CelLynx 10-Q 2013 Q1 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 DECEMBER 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.YesxNoo

Indicate bycheck mark whether the registrant has submitted electronically and posted onitscorporateWebsite,if any,everyInteractive DataFile required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12months (or forsuchshorter period thatthe registrantwas required tosubmitand postsuchfiles).YesxNoo

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	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

APPLICABLE ONLY TOCORPORATEISSUERS:

Indicatethenumberofsharesoutstanding ofeachissuer'sclasses ofcommonstock,asofthelatestpracticable date: The total shares outstanding for this company is 1,457,498,001 shares outstanding as of February 14, 2013.

TABLE OF CONTENTS

PARTI	FINANCIALINFORMATION	3
Item1.	Financial Statements	3
Item2.	Management's Discussion and AnalysisofFinancial Condition and Results ofOperations	26
Item3.	Quantitative and QualitativeDisclosures About Market Risk	33
Item4.	Controls and Procedures	33
PARTII	OTHER INFORMATION	34
Item1.	Legal Proceedings	34
Item2.	Unregistered Sales ofEquity Securities and Use ofProceeds	34
Item3.	DefaultsUponSenior Securities	34
Item4.	(Removed and Reserved)	35
Item5.	Other Information	35
Item6.	Exhibits	36

2

PartI–FINANCIAL INFORMATION

ITEM1. FINANCIAL STATEMENTS

CELLYNX GROUP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2012 AND SEPTEMBER 30, 2012
		December 31,		September 30,
		2012		2012
		(unaudited)
ASSETS
CURRENT ASSETS:
	Cash	$	14	$	(284)
TOTAL CURRENT ASSETS			14		(284)
EQUIPMENT, net			982		1,359
INTANGIBLE ASSETS, net			48,473		48,737
TOTAL ASSETS		$	49,469	$	49,812
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
	Accounts payable and accrued expenses	$	1,999,475	$	1,890,212
	Accrued interest		143,788		69,346
	Accrued derivative liabilities		367,530		1,487,568
	Line of credit net of debt discount of $63,775		598,333		580,473
	Convertible promissory notes, net of debt discount of $2,855 and $18,868 as of December 31, 2012 and September 30, 2012, respectively		406,501		390,488
TOTAL CURRENT LIABILITIES			3,515,627		4,418,087
TOTAL LIABILITIES			3,515,627		4,418,087
COMMITMENTS AND CONTINGENCIES (Note 10)
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, 2,000,000,000 shares authorized; 1,457,498,001 shares issued and outstanding as of December  31, 2012 and September 30, 2012		1,457,498		1,457,498
	Additional paid-in capital		13,170,581		13,170,581
	Accumulated deficit		(16,294,237)		(17,196,354)
	Treasury stock		(459,000)		(450,000)
	Accumulated other comprehensive income		(1,341,000)		(1,350,000)
	Total stockholders’ deficit	$	(3,466,158)	$	(4,368,275)
	TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	49,469	$	49,812
The accompanying notes are an integral part of these consolidated financial statements.

3

CELLYNX GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2012 AND 2011

			Three Months Ended
			December 31, 2012	December 31, 2011
			(unaudited)	(unaudited)
Net Revenue		$	-	$	-
Cost of Revenue			-		-
Gross profit			-		-
Operating expenses
	Research and development		39,000		-
	General and administrative		138,312		155,504
	Total operating expenses		177,312		155,504
Loss from operations		$	(177,312)	$	(155,504)
Non-operating income (expense):
	Interest and financing costs, net		(40,609)		(40,465)
	Change in fair value of accrued beneficial conversion liability,		1,119,991		26,016
	Change in fair value of accrued warrant and options liability		47		2,718
	Gain on sale of intangible assets		-		2,950
	Total non-operating income (expense), net		1,079,429		(8,781)
Net income (loss)		$	902,116	$	(164,285)
Weighted average shares outstanding
	Basic		1,457,498,081	212,006,020
	Diluted		2,000,000,000	212,006,020
Loss per share :
	Basic	$	0.0006	$	(0.0011)
	Diluted		0.0005		(0.0011)

4

CELLYNX GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED DECEMBER 31, 2012 AND 2011

	Three Months Ended
	December 31, 2012		December31, 2011
	(unaudited)		(unaudited)
Net Income	$	902,116	$	(164,285	)
Other comprehensive income (loss)
Net unrealized gain on investment		9,000		—
Comprehensive income (loss)	$	911,116		(164,285	)

