CelLynx 10-Q 2012 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549  

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period Ended March 31, 2012
OR
o	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. 000-27147

CelLynxGroup,Inc.

(Exact name of small business issuer as specified in its charter)

NEVADA (State or other jurisdiction of incorporation or organization) 95-4705831 (I.R.S. Employer Identification No.)

4014 Calle Isabella, San Clemente, California 92672

(Address of principal executive offices)

(949)305-5290

(Registrant’s telephone number, including area code)  

Indicatebycheck markwhetherthe registrant (1) has filed allreports required to be filed bysection13or15(d) ofthe Securities ExchangeAct of 1934 duringthe preceding 12months (or for suchshorter period thattheregistrantwas required tofilesuchreports), and (2)hasbeensubjecttosuch filingrequirements forthepast90 days.Yes xNo o

Indicate bycheck mark whether the registranthas submitted electronicallyand posted onitscorporateWebsite,if any,everyInteractive DataFile requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or forsuchshorter period thatthe registrantwas required tosubmitand postsuchfiles).Yes xNo o

Indicatebycheck markwhetherthe registrant is alarge accelerated filer, anaccelerated filer, anon-accelerated filer, orasmaller reportingcompany. See thedefinitions of“largeaccelerated filer,”“accelerated filer”and “smaller reportingcompany” inRule12b-2oftheExchangeAct.(Check one):

Large Accelerated filer  o           Non-Accelerated Filer o 

Accelerated Filer  o        Smaller Reporting Companyx  

Indicateby check markwhethertheregistrantis ashellcompany(asdefined by Rule12b-2oftheExchangeAct).Yes oNox

APPLICABLE ONLY TOCORPORATEISSUERS:

Indicatethenumberofsharesoutstanding ofeachissuer'sclasses ofcommonstock,asofthelatestpracticable date: The total shares outstanding for this company is 1,031,634,657 shares outstanding as of May 8, 2012.

1

TABLE OF CONTENTS

PARTI	FINANCIALINFORMATION	3
Item1.	FinancialStatements	3
Item2.	Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations	24
Item3.	QuantitativeandQualitativeDisclosuresAbout Market Risk	33
Item4.	Controls andProcedures	33
PARTII	OTHER INFORMATION	34
Item1.	Legal Proceedings	34
Item2.	UnregisteredSales ofEquity Securities andUse ofProceeds	34
Item3.	DefaultsUponSenior Securities	34
Item4.	(Removed andReserved)	34
Item5.	Other Information	34
Item6.	Exhibits	35

2

PartI–FINANCIAL INFORMATION ITEM1. FINANCIAL STATEMENTS

CELLYNX GROUP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2012 AND SEPTEMBER 30, 2011
	March 31,		September 30,
	2012		2011
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	3,246	$	178
Accounts receivable		-		-
Other receivable				1,200,651
Investment in 5Barz - current		400,000		-
Prepaids and other current assets		-		20,090
TOTAL CURRENT ASSETS		403,246		1,220,919
EQUIPMENT, net		2,113		2,900
INTANGIBLE ASSETS, net		44,718		53,967
Investment in 5Barz - long termt		1,400,000		-
TOTAL ASSETS	$	1,850,076	$	1,277,786
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,752,628	$	1,622,307
Accrued interest		58,808		51,692
Accrued derivative liabilities				102,286
Deferred gain				1,200,651
Line of credit  net of debt discount of $126,861		459,664		241,038
Convertible promissory notes, net of debt discount of $20,180 and $29,533
as of March 31, 2012 and September 30, 2011, respectively		403,076		379,823
TOTAL CURRENT LIABILITIES		2,674,177		3,597,797
BCF liability		5,856,633
Warrant liability		3,442
TOTAL LIABILITIES		8,534,252		3,597,797
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Series A preferred stock, $0.001 par value; 100,000,000 shares authorized;
nil shares issued and outstanding		-		-
Common stock, $0.001 par value, 1000,000,000 shares authorized;  690,165,000 and 195,991,082
shares issued and outstanding as of March 31, 2012 and September 30, 2011, respectively		690,165		195,991
Additional paid-in capital		13,823,314		14,113,270
Accumulated deficit		(21,197,656)		(16,629,272)
Total stockholders' deficit	$	(6,684,177)	$	(2,320,011)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		1,850,076		1,277,786

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

3

CELLYNX GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended				Six Months Ended
	March 31, 2012		March 31, 2011		March 31, 2012		March 31, 2011
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net Revenue	$	-	$	-	$	-	$	-
Cost of Revenue		-		-		-		-
Gross profit		-		-		-		-
Operating expenses
Research and development		-		-		-		-
General and administrative		218,109		473,913		373,238		1,129,684
Total operating expenses		218,109		473,913		373,238		1,129,684
Loss from operations	$	(218,109)	$	(473,913)	$	(373,238)		(1,129,684)
Non-operating income (expense):
Interest and financing costs, net		(51,291)		(25,146)		(92,131)		(49,991)
Change in fair value of accrued beneficial conversion liability,		(5,621,028)		(521)		(5,595,012)		(652)
Change in fair value of accrued warrant liability		0		(82,948)		2,718		(160,848)
Gain on settlement of debt		3,766				3,766
Gain on sale of intangible assets		1,482,563		-		1,485,513		-
Total non-operating income (expense), net		(4,185,990)		(108,615)		(4,195,146)		(211,491)
Net loss	$	(4,404,099)	$	(582,528)	$	(4,568,384)	$	(1,341,175)
Weighted average shares outstanding - Basic and Diluted:
Basic and Diluted		211,946,779		186,667,298		267,598,489		180,380,815
Loss per share - Basic and Diluted:
Basic and Diluted	$	(0.02)	$	(0.00)	$	(0.02)	$	(0.01)

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

4

CELLYNX GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2012 AND 2011
	2012		2011
	(unaudited)		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,568,384)	$	(1,341,175)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,571		2,436
Warrants issued for services		-
Stock issued for services		-		228,015
Note payable issued for services		50,000
Stock compensation expense for options issued to employees and consultants		79,618		198,996
Change in fair value of accrued beneficial conversion liability		5,595,012		652
Change in fair value of accrued warrant liability		(2,718)		160,848
Amortization of debt discount		92,131		42,761
Gain on sale of intangibles		(1,485,513)
Gain on settlement of debt		(3,766)
Changes in operating assets and liabilities:
Change in accounts receivable		-		1,925
Change in inventory		-
Change in other assets		20,090		165,411
Change in accounts payable, accrued expenses and accrued interest		119,921		91,120
Net cash used in operating activities		(99,038)		(449,011)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangible assets				(1,090)
Net cash used in investing activities		-		(1,090)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of shareholders convertible notes
Payments of  convertible notes
Proceeds from issuance of convertible notes		15,000		132,500
Proceeds from issuance of common stock
Proceeds from advances for asset purchase agreement		-		260,434
Proceeds from line of credit		87,106		60,000
Net cash provided by financing activities		102,106		452,934
NET DECREASE IN CASH		3,068		2,833
CASH, BEGINNING OF PERIOD		178		6,601
CASH, END OF PERIOD	$	3,246	$	9,434
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	-	$	0
Cash paid for income taxes	$	-	$	0
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING:
Conversion of convertible note payable to common stock	$	52,700	$	55,000

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

5

CELLYNXGROUP, INCANDSUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Note 1 – Organization and Basis of Presentation

The unaudited consolidated financial statements have been prepared by CelLynx Group, Inc., formerly known as NorPac Technologies, Inc. (hereinafter referred to as “CelLynx” or the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K. The results for the three and six months ended March 31, 2012, are not necessarily indicative of the results to be expected for the full year ending September 30, 2012.

Organization and Line of Business

CelLynx Group, Inc. (the “Company”)was originally incorporated under the laws of the State of Minnesota on April 1, 1998.

On July 23, 2008, prior to the closing of a Share Exchange Agreement (described below), the Company entered into a Regulation S Subscription Agreement pursuant towhichthe Company issued10,500,000 sharesofitscommon stock and warrants topurchase 10,500,000 sharesof common stock at an exercise price of $0.20 per share to non-U.S. persons for an aggregate purchase price of $1,575,000.

On July 24, 2008, the Company entered into a Share Exchange Agreement, as amended, with CelLynx, Inc., a California corporation ("CelLynx- California"), and twenty-three CelLynx-California shareholders who, immediately prior to the closing of the transaction, collectively held 100% of CelLynx-California’sissued and outstandingshares of capital stock. As a result, the CelLynx-California shareholders were to receive 77,970,956shares oftheCompany’s common stockin exchange for 100%, or 61,983,580 shares, of CelLynx-California’s commonstock. However, the Company had only 41,402,110 authorized, unissued and unreserved sharesofcommon stock available, after takinginto account the shares of common stock issued in the July 23, 2008, financing described above. Pursuant to the Share Exchange Agreement, in the event that there was aninsufficient numberofauthorized but unissued and unreserved common stock tocomplete the transaction, the Company was to issue all of the available authorized but unissued and unreserved common stock to the CelLynx-California shareholders in a pro rata manner and then establish a class of SeriesA Convertible PreferredStock (“Series A Preferred Stock”)and issuethat number of sharesof SeriesA Preferred Stocksuch that the common stockunderlying the SeriesAPreferred Stockplus the common stockactually issuedtothe CelLynx- California shareholders would equal thetotalnumberofshares ofcommonstock dueto theCelLynx-California shareholders underthe Share Exchange Agreement. As aresult,the Company issuedtothe CelLynx-California shareholders anaggregateof32,454,922 shares ofcommon stockand 45,516,034 sharesof SeriesAPreferred Stock.The SeriesAPreferred Stockautomatically wouldconvert into common stockon a one-to-one ratio upon theauthorized capitalstock oftheCompany being increased toincludenotlessthan 150,000,000 shares ofcommon stock.

OnNovember 7, 2008, theCompanyamendedtheArticlesof Incorporation to increasethenumber of authorized shares to 400,000,000 and converted the 45,516,034 shares of Series A Preferred Stock into 45,516,034 shares of the Company’s common stock.

