Company's  functional  currency  is  the  Canadian
                         dollar.

                  (vii)  Development Stage Company

                         The Company is in the exploration stage and, as of June
                         1, 2003, was considered a development  stage company as
                         defined by Statement of Financial  Accounting Standards
                         ("SFAS")  No.  7.  To May 31,  2006,  the  Company  has
                         accumulated  a  deficit  of  $2,432,637  while  in  the
                         development stage.




                                      F-20
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


12.      DIFFERENCES  BETWEEN  CANADIAN  AND UNITED  STATES  GENERALLY  ACCEPTED
         ACCOUNTING PRINCIPLES (continued)

         (b)      Recent Accounting Pronouncements

                  UNITED STATES PRONOUNCEMENTS

                  In December 2004,  the Financial  Accounting  Standards  Board
                  ("FASB") issued  Statement of Financial  Accounting  Standards
                  ("SFAS") No. 123R,  "Share Based Payment" ("SFAS 123R").  SFAS
                  123R supersedes APB 25 and its related implementation guidance
                  by  requiring  entities  to  recognize  the  cost of  employee
                  services received in exchange for awards of equity instruments
                  based on the  grant-date  fair  value of  those  awards  (with
                  limited exceptions) and revises SFAS 123 as follows:

                  (i)      Public  entities are required to measure  liabilities
                           incurred  to   employees   in   share-based   payment
                           transactions  at fair value and  non-public  entities
                           may elect to measure their  liabilities  to employees
                           incurred in share-based payment transactions at their
                           intrinsic   value,   whereas   under   SFAS  123  all
                           share-based  payment  liabilities  were  measured  at
                           their intrinsic value.

                  (ii)     Non-public  entities are  required to calculate  fair
                           value using an appropriate  industry sector index for
                           the expected  volatility of its share price, if it is
                           not  practicable to estimate the expected  volatility
                           of the entity's share price.

                  (iii)    Entities  are  required  to  estimate  the  number of
                           instruments  for  which  the  requisite   service  is
                           expected to be rendered as opposed to accounting  for
                           forfeitures as they occur.

                  SFAS 123R also  clarifies  and  expands  guidance  in  several
                  areas, including measuring fair value, classifying an award as
                  equity or a liability  and  attributing  compensation  cost to
                  reporting  periods.  SFAS 123R does not change the  accounting
                  guidance for  share-based  payment  transactions  with parties
                  other than employees provided in SFAS 123 as originally issued
                  in EITF 96-18.  SFAS 123R also does not address the accounting
                  for  employee  share  ownership  plans  which are  subject  to
                  Statement  of  Position  93-6,   "Employers'   Accounting  for
                  Employee Stock Ownership Plans".  The Company will be required
                  to apply  SFAS 123R as of the first  annual  reporting  period
                  that  begins  after June 15,  2005.  The  adoption of this new
                  pronouncement is not expected to have a material effect on the
                  Company's   consolidated  financial  position  or  results  of
                  operations.

                  CANADIAN PRONOUNCEMENTS

                  The  Company   believes   that  there  are  no  new   Canadian
                  pronouncements  which  will  have  a  material  effect  on the
                  Company's   consolidated  financial  position  or  results  of
                  operations.



                                      F-21
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


13.      SUPPLEMENTARY CASH FLOW INFORMATION

         Non-cash operating,  financing and investing  activities were conducted
         by the Company during fiscal 2006, 2005 and 2004 as follows:

<TABLE>
<CAPTION>

                                                       2006            2005            2004
                                                         $               $               $
        <S>                                       <C>             <C>             <C>

         Operating activities

              Drilling advance                                -          57,221               -
              Corporate finance fee                     (30,500)              -               -
                                                   ------------    ------------    ------------
                                                        (30,500)         57,221               -
                                                   ============    ============    ============

         Financing activities

              Issuance of common shares for
                  non-cash consideration                480,500          25,600       2,058,555
              Share issue costs                        (178,500)         (9,000)        (16,623)
              Contributed surplus                        66,000          (6,600)              -
              Retirement of debentures                        -               -      (1,748,090)
              Decrease in equity component of
                  debentures on conversion                    -               -        (430,922)
                                                   ------------    ------------    ------------
                                                        368,000          10,000        (137,080)
                                                   ============    ============    ============
         Investing activities

              Retirement of loan                              -               -         137,080
              Expenditures on mineral claims           (337,500)        (67,221)              -
                                                   ------------    ------------    ------------
                                                       (337,500)        (67,221)        137,080
                                                   ============    ============    ============
</TABLE>

         Other supplementary cash flow information:
<TABLE>
<CAPTION>

                                                       2006            2005            2004
                                                         $               $               $
        <S>                                       <C>             <C>             <C>

         Interest paid in cash                                -               -          46,557
                                                   ============    ============    ============
         Income taxes paid in cash                            -               -               -
                                                   ============    ============    ============
</TABLE>