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

5

CELLYNX GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2012 AND 2011
			2012		2011
				(unaudited)		(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss		$	902,116	$	(164,285)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization		641		839
		Stock issued for services		-		39,809
		Change in fair value of accrued beneficial conversion liability		(1,119,991)		(26,016)
		Change in fair value of accrued warrant and option liability		(47)		(2,718)
		Amortization of debt discount		40,609		25,379
	Changes in operating assets and liabilities:
		Change in other assets		-		20,090
		Change in accounts payable, accrued expenses and interest		170,573		101,213
	Net	cash used in operating activities		(6,099)		(5,689)
CASH FLOWS FROM INVESTING ACTIVITIES:
		Investment in intangible assets		-		(3,436)
	Net cash used in investing activities			0		(3,436)
CASH FLOWS FROM FINANCING ACTIVITIES:
		Proceeds from line of credit		6,397		9,114
	Net cash provided by financing activities			6,397		9,114
NET INCREASE (DECREASE) IN CASH				298		(11)
CASH, BEGINNING OF PERIOD				(284)		178
CASH, END OF PERIOD			$	14	$	167
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid for interest		$	-	$	-
	Cash paid for income taxes		$	-	$	-
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING:
	Conversion of convertible note payable to common stock		$	-	$	34,500
The accompanying notes are an integral part of these consolidated financial statements.

6

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(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 months ended December 31, 2012, are not necessarily indicative of the results to be expected for the full year ending September 30, 2013.

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.

7

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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.

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.

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 to 2,000,000,000.

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

8

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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 three months ended December 31, 2012, theCompany incurred a net loss from operationsof$177,312. AsofDecember 31, 2012, theCompany had an accumulateddeficit of $16,294,237.Further, as of December 31, 2012 and September 30, 2012, the Company had negative working capital of $3,515,613 and $4,418,370, 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.

9

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(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. As of December 31,2012,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.

10

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(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 thatasofDecember 31, 2012 and September 30, 2012, there was nosignificant impairmentofits long-lived assets.

11

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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.

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:

●	Level 1	inputs tothevaluation methodologyarequotedprices foridenticalassetsorliabilities inactive markets.
●	Level 2	inputs tothevaluation methodologyinclude quotedprices forsimilar assetsand liabilities inactive markets, and inputsthatare observable fortheasset orliability, eitherdirectlyorindirectly, forsubstantially thefulltermofthefinancialinstrument.
●	Level 3	inputs tothevaluation methodologyareunobservable and significant tothefair valuemeasurement.

The Company’swarrant & optionliability is carried at fairvaluetotaling $8,281 and $8,364,asofDecember 31, 2012 and September 30,2012,respectively. The Company’s conversion option liability is carried at fair value totaling $359,015 and $1,479,204 as of December 31, 2012 and September 30,2012, 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:

December 31, 2012
Annual dividend yield	—
Expected life (years)	0.55 – 5.0
Risk-free interest rate	0.45% - 0.81%
Expected volatility	183%

12

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

(Unaudited)

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

		Fair Value As of December 31, 2012	Fair Value Measurements at December 31,2012 Using Fair Value Hierarchy
Liabilities		Level 1		Level 2	Level 3
Warrant & option  liability	$	8,515	$	8,515
Conversion option liability	$	359,015	$	359,015
Total accrued derivative liabilities	$	367,530	$	367,530

For the three months ended December 31, 2012, the Company recognized a gain (loss) of$47 forthechangeinthefairvalueof accrued option and warrant liability and the Company recognized a gain of $1,119,990 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.

13

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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 months ended December 31,2012 and 2011.

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.

14

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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 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.

15

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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 December 31,2012 and September 30,2012:

	December 31, 2012			September 30, 2012
Office furniture and equipment	$	9,879		$	9,879
Computer equipment		8,930			8,930
	$	18,809		$	18,809
Accumulated depreciation		(17,827	)		(17,450	)
Equipment, net	$	982		$	1,359

The Company recorded depreciation expense of $377 for the three ended December 31, 2012 and 2011.

16

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(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. On March 29, 2012, the Company sold a 60% interest in their patents to 5BARz International Inc. The balances below reflect the residual balance at cost.

