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

 
FORM 10-K/A
(Amendment No. 1)
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 


For the Fiscal Year Ended
 
Commission File Number
December 31, 2010
 
333-143970

STEELE RESOURCES CORPORATION

Nevada
 
75-3232682
(State of Incorporation)
 
(I.R.S. Employer Identification)

Principal Executive Offices:
3081 Alhambra Drive, Suite 208
Cameron Park, CA 95682
(530) 672-6225

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class
Name of Each Exchange on Which Registered
None
None

Securities registered pursuant to Section 12(g) of the Exchange Act:

Title of Each Class
 Common Stock $0.001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issued, as defined in Rule 405 of the Securities Act.

Yes
   
No
X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes
   
No
X


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes
X
 
No
 


 
 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes
   
No
X

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

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

[   ] Large accelerated filer
[   ] Accelerated filer
[   ] Non-accelerated filer (do not check if a smaller reporting company)
[X] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes
   
No
X

As of June 30, 2010 the aggregate value of the voting stock held by non-affiliates of the registrant, computed by reference to the average of the bid and ask price on such date was approximately $475,000 based upon the average price of $0.25 per share.

As of March 28, 2011, the Registrant had outstanding 100,383,334 shares of common stock.

Transitional Small Business Disclosure Format:    Yes  [   ]   No   [X]

Documents Incorporated by Reference

Certain exhibits required by Item 15 have been incorporated by reference from Steele Resources’ previously filed Form 8-K’s, Form 10-Q’s and Form 10-K’s.







 



 
ii

 
 
EXPLANATORY NOTE – The Registrant is amending this Form 10-K to revise certain disclosure in certain ITEMS indicated below. This Amended 10-K includes only those parts which have been revised from the Registrant’s Form 10-K filed with the SEC on March 31, 2011. There were no changes made to the Financial Statements. We did not introduce new information in the Notes to the Financial Statements, but minor changes were made for the purpose of clarification. Except as set forth herein, there are no other changes to the disclosures in the Form 10-K for the fiscal year ended December 31, 2010 previously filed with the SEC








 
1

 

 

ITEM 1.  BUSINESS

Properties/Interests Acquired

All of the properties currently leased by SRI have a certain amount of prior exploration data available however none of the properties currently have any probable or proven reserves. Consequently, there is no assurance that a commercially viable mineral deposit exists on any of the properties and further exploration will be required before an evaluation of the economic and regulatory feasibility of the properties can be determined.

Fairview Hunter Mine Project

On September 24, 2010 our subsidiary SRI entered into an Asset Purchase Agreement with DuraRock Resources, Inc. (“DuraRock”) pursuant to which SRI acquired a mineral lease agreement dated July 19, 2010 relating to property referred to as the Fairview Hunter Mine Project (the “Fairview Hunter Project”). In exchange for acquiring the mineral rights to the Fairview Hunter Project SRC issued 500,000 shares of its restricted common stock to DuraRock and granted DuraRock a 2% Net Production Royalty on any production sold from the property.
 
Project Financing

Joint Venture Agreement Governing Exploration and Development of Pony Project and A&P Project

On January 27, 2011, 2010 SRI entered into a non-binding Letter Of Intent with Innocent Inc. ("INCT"), a Nevada corporation engaged in the financing of exploration and development of mineral properties. The LOI provides for a Joint Venture Agreement ("JV") which will govern the exploration and operations of mineral rights within the Pony Project and A&P Project jointly referred to as the Mineral Hill Project (the "Mineral Hill Project").

The non-binding LOI provides terms for INCT to contribute up to $5,000,000 in operating funds over a one year period beginning with the execution of the JV agreement. In addition, upon signing of the LOI, INCT agreed to advance $550,000 in order to allow SRI to close the Pony and A&P Project lease transactions.   SRI will initially contribute its mineral leases in the Mineral Hill Project into the JV. SRI also agrees to fund the JV with a matching $5,000,000 in operating funds no later than one year following the first $1,000,000 funded by INCT. The JV will govern the operations of the various sites within the Mineral Hill Project wherein the parties to this agreement will initially share 50%-50% joint ownership of the JV, based upon the assumption, each party fulfills its terms and responsibilities pursuant to the LOI and the final JV agreement. If either party fails to contribute the funds committed to, that party’s interest in the JV will be reduced. SRI will be responsible for operations of the JV.

On February 7, 2011, INCT completed its initial funding to the JV pursuant to the LOI in the amount of $290,000 with the proceeds being used to close the definitive lease agreement covering the Pony Project.

Pursuant to the LOI, on February 20, 2011 INCT and SRC entered into a definitive Joint Venture Agreement (the “JVAgreement”) relating to the Mineral Hill Mining Project. Pursuant to the JVAgreement INCT agreed to provide funding of $1,000,000 upon signing the JV Agreement and up to an additional $4,000,000 to fund the exploration and development of the Mineral Hill Mining Project. INCT agreed to provide an initial $550,000 to close the Pony Project and the A&P Project, of which $290,000 was provided to close the Pony Project lease and an additional $250,000 was to be funded by February 25, 2011. In addition, INCT agreed to fund an additional $710,000 upon signing the JV Agreement. The JV Agreement provided that if INCT provided at least $1,000,000, then SRC would agree to match INCT’s investment up to $5,000,000 thus providing up to an aggregate of $10,000,000 to explore and, if warranted, develop the Mineral Hill Mining Project. Under the terms of the JV Agreement INCT and SRC would each own 50% of the Joint Venture however the percentage ownership would be reduced by 10% for each $1,000,000 a party failed to contribute to the Joint Venture.

 
2

 

On March 23, 2011 INCT, through one of its investors, completed its second funding to the Joint Venture in the amount of $250,000 with the proceeds being used to close the A&P Lease and for working capital.   As of March 31, 2011, the Joint Venture entity was not yet formed and INCT had advanced $540,000 of its initial funding obligation of $1,000,000 leaving $460,000 remaining to be funded.
 
ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors in evaluating our business before purchasing any of our common stock.  We have described the risks we consider to be material.  However, there may be additional risks that we view as not material or of which we are not presently aware.  If any of the events described below were to occur, our business, prospects, financial condition, results of operations or cash flow could be materially adversely affected.
 
SECURITIES RISKS

There is a limited active trading market for our common stock making our stock vulnerable to significant price and volume fluctuations.

There is currently a limited active trading market for our common stock which is listed and traded on the OTCQB (owned and operated by Nasdaq Stock Market, Inc.). The OTCQB is not a listing service or exchange, but is instead a dealer quotation service for subscribing members. Consequently, the market for our common stock will depend to a certain extent on the number of market makers trading in our stock. The market price of our common stock may be significantly affected by factors such as actual or anticipated fluctuations in our operating results, the activities of our market makers, general market conditions and other factors. In addition, stock markets have from time to time experienced significant price and volume fluctuations that have particularly affected the market prices of the shares of exploration stage companies, which may adversely affect the market price of our common stock in a material manner.

Inadequate market liquidity may make it difficult to sell our stock.
 
There is currently a limited public market for our common stock as only a limited number of shares of our common stock are actively traded in the public market and we cannot give assurance that the market for our stock will develop sufficiently to create significant market liquidity and stable market prices. An investor may find it difficult or impossible to sell shares of our common stock in the public market because of the limited number of potential buyers at any time or because of fluctuations in our market price.  In addition, the shares of our common stock are not eligible as a margin security and lending institutions may not accept our common stock as collateral for a loan.

