10-Q 1 g4533a.txt QTRLY REPORT FOR THE QTR ENDED 9-30-10 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2010 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission File No. 333-158721 TOPAZ RESOURCES, INC. (Exact name of Registrant as specified in its charter) Florida 26-4090511 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1012 North Masch Branch Road P.O. Box 2057 Denton, TX 76207-2057 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (940) 243-7744 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 at least the past 90 days. Yes [X] No [ ] 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 "accelerated filer, large accelerated filer and smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] There were 507,600,000 shares of the Registrant's $0.0001 par value common stock outstanding as of November 16, 2010. TOPAZ RESOURCES, INC. INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements 3 Condensed Balance Sheets September 30, 2010 (Unaudited) and December 31, 2009 3 Condensed Statements of Operations Three and nine months ended September 30, 2010 and 2009 (Unaudited) 4 Condensed Statements of Stockholders' Deficit Nine months ended September 30, 2010 (Unaudited) 5 Condensed Statements of Cash Flows Nine months ended September 30, 2010 and 2009 (Unaudited) 6 Notes to Unaudited Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Item 4T. Controls and Procedures 13 Part II. Other Information Item 1. Legal Proceedings 13 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13 Item 3. Default Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 14 Item 6. Exhibits 14 Signatures 15 2 PART I--FINANCIAL INFORMATION Topaz Resources, Inc. (formerly Kids Germ Defense Corp.) (A Development Stage Company) Condensed Balance Sheets (Unaudited)

The accompanying notes are an integral part of the condensed financial statements. 3 Topaz Resources, Inc. (Formerly Kids Germ Defense Corp.) (A Development Stage Company) Condensed Statements of Operations (Unaudited)

The accompanying notes are an integral part of the condensed financial statements. 4 Topaz Resources, Inc. (Formerly Kids Germ Defense Corp.) (A Development Stage Company) Condensed Statements of Stockholders' Equity For the Nine Months Ended September 30, 2010 and For Each of the Years From January 16, 2009 (Date of Inception) through September 30, 2010 (Unaudited)

The accompanying notes are an integral part of the condensed financial statements. 5 Topaz Resources, Inc. (Formerly Kids Germ Defense Corp.) (A Development Stage Company) Condensed Statements of Cash Flows (Unaudited)

