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, 2007
                                       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)

      1305 - 1090 WEST GEORGIA STREET, VANCOUVER, BRITISH COLUMBIA, V6E 3V7
                    (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.
                   29,665,438 COMMON SHARES AS OF MAY 31, 2007


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  mineral 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.  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. 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            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            (SEC Guide 7  definition)  reserves  for which  quantity and
(indicated)         grade and/or quality are computed from  information  similar
reserves            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        for the  purposes of the  definition  of a Qualified  Person
association         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)   (SEC Guide 7 definition)  reserves for which (a) quantity is
reserves            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.

sulphidation        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 SEC.  Forward  looking  statements  are statements not based on
historical  information  and  which  relate to  future  operations,  strategies,
financial  results or other  developments.  Such  statements may not prove to be
accurate as actual results and future events could differ  materially from those
anticipated in such statements. 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.  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  activities,   delays  in  exploration
activities,  political  risks  involving doing business in other nations and the
policies of these other nations,  the inherent  uncertainty of  fluctuations  in
minerals or metals  recovered  at any  property,  if any,  and failure to obtain
adequate  financing  on a timely  basis.  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,  2007,
2006 and 2005 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
report.  The selected  financial data set forth for the years ended May 31, 2004
and  2003  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 15 of the Company's  consolidated financial statements
included herein for a discussion of the material  differences  between  Canadian
generally  accepted  accounting  principles  ("Canadian GAAP") and United States
generally  accepted  accounting  principles ("US GAAP"), and their effect on the
Company's consolidated financial statements.
<TABLE>
<CAPTION>

                                                 ------------------------------------------------------------------
                                                                         YEAR ENDED MAY 31,
                                                                 (IN '000S, EXCEPT PER SHARE DATA)
                                                 ------------------------------------------------------------------
                                                    2007          2006          2005          2004          2003
                                                 ----------    ----------    ----------    ----------    ----------
<S>                                             <C>           <C>           <C>           <C>           <C>

 Revenues                                                 -             -             -             -          $128
 Interest Income and Other                              $47           $78           $20          $119           $58
 Production Costs                                         -             -             -             -         $(84)
 General and Administrative                          $(804)        $(484)        $(247)        $(341)        $(821)
 Stock-Based Compensation                          $(2,542)        $(256)        $(139)        $(154)             -
 Interest Expense                                    $(188)             -             -        $(234)        $(641)
 Depreciation, Depletion and Impairment                $(1)          $(2)          $(6)          $(2)      $(6,881)
 Write-off of Unproven Mineral Claims                     -             -        $(703)             -             -
 Research Development & Marketing                         -             -             -             -        $(364)
 Impairment of Investment and Advances                    -             -             -             -        $(938)
 Other                                               $(186)         $(77)         $(34)           $30        $(247)
 Net Loss                                          $(3,674)        $(741)      $(1,109)        $(582)      $(9,791)
 Loss Per Share                                     $(0.19)       $(0.17)       $(0.56)       $(0.57)      $(21.76)
 Weighted Average Number of Shares                   19,859         4,389         1,966         1,025           450
 Dividends per Share                                      -             -             -             -             -
 Working Capital (Deficiency)                          $769        $3,536          $245          $551      $(1,494)
 Resource Assets                                    $26,241        $1,129             -          $221             -
 Other Assets                                        $2,410           $92           $11           $85          $184
 Non-current Obligations                             $5,506             -             -             -             -
 Shareholders' Equity                               $23,913        $4,757          $256          $857      $(1,310)
 Total Assets                                       $30,771        $4,972          $287          $873          $411
 Capital Stock                                      $96,437       $75,890       $70,970        70,594        67,568
                                                 ------------------------------------------------------------------
</TABLE>


                                     - 7 -
<PAGE>


Adjustment to United States Generally Accepted Accounting Principles

The consolidated financial statements of the Company are presented in accordance
with Canadian GAAP.  Canadian GAAP differs in certain material  respects from US
GAAP. The material differences between Canadian and US GAAP, in respect of these
consolidated financial statements, are summarized in the tables below.
<TABLE>
<CAPTION>

                                                       2007            2006            2005
                                                         $               $               $
<S>                                               <C>             <C>             <C>

CONSOLIDATED STATEMENTS OF OPERATIONS
    AND COMPREHENSIVE INCOME

Loss for the year

    Canadian GAAP                                    (3,674,061)       (741,255)     (1,108,987)
    Mineral interests expensed (ii)                  (7,105,731)       (642,068)        220,582
    Other compensation expense (iv)                           -          (2,700)        (19,500)
                                                   ------------    ------------    ------------
    US GAAP                                         (10,779,792)     (1,386,023)       (907,905)

Other comprehensive income

    Unrealized holding gain (loss) on available
       -for-sale marketable securities (i)                    -               -          39,200
                                                   ------------    ------------    ------------

Comprehensive (loss) for the year                   (10,779,792)     (1,386,023)       (868,705)
                                                   ============    ============    ============

Loss per share basic and fully diluted - US GAAP         $(0.54)         $(0.32)         $(0.44)
                                                   ============    ============    ============
</TABLE>

                                                       2007            2006
                                                         $               $
CONSOLIDATED BALANCE SHEETS

Total Assets
    Canadian GAAP                                    30,770,564       4,971,556
    Mineral interests expensed (ii)                  (7,747,799)       (642,068)
                                                   ------------    ------------
    US GAAP                                          23,022,765       4,329,488
                                                   ============    ============

Total Liabilities
    Canadian GAAP and US GAAP                         6,857,383         214,447
                                                   ============    ============

Shareholders' Equity
    Canadian GAAP                                    23,913,181       4,757,109
    Mineral interests expensed (ii)                  (7,747,799)       (642,068)
                                                   ------------    ------------
    US GAAP                                          16,165,382       4,115,041
                                                   ============    ============

<TABLE>
<CAPTION>

                                                       2007            2006            2005
                                                         $               $               $
<S>                                               <C>             <C>             <C>

CONSOLIDATED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES

Cash used per Canadian GAAP                          (2,651,212)       (354,170)       (271,651)
Mineral interests                                    (7,254,078)       (791,152)       (415,255)
                                                   ------------    ------------    ------------
Cash used per US GAAP                                (9,905,290)     (1,145,322)       (686,906)
                                                   ============    ============    ============

INVESTING ACTIVITIES

Cash used per Canadian GAAP                          (8,494,059)       (833,638)       (388,800)
Mineral interests                                     7,254,078         791,152         415,255
                                                   ------------    ------------    ------------
Cash provided from (used) per US GAAP                (1,239,981)        (42,486)         26,455
                                                   ============    ============    ============
</TABLE>



                                     - 8 -
<PAGE>


(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. 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  fiscal  2006,  directors,
         officers and companies controlled by the directors or officers acquired
         270,000  shares  (2005 - 65,000) of the  Company,  pursuant  to private
         placements  conducted  by the  Company,  for cash  proceeds of $135,000
         (2005 - $65,000).  There was no participation by the related parties in
         the private placements conducted during fiscal 2007.

(iv)     Private Placements of Common Stock

         The Company conducts the majority of its equity financings  pursuant to
         private  placements.  Under the  policies of the TSX  Venture  Exchange
         ("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.

         With the adoption of Statement of Financial  Accounting  Standards  No.
         123R in fiscal 2007, there exists no difference between Canadian and US
         GAAP and no adjustment is required.

(v)      Functional Currency

         The Company's functional currency is the Canadian dollar.

(vi)     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, 2007,  the
         Company  has   accumulated  a  deficit  of  $6,106,698   while  in  the
         development stage.



                                     - 9 -
<PAGE>



Recent Accounting Pronouncements

United States Pronouncements

The  Financial  Accounting  Standards  Board  ("FASB")  has issued  Statement of
Financial  Accounting  Standards ("SFAS") 157, "Fair Value Measurements"  ("SFAS
157"),  which  defines  fair value,  establishes  a framework  for  consistently
measuring  fair  value  under  GAAP and  expands  disclosures  about  fair value
measurements. SFAS 157 is effective beginning January 1, 2008 and the provisions
of SFAS 157 will be applied  prospectively as of that date. The adoption of SFAS
157 is not expected to have an effect on the Company's financial position.

In February  2007 the FASB issued SFAS 159, "The Fair Value Option for Financial
Assets and Liabilities - Including an amendment of FASB Statement No. 115". SFAS
159  permits  entities  to  choose  to  measure  certain  financial  assets  and
liabilities  at fair value at specified  election  dates.  Unrealized  gains and
losses, arising subsequent to adoption, are reported in earnings.  SFAS 159 will
be effective for fiscal years  beginning after November 2007 with early adoption
possible  but subject to certain  requirements.  The adoption of SFAS 159 is not
expected to have an effect on the Company's financial position.

The FASB has also issued FAS  Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for  uncertainty in
income taxes  recognized in an enterprise's  financial  statements in accordance
with  FAS  Interpretation  No.  109,  "Accounting  for  Income  Taxes".  FIN  48
prescribes  a  recognition  threshold  and  measurement   attributable  for  the
financial  statement  recognition  and  measurement  of a tax position  taken or
expected  to be  taken  in a tax  return.  FIN  48  also  provides  guidance  on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods,  disclosures  and  transitions.  FIN 48 is  effective  for fiscal years
beginning  after  December 15,  2006.  The adoption of FIN 48 is not expected to
have an effect on the Company's financial position.

Canadian Pronouncements

CICA Handbook Section 1530:  "Comprehensive Income",  effective for fiscal years
beginning  on or after  October 1, 2006,  establishes  standards  for  reporting
comprehensive income, defined as a change in value of net assets that is not due
to owner  activities,  by introducing a new  requirement to temporarily  present
certain gains and losses outside of net income.

CICA Handbook Section 3251: "Equity", effective for fiscal years beginning on or
after October 1, 2006,  establishes standards for the presentation of equity and
changes in equity during the reporting period.

CICA  Handbook   Section  3855:   "Financial   Instruments  -  Recognition   and
Measurement",  effective for fiscal years beginning on or after October 1, 2006,
establishes  standards for the  recognition,  classification  and measurement of
financial  instruments  including the  presentation  of any  resulting  gains or
losses. Assets classified as available-for-sale securities will have revaluation
gains and losses included in other  comprehensive  income until these assets are
no longer included on the balance sheet.

CICA Handbook Section 1506:  "Accounting  Changes" ("CICA 1506"),  effective for
fiscal years  beginning on or after January 1, 2007,  establishes  standards and
new disclosures requirements for the reporting of changes in accounting policies
and estimates and the reporting of error corrections.  CICA1506 clarifies that a
change  in  accounting  policy  can be made  only if it is a  requirement  under
Canadian GAAP or if it provides reliable and more relevant  financial  statement
information.  Voluntary  changes in accounting  policies  require  retrospective
application  of prior  period  financial  statements,  unless the  retrospective
effects  of the  changes  are  impracticable  to  determine,  in which  case the
retrospective  application  may be limited to the assets and  liabilities of the
earliest period  practicable,  with a  corresponding  adjustment made to opening
retained earnings.

The Company will be required to adopt the above new  accounting  procedures  for
its  fiscal  period   beginning   June  1,  2007.  The  adoption  of  these  new
pronouncements  is not  expected  to have an effect on the  Company's  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,  2007,
2006, 2005, 2004, and 2003.

         PERIOD                                        AVERAGE

         June 1, 2006 - May 31, 2007                   0.8839
         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

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, 2007.

         MONTH                      HIGH                LOW

         October 2007              1.0531              0.9998
         September 2007            1.0041              0.9497
         August 2007               0.9527              0.9299
         July 2007                 0.9641              0.9355
         June 2007                 0.9453              0.9322
         May 2007                  0.9345              0.8980

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  21, 2007,  reported by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United States dollars was CDN $0.9894 (US $1.0107 = 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 is currently active in the mineral exploration and development  business
in Mexico.  The Mina Real Project is the Company's  only mineral  property under
development.  As at the end of December  2006,  the Company  had  completed  the
construction  of the  cyanidation  processing  plant at the Mina Real  Property.
Commissioning  of the mill  commenced in January 2007 and  commercial  levels of
production  was declared,  effective  June 1, 2007,  for the production of gold,
silver and other minerals from its mining  concessions  in Mexico.  As a result,
the  Company is subject to all risks  associated  with  establishing  new mining
operations. 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 de Medio  Ambiente y
Recursos  Naturales   (Mexico,   Secretariat  of  the  Environment  and  Natural
Resources)  ("SEMARNAT"),  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 mining  activities in



                                     - 11 -
<PAGE>


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.

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.

Although  the  Company's  Mina  Real  Property  is in  production,  none  of the
Company's property  interests have had sufficient  exploration work to determine
if they  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.

Commissioning  of the 200  tonne/day  mill at the Mina  Real  Property  began in
January 2007 and commercial  production was deemed to have been achieved on June
1, 2007.  Despite  achieving  commercial  levels of  production,  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.  In addition,  the
Company is currently conducting extensive  exploration of the Mina Real Property
to  determine  whether it contains  any  "reserves",  as that term is defined in
Guide 7.

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 are, 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
certain of 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



                                     - 13 -
<PAGE>


who are  situated  in Mexico  or to  obtain  all of the  necessary  services  or
expertise  in Mexico or to conduct  operations  on 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 SEMARNAT.  Regulations require
that an environmental impact statement,  known in Mexico as a Manifiesto Impacto
Ambiental,  be prepared for submission to SEMARNAT.  Studies required to support
the Manifiesto  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  Manifiesto  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 low of $1.09 to a high of $3.03  during the  12-month  period
ending October 31, 2007.  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 $0.89800 and US $1.0531 for one Canadian
dollar during the six-month period ending October 31, 2007. 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 Alfredo Parra,  the President,  Chief
Executive  Officer ("CEO") and in-house  Qualified Person for the Company,  Jose
Manuel  Silva,  the Chief  Financial  Officer  ("CFO") of the  Company,  and the
experience and expertise of its board of directors and advisory  committee.  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  COMPANY'S  SUCCESS  DEPENDS  ON  PERFORMANCE  AND  SERVICE  OF  INDEPENDENT
CONTRACTORS

The Company's  success  depends to a significant  extent on the  performance and
continued service of certain independent contractors. The Company 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 Company'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  MINING OPERATION OR EXPLORATION
PROGRAMS ARE UNSUCCESSFUL, THE COMPANY MAY FAIL.

The  Company  has  limited  financial  resources,  a history of losses,  limited
revenues,  and has no assurance that additional funding will be available to it.
As of May 31,  2007,  the Company had  working  capital of $768,740  and had not
achieved  commercial  production.  Although the Company determined as of June 1,
2007,  that it had  achieved  commercial  levels of  production,  it has not yet
determined  whether it has proven reserves to operate  profitably.  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.  Subsequent to May 31, 2007,
the Company raised  $4,000,000 from an equity  financing of 2,000,000 units. The
Company also raised a further $383,115 on the exercise of warrants and options.

At this time, the Company is unable to estimate how much capital it will need to
raise or the terms of any such  financing.  With production and revenue from its
Mina Real Project,  the Company  anticipates  that it will have  sufficient cash
flow to meet ongoing operating costs,  corporate overheads and current levels of
exploration and  development.  However,  should the Company be required to raise
any funds it 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 LIMITED  HISTORY AND 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 limited  experience  in the  start-up  and  operation of
mining and milling operations at the Mina Real project. Although the Company has
declared commercial production,  there are no proven reserves identified nor has
there  been  any  independent  feasibility  report  prepared.  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  sufficient
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 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 has recently commenced commercial  production and may 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, 2006, 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 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.


                                     - 17 -
<PAGE>


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  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.



                                     - 18 -
<PAGE>


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.  Only one of the  Company's
directors is a resident 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  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


                                     - 19 -
<PAGE>

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.

The Company changed its domicile through  continuation  from the Yukon Territory
to British  Columbia under the BCBCA effective  November 23, 2004. 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 acquired 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.

