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, 2005
                                       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.
                   2,230,735 COMMON SHARES AS OF MAY 31, 2005

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 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]


<PAGE>



GENERAL INFORMATION:

Unless otherwise indicated, all references herein are to Canadian dollars.

Unless otherwise  indicated  herein,  the term "Company" means  collectively the
Company and its subsidiaries.

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

                                    GLOSSARY

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

AG                                  silver

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

AU                                  gold

CM                                  centimeter

CU                                  copper

DIAMOND DRILL                       a type of rotary  drill in which the cutting
                                    is done by abrasion  usingdiamonds  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

                                       -2-

<PAGE>


                                    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.

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.

INDUCED POLARIZATION (I.P.)         the   method   used   to   measure   various
                                    electrical   responses  to  the  passage  of
                                    alternating     currents    of     different
                                    frequencies through near-surface rocks or to
                                    the passage of pulses of electricity.

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

KM                                  kilometer

M                                   meters

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

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

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

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

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


                                       -3-

<PAGE>



PETROGRAPHIC                        the description and classification of rocks.

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

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

PROBABLE (INDICATED) RESERVES       (SEC Guide 7 definition)  reserves for which
                                    quantity  and  grade   and/or   quality  are
                                    computed  from  information  similar to that
                                    used for proven (measure) 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.

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

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

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

PYRITE                              iron sulphide

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.


                                       -4-

<PAGE>



REVERSE CIRCULATION  DRILL          a large  machine that  produces a continuous
                                    chip  sample of the rock or  material  being
                                    drilled.

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.

STRIKE                              the  direction of a  horizontal  line on the
                                    surface of the bed, or other planar feature.

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

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

TON                                 short ton (2,000 pounds).

TONNE                               metric tonne (2,204.6 pounds).

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

FORWARD LOOKING STATEMENTS

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


                                       -5-

<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,  2005,
2004 and 2003,  was derived from the  consolidated  financial  statements of the
Company  which  have been  audited  by D & H Group  LLP,  independent  Chartered
Accountants,  as indicated  in their report which is included  elsewhere in this
annual report. The selected financial data set forth for the years ended May 31,
2002 and 2001,  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 10 of the Company's  consolidated financial statements
included herein for a discussion of the material  differences  between  Canadian
generally accepted accounting  principles ("GAAP") and US GAAP, and their effect
on the Company's financial statements.

<TABLE>
<CAPTION>

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

                                                          2005         2004         2003         2002         2001
                                                     ---------    ---------    ---------    ---------    ---------

<S>                                                 <C>           <C>         <C>          <C>          <C>


Revenues                                                     -            -         $128         $362       $7,906
Interest Income and Other                                  $20          $95          $58       $1,339         $153
Production Costs                                             -            -         $(84)       $(264)     $(2,877)
General and Administrative                               $(251)       $(288)       $(821)     $(1,280)     $(1,954)
Stock-Based Compensation                                 $(139)       $(154)           -            -            -
Interest Expense                                             -        $(234)       $(641)     $(1,079)     $(2,184)
Depreciation, Depletion and Impairment                     $(6)         $(2)     $(6,881)    $(39,482)     $(2,200)
Write-off of Unproven Mineral Claims                     $(703)           -            -            -            -
Research Development & Marketing                             -            -        $(364)       $(793)           -
Gain on Sale of Petroleum Interests                          -            -            -            -         $321
Impairment of Investment and Advances                        -            -        $(938)     $(1,101)     $(1,470)
Other                                                     $(30)           -        $(247)       $(115)         $37
Operating Income (Loss)                                  $(396)       $(444)     $(8,023)    $(41,458)        $875
Net Income (Loss)                                      $(1,109)       $(582)     $(9,791)    $(42,414)     $(2,268)
Earnings (Loss) Per Share                               $(0.56)      $(0.57)     $(21.76)    $(116.52)      $(7.15)
Weighted Average Number of Shares                        1,966        1,025          450          364          317
Dividends per Share                                          -            -            -            -            -

</TABLE>

                                       -6-

<PAGE>



<TABLE>
<CAPTION>

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

                                                          2005         2004         2003         2002         2001
                                                     ---------    ---------    ---------    ---------    ---------

<S>                                                 <C>           <C>         <C>          <C>          <C>

Working Capital (Deficiency)                              $245         $551      $(1,494)      $1,059       $2,762
Resource Assets                                              -         $221            -       $7,822      $45,242
Investment and Advances                                      -            -            -         $991       $1,160
Other Assets                                               $11          $85         $184         $341         $304
Non-current Obligations                                      -            -            -            -            -
Shareholders' Equity                                      $256         $857      $(1,310)      $4,505      $44,086
Total Assets                                              $287         $873         $411      $11,666      $54,937
Capital Stock                                          $70,970       70,594       67,568       61,316       58,482
</TABLE>

ADJUSTMENT TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

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

<TABLE>
<CAPTION>

                                                                       2005            2004            2003
                                                                         $               $               $
<S>                                                               <C>             <C>             <C>

CONSOLIDATED STATEMENTS OF OPERATIONS
    AND COMPREHENSIVE INCOME

Loss for the year
    Canadian GAAP                                                    (1,108,987)       (582,395)     (9,790,501)
    Write-down of investment (i)                                              -               -          69,273
    Write-off of option interests and exploration costs (ii)            220,582        (220,582)              -
    Other compensation expense (iv)                                     (19,500)        (27,000)              -
    Accretion of liability component of long-term debt (v)                    -          92,139         156,183
    Induced early conversion of convertible debt securities (vi)              -               -      (1,634,181)
                                                                   ------------    ------------    ------------
    US GAAP                                                            (907,805)       (737,838)    (11,199,226)

OTHER COMPREHENSIVE INCOME

    Unrealized holding gain (loss) on
       available-for-sale marketable securities (i)                      39,200          59,520         (69,273)
                                                                   ------------    ------------    ------------
Comprehensive (loss) for the year                                      (868,705)       (678,318)    (11,268,499)
                                                                   ============    ============    ============

Loss per share basic and fully diluted - US GAAP                         $(0.44)         $(0.66)        $(25.03)
                                                                   ============    ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                                       2005            2004
                                                                         $               $
<S>                                                               <C>             <C>

CONSOLIDATED BALANCE SHEETS

Total Assets

    Canadian GAAP                                                       287,316         872,928
    Available for sale securities (i)                                    39,200          59,520
    Option interests and deferred exploration costs expensed (ii)             -        (220,582)
                                                                   ------------    ------------
    US GAAP                                                             326,516         711,866
                                                                   ============    ============
Total Liabilities

    Canadian GAAP and US GAAP                                            31,006          16,356
                                                                   ============    ============
</TABLE>


                                       -7-

<PAGE>


<TABLE>
<CAPTION>
                                                                       2005            2004
                                                                         $               $
<S>                                                               <C>             <C>

Shareholders' Equity

    Canadian GAAP                                                       256,310         856,572
    Available for sale securities (i)                                    39,200          59,520
    Option interests and deferred exploration costs expensed (ii)             -        (220,582)
                                                                   ------------    ------------
    US GAAP                                                             295,510         695,510
                                                                   ============    ============
</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)     Option Interests and Deferred Exploration Costs

         Option  interests and deferred  exploration  costs are accounted for in
         accordance  with Canadian  GAAP. The Company has determined for US GAAP
         purposes to expense the option payments and exploration  costs relating
         to unproven mineral claims as incurred.  In addition,  US GAAP requires
         that exploration costs not be capitalized until a positive  feasibility
         study is completed.  The capitalized costs of such claims would then be
         assessed  for  impairment,  on a  periodic  basis,  to ensure  that the
         carrying value can be recovered on an undiscounted  cash flow basis. If
         the  carrying  value  cannot be  recovered  on this basis,  the mineral
         claims would be written down to net  recoverable  value on a discounted
         cash flow basis.

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

         US GAAP  requires  disclosure  of private  placements  conducted by the
         Company where directors and officers of the Company and their immediate
         family  members  are   participants.   During  the  2005  fiscal  year,
         directors,  officers  and  companies  controlled  by the  directors  or
         officers  acquired  65,000  shares  (2004 - 45,000;  2003 - nil) of the
         Company,  pursuant to private placements  conducted by the Company, for
         cash proceeds of $65,000 (2004 - $90,000; 2003 - $nil);

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

         Under US GAAP, loss and capital  distributions for the 2005 fiscal year
         would  increase  by $19,500  (2004 - $27,000;  2003 - $nil) and $87,000
         (2004 - $295,349; 2003 - $nil), respectively,  and share capital, as at
         May 31, 2005 would  increase by $3,429,578  (2004 - $3,323,078;  2003 -
         $3,000,729). There is no net change to shareholders' equity.

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

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

                                       -8-

<PAGE>



(vi)     Induced Early Conversion of Convertible Debt Securities

         US GAAP requires a charge to operations on an induced early  conversion
         of  convertible  debentures,  equal to the fair value of all securities
         issued in excess of the securities  issuable under the original  terms.
         Canadian GAAP provides similar treatment, but requires the charge to be
         made to  retained  earnings as opposed to  operations.  There is no net
         change to shareholders' equity.

(vii)    Income Tax

         Under Canadian GAAP, future income tax assets relating to the potential
         benefit of income tax loss carry  forwards  are not  recognized  unless
         realization  of the benefit is more  likely than not. US GAAP  provides
         similar  treatment,  but  requires  the  benefit  be  recognized  and a
         valuation  allowance be recognized  to fully offset the future  incomes
         tax assets.

         As at May 31, 2005,  the Company has fully  reserved the $2,500,000 tax
         benefit of operating loss  carryforwards,  by a valuation  allowance of
         the same  amount,  because the  likelihood  of  realization  of the tax
         benefit  cannot be  determined.  Of the total tax  benefit  $198,000 is
         attributable to the 2005 fiscal year.

(viii)   Functional Currency

         The Company's functional currency is the Canadian dollar.

(ix)     Development Stage Company

         The Company is in the  exploration  stage and,  as of June 1, 2003,  is
         considered  a  development  stage  company as defined by  Statement  of
         Financial  Accounting  Standards  ("SFAS") No. 7. To May 31, 2005,  the
         Company  has   accumulated  a  deficit  of  $1,691,382   while  in  the
         development stage.

The Company's consolidated statements of cash flows comply with US GAAP.

New Technical Pronouncements

The  Financial  Accounting  Standards  Board  ("FASB")  has issued  Statement of
Financial  Accounting Standards No. 123(R) Share Based Payments ("SFAS 123(R)").
SFAS 123(R)  amends SFAS 123 by requiring  share based  payments to be accounted
for at fair value. SFAS 123(R) is effective for fiscal periods ending after June
15, 2005. The adoption of SFAS 123(R) will eliminate a difference  with Canadian
GAAP as the Company accounts for share based payments at fair value for Canadian
GAAP purposes.

The FASB has also issued SFAS No. 153  Exchange of  Non-Monetary  Assets  ("SFAS
153") which is effective  for fiscal years ending after June 15, 2005.  SFAS 153
refines  the  circumstances  under  which  non-monetary  transactions  should be
accounted for at fair value. The adoption of SFAS 153 is not expected to have an
effect on the Company's financial position.

The FASB has also issued SFAS No. 154 Accounting Changes and Error Corrections -
A Replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS 154"), which
is effective for fiscal years ending after December 15, 2005.  SFAS 154 requires
that changes in accounting  policy be accounted for on a retroactive  basis. The
adoption  of  SFAS  154 is not  expected  to  have an  effect  on the  Company's
financial position.



                                       -9-

<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,  2005,
2004, 2003, 2002, and 2001.

                  PERIOD                                          AVERAGE

        June 1, 2004 - May 31, 2005                                0.7984
        June 1, 2003 - May 31, 2004                                0.7443
        June 1, 2002 - May 31, 2003                                0.6574
        June 1, 2001 - May 31, 2002                                0.6377
        June 1, 2000 - May 31, 2001                                0.6596

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, 2005.

           MONTH                            HIGH                    LOW

        October 2005                       0.8579                  0.8413
        September 2005                     0.8615                  0.8418
        August 2005                        0.8412                  0.8207
        July 2005                          0.8300                  0.8041
        June 2005                          0.8159                  0.7950
        May 2005                           0.8082                  0.7872

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  10, 2005,  reported by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United States dollars was CDN$1.1876 (US$0.8420 = CDN$1.00).

RISK FACTORS

THE COMPANY HAS NO SIGNIFICANT MINERAL CLAIM INTERESTS.

During the 2005 fiscal year the Company conducted a detailed exploration program
at its only mineral  project - the El Nayar Project,  in Mexico.  As the results
did not meet the Company's objective,  the Company ceased exploration activities
on the El Nayar Project and wrote-off all acquisition and exploration  costs. As
of the date of this  annual  report  the  Company  does  not  hold  any  mineral
interests.  The Company  continues  to be  involved  in the mineral  exploration
industry  and is  actively  seeking  to  acquire  or option  interests  in other
unproven  mineral  claims or interests in Mexico.  The Company has  identified a
silver/gold  project located in Mexico.  The Company has initiated due diligence
on the  property  and is  negotiating  with the  vendor.  As of the date of this
annual report the Company has not yet entered into any  agreements or letters of
understanding.  Although the Company expects to conclude an agreements(s) in the
near future there is no assurance that the Company will identify,  negotiate and
successfully  complete an  agreement  to acquire,  option or earn  interests  in
resource  interests.  In the event that the Company  enters into an agreement it
may be required to obtain regulatory and/or shareholder approval.

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

The Company has limited financial resources,  no revenues,  and has no assurance
that additional funding will be available to it. As of May 31, 2005, the Company
had working capital of $245,246. The Company will need to raise additional funds
to conduct due diligence and fund  acquisition  costs and  exploration  programs
which may result from resource  interest  acquisitions.  Additional funds may be
required based upon the results of any exploration programs

                                      -10-

<PAGE>



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

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

THE COMPANY HAS NO  OPERATIONS  OR REVENUES  AND WILL  CONTINUE TO INCUR  LOSSES
UNTIL IT CAN ACQUIRE  ASSETS  WHICH  GENERATE  SUFFICIENT  REVENUES TO COVER THE
COMPANY'S OPERATING AND OVERHEAD EXPENSES.

The Company has no  operations  or revenues  and  essentially  has no  financial
resources.  The Company will,  in all  likelihood,  continue to incur  operating
expenses   without   corresponding   revenues  until  the  Company  is  able  to
successfully locate, develop and mine minerals from a property interest acquired
by the Company. There is no assurance that the Company can identify and complete
such an  opportunity.  As a  result,  the  Company  may  continue  to incur  net
operating losses that will increase continuously.

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

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

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

THE PRICE OF THE COMPANY'S  COMMON SHARES IS SUBJECT TO MARKET  FLUCTUATIONS AND
VOLATILITY  WHICH  MAY NOT BE  RELATED  TO THE  COMPANY'S  ACTIVITIES  AND  SUCH
FLUCTUATIONS MAY IMPACT THE COMPANY'S ABILITY TO COMPLETE EQUITY FINANCINGS;  IF
THE COMPANY CANNOT COMPLETE ADDITIONAL EQUITY FINANCINGS,  IT MAY NOT BE ABLE TO
CONTINUE ITS ACTIVITIES.

In recent years, the securities  markets in Canada have experienced a high level
of price and volume  volatility,  and the  market  price of  securities  of many
companies,  particularly junior natural resources  exploration  companies,  have
experienced  wide  fluctuations in price which have not necessarily been related
to the  operating  performance,  underlying  asset  values or  prospects of such
companies.  In  particular,  the per share price of the Company's  common shares
fluctuated  from a high of $1.90 to a low of $0.30  during the  12-month  period
ending October 31, 2005.  Continued price  fluctuations  will have a significant
impact on the Company's ability to complete equity financings.

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.

Exploration  activities  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

                                      -11-

<PAGE>



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,  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 IS NEGOTIATING TO ACQUIRE MINERAL CLAIM INTERESTS LOCATED IN MEXICO,
THE LAWS OF WHICH MAY PREVENT OR DELAY THE COMPANY'S EXPLORATION  ACTIVITIES AND
COULD CAUSE THE COMPANY TO DELAY OR ABANDON ITS PROJECTS.

The  Company is  negotiating  to acquire an  interest  in a property  located in
Mexico.  Mineral  exploration  activities  in Mexico may be  affected in varying
degrees by political  instability  and  government  regulations  relating to the
mining  industry.  Any changes in regulations or shifts in political  conditions
are beyond the control of the Company and may adversely affect its business. The
Company's  proposed  activities may be affected in varying degrees by government
regulations with respect to restrictions on production,  price controls,  export
controls,  income taxes,  expropriations of property,  environmental legislation
and mine safety.  The status of Mexico as a developing  country may make it more
difficult  for the Company to obtain any  required  financing  for its  proposed
projects.  The effect of all of these factors  cannot be  accurately  predicted.
Notwithstanding  the progress  achieved in restructuring  the Mexican  political
institutions and revitalizing its economy,  the present  administration,  or any
successor  government,  may not be able to sustain the progress achieved.  While
the Mexican economy has experienced  growth in recent years, such growth may not
continue  in the future at  similar  rates or at all.  If the  economy of Mexico
fails to continue its growth or suffers a recession, the Company may not be able
to continue any  activities  undertaken  in this  country.  The Company does not
carry political risk insurance.

All of the mineral  claim  interests  the Company is  considering  acquiring are
located outside of Canada, in Mexico.  As a result,  such assets 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.



                                      -12-

<PAGE>



EXPLORATION  FOR MINERALS ON THE COMPANY'S  PROJECTS ARE SUBJECT TO  SIGNIFICANT
RISKS WHICH COULD INCREASE THE COSTS OF EXPLORATION  AND COULD CAUSE THE COMPANY
TO DELAY OR ABANDON ITS PROJECTS.