The accompanying notes are an integral part of the condensed financial statements. 6 Topaz Resources, Inc. (Formerly Kids Germ Defense Corp.) (A Development Stage Company) Notes to Unaudited Condensed Interim Financial Statements Three and Nine Months Ended September 30, 2010 NOTE 1. GENERAL ORGANIZATION AND BUSINESS Topaz Resources, Inc. formerly Kids Germ Defense Corp. (the "Company") is a development stage enterprise that was incorporated in the state of Florida on January 16, 2009. To date, the Company's activities have been limited to raising capital, organizational matters and structuring its business plan. The corporate headquarters are located in Denton, Texas. The Company is an independent oil and gas company focusing on production, acquisitions and developmental drilling opportunities within proven producing areas of North-Central-West Texas. Effective April 16, 2010, the Company changed its name from Kids Germ Defense Corp. to Topaz Resources, Inc. ACCOUNTING BASIS In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three and nine month periods ended September 30, 2010 and 2009 and the Period January 16, 2009 (Date of Inception) through September 30, 2010, (b) the financial position at September 30, 2010 and December 31, 2009, and (c) cash flows for the periods ended September 30, 2010 and 2009, and the Period January 16, 2009 (Date of Inception) through September 30, 2010, have been made. The unaudited condensed financial statements and notes are presented in accordance with SEC Form 10-Q. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying condensed financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for the fiscal year ended December 31, 2009. The results of operations for the three and nine month periods ended September 30, 2010 are not necessarily indicative of those to be expected for the entire year. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. GOING CONCERN The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern. For the three and nine months ended September 30, 2010 and since inception through September 30, 2010, the Company has had a net loss of $43,652, $72,488 and $135,122, respectively. As of September 30, 2010, the Company has not emerged from the development stage. In view of these matters, the Company's ability to continue as a going concern is dependent upon the Company's ability to begin operations and to achieve a level of profitability. Since inception, the Company has financed its activities principally from loans from the executive officer and sale of public equity securities. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. 7 NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS Management has reviewed all recent accounting pronouncements issued by FASB (including EITF), the AICPA and the SEC since the last audited financial statements, and does not believe that they will have a material impact on the Company's present or future financial statements. NOTE 4. STOCKHOLDER'S EQUITY TRANSACTIONS The Company's Board of Directors has authorized 700,000,000 shares of common stock with a par value of $0.0001 and 10,000,000 shares of preferred stock, par value of $0.0001 to be issued in accordance with the terms and conditions as determined by the Board. The Preferred Stock ranks senior to the common stock as to dividends and liquidation. As of September 30, 2010, the Company has no preferred stock issued or outstanding. On January 16, 2009, the Company issued 378,000,000 shares of common stock at $0.00001587 per share for a total of $6,000. On January 16, 2009, the Company authorized a Private Placement Offering of up to 126,000,000 shares of common stock at a price of $0.000233 per share. The total amount raised in this financing was $29,000. As of December 31, 2009, the Company had issued 121,800,000 common shares and had received $28,500 in cash proceeds, and $500 in a stock subscription receivable. As of September 30, 2010 the additional $500 had been received for the total of $29,000 from the sale of its stock. Effective April 16, 2010, the Company changed its name from Kids Germ Defense Corp. to Topaz Resources, Inc. The Company also effected a forward stock split of the Company's common stock on a seven for one basis, such that it's authorized shares of common stock has increased from 100,000,000 to 700,000,000. All shares of the Company's common stock have been adjusted to reflect the forward stock split. The Financial Industry Regulatory Authority (FINRA) has approved the Company's share dividend of 5 additional shares of common stock for each share of common stock held by each shareholder of record as of the close of business November 12, 2010 with a payment date of November 15, 2010. Effective April 22, 2010, the Company and an investor signed a subscription agreement to purchase a total of 4,800,000 shares of the Company's common stock at $0.04167 per share plus 180,000,000 warrants to purchase shares of the Company's common stock at an exercise price of $0.0833 per share for a total amount of $200,000. The warrant entitles the holder to purchase 180,000,000 shares of the Company's common stock, at any time, at an exercise price of $0.50833 per share, provided, however, that in no event shall the holder be entitled to exercise this warrant for a number of shares in excess of the number of shares which, upon giving effect to such exercise, would cause the aggregate number of shares of common stock beneficially owned by the holder and its affiliates to exceed 4.99% of the outstanding shares of common stock. The holder may exercise the warrant on either a cash or cashless exercise as determined by the holder of the warrant. The warrants expire in 2015.

The value of each award is estimated at the grant date using the Black-Scholes option model with the following assumptions for awards granted during the nine months ended September 30, 2010: 8 Nine Months Ended September 30, 2010 ------------------ Dividend rate 0% Risk free interest rate 2.57% Expected term 5 years Expected volatility 182% The basis for the above assumptions are as follows: the dividend rate is based upon the Company's history of dividends; the risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant; the expected term was calculated based on the Company's historical pattern of options granted and the period of time they are expected to be outstanding; and expected volatility was calculated by review of a peer company's historical activity. As of September 30, 2010, the fair value of the 30,000,000 warrants was calculated to be $5,631,326 using the Black Scholes option model and the above assumptions. The cost of the warrant was treated as "share issue costs" resulting in the fair market value being debited and credited to Additional Paid in Capital, resulting in a null journal entry. During August 2010, the Company and an investor signed a subscription agreement to purchase a total of 3,000,000 shares of the Company's common stock at $0.04167 per share for a total amount of $125,000, which has been recorded as Common Stock Payable in the accompanying balance sheet. The Company issued the 3,000,000 shares of common stock during November 2010. NOTE 5. DUE FROM RELATED PARTY On June 3, 2010 the Company advanced $150,000 to Dark Horse Operating Co., L.L.C. ("DHOC"), an affiliate of the Company, under a Promissory Note, which bears 3.50% interest per annum and is due on demand. This advance was made during the normal course of business and DHOC is to use these funds to pay for the drilling of a well, of which DHOC is the operator. As of September 30, 2010, the Company has advanced DHOC a total of $348,403, of which $186,678 remains due and payable to the Company. DHOC is the operator of the wells that are being acquired and/or drilled by the Company. DHOC was created in 2003-04 and is owned by Robert P. Lindsay and Rand Stinnett, minority shareholders and officers of the Company. Lindsay is also a director of the Company. There are two additional officers of the Company (Edward Munden and Bill Williamson) who have no interest in DHOC and can out vote Lindsay and Stinnett on any and all matters relating to DHOC, noting Lindsay and Stinnett are prevented from voting on any of the Company matters related to DHOC to prevent a possible conflict of interest. NOTE 6. EARNINGS (LOSS) PER SHARE Earnings (loss) per share are computed using the basic and diluted calculations on the face of the statement of operations. Basic earnings (loss) per share are calculated by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method. There were no items that were considered potentially dilutive related to the fully diluted share calculation at September 30, 2010. The following sets forth the computation of basic and diluted net earnings (loss) per common share for three and nine months ended September 30, 2010 and the period January 16, 2009 through September 30, 2009: 9