On March 12, 2007, the Company, through its subsidiary,  Mina Real, entered into
an option  agreement  (the "Santa Fe Option")  with Jose Raygoza  Curiel,  David
Velazquez  Medina  and  Abelino  Yanez  Martinez  (collectively  the  "Santa  Fe
Optionors") to acquire a 70% interest in the Santa Fe Property located in Tepic,
Mexico.  Under the terms of the Santa Fe  Option,  the  Company  incorporated  a
Mexican  company,  Compania  Minera  Santa Fe de  C.V.,  in which it holds a 70%
ownership  interest and has agreed to implement  and fund 100% of the costs of a
program of exploration to determine if the Santa Fe Property can be economically
exploited.  In addition, if the exploration work is successful,  the Company has
agreed to provide capital to construct a processing  plant. The Company will pay
a monthly fee of US $10,000 while it is conducting  exploration  and development
on the Santa Fe Property.

The  Company's  registered  and head office is located at Suite 1305 - 1090 West
Georgia Street, Vancouver, British Columbia, V6E 3V7. The contact person is Nick
DeMare,  the  Chairman and a director of the Company.  The  telephone  number is
(604) 685-9316 and the facsimile number is (604) 683-1585.  The Company does not
have a registered agent in the United States.

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

The Company's  common stock trades primarily on the TSXV under the symbol "RCT".
The Company's  common stock also 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" and 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 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 were  discontinued 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.

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.

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 the President,
CEO and 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.

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.  Commissioning of the mill began in January 2007 and commercial production
was declared  effective  June 1, 2007.  As of the date of this annual report the
Company is conducting studies to investigate the feasibility of a mill expansion
to 350 tonnes/day.

DISPOSITIONS

The Company did not dispose of any property  interests  during fiscal 2007, 2006
or 2005.

EXPLORATION EXPENDITURES

During fiscal 2007, 2006 and 2005, the Company capitalized $17,971,923, $486,584
and $66,536, respectively, for mineral property acquisition and other costs, and
a  net  $7,105,731,   $642,068  and  $415,940,   respectively,  for  exploration
expenditures  and development and  pre-production  costs on its mineral property
interests.



                                     - 21 -
<PAGE>




SALES AND REVENUE DISTRIBUTION

During fiscal 2007,  the Company  generated  $890,487  revenues from the sale of
gold and  silver  produced  from the Mina  Real  Property.  As the  Company  was
determined to be in pre-commercial production during fiscal 2007, the amount was
credited against pre-production costs. The Company did not generate any revenues
from its mineral exploration activities in fiscal 2006 and 2005.

Total interest and other income reported for fiscal 2007, 2006 and 2005, were as
follows:

                                   --------------------------------------------
                                                  ($ IN 000'S)
                                   --------------------------------------------
                                               YEARS ENDED MAY 31,
                                   --------------------------------------------
                                       2007            2006             2005
                                   -----------     -----------      -----------

 Interest and Other Income
      Canada                       $        47     $        78      $        20
                                   ===========     ===========      ===========


PRINCIPAL PROPERTY - MINA REAL PROPERTY, MEXICO

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.

Introduction

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 and updated by Alfredo Parra, the Company's President
and CEO and in-house  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 Project is located in the state of Nayarit, Mexico, on the Pacific
coast  approximately 50 km southeast from the city of Tepic and within the Santa
Maria del Oro District,  State of Nayarit,  Mexico.  It comprises mineral claims
that total approximately 7,358 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

                                SEE EXHIBIT 15.1


                       [GRAPHIC OMITTED][GRAPHIC OMITTED]

   OMITTED GRAPHIC MAY VIEWED BY OPENING PDF VERSION OF EXHIBIT 15.1 ATTACHED

Omitted  graphic is  location  map of Mina Real  Property  showing the cities of
Tepic and Puerto  vallarta  plus  numerous  smaller  cities.  the scal is i inch
equals 25 miles.



                                     - 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 porphyritic  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  Quaternary
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 8km  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 km north of the city of Tepic.  The
Yago



                                     - 24 -
<PAGE>


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. Higher grade gold and silver in these veins is precipitated over vertical
intervals of generally 300 to 600m.

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 m 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 m 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

The mining  history at the Mina Real Property is not well  documented,  however,
older local  residents near the mine area relate that minor mining was conducted
during the 1940's and 1950's.  In 2000,  the Mina Real  Property was acquired by
Desarollos  Mineros de Occidente,  S.A. de C.V., which embarked on a development
program which included  building of access roads and initial  development  work.
During the period 2000 to 2003, approximately 4,000 tonnes of ore was mined.

Initially four veins were discovered on the Mina Real Property; the Florida 1, 2
and 3 veins and the Tajos Cuate vein.  The initial  development at the Mina Real
Property  consisted  of five  portals  ranging  from 20 to 50  meters  apart  at
different elevations of the Florida vein system.  During April 2005 through June
2005,  approximately  4,400  tonnes of material  was mined from the Florida vein
structure.

In September  2005,  ALB acquired the Mina Real  Property.  In January 2006, the
Company  concluded  an option  agreement  to acquire up to a 51% interest in the
Mina Real Property, by agreeing to fund a work program and by making staged cash
option payments.

In January  2006 a detailed  work  program  was  implemented  by the  Company to
advance the Mina Real Property.  The Mina Real property was an advanced property
on which the previous  owners have spent the initial  high-risk  exploration and
development costs.

From January 2006 through December 2006, the Company funded detailed  geological
and  development  costs at Mina  Real.  The  geological  work  included  surface
mapping, trenching and sampling. The development work included construction of a
cyanidation processing plant to process up to 500 tonnes per day.

In December  2006,  the Company  acquired the balance of the 49% interest in the
Mina Real Property through the acquisition of its joint venture partner ALB.

In January  2007,  the mill began  production  and the first gold and silver was
delivered to the refinery in early February.

The plant was in start-up  phase to May 31, 2007.  The Mina Real Property has no
mineral   resources  or  reserves   which



                                     - 25 -
<PAGE>



are compliant with the reporting requirements of NI43-101 or Guide 7.

Development work is ongoing at the Mina Real Property.  The Company is expanding
its exploration activities on the surrounding ground.

Recent Exploration Activities

In January 2007, the Company staked an additional 3,981 hectares adjacent to the
3,377  hectares  previously  comprising  the Mina Real  concessions  in Nayarit,
Mexico.  In addition to protecting the  continuity of five vein  structures - La
Florida,  El Puerto 1, El Puerto 2, Tajos  Cuates 1 and Tajos Cuates 2 - as well
as six recently  discovered veins on the property,  there is potential that this
additional ground could provide additional mill feed to the recently constructed
conventional mill on the property. A drilling and drift development  exploration
program has recently commenced to define the potential of the vein structures at
Florida North and Tajos Cuates.

The north end of the Florida Veins within the mine workings is defined by a late
dacite  intrusive  which truncates the veins. On surface further north, a number
of quartz veins oriented  parallel to the Florida trend have been  identified in
scattered  outcrops up to 1.5 km further to the north.  Initial  exploration for
the projected northern continuation of the Florida Vein system was done by means
of an  underground  drive across the  intrusive on the 1160 level of the Florida
Mine. This work  successfully  crossed through 180m of the intrusive and emerged
into highly faulted and altered volcanic rocks to the northwest.  The next phase
of  exploration  work,  planned for fiscal 2008 will  consist of more  extensive
surface  trenching,  sampling and mapping of the Florida  North system  combined
with a drill  program  to  identify  the exact  location  of the vein  system in
Florida  North  and  continued  drift  development  in the  form of a  cross-cut
approached from the northeast.

The Tajos  Cuates vein system is located 1km  southwest of the Florida Mine site
and is a primary  target in the near term to outline  additional  potential  ore
sources for the  existing  milling  operation.  This vein system is a robust low
sulphidation  epithermal  vein which has been traced on surface over 1.8km,  and
known workings and a historical  drill intercept  extend over a vertical horizon
of at least 200m. Three drill holes completed in 2006 provided confirmation that
the mineralized vein structure  continues to depth and established a base of the
mineralized horizon at about the 900m level. Drill hole No. 800-7-04 intersected
2.42m  of  mineralization   which  assayed  4.9  grams/tonne  of  gold  and  310
grams/tonne of silver at the 915m elevation.

Recent work has extended  road access to Tajos Cuates,  and initial  underground
rehabilitation  work is underway to allow  exploration  and bulk sampling of the
vein system in more detail.  In addition,  surface work has  identified  two new
mineralized vein systems in the area, Tomas and El Crudo.

The veins systems at Tajos Cuates are the primary target for expansion of mining
operations. Drift development activities are already underway to supplement more
extensive trenching and surface sampling activities.

The Company  recently  completed a 95m drift at level 976 which  intersected the
extension of the Tajos Cuates vein system to the northwest of the existing drift
development workings.  This appears to be part of the same vein system that from
surface  sampling and old workings is believed to extend for a further  1.5km to
the northwest.  A vertical raise of 8m was completed at the  intersection of the
Tajos Cuates vein.

Mill Operations

Commissioning of the Mina Real mill began in January 2007 and the first gold and
silver  precipitate was delivered to the refinery in early February 2007.  Since
May 31, 2007,  the mill has been in  commercial  production  and  operating in a
satisfactory  manner with some  disruptions  in  production  being  experienced.
Production in June 2007 was  particularly  impacted due to down time  associated
with  intermittent  power outages being experienced from our primary supplier of
electricity.  A second back-up power  generator was put into operation which now
provides  power capacity to operate when there is disruption in service from the
main grid.  Further  improvements are being  implemented to attain more accurate
and  continuous  reconciliation  of  the  throughput  tonnage,  production,  and
deliveries to the refinery.

Since May 2007,  production has increased from average  production levels of 150
tonnes/day  to average  levels of about 200  tonnes/day  by the end of the first
fiscal quarter.  The current recovery rate for gold is surpassing 90%.  Recovery
rates  for  silver  are  still  averaging   between  40%  and  60%.   Additional
metallurgical  testing is in process to define the



                                     - 26 -
<PAGE>


necessary modifications to improve the silver recovery.  Studies are underway to
investigate increasing production up to 300 tonnes/day by early 2008.

Mining Operations

During the three month period ended August 31, 2007 the Company  continued  with
development  mining  activities  in order to prepare the initial  mining area at
Florida for  increased  production.  As of August 31,  2007,  the  stockpile  of
mineralized material was estimated at 11,669 tonnes.

Mine development  activities are continuing at the Florida triple vein structure
with current activities  concentrating on ramping down to level 1,090m and below
to determine the base of the mineralization which remains open to depth.

Future Exploration and Development

Florida Vein System

The Company  plans to implement a 2,000m  diamond drill program and a 600m drift
development program at the Florida North project to identify the continuation of
the Florida  triple vein system.  The  mineralization  at Florida North has been
identified  in  scattered  outcrops for  approximately  1.5km to the N-NW of the
Florida mine.

Tajos Cuates Vein System

Over the past six months the Company has been  conducting  drift  development at
the Tajos  Cuates  vein  system  1km  southwest  of  Florida.  The  Company  has
discovered  an additional  two  off-shoot  veins at this system and like Florida
North, the vein system has been traced on surface for approximately 1.5km. There
are  significantly  higher  reported  grades of silver  at Tajos  Cuates  versus
Florida.  The Company  plans to implement a 2,000m  diamond  drill program and a
600m drift development program over the coming months.

SANTA FE PROPERTY

Property Agreement

On March 12, 2007 the Company entered into an option  agreement to acquire a 70%
interest in the Santa Fe Property located in Tepic,  Mexico.  Under the terms of
the agreement, the Company has agreed to implement and fund 100% of the costs of
a  program  of  exploration  to  determine  if  the  Santa  Fe  Property  can be
economically exploited. In addition, if the exploration work is successful,  the
Company has agreed to provide the  necessary  capital to  construct a processing
plant  capable of  processing  a minimum of 200 tonnes per day. The Company will
pay a  monthly  fee  of  US  $10,000  while  it is  conducting  exploration  and
development on the Santa Fe Property.

Property Description and Location

The Santa Fe gold-silver  property is located immediately east of its high-grade
Mina Real Property in the State of Nayarit, Mexico. The Santa Fe Property covers
approximately  3,823  hectares,  and previous  work has  identified  26 zones of
epithermal veining and mineralization on the property.

Recent Exploration

Initial  exploration  activities on the recently  acquired Santa Fe Property has
concentrated on developing  approximately  8km of new road access to the central
portion of the property, thereby allowing systematic sampling and development of
the multiple vein systems in that area.

The work to date has better  defined the three main vein  systems,  all of which
trend  northwesterly and are sub-parallel with some cross veining.  From west to
east,  these are the Jonas  system,  the  Clavellinos  system,  and the  Tajitos
system.

Of the three,  initial  indications are that the Clavellinos  system is the most
extensive,  having been traced over a length of more than 5km. The width of this
structure  varies from 1 to 40m. At the south end,  multiple  quartz veins occur
over a width of 30 to 40m, with some values in the intervening wallrocks. At the
north end (El Picacho),  the vein  structure is


                                     - 27 -
<PAGE>



more discrete, consisting of a 5.4m wide zone of silicification.  A 0.5m channel
sample taken at the north end of the vein  returned  values of 3.36 g/t gold and
163 g/t silver.

Two  samples  taken  from old  surface  workings  in the  Tepehuaje  section  of
Clavellinos  returned a grade of 2 g/t of gold and 235 g/t of silver over a 1.6m
average width.  An additional  channel sample of 0.7m produced 5 g/t of gold and
481 g/t of silver.

Sampling  along new  exposures  created by recent road  building has exposed the
Jonas system in a number of places. Jonas is a silver-rich system, with one main
and several subsidiary northwest-trending quartz structures. Continuous sampling
by the Company has shown that  silver  values are not just  confined to the main
veins however,  and occur in some of the intervening altered volcanic wallrocks.
Many sample  results  have yet to be received,  however  sampling to date on the
main level has defined  three  parallel  zones grading 0.27 g/t gold and 162 g/t
silver  over 2.40m,  0.81 g/t gold and 378 g/t silver  over 0.62m,  and 0.23 g/t
gold and 234 g/t silver over  0.83m.  Individual  sample  results for gold range
from less than 0.03 g/t to 3.6 g/t and  silver  from less than 3 g/t to 796 g/t,
which includes samples taken from the intervening rock.

The Tajitos system is relatively  narrow (1-1.5m true width) exposed in a series
of old  workings,  but well  mineralized  over more than 300m of the 700m length
identified to date. A sample from the north end of the system  produced 4.68 g/t
gold and 1,380 g/t silver over 0.7m width.

A  significant  feature  of  these  systems  at the  Santa  Fe  Property  is the
identification  of gold and  silver  mineralization  over a  vertical  extent of
almost  700m  (833m  above  sea  level  at the El Bagre  vein and at the  1,522m
elevation at the north end of the Tajitos  system.  It is also important to note
that these types of epithermal  vein systems vary in width and grade over strike
and depth. Grades obtained from surface outcrops may or may not be depleted from
exposure to the elements with significantly higher grades potentially  occurring
at depth and then  tapering  back to lower  grades as the base of the  system is
approached.  However, the Santa Fe structures appear to be very similar to those
encountered  at Mina  Real  where  strong  gold  and  silver  grades  have  been
experienced  and  reported  from mining  activities  between the 1,090 to 1,200m
elevations.

The Santa Fe Property is within trucking  distance of the Mina Real mill and has
the potential to provide  additional mill feed to support a material increase in
capacity at the Mina Real mill or possibly  support the  development of a second
mill in the area.

Future Exploration and Development

The Company's  Phase 1  exploration  program,  combined  with road  development,
successfully  uncovered a very large vein system at the Clavellino  system.  The
Santa Fe Property is the Company's  highest  priority  exploration  target.  The
Company  has  implemented  a 3,000m  diamond  drill  program  and an 800m  drift
development program at Clavellinos and several other parallel vein systems.  The
Company  has  budgeted  US $1.1  million  for the Phase 1 program.  The  Company
believes  there is  significant  potential  to  discover a  stand-alone  deposit
capable of supporting  its own mill. In addition,  the Company has identified 26
other vein  systems  across the Santa Fe  property  with  several  vein  systems
striking greater than 4km traced along surface.