On March 23, 2012, theCompanyamendedtheArticlesof Incorporation to increasethenumber of authorized shares to 1,000,000,000. On May 7, 2012 the CompanyamendedtheArticlesof Incorporation to increasethenumber of authorized shares authorized shares to 2,000,000,000.

6

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

The exchange ofshareswith CelLynx-California wasaccounted forasa reverse acquisition under thepurchasemethodofaccounting because the shareholders of CelLynx-California obtained control of the Company. On August 5, 2008,NorPac Technologies, Inc.changed its nameto CelLynx Group, Inc. Accordingly the merger of CelLynx-California into the Company was recorded as a recapitalization of CelLynx-California, with CelLynx-California being treatedas the continuing entity.The historicalfinancialstatements presentedare the financialstatements of CelLynx-California. TheShare Exchange Agreement hasbeen treated asa recapitalization andnotasa business combination; therefore, nopro formainformationisdisclosed. At the dateof the reversemergertransaction,the net assets of the legal acquirerCelLynxGroup,Inc.were$1,248,748.

Asaresult ofthereversemergertransactions described above,thehistorical financial statements presented arethose ofCelLynx-California, theoperatingentity. EachCelLynx-California shareholder received 1.2579292sharesof stockin the Companyfor eachshareof CelLynx- California capitalstock.All sharesand per-shareinformation have been retroactively restatedforallperiodspresented toreflect thereverse merger transaction.

On October 27, 2008, the Board of Directors approved a change of the Company’s fiscal year end from June 30 to September 30 to correspond to the fiscal year of CelLynx-California. The fiscal year end change was effective for the year ended September 30, 2008.

The Company develops and manufactures cellular network extenders which enable users to obtain stronger signals and better reception.

GoingConcernandExiting Development Stage

These consolidated financialstatements have been preparedona going concernbasis, which impliestheCompany willcontinuetorealize its assets and discharge its liabilities in the normal course of business. The Company is unlikely to pay dividends or generate significant earnings in theimmediate orforeseeable future.Thecontinuation oftheCompany asa going concernisdependent upon thecontinued financialsupport from itsstockholders, theability oftheCompanyto obtain necessaryequity anddebtfinancingto continueoperations andto generate sustainablerevenue. There isnoguarantee that the Company will beabletoraiseadequate equity ordebtfinancing orgenerate profitable operations. Forthe threeand six months ended March 31, 2012, theCompany incurred a netlossof$4,404,099 and $4,568,384, respectively. AsofMarch 31, 2012, theCompany had an accumulateddeficit of $21,197,656.Further, as of March 31, 2012 and September 30, 2011, the Company had negative working capital of $2,270,931 and $2,376,878, respectively, and had negativecash flows from operations of $99,038 and $449,011for the six months ended March 31, 2012 and2011, respectively. These consolidated financialstatementsdo notinclude anyadjustments to therecoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.Management intends toraise additionalfunds through equity ordebt financingand togeneratecash from the sale ofthe Company’s products and from license fees as further described below.

TheCompany wasinthedevelopment stage throughJune 30,2009. InJuly2009, theCompany receivedthefirst220units oftheCompany’s cellularnetworkextender, The Road Warrior, from itsmanufacturer. AsofJuly 2009, theCompany was fully operational and assuch was longer considered a developmentstage company.During the period that the Companywas considered a developmentstage company,the Company incurred accumulated losses of approximately $10,948,625.

7

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Note 2–Summary ofSignificantAccountingPolicies

BasisofPresentation

The accompanying consolidated financial statements have been prepared in accordance withaccounting principlesgenerally acceptedintheUnited States ofAmerica. The accompanying consolidated financial statements include the accounts ofCelLynx Group,Inc., and its 100%wholly-owned subsidiary, CelLynx, Inc. Allintercompanyaccountsand transactions havebeeneliminated inconsolidation.

Cash

Cash and cash equivalents include cash in hand and cash in time deposits, certificates ofdeposit and all highly liquiddebt instruments withoriginal maturitiesofthree months orless.

Inventory

Inventory consists of finished goods ready for sale and is valued at the lower of cost (determined onafirst-in,first-out basis)ormarket. The Company reviews its reserves for slowmoving and obsolete inventories. As of September 30, 2011, the Company wrote off its entire inventory balance.

Accounts Receivable

The Company maintains reserves for potential credit losses foraccountsreceivable. Management reviewsthecomposition ofaccountsreceivable and analyzes historical bad debts,customerconcentrations, customercreditworthiness, currenteconomic trendsand changesincustomerpaymentpatterns to evaluate the adequacy ofthesereserves. Reserves are recorded based onthe Company’shistorical collection history. Receivablesarewrittenoff when they aredetermined tobeuncollectible. AsofMarch 31,2012 and September 30,2011,theCompany determined thatallowance forbad debt was notnecessary.

Use ofEstimates

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 disclosures ofcontingent assetsand liabilities at the dateofthe financial statements and the reported amounts ofrevenues and expenses duringthe reportingperiod.Actualresultscould differfrom thoseestimates.

Concentration of Credit Risk

Cash includes deposits in accounts maintained at financial institutions. Certain financialinstruments, whichsubjecttheCompany toconcentration of credit risk,consist ofcash. The Company maintains balancesat financialinstitutions which, from timetotime, may exceed Federal DepositInsurance Corporation insured limits for the bankslocated in the UnitedStates. AsofMarch 31, 2012 and September 30, 2011, the Company didnothaveany deposits inexcessoffederally-insured limits. Todate, theCompany hasnotexperiencedany losses insuchaccounts.

8

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Equipment

Equipment is recorded at historical cost and is depreciated using the straight-line method over their estimated usefullives. The usefullifeand depreciation methodare reviewedperiodically to ensurethatthe depreciation methodand period are consistent with theanticipated pattern offuture economic benefits. Expenditures for maintenance and repairs are charged to operations as incurred whilerenewals and betterments arecapitalized. Gainsand losses on disposalsareincludedintheresultsofoperations.The usefullifeoftheequipment is beingdepreciatedoverthree years.

Intangible Assets

Acquired patents, licensing rights and trademarks are capitalized at their acquisition cost orfairvalue. The legal costs,patentregistrationfees, and models and drawings required for filing patent applications are capitalized if they relatetocommerciallyviabletechnologies.Commercially viable technologies are those technologies thatare projected to generate future positive cashflowsinthenearterm. Legalcosts associated withapplications thatare notdetermined to be commercially viableareexpensed asincurred.Allresearch and development costs incurred indevelopingthepatentable ideaare expensed asincurred. Legal fees from the costs incurred in successful defense to theextentofanevident increaseinthevalueofthepatents arecapitalized.

Capitalized costs for patentsare amortized onastraight-line basis over the remaining twenty-year legal life ofeach patentafter the costs havebeen incurred. Once each patentortrademark is issued,capitalized costs are amortized onastraight-linebasis overaperiod nottoexceed 20 yearsand 10 years,respectively. The licensingrightis amortized on astraight-linebasis overaperiod of10 years.

Impairment orDisposalofLong- lived Assets

The Company applies the provisions of Accounting Standards Codification (“ASC”) Topic360,“Property,Plant,and Equipment,” whichaddresses financial accounting and reportingfor the impairmentordisposal oflong-lived assets. ASC 360requiresimpairmentlosses to be recordedon long - lived assetsused in operations when indicators ofimpairmentare present and the undiscounted cash flows estimated tobegenerated by thoseassets are lessthan the assets’ carrying amounts. Inthatevent, aloss is recognized basedon theamountby whichthecarrying amountexceeds thefairvalue ofthe long-lived assets. Lossonlong-lived assetsto bedisposedofis determined inasimilar manner, exceptthatfairvalues arereduced forthecost ofdisposal. Basedonits review, the Company believes thatasofMarch 31, 2012 and September 30, 2011, there was nosignificant impairmentofits long-lived assets.

Revenue Recognition

The Company's revenue recognition policies are in compliance with ASC Topic605,“Revenue Recognition.”Revenue is recognized at thedateof shipmentto customers, and when the price is fixedordeterminable, the delivery is completed, noothersignificant obligations oftheCompany exist and collectability is reasonably assured.

The gain on sale of intangibles is fully reflected as income in the period of sale as the sale proceeds were fully paid at the date of sale, March 29, 2012.

9

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Fair Value of Financial Instruments

ASC Topic820,“FairValue Measurements and Disclosures,” requiresdisclosure ofthefair valueoffinancialinstruments held by theCompany. ASC Topic825,“Financial Instruments,” defines fairvalue, and establishesathree-level valuation hierarchyfordisclosuresoffairvaluemeasurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balancesheetsforcash, accounts receivable, accounts payable, and other current liabilities each qualify as financial instruments and are a reasonable estimate oftheirfair values because of the short period of time between the origination of such instruments and their expected realization and theircurrentmarket rateof interest. The three levelsofthevaluation hierarchyaredefined asfollows:

●	Level1	inputs tothevaluation methodologyarequotedprices foridenticalassetsorliabilities inactive markets.
●	Level2	inputs tothevaluation methodologyinclude quotedprices forsimilar assetsand liabilities inactive markets, and inputsthatare observable fortheasset orliability, eitherdirectlyorindirectly, forsubstantially thefulltermofthefinancialinstrument.
●	Level3	inputs tothevaluation methodologyareunobservable and significant tothefair valuemeasurement.

The Company’swarrantliability is carried at fairvaluetotaling $3,442 and $6,160,asofMarch 31, 2012 and September 30,2011,respectively. The Company’s conversion option liability is carried at fair value totaling $5,856,633 and $96,126 as of March 31, 2012 and September 30,2011, respectively. The Company used Level 2 inputs for its valuation methodology for the warrantliability and conversion option liability astheirfair values were determined by usingtheBlack-Scholes option pricingmodelusingthefollowing assumptions:

March 31, 2012
Annual dividend yield	—
Expected life (years)	0.75 – 3.70
Risk-free interest rate	0.01% - 0.81%
Expected volatility	145%

Expected volatilityisbasedprimarily on historical volatility.Historical volatilitywascomputed using dailypricingobservations forrecent periodsthat correspond to the term ofthe warrants and conversion options.Webelieve this methodproducesanestimate thatis representative ofourexpectations offuture volatility over the expected term ofthesewarrants and conversion options.We haveno reasontobelieve future volatilityovertheexpected remaining life ofthesewarrantsis likelytodiffermaterially from historical volatility. The expected lifeis basedon theremaining termofthewarrants and conversion options.The risk-free interest rateis based onU.S.Treasury securitieswithmaturity termssimilar totheexpected remaining termof thewarrantsand conversion options.