 
3

 

The trading price of our common stock may decrease due to factors beyond our control. These factors may result in substantial losses to investors if investors are unable to sell their shares at or above their purchase price.

The trading price of our common stock is subject to significant fluctuations due to a number of factors, including:
 
 
·
our status as an exploration stage company with little operating history
 
·
no revenues to date, which may make risk-averse investors more inclined to sell their shares in the market more quickly and at greater discounts than may be the case with the shares of a seasoned issuer in the event of negative news or lack of progress and announcements of new projects by us or our competitors
 
·
the timing and development of services that we may offer
 
·
general and industry-specific economic conditions including the price of gold and silver
 
·
actual or anticipated fluctuations in our operating results
 
·
our capital commitments
 
·
the loss of any of our key management personnel
 
In addition, the financial markets have experienced recent extreme price and volume fluctuations. The market prices of securities in this industry have been highly volatile and may continue to be highly volatile in the future, some of which may be unrelated to the operating performance of particular companies. The sale or attempted sale of a large amount of common stock into the market may also have a significant impact on the trading price of our common stock. Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance

We are registering an aggregate of 20,000,000 shares of common stock to be issued under the Equity Line of Credit.  The sale of such shares could depress the market price of our common stock.

On February 10, 2011 we filed a registration statement seeking to register an aggregate of 20,000,000 shares of common stock on behalf of Auctus for issuance pursuant to the Equity Line of Credit which amount represents approximately 20% of the currently outstanding shares of our common stock.  The sale of large portions of these shares into the public market by Auctus could depress the market price of our common stock.

Existing stockholders could experience immediate and substantial dilution as to percentage of interest if and when additional shares are issued to Auctus.

The sale of our common stock to Auctus Private Equity Fund, LLC (“Auctus”) pursuant to the Drawdown Equity Facility Agreement may have a dilutive impact on our stockholders as substantial amounts of additional common shares will reduce (dilute) existing stockholders’ interest in the Company. As a result of these new shares, our net income per share could decrease in future periods and the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our put option with Auctus, the more shares of our common stock we will have to issue to Auctus in order to drawdown on the equity facility. If our stock price decreases, then our existing stockholders would experience greater dilution for any given dollar amount raised through this drawdown facility.

The Drawdown Agreement provides that Auctus will not be issued shares which, at any time, would represent an amount of more than 4.99% of our total outstanding common shares. However, this restriction does not prevent Auctus from selling some of its holdings and then receiving additional shares.  Consequently, Auctus could sell more shares than 4.99% limit while never holding more than 4.99% at any one time. Consequently, even the perceived risk of dilution may cause our stockholders to sell their shares, which may cause additional downward pressure in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock which could further contribute to progressive price declines in our common stock.

 
4

 
 
Existing stockholders may experience immediate and substantial dilution if and when convertible promissory notes are converted into shares of our common stock.

The conversion of outstanding convertible notes would result in dilution of the equity interests of our existing stockholders. In addition, if the price of our common stock were to decrease, this would allow some convertible note holders (with notes in which the conversion rate is based on current market values)  to receive greater amounts of common stock upon conversion, the sales of which could further depress the stock price. The following table shows the number of shares that could be issued upon conversion of the notes based upon an assumed stock price of $0.20/share. The table has been adjusted to reflect a 1-for-3 reverse stock split of the Company’s outstanding common stock effective May 2, 2011.

Stock Price
    $0.20       $0.15       $0.10       $0.05  
Shares outstanding @ 5/2/11
    33,877,778       33,877,778       33,877,778       33,877,778  
Shares issued upon conversion:
                               
    October 2010 convertible notes
    208,333       277,777       416,666       833,333  
    November 2010 convertible notes
    812,500       1,083,333       1,625,000       3,250,000  
    January 2011 convertible notes
    325,000       433,333       650,000       1,300,000  
    April 2011 convertible notes
    375,000       500,000       750,000       1,500,000  
Converted shares % of shares outstanding
    5.1 %     6.8 %     10.2 %     20.4 %

Auctus will pay less than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.

Our common  stock to be issued  under the  Drawdown Equity Facility  Agreement  to Auctus will be purchased at a 5% discount or 95% of the average of the lowest closing bid price of our common stock of any two trading days during the five trading days immediately following our notice to Auctus of our election to exercise our "put" right. Auctus has a financial incentive to sell our shares immediately upon receiving the shares to realize the profit between the discounted price and the market price.  If Auctus sells our shares, the price of our common stock may decrease.  If our stock price decreases, Auctus may have a further incentive to sell such shares and will receive more shares as the price per share declines. Accordingly, the discounted sales price in the Drawdown Agreement may cause the price of our common stock to decline and the number of shares needing to be issued to Auctus to increase.

We May Not Have Access to the Full Amount under the Equity Line.

As of March 28, 2011, the closing price of our common stock was $0.045 based on very little volume. There is no assurance that the market price of our common stock will increase substantially in the near future.  The entire commitment under the Equity Line of Credit is $10,000,000 however, at current market prices for our common stock, we would realize only approximately $900,000 from the sale of all 20,000,000 shares registered on behalf of Auctus.  The number of shares that we are registering on behalf of Auctus is substantially lower than the number of common shares we would need to issue in order to have access to the full amount under the Equity Line of Credit.  In addition, we are limited to no more than $500,000 per draw on the Auctus equity line. Therefore, we may not have access to the remaining commitment under the equity line unless the share price of our common stock increases over the next three years.

Unless an active trading market develops for our securities, investors may not be able to sell their shares.

Although we are a reporting company and our common shares are quoted on the OTCQB, there is not currently an active trading market for our common stock and an active trading market may never develop or, if it does develop, may not be maintained.  Failure to develop or maintain an active trading market will have a generally negative effect on the price of our common stock, and a stockholder may be unable to sell his/her common stock or any attempted sale of such common stock may have the effect of lowering the market price and therefore causing a partial or complete loss. Furthermore, the OTC Bulletin Board is not an exchange and, because trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a national exchange or on the Nasdaq National Market, investors may have difficulty reselling any of the shares of our common stock they own.

 
 
 
5

 


PART II
 
ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For more detailed financial information, please refer to the audited December 31, 2010 Financial Statements and Notes included in this Form 10-K.
 
Caution about forward-looking statements
 
This Form 10-K includes “forward-looking” statements about future financial results, future business changes and other events that haven’t yet occurred. For example, statements like we “expect,” we “anticipate” or we “believe” are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We have not included a discussion and analysis of prior June 17, 2010 as those prior periods reflect SRC’s “shell company” status with minimal operations in the music recording business. As of June 17, 2010, SRC was no longer a “shell company” and its business was no longer in the music recording industry.

We do not undertake to update the information in this Form 10-K if any forward-looking statement later turns out to be inaccurate.  Details about risks affecting various aspects of SRC’s business are discussed throughout this Form 10-K and should be considered carefully.
 