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.


                                     - 28 -
<PAGE>


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 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 has 130  full-time  employees,
including its officers,  two part-time  employees and 72 contract miners. All of
the personnel are employed by the Company's  subsidiary,  Mina Real, at its Mina
Real Project in Mexico. A portion of the Company's  administrative  functions is
provided by Chase  Management Ltd.  ("Chase") in Vancouver,  Canada.  Chase is a
private  company  owned by Mr.  Nick  Demare,  Chairman  and a  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)     |
           |-------------------------------|
                          |
                          |
                         70%
                          |
                          |
       |---------------------------------------|
       | Compania Minera Santa Fe 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 on  December  2, 2006.  Mina Real  Mexico  owns and
operates the Mina Real  Property.  The Company  directly  owns the remaining 51%
interest in Mina Real Mexico.



                                     - 29 -
<PAGE>



On June 1, 2007,  Compania Minera Santa Fe S.A. de C.V.  ("Minera Santa Fe") was
incorporated  in  Mexico  to  hold  and  carry  out  the  Company's  exploration
activities on the Santa Fe Property under the Santa Fe Option.  Mina Real Mexico
is the  recorded  holder of 70% of the issued and  outstanding  shares of Minera
Santa Fe. The remaining 30% ownership of Minera Santa Fe is held by the Santa Fe
Optionors.

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."

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 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,  2007,  2006 and 2005 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 15 of the consolidated  financial statements of
the Company included herein.

The noon rate of exchange on  November21,  2007,  reported by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United States  dollars was CDN $0.9894 (US $1.0107 = 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

The  Company is a junior  gold/silver  producer  actively  engaged in mining and
milling  operations and continued  exploration  and development of its Mina Real
and Santa Fe  Properties,  comprising  11,181  hectares of  gold/silver  mineral
concessions located in the State of Nayarit,  Mexico.  Nayarit is located in the
Sierra  Madre  Occidental  range.  The  Company   substantially   completed  the
construction  of a  cyanidation  processing  plant at the end of December  2006.
Initial  milling  operations  commenced in January  2007 with the  commissioning
process being completed by May 31, 2007. As a result, the Company was considered
an  exploration  stage  company  throughout  fiscal 2007.  Gold and silver sales
totalling $890,487 was credited against pre-production costs.

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


                                     - 30 -
<PAGE>



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.

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, 2007 COMPARED TO YEAR ENDED MAY 31, 2006

During fiscal 2007, the Company recorded a loss of $3,674,061  ($0.19 per share)
compared to a loss of $741,255 ($0.17 per share) for fiscal 2006, an increase in
loss of $2,932,806.  The increase in loss in fiscal 2007 compared to fiscal 2006
is primarily  attributed to non-cash  stock-based  compensation of $2,542,500 in
fiscal 2007  compared  to  $256,159  in fiscal  2006 and an overall  increase in
general and administrative expenses.

The Company was in the pre-production stage throughout fiscal 2007.  Accordingly
net revenues totalling $890,487 were credited against pre-production costs.

General and administrative  expenses of $3,346,702 were reported in fiscal 2007,
an increase of $2,604,552,  from $742,150 in fiscal 2006.  Specific  expenses of
note,  incurred by the Company during fiscal 2007 as compared to fiscal 2006 are
as follows:

         -    accounting and administrative fees of $75,455 (2006 - $53,415);
         -    professional and management fees and salaries  totalling  $168,708
              (2006  -  $116,804)   were  paid  to  current  and  former  senior
              executives and officers and related family members;
         -    corporate  development  expenses of $137,916  (2006 - $37,360) for
              ongoing   market   awareness   and   promotional    campaign   and
              participation in investment conferences;
         -    $33,508  (2006  -$6,497)  was  paid to  Accent  Marketing  Limited
              ("Accent")  to provide a market  awareness  campaign  and investor
              relation activities in Europe;
         -    $36,000  (2006 - $nil)  was  paid to  Empire  Communications  Inc.
              ("Empire") to provide investor relations services;
         -    $2,542,500 (2006 - $256,159)for non-cash stock-based  compensation
              on the granting and vesting of stock options; and
         -    travel  expenses of $68,665 (2006 - $24,207) for ongoing mine site
              visits to Mexico and  participation  in investment  conferences in
              Europe and Canada.

Interest  income  is  generated  from cash  held  with the  Company's  financial
institution.  During fiscal 2007, the Company reported interest and other income
of $46,622 as compared to $36,506 during fiscal 2006. The increase is attributed
to higher levels of cash held during fiscal 2007.


                                     - 31 -
<PAGE>



During  fiscal  2007 the  Company  recorded a total of  $25,111,840  for mineral
property  additions,  of which $18,006,109 was attributed to acquisition  costs,
$6,747,020 for development and  pre-production,  net of $890,487  revenues,  and
$358,711 for exploration activities primarily on the Mina Real Project.

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,  a private  company owned by Mr. Nick DeMare,  the Chairman
              and a 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed all of its capital and exploration expenditures through
the  issuance of equity  capital.  During  fiscal  2007,  the Company  completed
private  placements  for 4,600,456  units for gross  proceeds of $6,575,524  and
issued  3,327,247  common  shares for proceeds of  $3,490,646 on the exercise of
stock options and warrants.  As at May 31, 2007, the Company had working capital
of $768,740  (2006 - $3,536,076).  On October 25, 2007, the Company  completed a
private  placement of 2,000,000  units for gross  proceeds of  $4,000,000.  With
production and revenue from its Mina Real Project,  the Company anticipates that
it will have sufficient  cash flow to meet ongoing  operating  costs,  corporate
overheads and current levels of exploration and development. Further exploration
and  development  activities,  however,  may change due to ongoing  results  and
recommendations  which may entail  significant  funding.  Should the


                                     - 32 -
<PAGE>

Company be required to raise any funds it 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.

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 2007, 2006 and 2005, the Company capitalized $17,971,923, $486,584
and $66,536, respectively, for mineral property acquisition and other costs, and
a  net  $7,105,731,   $642,068  and  $415,940,   respectively,  for  exploration
expenditures  and development and  pre-production  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

The following table summarizes the Company's  contractual  obligations as of May
31, 2007.
                                          PAYMENTS DUE BY PERIOD
                            -------------------------------------------------
                                                       GREATER
                             LESS THAN       1 TO        THAN
                              1 YEAR       2 YEARS      2 YEARS       TOTAL
                                 $            $            $            $
                            ----------   ----------   ----------   ----------
Contractual Obligations

Long-term debt                 962,910      615,193            -    1,578,103
                            ==========   ==========   ==========   ==========


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:

--------------------------------------------------------------------------------
NAME                    POSITION WITH THE COMPANY      TERM OF OFFICE
                                                       (FOR EACH OFFICE HELD)
--------------------------------------------------------------------------------
ALFREDO PARRA           President, Chief Executive     December 2006 to present
                        Officer and Director
--------------------------------------------------------------------------------
NICK DEMARE(1)          Chairman and Director          June 2007 to present
--------------------------------------------------------------------------------
LINDSAY BOTTOMER(1)     Director                       January 2007 to present
--------------------------------------------------------------------------------
JOSEPH KEANE            Director                       January 2007 to present
--------------------------------------------------------------------------------
EDUARDO LUNA            Director                       August 2007 to present
--------------------------------------------------------------------------------
MARC CERNOVITCH(1)      Director                       November 2007 to present
--------------------------------------------------------------------------------
JOSE MANUEL SILVA       Chief Financial Officer        June 2007 to present
--------------------------------------------------------------------------------
HARVEY LIM              Corporate Secretary            June 1997 to present
--------------------------------------------------------------------------------
(1)    Member of the Audit Committee.


                                     - 33 -
<PAGE>


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.

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.

Dr. Alfredo Parra (Age 57), Director, President and Chief Executive Officer

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."

Nick DeMare (Age 53), Director and Chairman

Mr. Nick  DeMare  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.  Since  May,  1991,  Mr.  DeMare has been the
President  of  Chase,  a  private  company  which  provides  a  broad  range  of
administrative,   management  and  financial  services  to  private  and  public
companies  engaged  in  mineral  exploration  and  development,  gold and silver
production,  oil and gas  exploration  and production and venture  capital.  Mr.
DeMare  indirectly owns 100% of Chase. Mr. DeMare 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."

Lindsay Bottomer (Age 58), Director

Mr. Bottomer is a professional  geologist with more than 33 years  experience in
global  mineral  exploration  and  development  with  major  and  junior  mining
companies,  the  last  18  years  based  in  Vancouver,  BC.  Currently,  he  is
Vice-President,  Corporate  Development  with Entree  Gold Inc. He was  formerly
President and Chief  Executive  Officer of Silver Quest Resources Ltd., a public
company focused on gold and silver  exploration in Canada. Mr. Bottomer has also
served as  Vice-President  Exploration  with IMA Exploration  Inc.,  Director of
Canadian  Exploration  with  Echo Bay  Mines  Ltd.,  and  Vice-President  of New
Projects with Prime Equities International.  Mr. Bottomer obtained a Bachelor of
Science  (Honours)  degree in geology from the  University of  Queensland  and a
Master of Applied  Science  degree from  McGill  University.  Mr.  Bottomer is a
member of the Association of Professional Engineers and Geoscientists of British
Columbia and the  Australasian  Institute of Mining and  Metallurgy.  He is also
past President of the British  Columbia and Yukon Chamber of Mines and currently
an  elected  councillor  on  the  Association  of  Professional   Engineers  and
Geoscientists of British Columbia.  Mr. Bottomer  currently serves as a director
of other reporting companies.  See "Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions - Conflicts of Interest."

Joseph Keane (Age 68), Director

Mr. Keane is a  registered  professional  metallurgical  engineer in Arizona and
eight other states.  Mr. Keane  received a Bachelor of Science in  Metallurgical
Engineering from Montana School of Mines in 1962 and a Masters Degree in Mineral
Dressing  Engineering  from  Montana Tech in 1965.  Mr.  Keane has  professional
experience  in all  aspects of mineral and metal  processing  for the mining and
pollution  abatement  industries  including high temperature  leaching,  solvent
extraction,  and  electrowinning.  Responsibilities  have included  research and
development,  engineering and


                                     - 34 -
<PAGE>




design,  plant  operations,  construction  management  and  consulting for plant
start-up and technical  development  of new  processes.  Mr. Keane also provides
operational,  economic and investment analysis services to the natural resources
financial  investment  community.  In  addition,  Mr.  Keane has  published  and
presented many papers on the various  aspects of the  metallurgical  and mineral
processing  industry.  He has also taught many  classes for mine  operators  and
plant engineers in the United States,  Canada, Mexico, and South America. For 23
years Mr. Keane has served as President  of KD  Engineering  Co. Inc. and METCON
Research Inc., both private companies located in Tucson, Arizona. Mr. Keane owns
Keane Mineral Engineering LLC, a private mineral processing  consulting company.
In addition Mr.  Keane is currently a director of Stingray  Copper Inc. a public
company trading on the TSXV. See "Item 7. Major  Shareholders  and Related Party
Transactions - Related Party Transactions - Conflicts of Interest."

Eduardo Luna (Age 62), Director

Mr. Luna holds a degree in Advanced Management from Harvard  University,  an MBA
from the  Instituto  Tecnologico  de  Estudios  Superiores  de  Monterrey  and a
Bachelor of Science in Mining  Engineering from  Universidad de Guanajuato.  Mr.
Luna  currently  serves as Chairman of Silver  Wheaton  Corp.  and has  recently
retired as President  of  Goldcorp's  Mexican  mining  operations.  Mr. Luna has
seventeen  years of  experience  as President of Luismin,  S.A. de C.V.,  one of
Mexico's largest producers of gold and silver. In addition,  he has held various
executive  positions  with  Minera  Autlan for seven  years and with  Industrias
Penoles for five years.  Mr. Luna is President of the  Consulting  Board for the
School of Mines,  Universidad de Guanajuato and member of the advisory Boards of
the School of Mines of both  Mexico  University  and  Zacatecas  University  and
serves as a Director on other mining companies. Mr. Luna has served as President
of the Mexican  Chamber of Mines on two occasions and as President of The Silver
Institute  from  2002-2003.  See "Item 7. Major  Shareholders  and Related Party
Transactions - Related Party Transactions - Conflicts of Interest."

Marc Cernovitch (Age 34) Director

Mr. Cernovitch holds a bachelors degree in Economics from McGill University. Mr.
Cernovitch  started his career in the financial sector as an investment  advisor
and has lived and worked in Montreal, Calgary, Vancouver,  Toronto and New York.
Mr.  Cernovitch  currently  is the  Chairman  of Halo  Resources  Ltd.,  and the
President and CEO of Oro Ventures Inc. and Valor  Ventures Inc., and a member of
the Advisory Board of Salazar  Resources  Ltd., all public  reporting  companies
trading  on the  TSXV.  See  "Item  7.  Major  Shareholders  and  Related  Party
Transactions - Related Party Transactions - Conflicts of Interest."

Jose Manuel Silva (Age 56), Chief Financial Officer

Mr. Silva, holds an accounting degree from Guadalajara University, with a strong
background in accounting and taxation in Mexico. Mr. Silva was a Controller with
Luismin  S.A.  from 1979 to 1988 and has held  positions  of Internal  Audit and
Budget Manager with Minas de Bacis,  S.A,, from 1988 to 1992, and was Controller
for Cia Minera Mexicana de Avino,  S.A. from 1992 to 1997. From 1997 to February
2006,  Mr.  Silva  provided  accounting  services to Canadian  public  companies
operating  in  Mexico.  From  March  2006 to  November  2006,  Mr.  Silva  had a
consulting practice to provide accounting and taxation services.  Since December
2006, Mr. Silva has been employed by the Company.

Harvey Lim (Age 49), Corporate Secretary

Mr.  Harvey 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.  See "Item 7. Major  Shareholders
and Related  Party  Transactions  - Related  Party  Transactions  - Conflicts of
Interest."

COMPENSATION

During the fiscal year ended May 31,  2007,  the  directors  and officers of the
Company, as a group, had received compensation or charged the Company a total of
$267,531 for services  rendered by the directors and officers or companies owned
by the individuals.


                                     - 35 -
<PAGE>


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 Company'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.

The Company had two Named Executive  Officers during its most recently completed
financial  year,  Alfredo Parra,  the Company's  current  President and CEO, and
Douglas Good, the Company's former President, CEO and acting CFO.

The following table sets forth the  compensation  awarded,  paid to or earned by
the Named Executive Officers during the financial years ended May 31, 2007, 2006
and 2005:


<TABLE>
<CAPTION>

                                    ------------------------------      ------------------------------------
                                          ANNUAL COMPENSATION                  LONG TERM COMPENSATION
                                    ------------------------------      ------------------------------------
                                                                                  AWARDS             PAYOUTS
                                                                        --------------------------   -------
                                                                                       RESTRICTED
                                                            OTHER        SECURITIES     SHARES OR                 ALL
-------------------        ----                            ANNUAL           UNDER      RESTRICTED               OTHER
    NAME AND                                               COMPEN-      OPTIONS/SARS      SHARE       LTIP      COMPEN-
PRINCIPAL POSITION         YEAR      SALARY      BONUS     SATION         GRANTED         UNITS      PAYOUTS    SATION
                                       ($)        ($)        ($)            (#)            ($)         ($)        ($)
-------------------        ----     ------------------------------      --------------------------   -------    --------
<S>                       <C>      <C>          <C>       <C>          <C>             <C>          <C>        <C>

Alfredo Parra(1)           2007      55,656       Nil       19,258         800,000         Nil         Nil        Nil
President, CEO             2006        N/A        N/A         N/A            N/A           N/A         N/A        N/A
and director               2005        N/A        N/A         N/A            N/A           N/A         N/A        N/A
-------------------        ----     ------------------------------      --------------------------   -------    --------

Douglas Good(1)            2007      24,000       N/A       58,500         410,000         Nil         Nil      27,000(2)
former Chairman,           2006      78,887       Nil         N/A          253,000         Nil         Nil       6,000(2)
President, CEO,            2005        N/A        N/A         N/A            N/A           N/A         N/A        N/A
acting CFO,
and director
-------------------        ----     ------------------------------      --------------------------   -------    --------
</TABLE>

NOTES:
(1)  On November 25, 2005,  Douglas Good was  appointed as the  President,  CEO,
     acting CFO and a director of the Company.  On January 8, 2007, Mr. Good was
     appointed  Chairman of the Company and resigned as the President and CEO of
     the Company and Alfredo  Parra was  appointed as the  President and CEO. On
     June 8, 2007,  Mr. Good  resigned as Chairman and acting CFO of the Company
     and Nick  DeMare was  appointed  as the  Chairman  of the  Company and Jose
     Manuel Silva was appointed as the CFO of the Company.  On November 1, 2007,
     Mr. Good resigned as a director of the Company.
(2)  Salary paid to Barbara Good in connection with services  rendered.  Barbara
     Good is the spouse of Douglas Good.