At March 31, 2012,theCompany identified thefollowing assetsand liabilities thatarerequired tobepresented on thebalancesheetat fairvalue:

10

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

		Fair Value    As of March 31, 2012	Fair Value Measurements at March 31,2012 Using Fair Value Hierarchy
Liabilities			Level 1		Level 2	Level 3
Warrant liability	$	3,442		$	3,442
Conversion option liability	$	5,856,633		$	5,856,633
Total accrued derivative liabilities	$	5,860,075		$	5,860,075

For the three and six months ended March 31, 2012, the Company recognized a gain of$0 and $2,718 forthechangeinthefairvalueof accrued warrant liability and the Company recognized a gain of $26,016 and a loss of $5,621,028 for the change in fair value of accruedbeneficialconversion liability, respectively.

The Company didnotidentify any othernon-recurring assetsand liabilities thatarerequired tobepresented intheconsolidated balancesheetsat fair valueinaccordance withASC 825.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” ASC 740requiresacompanytousetheasset and liability method of accounting for income taxes, whereby deferredtax assets are recognized fordeductibletemporary differences, and deferred tax liabilities are recognizedfor taxable temporarydifferences. Temporary differences are the differences betweenthe reported amounts ofassetsand liabilities and their tax bases. Deferred tax assetsare reduced by avaluation allowance when, intheopinion ofmanagement, itis morelikelythan not thatsome portion, orallof,the deferred taxassetswillnotberealized. Deferred taxassetsand liabilities areadjusted fortheeffects ofchangesintax lawsand rateson thedateofenactment.

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that thetaxpositionwouldbesustained inatax examination, with a tax examination being presumed to occur. The amount recognized is thelargestamountoftaxbenefit thatis greater than 50% likely ofbeing realized onexamination. For tax positions notmeetingthe “morelikelythan not” test,no taxbenefit is recorded. The adoptionhad no effect onthe Company’s consolidated financial statements. Penalties and interest incurred related to underpayment ofincome taxareclassifiedas income tax expensein the period incurred. No significant penalties orinterest relating to income taxeshavebeenincurred duringthethree and six months ended March 31,2012 and 2011.

11

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Basic and Diluted Net Loss Per Share

The Company reports loss per share in accordance with the ASC Topic 260, “Earnings Per Share.”Basic earnings-per-share is based upon the weightedaveragenumberofcommonsharesoutstanding. Dilutedearnings-per-shareis basedon theassumptionthatall dilutive convertible sharesand stock warrants were converted orexercised. Dilutednet loss-per-share is computed bydividing the net loss for the period bythe weightedaverage number ofcommon shares outstanding duringthe period,plusthe potential dilutive effect ofcommon sharesissuableupon exerciseorconversion of outstanding stock options and warrants duringthe period. Duetothenetloss forthethree and six months ended March 31,2012 and 2011, none ofthe potential dilutive securities havebeenincluded in the calculation ofdilutive earningpersharebecause theireffect wouldbeanti-dilutive.

Stock - Based Compensation

The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – StockCompensation.” ASC 718requires companies to measure compensation cost for stock-based employee compensation at fair value at the grantdateand recognize the expenseoverthe employee’s requisite service period. Under ASC 718, the Company’s volatility is based onthe historical volatility of the Company’s stockorthe expected volatility of similar companies. The expected life assumption is primarily basedon historical exercisepatterns and employee post-vesting terminationbehavior. The risk-free interest ratefor the expected term ofthe option is based onthe U.S. Treasury yield curveineffect at thetimeof grant.

The Company uses the Black-Scholes option-pricing model which was developed for use in estimating the fair value ofoptions.Option-pricing models requirethe input ofhighly complex and subjective variables including theexpected lifeofoptions granted and theCompany’sexpected stock price volatility over aperiod equal to orgreater than the expected life ofthe options.Because changesin the subjective assumptions canmaterially affect the estimated valueoftheCompany’semployee stockoptions,itis management’s opinion thattheBlack-Scholes option-pricing modelmay not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair valueofemployee stockoptions is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value observedinawilling buyer/sellermarket transaction.

The Company recognizes in the statement of operations the grant-date fair value of stock options and otherequity-based compensation issuedto employees and non-employees.

Recent AccountingPronouncements

In December 2011, the FASB issued guidance on offsetting (netting) assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The new guidance is effective for annual periods beginning after January 1, 2013.

In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to

12

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is no less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted.

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance is effective for annual periods beginning after December 15, 2011. In December 2011, the FASB issued a deferral of certain portion of this guidance.

In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counter-party credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance is effective for annual periods beginning after December 15, 2011.

Note 3–Equipment

Equipment consisted ofthefollowing at March 31,2012 and September 30,2011:

	March 31, 2012		September 30, 2011
Office furniture and equipment	$	9,879	$	9,879
Computer equipment				8,930
	$	9,879	$	18,809
Accumulated depreciation		(7,766)		(15,909)
Equipment, net	$	2,113	$	2,900

The Company recorded depreciation expense of $1,045 and $1,405 for the three and six months ended March 31, 2012, respectively, and $208 and $579 for the three and six months ended March 31, 2010, respectively.

13

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Note 4 – Intangible Assets

The Company incurred legal costs inacquiringpatentand trademark rights. These costs areprojected togeneratefuture positive cashflowsinthenear term and havebeencapitalized tointangibleassetsintheperiod incurred.Onceeachpatentortrademark is issued,capitalized costs areamortized on a straight-linebasis overaperiod nottoexceed 20 yearsand 10 years,respectively.

Intangible assetsconsist ofthefollowing:

	March 31, 2012		September 30, 2011
Patents	$	42,318	$	49,586
Trademarks		4,994		6,243
Licensingrights		4,214		4,214
		51,526		60,043
Accumulated Amortization		(6,809)		(6,076)
Intangibles, net	$	44,717	$	53,967

Amortization on the sale of intangibles will be calculated from the date that the patents are issued and that the Company commences its initial substantive revenue based upon those intangible assets.

Note 5–Convertible PromissoryNotes

Convertible PromissoryNote Issued February22,2011

On February 22, 2011, the Company entered into aSecurities Purchase Agreement (the “SPA”)withan unrelated entity (the “Holder”), inconnection withthepurchase by the Holder ofaConvertible PromissoryNote (the “February 2011Note”).

Pursuant to the February 2012 Note, the Holder loaned to the Company the principal amount of$40,000. The February2011 Note bears interest at arateof8%, and is due on November 17,2011.The Holder may convert principal and unpaidinterest on thenote into sharesoftheCompany’s common stock,with the number ofshares issuabledetermined bydividing theamounttobeconvertedby theconversion price whichis equalto63% of the average of the three lowest tradingprices of the Company’scommon stockover the ten tradingdayspriortothe date of the conversion. The Company recordeda$23,492 debt discount related tothebeneficialconversion feature. The loan was fully repaid on November 17, 2011.

Convertible PromissoryNote Issued March10,2011

On March 10, 2011, the Company entered into a Securities Purchase Agreement (the “SPA”)withan unrelated entity (the “Holder”), inconnection withthepurchase by the Holder ofaConvertible PromissoryNote (the “March 2011Note”).

14

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Pursuant to theMarch2011 Note,the Holder loanedtotheCompany theprincipal amountof$42,500. The March2011 Note bearsinterest at arateof8%, and was due onDecember 7, 2011. Subject to a revision of that note agreement dated January 6, 2012, the Holder may convertprincipal and unpaidinterest onthenote into sharesoftheCompany’scommon stock, with the number of shares issuable determined as the lesser of a fixed rate of $0.00015 per share or a variable rate calculated bydividing the amount to be convertedby theconversion price whichis equalto25%ofthe average of the three lowest trading prices of the Company’s common stock over the ten trading days prior tothedateoftheconversion. The Holder is prohibited under the March 2011 Note from converting amounts if principal and interest thatwouldresultinThe Holder receiving shares,which when combined with shares ofthe Company’scommon stockheld by The Holder,wouldresultinThe Holder holding morethan 4.99%oftheCompany’sthen- outstanding common stock. No registration rights were granted in connection with the purchase of theMarch2011 Note,and thesharesof commonstock,if any,issuedupon conversion,will berestricted securitiesasdefined pursuanttothetermsofRule144. The loan was repaid in full via conversion by April 12, 2012.

Convertible PromissoryNote Issued May18,2011

On May 18, 2011, the Company entered into a Securities Purchase Agreement (the “SPA”) with an unrelated holder, inconnection withthepurchase by Holder ofaConvertible PromissoryNote in the principle amount of $32,500. The May2011 Note bearsinterest at a rate of 8%, and is due onFebruary 23, 2012. Pursuant to the terms of a January 6, 2012 amendment agreement between the Company and holder, the note may be converted into sharesoftheCompany’scommon stock, with the number of shares issuable determined to be the lesser of a fixed rate of $0.00015 per share or a variable rate calculated bydividing the amount to be convertedby theconversion price whichis equalto25%ofthe average of the three lowest trading prices of the Company’s common stock over the ten trading days prior tothedateoftheconversion. Asher is prohibited under the Asher May 2011 Note from converting amounts if principal and interest thatwouldresultinAsher receiving shares,whichwhen combined with shares of the Company’s common stock held byAsher, would result in Asher holding more than 4.99% of theCompany’sthen- outstanding common stock. No registration rights were granted in connection with the purchase of the Asher May 2011 Note, and thesharesof commonstock,if any,issuedupon conversion,will berestricted securitiesasdefined pursuanttothetermsofRule144. At the date of issuance of this report, $1,000 plus interest remains outstanding on this note.