Liquidity and Capital Resources
 
At December 31, 2010, our cash balance was $623.  We have limited cash on hand and we will be required to raise capital to fund our operations. Our ability to meet our current financial liabilities and commitments is primarily dependent upon the continued issuance of equity to new stockholders or loans from existing stockholders and management or outside loans. Management believes that our Company's current cash and cash equivalents will not be sufficient to meet our working capital requirements for the next twelve month period. We have had negative cash flow from operating activities as we are in the exploration stage and have not yet begun to generate revenues.  Our Company plans to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirements for the next twelve months primarily through the Joint Venture Agreement with INCT, the private placement of our equity securities, by way of loans, utilization of the Drawdown Agreement and such other means as the Company may determine. For example, the Company is registering 4,000,000 shares of its common stock on behalf of Auctus. Pursuant to the Drawdown Agreement with Auctus the Company has the option to sell to Auctus shares of common stock at a per share purchase price equal to 95% of the average of the lowest closing bid price of the common stock of any two trading days during the five trading days following the Company’s delivery of a Drawdown Notice to Auctus. Auctus is required to deliver the proceeds from the purchase of the shares within 5 business days after the Drawdown Notice. While Auctus has committed to provide up to $10,000,000 pursuant to the Drawdown Agreement, at current prices of the Company’s common stock, it is likely to realize only a fraction of the committed amount.

Pursuant to the JV Agreement if INCT provides at least $1,000,000, then SRC has agreed to match INCT’s investment up to $5,000,000 thus providing up to an aggregate of $10,000,000 to explore and, if warranted, develop the Mineral Hill Mining Project. SRC plans to raise the matching funds for the JV required through the private placement of its equity securities, by way of loans, utilization of the Drawdown Agreement and such other means as SRC may determine available. If SRC is unable to obtain additional funds then according to the terms of the JV Agreement, it would be at risk of reducing its 50% ownership share.
 
 
6

 
 
In conjunction with the mining claims held or leased by SRI, SRI is obligated to pay claim maintenance fees of approximately $5,000 for the Comstock-Tyler Project; $16,000 for the Fairview Hunter Project; and $12,000 for the Mineral Hill Project during the next twelve months.

We expect exploration of suitable projects to commence during the next twelve months but do not expect revenues from this work to cover our current operating expenses which we expect to increase as we implement our business plan. Consequently, we are dependent on the proceeds from the Joint Venture Agreement, the Drawdown Agreement and other outside sources of capital to sustain our operations and implement our business plan until operating income is sufficient to cover our operating expenses.  If we are unable to raise sufficient capital pursuant to the Drawdown Agreement or other sources, we will be required to delay or forego some portion of our business plan, which would have a material adverse effect on our anticipated results from operations and financial condition.  There is no assurance that we will be able to obtain necessary amounts of capital or that our estimates of our capital requirements will prove to be accurate.  We may find it necessary to raise additional outside financing which may not be available.  Even if we are able to secure outside financing, it may not be available in the amounts or times when we require.  Furthermore, such financing would likely take the form of bank loans, private placements of debt or equity securities or some combination of these.  The issuance of additional equity securities would dilute the stock ownership of current investor while incurring loans, lines of credit or debt by SRC would increase its cash flow requirements and possible loss of valuable assets if such obligations were not repaid in accordance with their terms.
 
Recent Financing Transactions

Since the Reorganization and through June 30, 2010, we raised $100,000 through the issuance of notes to stockholders.

From July 1, 2010 thru the end of the fiscal year, we raised the following capital. In July, 2010 we raised proceeds of $75,000 through the private sale of shares of our restricted common stock at $0.225 per share; in early September, 2010 we raised proceeds of $37,000 through the private sale of shares of our restricted common stock at $0.10 per share; and in late September, 2010 we raised proceeds of $50,000 through the private sale of shares of our restricted common stock at $0.077 per share. In October, 2010 we raised $25,000 through the issuance of a convertible promissory note due April 5, 2011 bearing interest at 16.9% per annum and secured by $50,000 worth of the Company general assets including, but not limited to, patents, patent applications, trademarks, machinery, inventory, accounts receivable, cash, computers, hardware, vehicles, etc.
As of the due date, the noteholder had indicated its intention to convert this note into shares of SRC common stock.

In October, 2010 we raised $150,000 through the issuance of units (1share/1 warrant). In November we also raised $65,000 through the private sale of a convertible note.

In addition, in July, 2010 and September, 2010 we issued 30,000 shares and 500,000 shares respectively, in payment of mining claim staking services and payment for certain mineral lease rights.

The valuation of our common stock in these private sales was the fair value of our restricted common stock as determined by the Board of Directors. We did not obtain contemporaneous valuations by an unrelated valuation appraiser because, at the times of the issuances of stock, our efforts were focused on establishing our business and the financial resources for doing so were limited.

Determining the fair value of our restricted stock in the early development stage of our business and the developing public market for our stock since the Reorganization requires various subjective judgments. While we did not utilize any specific methodology, we considered various significant factors in valuing these shares which included the early stage development of our business, the trading value of our common stock, the prospects for our business, the general condition of the gold mining industry and the limited sources of capital available to us. While the Board used its best judgment in evaluating these factors, there is inherent uncertainty in any such valuation.
 
 
 
7

 
 

In addition to the shares being issued to Auctus pursuant to the Drawdown Agreement, we have several outstanding convertible promissory notes which, if converted, would result in additional shares being issued. The precise number of shares issuable upon conversion of each outstanding promissory note is based on the market price of our stock at the time of conversion. Assuming the notes are converted in their entirety and assuming a share price of  $0.20 at the time of conversion, the following shares would be issuable:

October 2010 $25,000 note:
208,333 shares
November 2010 $65,000 note:
812,500 shares
January 2011 $32,500 note:
325,000 shares
April 2011 $37,500 note:
375,000 shares

Tabular Disclosure of Contractual Obligations
 
         
Payments due by period
 
Contractual Obligations
 
Total
   
Less than 1 year
   
1-3 years
   
3-5 years
   
More than 5 years
 
Long-Term Debt Obligations
  $ 235,000     $ 235,500     $ -0-     $ -0-       -0-  
Mineral Leases   $ 3,145,000     $ 25,000     $ 1,920,000     $ 1,200,000       -0-  
Operating Lease Obligations
  $ 158,568     $ 32,544     $ 100,113     $ 25,911       -0-  
                                         
Total
  $ 3,538,568     $ 292,544     $ 2,020,113     $ 1,225,911       -0-  

Off-Balance Sheet Arrangements

Since SRI’s inception through December 31, 2010, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a) of the SEC’s Regulation S-K.

 
 
 
 
 
 
 
 
 
 

 


 
8

 



ITEM 8. FINANCIAL STATEMENTS

STEELE RESOURCES CORP.
FINANCIAL STATEMENTS
FOR THE PERIOD FROM MAY 27, 2010(INCEPTION)
THROUGH DECEMBER 31, 2010





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS













 
9

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of
Steele Resources Corporation

We have audited the accompanying consolidated balance sheet of Steele Resources Corporation (an exploration stage Nevada corporation) and Subsidiary as of December 31, 2010, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the period from May 27, 2010 (Inception) through December 31, 2010.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Steele Resources Corporation and Subsidiary as of December 31, 2010, and the consolidated results of their operations and their cash flows for the period from May 27, 2010 (Inception) through December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant operating losses and negative cash flows from operations during the year ended December 31, 2010. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Rose, Snyder & Jacobs
 
Rose, Snyder & Jacobs
A Corporation of Certified Public Accountants
Encino, California
March 31, 2011



 
F-1

 


 
STEELE RESOURCES CORPORATION
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEET

   
December 31, 2010
 
       
ASSETS
     
Current assets
     
  Cash
  $ 623  
  Prepaid expenses
    1,336  
Total Current Assets
    1,959  
         
Fixed assets (Note 3)
    30,185  
  Accumulated depreciation
    (2,710 )
Total Fixed Assets
    27,475  
         