Intangible assetsconsist ofthefollowing:

	December 31, 2012			September 30,  2012
Patents	$	46,862		$	46,862
Trademarks		4,995			4,995
Licensing rights		4,214			4,214
		56,071			56,071
Accumulated Amortization		(7,597	)		(7,334	)
Intangibles, net	$	48,474		$	48,737

Amortization on patents 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. Amortization expense of $264

was charged on intangible assets for the three months ended December 31, 2012 and 2011.

Note 5–Convertible PromissoryNotes

Convertible PromissoryNote Issued April5,2011 –RelatedParty

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

Pursuant to the Note, the Company received the principal amountof$50,000. The Note bearsinterest at arateof8%,and was due on January 5,2012. Holdermayconvert 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. Holder is prohibited undertheNote from converting amounts if principal and interest that would result in Holder receiving shares, which when combined withsharesofthe Company’scommon stock held,would result in Holder owning morethan 4.99% ofthe Company’sthen-outstanding common stock. No registration rights were grantedin connection with the purchase ofthe Note, and thesharesofcommonstock,if any,issuedupon conversion, will berestricted securitiesasdefined pursuanttothetermsofRule144.

17

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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

The Company hadtherighttopre-pay theNote duringthefirst180daysfollowing thedateoftheNote by payingtoHolder 150%ofthe then-outstanding principal amountand any accruedand unpaidinterest,penalties, orotheramounts owing.

The Company determined thatthe Note contained abeneficial conversion feature because theconversion rateis a factor lessthan theshareprice. The note and accrued interest of $56,970 remain outstanding at December 31, 2012.

Convertible PromissoryNote Issued January5,2012 – FormerRelatedParty

On January 5, 2012, the Company entered into a Securities Purchase Agreement (the “SPA”)withitsformer CFO, in the name of Pickard & Green, CPA’s (“Holder”), in connection withthepurchase ofaConvertible PromissoryNote (the Note).

Pursuant to the Note, the Company received the principal amountof$50,000, by way of settlement of certain debts owed by the Company to Holder. The Note bearsinterest at arateof8%,and is due on July 3,2012. Holdermayconvert principal and unpaidintereston thenoteintosharesof theCompany’s common stock,with thenumber of shares issuabledetermined to be the amount obtained bydividing the amountto be converted bythe conversion price whichis the lesser of $0.0013 per share or 63% ofthe averageofthethree lowest trading prices of the Company’s common stock over the ten trading days prior to thedateoftheconversion. Holder is prohibited undertheNote from converting amounts if principal and interest that would result in Holder receiving shares, which when combined withsharesofthe Company’scommon stock held,would result in Holder owning morethan 4.99% ofthe Company’sthen-outstanding common stock. No registration rights were grantedin connection with the purchase ofthe Note, and thesharesofcommonstock,if any,issuedupon conversion, will berestricted securitiesasdefined pursuanttothetermsofRule144.

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

18

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

The Company hastherighttopre-pay theNote duringthefirst180daysfollowing thedateoftheNote by payingtoHolder 150%ofthe then-outstanding principal amountand any accruedand unpaidinterest,penalties, orotheramounts owing.

The Company determined thatthe Note contained abeneficial conversion feature because theconversion rateis a factor lessthan theshareprice. At December 31, 2012, $53,956 of principle plus accrued interest remains outstanding.

Convertible PromissoryNote Issued May 24,2012

On May 24, 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 $37,500. The May 2012 note bearsinterest at a rate of 8%, and is due on February 7, 2013. Pursuant to the terms of the note, the principle and accrued interest may be converted into sharesoftheCompany’scommon stock, with the number of shares issuable calculated at a variable rate calculated bydividing the amount to be convertedby theconversion price whichis equalto51%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 note from converting amounts if principal and interest thatwouldresultinHolder receiving shares,whichwhen combined with shares of the Company’s common stock held at the time, would result in Holder owning more than 4.99% of theCompany’sthen- outstanding common stock.

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.

The Company had the right to pre-pay the Note during the first 180 days following the date of the Note bypaying to Holder 150% ofthethen- outstanding principal amountand any accruedand unpaidinterest,penalties, orotheramounts owing.

The Company determined thatthe Note contained abeneficial conversion feature because theconversion rateis a factor lessthan theshareprice. At December 31, 2012, $39,316 of principle plus accrued interest remains outstanding.