The project the Company is considering  acquiring is without a known ore body of
commercial  ore.  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  activities will be, in part, directly
related to the cost and success of its proposed exploration programs,  which may
be affected by a number of factors beyond the Company's control.

Mineral exploration involves many risks, which even a combination of experience,
knowledge  and careful  evaluation  may not be able to overcome.  Properties  in
which the Company has a direct or indirect  interest  will be subject to all the
hazards and risks  normally  incidental  to  exploration  for gold (also  "Au"),
silver  (also  "Ag")  and  other  metals,  any of  which  could  result  in work
stoppages, damage to property, and possible environmental damage.

The  Company  will rely upon  consultants  and others for  exploration  and,  if
required,  development  expertise.  If any of the Company's  property  interests
merit  development,  substantial  expenditures will be 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 mining and
processing  facilities  and  infrastructure  at any site chosen for mining.  The
Company may not discover minerals in sufficient quantities to justify commercial
activities  and the  Company  may not be able to obtain the funds  required  for
development  on a timely basis.  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.

BECAUSE THE COMPANY IS SUBJECT TO COMPLIANCE WITH GOVERNMENTAL  REGULATION,  THE
COST OF ITS  EXPLORATION  PROGRAMS MAY INCREASE,  WHICH MAY CAUSE THE COMPANY TO
HAVE TO ABANDON SUCH PROGRAMS.

The Company's activities may be subject to environmental regulations promulgated
by government agencies from time to time. 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 the imposition of fines
and penalties.  In addition,  certain types of activities 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.  The cost of  compliance  with  changes in
governmental  regulations  has a potential  to reduce the  profitability  of the
Company's activities.

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  does not have any  insurance
coverage relating to its mineral activities.

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

The  property  interests  the  Company  is  considering  acquiring  are not in a
developed area and the availability of  infrastructure  (water and power, and in
some areas  roads) at an economic  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

                                      -13-

<PAGE>



development  program,  in which case the  Company  may lose its  interest in the
property or may have to abandon the property.

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 PROPERTIES.

The Company  intends to own,  lease or option,  unpatented  and patented  mining
claims,  mineral  claims or  concessions  which will  constitute  the  Company's
property  holdings.  The ownership and validity of unpatented  mining claims and
concessions are often uncertain and may be contested.

In those  jurisdictions  where the Company has property  interests,  the Company
intends to make 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 intend to obtain title  insurance with respect to such  properties.
The possibility exists that title to one or more of the concessions in which the
Company may acquire an interest, 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 property  interests  acquired by the Company may not have been
surveyed and, therefore, the precise location and area of such mining properties
may be in doubt.

IF THE COMPANY IS UNABLE TO EFFECTIVELY  COMPETE AGAINST OTHER COMPANIES,  OR IF
THE COMPANY CANNOT MARKET ANY MINERALS DISCOVERED ON THE PROPERTIES IN WHICH THE
COMPANY OBTAINS AN INTEREST, THE COMPANY MAY HAVE TO CEASE OPERATIONS.

The mineral  industry is intensely  competitive  in all its phases.  The Company
competes  with  many  companies   possessing  greater  financial  resources  and
technical  facilities  than itself for the  acquisition of mineral  concessions,
claims,  leases and other mineral  interests as well as for the  recruitment and
retention of qualified employees.

Even if  commercial  quantities  of ore are  discovered,  a ready market may not
exist for their sale.  Factors  beyond the control of the Company may affect the
marketability  of  any  substances  discovered.  These  factors  include  market
fluctuations,  the  proximity  and  capacity  of natural  resource  markets  and
processing equipment, government regulations,  including regulations relating to
prices,  taxes,  royalties,  land tenure,  land use,  importing and exporting of
minerals and environmental protection.  The exact effect of these factors cannot
be accurately predicted,  but the combination of these factors may result in the
Company  not  receiving  an adequate  return on  invested  capital or losing its
investment capital.

THE COMPANY'S  ACTIVITIES IN MEXICO WILL SUBJECT 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  activities  in Mexico  will make it subject to foreign  currency
fluctuation and such  fluctuation may adversely  affect the Company's  financial
position and results.  The Company's foreign  subsidiary  comprises a direct and
integral extension of the Company's operations.  The subsidiary is also entirely
reliant  upon the Company to provide  financing  in order for it to continue its
activities.   Consequently,   the  functional  currency  of  the  subsidiary  is
considered  by  management to be the Canadian  dollar and  accordingly  exchange
gains and losses are included in net income.  The Company maintains its cash and
cash equivalent amounts primarily in Canadian and U.S.  denominated  currencies.
The Company does not currently engage in hedging activities.

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.


                                      -14-

<PAGE>



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.

See "Item 7. Major  Shareholders and Related Party  Transactions - Related Party
Transactions - Conflicts of Interest".  As of the date of this annual report all
material  conflicts of interests which have arisen since June 1, 2004, have been
described in "Item 7. Major Shareholders and Related Party Transactions."

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  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.

Factors  beyond the control of the Company may affect the  marketability  of any
substances discovered. 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 Company's decision to accelerate or reduce its exploration activities.

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 CURRENT  CORPORATE  OPERATIONS ARE PERFORMED BY OTHER THAN COMPANY
PERSONNEL AND IF SUCH PERSONNEL ARE NOT AVAILABLE IN THE FUTURE, THE COMPANY MAY
INCUR SIGNIFICANT  EXPENSES TO FIND SUITABLE  REPLACEMENTS  AND/OR TO HIRE OTHER
PERSONNEL.

Mr. Des O'Kell, a director and the President, Chief Executive Officer and acting
Chief Financial  Officer of the Company,  provides his services  through his 50%
owned company,  Eland Jennings Inc. ("Eland  Jennings").  Corporate  accounting,
management and  administration  are provided,  in part, by Chase Management Ltd.
("Chase"), a company

                                      -15-

<PAGE>



owned by Mr. Nick DeMare,  a director of the  Company.  In the event the Company
needs  to  employ  additional  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  subsidiary  operates.  There can be no  assurance,
however,  that such personnel will be available in the future.  In addition,  it
cannot be predicted whether the labour staffing at any of the Company's projects
will be unionized, which may result in potentially higher operating costs.

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.


                                      -16-

<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.

THE  COMPANY  IS  DEPENDENT  UPON  ITS  MANAGEMENT  AND  THE  LOSS OF ANY OF ITS
MANAGEMENT AND/OR IF THE COMPANY IS UNABLE TO RECRUIT ADDITIONAL  MANAGERS COULD
NEGATIVELY IMPACT THE COMPANY'S ABILITY TO CONTINUE ITS ACTIVITIES.

The success of the  operations  and  activities of the Company is dependent to a
significant  extent on the efforts and  abilities  of its key  officer,  Mr. Des
O'Kell, a director and the President,  Chief Executive  Officer and acting Chief
Financial Officer of the Company and Mr. Nick DeMare, a director of the Company.
The loss of services of either Mr.  O'Kell or Mr.  DeMare  could have a material
adverse  effect on the  Company.  The Company has not  entered  into  employment
agreements  with  any  of its  officers  and  is  not  expected  to do so in the
foreseeable  future.  The Company has not obtained key-man life insurance on any
of its officers or directors. The Company's ability to recruit and retain highly
qualified management personnel is critical to its success; if it is unable to do
so this may materially affect the Company's financial performance.

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

It may be difficult to bring and enforce suits against the Company.  The Company
is a corporation domiciled in British Columbia.  None of the Company's directors
are residents of the United  States,  and all or a substantial  portion of their
assets  are  located  outside  of the  United  States.  As a  result,  it may be
difficult for U.S.  holders of the Company's  common shares to effect service of
process  on these  persons  within the  United  States or to enforce  judgements
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;


                                      -17-

<PAGE>



         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

NAME AND INCORPORATION

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 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,  pursuant to an agreement (the "Arrangement  Agreement") dated
February 5, 1999, in which the Company  completed an amalgamation  with Stanford
Oil & Gas Ltd. ("Stanford"),  a public company with common management,  Stanford
became  a  wholly-owned  subsidiary  of the  Company.  In  conjunction  with the
amalgamation with Stanford the Company changed its domicile through continuation
from British Columbia to the Yukon Territory under the BUSINESS CORPORATIONS ACT
(Yukon) (the "YBCA").

Effective  November  30,  2002,  the Company  determined  to  write-off  its net
investments  in, and cease  funding of Hilton U.S.  and STB Energy,  Inc.  ("STB
Energy").  See "Item 4.  Information  on the  Company - Business  Overview".  On
December 30, 2002, the Company completed a consolidation of its share capital on
a one new for ten old basis.

In May 2003,  the Company  terminated the option  agreement  relating to certain
resource  properties  in China  and  Mongolia.  Under the  agreement,  which was
entered  into in June 2002,  the Company  could  acquire a 100%  interest in the
properties by paying $3.2 million and issuing  common  shares.  In October 2003,
the  Company  concluded  an  option  agreement,  to  acquire  an  interest  in a
gold/silver  project  in  Mexico.  See  "Item 4.  Information  on the  Company -
Principal Properties - El Nayar Project, Mexico."

On March 29,  2004,  the  British  Columbia  legislature  enacted  the BCBCA and
repealed  the BC Company  Act. At the  Company's  annual and special  meeting of
shareholders  held on  November  18,  2004,  the  Company  received  shareholder
approval to continue its corporate  jurisdiction into British Columbia under the
BCBCA.  See "Item 10.  Additional  Information  -  Memorandum  and  Articles  of
Association".  Effective  November  23, 2004,  the Company  changed its domicile
through  continuation  from the Yukon  Territory to British  Columbia  under the
BCBCA.

The Company's  registered and principal business office is located at Suite 1305
- 1090 West Georgia Street,  Vancouver,  British Columbia,  V6E 3V7. The contact
person is Nick DeMare, 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's  common shares were listed on the  Vancouver  Stock  Exchange (the
"VSE") through November 28, 1999.  Effective  November 29, 1999, the VSE and the
Alberta Stock Exchange (the "ASE") merged and began operations as

                                      -18-

<PAGE>



the Canadian  Venture  Exchange  (the  "CDNX").  On April 8, 2002,  the CDNX was
renamed the TSX Venture Exchange.  The TSXV classifies listed companies into two
different  tiers  based  on  standards,   which  include  historical   financial
performance, stage of development and financial resources. The Company trades on
the TSXV under the symbol "RCT" and on January 28, 2004, was  re-classified as a
Tier 2 company for not maintaining the requirements for a Tier 1 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.

Effective  February 7, 2001, the Company's common stock was approved for trading
on the  Over-the-Counter  Bulletin Board (the "OTCBB")  operated by the National
Association of Securities  Dealers.  The Company's common shares currently trade
on the OTCBB under the symbol "RCTFF.OB".

BUSINESS OVERVIEW

The Company was  historically  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.

During fiscal 2001, the Company  continued its  participation in the exploration
of the East Lost Hills Project, located in California,  USA, with the funding of
the  completion  of the ELH #1 well and the ongoing  drilling of the ELH #2 well
and the  commencement of the ELH #3, ELH #4, and ELH #9 wells, at a cost of $7.8
million. The Company also paid $1.1 million for its share of the gas facility at
East Lost Hills and $2.4 million for the  acquisition  and  exploration of other
oil and gas prospects located in regional California. Production from the ELH #1
well commenced in February  2001. In March 2001, the Company  completed the sale
of substantially all of its  non-California  petroleum and natural gas interests
to Exco Resources Inc. ("Exco") for net proceeds of $19.9 million.

During fiscal 2001,  the Company raised $9.5 million from the issuance of common
shares and $4.7  million  from the  issuance of  convertible  debentures.  These
proceeds,  along with the sale of the  non-California  petroleum and natural gas
interests, enabled the Company to repay $21.9 million of debt.

During fiscal 2002, the Company was faced with significant  funding  commitments
for its continued  participation  in the East Lost Hills and Greater San Joaquin
Joint Venture's  exploration  programs.  Management believed the poor results at
East Lost Hills had a negative  impact on the  Company's  share price and on the
Company's ability to conduct either equity or debt financing.  In addition,  the
combination of reduced  commodity  prices and  constrained  production at ELH #1
further reduced the Company's  ability to meet its funding  commitments.  Due to
the lack of financial resources, the Company ceased further funding of its share
of costs at the East Lost Hills Project and Greater San Joaquin  Joint  Venture.
As a result,  in February 2002, the Company  withdrew from  participation in the
Greater San Joaquin Joint Venture and, in May 2002,  concluded an agreement with
Anadarko  Petroleum  Corporation  and certain other  participants on the ongoing
evaluation  of the ELH #4 and ELH #9 wells,  whereby  the funding  parties  have
assumed all of the unpaid  amounts,  estimated to be $7.2 million at the time of
the agreement,  and future costs in completing the evaluation of these wells. In
return, they will be entitled to recover their costs, plus a penalty, of 300% of
the costs, from production from these wells.

During fiscal 2002, the Company identified  business  opportunities in the field
of  proprietary  software  programs  utilizing  "artificial  intelligence".  The
Company  formed  A.I.   Solutions  Ltd.  ("A.I.   Solutions")  to  pursue  these
opportunities.   All  research,   development  and  marketing   activities  were
contracted out to arms-length parties.

On December 2, 2002, the Company received confirmation from the operator that it
had formally  proposed the plugging and  abandonment of the ELH #4 and #9 wells.
In light of the results and uncertainties of any further activities at East Lost
Hills by the  joint  venture,  the  Company  determined  that it would no longer
provide  further  funding  to  Hilton  U.S.  and STB  Energy  (collectively  the
"Petroleum Subsidiaries"),  two wholly-owned subsidiaries which conducted all of
the Company's petroleum and natural gas operations. The Company's remaining $5.3
million net  investment  in the Petroleum  Subsidiaries  was written off and the
Company ceased to record the activities of the Petroleum Subsidiaries.


                                      -19-

<PAGE>



During fiscal 2003,  the Company,  through A.I.  Solutions,  funded on a reduced
basis,  the  development  of  proprietary  software  programs  using  artificial
intelligence.  The Company  expended  $364,000 on the research,  development and
marketing of these products.  These activities were unsuccessful in developing a
marketable  product.  No revenues were generated.  No further  expenditures  are
anticipated to be incurred on this business.

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

During the latter part of the 2003 fiscal year, the Company reviewed a number of
business  opportunities  and asset  acquisitions.  In October 2003,  the Company
concluded an option agreement to acquire an interest in a gold/silver project in
Mexico.  See "Item 4.  Information  on the Company - Principal  Properties  - El
Nayar  Project,  Mexico"  and  "Item  5.  Operating  and  Financial  Review  and
Prospects".  During the 2004  fiscal  year,  the  Company  completed a number of
private placement  financings for 6,130,000 common shares,  for $865,750.  These
funds were used for working capital  purposes and exploration  activities on the
El Nayar Project.

Effective May 31, 2004, the Company abandoned Stanford and A.I. Solutions.

During fiscal 2005, the Company focused its activities on the exploration of the
El Nayar  Project.  Although  the program  demonstrated  that the  property  has
potential, it did not meet the Company's objectives.  Accordingly, during fiscal
2005, the Company wrote-off $703,058 of acquisition and exploration costs.

On August 25, 2005, the Company  completed  another  consolidation  of its share
capital on a one new for ten old basis.

DISPOSITIONS

During fiscal 2003, the Company abandoned its petroleum operations. Accordingly,
it  recorded  a  net  charge  of  $6,881,119  for  depreciation,  depletion  and
impairment  of its  petroleum  interests.  The  Company  did not  dispose of any
property  interests  during  fiscal  2004,  nor did the  Company  dispose of any
property  interests  during  fiscal 2002.  Effective  May 31, 2004,  the Company
formally  abandoned A.I.  Solutions and Stanford.  These companies were inactive
throughout fiscal 2004.  During fiscal 2005, the Company  wrote-off  $703,058 of
acquisition and exploration costs relating to the El Nayar Project.

EXPLORATION EXPENDITURES

During  fiscal  2005 and  2004,  the  Company  incurred  $66,536  and  $103,971,
respectively,  for mineral property acquisition costs and $415,940 and $116,611,
respectively,  for exploration  expenditures on its mineral property  interests.
During  fiscal  2003,  the  Company   incurred   $655,786  on  the  acquisition,
exploration  and  development  of its  petroleum  interests.  The  Company  also
incurred  $364,413 during fiscal 2003 on research,  development and marketing of
software.

No mineral property acquisitions or exploration expenditures were made in fiscal
2003.

2005 EXPLORATION BUDGET

During the 2005 fiscal year the Company conducted a detailed exploration program
at its only mineral  project - the El Nayar Project,  in Mexico.  As the results
did not meet the Company's objective,  the Company ceased exploration activities
on the El Nayar Project and wrote-off all acquisition and exploration  costs. As
of the date of this  annual  report  the  Company  does  not  hold  any  mineral
interests.  The Company  continues  to be  involved  in the mineral  exploration
industry  and is  actively  seeking  to  acquire  or option  interests  in other
unproven  mineral  claims or interests in Mexico.  The Company has  identified a
silver/gold  project located in Mexico.  The Company has initiated due diligence
on the  property  and is  negotiating  with the  vendor.  As of the date of this
annual report the Company has not yet entered into any  agreements or letters of
understanding.  Although the Company expects to conclude an agreements(s) in the
near future there is no assurance that the Company will identify,  negotiate and
successfully  complete an  agreement  to acquire,  option or earn  interests  in
resource  interests.  In the event that the Company  enters into an agreement it
may be required to obtain regulatory and/or shareholder approval.


                                      -20-

<PAGE>



SALES AND REVENUE DISTRIBUTION

As of the date of this annual report, the Company has not generated any revenues
from its mineral exploration activities and does not own any mineral properties.