Other long-term assets
    2,712  
         
Total Assets
  $ 32,146  
         
LIABIITIES AND STOCKHOLDERS’ DEFICIT
       
Current liabilities
       
  Accounts payable
  $ 66,126  
  Accrued expenses
    108,412  
Derivative Liability (Note 4)
    52,250  
  Notes payable (Notes 4 and 5)
    145,755  
  Notes payable – related parties (Note 7)
    6,800  
Total Current Liabilities
    379,343  
         
COMMITMENTS AND CONTINGENCIES
  (NOTE 6)
       
Stockholders’ deficit:
       
  Preferred stock, par value $0.001,
       
   5,000,000 shares authorized,
       
   -0- and -0- shares issued and outstanding,
       
    Respectively
    -  
  Common stock, par value $0.001, 900,000,000 shares
       
   authorized, 100,383,334 shares issued and outstanding
    14,433  
  Additional paid-in capital
    442,540  
  Accumulated deficit during exploration stage
    (804,170 )
Total Stockholders’ Deficit
    (347,197 )
Total Liabilities and Stockholders’ Deficit
  $ 32,146  


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


 
F-2

 

 
STEELE RESOURCES CORPORATION
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS


   
May 27, 2010 (Inception) Through December 31, 2010
 
       
Revenue
  $ -  
         
Operating expenses:
       
         
  Exploration costs
    147,771  
  General and administrative
    485,078  
  Professional fees
    153,088  
Total operating expense
    785,937  
         
Loss from operations
    (785,937 )
         
Interest expense
    (18,233 )
         
Net loss
  $ (804,170 )
         
         
Net loss per share, basic and diluted *
  $ (0.01 )
         
Weighted average common shares outstanding *
    89,642,569  



 

* The calculation of net loss per share, basic and diluted and the weighted average shares outstanding for the period May 27, 2010 through December 31, 2010 has been adjusted to reflect the 10 for 1 forward stock split that occurred on July 1, 2010.












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


 
F-3

 

 
STEELE RESOURCES CORPORATION
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS’ DEFICIT
FROM MAY 27, 2010 (INCEPTION) THROUGH DECEMBER 31, 2010


   
Common Shares
   
Additional Paid-in Capital
   
Accumulated DeficitDuring
Exploration
Stage
   
Total
 
   
Number
     $                 $    
Balance, May 27, 2010
    -       -       -       -       -  
                                         
Issuance of shares for cash
    57,300,000     $ 5,730     $ 9,270     $ -     $ 15,000  
                                         
Recapitalization due to reverse merger with
                                       
 Steele Resources, Inc.
    38,200,000       3,820       14,950       -       18,770  
                                         
Issuance of shares:
                                       
  For cash (at $0.08, $0.10, $0.20, $0.05)
    4,353,334       4,353       307,647       -       312,000  
  Shares issued for exploration costs
    530,000       530       104,470       -       105,000  
                                         
Issuance of warrants with notes payable
    -       -       6,203       -       6,203  
                                         
Net loss
                            (804,170 )     (804,170 )
Balance, December 31, 2010
    100,383,334     $ 14,433     $ 442,540     $ (804,170 )   $ (347,197 )





















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




 
F-4

 

 
STEELE RESOURCES CORPORATION
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FROM MAY 27, 2010 (INCEPTION) THROUGH DECEMBER 31, 2010

Cash from Operating Activities:
     
       
Net loss
  $ (804,170 )
         
Adjustments to reconcile net loss to net
       
   cash used in operating activities:
       
Depreciation
    2,710  
Amortization of note discount
    14,208  
Shares issued for exploration costs
    105,000  
Changes in operating assets and liabilities:
       
 (Increase) in prepaid expense
    (1,336 )
 Increase in accounts payable
    65,696  
 Increase in accrued expenses
    108,412  
 (Increase) in other assets
    (2,712 )
    NET CASH USED IN OPERATING ACTIVITIES
    (512,192 )
         
Cash From Financing Activities:
       
  Proceeds from issuance of common stock
    327,000  
  Cash acquired in reverse merger with Steele Resources Corporation
    19,200  
  Proceeds from issuance of notes payable
    190,000  
  Proceeds from issuance of notes payable – related party
    27,648  
  Payments on notes payable - related party
    (51,033 )
    NET CASH PROVIDED BY FINANCING ACTIVITIES
    512,815  
         
NET INCREASE IN CASH
    623  
         
CASH, BEGINNING
    -  
CASH, ENDING
  $ 623  
         
SUPPLEMENTAL CASH FLOW INFORMATION
       
         
Cash paid during the period for :
       
  Interest
  $ -  
  Income taxes
  $ -  
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
       

The Company acquired $30,185 of property and equipment through the issuance of notes payable during the period from May 27, 2010 (Inception) through December 31, 2010


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

 
F-5

 


 
STEELE RESOURCES CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activity

Steele Resources Corporation (formerly Steele Recording Corporation) was incorporated in the state of Nevada on February 12, 2007, at which time it was deemed a “shell company” carrying on minimal operations in the business of producing, acquiring, licensing and distribution of recorded music.

On June 17, 2010 the Company entered into and consummated a Plan and Agreement of Reorganization between the Company and Steele Resources, Inc. and certain stockholders of Steele Resources, Inc. (the “Reorganization”). Pursuant to the Reorganization, the Company acquired all of the issued and outstanding shares of Steele Resources, Inc., a Nevada Corporation (“SRI”). SRI's The primary business activity of SRC and its subsidiary consists of mining property acquisition, mineral exploration and development and mining services.

Although from a legal perspective, SRC acquired Steele Resources, Inc., from an accounting perspective, the transaction is viewed as a recapitalization of SRI accompanied by the equivalent of an issuance of stock by SRI for the net assets of SRC. This is because SRC did not have operations immediately prior to the merger and, following the merger, SRI is the operating company.

Basis of Presentation and Going Concern
 
The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. The Company has incurred a net operating loss of $804,170 from May 27, 2010 (inception) through December 31, 2010 and had a working capital deficiency of $377,384 as of December 31, 2010. The Company does not have sufficient cash at December 31, 2010 to fund normal operations for the next 12 months. The Company has no recurring source of revenue and its ability to continue as a going concern is dependent on the Company’s ability to raise capital to fund its future exploration and working capital requirements. The Company’s plans for the long-term attainment and continuation as a going concern include financing the Company’s future operations through sales of its common stock, entering into debt or line of credit facilities, sales of gold produced in mining activities and the eventual profitable exploitation of its mining properties. Additionally, the current capital markets and general economic conditions in the United States are significant obstacles to raising the required funds. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company is currently investigating a number of alternatives for raising additional capital with potential investors, lessees and joint venture partners. If adequate funds are not available or are not available on acceptable terms, the Company’s ability to fund SRI’s exploration projects, take advantage of potential acquisition opportunities, possibly develop or enhance its properties in the future or respond to competitive pressures would be significantly limited. Such limitations could require the Company to curtail, suspend or discontinue parts of its business plan..

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Because of our net loss and our negative working capital position, our independent auditors express substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.

The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
 
 
 
F-6

 


Principles of  Consolidation

All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements in conformity with U.S. generally accepted accounting principles. Management believes the assumptions underlying the consolidated financial statements are reasonable.