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.



                                     - 36 -
<PAGE>


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, 2007:


<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>

Alfredo Parra              800,000             32.99%              1.85                1.81             Jan. 08/20
-----------------------------------------------------------------------------------------------------------------

Douglas Good               210,000              8.66%              0.90                1.13             Sept.05/11
                           200,000              8.25%              1.85                1.81             Jan. 08/11
                           -------             -----
                           410,000             16.91%
                           =======             =====
-----------------------------------------------------------------------------------------------------------------
</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, 2007:

<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)
NAME                          EXERCISE          REALIZED       EXERCISABLE / UNEXERCISABLE        EXERCISABLE /
                                (#)                ($)                     (#)                    UNEXERCISABLE
                                                                                                       ($)
--------------------------------------------------------------------------------------------------------------------
<S>                         <C>              <C>                   <C>                         <C>

Alfredo Parra                   Nil                N/A                800,000 / Nil               104,000 / Nil
--------------------------------------------------------------------------------------------------------------------

Douglas Good                  100,000            83,260               563,000 / Nil               460,880 / Nil
--------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE:
(1) The closing price of the Company's shares on May 31, 2007 was $1.98.

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.

COMPENSATION OF DIRECTORS

Cash Compensation

During  the  financial  year ended May 31,  2007,  the  Company  paid a total of
$45,575 for professional and consulting fees to its current and former directors
who are not the Named Executive Officers of the Company.



                                     - 37 -
<PAGE>


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, 2007 to the current and former  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             145,000             5.98%             0.90               1.13            Sep. 05/11
who are not Named                439,000            18.10%             1.86               1.81            Jan. 08/11
Executive Officers               -------            -----
                                 584,000            24.08%
                                 =======            =====
--------------------------------------------------------------------------------------------------------------------
</TABLE>


The following  table sets forth details of all exercises of stock options during
the  financial  year ended May 31, 2007 by the current and former  directors who
are not the  Named  Executive  Officers,  and the  financial  year-end  value of
unexercised options:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                       UNEXERCISED           VALUE OF UNEXERCISED IN
                                                                     OPTIONS/SARS AT           THE MONEY OPTIONS AT
                               SECURITIES                          FINANCIAL YEAR -END        FINANCIAL YEAR -END(1)
                               ACQUIRED ON       AGGREGATE            EXERCISABLE /                EXERCISABLE /
 NAME                           EXERCISE       VALUE REALIZED         UNEXERCISABLE                UNEXERCISABLE
                                   (#)              ($)                    (#)                          ($)
--------------------           -----------     --------------      -------------------        ----------------------
<S>                            <C>              <C>                <C>                          <C>

Directors as a group             218,000          282,740             598,000 / Nil                245,310 / N/A
who are not Named
Executive Officers
--------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE:
(1) The closing price of the Company's shares on May 31, 2007 was $1.98.

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, 2007, 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      WEIGHTED-AVERAGE EXERCISE      AVAILABLE FOR FUTURE ISSUANCE
                            BE ISSUED UPON EXERCISE         PRICE OF OUTSTANDING          UNDER EQUITY COMPENSATION
                            OF OUTSTANDING OPTIONS,        OPTIONS, WARRANTS AND         PLANS (EXCLUDING SECURITIES
                              WARRANTS AND RIGHTS                 RIGHTS                   REFLECTED IN COLUMN (A))
--------------------        -----------------------      -------------------------     ------------------------------
<S>                               <C>                            <C>                         <C>

Plan Category                          (a)                          (b)                             (c)
---------------------------------------------------------------------------------------------------------------------
Equity compensation
plans approved by                   2,582,000                       1.57                        See Note (1)
securityholders
---------------------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved                     N/A                           N/A                             N/A
by securityholders
---------------------------------------------------------------------------------------------------------------------

Total                               2,582,000                       1.57                        See Note (1)
---------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE:
(1)  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.


                                     - 38 -
<PAGE>


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 the Company,  nor any  associate or
affiliate of these  individuals,  is or has been  indebted to the Company  since
June 1, 2006.

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

Other than as  disclosed  herein or in the  financial  statements,  no  informed
person of the Company, 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,  under which the Company
currently  pays  Chase  $5,040  per  month,   for  accounting,   administrative,
professional and management services provided to the Company.  In addition,  the
Company  may engage  Chase to perform  extra  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 $74,805 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

As of the date of this annual report the Company has four independent directors,
namely:  Messrs.   Lindsay  Bottomer,   Joseph  Keane,  Eduardo  Luna  and  Marc
Cernovitch.  The Company has two directors who are not independent  because they
are executive officers of the Company,  namely: Dr. Alfredo Parra, President and
CEO and Mr. Nick DeMare, Chairman.

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
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.



                                     - 39 -
<PAGE>


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. The directors who do not hold full-time
officer  positions  with the Company  will receive  compensation  in the form of
professional fees in the amount of $10,000 annually, plus $500 per board meeting
attended,  as well as the  grant  of stock  options  from  time to  time,  which
allocation  is made by the Board as a whole.  In addition  directors  who do not
hold full-time  officers  positions with the Company will be paid $1,000 per day
for consulting provided.

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.

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


                                     - 40 -
<PAGE>

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.

(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.



                                     - 41 -
<PAGE>



(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 current members of the Committee:

--------------------------------------------------------------------------------
                             INDEPENDENT (1)             FINANCIALLY LITERATE
--------------------------------------------------------------------------------

Nick DeMare                         N                              Y
--------------------------------------------------------------------------------
Marc Cernovitch                     Y                              Y
--------------------------------------------------------------------------------
Lindsay Bottomer                    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

Nick DeMare is a Chartered  Accountant with significant  experience working with
resource issuers.  Marc Cernovitch and Lindsay Bottomer are business  executives
with extensive  experience in the industry.  As such each has acquired knowledge
and an understanding of the financial issues and accounting  principles that are
relevant in assessing this Company's financial  disclosures and internal control
systems.

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".


                                     - 42 -
<PAGE>


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 has 130  full-time  employees,
including its officers,  two part-time  employees and 72 contract miners. All of
the personnel are employed by the  Company's  subsidiary,  Mina Real at its Mina
Real Project in Mexico. Corporate accounting,  management and administration are
provided,  in part, by Chase, in Vancouver,  Canada. 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 November 2, 2007.

                                                   SHARES AND RIGHTS
                                                     BENEFICIALLY
                                                        OWNED OR      PERCENT OF
TITLE OF CLASS    NAME AND RESIDENCE OF OWNER         CONTROLLED(1)    CLASS (1)
--------------    ---------------------------       ----------------  ----------

Common Stock      Alfredo Parra                        4,181,025(2)     12.63%
                  Nayrit, Mexico

Common Stock      Nick DeMare                          1,667,270(3)     5.12%
                  British Columbia, Canada

Common Stock      Lindsay Bottomer                       106,000(4)     0.33%
                  British Columbia, Canada

Common Stock      Joseph Keane                           226,200(5)     0.70%
                  Arizona, United States

Common Stock      Eduardo Luna                           100,000(6)     0.31%
                  Mexico City, Mexico

Common Stock      Marc Cernovitch                        200,000(7)     0.62%
                  Ontario, Canada

Common Stock      Jose Manuel Silva                      200,000(8)     0.62%
                  Nayrit, Mexico

Common Stock      Harvey Lim                              74,500(9)     0.23%
                  British Columbia, Canada


                                     - 43 -

<PAGE>


NOTES:
(1)  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 32,305,351 shares of common stock outstanding as of
     November 2, 2007.
(2)  Includes 3,381,025 common shares held and options to acquire 800,000 common
     shares.
(3)  Includes 909,820 common shares held by Mr. DeMare directly,  359,193 common
     shares held by DNG Capital Corp. ("DNG"), a private company wholly-owned by
     Mr. DeMare and 135,257  common shares held by 888 Capital  Corp., a private
     company 50% owned by Mr. DeMare.  Also includes  options to acquire 263,000
     common shares held by Mr. DeMare.
(4)  Includes 4,000 common shares held, options to acquire 100,000 common shares
     and warrants to acquire 2,000 common shares.
(5)  Includes  126,200 common shares held and options to acquire  100,000 common
     shares.
(6)  Options to acquire  100,000  common  shares.
(7)  Options to acquire 200,000 common shares.
(8)  Options to acquire 200,000 common shares.
(9)  Includes  10,000  common  shares held and options to acquire  64,500 common
     shares.

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.

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.


                                     - 44 -
<PAGE>


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 November 2, 2007,  an aggregate of 2,579,500  incentive  stock  options to
purchase  shares  of  the  Company's  common  stock  remain  outstanding  to the
following persons:



<PAGE>

<TABLE>
<CAPTION>

                                      NATURE                        NO. OF      EXERCISE
OPTIONEE                              OF OPTION                    OPTIONS     PRICE/SHARE     EXPIRY DATE
-----------------                     ---------                   ---------    -----------     --------------
                                                                                    $
<S>                                  <C>                         <C>           <C>            <C>

Douglas Good                          Officer                        73,000        0.62        Jan. 17, 2009
Harvey Lim                            Officer                        22,500        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                       20,000        0.90        Sept. 5, 2011
Harvey Lim                            Officer                        15,000        0.90        Sept. 5, 2011
Arabella Smith                        Mgt. Co. Employee               7,500        0.90        Sept. 5, 2011
Linda Liu                             Mgt. Co. Employee               7,500        0.90        Sept. 5, 2011
Rosanna Wong                          Mgt. Co. Employee               7,500        0.90        Sept. 5, 2011
Betty Moody                           Mgt. Co. Employee               7,500        0.90        Sept. 5, 2011
Alfredo Parra                         Director                      800,000        1.85        Jan. 8, 2010
Douglas Good                          Director                      200,000        1.85        Jan. 8, 2010
Nick DeMare                           Consultant                    164,000        1.85        Jan. 8, 2010
Gil Leathley                          Director                       25,000        1.85        Jan. 8, 2010
Joseph Keane                          Director                      100,000        1.85        Jan. 8, 2010
Lindsay Bottomer                      Director                      100,000        1.85        Jan. 8, 2010
Jose Manuel Silva                     Employee                       50,000        1.85        Jan. 8, 2010
Luz Elena                             Employee                       20,000        1.85        Jan. 8, 2010
Jose Maria Moreno                     Employee                       20,000        1.85        Jan. 8, 2010
Edmundo Delgado                       Employee                       20,000        1.85        Jan. 8, 2010
Harvey Lim                            Officer                        12,000        1.85        Jan. 8, 2010
Arabella Smith                        Mgt. Co. Employee               6,000        1.85        Jan. 8, 2010
Betty Moody                           Mgt. Co. Employee               6,000        1.85        Jan. 8, 2010
Linda Liu                             Mgt. Co. Employee               6,000        1.85        Jan. 8, 2010
Rosanna Wong                          Mgt. Co. Employee               6,000        1.85        Jan. 8, 2010
Jose Manuel Silva                     Employee                       50,000        2.15        Feb. 14, 2010
Jose Manuel Silva                     Officer                       100,000        1.65        Jun. 8, 2010
Gil Leathley                          Director                       50,000        1.65        Jun. 12, 2010
Nick DeMare                           Director                       49,000        1.65        Jun. 12, 2010
Sergio Parra Davila                   Employee                      100,000        1.65        Jun. 12, 2010
Jorge Rodriguez de la Rosa            Employee                       75,000        1.65        Jun. 12, 2010
Hector Chavez Polino                  Employee                       50,000        1.65        Jun. 12, 2010
Pedro Cazares Espinoza                Employee                       80,000        2.12        Oct. 26, 2010
Segio Parra Davila                    Employee                       50,000        2.12        Oct. 26, 2010
Luis Enrique Garcia Medina            Employee                       50,000        2.12        Oct. 26, 2010
Santiago Gutierrez Mesa               Employee                       20,000        2.12        Oct. 26, 2010
Jose Maria Moreno                     Employee                       10,000        2.12        Oct. 26, 2010
Jorge Alberto Hernandez Gonzalez      Employee                       20,000        2.12        Oct. 26, 2010
Hector Chavez Polina                  Employee                       50,000        2.12        Oct. 26, 2010
Cesar Omar Perez Guillen              Employee                       20,000        2.12        Oct. 26, 2010
Eduardo Luna                          Director                      100,000        2.12        Oct. 26, 2010
Marc Cernovitch                       Director                      200,000        2.12        Oct. 26, 2010
</TABLE>




                                     - 45 -
<PAGE>


<TABLE>
<CAPTION>

                                      NATURE                        NO. OF      EXERCISE
OPTIONEE                              OF OPTION                    OPTIONS     PRICE/SHARE     EXPIRY DATE
-----------------                     ---------                   ---------    -----------     --------------
                                                                                    $
<S>                                  <C>                         <C>           <C>            <C>

Harvey Lim                            Officer                        15,000        2.12        Oct. 26, 2010
Empire Communications Inc.            Investor Relations             35,000        2.12        Oct. 26, 2010
                                                                  ---------
TOTAL                                                             2,579,500
                                                                  =========

</TABLE>

As of November 2, 2007, the directors and officers of the Company, as a group (8
persons),  held options to purchase  1,827,500  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.

As of  November  2, 2007,  there were  non-transferable  common  share  purchase
warrants  exercisable for the purchase of 3,380,464 common shares,  which expire
at various  times until April 25, 2009 and may be  exercised  at various  prices
ranging from $0.80 per share to $2.75 per share, as follows:


  COMMON SHARES ISSUABLE           EXERCISE
 ON EXERCISE OF WARRANTS         PRICE/SHARE            EXPIRY
                                      $

           74,999                   2.25                February 2, 2008
          525,000                   2.25                February 12, 2008
          307,659                   0.80                May 3, 2008
          700,000                   2.75                November 17, 2008
          563,500                   1.40                December 11, 2008
          209,306                   2.00                April 25, 2009
        1,000,000                   2.25                April 25, 2009
        ---------
        3,380,464
        =========

As of November 2, 2007, the directors and officers of the Company, as a group (8
persons), held warrants to purchase 2,000 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 November 2, 2007.

                                                   SHARES AND RIGHTS
                                                     BENEFICIALLY
                                                        OWNED OR      PERCENT OF
TITLE OF CLASS    NAME AND ADDRESS OF OWNER           CONTROLLED(1)    CLASS (1)
--------------    -------------------------        -----------------  ----------

Common Stock      Alfredo Parra                        4,181,025(3)      12.63%
                  Rio Tajo#6,
                  Tepic, Nayarit
                  Mexico 63117

Common Stock      Burlingame Equity Investors LP       2,670,729(2)       8.10%
                  One Sansome Street, #2900
                  San Francisco, CA 94104
                  United States



                                     - 46 -
<PAGE>

                                                   SHARES AND RIGHTS
                                                     BENEFICIALLY
                                                        OWNED OR      PERCENT OF
TITLE OF CLASS    NAME AND ADDRESS OF OWNER           CONTROLLED(1)    CLASS (1)
--------------    -------------------------        -----------------  ----------

Common Stock      Nick DeMare                          1,667,270(4)       5.12%
                  #1305 - 1090 W. Georgia Street
                  Vancouver, BC  V6E 3V7
                  Canada

(1)  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  32,305,351  shares of  common  stock  outstanding  as of
     November 2, 2007.
(2)  Includes 2,015,345 common shares held and warrants to acquire an additional
     655,384 common shares of the Company.
(3)  Includes 3,381,025 common shares held and options to acquire 800,000 common
     shares.
(4)  Includes 909,820 common shares held by Mr. DeMare directly,  359,193 common
     shares held by DNG Capital Corp. ("DNG"), a private company wholly-owned by
     Mr. DeMare and 135,257  common shares held by 888 Capital  Corp., a private
     company 50% owned by Mr. DeMare.  Also includes  options to acquire 263,000
     common shares held by Mr. DeMare.