During fiscal 2003,  the Company's  share of petroleum,  natural gas and natural
gas liquids  produced  from its wells was sold to a variety of purchasers at the
wellhead in the United States. All of its sales were conducted with unaffiliated
customers.  These  purchasers  provided a ready market for all of the  Company's
production  and paid  the  local  market  price,  which  fluctuated  based  upon
prevailing market conditions.  Due to the number of purchasers in each area, the
loss of one or a number of  purchasers  did not pose a  significant  risk to the
continuity of the Company's  operations.  As of the date of this annual  report,
the Company does not generate any petroleum, natural gas and natural gas liquids
revenue.

Total  revenues,  interest and other income  reported for fiscal 2005,  2004 and
2003, were as follows:

                                                        ($ IN 000)
                                           ------------------------------------
                                                    YEARS ENDED MAY 31,
                                           ------------------------------------
                                              2005         2004         2003

Petroleum and Natural Gas Sales
     - United States                       $        -   $        -   $      128
                                           ----------   ----------   ----------
Interest and Other Income
     - United States                                -            -            -
     - Canada                                      20           95           58
                                           ----------   ----------   ----------
                                                   20           95           58
                                           ----------   ----------   ----------
Total Revenue, Interest and Other Income   $       20   $       95   $      186
                                           ==========   ==========   ==========

PRINCIPAL PROPERTIES

EL NAYAR PROJECT, MEXICO

PROPERTY AGREEMENTS

On October 1, 2003, the Company  finalized a heads of agreement for an option to
acquire a 60% interest in the El Nayar Project, which included the Guanajuatillo
Mine and La  Castellana,  San Jorge  Properties  totalling  approximately  6,766
hectares in the State of Nayarit,  Mexico. The optionor is Minera San Jorge S.A.
de C.V. ("MSJ"), a private Mexican company at arms-length to the Company.

Under the terms of the heads of agreement  the Company could earn an initial 60%
interest,  in consideration of making option payments to MSJ totaling US $50,000
(paid) and the issuance of a total of 1.1 million  common  shares and funding US
$1 million of expenditures, on the following basis:
                                                          SHARE
         DATE                                           ISSUANCES   EXPENDITURES
                                                                         US $
         January 27, 2004 (issued)                         100,000            -
         May 27, 2004 (incurred)                                 -       40,000
         January 27, 2005                                  200,000      250,000
         July 27, 2005                                           -      710,000
         January 27, 2006                                  300,000            -
         January 27, 2007                                  500,000            -
                                                        ----------   ----------
                                                         1,100,000    1,000,000
                                                        ==========   ==========

Issuance of the initial  100,000  common  shares was  scheduled  for January 27,
2004.  However,  issuance of the shares was deferred  pending  clarification  of
certain property titles. This subsequently was resolved and the Company issued

                                      -21-

<PAGE>



the 100,000  common shares on April 25, 2005.  The Company  decided to defer all
other share issuances by the same period of time, a deferral of 15 months.

During the 2005  fiscal year the Company  conducted a  comprehensive  geological
work  program  on the El  Nayar  Project.  Results  from  the  program  were not
sufficiently  encouraging  and the Company  ceased  further work on the El Nayar
Project. The Company considers the option terminated.

INTRODUCTION

The  property  which  forms the basis of the El Nayar  Project is located in the
State of  Nayarit,  in thinly  populated,  rugged  terrain  some 120  kilometers
northwest of  Guadalajara,  in the Los Mezquites  sector of the  Hostotipaquillo
Mining  District.  As of the date of this  annul  report  the El  Nayar  Project
consists of four contiguous claims (concesiones  mineros) with an aggregate area
of 6,745 hectares.  Initially,  the El Nayar Project comprised five claims,  but
the tiny Los  Limones  claim,  separate  from the main  claim  group  and  lying
approximately 4.5 kilometers to the south, was judged too small and isolated for
rational exploration and was returned to the owner after cursory examination

The claim statistics are as follows:
<TABLE>
<CAPTION>

CLAIM                 CLAIM              LICENSE          TITLE HOLDER                         CLAIM AREA
NAME                  TYPE                 NO.                100%                             (HECTARES)
<S>                 <C>                 <C>              <C>                                  <C>

San Jorge IV          Exploration         206265           MSJ                                   6,575.07

La Castellana         Mining              161793           Pablo Antonio Fitch Parent               32.00

San Jorge VII         Mining              209418           Francisco Javier Azpeitia J. &           93.96
                                                           Lourdes del C. Mercado Maraveles

Guanajuatillo         Mining              596762           MSJ                                      44.20
                                                                                                 --------
                                                           TOTAL AREA                            6,745.23
                                                                                                 ========
</TABLE>

The El Nayar  Project is without known  reserves and the Company's  work program
was exploratory in nature.

The following  discussion is partly based on a geological report written for the
Company.  The  "Report  on the  Geology  and  Mineral  Deposits  on the El Nayar
Project, Ixtlan del Rio, Nayarit, Mexico" (the "El Nayar Report") was written by
John Nebocat,  P. Eng., on December 18, 2003. Mr.  Nebocat  visited the El Nayar
Project  in the  preparation  of the El Nayar  Report.  The El Nayar  Report  is
available on the SEDAR website, WWW.SEDAR.COM.

PROPERTY DESCRIPTION AND LOCATION

The El Nayar  group of  claims  lies  immediately  north of the  village  of Los
Mezquites  and is bisected by the Rio Grande de  Santiago  (hereafter  "Santiago
River"),  which  flows  from SE to NW  through  the  property.  The  terrain  is
characterized  by a profusion of steep sided  conical  hills and deeply  incised
river  valleys.  The greater  part of the  project  area is hilly  upland  where
scattered  tiny  communities  engage  in  subsistence  farming.  Access to these
communities is by bridle-path, and mule the main mode of transport. In the south
of the claims,  a rough  all-weather  road about six  kilometers  long links Los
Mezquites with the hamlet of La Playa,  on the east bank of the Santiago  River.
Los  Mezquites is reached from the main  Guadalajara  - West Coast Highway by 19
kilometers of well-maintained dirt road which leaves the highway at San Antonio,
a village between the population centers Magdalena and Ixtlan del Rio.

The La Castellana Mine (and concession) is owned by Pablo Antonio Fitch Parente.
MSJ has a  pre-existing  agreement  with Mr. Fitch  whereby MSJ has the right to
purchase 100% of the La Castellana concession for US $150,000.  The terms of the
agreement  stipulate a US $5,000 payment on December 13, 2003 (paid),  a further
US $10,000 on June 13, 2004 (paid),  US $15,000 on December 13, 2004, US $20,000
on June 13, 2005,  US $25,000 on December 13, 2005,  US $30,000 on June 13, 2006
and a final payment of US $45,000 on December 16, 2006.


                                      -22-

<PAGE>



The San Jorge VII concession is owned by Francisco Javier Azpeitia Jaramillo and
Lourdes  del  Carmen  Mercado  Maraveles.  MSJ has an option  to  acquire a 100%
interest  in the  property  by  paying  the owner US  $90,000.  The terms of the
underlying  agreement with Mr. Azpeitia  require MSJ to make a US $5,000 payment
on December 11, 2003 (paid), a payment of US $10,000 on June 11, 2004 (paid), US
$10,000  on  December  11,  2004,  US $10,000  on June 11,  2005,  US $10,000 on
December  11,  2005,  US $10,000 on June 11, 2006 and US $35,000 on December 11,
2006.

Taxes are due every six (6)  months,  on or before  January  31st and July 31st.
These taxes are for exploration and mining rights only. Surface rights taxes are
paid only by the surface owner;  mining rights to do not entitle surface rights.
In the case of exploitation  titles,  an additional tax is owed according to the
amount of ore that has been mined.

Before,  or on,  May 30th of each  year,  a proof of the work that has been done
during the last year has to be presented  in Direccion de Minas.  The report has
to  indicate  the type of work  that has been done in the  mining  claim and the
amounts of the expenses  that have been  incurred.  The invoices and receipts of
such  expenses  must  exist  and can cover  surveying  works,  roads,  sampling,
geology,  lab invoices,  etc. The report is called  "Comprobacion de Obras".  It
contains a description of the different works  accomplished,  copies of the main
invoices and small descriptions of the mineral reserves (if that is the case).

Exploration  titles are given after presenting an application for an exploration
concession  and the  assessment  work  done  by a  Registered  Surveyor  (Perito
Minero).  They are good for six years and before the expiration  date, they have
to be changed for an  exploitation  title.  The assessment  work has to show the
exact location of the claim, surface, and claims around it.

All the claims  described  within this report,  with the  exception of the newly
applied-for Guanajuatillo concession, have been legally surveyed.

Exploitation  titles are good for 50 years.  They are given after presenting the
application for exploitation and the assessment work.

An explorer  must submit an  environmental  impact  report to the  Environmental
Secretary and also apply for a change of soil use permit before  exploration can
commence.

Permits that are required before  exploration or exploitation  can start include
the aforementioned  environmental impact report and change of soil use report, a
land  use  permit  from  the  surface  owners,  and  where  applicable,  use  of
explosives, use of water and use of electricity permits.

MSJ  provided  Mr.  Nebocat  with a copy of an  application  to perform  mineral
exploration, presented to the Secretaria del Medio Ambiente y Recursos Naturales
(SEMARNAT).  This is called  "Permiso  de  Impacto  Ambiental".  It  contains  a
description of the roads, drill zones, reforestation if needed, etc., and a copy
of  the  permit  allowing  MSJ  to  perform  exploration,  issued  by  the  same
department.

ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

The El Nayar  Project  is  accessible  by either a four lane  highway  west from
Guadalajara,  the third largest city in Mexico, or via an older two-lane highway
that passes through the town of Magdalena on to the community of San Antonio,  a
distance  of about 118 km.  From San  Antonio  the  property  is  accessed by an
all-weather gravel road which heads north through the community of Mezquites,  a
distance of 19 km. A rough gravel road, best used in 4-wheel-drive,  heads north
and descends into and crosses  Quebrada Los Limones,  about 5 km from Mezquites.
The road climbs steeply for another 2.5 kilometers. The community of La Playa is
located on the east bank of Rio Santiago  located just a few hundred meters from
the road to El Nayar.  Access  to La Playa is via a cable  car or a cable  ferry
boat (passengers only).

The topography on and around the property is fairly steep,  but no cliff-forming
features were observed in the areas  visited.  Elevations on the property  range
from around 300 meters above sea level ("ASL") to 800 meters ASL.  Vegetation is
sparse,  consisting of thorn bushes,  scrub oaks,  cacti and assorted shrubs and
vines.   The  landscape  looks  fairly  bleak  during  the  dry  season  between
mid-October and mid-June, but it lushes up with the advent of the rainy

                                      -23-

<PAGE>



season  during  the  summer  months.  The  climate  is  typically  semi-arid  to
sub-tropical;  temperatures are hot in the summer months and mild in the winter.
It is possible to work on the property on a year-round basis, but seasonal rains
may  inhibit  local  access  occasionally.  Access to major towns is quite good:
Magdalena,  with a population of around 26,000, is about 60 kilometers away, and
Guadalajara is about 145 kilometers from the property.  Road/vehicular travel is
the only expedient means of access to the property.

HISTORY AND GEOLOGY

The entire project area is underlain by volcanic  rocks of Tertiary age.  Thick,
flat-lying  flows of andesite are penetrated by rhyolite,  which forms dome-like
structures  which  correspond  to the conical  hills.  An episode of  epithermal
mineralization  led to the  district-wide  formation  of quartz  veins  which in
instances  carry  significant  silver  values,  accompanied by modest amounts of
gold.

Silver has been mined in the  Hostotipaquillo  Mining  District  since  Colonial
times,  but the main period of activity  embraced  the last  decades of the 19th
century and the first decades of the 20th  century.  The Cinco Minas mining camp
and Monte del Favor mine were the  principal  producers  in the district and are
quite well documented. The Los Mezquites area was rather less productive.  There
is  evidence  of a  number  of small  underground  operations  in the  vicinity;
however,  of these,  only three appear to have been  sufficiently  profitable to
allow  the  construction  of ore  concentrating  facilities.  The  three  are La
Castellana,  Guanajuatillo  and Buenos  Aires.  Whereas all lie within the outer
boundary of the El Nayar  claims,  the Buenos  Aires mine is on claims which are
owned by other  interests and excluded from the Project.  No production  records
for these mines have been found and the names of prior operators are unknown.

The La  Castellana  mine has been a principal  focus of interest in the project.
Unlike the Buenos Aires mine,  which can only be reached  after several hours on
mule-back, La Castellana is accessible by vehicular traffic.  Driving north from
Los Mesquites, the final 2.5 kilometers of the road hug the south bank of the El
Limon creek.  Near the  beginning of this road sector a zigzag bridle path leads
down to the Guanajuatillo mine site in the creek bed, approximately 200 vertical
meters  below.  The  Santiago  River is crossed by a cable  ferry - often out of
service.  A few hundred  meters  short of the river  crossing,  scattered  ruins
hidden  in the bush are all that  remains  of the  historic  community  El Limon
where,  a  century  ago,  ore  from  the La  Castellana  mine  was  crushed  and
concentrated. A rough but drivable road winds up the slope north of the El Limon
creek to the mine site. The only installation  remaining is an open-fronted shed
beside the portal of an adit.  There is no  electrical  power line or  telephone
service  nearer than Los  Mezquites  and the nearest water supply is from the El
Limon creek or the  Santiago  River,  about 200  vertical  meters below the mine
portal.

A dam being  constructed on the Santiago  River north of the project area,  when
completed in the next year or two,  will cause the water level  upstream to rise
to the 400 meter  contour,  which means that the  reservoir  will extend about a
kilometer  up the El Limon  creek.  This will  interrupt  road  access to the La
Castellana  mine site (and to the El Norte  vein.) The  Guanajuatillo  "mine" is
above the 400 meter contour level and should not be affected.

The La Castellana  mine was  developed on a single vein,  which crops out on the
steep hillside.  The vein has a general ENE strike, an average dip of 53 degrees
to the NNW and an average  thickness of 1.2 meters. It is surmised that the vein
was initially  mined in a small way by burrowing down from the surface  outcrop.
Subsequently  an adit was driven on the vein; this working came to be called the
La Castellana level.  Another level, about 100 meters vertically lower, also has
adit access. This level, known as the Buenaventura  level,  follows the vein for
about 300 meters.  It was likely  developed in the 1880s (a stone-built  housing
for an overshot  waterwheel at El Limon is dated 1889). This working is still in
good condition, with track remaining.

It is thought that the main  production  period of the mine ended  between 60-90
years ago. As is usual in Mexico,  it is very likely that small scale  informal,
undisciplined  mining by gambusinos  (informal  miners)  continued  sporadically
thereafter.  From  time  to time a few  tonnes  of ore are  scavenged  from  the
remaining pillars by operators engaged by the underlying claim owner (Mr. Fitch)
and taken to a small mill at La Pupa, 12 kilometers away.

It is estimated that over the centuries some 140,000 tonnes have been mined from
the La  Castellana  vein.  There are no  official  records  of the grade of this
material. Mr. Nebocat tabulates the following statistics of sampling carried out
by

                                      -24-

<PAGE>



him, by Cia. Minera Cuevas, a Mexican subsidiary of Noranda,  and by A. Hurtado,
a geologist of the Mineral Resources branch of the Mexican Geological Survey:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                        AVERAGE    NUMBER OF      AG        AU         CU         PB        ZN
LOCATION             SAMPLER           WIDTH (M)    SAMPLES      G/T        G/T         %         %          %
-------------------------------------------------------------------------------------------------------------------
<S>                <C>                 <C>          <C>        <C>       <C>         <C>       <C>       <C>

Buenaventura         Las Cuevas          1.25          98        123        n/a       0.08       0.56      0.90
La Castellana        Las Cuevas          1.20          34        191        n/a       0.05       0.31      0.46
Buenaventura         J. Nebocat          1.23          10        220       0.71       0.15       1.28      2.04
Buenaventura         A. Hurtado          1.20         n/a        120       1.15       0.25       0.69      1.20
La Castellana        A. Hurtado          1.12         n/a        295       1.05       0.08       0.91      0.98

</TABLE>

Note:    Mr.  Nebocat did not sample the La Castellana  level which is no longer
         readily or safely accessible

Mr. Nebocat notes that certain trends are suggested by the data:

         i)       silver values are substantially higher in the upper level;
         ii)      base metal values tend to be higher in the lower level; and
         iii)     manganese  values  tend to be higher  toward  the  east,  i.e.
                  nearer the surface.

These apparent trends in the  distribution of metals would  correspond well to a
systematic  fall in silver  grade and a  corresponding  increase  in base  metal
values  with  increasing  depth  within  the vein.  Such a  pattern  is usual in
epithermal veins and reflects depth-related chemical and physical gradients that
prevailed at the time the vein was formed.

Another type of trend to be considered is one that develops at a later time when
the vein is exposed at surface and subjected to weathering. As metallic minerals
oxidize in the  near-surface  environment,  acid is  produced  which  percolates
downward,  carrying  dissolved  silver,  gold, and other metals. On reaching the
water table,  the  dissolved  metals  precipitate,  and a zone enriched in these
elements forms. The profile of the weathered vein from surface downward consists
of:

         1.       a  zone  of  leaching  in  which   silver,   gold,   etc.  are
                  considerably depleted;
         2.       a zone of enrichment which eventually grades downward into;
         3.       the original, unaffected ore, with normal values.

A  concentration  of manganese is typical of epithermal  silver veins which have
been subjected to prolonged weathering.

The process  described  above,  known as  "supergene  enrichment"  or "secondary
enrichment"  can be a  critical  factor in making a silver  deposit  economical.
During  early  Colonial  times  most of  Mexico's  silver  production  came from
enriched,  near surface  lodes.  High values were  necessary to  compensate  for
primitive recovery technology and difficult logistics.