19

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

 Convertible PromissoryNote Issued September 12,2012

On September 12, 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 $12,500. The September 2012 note bearsinterest at a rate of 8%, and is due on June 12, 2013. Pursuant to the terms of the note, the principle and accrued interest may be converted into sharesoftheCompany’scommon stock, with the number of shares issuable calculated at a variable rate calculated bydividing the amount to be convertedby theconversion price whichis equalto51%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 note from converting amounts if principal and interest thatwouldresultinHolder receiving shares,whichwhen combined with shares of the Company’s common stock held at the time, would result in Holder owning more than 4.99% of theCompany’sthen- outstanding common stock.

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.

The Company had the right to pre-pay the Note during the first 180 days following the date of the Note bypaying to Holder 150% ofthethen- outstanding principal amountand any accruedand unpaidinterest,penalties, orotheramounts owing.

 The Company determined thatthe Note contained abeneficial conversion feature because theconversion rateis a factor lessthan theshareprice. At December 31, 2012, $12,801 of principle plus accrued interest remains outstanding.

Convertible promissory notes

The Company recorded interest expense relating to each of the four convertible promissory notes referred to above of $3,025 and $5,973 for the three months ended December 31, 2012 and 2011, respectively.

The Company amortized $40,609 and $25,379 of the debt discount for the three months ended December 31, 2012 and 2011, respectively.

20

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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

	December 31,			September 30,
	2012			2012
Issued August 2006, through December 31, 2012	$	597,356		$	597,356
Less: Amounts repaid		(15,000	)		(15,000	)
Less amounts converted		(173,000	)		(170,000	)
Less: Debt discount		(2,855	)		(21,868	)
Convertible promissory notes, net	$	406,501		$	390,488

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 $106 and $106 for the three months ended December 31, 2012, and 2011, respectively.

21

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

Note 7 - Consulting Agreement

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 warrants expired December 1, 2012.

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 which 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 $710,776 has been advanced as of June 30, 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.

22

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

Note 9 – Stockholder’s Equity

During the three months ended December 31, 2012, the Company issued Nil (0) shares and for 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 convertible notes payable.

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.

The Company calculated a fair value of options and warrants outstanding of $8,281 utilizing the Black Scholes model and recorded asa liabilityinthe accompanying consolidated balance sheet.

The following table summarizes information withrespecttowarrants outstanding;

	Number of Shares	Weighted Average Exercise Price		Weighted Average Contractual Life	Aggregate Intrinsic Value
Outstanding at September. 30, 2012	32,454,757	$	0.27	.88
Granted
Expired	28,524,757		-
Exercised
Outstanding at December 31, 2012	3,930,000	$	0.08	.67	$	0
Exercisable at December 31, 2012	3,930,000	$	0.08	.67	$	0

23

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

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

Options outstanding
						Weighted
				Weighted		Average
		Number		Average		Remaining
Range of		Outstanding as of		Exercise		Contractual Life
Exercise Price		December 31, 2011		Price		(Years)
$	0.0008		6,400,000		0.0008		2.45
$	0.013		580,000		0.013		2.17
			6,980,000

Note 10 –CommitmentsandContingencies 

Litigation

As earlier reported in the Company’s Form 10K and 10Q, the Company was a Defendant in an action brought by Dophinshire L.P. regarding its office space in Mission Viejo, CA. That action has since been dismissed. Dolphinshire L.P., a California limited partnership v. CelLynx Group, Inc.,a Nevadacorporation andDoes 1-10, Superior Court of California, Orange County, CaseNo. 00521213. On November 8,2011,plaintiff brought suit against the Company for unlawful detainer of offices located at 25910 Acero, Suite 370, Mission Viejo, CA 92691 pursuant to a lease agreement, seeking an unspecified amount of damages not to exceed $25,000. The Companyhas engaged in settlementnegotiationswith the plaintiff and managementexpected 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 and has moved the general office to 4014 Calle Isabella, San Clemente, CA 92672.

Asimilar action for past due rent has beenfiledas toits facility inEl Dorado Hills,CA. CSS Properties, v. CelLynx Group, Inc., and Does 1-10, Superior Court of California, El Dorado County, Case No.PCU 2 0 110442. OnOctober 12,2011, plaintiff brought suit against theCompany forunlawful detainer ofoffices located at 5047 Robert J 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.

24

CELLYNX GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(Unaudited)

Note 10 –CommitmentsandContingencies 

Litigation - Continued

As hadbeen previously reported in the Company’s Form 10K and 10Q, theCompany was facingclaimsforback wagesbysome ofitsformer employees. Someof thoseclaims havebeenpartially paid and others wereexpected tobe paid inthe normal course of business or weretobe otherwise defended. Those claims havenow beenincorporated into California Labor Commission awards infavorof thoseformer 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 Cease Trading Orderfromthe British Columbia 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.