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.

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 November 2, 2007, there were  approximately  22 registered  holders of the
Company's  common  shares  in the  United  States,  with  combined  holdings  of
5,844,207 shares,  representing  18.1% 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, 2006 through October
31, 2007, 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.


                                     - 47 -
<PAGE>



1.       Mr. Doug Good was  appointed as a director and the  President,  CEO and
         acting CFO of the Company on November 25, 2005. On January 8, 2007, Mr.
         Good was  appointed  as the Chairman of the Company and resigned as the
         President and CEO of the Company. On June 8, 2007, Mr. Good resigned as
         the Chairman and acting CFO of the  Company.  On November 1, 2007,  Mr.
         Good resigned as a director of the Company. During fiscal 2007, $82,500
         and $27,000 were paid to Mr. Good and Mr. Good's  spouse,  Barbara Good
         (in connection with services rendered), respectively. During the period
         from June 1, 2007 to October 31,  2007,  the Company  paid  $48,000 and
         $42,000 to Mr. and Mrs. Good respectively.

2.       The Company has retained Chase, a private  company  wholly-owned by Mr.
         Nick DeMare,  the Chairman and a director of the Company  since June 8,
         2007,  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  fiscal  2007,  the Company
         incurred $74,805 for services provided by Chase. During the period June
         1, 2007 to  October  31,  2007,  the  Company  was billed  $28,410  for
         services provided by Chase.

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, 2006.

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 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.



                                     - 48 -
<PAGE>

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>

Nick DeMare           Aguila American Resources Ltd.     Director                          January 2003
                      Andean American Mining Corp.       Director                          August 2002
                      Astral Mining Corporation.         Director                          February 2004
                      Atlas Minerals Corp.               Director                          April 2006
                      Centrasia Mining Corp.             Director                          October 2002
                                                         CFO                               September 2005
                      Ecometals Limited                  Director                          September 2000
                      Enterprise Oil Limited             Director                          April 2007
                      GeoPetro Resources Company         Director                          March 2006
                      GGL Diamond Corp.                  Director                          May 1989
                      Golden Peaks Resources Ltd.        Director                          January 1992
                      Gold Point Energy Corp.            Director                          August 2003
                                                         CFO                               June 2005
                      Halo Resources Ltd.                Director                          January 1996
                                                         CFO                               February 2005
                      Lara Exploration Ltd.              Director                          March 2004
                      Lariat Energy Ltd.                 Director                          August 2002
                      Lumex Capital Corp.                Director. President,              January 2007
                                                         CEO andSecretary
                      Mawson Resources Limited           Director                          March 2004
                      Mirasol Resources Limited          Director                          February 2005
                      Salazar Resources Ltd.             Director                          June 1988
                      Sinchao Metals Corp.               Director                          December 2006
                      Tinka Resources Limited            Director                          October 2003
                      Tumi Resources Limited             Director                          January 2001
                      Valor Ventures Inc.                CFO and Secretary                 July 2007
------------------------------------------------------------------------------------------------------------
Lindsay Bottomer      Alder Resources Ltd.               Director                          December 2006
                      Armadillo Resources Ltd.           Director                          July 2007
                      BCM Resources Corporation          Director                          September 2006
                      Entree Gold Inc.                   Director                          June 2002
                                                         VP Corporate Development          November 2005
                      Golden Odyssey Mining Inc.         Director                          December 2006
                      Oatpoint Capital Corp.             Director                          April 2007
                      Yale Resources Ltd.                Director                          December 2005
------------------------------------------------------------------------------------------------------------
Joseph Keane          Stingray Copper Inc.               Director                          June 2007
------------------------------------------------------------------------------------------------------------
Eduardo Luna          Alamos Gold Inc.                   Director                          October 2007
                      Genco Resources Ltd.               Director                          December 2003
                      Silver Wheaton Corp.               Director and Chairman             December 2004
------------------------------------------------------------------------------------------------------------
Marc Cernovitch       Halo Resources Ltd.                Director                          February 2005
                                                         Chairman                          March 2007
                      Oro Ventures Inc.                  Director, President & CEO         October 2007
                      Valor Ventures Inc.                Director, President & CEO         July 2007
------------------------------------------------------------------------------------------------------------
</TABLE>

Alfredo Parra is not a director of officer of any other public company.

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.



                                     - 49 -
<PAGE>



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

DESCRIPTION                                                             PAGE
-----------                                                         -----------
Audited Consolidated Financial Statements for the
   Years Ended May 31, 2007, 2006 and 2005                          F-1 to F-27

SIGNIFICANT CHANGES

At the annual and special meeting of the Company's common  stockholders  held on
November  20,  2007,  a special  resolution  was passed to reduce the  Company's
capital by  $71,000,128  an amount equal to the deficit as t May 31,  2005.  The
deficit  amount  arose as a result  of prior  unsuccessful  business  activities
pursued  by the  Company  under the  direction  of its  former  management.  The
reclassification  of the historical deficit is permitted under Section 74 of the
business Corporations Act (British Columbia). The reduction of capital will have
the effect of reducing the share capital by an amount equal to  $71,000,128  and
will also result in the corresponding elimination of $71,000,128 of the deficit.
The reduction of capital is not yet effective,  but shall become effective as at
a date to be determined by the Board.

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.

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, 2007                 17,138,032                $3.03           $0.61
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




                                     - 50 -
<PAGE>



                                                           SALES PRICE
                                                    ---------------------------
QUARTER ENDED                    VOLUME                 HIGH            LOW
                                                    ------------   ------------
August 31, 2007               3,387,016                $2.02           $1.50
May 31, 2007                  6,516,696                $3.03           $1.89
February 28, 2007             4,513,568                $2.44           $1.73
November 30, 2006             4,324,222                $1.98           $0.90
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


                                                           SALES PRICE
                                                    ---------------------------
MONTH ENDED                      VOLUME                 HIGH            LOW
                                                    ------------   ------------
October 31, 2007             3,426,367                 $2.70           $2.08
September 30, 2007           1,479,955                 $2.20           $1.63
August 31, 2007              1,189,728                 $2.02           $1.50
July 31, 2007                1,121,478                 $2.02           $1.71
June 30, 2007                1,075,810                 $1.98           $1.59
May 31, 2007                 1,288,925                 $2.52           $1.90

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, 2007                  4,630,438                $2.70           $0.60
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


                                                          SALES PRICE (US$)
                                                    ---------------------------
QUARTER ENDED                    VOLUME                 HIGH            LOW
                                                    ------------   ------------
August 31, 2007               1,074,612                $2.00           $1.20
May 31, 2007                  1,728,991                $2.70           $1.65
February 28, 2007             1,500,893                $2.09           $1.50
November 30, 2006             1,278,012                $1.73           $0.76
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


                                                          SALES PRICE (US$)
                                                    ---------------------------
MONTH ENDED                      VOLUME                 HIGH            LOW
                                                    ------------   ------------
October 31, 2007                161,869                $2.75           $2.07
September 30, 2007              245,199                $2.22           $1.53
August 31, 2007                 413,500                $2.00           $1.20
July 31, 2007                   225,239                $2.00           $1.60
June 30, 2007                   435,873                $1.88           $1.50
May 31, 2007                    373,830                $2.30           $1.81



                                     - 51 -
<PAGE>


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
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



                                     - 52 -
<PAGE>


                           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  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.



                                     - 53 -
<PAGE>


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 32,305,351  common shares
were issued and outstanding as of November 2, 2007.

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.

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.



                                     - 54 -
<PAGE>


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 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."



                                     - 55 -
<PAGE>


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.

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;



                                     - 56 -
<PAGE>


         (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;
         (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").



                                     - 57 -
<PAGE>



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 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


                                     - 58 -
<PAGE>



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-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.



                                     - 59 -
<PAGE>




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.

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)

                                     - 60 -
<PAGE>


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:

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


                                     - 61 -
<PAGE>


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  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.



                                     - 62 -
<PAGE>


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
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 Dr. Alfredo Parra, the Company's President
and CEO and Jose Manuel Silva,  the Company's 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,  Dr. Parra
and Mr. Silva,  concluded that the Company's  disclosure controls and procedures
are effective to ensure that


                                     - 63 -
<PAGE>



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,  2007,  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. Nick DeMare, who serves on the Company's audit
committee.  Mr. DeMare is not considered to be an "independent director" as that
term is defined in Rule  4200(a)(15)  of the National  Association of Securities
Dealers.


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,  2007 and 2006,  the  Company's  principal
accountant  billed  $31,339  and  $17,517,  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,  2007 and 2006,  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,  2007 and 2006,  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,  2007 and 2006,  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-


                                     - 64 -
<PAGE>


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, 2007 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.


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

During the fiscal year ended May 31, 2007, 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-27.


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

Not applicable.



                                     - 65 -
<PAGE>


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

EXHIBIT
NUMBER   DESCRIPTION
-----    -----------------------------------------------------------------------
1.1      Certificate of Continuation and Notice of Articles for Hilton Resources
         Ltd. (1)
1.2      Articles for Hilton Resources Ltd. (1)
1.3      Notice of Alteration (Name Change) - Form 11 (2)
4.1      Stock Option Plan 2005 (1)
4.2      Mineral Property Option Agreement dated January 8, 2006 (3)
4.3      Development Facility Agreement dated June 20, 2006 (3)
4.4      ALB Acquisition Agreement dated October 20, 2006 (3)
8.1      List of Subsidiaries
12.1     Certification of Alfredo Parra Pursuant to Rule 13a-14(a)
12.2     Certification of Jose Manuel Silva Pursuant to Rule 13a-14(a)
13.1     Certification of Alfredo Parra Pursuant to 18 U.S.C. Section 1350
13.2     Certification of Jose Manuel Silva Pursuant to 18 U.S.C. Section 1350
15.1     Property Location Map

(1)  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.
(2)  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.
(3)  Previously filed as an exhibit to the Company's annual Report on Form 20-F,
     filed with the Commission on December 14, 2006. File number 000-30390.



                                     - 66 -
<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.


                                       /s/ Alfredo Parra
Dated: November 30, 2007               ----------------------------------------
                                       Alfredo Parra
                                       President, Chief Executive Officer,
                                       and Director

                                       /s/ Jose Manuel Silva
                                       ----------------------------------------
                                       Jose Manuel Silva
                                       Chief Financial Officer


                                     - 67 -
<PAGE>


                                                                         US GAAP





















                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                          MAY 31, 2007, 2006, AND 2005

            (Expressed in Canadian dollars, unless otherwise stated)






                                      F-1
<PAGE>


                                                           D + H Group LLP
                                                           Chartered Accountants







AUDITORS' REPORT




To the Shareholders of
Rochester Resources Ltd.


We have audited the consolidated  balance sheets of Rochester Resources Ltd. (an
Exploration  Stage  Company)  as at May 31,  2007 and 2006 and the  consolidated
statements of operations  and deficit and cash flows for the years ended May 31,
2007, 2006, and 2005. 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, 2007 and
2006 and the  results of its  operations  and cash flows for the years ended May
31,  2007,  2006  and  2005  in  accordance  with  Canadian  generally  accepted
accounting principles.

United  States  generally  accepted   accounting   principles  vary  in  certain
significant  respects from Canadian  generally accepted  accounting  principles.
Application of United States generally accepted accounting principles would have
affected  assets,  liabilities and  shareholders'  equity as at May 31, 2007 and
2006 and the  results of  operations  and cash flows for the years ended May 31,
2007,  2006 and 2005 to the  extent  summarized  in Note 15 to the  consolidated
financial statements.

On September 17, 2007 we reported  separately to the  shareholders  of Rochester
Resources  Ltd. on  consolidated  financial  statements as at, and for the years
ended,  May 31, 2007 and 2006  audited in  accordance  with  Canadian  generally
accepted auditing standards.




Vancouver, B.C.
September 17, 2007, except as to Note 18,                  /s/ D&H GROUP LLP
which is as of November 28, 2007                         CHARTERED ACCOUNTANTS






D+H Group LLP Chartered Accountants
10th Floor, 1333 West Broadway    Telephone 604 731 5881  www.DHgroup.ca
Vancouver, British Columbia       Facsimile 604 731 9923  Email: info@dhgroup.ca
Canada V6H 4C1
              A BC Limited Liaibility Partnership of Corporations
            Member of BHD Association with affiliated offices across
                           Canada and internationally

                                      F-2
<PAGE>


                                                           D + H Group LLP
                                                           Chartered Accountants

















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
September 17, 2007, 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.
September 17, 2007, except as to Note 18,                 /s/ D&H GROUP LLP
which is as of November 28, 2007                         CHARTERED ACCOUNTANTS

















D+H Group LLP Chartered Accountants
10th Floor, 1333 West Broadway    Telephone 604 731 5881  www.DHgroup.ca
Vancouver, British Columbia       Facsimile 604 731 9923  Email: info@dhgroup.ca
Canada V6H 4C1
              A BC Limited Liaibility Partnership of Corporations
            Member of BHD Association with affiliated offices across
                           Canada and internationally

                                      F-3
<PAGE>

                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                                  AS AT MAY 31
            (Expressed in Canadian dollars, unless otherwise stated)


                                                       2007            2006
                                                         $               $

                                     ASSETS

CURRENT ASSETS

Cash                                                  1,680,753       3,657,676
Amounts receivable (Note 4)                             269,997          80,022
Prepaid expenses and deposits                            52,580          12,825
Inventories                                             116,706               -
                                                   ------------    ------------
                                                      2,120,036       3,750,523
IVA TAX RECEIVABLE                                    1,045,413               -

MINERAL PROPERTY INTERESTS (Note 5)                  26,240,492       1,128,652

PROPERTY, PLANT AND EQUIPMENT (Note 6)                1,364,623          55,341

OTHER ASSETS                                                  -          37,040
                                                   ------------    ------------
                                                     30,770,564       4,971,556
                                                   ============    ============

                                   LIABILITIES

CURRENT LIABILITIES

Accounts payable and accrued liabilities                388,386         214,447
Current portion of long-term debt (Note 7)              962,910               -
                                                   ------------    ------------
                                                      1,351,296         214,447
LONG-TERM DEBT (Note 7)                                 615,193               -

ASSET RETIREMENT OBLIGATION (Note 16)                   590,894               -

FUTURE INCOME TAX LIABILITIES (Notes 3 and 12)        4,300,000               -
                                                   ------------    ------------
                                                      6,857,383         214,447
                                                   ------------    ------------

                              SHAREHOLDERS' EQUITY

SHARE CAPITAL (Note 8)                               96,437,468      75,890,208

CONTRIBUTED SURPLUS (Note 10)                         2,891,157         608,284

DEFICIT                                             (75,415,444)    (71,741,383)
                                                   ------------    ------------
                                                     23,913,181       4,757,109
                                                   ------------    ------------
                                                     30,770,564       4,971,556
                                                   ============    ============

NATURE OF OPERATIONS (Note 1)

SUBSEQUENT EVENTS (Note 18)

APPROVED BY THE BOARD

/s/ ALFREDO PARRA  , Director
------------------
/s/ NICK DEMARE    , Director
------------------

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

                                      F-4
<PAGE>

                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
               CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICITS
                           FOR THE YEARS ENDED MAY 31
            (Expressed in Canadian dollars, unless otherwise stated)

<TABLE>
<CAPTION>

                                                       2007            2006            2005
                                                         $               $               $
<S>                                               <C>             <C>             <C>