Comparison of the La Castellana  vein with other silver  deposits in the Mexican
cordilleran  ranges  suggests the  likelihood  that ore mined in the past was of
substantially higher grade that the values shown by sampling.  In recent decades
narrow veins such as La Castellana  typically  have required  grades of at least
400 g/t Ag for economic exploitation; in Colonial times and the earlier years of
the Republican  era, say before about 1840, the inefficient  milling  technology
prevalent called for even higher grades - commonly above 1,000 g/t Ag.

A vein is  shown  between  250  meters  and 500  meters  to the  north of the La
Castellana  vein on a map produced by Cia.  Minera Las Cuevas in 1980. This vein
has not  been  mined  and - prior  to the  Company's  entry  on the  scene - had
received  only minor  exploration  sampling.  Strike is ENE and there is a steep
inclination  to the NNW.  The vein is over 500 meters long,  horizontally.  This
vein has been named "El Norte" by the Company.

The Las Cuevas map shows a third vein,  at the site of the  Guanajuatillo  mine,
located at the bottom of the El Limon creek, about 2.5 kilometers  upstream from
El Limon. No information about this "mine" has been found.

                                      -25-

<PAGE>



EXPLORATION ACTIVITIES BY THE COMPANY

Exploration  of the property began in February,  2004. The principal  activities
consisted  of  systematic  mapping and  sampling  of the old  workings on the La
Castellana  vein, and  delineation  and surface  sampling of the nearby El Norte
vein. The old  Guanajuatillo  mine site was cleared of  vegetation,  and various
ruined  buildings  located;  the vein was not  accessible for evaluation at that
time.

The La  Castellana  vein is  accessible  from the  Buenaventura  adit and from a
number of openings along the outcrop of the vein. The vein outcrop forms a minor
cliff  feature on the steep wooded  hillside NW of the  Buenaventura  portal.  A
total of eight  openings  occur along the foot of the cliff,  giving  precarious
access to the underground workings and providing  ventilation.  One such opening
was the exit of an inclined  shaft which  likely was the  principal  haulage way
prior to  development  of the adits.  On the  hillside  below this  opening  the
remains of a stone chute  testify to how ore was tumbled down to primitive  mill
facilities on the banks of the El Limon creek.

Channel samples were taken on the vein outcrop and on the sides of the openings.
Access to parts of the  interior of the mine was  established  with  ladders and
ropes from a surface opening.  The old stopes mostly remain open, as no backfill
was employed;  in a few places there has been collapse of the roof. Pillars show
evidence of being under  considerable  stress. In general,  pillars are of small
diameter and typically restricted to narrower, lower grade parts of the vein. It
is probable that generations of gambusinos (informal miners) have pecked away at
the pillars,  reducing them to a size  inconsistent with safety. A sector of the
La Castellana  level was encountered,  underground,  and followed north to where
the vein appears to be cut off by a fault.

The part of the vein  between  the La  Castellana  and  Buenaventura  levels  is
generally  very steep and unsafe for  sampling.  In  contrast,  sampling  on the
Buenaventura  level was  readily  achieved.  There are no mine  workings  of any
significance on the vein below this level.

The majority of the samples from the La  Castellana  vein display  values in the
range  100-350 g/t Ag and rather  less than 1.0 g/t Au. An average  value of the
samples  would  not be  meaningful.  It is  thought  that  these  values  do not
represent the grade of the ore mined here over an extended  period but,  rather,
characterize  the  grade of  material  which  the old  time  miners  would  have
considered below economic grade, and consequently left behind.

Dumps, stockpiles or other accumulations of broken ore material on site total no
more than a few hundred tonnes.

To  facilitate  exploration  of the Veta Norte,  an access road was built on the
north side of the vein outcrop. As the terrain steepens the road adopts a zigzag
course.  The  road  has  been  advanced  to  within   approximately  120  meters
(horizontally) of the hilltop where the high point of the vein crops out. Values
obtained  from channel  samples on outcrops are in general  slightly  lower than
values  demonstrated  by the La Castellana  vein.  This may reflect  leaching of
metal values in the surface environment, a common phenomenon, often complemented
by a  corresponding  enhancement  of values  (secondary  enrichment)  at greater
depth.

In January 2005,  field work commenced on the El Norte Vein system.  Exploration
work included detailed  geological mapping along a road cut that appears to have
exposed  lateral  extensions  of the El Norte Vein System.  Detailed  geological
mapping was also conducted on the nearby ground proximal and along the strike of
the El Norte Vein. The mapping was followed by systematic  trenching  across the
strike of the El Norte Vein in order to define its  continuity  along strike and
width.

The  exploration  program took two months to complete.  All chip channel samples
were crushed at the GM LACME  Preparation  Laboratory in Guadalajara.  The pulps
were  then  sent by GM LACME  directly  to  International  Plasma  Lab  Ltd.  in
Vancouver,  Canada for  analyses.  All work was  conducted  as defined  under NI
43-101 and all sample batches included  standards,  blanks and duplicate samples
on a routine basis.

The results of the exploration  program conducted on the El Nayar Project showed
that, while the El Nayar Project has some interesting  geology, it is not a near
term  production  property.  The structural  and  analytical  data indicate some
issues, including:

                                      -26-

<PAGE>



i)       outcrop  mapping  revealed the presence of faulting which has displaced
         the Veta  Norte  into  blocks.  The first  set of  faults  have a right
         lateral vein displacement of up to 5 meters, whereas a second set has a
         left  lateral  vein  displacement  of up to 28  meters.  Based  on this
         interpretation,  the block faulting would make an underground operation
         most difficult and not viable;

ii)      vein  outcrop  blocks  (faulted)  have been traced  along  strike up to
         approximately   400  meters.   Vein  continuity  to  the  southwest  is
         restricted  by a steep scarp  (fault) and to the  northeast  by the Rio
         Santiago. This restricts vein potential substantially; and

iii)     although a few  samples  returned  over 500 g/t silver  with some gold.
         These  values are  erratic  and  appear to be the  result of  secondary
         enrichment.  All vein samples returned an average of approximately  186
         g/t silver which is low grade for a small tonnage potential.

Management  of the Company  determined  that these issues made it  impossible to
establish  near term  production  from the El Nayar  Project.  As a result,  the
Company has ceased all work on the El Nayar  Project and  wrote-off  $703,058 of
acquisition and exploration costs.


                                      -27-

<PAGE>



                                 [GRAPHIC OMITTED]


MAP 1 - Map of  Mexico  from PGS  Pacific  Geological  Services  indicating  the
location  of the El Nayar  Concessions,  with a close-up  inset map  showing the
location  of the El Nayar  Project in  relationship  to the city of  Guadalajara
taken from the December 18, 2003 report by John Nebocat,  P. Eng.,  entitled the
"Report on the Geology and Mineral Deposits on the El Nayar Project,  Ixtlan del
Rio, Nayarit, Mexico"



                                      -28-

<PAGE>



GOVERNMENT REGULATIONS

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

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

The costs  associated  with  compliance  with  these  laws and  regulations  are
substantial  and  possible  future  laws  and  regulations,  or  more  stringent
enforcement of current laws and regulations by governmental  authorities,  could
cause additional expense,  capital expenditures,  restrictions on or suspensions
of the  Company's  proposed  operations  and  delays in the  development  of any
properties  acquired by the Company.  Moreover,  these laws and  regulations may
allow 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,  the Company  does not hold any  material
assets.  However the Company is in the process of reviewing and  negotiating  to
acquire an interest or option on a mineral property located in Mexico.

EMPLOYEES

As of the date of this annual report the Company has no full-time  employees and
two  part-time  employees,  including its  officers.  The  Company's  management
functions are provided by private  companies  owned by officers and directors of
the Company.  See "Item 7. Major  Shareholders and Related Party  Transactions -
Related  Party  Transactions."  In  addition,  the  Company  employs a number of
consultants to perform specific functions, on an as needed basis.

ORGANIZATIONAL STRUCTURE

Effective  November 30, 2002, the Company wrote off its investment in its former
wholly-owned  subsidiaries,  Hilton U.S.  and STB Energy,  which were engaged in
petroleum and natural gas  operations  in the United  States.  Accordingly,  the
Company  ceased to record the activities of these  companies.  Effective May 31,
2004,  the Company  wrote-off  its  remaining  investment  in Stanford  and A.I.
Solutions, both inactive companies.

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

                                      -29-

<PAGE>


                               ORGANIZATION CHART

                       |--------------------------------|
                       |     Rochester Resources Ltd.   |
                       |        (British Columbia)      |
                       |--------------------------------|
                                       |
                                       |
                                       |
                       |--------------------------------|
                       |    Minera Nayarit S.A. de C.V. |
                       |             (Mexico)           |
                       |                60%             |
                       |--------------------------------|

SUBSIDIARY

As of the date of this  annual  report the Company  has one  subsidiary,  Minera
Nayarit S.A. de C.V.  ("Minera  Nayarit"),  which was  incorporated on April 29,
2004 in  Mexico,  to  hold  and  carry  out the  Company's  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.  The 40%  interest  is held in trust by MSJ on  behalf of the
Company  until the Company has earned its 60% interest in the El Nayar  Project,
as described in "Item 4. Information on the Company - Principal  Properties - El
Nayar  Project,  Mexico - Property  Agreements".  As of the date of this  annual
report,  the Company  still holds the 60%  interest in Minera  Nayarit;  however
Minera Nayarit is inactive.

PRINCIPAL OFFICES

The  Company's  corporate  office is located at Suite  #1305,  1090 West Georgia
Street,  Vancouver,  British Columbia,  Canada. The corporate office facility is
provided on a  month-to-month  basis by Chase as part of its agreement  with the
Company.  See "Item 7. Major  Shareholders  and  Related  Party  Transactions  -
Related Party Transactions."


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, 2005,  2004,  and 2003 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 10 of the consolidated  financial statements of
the Company  included  herein.  The noon rate of exchange on November  10, 2005,
reported  by the  United  States  Federal  Reserve  Bank  of New  York,  for the
conversion  of Canadian  dollars  into  United  States  dollars  was  CDN$1.1876
(US$0.8420 = CDN$1.00).  The effects of inflation and price changes have not had
a material impact on the Company's  income or net sales revenues during the past
three years.

OVERVIEW

Since  inception the Company has primarily been engaged in the mineral  resource
and  petroleum  and natural gas  industries.  The Company is  currently a junior
mineral  exploration  company  engaged in the  acquisition of mineral  interests
located in Mexico.

In October 2003,  the Company  finalized an option  agreement,  whereby it could
earn an initial  60%  interest in the El Nayar  Project in Mexico.  See "Item 4.
Information on the Company - Principal Properties - El Nayar Project, Mexico."


                                      -30-

<PAGE>



As of the  date of this  annual  report,  the  Company  has no  properties  and,
consequently,  has no current  operating  income or cash flow. As a result,  the
Company is considered an exploration stage company.

The Company is  actively  reviewing  resource  properties  at various  stages of
development and may make  acquisitions  through staking,  options,  purchases or
joint ventures.  If so, significant  additional  financing may be required,  and
there is no assurance  that funds would be available on terms  acceptable to the
Company or at all.

The Company derives  interest  income on its bank deposits and other  short-term
deposits,  which  depend  on the  Company's  ability  to  raise  funds.  Of most
significance  would be further  cash  received  from  issuance of shares to fund
ongoing activities.

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. Consequently, it is not possible to have any predetermined hold period.

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.

During  fiscal 2004,  the Company  changed its  reporting  currency  from United
States dollars to Canadian  dollars.  All assets and  liabilities are translated
into  Canadian  dollars at the rate of exchange  prevailing at the balance sheet
date. Revenues and expenses are translated at the average rate for the year.

The  reporting  currency  was  changed  from United  States  dollars to Canadian
dollars as the majority of the  Company's  transactions  during fiscal 2004 were
denominated in Canadian dollars.

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, 2005 COMPARED TO YEAR ENDED MAY 31, 2004

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

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

                                      -31-

<PAGE>



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

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

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

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

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

YEAR ENDED MAY 31, 2004 COMPARED TO YEAR ENDED MAY 31, 2003

During  fiscal  2004 the Company  recorded a loss of $582,395  ($0.57 per share)
compared  to a loss  of  $9,790,501  ($21.75  per  share)  for  fiscal  2003.  A
significant   portion  of  the  loss  for  fiscal  2003  is  attributed  to  the
depreciation,  depletion and  impairment  charge of  $6,881,119  relating to the
abandonment  of the  Company's  petroleum  and natural gas interests in November
2002.  Accordingly,  there were no  petroleum  and natural gas  revenues  during
fiscal 2004. Production for fiscal 2003 was attributable only to the constrained
production at the ELH #1 well to November 2002.

General and administrative costs decreased by $533,250,  from $821,308 in fiscal
2003 to $288,058  in fiscal 2004 due mainly to the impact of reduced  operations
and the abandonment of petroleum and proprietary  software program activities in
fiscal  2003.  General  and  administrative  costs in fiscal 2004  reflects  the
Company's current operating levels. Specific expenses of note during fiscal 2004
and 2003 are as follows:

         i)   during  fiscal  2004,   the  Company   incurred   accounting   and
              administrative  fees of $70,840  (2003  -$108,475)  provided  by a
              private  company  controlled  by  the  current  President  of  the
              Company;
         ii)  during fiscal 2004, the Company incurred management fees of $9,466
              (2003  - $  128,117)  provided  by  the  former  President  of the
              Company; and
         iii) during  fiscal 2003,  the Company  incurred  costs of $364,413 for
              research,  development and marketing of the  proprietary  software
              programs. In addition general and administrative costs of $226,193
              was  recorded for the  proprietary  software  program  activities,
              mainly in  salaries  and  benefits.  The  Company  abandoned  this
              business segment in May 2003.


                                      -32-

<PAGE>



During fiscal 2004, the Company sold marketable securities for $9,845, resulting
in a gain of $2,645,  which has been included in Interest and Other  Income.  In
addition,  the Company  recovered $23,792 for costs previously  incurred.  These
costs  have been  recorded  as a cost  recovery  in general  and  administrative
expenses.

During  fiscal  2004,  the  Company  recorded  a  non-cash  charge  of  $154,000
attributed to the granting of 700,000 stock options to employees,  directors and
consultants. No stock options were granted in fiscal 2003.

Interest  expense on debentures  decreased by $406,787,  from $640,548 in fiscal
2003 to $233,761 in fiscal 2004,  reflecting  the  retirement  of  $2,041,932 of
debentures in fiscal 2004. In addition, interest expense in fiscal 2003 included
$252,621  of bonus  interest  paid to  debenture  holders  who  converted  their
debentures into common shares in fiscal 2003.

During  fiscal  2003,  the  Company  recorded  $937,937  for the  impairment  of
investments,  advances and  receivables  due from  related and other  companies.
During fiscal 2004, the Company recovered $72,604, which was included as part of
interest and other income.  The Company also incurred  $246,900 of due diligence
costs  in  fiscal  2003  for  property  investigations   conducted  on  possible
acquisitions  of mineral  properties  in China and  Mongolia.  These  costs were
expensed in 2003.

During  fiscal  2003,  the  Company  recorded  a  depreciation,   depletion  and
impairment  charge of $6,881,119  relating to the  unsuccessful  side-track well
conducted in Regional  California and the abandonment of the Company's petroleum
and natural gas interests in November 2002. In fiscal 2002, the Company recorded
a charge of  $39,482,069,  which  reflected a significant  drop in the Company's
economic reserves  resulting from the combination of a decrease in the estimated
proven  reserves due to problems  encountered  at East Lost Hills, a drop in oil
and gas  prices,  the  withdrawal  from the  Greater  San  Joaquin  Venture  and
disappointing results in Regional California.

During fiscal 2004,  the Company  completed  private  placements  for gross cash
proceeds  of  $865,750.  The  Company  also  received  a further  $68,600 on the
exercise of warrants.  During fiscal 2004, the Company  successfully  negotiated
the  retirement of $2,041,932 of debentures  and $65,371 of accrued  interest by
issuing 687,421 shares.

During fiscal 2004, the Company spent $103,971 relating to acquisition costs and
$116,611 for  exploration  expenditures  on the El Nayar Project.  An additional
$21,443 was spent on trucks and equipment for El Nayar.

LIQUIDITY AND CAPITAL RESOURCES

To date the Company has not received any revenues  from its mineral  exploration
activities  and has  relied  on equity  financing  to fund its  commitments  and
discharge its  liabilities  as they come due.  During  fiscal 2005,  the Company
completed a  non-brokered  private  placement  financing  for gross  proceeds of
$355,000. As of May 31, 2005, the Company had a working capital of $245,246. The
Company  anticipates  that it will not  have  sufficient  funds to meet  ongoing
overhead  expenditures,  identify and acquire new mineral properties and conduct
exploration  activities,  and or  investigate  new business  opportunities.  The
Company will be required to conduct additional financings,  however, there is no
assurance  that funding will be available on terms  acceptable to the Company or
at all.

As of the date of the annual report, the Company has no exploration  budget. The
Company  anticipates  spending  approximately  $150,000  during  fiscal 2006 for
administrative  and  other  operating  expenditures.  The  level of  exploration
expenditures and  administrative  and other operating  expenditures may increase
significantly should the Company acquire or option a mineral property interest.

The Company  does not have any loans or bank debt and there are no  restrictions
on the use of its cash resources.

There are no material commitments for capital expenditures during fiscal 2006.

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



                                      -33-

<PAGE>



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  2005,  the  Company   incurred   $66,536  for  mineral  property
acquisition  costs and $415,940 for  exploration  costs on its mineral  property
interests.  During  fiscal  2004,  the  Company  incurred  $103,971  for mineral
property  acquisition  costs and $116,611 for  exploration  costs on its mineral
property interests. No mineral property acquisitions or exploration expenditures
were made in fiscal 2003.