Convertible PromissoryNote Issued January 10,2012

On January 10, 2012, the Company entered into a Securities Purchase Agreement (the “SPA”) with an unrelated holder, inconnection withthepurchase by Holder ofaConvertible PromissoryNote in the principle amount of $15,000. The January 2012 note bearsinterest at a rate of 8%, and is due on October 10, 2012. Pursuant to the terms of a January 6, 2012 amendment agreement between the Company and holder, the note may be converted into sharesoftheCompany’scommon stock, with the number of shares issuable determined to be the lesser of a fixed rate of $0.00015 per share or a variable rate calculated bydividing the amount to be convertedby theconversion price whichis equalto25%ofthe average of the three lowest trading prices of the Company’s common stock over the ten trading days prior tothedateoftheconversion. Asher is prohibited under the Asher May 2011 Note from converting amounts if principal and interest thatwouldresultinAsher receiving shares,whichwhen combined with shares of the Company’s common stock held byAsher, would result in Asher holding more than 4.99% of theCompany’sthen- outstanding common stock. No registration rights were granted in connection with the purchase of the Asher May 2011 Note, and thesharesof commonstock,if any,issuedupon conversion,will berestricted securitiesasdefined pursuanttothetermsofRule144.

Pursuant to the terms ofthe Note, while there remains any unpaidamounts owing onthe Note, the Company may notincuradditional debt without Holder’s approval except for (i) debt that was owed or committed as of the date of the SPA and of which the Company had informedholder;(ii) indebtedness totrade creditorsorfinancialinstitutions intheordinary courseofbusiness;(c)debt whichintheaggregate doesnotexceed $250,000; or (d)debt theproceeds ofwhichareusedtorepaytheNote.

15

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

The Company has the right to pre-pay the Note during the first 120 days following the date of the Note bypaying to Holder 150% ofthethen- outstanding principal amountand any accruedand unpaidinterest,penalties, orotheramounts owing.

Pursuant to the SPA, the Company agreed to grantto Asher arightoffirstrefusal forany subsequenttransactions occurring duringthetwelvemonth period following the Closing Date, which was defined as May 23, 2011. The right of first refusal does not apply toany transactions inexcessof $250,000.

Yaretz Convertible PromissoryNote Issued April5,2011 –RelatedParty

On April 5, 2011, the Company entered into a Securities Purchase Agreement (the “SPA”)withone ofitsdirectors, Dwayne Yaretz (“Yaretz”), in connection withthepurchase by Yaretz ofaConvertible PromissoryNote (the “YaretzNote”).

Pursuant to the Yaretz Note, Yaretz loaned to the Company the principal amountof$50,000. The Yaretz Note bearsinterest at arateof8%,and is due on January 5,2012. Yaretzmayconvert principal and unpaidintereston thenoteintosharesof theCompany’s common stock,with thenumber of shares issuabledetermined bydividing the amountto be converted bythe conversion price whichis equal to 63% ofthe averageofthethree lowest trading prices of the Company’s common stock over the ten trading days prior to thedateoftheconversion. Yaretz is prohibited undertheYaretz Note from converting amounts if principal and interest that would result in Yaretz receiving shares, which when combined withsharesofthe Company’scommon stock held byYaretz,would result in Yaretz holding morethan 4.99% ofthe Company’sthen-outstanding common stock. No registration rights were grantedin connection with the purchase ofthe Yaretz Note, and thesharesofcommonstock,if any,issuedupon conversion, will berestricted securitiesasdefined pursuanttothetermsofRule144.

Pursuant to the terms ofthe Yaretz Note, while there remains any unpaidamounts owing onthe Yaretz Note,theCompany may notincuradditional debt without Yaretz’s approval except for (i) debt that was owed or committed as ofthedateoftheSPAand ofwhichtheCompany had informed Yaretz; (ii) indebtedness to trade creditors orfinancial institutions in theordinary courseofbusiness;(c)debt whichintheaggregate doesnotexceed $250,000; or(d)debt theproceeds ofwhichareusedtorepaytheYaretz Note.

The Company hastherighttopre-pay theYaretz Note duringthefirst120daysfollowing thedateoftheYaretz Note by payingtoYaretz 150%ofthe then-outstanding principal amountand any accruedand unpaidinterest,penalties, orotheramounts owing.

The Company determined thatthe Yaretz Note contained abeneficial conversion feature because theconversion ratewas lessthan theshareprice at thedateofissuance. The Company recordeda$29,365 debt discount related tothebeneficialconversion feature.

Convertible promissory notes

The Company recorded interest expense relating to the convertible promissory notes of $5,973 and $9,941 for the three and six months ended March 31, 2012, respectively and $3,584 and $6,010 for the three and six months ended March 31, 2011, respectively.

The Company amortized $22,609 and $47,988 of the debt discount for the three and six months ended March 31, 2012 respectively and $20,343 and $42,762 of the debt discount for the three and six months ended March 31, 2011, respectively.

The following table summarizes theconvertible promissory notesat March 31,2012 and September 30,2011:

16

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

	March 31,			September 30,
	2012			2011
Issued August 2006, amended November 2007	$	262,356		$	262,356
Issued July 22, 2010		-			-
Less: Debt discount		-			-
Issued July 2010 through March 2012		288,600			220,000
Less amounts converted		(127,700	)		(73,000	)
Less: Debt discount		(20,180	)		(29,533	)
Convertible promissory notes, net	$	403,076		$	379,823

Note 6–LicenseAgreement

On January 12, 2009, the Company entered into a Licensing Agreement with an unrelated party. The Licensing Agreement gives the Company the right to manufacture, have manufactured, use, import, and offer to sell, lease, distribute or otherwise exploit certain technology rights and intellectual rights. The License Agreement has a term of ten years. As consideration for the License Agreement, the Company issued 57,143 shares of its common stock and paid $1,000 in cash. The Company determined the fair value of the License Agreement to be $7,429 based on the market value of its common stock on the date of the agreement plus the $1,000, for a total acquisition cost of $8,429, which is included in the accompanying consolidated balance sheet.

The Company recorded amortization expense related to the licensing agreement of $105 and $210 for the three and six months ended March 31, 2012, and $211and $421 for the three and six months ended March 31, 2011, respectively.

Note 7 - Consulting Agreement

On March 31, 2009, the Company entered into a Consulting Agreement with an outside third party. In connection with this Consulting Agreement, the Company issued warrants to purchase 2,000,000 shares of its Common Stock. The exercise prices for the warrants are as follows:

Number of	Exercise
Warrants Issued	Price
300,000	$0.10 per share
500,000	$0.15 per share
600,000	$0.20 per share
600,000	$0.25 per share
2,000,000

17

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

The vesting schedule is as follows:

Number of  Warrants Issued		Exercise Price	Vesting Dates
300,000	$	0.10 per share	Immediately
500,000	$	0.15 per share	Immediately
50,000	$	0.20 per share	Immediately
550,000	$	0.20 per share	At time of extension
600,000	$	0.25 per share	March 31, 2010
2,000,000	$

On January 15, 2010, the Company entered into a consulting agreement with Seahawk Capital Partners, Inc. The Company issued 1,000,000 shares of Company restricted stock and 2,000,000 warrants upon signing of agreement. In addition, the Company agreed to issue an additional 50,000 shares of restricted Company stock.

The exercise prices of the warrants are as follows:

Number of  Warrants Issued		Exercise Price
285,714	$	0.10 per share
285,714	$	0.75 per share
285,714	$	01.5 per share
285,714	$	2.00 per share
285,714	$	3.00 per share
285,714	$	3.50 per share
285,716	$	4.00 per share
2,000,000

18

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Note 8–5BARz International, Inc. Agreement

On December 31, 2010, the Company consented to the transfer of three agreements that they had entered into with Dollardex Group Corp. to 5BARz International, Inc. as follows;

(i)	An “Amended and Restated Master Global Marketing and Distribution Agreement.”
(ii)	An “Asset Purchase Agreement”
(iii)	A “Revolving line of credit agreement and security agreement”.

These agreements with provide for the exclusive global marketing and distribution of the 5BARz line of products and related accessories and a 50% ownership interest in the 5BARz intellectual property. In addition, a revolving line of credit facility has been made available to Cellynx.

On March 29, 2012, the Company and 5BARz International, Inc. entered into an agreement which provided several amendments to the agreement referred to above. As a result of those amendments, the following arrangements between the Companies were established;

(iv)	5BARz International, Inc. acquired a 60% interest in the patents and trademarks held by Cellynx Group Inc., referred to as the “5BARz™” technology. That interest in the technology was acquired for proceeds comprised of 9,000,000 shares of the common stock of the Company, valued at the date of acquisition at $0.20 per share or $1,800,000 USD.  The acquisition agreement also clarified that the ownership interest in the intellectual property does represent that proportionate interest in income earned from the intellectual property.
(v)	5BARz International, Inc. agreed to make available to Cellynx Group, Inc., a revolving line of credit facility in the amount of $2.2 million dollars of which $636,606 has been advanced as of March 31, 2012.  This revolving line of credit facility expires on October 5, 2013.  Under the terms of the line of credit facility, the Company has the right to convert amounts due under the facility into common stock of Cellynx, at a conversion rate which is the lesser of a fixed conversion rate of $0.00015 per share or a variable rate which is calculated at 25% of the average lowest three closing bid prices of the Cellynx Group, Inc. common stock for a period which is ten (10) days prior to the date of conversion.  At March 31, 2012, the Company converted $78,500 of the amount due under the revolving line of credit facility for 350,000,000 shares of the capital stock of Cellynx Group, Inc.  As a result, Cellynx became a consolidated subsidiary of 5Barz International Inc., on March 29, 2012.
(vi)	Pursuant to the Master Global Marketing and Distribution agreement between 5Barz International Inc. and Cellynx Group, Inc., 5BARz International, Inc. was obligated to pay to Cellynx Group, Inc., a royalty fee amounting to 50% of the Company’s Net Earnings. That fee would be paid on a quarterly basis, payable in cash or immediately available funds and shall be due and payable not later than 45 days following the end of each calendar quarter of the year.  The asset acquisition agreement amendment referred to herein specified that the royalties would be paid in relation to the ownership of the intellectual property.