EXPENSES

Accounting and administration                            75,455          53,415          78,788
Accretion (Note 17)                                      20,212               -               -
Amortization                                              1,428           2,149           5,840
Audit                                                    14,940          20,517          19,301
Corporate development                                   137,916          37,360               -
Corporate finance fee                                         -          30,500               -
General exploration                                      91,837          24,588               -
Investor relations                                       69,508           6,497          36,000
Legal                                                    14,079          19,573          15,832
Management fees                                          58,500         113,838               -
Office                                                   28,270          12,098           8,161
Professional fees                                       108,515          91,167          54,941
Regulatory                                               15,859          12,836           7,037
Rent                                                     10,500           4,165               -
Salaries and benefits                                    52,318           6,410               -
Shareholder costs                                        16,688           9,251           3,767
Stock-based compensation (Note 9)                     2,542,500         256,159         138,725
Transfer agent                                           19,512          17,420          10,612
Travel                                                   68,665          24,207          12,173
                                                   ------------    ------------    ------------
                                                      3,346,702         742,150         391,177
                                                   ------------    ------------    ------------
LOSS BEFORE OTHER ITEMS                              (3,346,702)       (742,150)       (391,177)
                                                   ------------    ------------    ------------
OTHER ITEMS

Interest expense                                       (187,940)              -               -
Interest and other income                                46,622          36,566           2,362
Foreign exchange                                       (186,041)        (66,651)         (4,809)
Gain on sale of other assets                                  -          40,980          17,239
Bad debts                                                     -         (10,000)        (27,827)
Write-off of mineral property interests (Note 5(c))           -               -        (703,058)
Loss on sale of property, plant and equipment                 -               -          (1,717)
                                                   ------------    ------------    ------------
                                                       (327,359)            895        (717,810)
                                                   ------------    ------------    ------------
NET LOSS FOR THE YEAR                                (3,674,061)       (741,255)     (1,108,987)

DEFICIT - BEGINNING OF YEAR                         (71,741,383)    (71,000,128)    (69,891,141)
                                                   ------------    ------------    ------------
DEFICIT - END OF YEAR                               (75,415,444)    (71,741,383)    (71,000,128)
                                                   ============    ============    ============


BASIC AND DILUTED LOSS PER SHARE                         $(0.19)         $(0.17)         $(0.56)
                                                   ============    ============    ============

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING                            19,859,117       4,388,853       1,966,152
                                                   ============    ============    ============
</TABLE>

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


                                      F-5
<PAGE>


                            ROCHESTER 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>

                                                       2007            2006            2005
                                                         $               $               $
<S>                                               <C>             <C>             <C>

CASH PROVIDED FROM (USED FOR)

OPERATING ACTIVITIES

Net loss for the year                                (3,674,061)       (741,255)     (1,108,987)
Adjustment for items not involving cash
Accretion                                                20,212               -               -
Amortization                                              1,428           2,149           5,840
Interest expense                                         12,038               -               -
Stock-based compensation                              2,542,500         256,159         138,725
Corporate finance fee                                         -          30,500               -
Gain on sale of other assets                                  -         (40,980)        (17,239)
Loss on sale of property, plant and equipment                 -               -           1,717
Write-off of mineral property interests                       -               -         703,058
                                                   ------------    ------------    ------------
                                                     (1,097,883)       (493,427)       (276,886)
Increase in amounts receivable                         (189,552)        (40,995)         (8,738)
Increase in prepaid expenses and deposits               (39,755)         (3,189)           (677)
Increase in inventories                                (116,706)              -               -
Increase (decrease) in accounts payable and
   accrued liabilities                                 (161,903)        183,441          14,650
Increase in IVA tax receivable                       (1,045,413)              -               -
                                                   ------------    ------------    ------------
                                                     (2,651,212)       (354,170)       (271,651)
                                                   ------------    ------------    ------------
FINANCING ACTIVITIES

Issuance of common shares                            10,066,170       4,966,050         362,500
Share issue costs                                      (278,537)       (348,155)         (2,500)
Repayment on long-term debt                            (619,285)              -               -
Advances received                                       550,000               -               -
Repayment of advances                                  (550,000)              -               -
                                                   ------------    ------------    ------------
                                                      9,168,348       4,617,895         360,000
                                                   ------------    ------------    ------------
INVESTING ACTIVITIES

Additions to mineral property interests              (7,254,078)       (791,152)       (415,255)
Additions to property, plant and equipment           (1,280,983)        (52,726)              -
Other assets                                             37,040         (37,040)              -
Proceeds from sale of property, plant and equipment           -               -           7,146
Proceeds from sale of other assets                            -          47,280          19,309
Cash assumed on acquisition of ALB                        3,962               -               -
                                                   ------------    ------------    ------------
                                                     (8,494,059)       (833,638)       (388,800)
                                                   ------------    ------------    ------------
INCREASE (DECREASE) IN CASH FOR THE YEAR             (1,976,923)      3,430,087        (300,451)

CASH - BEGINNING OF YEAR                              3,657,676         227,589         528,040
                                                   ------------    ------------    ------------
CASH - END OF YEAR                                    1,680,753       3,657,676         227,589
                                                   ============    ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION - Note 16
</TABLE>


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

                                      F-6
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



1.       NATURE OF OPERATIONS

         Rochester Resources Ltd. (the "Company") is engaged in the acquisition,
         exploration  and  development  of its  mineral  property  interests  in
         Mexico.  As at the end of  December  2006  the  Company  has  completed
         construction   of  the   cyanidation   processing   plant  and  related
         infrastructure  at the Mina Real  Property  located in  Nayarit  State,
         Mexico.  Commissioning of the mill commenced in January 2007. As at May
         31,  2007  management  of the Company has  determined  that  commercial
         production has not yet been achieved.

         As at May 31, 2007 the Company had  working  capital of  $768,740.  The
         Company anticipates that it may require additional funding to conduct a
         planned  increase  in the  capacity  of the mill  facility,  to provide
         adequate  working  capital for  start-up  operations  and to retire its
         long-term  debt.  The  Company  also  plans to  conduct  a  significant
         exploration and development program.

         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. The Company's ability to continue as a going
         concern is dependent on the Company's  ability to raise equity or other
         financing as required and  ultimately  achieve  profitable  operations.
         These financial statements do not include any adjustments to the amount
         and  classification  of recorded assets and  liabilities  that night be
         necessary should the Company be unable to continue as a going concern.


2.       SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION

         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 15. 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,  its  wholly-owned  subsidiaries ALB Holdings Ltd. ("ALB") and
         Mina  Real  Mexico  S.A.  de C.V.  ("Mina  Real")  and  its  60%  owned
         subsidiary, Compania Minera Nayarit S.A. de C.V. Inter-company balances
         and transactions are eliminated on consolidation.

         USE OF ESTIMATES

         The  preparation  of financial  statements in conformity  with Canadian
         GAAP requires  management to make estimates and assumptions that affect
         the  reported  amount of  assets  and  liabilities  and  disclosure  of
         contingent liabilities at the date of the financial statements, and the
         reported amounts of revenues and expenditures during the period. Actual
         results may differ from those  estimates.  Significant  areas requiring
         the use of management  estimates  relate to the  determination of asset
         retirement obligations,  stock-based compensation and amortization. The
         financial  statements  have,  in  management's  opinion,  been properly
         prepared   using  careful   judgement   within  the  framework  of  the
         significant accounting policies summarized in this note.



                                      F-7
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         CASH AND CASH EQUIVALENTS

         Cash and cash equivalents consists of cash and money market instruments
         with terms to maturity not  exceeding  90 days at date of  acquisition.
         The Company is not exposed to significant  credit or interest rate risk
         although  cash and cash  equivalents  are held in excess  of  federally
         incurred limits with major financial institutions.

         INVENTORIES

         Materials  and supplies are valued at the lower of cost or  replacement
         cost.

         PROPERTY, PLANT AND EQUIPMENT

         Property,  plant and  equipment  are recorded at cost less  accumulated
         depreciation.  These  assets are  depreciated  using the  straight-line
         method at the following rates:

                  Motor vehicles                              25%
                  Office equipment, furniture and fixtures    10%
                  Plant and equipment                         10%
                  Buildings                                    5%

         Capital works in progress costs are not  depreciated  until the related
         asset is complete, ready for use and utilized in commercial production.

         MINERAL PROPERTY INTERESTS

         Mineral property interests costs and exploration, development and field
         support  costs  directly  relating to mineral  property  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  commercial
         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.



                                      F-8
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         ASSET RETIREMENT OBLIGATIONS

         Future   obligations  to  retire  an  asset,   including   dismantling,
         remediation  and ongoing  treatment  and  monitoring  of the site,  are
         recognized  and recorded as a liability at fair value as at the time in
         which they are  incurred  or the event  occurs  giving  rise to such an
         obligation.  The  liability is increased  (accreted)  over time through
         periodic charges to earnings.  The corresponding  asset retirement cost
         is capitalized as part of the asset's  carrying value, and is amortized
         over the asset's  estimated  useful life.  The amount of the  liability
         will be subject to re-measurement at each reporting period.

         Where possible,  the Company has estimated asset retirement obligations
         based on current best practice.  These  estimates are subject to change
         as a result of changes  in  regulations,  the  extent of  environmental
         remediation  required,  the means of  reclamation,  or cost  estimates.
         Changes in estimates are accounted  for  prospectively  from the period
         the estimate is revised.

         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.  If and when  the  stock
         options are exercised the applicable amounts of contributed surplus are
         transferred to share capital.

         TRANSLATION OF FOREIGN CURRENCIES

         As the Company's  foreign  subsidiaries  have been dependent on funding
         from their parent, the operations are considered to be integrated. As a
         result,  the temporal method of translating the accounts of the foreign
         subsidiaries  have  been  adopted.   Under  this  method,  the  Company
         translates  monetary  items at the rate of  exchange  in  effect at the
         balance sheet date.  Non-monetary items are translated at average rates
         in effect  during  the period in which  they were  earned or  incurred.
         Revenues and expenses are  translated at average rates in effect during
         the  period  except  for  depreciation   and  amortization   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.



                                      F-9
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         INCOME TAXES

         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 substantially  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  occurs.
         Future income tax assets and  liabilities  are recognized for temporary
         differences  between  the  tax  and  accounting  basis  of  assets  and
         liabilities  as well as for  the  benefit  of  losses  available  to be
         carried  forward to future  years for tax  purposes  only if it is more
         likely than not that they can be realized.

         LOSS PER SHARE

         The loss per share is computed by dividing the net loss by the weighted
         average  number of  common  shares  outstanding  during  the year.  The
         diluted loss per share reflects the potential  dilution of common share
         equivalents,  such as  outstanding  stock options and warrants,  in the
         weighted average number of common shares  outstanding  during the year,
         if dilutive.  For these  purposes the treasury stock method is used for
         the assumed  proceeds  upon the exercise of stock  options and warrants
         that are used to purchase  common  shares at the average  market  price
         during the year.  During  fiscal  2007 and 2006 all of the  outstanding
         options and warrants were anti-dilutive.


3.       ACQUISITION

         On December 1, 2006 (the  "Effective  Date") the Company  completed the
         acquisition  of 100% of the  issued and  outstanding  capital of ALB in
         exchange for the issuance of  10,500,000  common shares of the Company,
         at a fair  value of  $10,500,000.  ALB's  sole  asset is its 49% equity
         interest in the Mina Real Property and the only  liability of ALB is an
         underlying  obligation  of US  $1,925,000  (see  Note  7)  and a 1% net
         smelter  return royalty on the Mina Real  Property.  In addition,  as a
         result of  differences  in the book value and tax value of the  mineral
         property  interest  acquired,  the Company has recorded a future income
         tax liability of $4,300,000 with a corresponding  amount capitalized to
         mineral property interests.

         The  acquisition  of ALB was  accounted  for by the purchase  method as
         summarized  below and the results of operations  were recorded from the
         Effective Date. The assets and liabilities of ALB have been recorded at
         their fair values, as follows:
                                                                         $

         Cash                                                             3,962
         Amounts receivable                                                 423
         Mineral property interests                                  16,963,276
         Equipment                                                       29,727
         Long-term debt assumed                                      (2,197,388)
         Future income tax liabilities                               (4,300,000)
                                                                   ------------
         Net assets acquired                                         10,500,000
                                                                   ============



                                      F-10
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



4.       AMOUNTS RECEIVABLE
                                                       2007            2006
                                                         $               $

         Production receivable                          190,812               -
         Other receivables                               79,185          80,022
                                                   ------------    ------------
                                                        269,997          80,022
                                                   ============    ============


5.       MINERAL PROPERTY INTERESTS

                                                       2007            2006
                                                         $               $

         Exploration costs                              459,819         101,108
         Development and pre-production costs         7,287,980         540,960
         Acquisition and other                       18,492,693         486,584
                                                   ------------    ------------
                                                     26,240,492       1,128,652
                                                   ============    ============

         (a)      Mina Real Property

                  In January 2006 the Company  entered into an option  agreement
                  with ALB to  acquire  up to a 51%  interest  in the Mina  Real
                  Property  located  in Tepic,  Mexico.  The Mina Real  Property
                  comprises of four  concessions  covering  approximately  3,377
                  hectares.  Under  the  agreement  the  Company  made an option
                  payment of US $110,000 and issued 250,000 common shares,  at a
                  fair value of $337,500.  The Company could earn its interests,
                  as follows:

                  i)    an initial  20%  interest  on funding  the initial
                        US $750,000;
                  ii)   a further  20%  interest  on  funding  a  further
                        US $750,000; and
                  iii)  a further 11%  interest on payment of US  $900,000, at
                        the minimum rate of US $75,000 per month, commencing
                        July 1, 2006,  with each  payment  vesting at 0.9166%
                        interest.

                  On October 20, 2006 the Company and ALB completed negotiations
                  and ALB  agreed  to  waive  the  requirement  for any  further
                  payments  and the Company was deemed to have fully  earned its
                  51% interest in the Mina Real Property.

                  On December 1, 2006 the Company  acquired  the  remaining  49%
                  interest in the Mina Real Property, as described in Note 3.

                  The  Company  has also  staked an  additional  3,981  hectares
                  adjacent to the Mina Real Property.

                  Commissioning of the mill began in January 2007. As at May 31,
                  2007 commercial  production had not yet been achieved.  During
                  fiscal  2007,  the  Company  had  recorded  revenue  totalling
                  $890,487 which has been credited against pre-production costs.


                                      F-11
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



5.       MINERAL PROPERTY INTERESTS (continued)

         (b)      Santa Fe Property

                  On March 12, 2007 the Company entered into an option agreement
                  to acquire a 70% interest in the Santa Fe Property  located in
                  Tepic, Mexico.  Under the terms of the agreement,  the Company
                  has agreed to implement a program of  exploration to determine
                  if the Santa Fe Property  can be  economically  exploited.  In
                  addition,  if the exploration work is successful,  the Company
                  has agreed to provide  the  necessary  capital to  construct a
                  processing plant capable of processing a minimum of 200 tonnes
                  per day.  The  Company  will pay a monthly  fee of US  $10,000
                  while it is  conducting  exploration  and  development  on the
                  Santa Fe Property.

         (c)      El Nayar Property

                  During  fiscal  2004  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  Property")  in  Mexico,
                  covering approximately 6,766 hectares. The Company conducted a
                  comprehensive  geological work program during fiscal 2005 and,
                  based on the results,  the Company determined to cease further
                  work  on the El  Nayar  Property  and  wrote-off  $703,058  of
                  acquisition and exploration costs.