During  fiscal  2003,  the  Company   incurred   $655,786  on  the  acquisition,
exploration and development of its petroleum interests and $364,413 on research,
development  and  marketing  costs  related to the  development  of its software
programs.

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 Company does not have any contractual obligations.


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

DIRECTORS AND SENIOR MANAGEMENT

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

NAME                            POSITION WITH THE COMPANY                           TERM OF OFFICE (FOR EACH OFFICE HELD)
<S>                            <C>                                                 <C>

DES O'KELL                      President, Chief Executive                          June 2005 to present
                                Officer, Acting Chief Financial Officer
                                and Director

NICK DEMARE(1)                  Director                                            October 1989 to present

WILLIAM LEE(1)                  Director                                            September 1995 to present

ANDREW CARTER(1)                Director                                            July 2003 to present

HARVEY LIM                      Corporate Secretary                                 June 1997 to present

</TABLE>

(1) Member of the Audit Committee.

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

                                      -34-

<PAGE>



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.

Des O'Kell (Age 39),  Director,  President,  Chief Executive  Officer and Acting
Chief Financial Officer

Since March 1998, Mr. O'Kell has been the President of Eland Jennings, a private
company  which  provides  a  range  of  services  including  investor  relations
activities,  raising  capital,  and financial  strategy  planning to private and
public  companies.  Mr. O'Kell directly owns 50% of Eland  Jennings.  Mr. O'Kell
devotes  approximately 50% of his time  (approximately 20 hours per week) to the
affairs of the Company.

Nick DeMare (Age 51), Director

Mr.  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.  Mr. DeMare devotes  approximately 10 - 15% of
his  time  (approximately  four - six  hours  per  week) to the  affairs  of the
Company.  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."

William Lee (Age 52), Director

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

Andrew Carter (Age 58), Director

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



                                      -35-

<PAGE>



Harvey Lim (Age 47), Corporate Secretary

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

COMPENSATION

During the fiscal year ended May 31,  2005,  the  directors  and officers of the
Company,  as a group, had received or charged the Company a total of $94,538 for
services  rendered  by the  directors  and  officers or  companies  owned by the
individuals.

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

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

"Named Executive  Officers" means the Chief Executive  Officer ("CEO") and Chief
Financial  Officer  ("CFO")  of  the  Company,   regardless  of  the  amount  of
compensation of those  individuals,  and each of the 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.

During the fiscal year ended May 31, 2005,  the Company had one Named  Executive
Officer,  Nick DeMare,  the Company's former President,  Chief Executive Officer
("CEO") and acting Chief  Financial  Officer  ("CFO").  On June 28,  2005,  Nick
DeMare  resigned  as the  President,  CEO and acting CFO of the  Company and Des
O'Kell was appointed as a director and the President,  CEO and acting CFO of the
Company.

The following table sets forth the  compensation  awarded,  paid to or earned by
the Named Executive  Officer during the financial years ended May 31, 2003, 2004
and 2005:


<TABLE>
<CAPTION>

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

Nick DeMare(1)             2005       Nil       Nil        78,788(2)      20,500         Nil          Nil          Nil
former President, CEO      2004       Nil       Nil        70,840(2)       8,500         Nil          Nil          Nil
and acting CFO and         2003       N/A       N/A         N/A             N/A          N/A          N/A          N/A
current Director
----------------------     ----     --------------------------------   ------------------------------------     --------
</TABLE>

NOTES:
(1)      On June 28, 2005, Nick DeMare resigned as the President, CEO and acting
         CFO of the Company and Des O'Kell was  appointed  as a director and the
         President, CEO and acting CFO of the Company.
(2)      Paid to Chase Management Ltd. ("Chase"), a private corporation owned by
         Nick DeMare. Chase personnel (excluding Mr. DeMare) provide accounting,
         secretarial and administrative services to the Company.


                                      -36-

<PAGE>



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 Name Executive Officer
during the  Company's  most  recently  completed  financial  year. A "Long- Term
Incentive Plan" is a plan under which awards are made based on performance  over
a period longer than one  financial  year,  other than a plan for options,  SARs
(stock appreciation rights) or restricted share compensation.

OPTIONS AND SHARE APPRECIATION RIGHTS

OPTION/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR

The  following  table sets forth stock  options  granted to the Named  Executive
Officer during the financial year ended May 31, 2005:

<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>

Nick DeMare                 13,000              7.28%              1.00                1.20               Sept.3/07
                             7,500              4.20%              1.20                1.60               Feb.8/08
                            ------             -----
                            20,500             11.48%
                            ======             =====
------------            -------------      --------------     -------------      ------------------      ----------
</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 Officer during the financial
year ended May 31, 2005:

<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>

Nick DeMare                    3,000                Nil                20,500 / Nil                  Nil / N/A
-----------                ------------       ---------------   -------------------------    -------------------------
</TABLE>

NOTE:
(1)      The closing price of the Company's shares on May 31, 2005 was $1.00.

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 Officer's employment,  a change of control of
our  Company  or a change  in the  Named  Executive  Officer's  responsibilities
following  a change in  control,  which  entitle a Named  Executive  Officer  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,  2005,  the  Company  paid a total of
$15,750 for  professional  fees to its directors who are not the Named Executive
Officers of the Company.


                                      -37-

<PAGE>



NON-CASH COMPENSATION

The following  table sets forth stock options  granted by the Company during the
financial  year  ended  May 31,  2005  to the  directors  who are not the  Named
Executive Officers of the Company:


<TABLE>
<CAPTION>

--------------------           ------------     --------------     ------------    -----------------      ----------
                                                  % OF TOTAL                        MARKET VALUE OF
                                SECURITIES       OPTIONS/SARS                         SECURITIES
                                  UNDER           GRANTED TO                          UNDERLYING
                               OPTIONS/SARS      EMPLOYEES IN       EXERCISE OR     OPTIONS/SARS ON       EXPIRATION
NAME                             GRANTED        FINANCIAL YEAR      BASE PRICE     THE DATE OF GRANT         DATE
                                   (#)                (%)          ($/SECURITY)      ($/SECURITY)
--------------------           ------------     --------------     ------------    -----------------      ----------
<S>                             <C>               <C>                <C>               <C>               <C>

Directors as a group              27,000            15.13%             1.00              1.20              Sept.3/07
who are not Named                 22,500            12.60%             1.20              1.60              Feb.8/08
Executive Officers                ------            -----
                                  49,500            27.73%
                                  ======            =====
--------------------           ------------     --------------     ------------    -----------------      ----------
</TABLE>


The following  table sets forth details of all exercises of stock options during
the  financial  year ended May 31, 2005 by the  directors  who are not the Named
Executive Officers, and the financial year end value of unexercised options:

<TABLE>
<CAPTION>

--------------------           -----------    ---------------   -------------------------   ---------------------------
                                                                       UNEXERCISED          VALUE OF UNEXERCISED IN THE
                               SECURITIES                            OPTIONS/SARS AT             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>

Directors as a group               Nil              N/A                49,500 / Nil                  Nil / N/A
who are not Named
Executive Officers
--------------------           -----------    ---------------   -------------------------   ---------------------------
</TABLE>

NOTE:
(1)      The closing price of the Company's shares on May 31, 2005 was $1.00.

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, 2005, 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 BE                                   AVAILABLE FOR FUTURE ISSUANCE
                             ISSUED UPON EXERCISE OF       WEIGHTED-AVERAGE EXERCISE       UNDER EQUITY COMPENSATION
                               OUTSTANDING OPTIONS,      PRICE OF OUTSTANDING OPTIONS,    PLANS (EXCLUDING SECURITIES
                                WARRANTS AND RIGHTS          WARRANTS AND RIGHTS             REFLECTED IN COLUMN (A))
----------------------      --------------------------   ----------------------------   ------------------------------
<S>                               <C>                            <C>                            <C>

Plan Category                          (a)                          (b)                               (c)
----------------------      --------------------------   ----------------------------   ------------------------------
Equity compensation                  217,500                        1.30                         See Note (1)
plans approved by
securityholders
----------------------      --------------------------   ----------------------------   ------------------------------
Equity compensation                    N/A                          N/A                               N/A
plans not approved by
securityholders
----------------------      --------------------------   ----------------------------   ------------------------------
Total                                217,500                        1.30                         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, 2004.

EMPLOYMENT AGREEMENTS

The Company has a month to month  arrangement  with Mr. Des O'Kell,  whereby the
Company is paying Eland  Jennings,  a private  company 50% owned by Mr.  O'Kell,
$3,500 per month for his services since his appointment on June 28, 2005, as the
Company's President, CEO and acting CFO. Prior to Mr. O'Kell's appointment,  the
Company paid Eland  Jennings  $3,000 per month for investor  relations  services
provided to the Company.

The Company has a management contract with Chase, a company owned by Mr. DeMare,
whereby  the  Company  is  paying  Chase  $3,000  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.

There are no  service  contracts  with the  Company  or any of its  subsidiaries
providing  for benefits  upon  termination  of employment of any director of the
Company.

BOARD PRACTICES

AUDIT COMMITTEE

THE AUDIT COMMITTEE'S 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 the breadth and complexity of
the  issues  that can  presumably  be  expected  to be raised  by the  Company's
financial statements.


                                      -39-

<PAGE>



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.

                                      -40-

<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 members of the Committee (1):

--------------------------------------------------------------------------------
                             INDEPENDENT (1)              FINANCIALLY LITERATE
--------------------------------------------------------------------------------
Nick DeMare                         N                              Y
William Lee                         Y                              Y
Andrew Carter                       Y                              Y
--------------------------------------------------------------------------------

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

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

AUDIT COMMITTEE OVERSIGHT

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

RELIANCE ON CERTAIN EXEMPTIONS

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

PRE-APPROVAL POLICIES AND PROCEDURES

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

REMUNERATION COMMITTEE

The Company does not have a separate Remuneration Committee.


                                      -41-

<PAGE>



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

During the year ended May 31, 2005, the Company had no full-time employees (2004
- nil; 2003 - nil) and two part- time employees  (2004 - two; 2003 - two) in the
area of management  and  administration.  Corporate  accounting,  management and
administration  are  provided,  in part,  by Chase,  a company owned by Mr. Nick
DeMare.  Chase provides its services to a number of public and private companies
and currently employs six full-time employees,  including Mr. Lim (excluding Mr.
DeMare).  Mr. DeMare provides his services as the President,  CEO and CFO of the
Company.  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 October 31, 2005.

<TABLE>
<CAPTION>

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

Common Stock          Des O'Kell                                      14,000(2)                     0.62%
                      St. Albert, Alberta, Canada

Common Stock          Nick DeMare                                    161,634(3)                     7.10%
                      Burnaby, British Columbia, Canada

Common Stock          William Lee                                     30,650(4)                     1.36%
                      Delta, British Columbia, Canada

Common Stock          Andrew Carter                                   32,000(5)                     1.42%
                      North Vancouver,
                      British Columbia, Canada

Common Stock          Harvey Lim                                      22,000(6)                     0.98%
                      Burnaby, British Columbia, Canada
</TABLE>

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 October 31, 2005, 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  2,230,735  shares of common stock  outstanding  as of October 31,
     2005.
(2)  Options to acquire 14,000 common shares.

                                      -42-

<PAGE>



(3)  Includes 92,540 common shares held by DNG Capital Corp.  ("DNG"), a private
     corporation wholly-owned by Mr. DeMare, and 5,630 common shares held by 888
     Capital Corp., a private corporation 50% owned by Mr. DeMare. Also includes
     options to acquire  20,500 common  shares held by Mr.  DeMare  directly and
     warrants to acquire 22,500 common shares held by DNG.
(4)  Includes 12,650 common shares held, options to acquire 15,500 common shares
     and warrants to acquire  2,500 common  shares.
(5)  Includes 12,500 common shares held, options to acquire 17,000 common shares
     and warrants to acquire 2,500 common shares.
(6)  Includes  5,500  common  shares held and options to acquire  16,500  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.

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

                                      -43-

<PAGE>



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 October 31,  2005,  an  aggregate of 143,000  incentive  stock  options to
purchase  shares  of  the  Company's  common  stock  remain  outstanding  to the
following persons:

                     NATURE             NO. OF     EXERCISE
OPTIONEE             OF OPTION         OPTIONS    PRICE/SHARE       EXPIRY DATE
                                                       $

David Henstridge     Consultant          5,000        2.50          Feb. 18/07
Des O'Kell           Consultant          4,000        2.50          Feb. 18/07
Betty Moody          Consultant          2,500        2.50          Feb. 18/07
Arabella Smith       Consultant          2,500        2.50          Feb. 18/07
Rosanna Wong         Consultant          2,500        2.50          Feb. 18/07
Linda Liu            Consultant          2,500        2.50          Feb. 18/07
Nick DeMare          Director           13,000        1.00          Sept. 03/07
Andrew Carter        Director           10,000        1.00          Sept. 03/07
William Lee          Director            8,000        1.00          Sept. 03/07
Harvey Lim           Officer             9,000        1.00          Sept. 03/07
James Stewart        Consultant          7,500        1.00          Sept. 03/07
David Henstridge     Consultant          7,500        1.00          Sept. 03/07
Betty Moody          Consultant          2,500        1.00          Sept. 03/07
Arabella Smith       Consultant          2,500        1.00          Sept. 03/07
Rosanna Wong         Consultant          2,500        1.00          Sept. 03/07
Linda Liu            Consultant          2,500        1.00          Sept. 03/07
Des O'Kell           Consultant          2,500        1.00          Sept. 03/07
David Henstridge     Consultant          6,000        1.00          Jan. 12/07
Javier Azpeita       Consultant          1,000        1.00          Jan. 12/07
Betty Moody          Consultant          3,000        1.00          Jan. 12/07
Arabella Smith       Consultant          3,000        1.00          Jan. 12/07
Rosanna Wong         Consultant          3,000        1.00          Jan. 12/07
Linda Liu            Consultant          3,000        1.00          Jan. 12/07
Nick DeMare          Director            7,500        1.20          Feb. 08/08
Harvey Lim           Officer             7,500        1.20          Feb. 08/08
Andrew Carter        Director            7,500        1.20          Feb. 08/08
William Lee          Director            7,500        1.20          Feb. 08/08
Des O'Kell           Consultant          7,500        1.20          Feb. 08/08
                                      --------
TOTAL:                                 143,000
                                      ========

As of October 31, 2005, the directors and officers of the Company, as a group (5
persons), held options to purchase 83,500 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 have been allocated to the warrants.

As of October  31,  2005,  there were  non-transferable  common  share  purchase
warrants  exercisable for the purchase of 688,500 common shares, which expire at
various  times until 2007 and may be  exercised at various  prices  ranging from
$1.40 per share to $3.10 per share, as follows:


                                      -44-

<PAGE>



  COMMON SHARES ISSUABLE                Exercise
 ON EXERCISE OF WARRANTS              PRICE/SHARE              EXPIRY
                                           $
        364,000                           1.40                 November 25, 2005
        142,500                           3.10                 March 4, 2006
        182,000                           1.50                 February 7, 2007
       --------
        688,500
       ========

As of October 31, 2005, the directors and officers of the Company, as a group (5
persons), held warrants to purchase 30,000 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 October 31, 2005.

<TABLE>
<CAPTION>

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

Common Stock            Nick DeMare                                         161,634(2)                    7.10%
                        Burnaby, British Columbia, Canada
</TABLE>

(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 October 31, 2005, 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  2,230,735  shares of common stock  outstanding  as of October 31,
     2005.
(2)  Includes 92,540 common shares held by DNG Capital Corp.  ("DNG"), a private
     corporation wholly-owned by Mr. DeMare, and 5,630 common shares held by 888
     Capital Corp., a private corporation 50% owned by Mr. DeMare. Also includes
     options to acquire  20,500 common  shares held by Mr.  DeMare  directly and
     warrants to acquire 22,500 common shares held by DNG.

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.



                                      -45-

<PAGE>



UNITED STATES SHAREHOLDERS

As of October 31, 2005,  there were  approximately  2 registered  holders of the
Company's common shares in the United States,  with combined holdings of 292,124
shares,  representing  13.10% 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, 2004 through October
31, 2005, the Company has not entered into any transactions or loans between the
Company and any (a) enterprises that directly or indirectly  through one or more
intermediaries,  control or are controlled by, or are under common control with,
the Company; (b) associates;  (c) individuals owning, directly or indirectly, an
interest  in the  voting  power  of the  Company  that  gives  them  significant
influence over the Company,  and close members of any such individuals'  family;
(d) key management personnel and close members of such individuals' families; or
(e)  enterprises  in which a substantial  interest in the voting power is owned,
directly or indirectly, by any person described in (c) or (d) or over which such
a person is able to exercise significant influence.

1.       During the year ended May 31,  2005,  the  Company had  retained  Eland
         Jennings,  a company 50% owned by Mr. Des O'Kell,  to provide  investor
         relations services. In consideration therefor,  Eland Jennings was paid
         a monthly fee of $3,000.  On June 28, 2005,  Mr. O'Kell was appointed a
         director,  President, CEO and acting CFO of the Company and the monthly
         fee was increased to $3,500.  Management  believes that the arrangement
         with Eland  Jennings is fair to the Company.  During the year ended May
         31,  2005 and the period  from June 1, 2005 to October  31,  2005,  the
         Company paid Eland Jennings $36,000 and $17,000, respectively.