The Accounting Standards Codification

In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards  Codification (“ASC”) as the single source of authoritative GAAP to be applied by nongovernmental entities. The ASC is a new authoritative source that took existing accounting pronouncements and organized them by accounting topic. Relevant  authoritative literature issued by the Securities and Exchange Commission (“SEC”) and select SEC staff  interpretations and administrative literature was also in the ASC. All other accounting guidance not included in the ASC is nonauthorititave. The adoption of the ASC did not have an impact on our consolidated financial position, results of operations or cash flows.  

Exploration Stage Enterprise

The Company is in the exploration stage of operation, as it devotes substantially all of its efforts to acquiring and exploring mining interests that management believes should eventually provide sufficient net profits to sustain the Company’s existence.

Cash and Cash Equivalents

The Company considers cash in banks, deposits in transit, and highly liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash balances.

Property and Equipment

Property and equipment are carried at cost. Depreciation is computed using straight line depreciation methods. Major additions and improvements are capitalized. Costs of maintenance and repairs which do not improve or extend the life of the associated assets are expensed in the period in which they are incurred. When there is a disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in net income.

Mining Exploration Costs

Exploration costs are expensed in the period in which they occur. The Company capitalizes costs for acquiring mineral properties and expenses costs to maintain mineral rights and leases as incurred. Should a property reach the production stage, these capitalized costs would be amortized using the units-of-production method on the basis of periodic estimates of ore reserves. Mineral properties are periodically assessed for impairment of value, and any subsequent losses are charged to operations at the time of impairment. If a property is abandoned or sold, its capitalized costs are charged to operations.

Income Taxes

The Company is expected to have net operating loss carryforwards that it can use to offset a certain amount of taxable income in the future. The Company is currently analyzing the amount of loss carryforwards that will be available to reduce future taxable income. The resulting deferred tax assets

 
F-7

 


will be offset by a valuation allowance due to the uncertainty of its realization. The primary difference between income tax expense attributable to continuing operations and the amount of income tax expense that would result from applying domestic federal statutory rates to income before income taxes relates to the recognition of a valuation allowance for deferred income tax assets.

The Company has adopted Financial Accounting Standards Board (“FASB”) ASC 740-10 which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold of more likely than not as a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $0 for the period from May 27, 2010 (inception) through December 31, 2010.  The Company’s net operating loss carryforwards are subject to IRS examination until they are fully utilized and such tax years are closed.
 
Net (Loss) Per Share
 
The Company calculates net income (loss) per share as required by Accounting Standards Codification subtopic 260-10, Earnings per Share (ASC 260-10”). Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation.
 
Use of Estimates and Assumptions
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

New Accounting Pronouncements

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events, Amendments to Certain Recognition and Disclosure Requirements” which made a number of changes to the existing requirements to the FASB Accounting Standards Codification 855 Subsequent Events. The amended guidance was effective upon issuance and as a result of the amendments, SEC filers that file financial statements after February 24, 2010 are not required to disclose the date through which subsequent events have been evaluated. This ASU did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements” which is intended to enhance the usefulness of fair value measurements by requiring both the disaggregation of the information in certain existing disclosures, as well as the inclusion of more robust disclosures about valuation techniques and inputs to recurring and non-recurring fair value measurements. The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disaggregation requirement for the reconciliation disclosure of Level 3 measurements, which is effective for fiscal years beginning after December 31, 2010 and for interim periods within those years. This ASU was adopted as of December 31, 2010 and did not have a material impact on our consolidated financial statements.

 
F-8

 


In January 2010, the FASB issued ASU 2010-02, “Accounting and Reporting for Decreases in Ownership of a Subsidiary – Scope Clarification” which is intended to clarify which transactions require a decrease in ownership provisions particularly for non-controlling interests in consolidated financial statements. In addition, it requires increased disclosures about deconsolidation of a subsidiary. It requires retrospective application and was effective for the first interim or annual periods ending on or after December 15, 2009. Adoption of this ASU did not have a material impact on our consolidated financial statements.

In January 2010, the FASB issued ASU 2020-01 “Accounting for Distributions to Shareholders with Components of Stock and Cash” which is intended to clarify the accounting treatment for a stock portion of a shareholder distribution that (1) contains both cash and stock components, (2) allows shareholders to select their preferred form of distribution, and (3) limits the total amount of cash to be distributed. It defines a stock dividend as a dividend that takes nothing from the property of an entity and adds nothing to the interests of an entity’s shareholders because the proportional interest of each shareholder remains the same. The stock portion of the distribution must be treated as a stock issuance and be reflected in the EPS calculation prospectively. It requires retrospective application and is effective for annual periods ending on or after December 15, 2009. Adoption of this ASU did not have a material impact on our consolidated financial statements.

In August 2009, the FASB issued ASU 2009-15, which changes the fair value accounting for liabilities. These changes clarify existing guidance that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using either a valuation technique that uses a quoted price of either a similar liability or a quoted price of an identical or similar liability when traded as an asset, or another valuation technique that is consistent with the principles of fair value measurements, such as an income approach (e.g., present value technique). This guidance also states that both a quoted price in an active market for the identical liability and a quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This ASU was adopted effective on January 1, 2010 and did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued ASU 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” the FASB issued changes to the accounting for variable interest entities. These changes require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. These changes became effective for us beginning on January 1, 2010. The adoption of this change did not have a material impact on our consolidated financial statements.
 
In June 2009, the FASB issued ASU 2009-16, “Accounting for Transfers of Financial Assets,” which changes the accounting for transfers of financial assets. These changes remove the concept of a qualifying special-purpose entity and remove the exception from the application of variable interest accounting to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. These changes became effective January 1, 2010 and did not have a material impact on our financial statements.



 
F-9

 

NOTE 2.  PROPERTIES

Comstock-Tyler Project

SRI’s initial exploration project consists of 30 mineral claims covering approximately 600 acres of property owned by the Bureau of Land Management (“BLM”) and referred to as the “Comstock-Tyler Project”. These claims were registered with the BLM on June 7, 2010 and allow SRI the right to conduct thorough mineral and precious metal exploration. Such exploration will be subject to typical notification to the BLM and the Nevada Department of Environmental Protection and the posting of remediation bonds as the exploration process continues. The property is located at Township 16N Range 20E Section 1 which is approximately 5 miles southwest of Virginia City, NV and lies in the historically producing Comstock Mining District. Corresponding property filings have been recorded in the Nevada Counties of Washoe and Storey reflecting SRI’s mineral rights in the Comstock-Tyler Project. Pursuant to an agreement with Riggs and Allen Mineral Development LLC, which performed the property staking, SRI paid a total of $60,000 in cash and stock and has granted Riggs and Allen a production royalty of 1% of the Net Smelter Returns (“NSR”) from any production realized from the property. SRI has the right to repurchase the 1% NSR from Riggs and Allen for $1,000,000.

Fairview Hunter

On September 24, 2010 SRI entered into an Asset Purchase Agreement with an entity controlled by the Company’s CEO,  pursuant to which SRI acquired a mineral lease agreement dated July 19, 2010 relating to property referred to as the Fairview Hunter Mine Project (the “Fairview Hunter Project”). The property is comprised of 115 mineral claims covering approximately 2,300 acres located 30 miles southeast of Fallon, Nevada.   The Company issued 500,000 shares of restricted common stock for this agreement, valued at $75,000, which is included in Exploration costs in the accompanying financial statements. The Fairview Hunter Project lease has a term of ten years (through July 2020) and annual lease payments commencing at $25,000 and ending at $50,000 in the fifth year of the lease (2015). The Lessor also retains a production royalty of 3% of the Net Smelter Returns from the leased property of which SRI can buy out up to 2% of such royalty upon payment of $1,000,000 per 1% royalty amount. The lease does not specify dollar commitments for development and allows SRI complete discretion as to conducting exploration or development activity on the property. The lease provides for SRI to pay all taxes and assessments on the property and pay all fees to the BLM or the Nevada mining agencies relating to the mining exploration or development of the property. The lease can be extended automatically for so long as SRI is engaged in mining operations (as defined in the lease) on the expiration date of the lease.