14.      SUBSEQUENT EVENTS

         (a) The Company has completed non-brokered private placements for:

                  i)  2,000,000 units at a price of $0.90 per unit, for proceeds
                      of  $1,800,000.  Each unit  comprised one common share and
                      one  transferable  share  purchase  warrant.  Each warrant
                      entitles  the holder to  purchase  one  additional  common
                      share for a period of two years,  at an exercise  price of
                      $1.15 per share on or before  July 28,  2007 and $1.30 per
                      share on or before July 28, 2008. The warrants are subject
                      to a forced  conversion  provision which comes into effect
                      should the  Company's  common shares trade at 150% or more
                      per  share of the  exercise  price of the  warrants  for a
                      period of 45 consecutive trading days; and


                                      F-22
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2006, 2005 AND 2004
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


14.      SUBSEQUENT EVENTS (continued)

                  ii) 700,456  units at a price of $1.15 per unit,  for proceeds
                      of $805,524.  Each unit comprised one common share and one
                      transferable share purchase warrant. Each warrant entitles
                      the holder to purchase one  additional  common share for a
                      period of two  years,  at an  exercise  price of $1.40 per
                      share on or before  December  8, 2008.  The  warrants  are
                      subject to a forced conversion  provision which comes into
                      effect after June 30, 2007,  should the  Company's  common
                      shares  trade in excess of $2.30 per share for a period of
                      45 consecutive trading days.

         (b)      Subsequent  to May 31,  2006,  the  Company  issued  1,084,000
                  common shares, for $1,086,300 of proceeds, on the exercises of
                  927,000 warrants and 157,000 stock options.

         (c)      The  Company  has  granted  stock  options  to  the  Company's
                  directors, employees and consultants to acquire 500,000 common
                  shares at $0.90 per share,  expiring  September  5, 2011,  and
                  150,000  common shares at $1.40 per share,  expiring  November
                  24, 2009.

         (d)      Subsequent to May 31, 2006,  the Company  funded the requisite
                  US $1.5 million and made payments  totalling US $300,000 under
                  the option  agreement on the Mina Real Property.  In addition,
                  the  Company   commenced   funding  the   construction   of  a
                  cyanidation processing plant and related infrastructure on the
                  Mina Real Property.  As a result,  ALB  acknowledged  that the
                  Company had earned its 51% interest in the Mina Real Property.

                  On October 20, 2006, the Company,  ALB and the shareholders of
                  ALB entered  into an agreement  whereby the Company  agreed to
                  acquire 100% of the issued and  outstanding  share  capital of
                  ALB in exchange for the issuance of  10,500,000  common shares
                  of the  Company.  ALB's sole asset is its 49%  interest in the
                  Mina Real  Property  and the only  liabilities  of ALB are its
                  underlying  obligations  of US $2 million and a 1% net smelter
                  return  royalty  on the Mina  Real  Property.  Closing  of the
                  agreement occurred on December 1, 2006, and the Company issued
                  the common shares to the shareholders of ALB.


                                      F-23
<PAGE>



                                                                      SCHEDULE I

                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   CONSOLIDATED SCHEDULE OF MINERAL INTERESTS
                           FOR THE YEARS ENDED MAY 31




                                                       2006            2005
                                                         $               $

BALANCE - BEGINNING OF YEAR                                   -         220,582
                                                   ------------    ------------

EXPLORATION COSTS DURING THE YEAR

    Access road construction                                  -          40,022
    Assays                                                    -           5,483
    Camp costs                                           27,642           7,633
    Consulting                                          339,189          63,442
    Drilling                                                  -          62,612
    Equipment rental                                      7,416               -
    Exploration office                                   44,843          20,363
    Fuel                                                  2,238           9,018
    Geological                                                -         122,230
    Geophysics                                                -           2,932
    Legal                                                     -           4,664
    Permits and fees                                          -          13,583
    Other                                                     -           4,549
    Repairs and maintenance                               1,619               -
    Salaries                                            156,928          34,776
    Supplies                                             52,283               -
    Topography                                                -           5,886
    Transport                                                 -           3,905
    Travel                                                1,437          14,842
    Vehicles                                              8,473               -
                                                   ------------    ------------
                                                        642,068         415,940
                                                   ------------    ------------
ACQUISITION COSTS

    Option payments and other                           149,084          66,536
    Issuance of common shares                           337,500               -
                                                   ------------    ------------
                                                        486,584          66,536
                                                   ------------    ------------
                                                      1,128,652         482,476
                                                   ------------    ------------
BALANCE BEFORE WRITE-OFF                              1,128,652         703,058

WRITE-OFF OF MINERAL INTERESTS                                -        (703,058)
                                                   ------------    ------------
BALANCE - END OF YEAR                                 1,128,652               -
                                                   ============    ============




                                      F-24