2.       The Company has  retained  Chase,  a company  wholly-owned  by Mr. Nick
         DeMare,  a  director  of  the  Company,  to  provide  office  premises,
         administrative,  accounting and management  services.  In consideration
         therefor,  Chase  is  paid a  monthly  fee of  $3,000.  Chase  is  also
         reimbursed for  out-of-pocket  disbursements  incurred on behalf of the
         Company.  In  addition,  Chase also  provides  the  Company  additional
         services  which are billed at rates  which Chase  charges to  unrelated
         third parties.  Management  believes the arrangement with Chase is fair
         to the  Company  and  similar to terms  which  could be  obtained  from
         unrelated  third  parties.  During the year ended May 31,  2005 and the
         period from June 1, 2005 to October 31,  2005,  the Company  paid Chase
         $50,288 and $21,490, respectively.

3.       From July 4, 2003 to June 28,  2005,  the Company  paid Chase a monthly
         fee for the services of Mr. Nick DeMare in his  capacity as  President,
         Chief Executive Officer and Chief Financial Officer of the Company. See
         "Item 6. Directors,  Senior  Management and Employees -  Compensation."
         Management  believes  the  arrangement  with  Chase  for  Mr.  DeMare's
         services  was fair to the  Company.  During the year ended May 31, 2005
         and the period from June 1, 2005 to October 31, 2005,  the Company paid
         Chase $28,500 and $25,000 respectively.

4.       The Company has completed  previous  private  placements of securities,
         the subscribers of which include  directors and officers of the Company
         and their immediate family members.  The securities  issued pursuant to
         such  private  placements  were issued in  accordance  with the pricing
         policies of the TSXV.  During the year ended May 31, 2005,  the Company
         conducted the following private placements of common stock:

                                      -46-

<PAGE>




                                              PARTICIPATION   PURCHASE  MARKET
         PLACEE                                BY INSIDERS     PRICE    PRICE(1)
                                                                 $        $
         YEAR ENDED MAY 31, 2005
         -----------------------
         355,000 units
         (one common share and one warrant)                     1.00       1.30

           -  Andrew Carter                        5,000
           -  William Lee                          5,000
           -  Judy Eng (spouse of Harvey Lim)      5,000
           -  Nick DeMare                         50,000
                                                 -------
                                                  65,000
                                                 =======

         (1)  Quoted  closing  price on date of  price  reservation  of  private
              placement with the TSXV.

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, 2004.

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.


                                      -47-

<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:

--------------------------------------------------------------------------------
                                                                  COMMENCED
DIRECTOR        REPORTING ISSUER                     CAPACITY     SERVICE
--------------------------------------------------------------------------------

Nick DeMare     Aguila American Resources Ltd.       Director     January 2003
                Andean American Mining Corp.         Director     August 2002
                Astral Mining Corporation            Director     February 2004
                Centrasia Mining Corp.               Director     October 2002
                GGL Diamond Corp.                    Director     May 1989
                Golden Peaks Resources Ltd.          Director     January 1992
                Goldmarca Limited                    Director     September 2000
                Gold Point Energy Ltd.               Director     August 2003
                Halo Resources Ltd.                  Director     January 1996
                                                     Chairman     January 2005
                Kookaburra Resources Ltd.            Director     June 1988
                Lara Exploration Ltd.                Director     March 2004
                Lariat Energy Ltd.                   Director     April 2003
                Mawson Resources Limited             Director     March 2004
                Mirasol Resources Limited            Director     February 2005
                Medina International Corp.           Director,
                                                     Secretary &
                                                     Treasurer    May 2002
                Tinka Resources Limited              Director     October 2002
                Tumi Resources Limited               Director     January 2000
--------------------------------------------------------------------------------

William Lee     Gold Point Energy Ltd.               Director     January 2001
                Halo Resources Ltd.                  Director     February 2004
                Tinka Resources Limited              Director     October 2002
--------------------------------------------------------------------------------

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

Mr. Des O'Kell is not an officer or  director of any other  reporting  issuer in
Canada or the United States.

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

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


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

DESCRIPTION                                                             PAGE
-----------                                                             ----
Audited Consolidated Financial Statements for the Years Ended
May 31, 2005, 2004 and 2003                                          F-1 to F-23

SIGNIFICANT CHANGES

There have not been any significant changes since May 31, 2005.



                                      -48-

<PAGE>



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 "RTC" 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, 2005                        687,160                  $1.90        $0.30
May 31, 2004                        541,315                  $3.70        $0.50
May 31, 2003                        159,679                 $42.00        $0.90
May 31, 2002                        246,761                $171.00       $14.00
May 31, 2001                        572,311                $425.00      $100.00

                                                        -----------------------
                                                              SALES PRICE
                                                        -----------------------
QUARTER ENDED                       VOLUME                 HIGH          LOW
------------------                  -------             ----------   ----------

August 31, 2005                     219,100                  $1.00        $0.30
May 31, 2005                        108,920                  $1.50        $0.70
February 28, 2005                   191,420                  $1.90        $1.10
November 30, 2004                   182,470                  $1.50        $0.90
August 31, 2004                     204,350                  $1.60        $0.70
May 31, 2004                        252,310                  $3.60        $1.00
February 28, 2004                   155,360                  $3.70        $2.60
November 30, 2003                   110,300                  $3.00        $0.50
August 31, 2003                      23,346                  $1.40        $0.50


                                      -49-

<PAGE>


                                                        -----------------------
                                                              SALES PRICE
                                                        -----------------------
MONTH ENDED                         VOLUME                 HIGH          LOW
------------------                  -------             ----------   ----------

October 31, 2005                     28,800                  $0.67        $0.54
September 30, 2005                   37,200                  $0.80        $0.43
August 31, 2005                      50,710                  $0.50        $0.30
July 31, 2005                        71,400                  $0.60        $0.30
June 30, 2005                        96,990                  $1.00        $0.50
May 31, 2005                         11,580                  $1.10        $0.80

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

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

                                                        -----------------------
                                                           SALES PRICE (US $)
                                                        -----------------------
QUARTER ENDED                       VOLUME                 HIGH          LOW
------------------                  -------             ----------   ----------

August 31, 2005                       9,476                  $0.62        $0.21
May 31, 2005                          9,654                  $1.30        $0.41
February 28, 2005                    26,529                  $1.64        $0.75
November 30, 2004                     9,573                  $1.28        $0.66
August 31, 2004                      20,991                  $1.50        $0.70
May 31, 2004                         28,030                  $4.80        $0.70
February 28, 2004                    10,604                  $2.90        $0.00
November 30, 2003                    10,010                  $2.10        $1.30
August 31, 2003                         270                  $0.60        $0.50

                                                        -----------------------
                                                           SALES PRICE (US $)
                                                        -----------------------
MONTH ENDED                         VOLUME                 HIGH          LOW
------------------                  -------             ----------   ----------

October 31, 2005                      8,569                  $0.57        $0.45
September 30, 2005                    1,750                  $0.40        $0.40
August 31, 2005                       2,171                  $0.32        $0.21
July 31, 2005                         1,142                  $0.40        $0.30
June 30, 2005                         6,163                  $0.62        $0.34
May 31, 2005                            581                  $0.53        $0.41

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.

                                      -50-

<PAGE>



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  ofcertain  provisions of the Company's  Continuation
Application and Articles and certain provisions of the BCBCA,  applicable to the
Company:

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

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

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

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

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

         1.       the  contract or  transaction  is an  arrangement  by way of a
                  security  granted  by the  Company  for  money  loaned  to, or
                  obligations  undertaken by, the director or senior officer, or
                  a person in whom the director or senior officer has a material
                  interest,  for the benefit of the Company or an  affiliate  of
                  the Company;
         2.       the  contract  or  transaction  relates  to  an  indemnity  or
                  insurance under the BCBCA;

                                      -51-

<PAGE>



         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.



                                      -52-

<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 2,230,735  common shares
were issued and outstanding as of October 31, 2005.

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.


                                      -53-

<PAGE>



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

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

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

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

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



                                      -54-

<PAGE>



MATERIAL CONTRACTS

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

1.       Heads of Agreement by and among  Hilton  Petroleum  Ltd. and Minera San
         Jorge S.A. de C.V. dated October 1, 2003.  See "Item 4.  Information on
         the Company - Principal Properties - El Nayar Project, Mexico."

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;

                                      -55-

<PAGE>



(b)      except as specified in paragraph  (c) below,  a threshold is calculated
         for  reviewable  direct  acquisitions  by or from  WTO  Investors.  The
         threshold for 2005 is $250,000,000.  Pursuant to Canada's international
         commitments,  indirect  acquisitions  by or from WTO  Investors are not
         reviewable; and
(c)      the  limits  set  out in  paragraph  (a)  apply  to all  investors  for
         acquisitions of a Canadian business that:

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

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

WTO Investor as defined in the Act means:

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

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


                                      -56-

<PAGE>



TAXATION

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES

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

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

DIVIDENDS

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

CAPITAL GAINS

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

                                      -57-

<PAGE>



MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

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

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

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

U.S. HOLDERS

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

                                      -58-

<PAGE>



Canadian income tax withheld from such distributions. Such Canadian tax withheld
may be credited, subject to certain limitations,  against the U.S. Holder's U.S.
federal income tax liability or, alternatively, may be deducted in computing the
U.S. Holder's U.S. federal taxable income by those who itemize deductions.  (See
more  detailed  discussion  at "Foreign Tax Credit"  below).  To the extent that
distributions  from the  Company  exceed  current or  accumulated  earnings  and
profits of the Company,  such distributions will be treated first as a return of
capital, to the extent of the U.S. Holder's adjusted basis in the common shares,
and  thereafter  as gain from the sale or exchange  of the common  shares of the
Company.  (See more detailed  discussion at "Disposition of Common Shares of the
Company" below)

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

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

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

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

                                      -59-

<PAGE>



classification  process. In addition,  this limitation is calculated  separately
with  respect to  specific  classes of income such as  "passive  income,"  "high
withholding tax interest,"  "financial  services income," "shipping income," and
certain other  classifications of income.  Dividends  distributed by the Company
will generally  constitute  "foreign  source" income,  and will be classified as
"passive income" or, in the case of certain U.S.  Holders,  "financial  services
income" for these purposes.

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

DISPOSITION OF COMMON SHARES OF THE COMPANY

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

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

OTHER CONSIDERATIONS FOR U.S. HOLDERS

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

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.


                                      -60-

<PAGE>



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

PASSIVE FOREIGN INVESTMENT COMPANY

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

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

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

QEF ELECTION

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



                                      -61-

<PAGE>



SECTION 1291 RULES

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

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

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

MARK-TO-MARKET ELECTION

Effective for tax years of U.S. Holders  beginning after December 31, 1997, U.S.
Holders who hold, actually or constructively,  marketable stock (as specifically
defined in the Treasury  Regulations) of a foreign corporation that qualifies as
a PFIC may  annually  elect to mark such stock to the market (a  "mark-to-market
election").  If such an election is made, such U.S. Holder will generally not be
subject to the special  taxation rules of Section 1291  discussed  above. A U.S.
Holder  who makes the  mark-to-market  election  will  include in income for the
taxable year for which the  election was made an amount equal to the excess,  if
any,  of the fair  market  value of the common  shares of the  Company as of the
close of such tax year over such U.S.  Holder's  adjusted  basis in such  common
shares.  In addition,  the U.S. Holder may be allowed a deduction for the lesser
of (i) the  excess,  if any,  of such U.S.  Holder's  adjusted  tax basis in the
common  shares over the fair market  value of such shares as of the close of the
tax year, or (ii) the excess,  if any, of (A) the  mark-to-market  gains for the
common shares in the Company  included by such U.S.  Holder for prior tax years,
including  any amount which would have been  included for any prior tax year but
for the Section 1291 interest on tax deferral rules discussed above with respect
to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that
were allowed as deductions  for prior tax years.  A U.S.  Holder's  adjusted tax
basis in the common shares of the Company will be adjusted to reflect the amount
included in or deducted from income as a result of a mark-to-market  election. A
mark-to-market  election  applies to the taxable  year in which the  election is
made and to each  subsequent  taxable year,  unless the Company's  common shares
cease  to be  marketable,  as  specifically  defined,  or the  IRS  consents  to
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 corporate office at Suite 1305 - 1090 West Georgia Street,  Vancouver,
British Columbia V6E 3V7, during normal business hours.




                                      -62-

<PAGE>



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

Not applicable.


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

Not applicable



                                     PART II


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

Not applicable.


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

Not applicable.


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

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

During  the  fiscal  year  ended May 31,  2005,  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.




                                      -63-

<PAGE>



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

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


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

AUDIT FEES

For the  fiscal  years  ended May 31,  2005 and 2004,  the  Company's  principal
accountant  billed  $17,793  and  $15,848,  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,  2005 and 2004,  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,  2005 and 2004,  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,  2005 and 2004,  the  Company's  principal
accountant billed $nil and $nil,  respectively,  for products and services other
than those set forth above.

PRE-APPROVAL POLICIES AND PROCEDURES

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

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

To the best of the Company's knowledge,  no more than fifty percent of the hours
expended on the auditors' engagement to audit the Company's financial statements
for the fiscal  year ended May 31, 2005 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.


                                      -64-

<PAGE>



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

During the fiscal year ended May 31, 2005, 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-23.


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

Not applicable.


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

       EXHIBIT
       NUMBER     DESCRIPTION
       ------     --------------------------------------------------------------
         1.1      Certificate of Continuation  and Notice of Articles for Hilton
                  Resources Ltd. (2)

         1.2      Articles for Hilton Resources Ltd. (2)

         1.3      Notice of Alteration (Name Change) - Form 11

         4.1      Heads of  Agreement  by and among  Hilton  Petroleum  Ltd. and
                  Minera San Jorge S.A. de C.V. dated October 1, 2003. (1)

         4.20     Stock Option Plan 2004 (1)

         4.21     Stock Option Plan 2005 (2)

         8.1      List of Subsidiaries

         12.1     Certification of Des O'Kell Pursuant to Rule 13a-14(a)

         13.1     Certification of Des O'Kell Pursuant to 18 U.S.C. Section 1350

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

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



                                      -65-

<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.


                                HILTON RESOURCES LTD.



Dated:   NOVEMBER 16, 2005      /s/  DES O'KELL
                                ------------------------------------------------
                                Des O'Kell,
                                President, Chief Executive Officer, acting Chief
                                Financial Officer and Director



                                      -66-

<PAGE>






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


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

                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                          MAY 31, 2005, 2004, AND 2003

            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


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






                                      F-1
<PAGE>



                                                                        D & H
                                                                        group
                                                                      Chartered
AUDITORS' REPORT                                                     Accountants





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


We have audited the  consolidated  balance  sheets of Rochester  Resources  Ltd.
(formerly  Hilton  Resources  Ltd.)  as  at  May  31,  2005  and  2004  and  the
consolidated  statements  of  operations,  deficit  and cash flows for the years
ended  May  31,  2005,  2004  and  2003.  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  statements
presentation.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects,  the financial position of the Company as at May 31, 2005 and
2004 and the  results of its  operations  and cash flows for the years ended May
31,  2005,  2004  and  2003  in  accordance  with  Canadian  generally  accepted
accounting principles.

Canadian generally accepted  accounting  principles vary in certain  significant
respects from  accounting  principles  generally  accepted in the United States.
Application  of accounting  principles  generally  accepted in the United States
would have affected assets,  liabilities and shareholders'  equity as at May 31,
2005 and 2004 and results of operations  for the years ended May 31, 2005,  2004
and  2003 to the  extent  summarized  in Note 10 to the  consolidated  financial
statements.

On August 5, 2005 we reported separately to the shareholders Rochester Resources
Ltd.  (formerly Hilton Resources Ltd.) on consolidated  financial  statements as
at, and for the years ended,  May 31, 2005 and 2004 audited in  accordance  with
Canadian generally accepted auditing standards.