NOTE. 3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 2010:

Vehicles
  $ 30,185  
      30,185  
Less: Accumulated Depreciation
    (2,710 )
    $ 27,475  

NOTE 4. DERIVATIVE INSTRUMENT LIABILITIES AND CONVERTIBLE NOTES

In October 2010, the Company issued a convertible promissory note in the principal amount of $25,000 bearing interest at 16.9% per annum. The note is due and payable on or before April 5, 2011 and can be converted into shares of SRC’s restricted common stock at a conversion rate based on 60% of the market value of SRC’s common stock at the time of conversion. The investor was also issued warrants to purchase 100,000 shares of SRC common stock at an exercise price of $0.50/share maturing in October 2013. The sale was made to one entity in a private, negotiated transaction without any public solicitation. As of December 31, 2010, interest payable on these notes totaled $1,053.

 
F-10

 


In November 2010 the Company issued a convertible note for $65,000 to one entity. The note bears interest at 8% per annum and is due October 17, 2011. The conversion price shall be 35%  of the average of the lowest three closing bid prices in the 10 trading days ending one day before notice of conversion is given. As of December 31, 2010, interest payable on these notes totaled $869.

These notes were evaluated using Emerging Issues Task Force (“EITF”) issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“EITF 00-19”)” and it was determined that the embedded conversion should be accounted for as derivative instrument liabilities. Accordingly, they are to be marked to market each reporting period, with the corresponding non-cash gain or loss reflected in the Company’s current period statement of operations.

Fair Value Measurements

Assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs, as defined by ASC 820-10, are as follows:

 
·
Level 1 – quoted in active markets for identical assets or liabilities.

 
·
Level 2 – other significant observable inputs for the assets or liabilities through cooboration with market data at the measurement date.

 
·
Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The following table summarizes fair value measurements by level at December 31, 2010 for assets and liabilities measured at fair value on a recurring basis:

 
Level 1
Level 2
 
Level 3
   
Total
 
                 
Derivative liability
               
    Conversion features
        (52,250 )     (52,250 )

 
Derivative liability for conversion features was valued using Monte Carlo Simulation.
 
 
The following is a reconciliation of the derivatives liability
 
Issuance of instruments
    52,250  
Decrease in value
    -  
Value at December 31, 2010
    52,250  
 
For certain of the Company’s financial instruments, including cash, prepaid expenses, accounts payable and accrued expenses the carrying amounts approximate fair value due to their short maturities. The carrying amounts of the Company’s notes payable approximates fair value based on the prevailing interest rates.
 
 
The components of the convertible notes payable are as follows as of December 31, 2010:
 
   
Principal Amount
   
Unamortized Discount
   
Net
 
Convertible notes payable
  $ 90,000     $ (44,245 )   $ 45,755  


 
F-11

 


NOTE 5. NOTES PAYABLE

On June 24, 2010, the Company issued three promissory notes payable for a total of $100,000. The notes bear simple interest at an annual rate of 5% and the principal and accrued interest are payable on June 23, 2011. Upon the occurrence of an event of default, which shall include voluntary or involuntary bankruptcy, all unpaid principal, accrued interest and other amounts owing hereunder shall, automatically, be immediately due, payable and collectible by the lenders pursuant to applicable law. As of December 31, 2010, interest payable on these notes totaled $2,603.

NOTE 6. COMMITMENTS AND CONTINGENCIES

Office and Rental Property Leases

On October 1, 2010, the Company entered into a lease for office space located in Cameron Park, California, for a period of five years. Future minimum lease payments under operating leases are $32,544, $32,709, $33,369, $34,035 and $25,911 for the years ended December 31, 2011, 2012, 2013, 2014, 2015 respectively. Total rental expense was $16,786 for the year ended December 31, 2010.
 
Legal Matters

SRC was named in an amended complaint filed in District Court, Clark County Nevada, by Phyllis Wynn, individually and as the trustee for the Phyllis Wynn Family Trust. The Complaint appears to name approximately 81 defendants including Steele Resources Corporation. The Amended Complaint was filed September 23, 2009. It alleges 17 causes of actions including breach of contract and fraud against various other defendants and fraudulent conveyance to SRC and its former President and CEO Marlon Steele. The substance of the Complaint involves a real estate transaction not involving SRC. We do not believe the Plaintiff will prevail as to her claims regarding Steele Resources Corporation and have answered with affirmative defenses including but not limited to the following: (1) the injuries and damages complained of did not occur as the result of any action on the part of SRC but as the sole, direct and proximate result of actions by Plaintiff and third parties not otherwise related to SRC. At the current time the amount of the loss cannot be reasonably estimated. A former officer of SRC has agreed to indemnify the Company from any eventual costs or loss from this lawsuit.
 
Contractual Matters

On June 9, 2010, SRI entered into an agreement with Riggs and Allen Mineral Development LLC, which performed services relating to property staking at the Comstock-Tyler project. SRI agreed to pay a total of $60,000 in cash and stock and has granted Riggs and Allen a production royalty of 1% of the Net Smelter Returns (“NSR”) from any production realized from the property. SRI has the right to repurchase the 1% NSR from Riggs and Allen for $1,000,000. Continued use of the land owned by the BLM (see Note 2) will require annual payments by the Company to the BLM.

On September 24, 2010 SRI entered into an Asset Purchase Agreement pursuant to which SRI acquired a mineral lease agreement dated July 19, 2010 relating to property referred to as the Fairview Hunter Mine Project (the “Fairview Hunter Project”). The property is comprised of 115 mineral claims covering approximately 2,300 acres located 30 miles southeast of Fallon, Nevada. The Fairview Hunter Project lease has a term of ten years (through July 2020) and annual lease payments commencing at $25,000 and ending at $50,000 in the fifth year of the lease (2015). The Lessor also retains a production royalty of 3% of the Net Smelter Returns from the leased property of which SRI can buyout up to 2% of such royalty upon payment of $1,000,000 per 1% royalty amount. The lease does not specify dollar commitments for development and allows SRI complete discretion as to conducting exploration or development activity on the property. The lease provides for SRI to pay all taxes and assessments on the property and pay all fees to the BLM or the Nevada mining agencies relating to the mining exploration or development of the property. The lease can be extended automatically for so long as SRI is engaged in mining operations (as defined in the lease) on the expiration date of the lease.

 
F-12

 


NOTE 7. COMMON STOCK

In June 2010, SRI issued 5,730 shares of common stock for $15,000. Immediately prior to the Reorganization on June 17, 2010, SRC had 12,320,000 shares of common stock outstanding. Pursuant to the Reorganization, SRC acquired all of the issued and outstanding shares of SRI in exchange for 5,730,000 shares of common stock. In conjunction with the Reorganization, a shareholder of SRC cancelled 8,500,000 shares of his common stock. These share numbers do not reflect the 10 to 1 forward stock split that occurred on July 1, 2010.

On July 1, 2010, the Company effected a 10 for 1 forward split of its common stock.