19

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

Note 9 – Stockholder’s Equity

On December 14, 2010, the Board of Directors approved the cancellation of 13,412,638 options that were previously granted to Daniel Ash, the former CEO and Director of the Company, and agreed instead to issue Mr. Ash 13,412,638 shares of the Company's common stock.

On January 31, 2011, the Company issued 534,759 shares of common stock pursuant to the conversion of $10,000 principal of the Asher Note. The conversion rate was $.0187.

On February 8, 2011, the Company issued 662,983 shares of common stock pursuant to the conversion of $12,000 principal of the Asher Note. The conversion rate was $.0181.

On February 22, 2011, the Company issued 609,756 shares of common stock pursuant to the conversion of $10,000 principal of the Asher Note. The conversion rate was $.0164.

On March 2, 2011, the Company issued 921,986 shares of common stock pursuant to the conversion of $13,000 principal of the Asher Note. The conversion rate was $.0141.

On March 10, 2011, the Company issued 1,034,483 shares of common stock pursuant to the conversion of $10,000 principal and $2,000 accrued interest of the Asher Note. The conversion rate was $.0097.

On March 24, 2011, the Company issued 633,333 shares of common stock to a consultant for services rendered. The shares were valued at $13,933 which was the fair market value of the shares on the date of grant.

On August 23, 2011, the Company issued 1,666,667 shares of common stock pursuant to the conversion of $8,000 principal of the Asher Note. The conversion rate was $.0048.

During the three months ended December 31, 2011, the Company issued 33,506,911 shares of common stock pursuant to the conversion of $34,500 principal of the Asher Note. The conversion rate was $.00103.

During the three months ended March 31, 2012, the Company issued 110,666,666 shares of common stock pursuant to the conversion of $16,600 principal of the Asher Note. The conversion rate was $.0.00015.

Stock Options

On December 3, 2007, the Board of Directors adopted the 2007 Stock Incentive Plan (the “Plan”) of CelLynx, Inc. All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock awards, or other stock-based awardsunder the Plan. The Plan is administered by the Board. The Board has authority to grant awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. Subject to certain adjustments, awards may be made under the Plan for up to 25,000,000 shares of common stock of the Company. The Board shall establish the exercise price at the time each option is granted. In July 2008, the Company amended the Plan to increase the number of awards available under the Plan from 25,000,000 to 75,000,000.

On December 14, 2010, the Company granted 1,000,000 options to the Chairman of the Board of Directors and 1,000,000 options to the acting Chief Financial Officer. The options vest immediately, are convertible at $0.02 per share and expire on the December 14, 2015. The Company calculated the value of the options using the Black-Scholes model using the following assumptions:

20

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

March 31,2012

Expected life(years)	5.00
Risk-freeinterest rate	2.08
Expected volatility	145%
Expected dividendyield	0%

The weighted average grant-date fair value was $0.015 per option.

The Company fair value of $30,324 was recorded asanexpenseinthe accompanying consolidated statement ofoperations.

The following table summarizes information withrespecttooptions outstanding underthePlanand outside thePlan.

	Number of Shares	Weighted Average Exercise Price		Weighted Average Contractual Life	Aggregate Intrinsic Value
Outstanding at September. 30, 2011	21,775,412	$	0.111
Granted	-		-
Cancelled	-		-
Exercised
Outstanding at March 31, 2012	21,775,412	$	0.111	2.75	$	0
Exercisable at March 31, 2012	19,041,494	$	0.107	2.68	$	0

The number and weighted average exercise prices of all options outstanding as of March 31, 2012, are as follows:

Options outstanding
						Weighted
				Weighted		Average
		Number		Average		Remaining
Range of		Outstanding as of		Exercise		Contractual Life
Exercise Price		March 31, 2012		Price		(Years)
$	0.014 - 0.05		3,415,170		0.018		3.93
$	0.06 - 0.100		4,506,184		0.074		1.95
$	0.110 - 0.150		9,555,457		0.125		2.73
$	0.160 - 0.200		2,556,961		0.172		3.46
$	0.210 - 0.260		1,741,640		0.217		2.57
			21,775,412

21

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

The number and weighted average exercise prices of all options exercisable as of March 31, 2012, are as follows:

Options Exercisable
						Weighted
				Weighted		Average
		Number		Average		Remaining
Range of		Outstanding as of		Exercise		Contractual Life
Exercise Price		March 31, 2012		Price		(Years)
$	0.014 - 0.05		3,415,170		0.018		3.93
$	0.06 - 0.100		4,007,338		0.074		0.96
$	0.110 - 0.150		8,566,279		0.126		2.86
$	0.160 - 0.200		1,792,667		0.177		2.68
$	0.210 - 0.260		1,260,040		0.217		2.43
			19,041,494

Warrants

The following table summarizes the warrant activity:

	Number of Warrants	Weighted Average Exercise Price	Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at September 30, 2011	36,114,757	$              0.12
Granted	—	—
Exercised	—	—
Expired	—	—
Outstanding at March 31, 2012	36,114,757	$              0.27	1.18	$              0
Exercisable at March 31, 2012w	36,114,757	$              0.27	1.18	$              0

Note10–CommitmentsandContingencies

OperatingLeases

OnMarch5,2010,theCompanyenteredintoanamendedagreementtoalease datedFebruary21, 2008. The leasewas renewedfor two years and requires monthly payments of$1,962commencing April 1,2010 with a 4% increase ofthebase rent beginning onmonththirteen, terminating on March 31, 2012,for office spacefor its ElDorado Hills, California, office.

22

CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

OnDecember 31, 2009,theCompanyenteredintoanamendedagreementtoalease datedAugust26, 2008. The leasewas renewedfor 25months and requires monthly payments of$3,710commencing on May 1,2010 with a $106 increase ofthebase rent beginning onthefourteenth month, terminating onApril 30, 2012,for office spacefor its Mission Viejo,California, office.

During the current fiscal year those lease facilities were vacated by the Company.

The Company recorded rent expense of $11,830 and $11,830 for three months and six months ended March 31, 2012 and $39,080 and $70,577 for three and six months ended March 31, 2011, respectively.

Litigation

As earlier reported in the Company’s Form 10K and 10Q, theCompany was a Defendant in anaction brought byDophinshire L.P. regarding its office space in Mission Viejo, CA. That action has since been dismissed. Dolphinshire L.P.,a California limited partnershipv. CelLynx Group, Inc.,a NevadacorporationandDoes1-10,SuperiorCourtofCalifornia, Orange County, CaseNo. 00521213. OnNovember 8,2011,plaintiff brought suit against theCompanyforunlawfuldetainer ofofficeslocatedat25910Acero,Suite370,MissionViejo,CA92691pursuantto aleaseagreement,seekinganunspecifiedamountofdamagesnotto exceed$25,000. TheCompanyhasengaged in settlementnegotiationswith theplaintiff andmanagementexpectedto settlebefore eviction. The Company has since, by agreement, vacated the leased premises and continues to negotiate a payout of past due rent and penalties and has moved the general office to 4014 Calle Isabella, San Clemente, CA 92672.

Asimilar action forpast due rent has beenfiledastoitsfacility inElDorado Hills,CA. CSS Properties, v. CelLynx Group,Inc., and Does 1-10,SuperiorCourtofCalifornia,ElDorado County, CaseNo.PCU 20110442.OnOctober 12,2010, plaintiff brought suit againsttheCompany forunlawful detainer ofofficeslocatedat 5047 RobertJ Matthews Parkway, El Dorado Hills, CA 95762 pursuant to a lease agreement, seeking an unspecified amount of damages not to exceed $25,000. The Company has engaged in settlement negotiations with the plaintiff and management expected to settle before eviction. The Company has since, by agreement, vacated the leased premises and continues to negotiate a payout of past due rent and penalties.

As hadbeen previously reportedinthe Company’s Form 10Kand10Q, theCompany wasfacingclaimsforback wagesbysome ofitsformer employees. Someofthoseclaims havebeenpartially paid and others wereexpectedtobepaid inthenormal course ofbusiness orweretobe otherwisedefended.Those claims havenow beenincorporated into California Labor Commission awards infavorofthoseformer employees. Those awards total approximately $312,986.45 depending on interest charges. The first award has been converted into a judgment in the amount of $118,224. Management had negotiated a monthly payment plan amounting to $10,000 per month commencing on February 1, 2012 and every month thereafter until the judgment has been satisfied. This agreement is now in the process of revision.

The Companyhas received a CeaseTrading Orderfromthe BritishColumbia Securities Commission(BCSC) alleging that the Companyis in violation of the British Colombia reporting requirements. The BCSC has assumed that since two the Company's Directors are domiciled in BC that the company is controlled out of BC and therefore subject to its reporting requirements. The Company denies that premise and is appealing the issuance of the CTO.

Note11–SubsequentEvents

The Company has evaluated all subsequent events that occurred up to the time of the Company's issuance of its financial statements.

On May 7, 2012, the Company amended the Articles of Incorporation by increasing the authorized shares to a total of 2,000,000,000.

23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ForwardLookingStatements

Certain statements in the Management’s Discussion and Analysis (“MD&A”), other than purely historical information, includingestimates, projections,statements relating to our business plans, objectivesand expectedoperatingresults, and theassumptionsupon which those statements are based, are “forward -looking statements” withinthemeaning of thePrivateSecuritiesLitigationReformAct of 1995,Section27Aof theSecuritiesAct of1933 and Section21EoftheSecurities Exchange Actof1934.These forward-looking statementsgenerallyare identifiedby thewords “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,”“may,”“should,” “will,”“would,”“will be,”“will continue,” “will likelyresult,” and similar expressions.Forward-looking statementsarebased on currentexpectations and assumptions that are subject to risks and uncertaintieswhich may cause actual results to differmaterially from theforward-looking statements. We undertakenoobligation to update orrevise publicly anyforward-looking statements,whether asaresult of newinformation, future events, orotherwise.

As used inthis Form 10-Q,unless thecontextrequires otherwise, “we” or “us” or the“Company” or “CelLynx” meansCelLynx Group, Inc.,and our subsidiary.