Vancouver, B.C.                                        /s/ D&H GROUP LLP
August 5, 2005                                        CHARTERED ACCOUNTANTS



                                  D&H Group LLP
               A BC LIMITED LIABILITY PARTNERSHIP OF CORPORATIONS
               member of BHD Association with affiliated offices
                       across Canada and Internationally
            10th Floor, 1333 West Broadway, Vancouver, B.C. V6H 4C1
                www.dhgroup.ca F (604) 731-9923 T (604) 731-5881


                                      F-2
<PAGE>




                                                                        D & H
                                                                        group
                                                                      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 August
5, 2005, 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.                                         /s/ D&H GROUP LLP
August 5, 2005                                         CHARTERED ACCOUNTANTS










                                  D&H Group LLP
              A B.C. LIMITED LIABILITY PARTNERSHIP OF CORPORATIONS
               member of BHD Association with affiliated offices
                       across Canada and Internationally
            10th Floor, 1333 West Broadway, Vancouver, B.C. V6H 4C1
                www.dhgroup.ca F (604) 731-9923 T (604) 731-5881


                                      F-3
<PAGE>




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


                                                       2005            2004
                                                         $               $

                                     ASSETS

CURRENT ASSETS

Cash                                                    227,589         528,040
Amounts receivable                                       39,027          30,289
Prepaid expenses and deposits                             9,636           8,959
                                                   ------------    ------------
                                                        276,252         567,288

CAPITAL ASSETS, net of accumulated
    amortization of $5,840 (2004 -$1,976)                 4,764          19,467

OPTION TO ACQUIRE INTERESTS IN UNPROVEN
    MINERAL CLAIMS (Note 3)                                   -         103,971

DEFERRED EXPLORATION COSTS (Note 3)                           -         116,611

OTHER ASSETS (Note 4)                                     6,300          65,591
                                                   ------------    ------------
                                                        287,316        872,928
                                                   ============    ============


                                   LIABILITIES

CURRENT LIABILITIES

Accounts payable and accrued liabilities                 31,006          16,356
                                                   ------------    ------------


                              SHAREHOLDERS' EQUITY

SHARE CAPITAL (Note 6)                               70,970,313      70,593,713

CONTRIBUTED SURPLUS                                     286,125         154,000

DEFICIT                                             (71,000,128)    (69,891,141)
                                                   ------------    ------------
                                                        256,310         856,572
                                                   ------------    ------------
                                                        287,316         872,928
                                                   ============    ============
NATURE OF OPERATIONS AND CHANGE OF NAME (Note 1)



APPROVED BY THE BOARD

/s/  DES O'KELL      , Director
---------------------
/s/ NICK DEMARE      , Director
---------------------



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


                                      F-4
<PAGE>


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



<TABLE>
<CAPTION>

                                                       2005            2004            2003
                                                         $               $               $
<S>                                               <C>             <C>             <C>

REVENUES

Petroleum and natural gas sales                               -               -         127,782
                                                   ------------    ------------    ------------
OTHER EXPENSES

Production                                                    -               -          83,607
General and administrative                              251,421         288,058         821,308
Stock-based compensation                                138,725         154,000               -
Depreciation, depletion and impairment                    5,840           1,976       6,881,119
Research, development and marketing                           -               -         364,413
                                                   ------------    ------------    ------------
                                                        395,986         444,034       8,150,447
                                                   ------------    ------------    ------------
OPERATING LOSS                                         (395,986)       (444,034)     (8,022,665)
                                                   ------------    ------------    ------------
OTHER INCOME (EXPENSES)

Loss on sale of capital assets                           (1,717)              -               -
Interest and other income                                19,601          95,400          57,549
Interest expense on debentures                                -        (233,761)       (640,548)
Impairment of investment, advances and other                  -               -        (937,937)
Bad debts                                               (27,827)              -               -
Write-off of unproven mineral claims (Note 3)          (703,058)              -               -
Property investigations                                       -               -        (246,900)
                                                   ------------    ------------    ------------
                                                       (713,001)       (138,361)     (1,767,836)
                                                   ------------    ------------    ------------
NET LOSS FOR THE YEAR                                (1,108,987)       (582,395)     (9,790,501)
                                                   ============    ============    ============


BASIC AND DILUTED LOSS PER SHARE                         $(0.56)         $(0.57)        $(21.75)
                                                   ============    ============    ============
WEIGHTED AVERAGE NUMBER OF
    COMMON SHARES OUTSTANDING                         1,966,152       1,025,146         450,231
                                                   ============    ============    ============
</TABLE>


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


                                      F-5
<PAGE>


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




<TABLE>
<CAPTION>

                                                       2005            2004            2003
                                                         $               $               $
<S>                                              <C>              <C>             <C>

DEFICIT - BEGINNING OF YEAR                         (69,891,141)    (69,308,746)    (57,884,064)

CONVERSION OF DEBENTURES (Note 5(b))                          -               -      (1,634,181)
                                                   ------------    ------------    ------------
                                                    (69,891,141)    (69,308,746)    (59,518,245)

NET LOSS FOR THE YEAR                                (1,108,987)       (582,395)     (9,790,501)
                                                   ------------    ------------    ------------
DEFICIT - END OF YEAR                               (71,000,128)    (69,891,141)    (69,308,746)
                                                   ============    ============    ============
</TABLE>











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



                                      F-6
<PAGE>



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


<TABLE>
<CAPTION>

                                                                       2005            2004            2003
                                                                         $               $               $
<S>                                                               <C>             <C>             <C>

CASH PROVIDED FROM (USED FOR)

OPERATING ACTIVITIES

Net loss for the year                                                (1,108,987)       (582,395)     (9,790,501)
Adjustment for items not involving cash
     Depreciation, depletion and impairment                               5,840           1,976       6,881,119
     Loss on sale of capital assets                                       1,717               -               -
     Write-off of unproven mineral claims                               703,058               -               -
     Amortization of deferred financing charges                               -          26,200          44,641
     Accretion of liability component of debentures                           -          92,139         156,183
     Stock-based compensation                                           138,725         154,000               -
     Impairment of investment, advances and other                             -           5,516         937,937
     Interest expense settled through issuance of shares                      -          65,371          42,221
     Gain on sale of investments                                        (17,239)         (2,645)              -
     Unrealized foreign exchange                                              -         (44,506)         52,266
                                                                   ------------    ------------    ------------
                                                                       (276,886)       (284,344)     (1,676,134)
Decrease (increase) in amounts receivable                                (8,738)          1,996           8,585
Decrease (increase) in prepaid expenses and deposits                       (677)         38,288         134,793
Increase (decrease) in accounts payable and accrued liabilities          14,650          (3,882)       (116,120)
                                                                   ------------    ------------    ------------
                                                                       (271,651)       (247,942)     (1,648,876)
                                                                   ------------    ------------    ------------
FINANCING ACTIVITY

Issuance of common shares, net of issue costs                           360,000         918,275               -
                                                                   ------------    ------------    ------------
INVESTING ACTIVITIES

Proceeds from sale of capital assets                                      7,146               -               -
Expenditures on capital assets                                                -         (21,443)              -
Option payments and exploration costs                                  (415,255)       (220,582)              -
Petroleum and natural gas interests expenditures                              -               -        (655,786)
Proceeds from sale of petroleum and natural gas interests                     -               -         152,520
Drilling advances                                                             -         (57,221)              -
Investment and advances                                                       -               -          32,408
Proceeds from sale of investment                                         19,309           9,845               -
                                                                   ------------    ------------    ------------
                                                                       (388,800)       (289,401)       (470,858)
                                                                   ------------    ------------    ------------
INCREASE (DECREASE) IN CASH FOR THE YEAR                               (300,451)        380,932      (2,119,734)

CASH - BEGINNING OF YEAR                                                528,040         147,108       2,266,842
                                                                   ------------    ------------    ------------
CASH - END OF YEAR                                                      227,589         528,040         147,108
                                                                   ============    ============    ============

</TABLE>

Supplementary  disclosure  with respect to the  consolidated  statements of cash
flows (Note 12).

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

                                      F-7
<PAGE>


                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


1.       NATURE OF OPERATIONS AND CHANGE OF NAME

         The Company had previously been engaged in the acquisition, exploration
         for and  development  of crude oil and  natural gas  properties  in the
         United  States  and in  the  research,  development  and  marketing  of
         proprietary software programs.  During the 2003 fiscal year the Company
         recorded an impairment  charge of  $1,547,438  with respect to its then
         ongoing exploration of its petroleum interests. In addition,  effective
         November  30,  2002,  the  Company  also  recorded a further  charge of
         $5,333,681, representing its remaining net interest in Hilton Petroleum
         Inc. and STB Energy Inc., two former  wholly-owned  subsidiaries  which
         had held the Company's petroleum interests. The Company also ceased the
         funding of its proprietary software activities in the 2003 fiscal year.

         During the 2004 and 2005 fiscal  years,  the Company was engaged in the
         acquisition and exploration of unproven mineral interests in Mexico. As
         described in Note 3, the Company conducted  exploration on the El Nayar
         Project  during  the  2005  fiscal  year  and,  based  on the  results,
         wrote-off  these costs.  As at May 31, 2005,  the Company does not hold
         any mineral  interest and has initiated a corporate  restructuring  and
         recapitalization  to allow it to  continue  to  identify  and  evaluate
         potential  resource  property  acquisitions.  On  August  25,  2005 the
         Company completed a consolidation of its share capital, as described in
         Note 5(a), and changed its name from Hilton Resources Ltd. to Rochester
         Resources Ltd.

         As at May 31, 2005,  the Company had working  capital of $245,246.  The
         Company  will  require   additional  equity  financing  to  pursue  the
         acquisition  and  exploration  of unproven  mineral  interests and meet
         ongoing  corporate  overhead  requirements.   The  Company  expects  to
         generate the  necessary  resources for the 2006 fiscal year through the
         sale of equity securities.  No assurances can be given,  however,  that
         the Company will be able to obtain sufficient additional resources.  If
         the Company is  unsuccessful in generating  anticipated  resources from
         one or more of the  anticipated  sources  and is unable to replace  any
         shortfall with resources from another source, the Company may be unable
         to meet its obligations and continue its operations.

         These   consolidated   financial   statements  have  been  prepared  in
         accordance  with  Canadian  generally  accepted  accounting  principles
         ("Canadian  GAAP") applicable to a going concern which assumes that the
         Company will realize its assets and  discharge its  liabilities  in the
         normal  course of  business.  Realization  values may be  substantially
         different from the carrying values shown in the consolidated  financial
         statements should the Company be unable to continue as a going concern.
         The ability of the Company to settle its  liabilities  as they come due
         and to fund ongoing  operations  is  dependent  upon the ability of the
         Company to obtain additional funding from equity financing.  Failure to
         continue as a going  concern would  require  restatement  of assets and
         liabilities on a liquidation  basis, which could differ materially from
         the going concern basis.


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 10.

         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.



                                      F-8
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         The  consolidated  financial  statements  for the 2005 and 2004  fiscal
         years include the accounts of the Company and its 60% owned subsidiary,
         Compania Minera Nayarit S.A. de C.V.

         The consolidated  financial statements for the 2003 fiscal year include
         the accounts of the Company and its former  wholly-owned  subsidiaries.
         Effective  May  31,  2004,  the  Board  of  Directors  of  the  Company
         determined to abandon all of its former wholly-owned  subsidiaries and,
         accordingly,  as of this date,  the Company no longer  accounts for the
         activities  of  these  subsidiaries.  See  also  Note 1.  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.

         CASH EQUIVALENTS

         Cash includes cash and short-term  deposits  maturing within 90 days of
         the original date of acquisition.

         UNPROVEN MINERAL INTERESTS

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

         On a periodic basis, management reviews the carrying values of deferred
         unproven 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  unproven
         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-9
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         ASSET RETIREMENT OBLIGATIONS

         The fair value of a liability  for an asset  retirement  obligation  is
         recognized  when a reasonable  estimate of fair value can be made.  The
         asset  retirement   obligation  is  recorded  as  a  liability  with  a
         corresponding increase to the carrying amount of the related long-lived
         asset.  Subsequently,  the asset retirement cost is charged to earnings
         using a  systematic  and  rational  method and is  adjusted  to reflect
         period-to-period changes in the liability resulting from the passage of
         time and  revisions  to either the timing or the amount of the original
         estimate  of  undiscounted  cash flow.  As at May 31,  2005 and May 31,
         2004, the Company does not have any asset retirement obligations.

         IMPAIRMENT OF LONG-LIVED ASSETS

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

         TRANSLATION OF FOREIGN CURRENCIES

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

         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.

         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 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 are recognized to the extent that they are considered
         more likely than not to be realized.

         INVESTMENTS

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





                                      F-10
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         CAPITAL ASSET

         Capital  asset,  which is comprised  of a vehicle,  is recorded at cost
         less accumulated  depreciation  calculated using the declining  balance
         method at a rate of 30%.

         EARNINGS (LOSS) PER SHARE

         Basic  earnings per share is computed by dividing  income  available to
         common  shareholders  by the weighted  average  number of common shares
         outstanding  during the period. The computation of diluted earnings per
         share  assumes  the  conversion,  exercise  or  contingent  issuance of
         securities only when such conversion, exercise or issuance would have a
         dilutive  effect  on  earnings  per  share.   The  dilutive  effect  of
         convertible  securities  is reflected in diluted  earnings per share by
         application  of the "if  converted"  method.  The  dilutive  effect  of
         outstanding  options and warrants and their equivalents is reflected in
         diluted earnings per share by application of the treasury stock method.


3.       UNPROVEN MINERAL INTERESTS

<TABLE>
<CAPTION>

                                                   2005                                       2004
                                 ----------------------------------------   ----------------------------------------
                                 ACQUISITION    EXPLORATION                 ACQUISITION    EXPLORATION
                                    COSTS          COSTS          TOTAL        COSTS          COSTS          TOTAL
                                      $              $              $            $              $              $
        <S>                     <C>           <C>           <C>           <C>            <C>          <C>

         El Nayar Project                   -             -             -        103,971       116,611       220,582
                                 ============  ============  ============   ============  ============  ============
</TABLE>

         On October 1, 2003, the Company entered into an option agreement,  with
         a Mexican private corporation whereby the Company could acquire up to a
         100%  interest  in five  unproven  mineral  concessions  (the "El Nayar
         Project") in Mexico, covering approximately 6,766 hectares.

         The Company could earn an initial 60%  interest,  in  consideration  of
         making option payments to the optionor totaling US $50,000 (paid),  the
         issuance of a total of 110,000 common shares (10,000 shares issued) and
         funding US$1 million of expenditures over a three year period. Payments
         for land holding costs and underlying option payments to the concession
         holder  was  included  as part of the  expenditure  commitment  for the
         Company's earn-in.

         The Company  conducted a  comprehensive  geological work program during
         the 2005 fiscal year.  Based on the results the Company  determined  to
         cease further work on the El Nayar  Project and  wrote-off  $703,058 of
         acquisition and exploration costs.




                                      F-11
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


4.       OTHER ASSETS

                                                       2005            2004
                                                         $               $

         Investment                                       6,300           8,370
         Drilling advance                                     -          57,221
                                                   ------------    ------------
                                                          6,300          65,591
                                                   ============    ============

         As at May 31,  2005,  the Company  held 70,000  common  shares  (2004 -
         93,000  common  shares) of Halo  Resources  Ltd.  ("Halo"),  a publicly
         traded  company  with common  officers and  directors.  During the 2005
         fiscal year, the Company sold 23,000 shares (2004 - 80,000) of Halo for
         $19,309  (2004 - $9,845),  realizing a gain of $17,239 (2004 - $2,645).
         The Company also  disposed of 61,286  shares as part of its recovery of
         amounts receivable,  as described in Note 7(b). As at May 31, 2005, the
         70,000  shares of Halo had a quoted  market  value of  $45,500  (2004 -
         $67,890).


5.       DEBENTURES

         (a)      On their maturity on January 24, 2004, the Company  retired US
                  $770,000  Series A and $600,000  Series B principal of the 10%
                  Debentures  and  $22,752  of  accrued  interest   outstanding,
                  through the issuance of 632,215  common shares of the Company.
                  The Company  also retired the  remaining US $100,000  Series A
                  10%  Debentures  owing to the former  Chairman of the Company.
                  During the 2004 fiscal year, the Company paid $46,557 cash and
                  issued 55,206  common shares for $89,176  interest in addition
                  to the shares which were issued on maturity.

         (b)      During  the  2003  fiscal  year,  in  order  to  induce  early
                  conversion  of the  debentures,  the  Company  offered  to pay
                  interest to December 31, 2002,  on all  debentures  which were
                  converted by June 30, 2002,  and to also reduce the conversion
                  price of the  debentures  to $50.00 per  share.  In June 2002,
                  holders of $2,887,252 of the 10%  Debentures and all of the 9%
                  Debentures  elected to convert and the Company  issued  87,615
                  common shares and paid $252,621 of bonus  interest.  The bonus
                  interest was recorded as part of interest expense on long-term
                  debt.   In   addition,   Canadian   GAAP  require  a  non-cash
                  calculation be made of the inducement  resulting from reducing
                  the conversion price. Accordingly,  $1,634,181 was recorded in
                  the 2003  fiscal  year as a credit  to share  capital  with an
                  offsetting charge to deficit.





                                      F-12
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


6.       SHARE CAPITAL


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

                                                2005                        2004                        2003
                                     --------------------------  --------------------------  --------------------------
                                        SHARES        AMOUNT        SHARES        AMOUNT        SHARES        AMOUNT
                                                        $                           $                            $
        <S>                         <C>           <C>           <C>           <C>           <C>           <C>

         Balance, beginning
             of year                    1,853,735    70,593,713       487,691    67,568,135       365,751    61,315,533
                                     ------------  ------------  ------------  ------------  ------------  ------------
         Issued during the year
         For cash
             Private placements           355,000       355,000       613,000       865,750             -             -
             Exercise of warrants               -             -        49,000        68,600             -             -
             Exercise of options            3,000         7,500             -             -             -             -
         Reallocation from
             contributed surplus
             relating to the exercise
             of stock options                   -         6,600             -             -             -             -
         For unproven mineral
             interests                     10,000        10,000             -             -             -             -
         Retirement of debentures               -             -       623,384     2,041,932             -             -
         Conversion on debentures               -             -             -             -        87,615     6,210,381
         Debenture interest                     -             -        64,037        65,371        34,325        42,221
         Finders fee                        9,000         9,000        16,623        16,623             -             -
                                     ------------  ------------  ------------  ------------  ------------  ------------
                                          377,000       388,100     1,366,044     3,058,276       121,940     6,252,602
         Less:  share issue costs               -       (11,500)            -       (32,698)            -             -
                                     ------------  ------------  ------------  ------------  ------------  ------------
                                          377,000       376,600     1,366,044     3,025,578       121,940     6,252,602
                                     ------------  ------------  ------------  ------------  ------------  ------------
         Balance, end of year           2,230,735    70,970,313     1,853,735    70,593,713       487,691     7,568,135
                                     ============  ============  ============  ============  ============  ============
</TABLE>

         (a)      On August 25, 2005, the Company  completed a consolidation  of
                  its share capital on a 1 new for 10 old basis. The comparative
                  common share  balances and the  comparative  per share amounts
                  have been adjusted accordingly.

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





                                      F-13
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


6.       SHARE CAPITAL (continued)

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

                  i)       403,000 units at $1.00 per unit,  for gross  proceeds
                           of $403,000. Each unit comprised one common share and
                           one share purchase warrant. Each warrant entitles the
                           holder to  purchase  an  additional  common  share at
                           $1.40 per share on or before  November 25, 2005.  The
                           Company issued 10,000 units, on the same terms as the
                           private  placement  units, and 6,623 common shares in
                           consideration   of  $16,623  of  finders'   fees  and
                           incurred $8,330 of costs  associated with the private
                           placement;

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

                  iii)     142,500  units at $2.30 per  unit,  for  proceeds  of
                           $327,750.  Each unit  comprised  one common share and
                           one share purchase warrant. Each warrant entitles the
                           holder to purchase an  additional  common share for a
                           period  of two  years at $3.10 per share on or before
                           March 4, 2006.