Warrants outstanding at December 31, 2010 are as follows:

Shares
Exercise Price
Maturity
  100,000
$0.50
Oct 2013
3,000,000
$0.15
Nov 2015

NOTE 8.  RELATED PARTY TRANSACTIONS

During June and July 2010, expenses of approximately $29,000, which are included in general and administrative expenses, were paid on behalf of SRC by an entity which is controlled by the Company’s CEO. These advances were repaid in July 2010.

In August 2010, the Company issued three promissory notes to an officer and director of the Company for a total of $20,848. The notes bore no interest and were repaid in October 2010.

In August 2010 the Company issued a note payable to an individual who is related to an officer and director of the Company in the amount of $7,000 for the purchase of a vehicle. The note had a 3% annual interest rate and was repaid in October 2010.

In August 2010 the Company entered into a lease/purchase agreement with an officer and director of the Company for a vehicle, for $23,185. The lease/purchase agreement had a 0% annual interest rate and was paid off in October 2010.

In September 2010 the Company issued a promissory note to an officer and director of the Company for  $2,000. The notes bore no interest and were repaid in October 2010.

The Fairview Hunter Project lease was acquired from a company of which Scott Dockter (CEO of the Company) is a majority stockholder and David McClelland (a Director of the Company) is a less than 5% stockholder. Mr. Dockter, Mr. McClelland and Chris Whitaker (a Director of SRI) serve as directors of Assignor. The transaction was approved unanimously by both the Board of Directors of SRI and the Company with Mr. Dockter abstaining from such votes. SRC issued 500,000 shares of restricted common stock valued at $75,000 for this acquisition in September 2010. This amount is included in Exploration costs in the accompanying financial statements.

NOTE 9. NAME CHANGES

On July 16, 2010, SRC’s wholly owned subsidiary changed its name from Steele Resource, Inc. to Steele Resources, Inc.

Effective September 1, 2010, Steele Recording Corporation changed its name to Steele Resources Corporation.


 
F-13

 

NOTE 10. SUBSEQUENT EVENTS

On November 3, 2010 SRI entered into a non-binding Letter Of Intent with a group of individual land owners in the state of Montana to acquire rights to 17 patented and 67 unpatented mining claims known as the Pony Exploration project (“the Pony Project”).  Upon satisfactory completion of due diligence and securing project financing, SRI and the individual Lessors entered into a Mineral Lease Agreement With Option to Purchase (the “Pony Lease”) effective February 4, 2011. The Pony Lease provides for a six year lease period with an initial payment of $300,000, which SRI paid upon signing, and an annual lease payment of $500,000 for the next five years. The Leasors will also have a 2% Net Smelter Return (“NSR”) on the property. In addition the Lessors will receive a 1% NSR on any property developed by SRI located within one linear mile from any portion of the exterior boundary of the Pony Project. After the lease period expires, SRI will have the option to purchase the Pony Project for $190,000.

On November 22, 2010 SRI entered into a non-binding Letter Of Intent with a group of individual land owners in the state of Montana to acquire two patented mining claims known as the Atlantic and Pacific Mine ("the A&P") located in the Pony Mining District in Montana. Upon satisfactory completion of due diligence, SRI entered into a definitive agreement on February 22, 2011, for a five year mineral lease, with an initial payment of $200,000 and an annual commitment of $100,000.00 for the next five years. The Leasors will also have a 2% NSR on the property during the lease term. After the lease period expires and all lease payments have been paid, SRI will own the A&P Project outright without any further compensation.

On January 14, 2011, we entered in to a drawdown equity financing agreement and registration rights agreement (collectively the “Agreements”) with Auctus Private Equity Fund, LLC (“Auctus”), one of the Selling Stockholders.  In accordance with the Agreements, Auctus has committed, subject to certain conditions set forth in the Agreements, to purchase up to $10 million of the Company’s common stock over a term of up to three (3) years.  Although the Company is not mandated to sell shares under the Agreements, the Agreement gives the Company the option to sell to Auctus shares of common stock at a per share purchase price of equal to 95% of the average of the lowest closing bid price of the common stock of any two trading days during the five trading days following the Company’s delivery of a Drawdown Notice to Auctus (the “Notice”).  At its option, the Company may set a floor price under which Auctus may not sell the shares which were the subject of the Notice.  The floor price shall be a minimum price determined by the Company or 75% of the average closing price of the stock over the preceding ten (10) trading days prior to the Notice and can be waived at the discretion of the Company.  The maximum amount of Common Stock that the Company can sell pursuant to any Notice is the greater of (i) an amount of the shares with an aggregate maximum purchase price of $500,000 or (ii) 200% of the average daily trading volume based on the 10 days preceding the Notice date.

Auctus is not required to purchase the shares unless: a) the shares which are subject to the Notice have been registered for resale and are freely tradable in accordance with the federal securities laws, including the Securities Act of 1933, as amended; and b) under certain conditions which are set forth in the Agreements, and which are outside of Auctus’ control.  The Company is obligated to file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1, of which this Prospectus forms a part of, within 30 days from the date of the Agreements and to use all commercially reasonable efforts to have such registration statement declared effective by the SEC within 120 days of filing.  The Company has agreed to pay Auctus an aggregate amount of $10,000 as an origination fee with respect to the transaction.

On January 27, 2011, 2010 SRI entered into a non-binding Letter Of Intent with Innocent Inc. ("INCT"), a Nevada corporation engaged in the financing of exploration and development of mineral properties. The LOI provides for a Joint Venture Agreement ("JV") which will govern the exploration and operations of mineral rights within the Pony Project and A&P Project jointly referred to as the Mineral Hill Project (the "Mineral Hill Project").


 
F-14

 

The non-binding LOI provides terms for INCT to contribute up to $5,000,000 in operating funds over a one year period beginning with the execution of the JV agreement. The parties may jointly extend this period, by mutual agreement. In addition, upon signing of the LOI, INCT will advance $500,000 in order to allow SRI to close the Pony and A&P Project lease transactions.  SRI will initially contribute its leases in the Mineral Hill Project into the JV. SRI also agrees to fund the JV with a matching $5,000,000 in operating funds no later than one year following the first $1,000,000 funded by INCT. The JV will govern the operations of the various sites within the Mineral Hill Project wherein the parties to this agreement will initially share 50%-50% joint ownership of the JV, based upon the assumption, each party fulfills its terms and responsibilities pursuant to the LOI and the final JV agreement. If either party fails to contribute the funds committed to, that party’s interest in the JV will be reduced. SRI will be responsible for operations of the JV.

On February 7, 2011, INCT completed its initial funding to the JV pursuant to the LOI in the amount of $300,000 with the proceeds being used to close the definitive lease agreement covering the Pony Project. On March 23, 2011, INCT, through one of its investors, completed a second funding to the JV in the amount of $250,000, with the proceeds being used to close the definitive lease agreement covering the A&P Project.























 

 
F-15

 

PART III
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTION AND DIRECTOR INDEPENDENCE

Interest of Management and Others in Certain Transactions

On May 17, 2010, the Company’s Board agreed to transfer 100% of the membership interests in the Company’s subsidiary, Steele Land Investments LLC to Mack Steele in full and final payment of all amounts previously advanced by Mr. Steele to the Company through the Closing Date of the above referenced Reorganization. The advances repaid amounted to $64,884 through June 17, 2010.