On October 12, 2012 the Depository Trust Company placed a Deposit Transfer Restriction, known as a “DTC Chill” on the securities of the Company. The Company has disputed that restriction and is in the process of responding to enquiries from the Depository Trust Company, and is in the process of compiling information and documentation related to those enquiries.

Note 11 –Subsequent Events

The Company has no reportable subsequent events required to be reported in the accompanying financial statements.

25

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, objectives and expectedoperating results, and theassumptions upon which those statements are based, are “forward -looking statements” within themeaning of thePrivate SecuritiesLitigationReform Act of 1995,Section27Aof theSecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generallyare identifiedby thewords “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,”“will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differmaterially from theforward-looking statements. We undertake no obligation to update orrevise publicly any forward-looking statements, whether asaresult of newinformation, future events, orotherwise.

As used in this Form 10-Q, unless the context requires otherwise, “we” or “us” or the “Company” or “CelLynx” means CelLynx Group, Inc.,and our subsidiary.

Plan of Operations

CelLynx Group, Inc. (“CelLynx” or the “Company”) is in the business of the development of a line of cellular network infrastructure devices for use in the small office, home and mobile market places.  This next generation cellular network extender, branded as 5BARz™ incorporates a patented technology to create a highly engineered, single-piece, plug ‘n play unit that strengthens weak cellular signals to deliver higher quality signals for voice, data and video reception on cell phones, and other cellular devices. The technology is held under joint ownership with the Company’s parent, 5BARz International Inc. (“5BARz”), and is being commercialized by 5BARz.

The Company’s initial product,the Road Warrior, won the prestigious 2010 innovation of the year award at CES (the largest consumer electronics show in the world) for achievements in product design and engineering. TheRoad Warrior, has passed FCC Certification, and has been produced in limited quantities to date by a contract manufacturer in the Philippines.

The market opportunity for the 5BARz technology represents some 5.4 billion cell phone subscribers worldwide serviced by 900 cellular network operators. These cellular network operators represent the Company’s primary point of entry to the Global marketplace.

26

The CelLynx business opportunity represents a significant step forward in the deployment of micro-cell technology, referred to as a ‘cellular network infrastructure device” in the industry. A step that management believes will significantly improve the functionality of cellular networks by managing cellular signal within the vicinity of the user.  This technology facilitates cellular usage in areas where structures, create “cellular shadows” or weak spots within metropolitan areas, and highly congested areas such as freeways, and also serves to amplify cellular signal as users move away from cellular towers in urban areas.  The market potential of the technology is far reaching.

Corporate Background

CelLynx Group, Inc. (“CelLynx” or the “Company”) was originally incorporated under the laws of the State of Minnesota on April 1, 1998, under the name “Cool Can Technologies, Inc.” Effective July 12, 2004, the Company merged (the “Merger”) with NorPac Technologies, Inc., its wholly owned subsidiary (“Nevada Sub”), for the purpose of reincorporating the Company in Nevada. The Merger was completed effective July 12, 2004, with the Nevada Sub as the surviving corporation. Upon completion of the Merger, the Company’s name was changed to NorPac Technologies, Inc. (“NorPac”). On July 24, 2008, the Company closed another transaction with shareholders of CelLynx, Inc., a California corporation, in which it issued shares to the CelLynx Inc. shareholders in exchange for all of the outstanding shares of CelLynx Inc. Through this transaction, the Company acquired the cellular network extender business as its wholly owned subsidiary. This transaction has been considered a "reverse take-over" for accounting purposes.

Effective August 5, 2008, the Company changed its name to CelLynx Group, Inc. by merging another wholly owned subsidiary into the Company and assuming the subsidiary’s name. On October 27, 2008, the Company’s Board of Directors approved a change of the Company’s fiscal year to September 30, 2008.

On March 27, 2012 5BARz International Inc. acquired a 60% controlling interest in CelLynx Group, Inc.

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 will 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.

27

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 $710,776 has been advanced as of June 30, 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.

As a result of the above agreements, 5BARz International Inc. and CelLynx Group, Inc. are working together to commercialize the 5BARz technology.