6.       PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>

                                   --------------------------------------------    ------------
                                                       2007                            2006
                                   --------------------------------------------    ------------
                                                    ACCUMULATED       NET BOOK        NET BOOK
                                       COST        AMORTIZATION        VALUE           VALUE
                                         $               $               $               $
        <S>                       <C>             <C>             <C>             <C>

         Motor vehicles                  69,907           6,928          62,979          52,921
         Office equipment                16,060             402          15,658           2,420
         Mill and mine equipment        883,184          22,079         861,105               -
         Buildings                      118,495           2,962         115,533               -
         Land                           309,348               -         309,348               -
                                   ------------    ------------    ------------    ------------
                                      1,396,994          32,371       1,364,623          55,341
                                   ============    ============    ============    ============
</TABLE>


7.       LONG-TERM DEBT
                                                       2007            2006
                                                         $               $

         Amount due to Huajicari (US $1,475,000)      1,578,103               -
         Less:  current portion (US $900,000)          (962,910)              -
                                                   ------------    ------------
                                                        615,193               -
                                                   ============    ============

         The amount due to Compania Minera Huajicari  ("Huajicari") is unsecured
         and, as at May 31, 2007,  carries  interest at a rate of 10% per annum,
         with repayment on a monthly basis of US $75,000 plus accrued  interest.
         Since the  completion  of the  purchase of ALB, as described in Note 3,
         the Company has repaid $619,285 (US $450,000) principal and interest of
         $175,902 (US $153,542). As at May 31, 2007 interest of $12,038 remained
         outstanding  and has been  included  in  accounts  payable  and accrued
         liabilities.


                                      F-12
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



7.       LONG-TERM DEBT (continued)

         The Company is obligated to make the  following  principal  payments in
         each of the next two fiscal years:

                                                                         $
         2008                                                           962,910
         2009                                                           615,193
                                                                   ------------
                                                                      1,578,103
                                                                   ============


8.       SHARE CAPITAL

         Authorized:  Unlimited common shares without par value

         Issued:
<TABLE>
<CAPTION>

                                               2007                            2006                            2005
                                   ----------------------------    ----------------------------    ----------------------------
                                      SHARES          AMOUNT          SHARES          AMOUNT          SHARES          AMOUNT
                                                         $                               $                               $
        <S>                       <C>             <C>             <C>             <C>             <C>             <C>

         Balance, beginning
            of year                  11,237,735      75,890,208       2,230,735      70,970,313       1,853,735      70,593,713
                                   ------------    ------------    ------------    ------------    ------------    ------------
         Issued during the year

         For cash

         Private placements           4,600,456       6,575,524       6,000,000       3,220,000         355,000         355,000
         Exercise of warrants         2,864,247       3,188,286       2,557,000       1,671,050               -               -
         Exercise of options            463,000         302,360               -               -           3,000           7,500
         Exercise of agent's
            options                           -               -         150,000          75,000               -               -
         Reallocation from
            contributed surplus re-
            lating to the exercise
            of options                        -         226,662               -               -               -           6,600
         Reallocation from
            contributed surplus re-
            lating to the exercise
            of agent's option and
            related warrants                  -          32,965               -         112,500               -               -
         For corporate finance fees           -               -          50,000          30,500               -               -
         For mineral interests                -               -         250,000         337,500          10,000          10,000
         For acquisition of ALB
            (Note 3)                 10,500,000      10,500,000               -               -               -               -
         Finders fee                          -               -               -               -           9,000           9,000
                                   ------------    ------------    ------------    ------------    ------------    ------------
                                     18,427,703      20,825,797       9,007,000       5,446,550         377,000         388,100
         Less:  share issue costs             -        (278,537)              -        (526,655)              -         (11,500)
                                   ------------    ------------    ------------    ------------    ------------    ------------
                                     18,427,703      20,547,260       9,007,000       4,919,895         377,000         376,600
                                   ------------    ------------    ------------    ------------    ------------    ------------
         Balance, end of year        29,665,438      96,437,468      11,237,735      75,890,208       2,230,735      70,970,313
                                   ============    ============    ============    ============    ============    ============
</TABLE>




                                      F-13
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



8.       SHARE CAPITAL (continued)

         (a)      During  fiscal 2007 the Company  completed a number of private
                  placements, as follows:

                  (i)      2,000,000  units  at a price  of  $0.90  per unit for
                           gross proceeds of $1,800,000. Each unit comprised one
                           common  share and one share  purchase  warrant.  Each
                           warrant   entitles   the  holder  to   purchase   one
                           additional common share 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,   subject  to
                           acceleration  in certain  circumstances.  The Company
                           incurred $18,623 of share issue costs associated with
                           the private placement;

                  (ii)     700,456  units at a price of $1.15 per unit for gross
                           proceeds of $805,524.  Each unit comprised one common
                           share and one share  purchase  warrant.  Each warrant
                           entitles the holder to purchase one additional common
                           share at an  exercise  price of $1.40 per share on or
                           before  December  11,  2008.  After June 30, 2007 the
                           warrants are subject to a forced conversion provision
                           once the  Company's  common shares trade in excess of
                           $2.30 per share for 45 consecutive  trading days. The
                           Company  incurred  $45,213  of of share  issue  costs
                           associated with the private placement;

                  (iii)    1,200,000  units  at a price  of  $1.85  per unit for
                           gross proceeds of $2,220,000. Each unit comprised one
                           common share and  one-half  share  purchase  warrant.
                           Each full warrant  entitles the holder to purchase an
                           additional common share at a price of $2.25 per share
                           for  a  period  of  one  year.  The  Company  paid  a
                           commission of $155,400, administrative fee of $10,000
                           and share issue costs of $39,526; and


                  (iv)     700,000  units at a price of $2.50 per unit for gross
                           proceeds  of  $1,750,000.  Each  unit  comprised  one
                           common  share and one share  purchase  warrant.  Each
                           warrant   entitles   the  holder  to   purchase   one
                           additional common share at an exercise price of $2.75
                           per share on or before November 17, 2008. The Company
                           incurred $9,775 of share issue costs  associated with
                           the private placement.

         (b)      During  fiscal 2006 the Company  completed a number of private
                  placements, as follows:

                  i)       5,000,000  units at $0.50 per unit for gross proceeds
                           of  $2,500,000.  Each unit comprised one common share
                           and one half share purchase warrant. One full warrant
                           was  exercisable  into one common  share at $0.65 per
                           common share on or before  January 16, 2008,  subject
                           to a forced  conversion  provision.  The Company paid
                           $22,000 as finders' fees on the non-brokered  portion
                           of the private placement.  On the brokered portion of
                           the private placement,  the Company paid a commission
                           of $150,000 and issued  25,000  common  shares,  at a
                           fair value of $12,500,  for a corporate  finance fee.
                           The  Company  also  granted  an  option  to the agent
                           entitling it to acquire  150,000  units at a price of
                           $0.50  per  unit,  for a  period  of two  years.  The
                           agent's  option was exercised  during the 2006 fiscal
                           year.  The  units  issued  to the  agent had the same
                           terms  as  the  units   issued   under  the   private
                           placements. In addition, the Company incurred $71,087
                           of costs relating to the private  placement.  Certain
                           directors and officers of the Company have  purchased
                           270,000 units of the private placement.



                                      F-14
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



8.       SHARE CAPITAL (continued)

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

                           During  fiscal  2006  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)      1,000,000  units at $0.72 per unit for gross proceeds
                           of $720,000. 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 share  issue  costs  associated  with 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  fiscal  2005  the  Company  completed  a  non-brokered
                  private  placement  financing  of 355,000  units at a price of
                  $1.00 per unit,  for gross  proceeds  of  $355,000.  Each unit
                  comprised  one  common  share  and  one-half   share  purchase
                  warrant.  Each full share purchase warrant entitles the holder
                  to purchase  one  additional  common share for a period of two
                  years,  at an  exercise  price of $1.50 per share on or before
                  February  7,  2006 and,  thereafter,  at $2.00 per share on or
                  before February 7, 2007. The Company issued 9,000 units having
                  the same terms as the  private  placement,  at a fair value of
                  $9,000,  in consideration as finder's fees on a portion of the
                  private placement.  Certain directors of the Company and their
                  immediate  family members have  purchased  65,000 units of the
                  private placement.

         (d)      A summary of the number of common shares reserved  pursuant to
                  the Company's  outstanding  warrants at May 31, 2007, 2006 and
                  2005 and the changes for the years ending on those dates is as
                  follows:
<TABLE>
<CAPTION>

                                   ----------------------------    ----------------------------    ----------------------------
                                               2007                            2006                            2005
                                   ----------------------------    ----------------------------    ----------------------------
                                                      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   1,282,000         0.90            688,500         1.78            582,365         4.60

                  Issued              4,000,455         1.64          3,675,000         0.70            182,000         1.50
                  Exercised          (2,864,247)        1.11         (2,557,000)        0.66                  -            -
                  Expired               (54,750)        2.00           (524,500)        1.82            (75,865)       23.04
                                   ------------                    ------------                    ------------
                  Balance,
                  end of year         2,363,458         1.90          1,282,000         0.90            688,500         1.78
                                   ============                    ============                    ============
</TABLE>



                                      F-15
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



8.       SHARE CAPITAL (continued)

                  The following table summarizes information about the number of
                  common shares reserved pursuant to warrants outstanding at May
                  31, 2007:

                                        EXERCISE
                     NUMBER               PRICE            EXPIRY DATE
                                            $

                       410,359             0.80             May 3, 2008
                        63,100          1.15/1.30           July 28, 2007 / 2008
                       590,000             1.40             December 11, 2008
                        74,999             2.25             February 2, 2008
                       525,000             2.25             February 12, 2008
                       700,000             2.75             November 17, 2008
                  ------------
                     2,363,458
                  ============


9.       STOCK OPTIONS AND STOCK-BASED COMPENSATION

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

         During fiscal 2007 the Company granted 2,425,000 (2006 - 720,000;  2005
         - 178,500)  stock  options to the  Company's  directors,  employees and
         consultants  and recorded  compensation  expense of $2,542,500  (2006 -
         $256,159; 2005 - $138,725).

         The fair value of stock  options  granted to  directors,  employees and
         consultants  is estimated on the date of grant using the  Black-Scholes
         option pricing model with the following assumptions used for the grants
         made during fiscal 2007, 2006 and 2005:
<TABLE>
<CAPTION>

                                                2007                      2006                      2005
        <S>                            <C>                       <C>                     <C>

         Risk-free interest rate           3.92% - 4.38%              3.63% - 3.86%            2.69% - 3.07%
         Estimated volatility               103% - 116%                125% - 136%              146% - 147%
         Expected life                   3 years - 5 years        9 months - 18 months     12 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 $1.05
         (2006 - $0.36; 2005 - $0.80) per share .

         Option-pricing  models  require the use of  estimates  and  assumptions
         including   the  expected   volatility.   Changes  in  the   underlying
         assumptions  can  materially  affect  the  fair  value  estimates  and,
         therefore,  existing models do not necessarily provide reliable measure
         of the fair value of the Company's stock options.


                                      F-16
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



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

         A summary of the Company's  outstanding  stock options at May 31, 2007,
         2006 and 2005 and the changes for the years ending on those dates is as
         follows:
<TABLE>
<CAPTION>

                                               2007                            2006                            2005
                                   ----------------------------    ----------------------------    ----------------------------
                                                     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     720,000        0.62             217,500        1.30              70,000        2.50
         Granted                      2,425,000        1.64             720,000        0.62             178,500        1.04
         Exercised                     (463,000)       0.65                   -           -              (3,000)       2.50
         Cancelled/expired             (100,000)       0.80            (217,500)       1.30             (28,000)       2.50
                                   ------------                    ------------                    ------------
         Balance, end of year         2,582,000        1.57             720,000        0.62             217,500        1.30
                                   ============                    ============                    ============
</TABLE>


         The  following  table  summarizes  information  about the stock options
         outstanding and exercisable at May 31, 2007:

            NUMBER           NUMBER        EXERCISE
          OUTSTANDING     EXERCISABLE        PRICE            EXPIRY DATE
                                               $
               27,500          27,500         0.50            November 10, 2008
              234,500         234,500         0.62            January 17, 2009
              150,000          75,000         1.40            November 24, 2009
              395,000         395,000         0.90            September 5, 2011
            1,625,000       1,625,000         1.85            January 8, 2010
              150,000               -         2.15            February 14, 2010
         ------------    ------------
            2,582,000       2,357,000
         ============    ============

         See also Note 18.


10.      CONTRIBUTED SURPLUS

         The Company's  contributed surplus as at May 31, 2007, 2006 and 2005 is
         comprised of the following:
<TABLE>
<CAPTION>

                                                                       2007            2006            2005
                                                                         $               $               $
        <S>                                                       <C>             <C>             <C>

         Balance, beginning of year                                     608,284         286,125         154,000

         Stock-based compensation on stock options (Note 9)           2,542,500         256,159         138,725
         Stock options exercised                                       (226,662)              -          (6,600)
         Stock-based compensation on agent's option and
            warrants (Note 8(b))                                              -         178,500               -
         Agent's option and warrants exercised                          (32,965)       (112,500)              -
                                                                   ------------    ------------    ------------
         Balance, end of year                                         2,891,157         608,284         286,125
                                                                   ============    ============    ============
</TABLE>


                                      F-17
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



11.      RELATED PARTY TRANSACTIONS

         (a)      The  Company was  charged  for  various  services  provided by
                  companies  controlled  by  current  and former  directors  and
                  officers of the Company, as follows:
<TABLE>
<CAPTION>

                                                       2007            2006            2005
                                                         $               $               $
                 <S>                              <C>             <C>             <C>

                  Accounting and administration               -          30,990          78,788
                  Management fees                        58,500          78,887               -
                  Professional fees                      78,466          60,917          15,750
                                                   ------------    ------------    ------------
                                                        136,966         170,794          94,538
                                                   ============    ============    ============
</TABLE>

                  These  fees  have  been  either   expensed  to  operations  or
                  capitalized to mineral  property  interest based on the nature
                  of the expenditures.  As at May 31, 2007, accounts payable and
                  accrued  liabilities  include $26,037 (2006 - $17,210;  2005 -
                  $15,614) due to these related parties. These transactions were
                  measured  at the  exchanged  amount  which  was the  amount of
                  consideration   established  and  agreed  to  by  the  related
                  parties.

         (b)      Other  related  parties  are  disclosed   elsewhere  in  these
                  consolidated financial statements.


12.      INCOME TAXES

         Future income tax assets and  liabilities  of the Company as at May 31,
        2007 and 2006 are as follows:
                                                       2007            2006
                                                         $               $
         Future income tax assets

            Losses carried forward                    2,401,600       2,492,600
            Share issue costs                           151,100         101,800
                                                   ------------    ------------
                                                      2,552,700       2,594,400

         Valuation allowance                         (2,552,700)     (2,594,400)
                                                   ------------    ------------
         Net future income tax asset                          -               -
                                                   ============    ============

         Future income tax liabilities

            Mineral properties                        4,300,000               -
                                                   ============    ============



                                      F-18
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



12.      INCOME TAXES (continued)

         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:

                                                       2007            2006
                                                         $               $
         Income tax rate reconciliation

         Combined federal and provincial
            income tax rate                              34.12%          34.12%
                                                   ============    ============

         Expected income tax recovery                (1,253,600)       (252,700)
         Non-deductible stock-based compensation        867,600          87,400
         Foreign income tax rate differences             (4,100)              -
         Other                                           17,700          (4,000)
         Unrecognized benefit of income tax losses      372,400         169,300
                                                   ------------    ------------
         Actual income tax recovery                           -               -
                                                   ============    ============

         As at May 31, 2007 the Company has accumulated  non-capital  losses for
         income tax purposes of  approximately  $5.7 million for Canadian income
         tax purposes to offset  against  future  income,  expiring from 2008 to
         2027.  The  Company  also  has   accumulated   non-capital   losses  of
         approximately 18.0 million pesos for Mexican tax purposes.

         Future income tax benefits  which may arise as a result of these losses
         have  not  been  recognized  in  these  financial  statements  as their
         realization is unlikely.


13.      SEGMENTED INFORMATION

         The  Company  operates  in  one  industry  segment,   the  acquisition,
         exploration and development of mineral interests. The Company's mineral
         operations  are located in Mexico and its corporate  assets are located
         in Canada.
                                   --------------------------------------------
                                                       2007
                                   --------------------------------------------
                                   IDENTIFIABLE                          NET
                                      ASSETS         REVENUES           LOSS
                                         $               $               $

         Mineral operations (Mexico) 29,217,261               -        (113,548)
         Corporate (Canada)           1,553,303          46,622      (3,560,513)
                                   ------------    ------------    ------------
                                     30,770,564          46,622      (3,674,061)
                                   ============    ============    ============
                                   --------------------------------------------
                                                       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-19
<PAGE>



                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



13.      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)
                                   ============    ============    ============


14.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The fair values of financial  instruments at May 31, 2007 and 2006 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, 2007
         and 2006 may differ significantly from that presented.