Plan of Operations

Weare a producerofthenextgenerationofcellularnetworkextendersforthesmalloffice,homeofficeandvehicle/marinemarkets.Thisnextgeneration product line, CelLynx 5BARz™, uses our patent-pending technology to create a single-piece, plug’n play unit that strengthens weak cellular signals todeliver higher quality signals for voice, data and video reception on cell phones and other cellular devices being used indoorsorinvehicles.

Our first product, The Road Warrior, has passed FCC Certification, and in July 2009, we commenced the ordering of production units.

While we havecompleted the firstprototype of the @Homeunitswhich willeventually deliver 70 decibel (dB)of gainin a Single BandPCS environmentproviding upto2500square feet ofindoor coverage, the completion ofitsdevelopmentand itscommercialization has beendelayedsothatresourcescanbeallocatedtotheRoadWarrioranditsexistingorders.As aresult,theRoadWarriororderspresentlyconsistingof 16,000 units willbe ready forshipmentpendingapprovalof COFETEL, TheMexicanFederal Telecommunications Commission on the followingschedule:The first 4,000 of those units will be shippedwithin 90 days of approvaland the remaining 12,000 units will be shipped within 180 days thereafter.

Our @Home unit measures 6.5 x 7.5 x 2.5 inches, weighs approximately one pound and does not require the installation of antennas or cables in order to function. Most small office home office (“SOHO”)cellular network extenderscurrentlyon the market require areceivingtower or antenna, usually placed inan attic or on arooftop, and atransmitting toweror antenna tobe placed atleast 35 feet fromthe otherantenna with eachconnected tothe amplifierbycable.Our patentpendingtechnologyisdesignedtoeliminate the needtodistancethe receiving and transmitting towers, allowing the two towers to be placed directly inside the amplifier, resulting in a more affordable, one-piece unit sometimes referred to as ‘plug ’n play,’ i.e., requiring no installation other than plugging the unit into a power source. In order to optimize marketability, we are developing an improved model which is expected to operate in a dual band, PCS and Cellular, environment delivering 65 dB of gain, therebyallowingforcoverageof2,500to3,000squarefeet.Thisdual-band unit would workwithallcurrent wirelesscarriers except Nextel, which operates on its own frequency. The PCS network is generally used by the older carriers such as AT&T at 850MHz, while the newer carriers such as T-Mobileoperateonthecellularnetworkat1900MHz.Managementbelievesthatallofthecriticalfunctionsrequiredforthisdual-band unit have been identified and that we have the capability to complete development leading to commercialization.

Our Road Warrior product line isbeing manufactured by contract manufacturers located inthe Philippines, with whom CelLynx has established manufacturing and supplychain relationships.These manufacturersallow ustocapitalize onthe full advantages ofmultiple manufacturing locations with a trainedand experienced technical work force, state-of-the-art facilities and knowledge of all aspectsof supplychain management, operational execution, global logisticsandreverse logistics. Themarketing andsalesfunctions willbe handledby 5BARz International, Inc.,in accordance withthe M&DAgreement discussed below, incorporating a multi-channel strategythat includesdistribution partners, wireless service providers, retail outlets and international joint ventures.

 24

Agreement;5BARzInternational,Inc.

On December 31, 2010, the Company consented to the transfer of three agreements that they had entered into with

Dollardex Group Corp. to 5BARz International, Inc. as follows;

(i)               An “Amended and Restated Master Global Marketing and Distribution Agreement.”

(ii)              An “Asset Purchase Agreement”

(iii)             A “Revolving line of credit agreement and security agreement”.

These agreements with provide for the exclusive global marketing and distribution of the 5BARz line of products and

related accessories and a 50% ownership interest in the 5BARz intellectual property. In addition, a revolving line

of credit facility has been made available to Cellynx.

On March 29, 2012, the Company and 5BARz International, Inc. entered into an agreement which provided several amendments to the agreement referred to above. As a result of those amendments, the following arrangements between the Companies were established;

(iv)             5BARz International, Inc. acquired a 60% interest in the patents and trademarks held by Cellynx Group Inc., referred to as the “5BARz™” technology. That interest in the technology was acquired for proceeds comprised of 9,000,000 shares of the common stock of the Company, valued at the date of acquisition at $0.20 per share or $1,800,000 USD. The acquisition agreement also clarified that the ownership interest in the intellectual property does represent that proportionate interest in income earned from the intellectual property.

(v)             5BARz International, Inc. agreed to make available to Cellynx Group, Inc. a revolving line of credit facility in the amount of $2.2 million dollars of which $636,606 has been advanced as of March 31, 2012. This revolving line of credit facility expires on October 5, 2013. Under the terms of the line of credit facility, the Company has the right to convert amounts due under the facility into common stock of Cellynx, at a conversion rate which is the lesser of a fixed conversion rate of $0.00015 per share or a variable rate which is calculated at 25% of the average lowest three closing bid prices of the Cellynx Group, Inc. common stock for a period which is ten (10) days prior to the date of conversion. At March 31, 2012, the Company converted $78,500 of the amount due under the revolving line of credit facility for 350,000,000 shares of the capital stock of Cellynx Group, Inc. As a result, Cellynx became a consolidated subsidiary of 5Barz International Inc., on March 29, 2012.

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CELLYNXGROUP, INCAND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31,2012 and2011

(Unaudited)

(vi)             Pursuant to the Master Global Marketing and Distribution agreement between 5Barz International Inc. and Cellynx Group, Inc., 5BARz International, Inc. was obligated to pay to Cellynx Group, Inc. a royalty fee amounting to 50% of the Company’s Net Earnings. That fee would be paid on a quarterly basis, payable in cash or immediately available funds and shall be due and payable not later than 45 days following the end of each calendar quarter of the year. The asset acquisition agreement amendment referred to herein specified that the royalties would be paid in relation to the ownership of the intellectual property.

Convertible Promissory Notes

ConvertiblePromissoryNoteIssuedFebruary22,2011

OnFebruary22,2011,theCompanyenteredintoaSecuritiesPurchaseAgreement(the“SPA”)withan unrelated entity (the“Holder”), inconnectionwiththe purchase by the Holder of a ConvertiblePromissoryNote(the“February 2011 Note”).

Pursuant to theFebruary 2012 Note, the Holder loaned to theCompany theprincipal amount of$40,000. TheFebruary2011 Notebears interestatarateof8%,and is due on November17,2011.The Holdermay convert principal and unpaidintereston the note intosharesof the Company’s commonstock,with thenumberofsharesissuabledetermined bydividing the amount tobeconverted by the conversionprice which is equalto63% ofthe averageof the three lowest trading prices of the Company’scommonstock overthe ten trading days priorto the date of the conversion. TheCompanyrecordeda $23,492 debt discountrelated tothe beneficial conversionfeature. The loan was fully repaid on November 17, 2011.

ConvertiblePromissoryNoteIssuedMarch 10,2011

OnMarch10, 2011, theCompany entered into a Securities Purchase Agreement (the“SPA”)withan unrelated entity (the“Holder”), inconnectionwiththe purchase by the Holder of a ConvertiblePromissoryNote(the“March 2011 Note”).

Pursuantto the March 2011 Note,the Holderloanedtothe Companythe principal amount of $42,500. TheMarch 2011 Notebearsinterestat arateof8%,and wasdue onDecember 7,2011. Subject to a revision of that note agreement dated January 6, 2012, the Holder may convert principal and unpaid interestonthe note intosharesof the Company’scommon stock, with thenumber ofshares issuable determined as the lesser of a fixed rate of $0.00015 per share or a variable rate calculated by dividing theamount to beconverted by the conversion price which is equalto25% of the average ofthethree lowest trading prices oftheCompany’s common stock over thetentrading days priortothe date of the conversion. The Holderis prohibited under theMarch2011 Note from converting amounts ifprincipal and interest that wouldresult inThe Holderreceiving shares, which whencombinedwith sharesoftheCompany’s commonstockheld by The Holder,wouldresult inThe Holderholding more than 4.99%of the Company’sthen- outstanding common stock. Noregistration rights were granted in connection with thepurchase ofthe March 2011 Note,and the sharesof commonstock, if any,issuedupon conversion,willberestricted securities as defined pursuanttothe terms of Rule 144. The loan was repaid in full via conversion by April 12, 2012.

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ConvertiblePromissoryNoteIssuedMay 18,2011

OnMay 18, 2011, theCompany entered into a Securities Purchase Agreement (the “SPA”) with an unrelated holder, inconnectionwiththe purchase by Holder of a ConvertiblePromissoryNote in the principle amount of $32,500. TheMay 2011 Notebearsinterestat a rate of8%, and was due on February 23, 2012. Pursuant to the terms of a January 6, 2012 amendment agreement between the Company and holder, the note may be converted intosharesof the Company’scommon stock, with thenumber ofshares issuable determined to be the lesser of a fixed rate of $0.00015 per share or a variable rate calculated by dividing theamount to beconverted by the conversion price which is equalto25% of the average ofthethree lowest trading prices oftheCompany’s common stock over thetentrading days priortothe date of the conversion. Asheris prohibited undertheAsher May 2011Notefromconvertingamountsif principal and interestthat wouldresult inAsher receiving shares, which when combined with shares oftheCompany’s common stock held by Asher, would result in Asher holding more than 4.99% ofthe Company’sthen- outstanding common stock. Noregistration rights were granted in connection with thepurchase oftheAsher May 2011 Note, and the sharesof commonstock, if any,issuedupon conversion,willberestricted securities as defined pursuanttothe terms of Rule 144. At the date of issuance of this report, $1,000 plus interest remains outstanding on this note.

ConvertiblePromissoryNoteIssuedJanuary 10,2012

On January 10, 2012, theCompany entered into a Securities Purchase Agreement (the “SPA”) with an unrelated holder, inconnectionwiththe purchase by Holder of a ConvertiblePromissoryNote in the principle amount of $15,000. TheJanuary 2012 notebearsinterestat a rate of8%, and is due on October 10, 2012. Pursuant to the terms of a January 6, 2012 amendment agreement between the Company and holder, the note may be converted intosharesof the Company’scommon stock, with thenumber ofshares issuable determined to be the lesser of a fixed rate of $0.00015 per share or a variable rate calculated by dividing theamount to beconverted by the conversion price which is equalto25% of the average ofthethree lowest trading prices oftheCompany’s common stock over thetentrading days priortothe date of the conversion. Asheris prohibited undertheAsher May 2011Notefromconvertingamountsif principal and interestthat wouldresult inAsher receiving shares, which when combined with shares oftheCompany’s common stock held by Asher, would result in Asher holding more than 4.99% ofthe Company’sthen- outstanding common stock. Noregistration rights were granted in connection with thepurchase oftheAsher May 2011 Note, and the sharesof commonstock, if any,issuedupon conversion,willberestricted securities as defined pursuanttothe terms of Rule 144.