         (d)      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.

                  During the 2005 fiscal year, the Company granted 178,500 (2004
                  -  70,000)  stock  options  to  the  Company's  directors  and
                  consultants  and  recorded  compensation  expense of  $138,725
                  (2004 -  $154,000).  No  stock  options  were  granted  by the
                  Company during the 2003 fiscal year.

                  The fair  value of stock  options  granted  to  directors  and
                  consultants  is  estimated  on the dates of  grants  using the
                  Black-Scholes   option   pricing   model  with  the  following
                  assumptions  used for the grants made during the 2005 and 2004
                  fiscal years:

                                                   2005                2004

                  Risk-free interest rate     2.69% - 3.07%           2.54%
                  Estimated volatility         146% - 147%             140%
                  Expected life              1 year - 1.5 years      1.5 years
                  Expected dividend yield           0%                  0%

                  No stock  options were granted by the Company  during the 2003
                  fiscal year.

                  The fair value per share of stock  options,  calculated  using
                  the  Black-Scholes  option pricing  model,  granted during the
                  2005 fiscal year to the Company's  directors  and  consultants
                  was $0.80 (2004 - $2.20) per share.



                                      F-14
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


6.       SHARE CAPITAL (continued)

                  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 a reliable  measure of the fair value of the Company's
                  stock options.

                  A summary of the  Company's  outstanding  stock options at May
                  31, 2005,  2004 and 2003, and the changes for the years ending
                  on those dates is presented below:
<TABLE>
<CAPTION>

                                                  2005                      2004                      2003
                                        -----------------------   -----------------------   -----------------------
                                                      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       70,000     2.50        18,620       113.80          18,682      136.00
                  Granted                   178,500     1.04        70,000         2.50               -           -
                  Exercised                  (3,000)    2.50             -            -               -           -
                  Cancelled/expired         (28,000)    2.50       (18,620)      113.80             (62)     270.00
                                        -----------               -----------               -----------
                  Balance, end of year      217,500     1.30        70,000         2.50          18,620      113.80
                                        ===========               ===========               ===========
</TABLE>

                  The following  table  summarizes  information  about the stock
                  options outstanding and exercisable at May 31, 2005.

                    NUMBER         NUMBER
                  OF OPTIONS     OF OPTIONS     EXERCISE
                 OUTSTANDING     EXERCISABLE      PRICE       EXPIRY DATE
                                                    $
                      39,000          39,000       2.50       February 18, 2007
                      76,000          74,750       1.00       September 3, 2007
                       6,000           6,000       1.00       October 4, 2007
                      59,000          59,000       1.00       January 12, 2008
                      37,500          31,875       1.20       February 8,2008
                 -----------     -----------
                     217,500         210,625
                 ===========     ===========






                                      F-15
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


6. SHARE CAPITAL (continued)

         (e)      A  summary  of  the   Company's   warrants   outstanding   and
                  exercisable  at May 31, 2005,  2004 and 2003,  and the changes
                  for the years ending on those dates is presented below:
<TABLE>
<CAPTION>

                                                  2005                      2004                      2003
                                        -----------------------   -----------------------   -----------------------
                                           NUMBER     EXERCISE      NUMBER      EXERCISE       NUMBER      EXERCISE
                                        OF WARRANTS     PRICE     OF WARRANTS     PRICE     OF WARRANTS      PRICE
                                        OUTSTANDING       $       OUTSTANDING       $       OUTSTANDING        $
                 <S>                   <C>            <C>        <C>            <C>        <C>            <C>

                  Balance,
                     beginning of year      582,365      4.60          34,002     67.40          70,555     181.30
                  Issued                    182,000      1.50         623,000      1.90               -        -
                  Exercised                       -       -           (49,000)     1.40               -        -
                  Expired                   (75,865)    23.04         (25,637)    28.10         (36,553)    212.10
                                        -----------               -----------               -----------
                  Balance, end of year      688,500      1.78         582,365      4.60          34,002      67.40
                                        ===========               ===========               ===========
</TABLE>

                  The following table summarizes  information about the warrants
                  outstanding and exercisable at May 31, 2005:

                     EXERCISE
                      PRICE                NUMBER              EXPIRY DATE
                        $

                       1.40               364,000              November 25, 2005
                       3.10               142,500              March 4, 2006
                       1.50               182,000              February 7, 2007
                                        ---------
                                          688,500
                                        =========

7.       RELATED PARTY TRANSACTIONS

         (a)      During the 2005  fiscal  year,  the Company  incurred  $94,538
                  (2004 - $110,066; 2003 - $321,300) for accounting, management,
                  professional and consulting  services  provided by current and
                  former   directors   and  officers  of  the   Company.   These
                  transactions  were measured at the exchange  amount,  which is
                  the amount of  consideration  established and agreed to by the
                  related  parties.   As  at  May  31,  2005,  $15,615  remained
                  outstanding  and has been  included  in  accounts  payable and
                  accrued liabilities.

         (b)      During the 2003 fiscal year, the Company wrote-off $346,109 of
                  loans  receivable from Halo.  During the 2004 fiscal year, the
                  Company negotiated a settlement with Halo and third parties in
                  which it  relinquished  61,286  shares  of Halo  and  received
                  $78,120 from Halo,  resulting in a recovery of $72,604,  which
                  was included as part of interest and other income.

         (c)      See also Notes 4 and 6.






                                      F-16
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


8.       INCOME TAXES

         As at May 31, 2005, the Company has accumulated  non-capital losses for
         Canadian income tax purposes of  approximately  $7.2 million,  expiring
         from 2006 to 2015,  which are available for application  against future
         taxable income.

         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.


9.       SEGMENTED INFORMATION

         During the 2005 and 2004  fiscal  years,  the  Company  operated in one
         industry  segment,  the  exploration of unproven  mineral  interests in
         Mexico.  During the 2003  fiscal  year,  the  Company  operated  in two
         industry  segments,  the  exploration  for,  and  the  development  and
         production of petroleum  and natural gas and the research,  development
         and marketing of proprietary software programs. See Note 1.

         Identifiable  assets,  revenues and net loss in each of these  industry
         segments are as follows:

                                                        2005
                                     ------------------------------------------
                                     IDENTIFIABLE                       NET
                                        ASSETS        REVENUES         LOSS
                                           $              $              $

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

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

         Mineral operations (Mexico)      293,529              -              -
         Corporate (Canada)               579,399         95,400       (582,395)
                                     ------------   ------------   ------------
                                          872,928         95,400       (582,395)
                                     ============   ============   ============

                                                        2003
                                     ------------------------------------------
                                     IDENTIFIABLE                       NET
                                        ASSETS        REVENUES         LOSS
                                           $              $              $

         Petroleum and natural gas
             operations (USA)                   -        127,782     (6,241,012)
         Software (Canada)                      -          1,441       (771,487)
         Corporate (Canada)               411,006         56,108     (2,778,002)
                                     ------------   ------------   ------------
                                          411,006        185,331     (9,790,501)
                                     ============   ============   ============




                                      F-17
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


10.      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>

                                                                       2005           2004           2003
                                                                         $              $              $
                 <S>                                              <C>            <C>            <C>

                  CONSOLIDATED STATEMENTS OF OPERATIONS
                      AND COMPREHENSIVE INCOME

                  Loss for the year

                      Canadian GAAP                                  (1,108,987)      (582,395)    (9,790,501)
                      Write-down of investment (i)                            -              -         69,273
                      Write-off of option interests and
                         exploration costs (ii)                         220,582       (220,582)             -
                      Other compensation expense (iv)                   (19,500)       (27,000)             -
                      Accretion of liability component of
                         long-term debt (v)                                   -         92,139        156,183
                      Induced early conversion of
                         convertible debt securities (vi)                     -              -     (1,634,181)
                                                                   ------------   ------------   ------------
                      US GAAP                                          (907,805)      (737,838)   (11,199,226)

                  OTHER COMPREHENSIVE INCOME

                      Unrealized holding gain (loss) on available-
                        for-sale marketable securities (i)               39,200         59,520        (69,273)
                                                                   ------------   ------------   ------------
                  Comprehensive (loss) for the year                    (868,705)      (678,318)   (11,268,499)
                                                                   ============   ============   ============

                  Loss per share basic and fully diluted - US GAAP       $(0.44)        $(0.66)       $(25.03)
                                                                   ============   ============   ============
</TABLE>




                                      F-18
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


10.      DIFFERENCES  BETWEEN  CANADIAN  AND UNITED  STATES  GENERALLY  ACCEPTED
         ACCOUNTING PRINCIPLES (continued)
<TABLE>
<CAPTION>

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

                  CONSOLIDATED BALANCE SHEETS

                  Total Assets
                      Canadian GAAP                                     287,316        872,928
                      Available for sale securities (i)                  39,200         59,520
                      Option interests and deferred exploration
                         costs expensed (ii)                                  -       (220,582)
                                                                   ------------   ------------
                      US GAAP                                           326,516        711,866
                                                                   ============   ============
                  Total Liabilities

                      Canadian GAAP and US GAAP                          31,006         16,356
                                                                   ============   ============
                  Shareholders' Equity
                      Canadian GAAP                                     256,310        856,572
                      Available for sale securities (i)                  39,200         59,520
                      Option interests and deferred exploration
                         costs expensed (ii)                                  -       (220,582)
                                                                   ------------   ------------
                      US GAAP                                           295,510        695,510
                                                                   ============   ============
</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)   Option Interests and Deferred Exploration Costs

                         Option  interests  and deferred  exploration  costs are
                         accounted  for in  accordance  with  Canadian  GAAP  as
                         disclosed in Note 2. The Company has  determined for US
                         GAAP  purposes  to  expense  the  option  payments  and
                         exploration  costs relating to unproven  mineral claims
                         as  incurred.   In  addition,  US  GAAP  requires  that
                         exploration  costs not be capitalized  until a positive
                         feasibility  study is completed.  The capitalized costs
                         of such claims would then be assessed  for  impairment,
                         on a periodic  basis, to ensure that the carrying value
                         can be recovered on an undiscounted cash flow basis. If
                         the  carrying  value cannot be recovered on this basis,
                         the  mineral  claims  would  be  written  down  to  net
                         recoverable value on a discounted cash flow basis.





                                      F-19
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


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

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

                         US  GAAP  requires  disclosure  of  private  placements
                         conducted by the Company  where  directors and officers
                         of the Company and their  immediate  family members are
                         participants.  During the 2005 fiscal year,  directors,
                         officers and  companies  controlled by the directors or
                         officers acquired 65,000 shares (2004 - 45,000;  2003 -
                         nil) of the  Company,  pursuant  to private  placements
                         conducted by the Company,  for cash proceeds of $65,000
                         (2004 - $90,000; 2003 - $nil);

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

                         Under US GAAP, loss and capital  distributions  for the
                         2005  fiscal  year would  increase  by $19,500  (2004 -
                         $27,000;  2003 - $nil) and  $87,000  (2004 -  $295,349;
                         2003 - $nil),  respectively,  and share capital,  as at
                         May 31,  2005  would  increase  by  $3,429,578  (2004 -
                         $3,323,078; 2003 - $3,000,729).  There is no net change
                         to shareholders' equity.

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

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

                  (vi)   Induced Early Conversion of Convertible Debt Securities

                         US GAAP  requires a charge to  operations on an induced
                         early  conversion of convertible  debentures,  equal to
                         the fair  value of all  securities  issued in excess of
                         the  securities  issuable  under  the  original  terms.
                         Canadian GAAP provides similar treatment,  but requires
                         the charge to be made to  retained  earnings as opposed
                         to operations.  There is no net change to shareholders'
                         equity.

                  (vii)  Income Tax

                         Under Canadian GAAP,  future income tax assets relating
                         to the  potential  benefit  of  income  tax loss  carry
                         forwards are not recognized  unless  realization of the
                         benefit  is more  likely  than  not.  US GAAP  provides
                         similar   treatment,   but   requires  the  benefit  be
                         recognized  and a valuation  allowance be recognized to
                         fully offset the future incomes tax assets.




                                      F-20
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


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

                         As at May 31, 2005,  the Company has fully reserved the
                         $2,500,000 tax benefit of operating loss carryforwards,
                         by a valuation  allowance of the same  amount,  because
                         the likelihood of realization of the tax benefit cannot
                         be  determined.  Of the total tax  benefit  $198,000 is
                         attributable to the 2005 fiscal year.

                  (viii) Functional Currency

                         The  Company's  functional  currency  is  the  Canadian
                         dollar.

                  (ix)   Development Stage Company

                         The Company is in the exploration stage and, as of June
                         1, 2003, is  considered a development  stage company as
                         defined by Statement of Financial  Accounting Standards
                         ("SFAS")  No.  7.  To May 31,  2005,  the  Company  has
                         accumulated  a  deficit  of  $1,691,382  while  in  the
                         development stage.

         (b)      The  Company's  consolidated  statements  of cash flows comply
                  with US GAAP.

         (c)      New Technical Pronouncements

                  The Financial  Accounting  Standards Board ("FASB") has issued
                  Statement of Financial  Accounting  Standards No. 123(R) Share
                  Based Payments ("SFAS 123(R)"). SFAS 123(R) amends SFAS 123 by
                  requiring  share based  payments to be  accounted  for at fair
                  value.  SFAS 123(R) is  effective  for fiscal  periods  ending
                  after  June  15,  2005.  The  adoption  of  SFAS  123(R)  will
                  eliminate  a  difference  with  Canadian  GAAP as the  Company
                  accounts  for share based  payments at fair value for Canadian
                  GAAP purposes.

                  The FASB has also issued SFAS No. 153 Exchange of Non-Monetary
                  Assets ("SFAS 153") which is effective for fiscal years ending
                  after June 15, 2005. SFAS 153 refines the circumstances  under
                  which  non-monetary  transactions  should be accounted  for at
                  fair value.  The  adoption of SFAS 153 is not expected to have
                  an effect on the Company's financial position.

                  The FASB has also issued SFAS No. 154  Accounting  Changes and
                  Error  Corrections - A  Replacement  of APB Opinion No. 20 and
                  FASB  Statement  No. 3 ("SFAS  154"),  which is effective  for
                  fiscal years ending after December 15, 2005. SFAS 154 requires
                  that  changes  in  accounting  policy  be  accounted  for on a
                  retroactive basis. The adoption of SFAS 154 is not expected to
                  have an effect on the Company's financial position.


11.      FINANCIAL INSTRUMENTS

         a)       Concentration of Credit Risk

                  Financial  instruments that potentially subject the Company to
                  a significant  concentration  of credit risk are cash and cash
                  equivalents  and amounts  receivable.  The Company  limits its
                  exposure   to  credit  loss  by  placing  its  cash  and  cash
                  equivalents with high credit quality financial institutions.




                                      F-21
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


11.      FINANCIAL INSTRUMENTS (continued)

         b)       Fair Value of Financial Instruments

                  The  fair  value  of  the  Company's   financial   instruments
                  consisting of cash,  amounts  receivable and accounts  payable
                  and accrued liabilities approximate their carrying values.


12.      SUPPLEMENTARY CASH FLOW INFORMATION

         Non-cash operating,  investing and financing  activities were conducted
         by the Company as follows:

<TABLE>
<CAPTION>

                                                                       2005           2004           2003
                                                                         $              $               $
        <S>                                                       <C>            <C>            <C>

         Operating activities

             Decrease in amounts receivable                                   -              -              -
             Accounts payable and accrued liabilities on
                 abandonment of petroleum subsidiaries                                       -     (1,316,203)
             Drilling advance                                            57,221              -              -
                                                                   ------------   ------------   ------------
                                                                         57,221              -     (1,316,203)
                                                                   ============   ============   ============

         Financing activities

             Decrease in liability component of debentures on
                 conversion                                                   -              -        332,228
             Decrease in equity component of debentures on
                 conversion                                                   -       (430,922)      (642,273)
             Decrease in deferred financing charges on conversion             -              -        114,597
             Capital distribution on early conversion of debentures           -              -     (1,634,181)
             Issuance of common shares for capital distribution          10,000              -      1,829,629
             Issuance of common shares on conversion of debentures            -              -      4,380,752
             Conversion of debentures                                         -              -     (4,380,752)
             Issuance of common shares on retirement of debentures            -      2,041,932              -
             Retirement of debentures                                         -     (1,748,090)             -
             Issuance of common shares on exercise of options             6,600              -              -
             Contributed surplus                                         (6,600)             -              -
             Issuance of common shares for finder's fees                  9,000         16,623              -
             Share issue costs                                           (9,000)       (16,623)             -
                                                                   ------------   ------------   ------------
                                                                         10,000       (137,080)             -
                                                                   ============   ============   ============

         Investing activities

             Expenditures on unproven mineral claims                    (67,221)             -              -
             Retirement of loan                                               -        137,080              -
             Reversal of petroleum and natural gas interests
                 expenditures                                                 -              -      1,316,203
                                                                   ------------   ------------   ------------
                                                                        (67,221)       137,080      1,316,203
                                                                   ============   ============   ============
</TABLE>





                                      F-22
<PAGE>



                            ROCHESTER RESOURCES LTD.
                        (FORMERLY HILTON RESOURCES LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2005, 2004 AND 2003
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


12.      SUPPLEMENTARY CASH FLOW INFORMATION (continued)

         Other supplementary cash flow information:

                                         2005           2004           2003
                                           $              $               $

         Interest paid in cash                  -         46,557        395,362
                                     ============   ============   ============

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





                                      F-23
<PAGE>