NOTE 7. RELATED PARTY TRANSACTION The Company has hired an individual consultant, who is the adult son of an officer of the Company, to provide title research services on an as needed basis. The Company recognized expense of approximately $10,000 for the three months ended September 30, 2010 and approximately $17,000 for the nine months ended September 30, 2010. At September 30, 2010, $2,451 was included in accounts payable-related party for amounts owed to this individual. NOTE 8. SUBSEQUENT EVENTS Subsequent to September 30, 2010, the Company entered into an agreement to purchase an oil and gas lease from Viejo Coyotes Energy, LLC for $16,000. The Financial Industry Regulatory Authority (FINRA) has approved the Company's share dividend of 5 additional shares of common stock for each share of common stock held by each shareholder of record as of the close of business November 12, 2010 with a payment date of November 15, 2010. No other material subsequent events have occurred since September 30, 2010 that requires recognition or disclosure in these financial statements. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 2010. THIS FILING, INCLUDING BUT NOT LIMITED TO "MANAGEMENT'S DISCUSSION AND ANALYSIS", CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED," "BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL," "COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD- LOOKING STATEMENTS AS A RESULT OF SEVERAL FACTORS, INCLUDING THE RISKS FACED BY US AS DESCRIBED BELOW AND ELSEWHERE IN THIS FORM 10-Q AS WELL AS IN OUR FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 2010. IN LIGHT OF THESE RISKS AND UNCERTAINTIES THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-Q WILL OCCUR. WE HAVE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE, EXCEPT AS REQUIRED BY FEDERAL SECURITIES LAWS AND WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. WE MAY NOT UPDATE THESE FORWARD-LOOKING STATEMENTS, EVEN THOUGH OUR SITUATION MAY CHANGE IN THE FUTURE. OVERVIEW The following discussion and analysis should be read in conjunction with the financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management. Our immediate priority is to either secure suitable financing to continue with our existing business or change our business and conclude a merger, acquisition or combination with a business prospect. This is critical to insure our survival and to preserve our shareholder's investment in our common shares. At this stage in our operations, we believe either course is acceptable, as our operations have not been profitable and our Company will fail without further significant financing. We currently have $80,414 in cash. Concurrent with our search for additional financing for our existing business, we are also actively seeking business opportunities with established business entities for the merger of a target business with our Company. RESULTS OF OPERATIONS Our Company posted losses of $135,122 from inception of the Company, January 16, 2009, through September 30, 2010. The principal components of our losses for the three and nine months ended September 30, 2010 were related to the preparation of our Annual and Quarterly Reports, legal and audit fees. During the period from January 16, 2009 through September 30, 2009, the loss of $7,789 was primarily related to the start up expenses, legal and administrative fees. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2010 we had cash on hand of $80,414. Because of a minimum amount of cash, and not being able to generate any revenue from our business we need to raise additional funds for the development of our business and to respond to unanticipated requirements or expenses, or to fund the identification, evaluation and combination or merger with a suitable business opportunity. 11 Effective April 22, 2010, the Company and an investor signed a subscription agreement to purchase a total of 4,800,000 shares of the Company's common stock at $0.04167 per share plus 180,000,000 warrants to purchase shares of the Company's common stock at an exercise price of $0.0833 per share for a total amount of $200,000. During August 2010, the Company and an investor signed a subscription agreement to purchase a total of 3,000,000 shares of the Company's common stock at $0.04167 per share for a total amount of $125,000, which has been recorded as Common Stock Payable in the accompanying balance sheet. The Company issued the 3,000,000 shares of common stock during November 2010. The Financial Industry Regulatory Authority (FINRA) has approved the Company's share dividend of 5 additional shares of common stock for each share of common stock held by each shareholder of record as of the close of business November 12, 2010 with a payment date of November 15, 2010. We do not currently have any arrangements for financing and we can provide no assurance to investors we will be able to find such financing. There can be no assurance that additional financing will be available to us, or on terms that are acceptable. Consequently, we may not be able to proceed with our intended business plans and our business will then likely fail. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three and nine months ended September 30, 2010, the Company incurred a net loss of $43,652 and $72,488, respectively, and has incurred significant losses since inception. As of September 30, 2010, the Company has an accumulated deficit of $135,122. The Company used $65,662 and $22,332 of cash from operations during the nine months ended September 30, 2010 and 2009, respectively, which was funded by proceeds from the sale of common stock. Financing activities provided $120,822 and $22,500 from the issuance of common stock and advanced from related parties, net of repayments, for the nine months ended September 30, 2010 and 2009, respectively. There is no assurance that such financing will be available in the future. In view of these matters, there is substantial doubt that the Company will continue as a going concern. The Company is currently pursuing the following sources of short and long-term working capital. The Company's ability to continue as a going concern is highly dependent on our ability to obtain additional sources of cash flow sufficient to fund our working capital requirements. However, there can be no assurance that the Company will be successful in its efforts to secure such cash flow. Any failure by us to timely procure additional financing or investment adequate to fund our ongoing operations, including planned product development initiatives and commercialization efforts, will have material adverse consequences on our financial condition, results of operations and cash flows. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. ECONOMY AND INFLATION Except as disclosed herein, we have not experienced any significant cancellation of orders due to the downturn in the economy and only a small number of customers requested delays in delivery or production of orders in process. Our management believes that inflation has not had a material effect on our results of operations. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures. 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLSOURES ABOUT MARKET RISK Not applicable. ITEM 4T. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer (collectively the "Certifying Officers") maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. The Certifying Officers have concluded that the disclosure controls and procedures are effective at the "reasonable assurance" level. Under the supervision and with the participation of management, as of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Furthermore, the Certifying Officers concluded that our disclosure controls and procedures in place are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported on a timely basis in accordance with applicable Commission rules and regulations; and (ii) accumulated and communicated to our management, including our Certifying Officers and other persons that perform similar functions, if any, to allow us to make timely decisions regarding required disclosure in our periodic filings. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING No change in the Company's internal control over financial reporting occurred during the nine months ended September 30, 2010, that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The status of our legal proceedings, as disclosed in our Annual Report remains unchanged. The Company may be party to lawsuits from time to time arising in the ordinary course of its business. The Company provides for costs relating to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company's future results of operations cannot be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of such matters. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the three months ended September 30, 2010, the Company did not issue any unregistered equity. ITEM 3. DEFAULT UPON SENIOR SECURITIES There have been no defaults in any material payments during the covered period. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the three months ended September 30, 2010, the Company did not submit any matters to a vote of its security holders. 13 ITEM 5. OTHER INFORMATION The Company does not have any other material information to report with respect to the three months ended September 30, 2010. ITEM 6. EXHIBITS No. Exhibit --- ------- 3.1 Articles of Incorporation* 3.2 By Laws* 31.1 Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ---------- * Incorporated by reference to the exhibits included with the Registration Statement on Form S-1, File No. 333-158721, as filed December 8, 2009. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TOPAZ RESOURCES, INC. (Registrant) /s/ EDWARD J. MUNDEN Dated: November 18, 2010 ------------------------------------------- Edward J. Munden President and Chief Executive Officer (Principal Executive Officer) Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 15

Topaz Resources, Inc. 10-Q