Pursuantto theterms oftheNote,while thereremains any unpaid amounts owingontheNote,theCompanymay not incur additionaldebt without Holder’s approval exceptfor (i) debt that was owed orcommitted asofthedate oftheSPA and ofwhich theCompanyhad informedholder;(ii) indebtedness totrade creditorsor financialinstitutions inthe ordinarycourse of business;(c) debt which inthe aggregatedoes not exceed $250,000; or (d)debt the proceeds of which are used torepay the Note.

The Company has theright to pre-pay theNote during thefirst120 days following thedate oftheNote by paying to Holder 150% of the then- outstandingprincipal amount and any accruedand unpaidinterest,penalties,or other amountsowing.

Pursuantto theSPA,theCompanyagreedto grant to Asher a right of first refusal forany subsequenttransactionsoccurringduring the twelvemonth period following theClosing Date, which was defined asMay 23, 2011. The right offirstrefusal does notapply toany transactionsinexcess of $250,000.

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At March 31, 2012 the Company had $13,400 due under the terms of the promissory notes described above.

At May 15, 2012 the Company had a principle balance of $16,000 due under the terms of the promissory notes described above, of which $1,000 was current due and $15,000 may be repaid by July 10, 2012.

DwayneYaretzAgreement

On April5, 2011,CelLynxGroup,Inc.,(“the Company”),finalizeda transactionpursuanttoa Securities PurchaseAgreement(the“SPA”)withone of itsdirectors,Dwayne Yaretz, inconnectionwiththe purchase by Mr.Yaretzof a ConvertiblePromissoryNote(the“Note”).

Pursuantto theNote,Mr.Yaretz loanedtothe Companythe principal amount of $50,000.TheNotebearsinterestat a rate of 8%, and due on January 5,2012(the“DueDate”). Mr. Yaretzmay convert principal and unpaid interestonthenote intosharesoftheCompany’scommonstock, withthe numberofsharesissuabledetermined bydividing the amount tobeconverted by the conversion price (the“Conversion Price”) which is equalto63% oftheaverageofthethreelowest tradingprices oftheCompany’s commonstockover thetentradingdays priorto thedate oftheconversion. Mr. Yaretzisprohibited undertheNotefromconvertingamounts ifprincipal and interestthatwouldresult in Mr. Yaretzreceiving shares,which when combinedwith sharesoftheCompany’s commonstockheld byMr. Yaretz, wouldresult in Mr. Yaretzholding more than 4.99%of the Company’s then-outstanding commonstock. Noregistration rightsweregranted inconnectionwiththe purchase of the Note,and the sharesof commonstock, if any,issuedupon conversion,willberestricted securities as defined pursuanttothe terms of Rule 144.

Pursuanttothe terms of the Note,while there remains any unpaidamountsowingon the Note,the Companymay not incur additionaldebt without Mr. Yaretz’s approvalexcept for(i)debt thatwasowedorcommittedasofthedate of the SPA and of which the Companyhad informedMr.Yaretz;(ii) indebtedness totrade creditorsor financialinstitutions inthe ordinarycourse of business;(c) debt which inthe aggregatedoes not exceed $250,000; or (d)debt the proceeds of which are used torepay the Note.

TheCompanyhastherightto pre-pay theNoteduring thefirst120days followingthedate oftheNotebypaying to Mr. Yaretz 150%of the then outstandingprincipal amount and any accruedand unpaidinterest,penalties,or other amountsowing.

Pursuantto theSPA,theCompanyagreedto grant to Mr. Yaretzarightoffirstrefusal forany subsequenttransactions occurringduring the twelve monthperiodfollowingthe Closing Date, which wasdefined as April5, 2011. Theright of first refusal does not apply toany transactionsinexcess of $250,000.

Byway ofbackground, theSPA and theNotewereonthe same terms as thoserecently investedinby Asher Enterprises,Inc. a Delawarecorporation (“Asher”), as disclosedina CurrentReportfiled withthe Commissionon March 17,2011.

Intheabove transaction, theNote was issued to an accredited investor pursuanttothe exemptionfromregistrationprovided by Section 4(2) of the SecuritiesAct of 1933,as amended, and rulespromulgated pursuantthereto. Additionally,the underlying sharesof commonstock, if any,issuedupon conversion oftheNotewillbeissuedpursuanttothe exemptionfromregistrationprovided by Section 4(2) of the Securities Act of 1933,as amended, and rules promulgated pursuant thereto. Allcertificates for such shares will contain theappropriate legendsrestricting their transferabilityabsent registration orapplicable exemption. Theaccredited investor received informationconcerningthe Companyand had the abilitytoaskquestions about the Company.

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These descriptions oftheSPA and theNote arenotcomplete, and arequalified in their entiretyby reference tothe SPA and the Notethemselves, which are includedinthis filingas exhibits and which are incorporated hereinby this reference.

Thestatusof this transactionremains the same as of the date of this filing.

Resultsof Operations

Comparison of thethree months endedMarch 31,2012 and 2011

Three months ended March 31,

		2012		2011	$ Change	% Change
REVENUE	$		$
COST OF REVENUE
GROSS PROFIT
OPERATING EXPENSES		218,109		473,913	(255,804)	53.97	%
NON OPERATING INCOME (EXPENSES)		(4,185,990)		(108,615)	4,077,375	3,754	%
NET LOSS	$	(4,404,099)	$	(582,528)	3,521,571	604	%

Revenueand Costof Revenue

Duringthethreemonthsended March 31,2012and 2011,wegenerated$0 and $0, respectively. Cost ofrevenues was $0 and $0,respectively,resultingina grossprofit of $0.

Operating Expenses

Total operating expenses incurred for the three and six months ended March 31, 2012 were $218,109 and $373,238, respectively, compared to $473,913 and $1,129,684 for the three and six months ended March 31, 2011, which decreased by $255,804 and $756,446. The decrease was due to a significant decrease in salaries and wages.

NonOperating Income and Expenses

Totalnon-operating income(expenses)incurred forthethreemonthsended March 31,2012was$4,185,970 comparedto $108,615 forthe three months ended March 31,2011which wasan increaseof$4,077,375 or 3,754%. Thedifference wasdue to the increased in Beneficial Conversion Factor forthe three monthsended March 31,2011.

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Liquidityand Capital Resources

FinancialCondition

As ofMarch 31,2012,wehad cash of$3,246, and wehad aworking capitaldeficitof$2,270,931 comparedto cash of$178 and a workingcapital deficit of$2,376,878 asofDecember 31, 2011, which was a decrease on working capital deficit of $105,947 or 4.4%.

Duringthesix monthsended March 31,2012,cashused inoperating activitieswas$99,038. During the period, the Company incurred a loss arising from the mark to market valuation of convertible features that were provided to the holders of convertible debt an January 6, 2012 as well as the convertible features provide to 5BARz International Inc. under the terms of the revolving line of credit agreement as amended on March 29, 2012. That expense item of $5.5 million was not a cash loss. In addition the gain on sale of intangibles were not a cash transaction as the sale proceeds were paid to Cellynx in share capital.

The Company received $102,106fromfinancing activitiesforthesix monthsendedMarch 31,2012, comprised of advances from 5BARz International Inc. of $87,106 and proceeds from other convertible debt in the amount of $15,000.

Going Concern

InourAnnualReport onForm10-Kforthe yearendedSeptember30,2011,ourindependent auditors includedanexplanatory paragraph initsreport relatingto ourconsolidated financialstatementsfortheyearsended September30,2011and 2010,which states that wehave incurred negativecash flows fromoperations since inception,and expect to incur additionallossesinthe futureand have a substantialaccumulated deficit.These conditions give rise to substantialdoubtabout ourabilityto continueasagoingconcern.Ourabilityto expandoperationsand generate additionalrevenue and ourabilityto obtainadditionalfundingwilldetermineourabilitytocontinueas a goingconcern.Ourcondensedconsolidated financialstatementsdo not includeany adjustmentsthat mightresult fromthe outcomeof this uncertainty.

We havepreparedourconsolidated financialstatementsassuming thatwewillcontinueasagoingconcern,which contemplates realizationof assets and thesatisfaction ofliabilities in thenormalcourse of business. As of March 31,2012,wehad anaccumulated deficitof $21,197,656, negative cash flows from operations since inception, and expectto incur additional losses in thefuture aswe continue to develop and grow our business. We havefunded ourlossesprimarilythroughthe saleof commonstockand warrantsinprivate placements;borrowingsfromrelated parties and other investors;and revenueprovided bythesalesof our5Barzunit.Thefurther developmentof ourbusinesswillrequire capital. Ouroperating expenseswillconsume a materialamount of ourcashresources.

Our current cash levels, together with thecash flows we generate from operating activities, are not sufficient toenable us toexecuteourbusiness strategy.We requireadditionalfinancing to executeourbusinessstrategy and tosatisfy ournear-termworkingcapitalrequirements. In the eventthat wecannotobtainadditionalfunds onatimelybasisorouroperations donot generate sufficient cash flow,wemay beforcedtocurtailor ceaseour activities, which would likely result in the lossto investors of all or a substantial portion of their investment.Weare actively seekingtoraise additional capital through thesale ofshares ofour capital stock to institutional investors and throughstrategicinvestments.If management deems necessary, wemight alsoseek additionalloansfromrelated parties. However,therecan benoassurancethatwewillbeable toconsummate any of these transactions,or that these transactionswillbeconsummatedon a timelybasis or on terms favorable tous.