On May 18, 2010 Peter Kristensen acquired 10,000,000 shares of SRC’s common stock (representing 81% of the outstanding stock at that time) from Mack Steele in a privately negotiated transaction for $30,000. Thereafter, due to Mr. Kristensen’s background in geophysics and geology, he reviewed several merger or acquisition opportunities in the mineral resources sector culminating in the reorganization with SRI. Due to Mr. Kristensen’s involvement in establishing SRC’s current business, he would be deemed a “promoter” as that term is defined under SEC regulations.

Scott Dockter and David McClelland were the principal organizers of SRI and its exploration business which, as a result of the Reorganization, became the principal business of SRC. Due to Mr. Dockter’s and Mr. McClelland’s involvement in establishing SRI’s business which became SRC’s current business, they would be deemed a “promoter” as that term is defined under SEC regulations.
 
On June 14, 2010 the Board of Directors of SRI approved a consulting agreement with Pauline Schneider. The consulting agreement provides for Ms. Schneider to be paid $140/hour for services rendered as a consultant to SRI from June 4, 2010 to June 18, 2010. Upon her appointment as CFO on June 17, 2010, Ms. Schneider was paid a salary of $8,332 per month. This agreement was terminated upon Ms. Schneider’s resignation as CFO on January 17, 2011.

During June and July 2010, expenses of approximately $29,000, which are included in general and administrative expenses, were paid on behalf of SRC by an entity which is controlled by the SRC’s CEO.  These advances were repaid in July 2010. At December 31, 2010, there is approximately $27,000 of prepaid expense – related party on the SRC’s balance sheet associated with this entity.

Commencing in September, 2010 SRC rented a house in Cameron Park, CA for use by employees while working at SRC’s corporate office. The house is rented on a month-to-month basis with rent ranging from $500 - $750 depending on the number of employees utilizing the house in the month. Mr. McClelland has utilized this house for one or more days each month.

In August 2010, SRC issued three promissory notes to Mr. McClelland for a total of $20,848.  The notes bore no interest and were repaid in October and November 2010.

In August 2010, SRC issued a note payable to Mr. McClelland’s father in the amount of $7,000 for the purchase of a vehicle. The note had no stated interest rate and was repaid in November 2010.

In September 2010, SRC purchased a vehicle from Mr. McClelland for $23,185. This amount was paid in full in November 2010.
 
 
10

 

In August 2010, SRC issued a note payable to Mr. McClelland in the amount of $7,000 for the purchase of a vehicle. The note had no stated interest rate and was repaid in November 2010.

In September 2010, SRC purchased a vehicle from Mr. McClelland for $23,185. This amount was paid in full in November 2010.

On September 24, 2010 SRC’s wholly owned subsidiary, SRI, entered into an Asset Purchase Agreement and Assignment of Contract pursuant to which SRI acquired the mineral lease rights to explore the Fairview Hunter Gold Exploration Project (the “Fairview Hunter Project”). The Fairview Hunter Project lease was acquired from Durarock Resources, Inc., a company of which Scott Dockter (CEO of SRC) is a majority stockholder and David McClelland (a Director of SRC) is a less that 5% stockholder. Mr. Dockter, Mr. McClelland and Chris Whitaker (a Director of SRI) serve as directors of Durarock. The transaction was approved unanimously by both the Board of Directors of SRC and SRI with Mr. Dockter abstaining from such votes.

Through December 31, 2010 Mr. Dockter was paid a total of $9,004 for expenses relating to the use of his private plane for Company business travel.

Except for the above transaction, since the inception of SRI on May 27, 2010 through December 31, 2010 there have not been, any material agreements or proposed transactions, whether direct or indirect, with any of the following:

 
·
a Director or Officer;
 
·
any nominee for election as a director;
 
·
any principal security holder identified in the preceding “Security Ownership of Certain Beneficial Owners and Management” section; or
 
·
any relative, spouse, or relative of such spouse, of the above referenced person.

The Reorganization transaction involved Mr. Dockter and Mr. McClelland who were, at the time, major stockholders of SRI. However, prior to the Reorganization, neither Mr. Dockter nor Mr. McClelland was a Director, Director nominee, officer or stockholder of SRC.

Should a transaction, proposed transaction, or series of transactions involve one of our officers or directors or a related entity or an affiliate of a related entity, or holders of stock representing 5% or more of the voting power (a “related entity”) of our then outstanding voting stock, the transactions must be approved by the unanimous consent of our Board of Directors.  In the event a member of the Board of Directors is a related party, that member will abstain from the vote.
 


 
11

 

PART IV
 
ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
 
(a)
Financial Statements

Audited financial statements for the fiscal year ended December 31, 2010 are included with this report.

 
(b)
Exhibits

Exhibit No.                      Description of Exhibit

2.1(1)
Plan and Agreement of Reorganization between Steele Recording Corporation and Steele Resources, Inc. Stockholders of Steele Resources, Inc. dated June 17, 2010.
3.1.1(2)
Articles of Incorporation
3.1.2(5)
Amendment to the Articles of Incorporation effective March 10, 2009
3.1.3(5)
Change to the Articles of Incorporation effective July 1, 2010
3.1.4(5)
Amendment to the Articles of Incorporation effective September 1, 2010
3.2(2)
Bylaws
10.1(3)
Assignment of Contract and Fairview Hunter Mineral Lease Agreement
10.2(5)
Service Agreement dated June 9, 2010 between SRI and Riggs and Allen Mineral Development, LLC
10.3(4)
Drawdown Equity Financing Agreement with Auctus Private Equity Fund, LLC dated January 14, 2011.
10.4(4)
Registration Rights Agreement with Auctus Private Equity Fund, LLC dated January 14, 2011.
10.5(5)
Pony Project Mineral Lease dated February 4, 2011.
10.6(6)
Joint Venture Agreement between Steele Resources Corp. and Innocent, Inc. dated February 20, 2011.
10.7(6)
A&P Project Mineral Lease dated February 22, 2011.
14(5)
Code of Business Conduct and Ethics
21(5)
Subsidiaries of Steele Resources Corporation
31.1 (7)
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 (7)
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 (7)
Certification of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
________
 
(1) Filed as an exhibit to registrant’s Form 8-K filed on June 21, 2010.
(2) Filed as an exhibit to registrant’s SB-2 registration statement filed on June 22, 2007.
(3) Filed as an exhibit to registrant’s Form 8-K filed on September 30, 2010.
(4) Filed as an exhibit to registrant’s Form 8-K filed on January 21, 2011.
(5) Filed as an exhibit to registrant’s Form S-1 registration statement filed on February 10, 2011.
(6) Filed as an exhibit to registrant’s Form 8-K filed on March 28, 2011.
(7) Filed as an exhibit to registrant’s Form 10-K filed on March 31, 2011.




 
12

 

 

Pursuant to the requirements of Section 13 or 15 (d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
STEELE RESOURCES CORP.
   
   
Date: May 19, 2011
By /s/ A. Scott Dockter
 
A. Scott Dockter
 
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
Title
Date
     
     
/s/ A. Scott Dockter
Director and
May 19, 2011
A.Scott Dockter
Chief Executive Officer
 
     
/s/ David Bridgeford
Secretary and
 
David Bridgeford
Chief Financial Officer
May 19, 2011
 
(Principal Financial &
 
 
 Accounting Officer)
 
     
/s/ Pauline Schneider
Director
May 19, 2011
Pauline Schneider
   
     
/s/ Peter Kristensen
Director
May 19, 2011
Peter Kristensen
   
     
/s/ David McClelland
Director
May 19, 2011
David McClelland
   


 
 
 
 

 


 
13