Change in Management

Mr. Norm Collins Sr., who has served as a Director on the CelLynx Group, Inc., Board of Directors since July 2008, and as the Chairman of the Board since July 2010, has recently passed away. As a result, the Company held a Board of Directors meeting on October 13, 2012 to formally end Mr. Collins term of service with the Company. At that date, in addition to his Directorship, Mr. Collins acted as the interim Chief Executive Officer for the Company as well as the Chief Financial Officer. Further, Mr. Collins served on a committee of the Board of Directors, to search for a new CEO for the Company. On October 17, 2012, the Company issued a press release announcing the fact that Mr. Norm Collins Sr. had passed away, and the loss of Mr. Collins as a valued director and officer of CelLynx Group, Inc.

On October 13, 2012 the Board of Directors of CelLynx Group, Inc. appointed Mr. Dwayne Yaretz as the Chief Executive Officer as well as the Chief Financial Officer for the Company. Mr. Yaretz has been a Director of CelLynx Group, Inc. since December 19, 2009.

28

Resultsof Operations

Comparison of thethree months ended December 31,2012 and 2011

Three months ended December 31,
	2012		2011			$ Change	% Change
REVENUE	$		$
COST OF REVENUE
GROSS PROFIT
OPERATING EXPENSES    Research and development		39,000		—		39,000	100%
General and administrative		138,312		155,504		(17,192)	(11)%
NON OPERATING INCOME (EXPENSE)		1,079,429		(8,781	)	1,088,210	1,232%
NET INCOME (LOSS)	$	902,116	$	(164,285	)	1,066,401	649.1%

Operating Expenses

Total operating expenses incurred for the three months ended December 31, 2012 and 2011 were $177,312 and $155,504, respectively. This represents an increase of $21,808 . The increase was due to an increase in consulting fees for research and development costs associated with the development of an updated prototype for the next generation of the 5BARz network extender, in the amount of $39,000. In addition that increase in costs was offset by a decrease in general and administrative costs of $17,192, comprised of a reduction in consulting fees from the loss of Mr. Collins as the CEO of the Company.

NonOperating Income and Expenses

Total non-operating income (expenses) incurred for the three months ended December 31, 2012 and 2011 was $1,079,429 and (8,781), respectively; which was an increase of $1,088,210. The differences arise from the variations in the Beneficial Conversion Factor calculations related to the Company’s convertible debt position. The Company’s share price fell to a balance of $0.0002 by the end of the current period reducing the intrinsic value of the Companies convertible securities during the period, resulting in a decrease in the valuation of the beneficial conversion liability calculation.

29

Liquidity and Capital Resources

Financial Condition

As of December 31, 2012, the Company had cash resources of $14, and a working capital deficit of $3,515,613 compared to cash of $(254) and a working capital deficit of $4,418,370 as of September 30, 2012, which was a increase in working capital of $902,757. This increase is comprised of the accrued derivative liability change in the amount of $1,120,038 which reflects the intrinsic value of convertible debt issued by the Company.

During the three months ended December 31, 2012, cash used in operating activities was $6,099 compared to $5,689 in the corresponding period of 2011. This increase in cash burn rate reflects the limited cash resources and operating levels in CelLynx Group, Inc. during the period.

The Company received $6,397 and $9,114 from financing activities for the three months ended December 31, 2012 and 2011 respectively, comprised of advances from 5BARz International Inc.

Going Concern

In our Annual Report on Form 10-K for the year ended September 30, 2012, our independent auditors included an explanatory paragraph in its report relating to our consolidated financial statements for the years ended September 30, 2012 and 2011, which states that we have incurred negative cash flows from operations since inception, and expect to incur additional losses in the future and have a substantial accumulated deficit. These conditions give rise to substantial doubt about our ability to continue as a going concern. Our ability to expand operations and generate additional revenue and our ability to obtain additional funding will determine our ability to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have prepared our consolidated financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2012, we had an accumulated deficit of $16,294,237, negative cash flows from operations since inception, and expect to incur additional losses in the future as we continue to develop and grow our business. We have funded our losses primarily through the sale of common stock and warrants in private placements; borrowings from related parties and other investors; and revenue provided by the sales of our 5BARz unit. The further development of our business will require capital. Our operating expenses will consume a material amount of our cash resources.

Our current cash levels, together with the cash flows we generate from operating activities, are not sufficient to enable us to execute our business strategy. We require additional financing to execute our business strategy and to satisfy our near-term working capital requirements. In the event that we cannot obtain additional funds on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment. We are actively seeking to raise additional capital through the sale of shares of our capital stock to institutional investors and through strategic investments. If management deems necessary, we might also seek additional loans from related parties. However, there can be no assurance that we will be able to consummate any of these transactions, or that these transactions will be consummated on a timely basis or on terms favorable to us.