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Off-Balance SheetArrangements

We havenot enteredintoany other financialguaranteesor other commitments toguaranteethe paymentobligationsof any third parties. We have not entered into any derivative contracts that areindexed to our shares and classified asstockholder’s equity orthatare not reflectedinourfinancial statements. Furthermore, we do nothave any retained orcontingent interest in assets transferred to anunconsolidated entitythat servesas credit, liquidity ormarket risk support to such entity. We do nothave any variable interestinany unconsolidated entitythat providesfinancing, liquidity, market risk or creditsupport tous or engages inleasing, hedging or research and developmentservices withus.

CriticalAccounting Policies and Estimates

Our management’s discussion and analysis ofour financial condition and results ofoperations arebasedon ourconsolidated financialstatements, which have been prepared in accordance with accounting principles generally accepted in theUnited Statesof America. Thepreparationof these consolidated financial statements requires us to make estimates and assumptions that affect thereported amounts ofassets and liabilities and the disclosure ofcontingentassets and liabilities atthedate ofthefinancialstatementsaswell as the reported net salesand expensesduring the reporting periods. Onanongoingbasis,weevaluate ourestimatesand assumptions.Webaseourestimateson historicalexperienceand on variousother factors that webelieveare reasonableunderthe circumstances, the results of which formthe basis formaking judgmentsabout the carrying valueof assetsand liabilitiesthat are not readily apparentfromother sources. Actualresults may differ fromthese estimatesunderdifferentassumptionsor conditions.

While oursignificantaccounting policiesaremore fullydescribedin Note2 to ourconsolidated financialstatements, webelievethatthefollowing accounting policiesare the mostcritical toaid you infully understandingand evaluatingthis management discussionand analysis.

Intangible Assets

Acquired patents, licensing rights and trademarks arecapitalized at their acquisition costor fairvalue.Thelegalcosts,patent registrationfees, and models and drawings required for filing patent applications arecapitalized ifthey relate tocommerciallyviable technologies.Commercially viable technologies arethosetechnologies thatareprojected to generate futurepositive cashflows inthe nearterm.Legalcosts associated withapplications thatarenot determined to becommercially viable are expensed as incurred.All research and developmentcosts incurred indevelopingthe patentable idea areexpensed asincurred.Legalfeesfromthecostsincurred in successful defenseto the extent of anevidentincreaseinthe valueof the patents are capitalized.

Capitalized costsforpatentsareamortizedonastraight-linebasisover theremaining twenty-year legallifeofeach patent after thecostshave been incurred.Onceeach patent ortrademark isissued,capitalized costsareamortizedonastraight-line basis overa periodnot toexceed 20 yearsand 10 years, respectively. Thelicensingright is amortized on a straight-line basis overa periodof 10 years.

ImpairmentorDisposalof Long- lived Assets

TheCompanyappliestheprovisions of ASCTopic360, “Property,Plant, and Equipment,”which addressesfinancialaccountingand reportingforthe impairment or disposal of long -lived assets. ASC 360 requires impairment losses to be recorded on long -lived assets used inoperationswhen indicators ofimpairment are

31

present and theundiscounted cash flows estimated to be generated by those assets areless than the assets’carrying amounts. Inthatevent,alossis recognizedbasedon the amount by which the carrying amount exceeds the fairvalueof the long -lived assets.Loss on long -lived assets to bedisposedofisdetermined in a similar manner, except that fair valuesare reduced forthe cost of disposal.Based on itsreview, the Companybelievesthat as of March 31,2012 and September30,2011,there wasno significantimpairmentof itslong -lived assets.

Revenue Recognition

TheCompany'srevenuerecognition policiesarein compliancewith ASCTopic 605, “RevenueRecognition.” Revenueisrecognized at the date of shipment to customers,and whenthepriceisfixed ordeterminable, thedeliveryiscompleted,noother significantobligations of the Companyexist and collectabilityis reasonablyassured.

The revenue earned on the sale of intangibles is realized at the time that proceeds are paid in full for that intellectual property comprised of shares in the capital stock of 5Barz International, Inc.

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes.” ASC 740 requires a companytousethe assetand liability method ofaccounting for income taxes, whereby deferred taxassets arerecognized fordeductibletemporary differences,and deferred tax liabilities arerecognized for taxable temporary differences. Temporary differences arethedifferences between thereported amountsof assetsand liabilities and their taxbases.Deferredtaxassets arereduced by a valuationallowance when,inthe opinion of management, it is more likelythan not thatsomeportion,orallof, thedeferred tax assetswillnot berealized. Deferred tax assetsand liabilitiesare adjustedforthe effects of changes intax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position wouldbesustainedina tax examination, with a taxexamination being presumed to occur. The amount recognized isthe largestamount of tax benefit that is greater than 50% likelyofbeing realizedonexamination. Fortax positionsnot meeting the “morelikelythan not” test,no tax benefit is recorded. Penaltiesand interest incurred relate to underpayment ofincometaxare classified as incometax expense inthe periodincurred. No significantpenalties or interestrelating toincometaxes have been incurred during the three monthsendedMarch 31,2012 and 2011.

Stock Based Compensation

The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – StockCompensation.” ASC718 requires companiesto measure compensation costforstock-based employeecompensation atfair valueatthegrant date and recognizetheexpense overthe employee’s requisite service period. Under ASC 718, theCompany’s volatility is based on thehistorical volatility oftheCompany’s stockor the expected volatility ofsimilar companies. The expected life assumption is primarilybasedon historicalexercisepatterns and employeepost-vesting termination behavior.Therisk-free interestratefortheexpectedterm oftheoptionisbasedontheU.S. Treasury yield curve ineffect at the timeof grant.

32

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934 (the "Exchange Act") require public companies to maintain"disclosurecontrols and procedures," which are defined to mean a company's controls and other procedures that are designed to ensure that informationrequired tobe disclosed in thereports thatitfiles or submits underthe Securities Exchange Act of 1934 is recorded,processed, summarized and reported,withinthe time periods specified in theCommission's rules and forms. Our Chief Executive Officer ("CEO") and a consultant providingservices commonly provided byaChief Financial Officer("CFO") carried out anevaluationof the effectivenessof ourdisclosure controls and proceduresas of the end of the periodcovered by this report.Based on thoseevaluations, as of the Evaluation Date, ourCEO and CFObelievethat:

(i) ourdisclosure controlsand procedures aredesigned to ensure thatinformationrequired tobedisclosedby us inthe reports wefileunder the SecuritiesExchangeAct of 1934 is recorded,processed,summarizedand reported withinthe timeperiodsspecified in the SEC'srulesand forms and thatsuch informationis accumulated and communicatedtoourmanagement, including the CEO and CFO,as appropriate, toallow timelydecisionsregardingrequired disclosure; and

(ii) disclosure controls and procedures were effective as of the date of the evaluation

Changesin InternalControlover FinancialReporting

There werenochangesinourinternalcontrol overfinancialreporting(asdefined inRules13a-15(f)and 15d-15(f) underthe Securities Exchange Act of1934,asamended)during thequarterended March 31,2012thathavematerially affected, orarereasonably likelyto materially affectourinternal control overfinancialreporting.

33

PART II–OTHER INFORMATION

ITEM 1. LEGALPROCEEDINGS

AsearlierreportedintheCompany’sForm 10Kand10Q, theCompanywas aDefendantinanactionbroughtbyDophinshireL.P.regardingitsoffice space in Mission Viejo, CA. That action has since been dismissed. However, a new action is in process and is currently being negotiated. Managementexpects tosettle thisaction.

Asimilaractionfor past due rent has been filed as toits facilityinEl DoradoHills, CA. This actiontoo isbeing negotiated and Managementexpectstosettlethisactionaswell.

Ashadbeenpreviously reportedintheCompany’s Form 10K and 10Q, theCompanywas facing claims forback wages bysome ofitsformer employees.Some of those claimshave been partiallypaid and otherswere expectedtobe paid inthe normalcourseof businessor were tobe otherwisedefended.Thoseclaimshave now been incorporatedinto California LaborCommissionawardsinfavor of those formeremployees. Thoseawardstotalapproximately $312,986.45 depending oninterestcharges.Thefirstawardhasbeenconverted intoajudgment intheamount of$118,224. Management hadnegotiated amonthly payment planamounting to$10,000 permonthcommencing onFebruary 1,2012andevery month thereafter untilthejudgment hasbeen satisfied. This agreement is now in the process of revision.

TheCompanyhasreceived aCeaseTradingOrderfromtheBritishColumbiaSecuritiesCommission(BCSC)allegingthattheCompanyisin violation oftheBritishColombia reporting requirements. TheBCSChasassumed thatsincetwotheCompany's Directors aredomiciled inBC thatthecompanyis controlled outofBCandthereforesubjectto itsreportingrequirements. TheCompanydeniesthatpremiseandis appealing theissuance oftheCTO.

With the exception of the actions reported above,weknowofnomaterial,existing orpending legal proceedings against us, nor are we involved as a plaintiff inany material proceeding orpending litigation. Thereare noproceedings inwhich any ofourdirectors, officers oraffiliates, orany registered orbeneficial stockholder, is anadverseparty orhasamaterial interest adversetoourcompany.

ITEM2.UNREGISTERED SALES OFEQUITY SECURITIES AND USE OFPROCEEDS

None

ITEM3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM4.

(REMOVED AND RESERVED)

ITEM5.OTHERINFORMATION

None

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ITEM 6. EXHIBITS

EXHIBIT INDEX

Exhibit Number	Description
31.1	Section 302 Certification by the Corporation’s Chief Executive Officer *
31.2	Section 302 Certification by the Corporation’s Chief Financial Officer *
32.1	Section 906 Certification by the Corporation’s Chief Executive Officer *
32.2	Section 906 Certification by the Corporation’s Chief Financial Officer *

Exhibit Number	Description
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.DEF	XBRL Label Linkbase Document
101.LAB	XBRL Presentation Linkbase Document
101.PRE	XBRL Definition Linkbase Document

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SIGNATURES

Pursuant tothe requirements ofthe Securities Exchange Act of1934, the registrant hasduly causedthis report tobesigned onitsbehalfbythe undersigned thereunto duly authorized.

CELLYNX GROUP, INC.

(Registrant)

Date: May 21, 2012

By:/s/Norman Collins

Norman Collins

ChiefExecutive Officer

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