         Fair  value   approximates  the  amounts  reflected  in  the  financial
         statements  for cash,  amounts  receivable  and  accounts  payable  and
         accrued liabilities due to their relative short periods to maturity. In
         addition,  the fair value of long-term  debt is  approximated  by their
         carrying amount as the debt bears a fair market rate of interest.

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




                                      F-20
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



15.      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>

                                                                       2007           2006            2005
                                                                         $              $               $
                 <S>                                              <C>             <C>             <C>

                  CONSOLIDATED STATEMENTS OF OPERATIONS
                     AND COMPREHENSIVE INCOME

                  Loss for the year

                  Canadian GAAP                                      (3,674,061)       (741,255)     (1,108,987)
                  Mineral interests expensed (ii)                    (7,105,731)       (642,068)        220,582
                  Other compensation expense (iv)                             -          (2,700)        (19,500)
                                                                   ------------    ------------    ------------
                  US GAAP                                           (10,779,792)     (1,386,023)       (907,905)

                  Other comprehensive income

                  Unrealized holding gain (loss) on
                     available-for-sale marketable securities (i)             -               -          39,200
                                                                   ------------    ------------    ------------
                  Comprehensive (loss) for the year                 (10,779,792)     (1,386,023)       (868,705)
                                                                   ============    ============    ============

                  Loss per share basic and fully diluted - US GAAP       $(0.54)         $(0.32)         $(0.44)
                                                                   ============    ============    ============
</TABLE>

                                                       2007            2006
                                                         $               $
                  CONSOLIDATED BALANCE SHEETS

                  Total Assets
                  Canadian GAAP                      30,770,564       4,971,556
                  Mineral interests expensed (ii)    (7,747,799)       (642,068)
                                                   ------------    ------------
                  US GAAP                            23,022,765       4,329,488
                                                   ============    ============

                  Total Liabilities

                  Canadian GAAP and US GAAP           6,857,383         214,447
                                                   ============    ============

                  Shareholders' Equity

                  Canadian GAAP                      23,913,181       4,757,109
                  Mineral interests expensed (ii)    (7,747,799)       (642,068)
                                                   ------------    ------------
                  US GAAP                            16,165,382       4,115,041
                                                   ============    ============



                                      F-21
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



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

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                       2007            2006            2006
                                                                         $               $               $
                 <S>                                              <C>             <C>             <C>

                  OPERATING ACTIVITIES

                  Cash used per Canadian GAAP                        (2,651,212)       (354,170)       (271,651)
                  Mineral interests                                  (7,254,078)       (791,152)       (415,255)
                                                                   ------------    ------------    ------------
                  Cash used per US GAAP                              (9,905,290)     (1,145,322)       (686,906)
                                                                   ============    ============    ============

                  INVESTING ACTIVITIES

                  Cash used per Canadian GAAP                        (8,494,059)       (833,638)       (388,800)
                  Mineral interests                                   7,254,078         791,152         415,255
                                                                   ------------    ------------    ------------
                  Cash provided from (used) per US GAAP              (1,239,981)        (42,486)         26,455
                                                                   ============    ============    ============
</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-22
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



15.      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 fiscal 2006, directors, officers
                           and companies controlled by the directors or officers
                           acquired  270,000  shares  (2005  -  65,000)  of  the
                           Company,  pursuant to private placements conducted by
                           the Company,  for cash  proceeds of $135,000  (2005 -
                           $65,000).  There was no  participation by the related
                           parties in the private placements conducted in fiscal
                           2007.

                  (iv)     Private Placements of Common Stock

                           The  Company  conducts  the  majority  of its  equity
                           financings pursuant to private placements.  Under the
                           policies  of the TSX Venture  Exchange,  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.

                           With  the   adoption  of   Statement   of   Financial
                           Accounting  Standards No. 123R in fiscal 2007,  there
                           exists no difference between Canadian and US GAAP and
                           no adjustment is required.

                  (v)      Functional Currency

                           The  Company's  functional  currency is the  Canadian
                           dollar.

                  (vi)     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, 2007
                           the Company has  accumulated  a deficit of $6,106,698
                           while in the development stage.



                                      F-23
<PAGE>



                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



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

         (b)      Recent Accounting Pronouncements

                  United States Pronouncements

                  The Financial  Accounting  Standards Board ("FASB") has issued
                  Statement  of Financial  Accounting  Standards  ("SFAS")  157,
                  "Fair Value  Measurements"  ("SFAS  157"),  which defines fair
                  value, establishes a framework for consistently measuring fair
                  value  under  GAAP and  expands  disclosures  about fair value
                  measurements.  SFAS 157 is effective beginning January 1, 2008
                  and the  provisions of SFAS 157 will be applied  prospectively
                  as of that date.  The  adoption of SFAS 157 is not expected to
                  have an effect on the Company's financial position.

                  In February  2007 the FASB  issued  SFAS 159,  "The Fair Value
                  Option for  Financial  Assets and  Liabilities  - Including an
                  amendment  of  FASB  Statement  No.  115".  SFAS  159  permits
                  entities  to choose to measure  certain  financial  assets and
                  liabilities  at  fair  value  at  specified   election  dates.
                  Unrealized gains and losses,  arising  subsequent to adoption,
                  are  reported  in  earnings.  SFAS 159 will be  effective  for
                  fiscal years beginning after November 2007 with early adoption
                  possible but subject to certain requirements.  The adoption of
                  SFAS 159 is not  expected  to have an effect on the  Company's
                  financial position.

                  The  FASB  has  also   issued  FAS   Interpretation   No.  48,
                  "Accounting  for  Uncertainty in Income Taxes" ("FIN 48"). FIN
                  48 clarifies the  accounting  for  uncertainty in income taxes
                  recognized  in  an   enterprise's   financial   statements  in
                  accordance with FAS  Interpretation  No. 109,  "Accounting for
                  Income Taxes".  FIN 48 prescribes a recognition  threshold and
                  measurement   attributable   for   the   financial   statement
                  recognition  and  measurement  of  a  tax  position  taken  or
                  expected  to be taken in a tax  return.  FIN 48 also  provides
                  guidance  on  derecognition,   classification,   interest  and
                  penalties,  accounting  in interim  periods,  disclosures  and
                  transitions.  FIN 48 is effective  for fiscal years  beginning
                  after  December  15,  2006.  The  adoption  of  FIN  48 is not
                  expected  to  have  an  effect  on  the  Company's   financial
                  position.

                  Canadian Pronouncements

                  CICA Handbook Section 1530: "Comprehensive Income",  effective
                  for  fiscal  years  beginning  on or after  October  1,  2006,
                  establishes  standards  for  reporting  comprehensive  income,
                  defined as a change in value of net assets  that is not due to
                  owner   activities,   by  introducing  a  new  requirement  to
                  temporarily  present  certain gains and losses  outside of net
                  income.

                  CICA  Handbook  Section 3251:  "Equity",  effective for fiscal
                  years  beginning  on or after  October  1,  2006,  establishes
                  standards for the presentation of equity and changes in equity
                  during the reporting period.

                  CICA   Handbook   Section  3855:   "Financial   Instruments  -
                  Recognition  and  Measurement",  effective  for  fiscal  years
                  beginning on or after October 1, 2006,  establishes  standards
                  for  the  recognition,   classification   and  measurement  of
                  financial   instruments  including  the  presentation  of  any
                  resulting    gains   or   losses.    Assets    classified   as
                  available-for-sale  securities will have revaluation gains and
                  losses  included  in other  comprehensive  income  until these
                  assets are no longer included on the balance sheet.


                                      F-24
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



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

         CICA  Handbook  Section  1506:   "Accounting   Changes"  (CICA  1506"),
         effective  for  fiscal  years  beginning  on or after  January 1, 2007,
         establishes   standards  and  new  disclosures   requirements  for  the
         reporting  of changes in  accounting  policies  and  estimates  and the
         reporting of error  corrections.  CICA1506  clarifies  that a change in
         accounting  policy  can  be  made  only  if it is a  requirement  under
         Canadian GAAP or if it provides  reliable and more  relevant  financial
         statement information. Voluntary changes in accounting policies require
         retrospective application of prior period financial statements,  unless
         the   retrospective   effects  of  the  changes  are  impracticable  to
         determine,  in which case the retrospective  application may be limited
         to the assets and liabilities of the earliest period practicable,  with
         a corresponding adjustment made to opening retained earnings.

         The  Company  will be  required  to  adopt  the  above  new  accounting
         procedures  for its fiscal period  beginning June 1, 2007. The adoption
         of these new  pronouncements  is not  expected to have an effect on the
         Company's financial position or results of operations.


16.      SUPPLEMENTAL CASH FLOW INFORMATION

         Non-cash operating,  financing and investing  activities were conducted
         by the Company during fiscal 2007, 2006 and 2005 as follows:

<TABLE>
<CAPTION>

                                                                       2007            2006            2006
                                                                         $               $               $
                 <S>                                              <C>             <C>             <C>

         Financing activities

         Issuance of common shares for acquisition of ALB            10,500,000               -               -
         Long-term debt                                               2,197,388               -               -
         Issuance of common shares non-cash consideration               259,627         480,500          25,600
         Contributed surplus                                           (259,627)         66,000          (6,600)
         Share issue costs                                                    -        (178,500)         (9,000)
                                                                   ------------    ------------    ------------
                                                                     12,697,388         368,000          10,000
                                                                   ============    ============    ============
         Investing activities

         Additions to equipment                                         (29,727)              -               -
         Additions to mineral property interests                    (17,862,147)       (337,500)        (67,221)
                                                                   ------------    ------------    ------------
                                                                    (17,891,874)       (337,500)        (67,221)
                                                                   ============    ============    ============
         Operating activities

         Increase in future tax liabilities                           4,300,000               -               -
         Increase in asset retirement obligations                       570,682               -               -
         Increase in accounts payable and accrued liabilities           323,804               -               -
         Corporate finance fee                                                -         (30,500)              -
         Drilling advance                                                     -               -          57,221
                                                                   ------------    ------------    ------------
                                                                      5,194,486         (30,500)         57,221
                                                                   ============    ============    ============
</TABLE>


                                      F-25
<PAGE>


                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2007, 2006 AND 2005
            (Expressed in Canadian dollars, unless otherwise stated)



16.      SUPPLEMENTAL CASH FLOW INFORMATION (continued)

         Other supplemental cash flow information:

                                       2007            2006            2005
                                         $               $               $

         Interest paid in cash          180,505               -               -
                                   ============    ============    ============

         Income taxes paid in cash            -               -               -
                                   ============    ============    ============


17.      ASSET RETIREMENT OBLIGATION
                                       2007            2006           2005
                                         $               $               $

         Balance, beginning of year           -               -               -
         Initial estimated
            liability                   570,682               -               -
         Accretion                       20,212               -               -
                                   ------------    ------------    ------------
         Balance, end of year           590,894               -               -
                                   ============    ============    ============

         The total  undiscounted  amount of  estimated  cash flows  required  to
         settle the Company's  estimated  obligation is $750,000  which has been
         discounted using a credit adjusted risk free rate of 8.5% and inflation
         rate  of 4%.  The  reclamation  obligation  relates  to the  Mina  Real
         Property. The present value of the reclamation liability may be subject
         to  change  based  on  management's   current  estimates,   changes  in
         remediation   technology  or  changes  to  the   applicable   laws  and
         regulations.  Such  changes  will be  recorded  in the  accounts of the
         Company as they occur.


18.      SUBSEQUENT EVENTS

         (a)      On October 25, 2007 the Company  completed a private placement
                  of  2,000,000  units at $2.00 per unit for gross  proceeds  of
                  $4,000,000.  Each unit comprises one common share and one-half
                  share purchase  warrant.  One full warrant entitles the holder
                  to purchase an additional common share at an exercise price of
                  $2.25 per share  for a period of 18 month.  Canaccord  Capital
                  Corp.  (the "Agent") was paid a commission of $40,274 cash and
                  126,113  units  (the  "Agent's  Units")  at a  fair  value  of
                  $252,226.  Each Agent's Unit  comprises  one common shares and
                  one-half share purchase warrant,  with the same exercise terms
                  as the purchase  warrants.  The Company also paid Canaccord an
                  administration  fee of  $15,000,  a  corporate  finance fee of
                  125,000  common  shares  of the  Company  and  issued  146,250
                  warrants (the  "Agent's  Warrants").  Each Agent's  Warrant is
                  exercisable  into a common share at an exercise price of $2.00
                  per share for a period of 18 months.

         (b)      Subsequent  to May 31, 2007 the Company  granted stock options
                  to its  officers,  directors,  employees  and  consultants  to
                  purchase up to 1,254,000  shares at prices from $1.65 to $2.30
                  per share, for a period of three years.

         (c)      Subsequent to May 31, 2007 the Company  issued  202,300 common
                  shares on the  exercise of warrants  for  $199,825 and 275,500
                  common shares on the exercise of options for $183,290.




                                      F-26
<PAGE>

                                                                      SCHEDULE I


<PAGE>



                            ROCHESTER RESOURCES LTD.
                         (AN EXPLORATION STAGE COMPANY)
               CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
                           FOR THE YEARS ENDED MAY 31



<TABLE>
<CAPTION>

                                                      2007                              2006
                                 ----------------------------------------------     ------------
                                   MINA REAL        SANTA FE           TOTAL            TOTAL
                                       $                $                $                $
<S>                             <C>              <C>              <C>              <C>

BALANCE - BEGINNING OF YEAR         1,128,652                -        1,128,652                -
                                 ------------     ------------     ------------     ------------
COSTS INCURRED DURING THE YEAR

EXPLORATION COSTS

Accommodation                          29,229                            29,229                -
Assays                                 23,293                -           23,293                -
Amortization                           29,515                -           29,515                -
Camp costs                             26,492                -           26,492           27,642
Contractors                            16,365                -           16,365                -
Equipment rental                       16,143                -           16,143            7,416
Food                                    3,442                -            3,442                -
Fuel and lubricants                     9,619                -            9,619            2,238
Geologists and related                 79,892                -           79,892                -
Mine and mill camp                     77,761                -           77,761                -
Miscellaneous                          18,686                -           18,686           10,092
Surveying                               7,328                -            7,328                -
Supplies                               17,522                -           17,522           52,283
Travel                                  3,424                -            3,424            1,437
                                 ------------     ------------     ------------     ------------
                                      358,711                -          358,711          101,108
                                 ------------     ------------     ------------     ------------
DEVELOPMENT AND PRE-
   PRODUCTION COSTS

Mine development                    2,043,913                -        2,043,913                -
Pre-production costs                5,593,594                -        5,593,594          540,960
                                 ------------     ------------     ------------     ------------
                                    7,637,507                -        7,637,507          540,960
Less: net revenues received
  prior to commercial production     (890,487)                -        (890,487)               -
                                 ------------     ------------     ------------     ------------
                                    6,747,020                -        6,747,020          540,960
                                 ------------     ------------     ------------     ------------
ACQUISITION COSTS AND OTHER

Option payments and other           2,600,915           34,186        2,635,101          149,084
Issuance of common shares          10,500,000                -       10,500,000          337,500
Future income tax adjustment        4,300,000                -        4,300,000                -
Asset retirement obligation           571,008                -          571,008                -
                                 ------------     ------------     ------------     ------------
                                   17,971,923           34,186       18,006,109          486,584
                                 ------------     ------------     ------------     ------------
                                   25,077,654           34,186       25,111,840        1,128,652
                                 ------------     ------------     ------------     ------------
BALANCE - END OF YEAR              26,206,306           34,186       26,240,492        1,128,652
                                 ============     ============     ============     ============
</TABLE>


                                      F-27
<PAGE>