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Off-Balance SheetArrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Intangible Assets

Acquired patents, licensing rights and trademarks are capitalized at their acquisition cost or fair value. The legal costs, patent registration fees, and models and drawings required for filing patent applications are capitalized if they relate to commercially viable technologies. Commercially viable technologies are those technologies that are projected to generate future positive cash flows in the near term. Legal costs associated with applications that are not determined to be commercially viable are expensed as incurred. All research and development costs incurred in developing the patentable idea are expensed as incurred. Legal fees from the costs incurred in successful defense to the extent of an evident increase in the value of the patents are capitalized.

Capitalized costs for patents are amortized on a straight-line basis over the remaining twenty-year legal life of each patent after the costs have been incurred. Once each patent or trademark is issued, capitalized costs are amortized on a straight-line basis over a period not to exceed 20 years and 10 years, respectively. The licensing right is amortized on a straight-line basis over a period of 10 years.

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Impairment orDisposalof Long- lived Assets

The Company applies the provisions of ASC Topic 360, “Property, Plant, and Equipment,” which addresses financial accounting and reporting for the impairment or disposal of long -lived assets. ASC 360 requires impairment losses to be recorded on long -lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long -lived assets. Loss on long -lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company believes that as of December 31, 2012 and September 30, 2011, there was no significant impairment of its long -lived assets.

Revenue Recognition

The Company's revenue recognition policies are in compliance with ASC Topic 605, “Revenue Recognition.” Revenue is recognized at the date of shipment to customers, and when the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.

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 company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax 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 would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred relate to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the three months ended December 31, 2012 and 2011.

Stock Based Compensation

The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation.” ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee’s requisite service period. Under ASC 718, the Company’s volatility is based on the historical volatility of the Company’s stock or the expected volatility of similar companies. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

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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 "disclosure controls and procedures," which are defined to mean a company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Our Chief Executive Officer ("CEO") and a consultant providing services commonly provided by a Chief Financial Officer ("CFO") carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on those evaluations, as of the Evaluation Date, our CEO and CFO believe that:

(i)

our disclosure controlsand procedures are designed to ensure thatinformationrequired tobedisclosed by us inthe reports wefileunder the Securities Exchange Act of 1934 is recorded,processed,summarized and reported withinthe time periodsspecified in the SEC's rulesand forms and thatsuch informationis accumulated and communicatedtoourmanagement, including the CEO and CFO,as appropriate, toallow timely decisions regarding required disclosure; and

(ii)

disclosure controls and procedures were effective as of the date of the evaluation

Changesin InternalControl over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II–OTHERINFORMATION

ITEM 1. LEGAL PROCEEDINGS

As earlier reported in the Company’s Form 10K and 10Q, the Company was a Defendant in an action brought by Dolphinshire L.P. regarding its office space in Mission Viejo, CA. That action has since been dismissed. However, a new action is in process and is currently being negotiated. Management expects to settle this action.

A similar action for past due rent has been filed as to its facility in El Dorado Hills, CA. This action too is being negotiated and Management expects to settle this action as well.

As had been previously reported in the Company’s Form 10K and 10Q, the Company was facing claims for back wages by some of its former employees. Some of those claims have been partially paid and others were expected to be paid in the normal course of business or were to be otherwise defended. Those claims have now been incorporated into California Labor Commission awards in favor of those former 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 Company has received a Cease Trading Order from the British Columbia Securities Commission (BCSC) alleging that the Company is 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.

On October 12, 2012 the Depository Trust Company placed a Deposit Transfer Restriction, known as a “DTC Chill” on the securities of the Company. The Company has disputed that restriction and is in the process of responding to enquiries from the Depository Trust Company, and is in the process of compiling information and documentation related to those enquiries.

With the exception of the actions reported above, we know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our company.

ITEM2. UNREGISTERED SALES OFEQUITY SECURITIES AND USE OFPROCEEDS

None.

ITEM3. DEFAULTS UPON SENIOR SECURITIES

None.

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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 to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CelLynx Group, Inc.
	(Registrant)
Date:February 19, 2013
	By:/s/Dwayne Yaretz
	Dwayne Yaretz
	Chief Executive Officer

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